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Industries included in the sector are automotive retail, general merchandisers, internet retail, and specialty retail.

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F500-2021-143-Penske

Penske Automotive Group runs truck dealerships—both automotive and commercial—throughout North America and Western Europe. In 2021, the company reported the highest first quarter revenue, income from continuing operations, and earnings per share in company history. In April, Penske announced that it had completed its acquisition of Kansas City Freightliner, a retailer of medium- and heavy-duty commercial trucks.

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This year's Fortune 500 marks the 66th running of the list.

F500-2020-136-Penske-Automotive-Group

A diversified transportation service company with multiple business segments, including new and used retail automotive, retail commercial truck dealerships, as well as distribution of commercial vehicle and power systems.

Here are the World's Most Admired Companies for 2019 as ranked in their industries. See who made the list.

This year's Fortune 500 marks the 65th running of the list.

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This year's Fortune 500 marks the 64th running of the list.

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Wal-Mart stayed on top as its sales crept closer to half-a-trillion dollars. Apple moved into the top five. And UnitedHealth Group continued its steady climb. 

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<p>Penske Automotive Group is a transportation services company that operates automotive and commercial truck dealerships under franchise agreements with automotive manufacturers and distributors. The company also sells new and used vehicles; offers maintenance and repair services; and sells or places third-party finance and insurance products; third-party extended service and maintenance contracts; replacement and aftermarket automotive products; collision repair services; and wholesale parts. The company was founded in 1969 and is based in Bloomfield Hills, Mich.</p>

Q2 2025

Q1 2025

Q4 2024

Penske Automotive Group (PAG): Company Profile, Stock Price, News, Rankings

legacy

Penske Automotive Group

penske automotive group

Good afternoon. Welcome to the Penske Automotive Group Second Quarter twenty twenty five Earnings Conference Call. Today's call is being recorded and will be available for replay approximately one hour after completion through 08/06/2025, on the company's website under the Investors tab at www.penskeautomotive.com.

I will now introduce Tony Porton, the company's Executive Vice President of Investor Relations and Corporate Development. Sir, please go ahead.

Thank you, Julianne. Good afternoon, everyone, and thank you for joining us today. A press release detailing Penske Automotive Group's second quarter twenty twenty five financial results was issued this morning and is posted on our website along with a presentation designed to assist you in understanding the company's results. As always, I'm available by email or phone for any follow-up questions you may have. Joining me for today's call are Roger Penske, Chair and CEO Shelly Holgrave, EVP and Chief Financial Officer Rich Sheering, North American Operations Randall Seymour, International Operations and Tony Piccione, our Vice President, Corporate Controller.

Our discussion today may include forward looking statements about our operations, earnings potential, outlook, acquisitions, future events, growth plans, liquidity and assessment of business conditions. We may also discuss certain non GAAP financial measures as defined under SEC rules such as earnings before interest, taxes, depreciation and amortization or EBITDA, adjusted net income, adjusted earnings per share, adjusted selling, general and administration expenses and our leverage ratio. We have prominently presented the comparable GAAP measures and have reconciled the non GAAP measures to the most directly comparable GAAP measures in this morning's press release and investor presentation, both of which are available again on our website. Our future results may vary from our expectations because of risks and uncertainties outlined in today's press release under forward looking statements. I also direct you to our SEC filings, including our Form 10 ks and previously filed Form 10 Qs for additional discussion and factors that could cause future results to differ materially from expectations.

I will now turn the call over to Roger Penske.

Thank you, Tony. Good afternoon, everyone. I'm really pleased with the performance of our diversified international transportation service business in the second quarter. Our revenue was $7,700,000,000 which was consistent with Q2 last year. Our Q2 revenue was impacted by strategic divestitures of dealership closures made since quarter two in 2024, representing approximately $200,000,000 in revenue.

EBT increased 4%. Our net income increased 4% and earnings per share increased 5% when compared to the 2024. Q2 represented our third consecutive quarter of year over year earnings growth and we generated $337,000,000 of income before taxes, $250,000,000 in net income and $3.78 per share. Our EBT margin increased 20 basis points to 4.4 when compared to Q2 last year. The second quarter performance was highlighted by a 9% increase in same store retail automotive service and parts gross profit and a 50 basis point increase in service and parts gross margin, also an increase in fixed cost absorption of three thirty basis points in The U.

