Q1 2023 Penske Automotive Group Inc Earnings Call
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Good afternoon, and welcome to the Penske Automotive group first quarter 2023 earnings Conference call.
Today's call is being recorded and will be available for replay approximately one hour after completion through may 3rd 2023.
On the company's website under the investors tab at Www.
That Penske automotive dotcom I would.
Now I'd like to introduce Anthony part on the company's executive Vice President of Investor Relations and corporate development. Sir. Please go ahead.
Thank you Louis and good afternoon, everyone and thank you for joining US today, a press release detailing Penske automotive group's first quarter 2023 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, our chairman and CEO Shelly haul grave, our EVP and Chief Financial Officer, and Tony Petrone, Our Vice President and corporate controller. Our discussion today may include forward looking statements about our operations earnings potential outlook future events.
[noise] plans liquidity and assessment of business conditions. We may also discuss certain non-GAAP financial measures such as earnings before interest taxes, depreciation and amortization or more commonly referred to as EBITDA, our leverage ratio free cash flow and cash flow yields.
We have prominently presented the comparable GAAP measures and have reconciled the non-GAAP measures in this morning's press release and Investor presentation, which are available on our website to the most directly comparable GAAP measures are future results may vary from our expectations because of risks and uncertainties outlined in today's press release under forward looking.
Looking statements I'd direct you to our SEC filings, including our Form 10-K, and previously filed form 10, Qs for additional discussion and factors that could cause future events to differ materially from expectations.
At this time I will now turn the call over to Roger Penske.
Thank you Tony and good afternoon, everyone and thank you for joining us today.
I'm pleased to report a strong first quarter performance continues to demonstrate the benefits of the company's diversification.
During the first quarter total units delivered increased 8% to 122431 units.
Revenue increased 5% to seven 3 billion.
And our SGA as a percentage of gross profit was 67, 5%.
And declined 140 basis points sequentially.
Looking at net income was $298 million and our earnings per share were $4.31.
If we exclude FX revenue increased 9% to.
Seven 6 billion and earnings per share would've been $4.42.
During the quarter, we repurchased 900000 shares.
For $110 million.
Let's turn to our automotive operations demand for new vehicles remained strong and vehicle availability is improving however.
<unk> supply constraints remain during 2023 for most of our brands that we represent.
We continue to take forward orders in fact.
Our forward order bank is 8% higher than it was this time last year and represents 32000 units groceries on these forward orders or a $130 million compared to $83 million at the same time last year.
The U S is approximately 40 to 50 per cent for allocation remain.
<unk> sold.
Beginning in the first quarter of 2023, we transitioned certain brands to the UK to an agency model for new vehicle sales.
Under agency received a fee from the manufacturer of the sale and delivery of each new vehicle.
Record revenue.
So their vehicle however, a delivery fee is included in our new vehicle gross profit.
Beginning in 2023, we broken out these agents of your it separately.
No impact.
This business our service and parts.
Looking at our retail automotive operations on a same store basis for the quarter versus last year, new units increased 15% used.
Used units declined slightly at 2% largely due to the challenges in enquiring affordable inventories.
Retail automotive revenues increased 2%, however, when excluding FX.
Our retail automotive revenue increased 6% new vehicle gross profit declined $483 or 7% to 6003.
$383 used vehicle gross declined.
$482 or 21% to <unk> hundred $21 when.
When compared to Q1 of last year variable gross profit declined 10% or $580 or $5483. However.
Excluding FX our variable gross only declined.
$374.
If you look on a sequential basis, excluding FX.
Variable vehicle gross profit per unit only declined to $156.
Gross profit remains strong at higher than historical levels. We take an example variable gross profit per unit.
<unk> thousand $483 is more than $2000 more for.
Where you are at higher than 2219, Q1 or 66%.
Our fixed operations business continues to perform well revenue increased 10%.
14%, when excluding FX, that's being driven by customer pay.
Warranty and collision repair.
Looking at car shop.
Car shop unit sales decreased 2%.
Just under 20000, 19165 units revenue decreased 5% to $489 million and variable gross profit per unit declined 5%.
Vehicle acquisition prices, along with reconditioning cost and logistics continue to impact customer affordability and our profitability.
