Q3 2023 Penske Automotive Group Inc Earnings Call

Ladies and gentlemen, thank you for standing by your conference will be underway. Shortly please continue to hold.

Yeah.

[music].

Yeah.

Okay.

Okay.

Ladies and gentlemen, good afternoon welcome to the Penske automotive a third quarter 2023 earnings conference call. Today's call is being recorded and will be available for replay approximately one hour. After completion through November 2nd 2023 on the company's website under the investors tab at Www.

<unk> W. Dot Penske automotive dot com, if you would like to ask a question. During today's conference you May press. One then zero on your telephone keypad, you will hear acknowledgment that your line has been placed in Q you may remove yourself from the queue by repeating the same one zero command I'd now like to introduce Anthony pardon the <unk>.

<unk> Executive Vice President of Investor Relations and corporate development. Sir. Please go ahead.

Good afternoon, everyone and thank you for joining us today, a press release detailing Penske automotive group's third quarter 2023 financial results was issued this morning and is posted on our website along with the 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.

Joining me for today's call is Roger Penske, our chair and CEO, Shelly haul grave EVP and Chief Financial Officer, Rich sharing of North American Interop operations Randall C more international operations, 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 growth 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 EBITDA and our leverage ratio.

We have prominently presented the comparable GAAP measures and have reconciled the non-GAAP measure 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 expectation because of risks and uncertainties outlined in today's press release.

Under forward looking statements I would also direct you to our SEC filings, including our Form 10-K previously filed form 10, Qs for additional discussion and factors that could cause future results to <unk>.

Differ materially from expectations at this time I will now turn the call over to Roger Yes. Thank you Tony Good afternoon, everyone and thanks for joining us today.

Our diversified business really produced another solid quarter, driven by strong performance from our North American automotive and commercial truck operations.

<unk> performance in North America was partially offset by lower earnings from our U K automotive operations.

Higher interest expense and lower equity earnings from our investment in Penske Transportation solutions.

As previously announced third quarter results included approximately $6 2 million of costs related to the loss of inventory property damage and business disruption from a hailstorm in Austin, Texas and impacted our techs are Toyota Honda and Hyundai dealership.

750 vehicles worth $27 million in inventory.

During the third quarter totally units delivered increased 12% to 122000, which includes 80 695 agency on its good news as revenue increased 8% to $7 4 billion and our same store retail revenue automotive increased 9%, including a 9%.

Greece and service and parts.

Same store retail automotive variable gross profit per unit.

Declined $466 sequentially from the second quarter of 'twenty three to $5180.

Same store retail commercial truck growth gross profit increased.

6%.

Income was 263 million and earnings.

For sure of course.

$3 92.

Last week, we increased the dividend by seven sets or 10 cents to.

79 cents per share.

Let me now turn to our auto operations demand for new vehicles remained solid and availability I would say is improving with.

We're continuing to take forward orders, our U S. Pre filled inventory remains approximately 40% to 50% and the U K. Our forward order book is 24300 units and gross is only down 2% representing about $98 million.

Automotive operations in the UK during the third quarter were impacted by supply challenges stop sales.

Challenging used vehicle market and of course March is a registration month. So its awful key for us from a standpoint of our.

Our operation and profitability.

Orders for 493, new vehicles were unable to be delivered in September.

In addition, same store used vehicle gross profit declined 30%.

Pricing challenges impacted you.

The used market.

Let's look at our retail automotive business on a same store basis for Q3.

Total units delivered increased 10%.

Service and parts revenue increased nine and gross profit by the way was up 10%.

Service and parts revenue growth as Greg driven by an increase of 10% in customer pay.

7% in warranty.

And 14% in collision repair.

Variable gross profit remains strong and the <unk>.

Higher than historical levels. Obviously for example variable gross per unit a $5180 is 2000 per unit higher.

And it was in Q3 2019.

Let me now talk a little bit about Penske transportation solutions.

It's 28, 9% of Pts, which provides us with equity income.