S. And 30 basis points in The UK. Our gross profit increased to $1,300,000,000 which compares to $868,000,000 in Q2 in 2019. The company gross profit margin increased 50 basis points to 16.9%, representing the eighth consecutive quarter of strong and stable gross margin. New and used vehicle grosses increased one hundred and forty one percent $141 in the quarter for new and $384 sequentially.

Used grosses increased $5.00 $4 per unit for the quarter and $177 sequentially. New and used vehicle gross and F and I combined or what we call variable gross profit increased $583 per unit or 11% to $5,691 Our focus on controlling costs such as advertising compensation as a percentage of gross profit helped drive selling, general and administrative expenses as a percentage of gross profit or SG and A to 69.9%, a 30 basis point improvement. As we look at the current environment, we are encouraged by the recent trade agreements. In fact, the recent agreement with the EU is expected to provide benefits to two of our largest partners that should benefit from the agreeing by exporting U. S.

Production. We've seen some OEMs increase prices modestly, while others have extended during the current pricing. The situation remains fluid. We remain in close contact with our OEM partners. I think our diversification is a key differentiator as approximately 61% of our revenue is generated in North America, 29% in The UK and 10% from other international markets.

PAG's premium brand mix are present in The U. S. And international automotive markets. Our North American retail commercial truck dealerships and earnings from Penske Transportation Solutions, coupled with our highly variable cost structure, provide us with opportunities to flex our business to meet the changing automotive and commercial truck landscape. Let me now turn it over to Rich Schering, who handles our North American operations. Rich?

Thank you, Roger, and good afternoon, everyone. In our automotive retail business, during the second quarter, we experienced elevated traffic during April and May. We believe the pent up demand is driving customer resilience and we have seen stronger traffic and closing ratios so far in July with sales up approximately 10% month to date versus prior year. In the second quarter, our new units in The U. S.

Were up 1%. Some OEMs held off from shipping product as tariff negotiations took place limiting inventory of some brands. During the quarter, 34% of new units sold were at MSRP compared to 35% in the second quarter last year. Second quarter used vehicle sales declined 3% and were constrained by fewer lease returns and rising prices. We expect the lower level of lease maturities to bottom this year and begin improving in 2026.

We expect franchise dealers will benefit from increasing lease returns for used vehicle sourcing in that time period. Our U. S. Service and parts operations generated record levels of revenue and gross profit. Same store service and parts revenue increased 7% and related gross profit increased 9%.

Same store gross margin increased 90 basis points. Customer pay gross was up 6% and warranty was up 24%. We have approximately 6,000 service bays and 5,800 technicians and our technician count is up 2% from June. While our service and parts revenue and gross profit is at a record level, we continue to focus on driving higher utilization of our bays and increasing fixed cost absorption. Turning to Premier Truck Group, we operate 45 locations and remain one of the largest commercial truck retailers for Daimler Trucks North America.

Daimler Trucks North America continues to have the largest share in the Class eight market at 42.5% year to date. Premier Truck Group is one of the core pillars of our diversified model and represents 12% of revenue and 11% of gross profit. As we look ahead, the US Congress revoked the EPA waiver California to adopt more stringent emission rules, the which mean manufacturers and dealers will no longer have to navigate different rules across different states. Coupled with the waivers being rescinded for advanced clean truck and advanced clean fleet rules, the ZEV mandates have also been effectively removed. As a result, we believe the potential cost increases for the 2027 model year Class eight trucks will be more muted than originally expected.

During Q2, Premier Truck Group sold 5,339 new and used units. New was up 4% and used units was down 8%. Although used units declined, used truck grosses increased over 50% to $7,037 from $4,502 as late model low mileage trucks continue to be in short supply. At the June, the current industry backlog was 90,400 units or approximately four to five months' worth of sales. We did note some pull ahead ordering during the quarter as a result of tariffs as some customers looked to lock in lower prices.