Excluding FX revenue increased 3% and variable gross profit per unit would have increased 3% with kantar.
We are focused on vehicle sourcing and cost improvement programs to improve car shop profitability I am pleased to report car shops profitability improved sequentially.
Turning to retail commercial truck dealership business, our premium truck dealership business represents.
39 locations in North America.
It is an important part of our diversification and continues to perform well no commercial truck demand remained solid as being driven by replacement demand associated with supply constraints over the last several years in fact, our entire allocation of class a product for 2023 is essentially.
Filled out.
The current industry class eight backlog is 218000 units.
Representing seven months of sales during the quarter total unit sales increased 10% to.
5172 unit.
Our same store sales increased 7040, 974 units or total revenue increased 13% to just under $900 million and our gross profit increased 4% to 147 million looking at same store revenue increased 10%.
Including 11% increase in service and parts service and parts represented 67%.
Of the total gross profit and covered 136% of our fixed costs EBIT was $57 million compared to 58 in the first quarter of last year.
Turning to Penske Transportation solutions P. J O is 28, 9% of Pts, which provides us with equity income.
Cash distributions and cash tax savings Pts currently manages a fleet of over 419000 trucks and tractors and trailers.
Goal of increasing its fleet to <unk>.
500000 units by 2025.
During the first quarter, Pts had another strong performance generating $3 3 billion in revenue and $280 million in income.
Full service contract revenue increased 30%.
To a first quarter record while logistics increase.
10%.
We believe demand remains strong for Pts.
550000 trucks on order however over the last two years <unk> has extended the contracts and 41000 units simply.
Simply due to supply challenges as a result, our maintenance costs increased $73 million in the first quarter horizon maintenance costs, coupled with higher interest costs associated with raising rising interest rates and high debt levels lower utilization of our rental fleet from 81% to 77 at a lower gain.
On sale compared to a record level of gain on sale of 22.
Compared to the record performance of last year. They didn't come we record the Pts declined $38 million I'd like to now turn it over to Shelly haul Gray, our chief Financial Officer Shelley.
Thank you Roger Good afternoon, everyone as Roger indicated we had another strong quarter driven by our diversification. In addition, our commitment to maintain and achieve operational efficiencies through cost reductions automation and other improvements gained through the implementation of AI continues to help us maintain lower.
Our levels of SG&A to growth than historical averages.
SG&A to gross profit was 67, 5% in the first quarter and there's 1040 basis points below the 77, 9% in 2019 prior to the pandemic.
Most important SG&A as a percentage of gross profit declined by 140 basis points sequentially when compared to Q4 2022.
As we look to the future. We continue to expect the ratio of SG&A to gross profit to be in the low seventies.
During Q1 on a combined basis share repurchases and dividends represented $152 million and returned to shareholders, we repurchased $110 million in shares and most recently increased the cash dividend by 7% to 61 cents per share and returned $42 million.
Dividends to our shareholders.
We continue to maintain a disciplined approach to capital allocation.
For example, in 2022, 52% of our cash flow from operations funded share repurchases, 23% to acquisitions, 9% to dividend and 16% to capex for growth and future expansion.
Our EBITDA is nearly $2 billion over the last 12 months and we continue to focus on being safe and secure in the current rate environment in terms of that.
Debt to total capitalization was 28% and leverage sits at nine <unk> at the end of March.
On March 31st our long term debt was $1 $7 billion, representing an increase of 79 million compared to December last year largely related to an increase in mortgages on property.
Approximately $1 billion of our long term debt represents subordinated note with 50% and matures in 2025, while the remaining 50% matures in 2029. The average interest rate on these notes is three 6%.
We also have $591 million in mortgages and $69 million in borrowings under lines of credit and our other automotive and Australia businesses.
Last week, we amended our U S credit agreement to increase the facility facility borrowing capacity by $400 million.
The amended agreement provides for up to $1 2 billion and revolving loans for working capital acquisitions capital expenditures and investments and other corporate purposes.
We have the ability to flex our leverage up to four times, leaving us plenty of opportunity to grow our business through acquisitions and to continue returning capital to shareholders.
At March 31, we had $100 million in cash 481 million in vehicle equity and over $1 billion in availability under our credit agreement.