Cash distributions and cash tax savings.

<unk> currently manages our fleet.

442000 trucks and tractors and trailers.

Third quarter.

Operating revenue increased 4%.

The $2 8 billion full.

<unk> service contract revenue increased 13%.

Logistics revenue increased 2%.

Well rental declined 9%.

Pts generated 291 million of net income our share of Pts earnings was $84 million, which declined by 51 million compared to Q3 last year.

However, the good news is our share of Pts earnings increased $11 million sequentially and compared to Q2 of 2023.

The decline in pre tax earnings over the prior year period was mainly impacted let me look at four items, particularly supply constraints and lease extension has increased the number of older units in operation and drove higher maintenance costs of $40 million in.

In Q3.

We also granted 18000 lease extension so far this year and 37000, if you look over the last 21 months.

Interest expense increased $64 million due to higher average outstanding debt obviously.

The growth of our fleet combined with $1 5 billion and refinancings and overall higher interest costs.

A lower gain on sale of 61 million when compared to the record performance in 2022 as used truck values declined.

From historically high levels in the past.

Commercial rental utilization was 80% compared to 84% in the third quarter.

Our full service long term contract business remains very strong.

<unk>, 13% in Q3.

We believe the supply of new trucks are stabilizing and will provide pts opportunity replace the older vehicles in our fleet in the near future and this obviously will drive lower maintenance expense also we believe freight rates will begin improving in the near future, which is historically helped our remarketing profitability.

Let me now turn the call over to ensuring to discuss our commercial retail operation trucks. Thank.

Thank you Roger our Premier truck dealership business represents 44 locations in North America is an important part of our diversification.

Earlier this year, we expanded into greater Winnipeg, Manitoba market area acquiring five new locations in $180 million in estimated annualized revenue.

Including the acquisition our operations in Canada are approaching $1 billion in annualized revenue.

These new dealerships have been fully integrated into our existing operations in Canada and are performing to expectations, adding an important new market and significantly expanding our operations in Canada. We remain one of the largest commercial truck retailers for Daimler trucks, North America, New commercial truck demand remains solid and continues to be driven by.

<unk> demand.

<unk> allocation for 2023 remains sold out through September 30th North American class eight retail truck sales were up 13% to 248000 units. The current industry class eight backlog is 161000 units representing approximately six months of sale.

During the third quarter same store retail unit sales decreased 11% when compared to prior year due to production timing and delivery delays in calendar year 2022, resulting in higher than normal retail sales later in the year.

However, same store gross profit increased 6% as gross margin increased on both new and used truck sales.

Service and parts represented 65% of total gross profit and covered 132% of fixed cost in the third quarter.

Q3, EBT increased 16% to a record 61 million and was the.

Hi, its DVT quarter in company history.

As we look forward to 2020 for our order book recently opened and we are securing orders and expect another strong year of class eight sales.

There is also good news on the freight front after nearly two years of declining freight rates of recovery is also forecasted in calendar year 2024.

Lastly, I'd like to congratulate the team at Premier truck group for being recognized as the truck dealer of the year for 2023 for its it and its areas of customer responsiveness workforce improvement and civic engagement I would now like to turn the call over to Shelly Wholegrain.

Thank you rich good afternoon, everyone I would now like to walk you through several key financial highlights and discuss the strength of our balance sheet.

We continue to focus on operational efficiencies through cost reductions automation and other improvements gained over the last several years to help us maintain lower levels of SG&A to gross profit than historical averages.

SG&A to gross profit was 69, 9% in the third quarter and an 800 basis points below the 77, 9% in 2019.

SG&A includes costs related to hail damage sustained during the quarter, which represented approximately 50 basis points of SG&A to gross profit.

As a result of our efforts to gain efficiencies and control expenses in our U S. Automotive operations compensation to gross profit ratio has improved by 30 basis points, while service and parts absorption has improved 240 basis points when compared to last year.

Looking at our cash flow, we generated over $1 billion in cash flow from operations in the nine months ended September 32023.