Same store service and parts revenue increased 1% as well. Looking out over the next six months for the first time in approximately five years, Daimler Trucks are no longer being allocated on a distribution level to their dealers. This provides us with an opportunity to conquest new customers. Now turning to Penske Transportation Solutions. Penske Automotive Group owns 28.9% of PTS and records equity income, receives cash distributions and cash tax savings.

PAG invested $956,000,000 for its ownership and has received nearly $2,000,000,000 in cash flow benefits since making that first investment. During Q2, revenue was $2,800,000,000 Full service revenue and contract increased 4%. Logistics revenue was flat, while rental revenue declined 9%. During the quarter, PTS sold over 11,000 units and ended the quarter with 414,000 units down from 428,000 units at the March. PTS income increased during Q2 as a result of efforts to optimize costs, improve utilization rates and hold pricing.

Equity earnings from PTS investment were $53,500,000 up from $52,900,000 in the second quarter last year. I would now like to turn the call over to Randall Seymour to discuss our international operations. Randall?

Thanks, Rich, and good afternoon, everyone. PAG's international operations represent approximately 40% of total consolidated revenue. During Q2, international revenue was $2,900,000,000 In The U. K, the macro operating environment remains challenging as inflation, interest rates, higher taxes and consumer affordability impact the overall market. The U.

K. Market continues to transition new vehicle sales to BEVs and hybrids. In 2025, the government target for BEV penetration is 28%, many of which are being sold through the corporate fleet channels. During Q2, the number of new units we delivered declined by 16% and were impacted by several factors resulting from OEM product changes and reduced incentive offerings, also impacts the new car markets from The U. K.

ZEV mandates and the previously discussed disposed or closed dealerships. Turning to used cars, same store used units declined 23%, which is attributable to the realignment of the company's U. K. CarShop used only dealerships to Sytner Select in 2024. Through this realignment, we have taken out approximately 500 people through attrition, which helped drive a lower cost structure.

The realignment began in Q3 twenty twenty four, so the year over year decline is expected to abate in the second half of this year. We view this as a positive change for our business. And as a result of this strategy and improved management of overall used inventory, gross profit per unit has increased by over $800 or 56% quarter over quarter and $221 sequentially when compared to the 2025. Service and Parts remained strong as same store revenue increased 6% and gross profit increased 8%. Pleasingly, customer pay gross profit increased 10% and warranty declined 5% largely due to the 20% growth we achieved in Q2 of last year.

Turning to Australia. We operate three Porsche dealerships in Melbourne, which we acquired in 2024. During the first half of this year, these dealerships retailed eleven thirty six new and used units and generated $128,000,000 in revenue. The used to new ratio is nearly one:one and has doubled when compared to the ratio prior to the acquisition. We use our existing scale of the commercial vehicle and power systems business in Australia to leverage costs while executing our One Ecosystem strategy at the Porsche dealerships, which provides for a superior customer experience.

We anticipate generating approximately million in annualized revenue through these automotive dealerships. Turning to Australia Commercial Vehicle and Power Systems business. We are diversified with revenue and gross profit, which is split approximately fifty-fifty between our on and off highway markets. In the on highway markets, the brands we represented picked up 30 basis points in market share as the products we continue to sell gain customer preference. In the off highway sector, revenue and margin were driven by strong energy solutions demand.

We have $350,000,000 backlog for 2025 delivery and a total order bank of over $500,000,000 predominantly related to the large growth in data center and battery energy storage solution businesses. We see a potential for the total energy solutions business to generate over $1,000,000,000 in revenue by 02/1930. Our defense business continues its strong momentum too with projects for infantry fighting vehicles and several Navy applications for frigates and submarines. I'd now like to return the call over to Shelly Holgrave to review our cash flow, balance sheet and capital allocation.

Thank you, Randall. Good afternoon, everyone. Our strategy has been to focus on the strength of our balance sheet, cash flow, disciplined approach to capital allocation and our diversification. Our balance sheet remains in great shape, and our continued strong cash flow provides us with opportunities to maximize effective and opportunistic capital allocation. For the six months ended 06/30/2025, we generated $472,000,000 in cash flow from operations and EBITDA was $800,000,000 On a trailing twelve month basis, EBITDA was over $1,500,000,000 Our free cash flow, which is cash flow from operations after deducting capital expenditures, was $325,000,000 Through June 30, we paid $165,000,000 in dividends and invested $147,000,000 in capital expenditures.