Total inventory was $3 6 billion, representing an increase of $121 million from December 31st floor plan debt was $2 $9 billion.
We had a 26 day supply of new vehicles, including 22 days in the U S and 26 days in the U K.
<unk> U S inventory was 19 days at the beginning of this week.
As a data point, our day supply of new battery electric vehicles in the U S is 42 days.
Days supply of new vehicles for premium was 27% volume foreign was 14.
Used vehicle inventory had a 39 days supply at this time I will turn the call back over to Roger. Thank you Shelly Shelly mentioned, we're committed to implementing operational improvements, which we believe will lead to a lower cost structure.
We're committed to operating sustainability, and we continuously seek ways to reduce our carbon footprint by applying modern building practices embracing energy efficiency, eliminating waste and recycling materials throughout our organization.
We're committed to offering our customers options to meet their shopping needs. This ranges from 100% online.
Our superior customer experience traditionally offered in store.
These digital options includes hybrid shopping solutions virtual test drives remote shining on the sales side as well as online scheduling photo and video collision estimation and digital approvals on the service side.
Additionally, one of our key efficiency initiatives is collaborating leveraging artificial intelligence and <unk>.
Service and sales sides of our business.
It allows us for automated interactions with our customers to answer basic customer enquiries, such service and sales appointments using natural conversion no language.
In Q1, we saw a 14% increase in service online appointments booked year over year and total on blind BDC had AI service apartments represent over 80% over 80% of our total employments. In addition service Aro payments made online increased 8%.
In closing our results continue to demonstrate the benefit from our diversification across the retail automotive and commercial truck industries, our cost control and a disciplined capital allocation strategy I first of all we remain confident in our business model and about the opportunity I see continuing to drive our business forward.
Thanks for joining us today and we appreciate your continued confidence in pag at this time I will turn it back to the operator for questions. Thanks.
Thank you and ladies and gentlemen, if you wish to ask a question. Please press in London zero on your Touchtone phone you will hear an acknowledgment on that you've been placed into queue and you may remove yourself from queue at any time by repeat into one to a command and if you're on a speakerphone. Please pick up your handset before pressing the number once again, if you have a question.
First one then zero at this time.
And our first question is from John Murphy from Bank of America. Please go ahead.
Good afternoon, Hey, Roger Hey, Shirley.
Hey, Tony.
Got it.
First your first question here Roger on agency <unk> in the U K, because it because theres a lot of folks that have some fears around this.
But I'm just curious if you could expand on what is what is actually changing and what is staying the same and maybe if you have a comment on what the motivations are particularly for the automakers like Mercedes that are going after this.
At this point because in some ways it seems like they're there they're trying to favor some of their stronger partners.
In front of more business in your direction, but there are some changes in the economics. So if you could kind of highlight what what's actually changing what staying the same and what you think the motivations are well first let's talk about income for us as a dealer we got fixed national pricing.
There are no volume targets, it's a fixed commission and today we get.
5% from Mercedes.
As your elimination of brokers, so theres no discounting on new vehicles.
Emissions, we get paid on our financing is exactly the same we.
We can still have add ons from the standpoint of things that would come under the F&I manner.
All the fleet sales are handled by the OEM, we have no marketing costs, there's no demonstration.
They are all supplied free the stock we have on site is free and again from an inventory perspective, where we're dealing out of a 5000 unit inventory that's online for the brand.
There is no floor planning cost obviously.
No new car trading costs. The allocation, obviously is based on ZIP codes from the standpoint of allocating leads that come in through the Internet and really the transaction really is what I look at it as basically handling the customer we're transitioning from a <unk>.
Sales process, it's really true.
<unk>, who is really has a.
Capability of understanding the vehicle and the brand probably better than the current sales force. We have so it's purely a product expert.
We would call them a delivery specialists to I guess at this point when I look at it from the standpoint of what's the impact.
Our average gross profit.
On the vehicles in the month of March was 3900 dollar or U S dollars.
<unk> if I go back to 2019, it's actually higher than it was then that was pre pandemic. So from a gross perspective on new we feel quite good about it now again, the OEM could change that.