During this period, we repurchased two 7 million shares for $365 million and returned 136 million in dividends to our shareholders.

Last week, we increased the dividend by almost 10% to 79 cents per share. So far this year, we've increased the cash dividend by 39% from 57 to 79 cents.

We continue to maintain a disciplined and balanced approach to capital allocation year to date, we have acquired $320 million in estimated annualized revenue and we have a pipeline of more than $2 5 billion under consideration.

For the first nine months of 2023, 36% of our cash flow from operations funded share repurchases.

7% went to capex for growth and expansion, 21% to acquisitions and 13% to dividend the remaining 3% of our cash flow from operations was used to repay non trade floor plan.

Our trailing 12 months EBITDA is nearly one 8 billion at the end of the quarter. Our long term debt was $1 7 billion.

Proximately 1 billion of long term debt represents our subordinated notes with $550 million maturing in 2025, and the other 500 million maturing in 2029.

The average interest rate on these notes is three 6%.

We also have $504 million in mortgages and $160 million and other borrowings at subsidiaries.

Debt to total capitalization improved to 27, 3% from 28, 3% at the end of the second quarter leverage sits at onex at the end of September.

We also have the ability to flex our leverage up to four acts on a lease adjusted basis, leaving significant opportunity for acquisitions and returning capital to shareholders.

Our U S credit agreement provides for up to $1 $2 billion in revolving loan for working capital acquisitions capital expenditure investments and other corporate purposes and was fully available at the end of September.

At September 30th we had $104 million in cash $415 million in vehicle equity and $1 4 billion in availability under our credit agreement.

Total inventory was $3 7 billion, representing an increase of 200 million from December 31.

Floorplan debt was $3 billion.

We had a 34 day supply of new vehicles, including 30 days in the U S and 34 days in the U K.

Days supply of new vehicles for premium was 37 and volume foreign was 19.

Our current day supply of new battery electric vehicles, It's 52 days in the U S and 38 days in the U K used vehicle inventory had a 38 day supply.

At this time I will turn the call back to Roger for some final remarks.

Thank you Shelly she mentioned our balance sheet is strong safe and secure obviously with a capitalization ratio of 27%.

Our leverage ratio of one point, Alex we have the ability to flex our balance sheet to maximize capital allocation.

We said earlier since 2018, we returned over $2 5 billion to our shareholders for nine months ended September 32023, we generated $1 2 billion and earnings before taxes and Thats. Approximately if you can believe with double the earnings before taxes, we generated for the full year and <unk>.

2019.

I think our results continue to demonstrate the benefit of our diversification across retail automotive and commercial truck industry cost control and a disciplined capital allocation strategy. We continue to challenge our cost while focusing on simplification and optimization of Digitization to drive efficiency.

I remain confident in our model and the performance of the business. Thank you for joining us today I look forward to your questions.

Ladies and.

Gentlemen, as a reminder, if you'd like to ask a question you May press, one then zero.

And our first question is from John Murphy. Please go ahead.

Good afternoon, Roger and team.

Hi, John.

Just a first question you guys talked about this a bit in Chile gave us some numbers, but as far as inventory levels as we think about the light vehicle business.

In the U S and the UK.

How much will you hampered.

By shortages I mean, some of the numbers don't sound too bad and I think people are thinking the chip shortage is done but the reality is I think there are some hiccups still there.

And then on the commercial side.

As well I mean, it sounds like you got real shortages there.

When do you think those get resolved and it will take some time and what kind of impacts that he is having on the business. Okay.

You can put it in perspective John.

Total inventory at the end of nine months only went up $200 million.

Obviously, we're still in a tight inventory situation and then the impact in the third quarter, because it's a registration month.

In the U K, the almost 500 units that hit US there, obviously that had some impact and I think that at this point.

We look at our U S inventory today is it 2 million units in pre pandemic is at three six and our inventory obviously, it's only up I don't know what it is on a cost per sale, but obviously, it's not that much when you look at nine months.