We increased our dividend by 4.8% to $1.32 per share last week, representing the nineteenth consecutive quarterly increase. Since the 2023, we have increased the dividend by 67%. On a forward basis, our current dividend yield is approximately 3.1% with a payout ratio of 34.7% over the last twelve months. During the quarter, we repurchased 630,000 shares of stock for $93,000,000 and year to date through June 30, we have repurchased 885,000 shares for 133,000,000 representing approximately 1.3% of our outstanding shares. Over the last four plus years, we have returned over $2,500,000,000 to shareholders through dividends and share repurchases.

In May, our Board authorized an increase in the repurchase authority of $250,000,000 As of June 30, we have $295,700,000 remaining under the existing securities repurchase authorization. As part of our strategic capital allocation, in July, we acquired a Ferrari dealership in Modena, Italy. As many of you know, Modena is the home of the Ferrari brand. While we continue to evaluate the impact of the One Big Beautiful bill on our financial statements, we do expect to recognize positive cash flow impacts related to our 28.9% ownership in the PTS partnership. Bonus depreciation, in particular, will provide an estimated benefit of approximately $150,000,000 on the $3,000,000,000 worth of capital expenditures in trucks that PTS expects to purchase in each of the next three years and beyond.

At the June, our non vehicle long term debt was $1,780,000,000 down $69,000,000 from the December. Debt to total capitalization improved to 24% from 26.1% at the December and leverage remained at 1.2 times. 77% of the non vehicle long term debt is at fixed rates. When including Floorplan, we have $4,600,000,000 of variable debt. 54% of our variable rate debt is in The United States.

We estimate a 25 basis point change in interest rates would impact interest expense by approximately $12,000,000 At the June, we had $155,000,000 of cash and liquidity of $2,300,000,000 In September, our $550,000,000 of 3.5% senior subordinated notes will mature. We currently expect to repay those notes from cash flow from operations or borrowings under our U. S. Credit agreement. Total inventory was $4,800,000,000 up $2.00 $9,000,000 from the December 2024.

Retail automotive inventory was up 44,000,000 New vehicles declined $20,000,000 Used vehicles increased $49,000,000 and parts increased $15,000,000 Commercial vehicle inventory was up 166,000,000 Floorplan debt was $4,200,000,000 New and used inventory remains in good shape. New vehicle inventory is at a fifty seven day supply, including fifty nine days for premium and thirty eight days for volume foreign. Used vehicle inventory is at a forty four day supply. At this time, I will turn the call back to Roger for some final remarks.

Yes. Thank you, Shelly. As I mentioned earlier, I continue to be pleased with our performance and the resilience of our business and would like to thank each of our 28,000 team members that work in our business each day for their efforts to exceed expectations. Our results continue to demonstrate the benefit from our diversification across the retail automotive, commercial truck industries, our cost control and a disciplined capital allocation strategy and certainly a strong balance sheet and cash flow. I remain confident in our diversified model and its ability to flex with market conditions and remain very pleased with the performance of our business.

I want to thank all of you for joining the call today, and we'll open it up for questions with the operator. Thank you.

Thank you. Our first question comes from Mike Ward from Citi Research. Please go ahead. Your line is open.

Thank you very much. Good afternoon, everyone.

I wonder if you can quantify a few of the moving pieces that affected your unit sales in The US and The UK.

Sure, Mike. It's Shelly. I'm happy to take that. As we mentioned, we had approximately $200,000,000 of revenue in the quarter, in 2024 that we did not have in 2025. We sold, and divested of a few stores.

We also closed some stores, some of which related to the sitter select business in The UK as mentioned. So when you look at, new and used vehicle units that had an impact as well, new units related to those divested stores, were approximately 2,000 units. And we also had the mini brand, transfer over to agencies. So that impacted the new units by approximately 1,300. When you take that against the units that we reported, we actually were only down about 17 new units quarter over quarter.

From a used perspective, those divested or closed stores, attributed to about 4,400 used units.