That number of 5% at some point I think we have a three year commitment at this particular time, but I'm sure. We're both look at that as well.
We go forward.
I think it's been slow to get started.
The delivery time to take the car out of the pool get it to the dealer. So we can deliver it in PDI. It has gone from maybe 10 days to seven and now its looking at probably we're trying to get to three days, which obviously is is key when you look at the number of units that we sold from a retail perspective.
In the month of.
March we have 21 stores was 20%.
The market retail market for <unk> in the U K.
From the motivation of the Oems I think that they had consultants that looked at the probably the ability for them from a cost perspective from incentives and Reg reschedule supports by having a direct line with the consumer and setting those prices it would be a clear channel and obviously the ability.
The transparency and confidence that the customer would get would be a beneficial to the brand. So I guess the only thing negative you would say that the customer still wants to negotiate and the other hand, what were seeing is that the admin work, which required online by the customer probably has a little more complicated than we would would've happened if you.
We're dealing with in F&I person or delivery specialist right is it right at the dealership, but I think its motivation is cost and the one that customer and I think in today's world. The internet to have a clear transparency of their products. So to me I think overall, we've been quite satisfied with it at the moment.
And Roger you maintain the ability to take the used vehicle in trade or the trade in as the transactions are occurring right Theres nothing thats changed with that part of the process either so I just wanted to.
And an option to take the trade or by the trade from the customer correct.
No Theres no one involved from a factory for spectra OEM demand.
Declaration as far as your used cars are concerned there's really no changes both in used our in our service and parts business Great and then just lastly on SG&A for you Roger or Shelley <unk>.
Seven and a half where in the quarter was pretty good much better than we were expecting it doesn't seem like you're seeing a re inflation in your cost there like some other folks might be in the in the industry I'm. Just curious what gives you the confidence that you can keep this in the low 70% range.
Over time as Grosses me, maybe normalize over the next year or two.
Hey, John I can take that I think it's a number of things I think one if you look at our service and parts, we continue to be more efficient.
We're scheduling butter, we're more efficient.
And it's enabling us to use.
Different periods of time with our scheduling to be better with our tax and overall, our service and parts is up which adds to the gross profit line. If you look at PPG, our fixed cost absorption was 134% that compares to 128% in Q4 of 2022, so certainly in <unk>.
Improvement there, but the margin for supply or for service and parts excuse me.
Is huge we've taken out.
Really hard look at our costs and we continue to be.
Really extract in terms of our cost control, we're still down eight 9% of the folks that we took out during the pandemic and that that sort of this in a number of ways one.
We look really hard at whoever we're going to add to the business as people are costs, but we also work really hard to retain the folks that we have we.
We we know that it's cheaper to keep an employee than it is to attract and to train up a new employee and as you know our folks get a bigger piece of the pie, they're happier they are keeping their comp up but.
Overall, our comp it's.
That said growth was down about 100 basis points quarter over quarter. So that's a big factor of it too.
Great. Thanks, Kelly also John when you look at think about 27000 employees in our overall compensation in real dollars was up $4 million. So a big big number when you look at cost controls and we had some increase in <unk>.
Rent and taxes et cetera, but our marketing was only up 700000. So those are things that we're watching very carefully not just globally, but looking at it right down at the store level.
That's very helpful. Thank you guys. Thanks.
Hey, Joe.
The next question is from Daniel Inbounds from Stephens. Please go ahead.
Hey, Daniel Good afternoon, everybody, thanks for taking our questions.
I wanted to ask one I was wondering on the automotive side just on demand sorry, if I missed it but could you provide some color Roger maybe what percent of the new vehicle inventories pre sold today, how different is that by Oems and then when you look at that data what does that tell you about the true consumer demand out there for the new vehicle marketplace today.
Well look there's got to be some pent up demand because of availability.
Over the last.
Several months I think from a pre sold inventory perspective, we've talked to our guys. Prior.
Prior to the call and we're looking at 40% to 50% remember, we're pretty we're really primarily pre premium which makes a difference so I'd say, 40% to 50% in the U S, which gives us probably a nice tailwind looking at internationally in the U K order book.
Got it.
30 32000 units.
Compared to 28, a year ago, so probably almost $50 million more in gross profit, which I think is key and that should be three to six months of tailwind in the U K. So again, our day supply when you look at it.