I think right now we've never worked premium so we don't get the big swings in the domestics as they might have another other companies in our volume foreign obviously Toyota is one of our lowest days supply along with Honda and it continues to be there. So anyhow, let rich talk about rich.

What do you think about the truck inventory what do you see it as we go forward on heavy trucks, yes, John just a clarification on the comps. So we've seen a steadier supply this year of.

The commercial trucks, the comparison to third quarter of last year was related to the peak in supply chain challenges at the beginning of 2022, mostly related to <unk>.

Semiconductors in the commercial eight commercial vehicles from a production standpoint, and so that those delays early last year pushed more retail sales into the third and fourth quarter of last year than what would have normally occurred and so now that we're back to a more normal an even distribution.

Of delivery from the Oems.

The comps logo.

In comparison were down compared to Q3 of last year. So from an <unk> and then from an inventory standpoint.

So as I said sold out on every every truck is being given to us.

We've had minor cancellations that have been.

Sucked up by other customers, who haven't got enough trucks over the last.

Couple of years and.

We're seeing the delays come down in bodybuilders. This is.

Cab chassis manufacturing that goes to some sort of body company. After the fact their supply chain is improving some.

As well and then if you look at overall commercial truck inventory just from a numbers perspective, we ended last year at $506 million in inventory and we're at 494 today, so fairly fairly flat across the board.

Okay, and then just a second one real quick your parts and service was particularly strong in the quarter. Roger I don't know if you can talk about sort of the different channels customer pay warranty.

Unknown Executive: Ladies and gentlemen, thank you for standing by. Your conference will be underway shortly. Please continue to hold.

I may have missed some of those numbers, but how should we think about that going forward because that remains a significant bright spot for the business and it seems like there's even more opportunity going forward.

I see.

The same store <unk> same store is really meaningful.

Revenue was up nine and a half and our gross profit was up 10, three and I think.

Key thing here is that we are implementing AI.

Driving higher after our appointments, which we didn't have before.

We're tech video and.

In fact, 74% of our arrows in the West are using tech video now so we're not only getting better clarification of the service, but also really to.

Unknown Executive: Ladies and gentlemen, good afternoon. Welcome to the Penske Automotive 3rd quarter 2023 earnings conference call. Today's call is being recorded and will be available for replay approximately one hour after completion through November 2nd, 2023, on the company's website under the Investors tab at www. Penske Automotive.com. If you would like to ask a question during today's conference, you may press one then zero on your telephone keypad. You will hear acknowledgement that your line has been placed in queue. You may remove yourself from the queue by repeating the same one zero command.

<unk> sale and then R E L. R. R R.

We charge the customer effective labor rate, it's about 5% and we don't see Bev also not being a detriment to our fixed in fact, it's really better right now because the parts costs are higher and many of these cars have to be in the shop for a longer period of time. So I think the other good news is that our tech count is up.

4% in the U S and 3% up overall.

Okay.

And just one follow up on that the MLR for warranty work is that up in a similar similar rate or is that different between customer pay and warranty.

Anthony Pordon: I'd now like to introduce Anthony Pordon, the company's executive vice president of investor relations and corporate development. Sir, please go ahead. Thank you, Leah. Good afternoon, everyone. And thank you for joining us today, a press release detailing Penske Automotive Group's third quarter 2023 financial results was issued this morning and is posted on our website along with the 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 calls Roger Penske our chair and CEO Shelley Hulgrave, EVT and Chief Financial Officer.

I would say the warranty rate is we have to go to the manufacturer on at least on a 12 to 18 months and we have to show establish door right and then they give us a rate. So we probably could move the the door right to the customer higher faster than we'd get we'd get it from the OEM, but somewhat follows that.

Continuously.

Okay. That's very helpful. Thank you very much alright, thanks, Sean.

Next we will go to the line of Michael Ward. Please go ahead.

Hey, Mike Thanks.

Hey, Roger Thanks, very much for doing the call.