Okay. And and and what about that's The UK. Right? The, divested in the mini?

It's all well, it's all of it. We had some stores that we divested in The US as well, but even The US mini is just The UK.

We also had, Mike, mobility in The UK as as a product that, people that qualify for mobility credits, that was really slowed way down by Audi, BMW, and Mercedes during the quarter. Really, we're not in that business, which obviously was an impact to us, from the premium premium sector. We see that coming back, this this quarter. I think this was all part of a strategy. They were waiting to see what the tariff structure was gonna be and didn't wanna pour a lot of their incentive money into mobility.

Now that's changed now. We'll have to see how that rolls out here based on the current, information we have regarding the 15% tariff for the European Union.

And Mike, think on on a smaller scale, to to add to Roger's point, in

The US, we had Audi, Porsche, and Land Rover kinda suspend wholesales for a period of of forty five days in the second quarter as they were, you know, further looking to understand what the the tariff outcome was gonna be. That probably impacted our Porsche business, the most. If you look at that that brand, our EBT was down 9% in the in the second quarter, whereas year to date, we're up 1%. And that certainly hurt our mix. But that wholesale from those brands now is flowing again. So it was a short term impact.

Okay. And so is that partly attributed? You said July was up 10%. Is some of that coming back? Is that what that is?

Well, think it's resiliency of the consumer. We're seeing traffic counts kind of remain flat year over year, but conversion has ticked up. So there's more serious buyers. I would say in June, our conversion of the traffic was down a little bit because I think there was still uncertainty in what the ultimate tariffs were gonna look like. Now that we've got conclusive positions with Japan, which obviously impacts our our Toyota Honda business, The UK with with Land Rover Mini, and then The EU with, with Audi, Mercedes Benz, BMW, Porsche, the majority of the brand mix we have in The US is has some certainty on what the tariffs are gonna look like going forward.

And and Thank you. And, Shelly, the 150,000,000 from the big beautiful bill, that's in addition to any dividend income you get from your equity stake. Correct?

That's right, Mike. So we still have the 50% dividend policy that we re receive each year. And then the one big beautiful bill, bonus depreciation in particular was an item in the Tax Cut Jobs Act that was starting to sunset. So we were starting to have to pay more in in income taxes from a cash perspective in '24 and and projected for '25 on that bonus depreciation would was supposed to go away. The one big beautiful bill made it permanent and and retroactive back to purchases to mid January.

So it's an estimate of of the the deferred cash taxes that we expect to enjoy this year and into the future.

So we look So that will benefit this year?

And We we look at, about 3 to 3 and a half billion of asset purchases at PTS, each year going forward.

So, obviously, with 30 roughly 30% of the ownership, it's a partnership. We get we get the benefit on our tax line. So, overall, it it was a terrific benefit to us. And, you know, if you look at this year and say it's the same in in '26 and '27, it could be as much as 450,000,000 that we would would not have to pay due to this in corporate taxes.

And I wanna highlight, it doesn't impact our rate. It's really just the cash taxes that we have to pay.

Given that it's a cash benefit, we certainly will look to deploy that cash through our capital allocation strategy. So we certainly see that as a benefit going forward.

And on PTS, we have a program there that, typically 50% of of our earnings before taxes is paid out to the div to the shareholders based on their, on their ownership piece. So based on, our current projection, this could be roughly another 100,000,000. So you'd look at almost 250,000,000 of benefit, during 2025 in cash. Cash. Yeah.

Our next question comes from Ron Jusico from Guggenheim Securities. Please go ahead. Your line is open.

Hey, Roger. Yeah. Good afternoon and thanks for taking my questions. Yeah. Just before my questions, I wanted to say congratulations, Roger, on the centennial award recognition last month.

Well, thank you. That was a byproduct of the 74,000 people that work for us every day, but I appreciate you mentioning it. Thank you.

Mhmm. And I appreciate the the quarter to date commentary on volumes, but maybe if you could just touch on the GPU trajectory, and the cadence throughout the quarter and then into July, you can talk about that as well.

Yes, Ron, Rich here. I think when you look at the initial tariff announcement in in March, I think it was, you know, that certainly drove some activity. We saw activity spike probably into into April and and to a lesser extent in May and June. You know? And and, obviously, we knew that our inventory that was non tariff impacted at that point in time became more valuable.