Very very low when you look at the different.
I think we're 20 days overall as we sit this morning, but Toyota and Lexus would be single digit when you think about our premium side, our biggest brand as BMW. We're sitting at 14 days. So again availability is key for us from the standpoint of our business.
Looking at as of yesterday morning, our new business vehicle was up 2% over last year.
And our used vehicle was flat sales for the for the month, so again, indicating that we have a solid base here at least leading off into the quarter.
Got it it's a 40% 50% pre sold I guess are you surprised by how strong the demand is coming into this year, given the consumer backdrop and some of the headlines around just affordability issues, Roger or is that premium luxury consumer behaving as you would expect I think that the interest rates are not affecting the premium luxury person as much as it would maybe.
The middle market.
Customer and I think the pent up demand is still there and to me on the luxury side. Many of our customers are in three two and three year leases rather than five six year.
Contracts that they have from a financing perspective, so we see those people coming back into the market now some of those we've had to extend because we didn't have vehicles. So that's going to be an opportunity for us to convert dose again into our current 2023 vehicle and I think that.
I expect leasing to increase when you think about it we were 50% to 55% our mix in our company.
Leasing and Thats dropped down into the mid to low <unk>, and we think thats going to throw back.
OEM start to support <unk>.
Joe if he gets used payments in line as we go forward when they want when they want these sales numbers as they go forward got it and if I could squeeze one more in just following up on John's question on the agency model. You mentioned you have the ability to sell I think full F&I products.
Do you see a similar financing attachment I guess when the consumer buys a car directly from Mercedes in the U K are they getting offered captive finance upfront on the website and then you guys. So non captive finance of the dealership or how does that F&I relationship work under the healthy model.
I think this is all the things that we're working with the OEM on the deals are now all new websites. Charles there are competitive if there's a deal out there at Mercedes.
M W or Audi they have the ability we're seeing that on the website now so we have the ability to sell product and ensure it at any level during the transaction.
As the dealer.
Great and no noticeable difference on financing attachment over there.
Not at the moment, but we know it's look it's early I think I'll answer that question better we will as a team here probably after another three to six months, but once we get mature, but I would say overall the ability for us to partner or the or the overall.
Business.
Agency plan has been excellent and we're learning every day and the fact that we've got instead of having three or 400 cars online. We got 5000, yes think about it when you go online. So you really as a customer and really a fish in a big pond and we get the benefit of where you are from a postcode now that inquiry comes directly to us.
And it's clear and really the customer really because you got to walk down the road now to try to get 200 Bucks or pounds off you can't you can't do that so then it comes down to us being sophisticated enough to handle the trade in but I think the big change will be in taking cost out will be that we have product specialists that understand their trading.
And we'll have people that can price they used vehicle, but we don't ever went out and they have to have that complete capability. So we're kind of changing the mix, which will take some of our cost out from a sales process and hopefully have a better informed product specialists with a customer which should be a better customer experience as we as we go forward I can tell you.
And our business.
<unk> business meeting or we call them big.
Customers, we cut that that unit down in half on people already so I think we've got some real opportunity. We're also consolidating.
One of our service location.
We have in the U K and in our big location in West London, and these are things that we're already doing in order to take advantage of our scale and our technology.
Great I really appreciate all the color and best of luck going forward.
Thanks.
The next question is from Mike Ward from Benchmark. Please go ahead hey.
Hey, Mike Thanks, very much good afternoon, everyone.
Hey, Mike two things Sean.
If if if it works and it seems like the initial agency model in the U K is set up pretty well.
And if it's effective and it expands to other brands.
Does the business itself become less capital intensive.
Wow.
And as Roger said, there's no change to used and to surface. This service will continue to be.
A big portion.
Of our business over there I think you know we're still expect it to maintain a beautiful delivery site. So from a capital allocation standpoint, I don't see it becoming less.
But.
In the U K, there's not a lot of space over there anyway for new cars as property prices are at a premium if things were to change over here certainly I think we'd look at smaller sites, but.
As we've mentioned several times, we are way away from that and in terms of France.
And such there so I think you're a long ways off from seeing any significant changes.