So there was no need to be giving those cars away, not knowing what the ultimate tariff impact was gonna be and when final resolution was gonna gonna be made between these countries. So, you know, throughout the quarter in The US, our grosses were were very stable. Certainly, they were the highest in in April at 7,250. But then you look over the the the quarter between May and June, you know, the spread between those other months was no more than a $125. So I think our team did a really good job of of balancing the the volume, you know, with the grosses, you know, during that environment.

I think as we, you know, go forward, you know, as we look to to May and I said, you know, the the sales activity has increased, I think we'll see a little bit of a gross compression and it's going to be different by brand. Certainly, think the other impact when you look at BEVs with the IRA tax credit going away at the September, Our team is keenly focused on making deals with consumers that are interested in the best so that we have the least amount of inventory in that time frame as possible. And I think the OEMs are similarly motivated as well. We've with the announcement of those that tax credit going away increased incentives on various different models as OEMs look to reduce that inventory. I think when you look at the margin that we have on the new vehicles, our margins have remained the same, but the average vehicle selling price continues to increase.

We've talked about this before, Pre COVID or 2019 and earlier, our average selling price was $41,000 Our average selling one price today is almost $61,000

That's super helpful color. And you kind of touched on my next question a bit there. But on the sunsetting of electric vehicle tax credits at the end of the third quarter in The U. S, you do have more bev sales than your peers just given your luxury mix. How should we think about the impacts not just in the third quarter from volume pull forward but also long term?

I guess what would the impact of weaker electric vehicle sales mean for your business because they are GPU dilutive. We do know that but just kind of the puts and takes.

I think, first of all, you got to remember that the overall Bev sales as a percentage of our total sales is in that 6.5% to 7% range. So it's a small portion of our overall sales. Certainly in some markets, it's a much higher percentage when you look at California or some of the Sunbelt states where you don't have the degradation of the range and other operating concerns associated with the BEV. But we've already seen actually some improvement in those markets as the OEMs have adjusted to demand. So if you look at our West Region, is California, Texas, Arizona, that market those markets sell about 70% of that 6.5 to 7% of our sales in BEV.

And, you know, Mercedes and others started to adjust last year to match the bad wholesale supply to the demand. They they most aggressively, it was Mercedes. And so when you look at our area there, our California businesses, are up 45% or almost $13,000,000 compared to a year ago as result of some of that bev, you know, being adjusted. So if you look at the incentives, it's, you know, even before the tax credits were announced, incentives are almost $7,200 for bevs. It's about twice the average incentive that we see on the ICE vehicles.

And inventory is down on bevs. A year ago, we were about 12% to 15% of our new car inventory was bevs. It's at 10% today, down 20% on a unit basis year over year. And, you know, so I think bevs are we're gonna continue to have bevs. Obviously, the OEMs have made significant capital investments in the technology and vehicle platform architectures.

It's a matter of making sure that they balance the bev wholesale supply to us with the actual market demand whether and we've been doing that now with the tax credit and we'll continue to do it after the tax credit. And I think one last point on Bev's, still relatively small percentage overall of our fixed business, 2% to 3%, But we see on a dollars per RO almost two times the benefit from a bev repair as we do to an ICE repair. I think as the vehicles get more mature over time, that could normalize. But right now, you know, bevs are still more advantageous, in the in the fixed area.

Yeah. I think also when we step back and look at supply, when the manufacturers were trying to balance, BEV vehicles versus ICE, we actually lost some of the volume and supply during the time when BEV's were at the top of the list to try to generate this big market share. When that goes away, I think we're gonna see it obviously in some of the key SUVs and areas that we were looking for vehicles will now not be BEVs, and they'll come back in the market as ICE vehicles. And I think they'll adjust, if necessary, some of the content if we have to in order to be have their vehicles affordable under any any tariff impact they might have. So I see it being a benefit. First, this is my own personal opinion.

Yeah. I think we we lean in that direction as well, but it's good to hear that from you, Roger. I'll hop back in the queue and, and and, ask question more questions if, if needed. Thank you.

Next question comes from Jeff Lick from Stephens. Please go ahead. Your line is open.

Good afternoon, Roger, Rich, Randall, Shelley, Tony. Thanks for taking the question. Just a quick clarification before you get to my main question. On the 10% units you mentioned, you know, being up in July, is that all units or just new?

Perfect. Awesome. Which I was wondering if we can maybe, double click on service and parts. You know, we're starting to get into the, you know, lapping the BMW stop sales and, you know, other, pretty big warranty items. Just curious how you see that playing out? And are the OEMs making any adjustments in terms of how they handle warranty claims? Just any color there would be great.

No. I don't think we're seeing any adjustment from the OEMs on how they're handling warranty claims. I think they're, you know, frustrated obviously with the number of recalls that continue to occur. You mentioned BMW. Certainly, IVF recall is is still active.

You know, their their focus last year was on, you know, vehicles at the plant, getting those cleaned, then dealer inventory, and now we're into the the customer, repairs. But we've got Mercedes Benz fuel pump, Honda fuel pumps, Then the big one that, you know, we just had release and direction on is is Toyota and the Tundra long block replacement, which is a fourteen hour repair. You know, we've got close to 400 of those in inventory that have been on on stop sale. So certainly, we've got to balance those repairs with, you know, customers who are looking to bring their existing cars into into, the shops so that we don't end up with long backlogs and and things of that nature. But I think I think there's enough customer demand that even if of these recalls and the warranty as a percent of our total repair orders goes down, when you look at the car park being, you know, 12 to to 13 years of age, average mileage being close to 70,000 miles, we're gonna continue to see the benefit in the fixed ops department.

And then I think with some of the initiatives that we've undertaken relative to shop load, operating hours, shift schedules, those are all paying benefits as well.

And I think Roger mentioned that in our fixed absorption increase, our margin improvement up 50 basis points just under 60%. And then our effective labor rate as well at up 6%. And I think it's going to take a while for that car park to adjust. You look at the vehicles we're selling today or servicing today, there's almost six and a quarter years of age on average, and that's up from 5.6 in 2019. And with the SAAR continuing to, you know, struggle to find a new high watermark, I think, I see fixed operations remaining remaining strong.

And I would say also the complexity, Jeff, of the premium luxury cars when you open the hood and all the things that they have laid out LiDAR and all these things are go with it that the the vehicles are coming back to the dealership, and they're not going anymore to a local guy around the corner. So that's driving the business. And I think that in most cases, as you know, for us on the premium luxury side, which is 71%, a lot of these vehicles are leased and have some maintenance component with them, and that drives them back back to our shops, which I think is key. And the good news is that the cost structure in our service department from a labor perspective is flat rate along with high bonus part of compensation for our service writers. So, you know, we see the ability.

Obviously, we raised labor rates. And by the way, we typically get a bump in labor cost support from the manufacturers on warranty, typically on a twelve to eighteen month basis. So, obviously, we get that benefit. And then on the part side, we get paid our full list price on parts on warranty. So this is something that, is very positive.

And ironically, in in Europe and in The UK, we only get 10%. So this I look at it as a real bonus here in The US based on the current support of of parts and service.

Well, thanks for taking my question, and I'll I'll get back in queue. Go ahead.

So, Jeff, the other thing to to think about this is Tony. Is the efficiency that we're creating in the service departments too through use of AI in terms of scheduling appointments, tech videos, online pays, and numerous other things that we're doing to try to drive, not not just more tech efficiency, but just overall efficiency and utilization. So I think all of that plays very well into the margin that we're generating and, and the growth of the parts and service business.

Penske Automotive Group is a transportation services company that operates automotive and commercial truck dealerships under franchise agreements with automotive manufacturers and distributors. The company also sells new and used vehicles; offers maintenance and repair services; and sells or places third-party finance and insurance products; third-party extended service and maintenance contracts; replacement and aftermarket automotive products; collision repair services; and wholesale parts. The company was founded in 1969 and is based in Bloomfield Hills, Mich.

Penske Automotive Group Q2 2025 Earnings Call Transcript | Fortune

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Penske Automotive Group (PAG) Q2 2025 Earnings Call Transcript

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