The only thing I would say, we don't have a we have I don't have a floor plan requirements. So when you look at our total debt you follow me.
<unk> floor plan, you would have that would be eliminated from our from our overall debt. So it does make a difference because it's several million dollars.
Yeah.
And then Roger on the acquisition front I think over the last couple of calls you've talked about.
There being more opportunities on the truck distribution side is that still the case.
I would say that ones that we feel are rational from a standpoint of pricing and ones that would fit into us because of the geographical location I would say, yes, I think as we look into the rest of the end of this quarter, but we would look at between truck and automotive with somewhere between three and $500 million kind of club that we would close.
On potential opportunities so again I think.
The multiples are probably more realistic certainly on the truck side versus automotive at the moment now whether that changes, but theres still lots of activity. We're looking at but were being really safe and secure on what we're going to go forward on.
Thank you very much.
Thanks, Mike.
Thank you and once again, if you do have a question. Please press from London zero at this time.
Our next question is from is that one second he disconnected. We'll go there was that Gupta from Jpmorgan. Please go ahead.
Thanks for taking the question just had a question on PPL.
Would you be able to unpack the drivers a bit more.
On the trends that you saw year over year related to interest expense or utilization and even gain on sale.
If you could quantify some of that for us and any updated thoughts on.
No what do you expect gain on sale to be for the year I believe it was close to.
500 million.
For the full entity last year I think last time, you had mentioned.
Maybe down 20% I'm just curious is that still the case.
And maybe any updated thoughts on how we should think about <unk> through the remainder of the year and I have a follow up.
But I think I think its E.
You look at the interest cost.
I think we had two bonds.
Security in the marketplace over the last several weeks and those interest rates were up probably three to 400 basis points. So our interest cost in the quarter our piece of it over the $38 million decrease in profit that we took into the juice.
Balance sheet was $38 million $12 million of that was it was interest so to annualize that us which is good.
It would be roughly.
$50 million so.
So 100 kit and a interest cost you would look at baked into your model. If you look at the balance of the year.
From a revenue rental utilization standpoint look 77% were down from 81 is tremendous because we had days that we were 80000 units on rent, but we're able to flex that fleet very easily and I think are readily utilization was down for the quarter was down probably somewhere about 30 to 35 million.
So you take a look at that and you can annualize that say, we straight lined it and then gain on sale.
I think youre going to see probably somewhere around $100 million often gain on sale, we'll sell more units, but I think the market just the values in the market spot prices for truck utilization by drivers is down and there is more availability on vehicles. So I think that probably would be and we look at it probably gain on Nevada.
100 million, but again, our maintenance cost to offset some of this when you look at maintenance costs I think I mentioned it before in conversation I had lately was it because of the late delivery and no delivery from the Oems.
Had to extend over 40000 of our customer leases, meaning unit. These are units shipped were probably four or five years old we had to extend these to another six months or a year, where we didn't get when we extended we didn't get the initial more revenue to offset some of these maintenance costs. So we see that maintenance returning back down to <unk>.
Normal levels when you look at that one.
Equipment has been delivered and will really rationalize that through the fleet. So I see some ability to pull that back but again looking at the growth.
At 600 million of sales of leasing that would be new business add on business and renewals in the first quarter and that was an all time record and when you look at at the end of the day.
At a rate of $2 4 billion and that's one one Europe .
Of revenue, so I think overall.
Business is strong.
Interest rates delivery by Oems, obviously and utilization is based on the market. So taking those into consideration I think the guys are running a great business for us.
Sure.
Got it.
That's helpful.
And then maybe just one on the Gpus.
What are your strong results here in the first quarter.
In the non agency stuff.
Are you seeing the supply side of double up here in the second quarter so far.
Any updated thoughts on you know, how we should think about that GPU trajectory.
For the remainder of the year.
No.
Thanks Neil.
I think if you look at.
Sequentially.
We've been on new vehicles, but somewhere in the 11 11, five to 11, 8% I think I don't see that changing because on the premium side, we've been able to hold the gross I think overall, if you look at the gross profit from a year ago.
We're down run about $500. When you look at the variable gross per unit on new vehicles, including <unk>.
Including F&I, so I don't see a big deterioration I'm not used on the other hand, it's been running.
In the low to mid fives, and I'd look at that as probably a number as we looked out over the next next quarter I mean.
Jeff This is Tony so as you look at the overall, new vehicle growth and compare fourth quarter to first quarter on a sequential basis.
I think we mentioned in the prepared comments it was only down about $150.
So I think that that remains strong and when you talk about demand we used.
Still see forward orders, we still see forward supply being sold in advance to our all of our allocation at that 40% to 50% and when you think about our days supply of the units that are out there were 21 days in the U S. Right now so I think demand remains strong.
We're seeing inventory come in its higher than it was but we're turning it very quickly and we're doing a good job of maintaining the growth across the across the industry. So I think that the setup is pretty good as we look towards the future I think our premium brand mix at 71% will drive.
Probably our ability to maintain these grosses versus maybe the.
The U S phase III, which is it looks like they have more availability right now which is driving some probably some of these deals are starting to discount.
Got it that's helpful. Thanks, so much and I'll get back in queue.
Thanks.
And the next question is from the line of David Weston from Morningstar. Please go ahead.
David Hi.
Hi, everyone.
I guess first on agency on agency.
Once you guys get your.
Mission or payout or whenever you want to call it from Mercedes.
There's a portion of that.
<unk> go to the Penske associated to help the customer in store.
We have a variable where we have a compensation now.
Quite honestly, we would.
Think of a delivery commission for a sales person plus some fees involved in the F&I P. C would get that but we might go to more salaried people depending on how the model works as we go forward, but I think it's too new to rate that at the moment.
And you are getting.
The comp plan.
David probably is more friction in the UK anyhow it always has been.
The F&I business really painful, though that goes to you guys.
Oh, Yeah, Yeah. However, I think I think Tony said or I said, it earlier that we get a delivery fee.
For the sale of the new car everything else stays the same we have the F&I income we get the benefit of that all of our parts and service all of that gross profit drop through the bottom line as normal.
And David If you go back and you look at the agency units in the first quarter and compare that to the what we did for <unk> on a normal basis or before agency. The F&I was about the same in the U K. So I think that that's very positive and shows that the people at the stores R. R.
We are selling the product or the insurance products.
Effectively well and also when we looked at if you'd go back and look pre Covid 2018, and 19, 5% margin or we're getting today quite honestly in most cases somewhat has do with the mix of certain stores is actually higher than it was back then because we were chasing volume higher volume.
So yeah, we had brokers in the middle of our business.
David I think it's important to remember.
And when you look at agency and you look at you know M. B in particular historically.
Their new gross profit was only 1% of our total gross profit last year and 2022 and the height of all of it. So there is still so much opportunity with these businesses and used and particularly in service and parts, where we make higher margins for their impact to our total bottom line.
Important to keep that in perspective.
Okay. Thank you and on the M&A environment is there either in the U S or U K or are you seeing any surge in the number of sellers coming to market, perhaps fearful of a recession coming soon.
We've got a number of these brokers coming to Westwood deals, but I would say.
I don't know that its anymore or any less I think are some of the bigger deals. We're not seeing we're focusing on ones that we can glue on where we have capability and have as lower SG&A. When we take over someone else. It's a brand, which we think fits our premium basket, but I don't I don't see it being higher at this point you'd have to ask.
The brokers themselves are moving these things around the country I'm, just not up to speed on that.
We're getting our phone is ringing, but I would say, we're being very selective.
Okay, and just one more on the credit line increase I was just curious is that just grow that facility as the company has grown over time or are you looking to be more aggressive in M&A and or buybacks.
I would say what it does because of our I guess our results. We wanted to put in place if evergreen line of credit because as we look at the business over the next.
I think it expires in 'twenty, five and if evergreen and it gives them flexibility now from the standpoint of the use of our use of our capital and to me.
That's important.
We're aggressive we're running to take risks, but I think in today's business environment I think that.
We want to be cautious.
We go forward here for the next six months to 12 months, but when you get a load our gun I certainly wanted to do that.
Okay. Thank you everyone.
Right.
Thank you and at this time there are no further questions. Thank you.
Alright, Thank you everybody and we'll see you next quarter all the best.
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