Anthony Pordon: Rich Shearing of North American Interoperations, Randall Seymour, International Operations and Tony Fichoni, our vice president and corporate controller. Our discussion today may include forward-looking statements about our operations, earnings potential, outlook, future events, growth plans, liquidity and assessment of business conditions. We may also discuss certain non-gap financial measures, such as earnings before interest taxes depreciation and amortization or EBITDA and our leverage ratio. We have prominently presented the comparable gap measures and have reconciled the non-gap measure in this morning's press release and investor presentation, which are available on our website to the most directly comparable gap measures. Our future results may vary from our expectation because of risk and uncertainties outlined in today's press release under forward-looking statements.

So it looks like basically some of the supply constraints on the heavy duty trucks that are hitting you both on Pts in auto retail truck and I'm just curious on Pts.

Anthony Pordon: I'd also direct you to our SEC filings, including our Form 10K and previously filed Form 10Qs for additional discussion in factors that could cause future results to differ materially from expectations.

Did my math right.

The fleet the managed fleet has grown about 8% annually over the last decade is there any reason we won't continue to see that type of growth and then you've also had exponential growth and the profitability. Despite it being down year over year for some quirky things but.

Is that what we can expect from Pts going forward.

Well I can say this I think I've said it on the call we want to be at 500000 units by 2025, now that will move up and down a little bit on rental utilization because right now we're at 18000 say tractors in our rental fleet, probably moving it down to say 14000 here, while we go through a little slower.

Period to maintain our 80% to 85% utilization, but I see no reason not to continue the continued growth and now that's a mix remember now of straight trucks.

Our light duty trucks tractors and trailers and I think the our tractor fleet is the biggest in the world right now and we continue to grow the problem is.

Roger Penske: At this time, I'll turn the call over to Roger. Thank you, Tony. Good afternoon, everyone, and thanks for joining us today. Our diversified business really produced another solid quarter driven by strong performance from our North American automotive and commercial truck operations, operations. The strong performance in North America was partially offset by lower earnings from our UK Automotive Operations, higher interest expense, and lower equity earnings from our investment in Penske Transportation Solutions.

From our main vendors is getting the equipment.

And there we get one gives us trucks in the next one has a stop sale et cetera. So.

When you look at our contract business remember, if we're up 13% and contract.

That's for one year and typically these contracts now it would go forward for three to four to five years. So we really have a trailing opportunity here. So I see this this revenue continuing to grow and obviously, it's easy for us to grow their fleet, we're not limited by franchise laws or any other things you might have on the automotive side.

Roger Penske: As previously announced, third quarter results include approximately 6.2 million of costs related to the loss of inventory, property damage and business disruption from a hailstard in Austin, Texas. It impacted our Toyota, Honda, and Hyundai dealership, 750 vehicles worth 27 million in inventory. During the third quarter, total units delivered increased 12 percent to 122,000, which includes 8695 agency units. Good retail revenue automotive increased 9 percent, including a 9 percent increase in service in parts. Same store retail automotive variable growth profit per unit declined $466 sequentially from the second quarter of 23 to $5,180. Same store retail commercial truck growth growth profit increased 6 percent.

Yes.

And have you seen any easing in some of the constraints in the industry.

Let me, let rich you want to answer that yes, So Mike you look at.

The parts side of the business, which really is an indicator of the challenges on the supply side of the business.

And at its peak there was 250000 nationwide back orders from the dealers and we at any given time as an entity Premier truck group had about 10% of those nationwide back orders to put that number in perspective.

It was less than 10000 would have been pre pandemic levels less than 10000 national back orders for all of the Daimler truck North American dealerships.

So right now as we sit here today, it's just below a 100000, so it's come down significantly in the supply chain is improving on componentry, but still 10 X where it was say pre COVID-19 levels and then when you look at equipment just want to go back to our new unit sales were up 8% on a through nine months on a year to.

Roger Penske: Our net income was 263 million, and earnings for share was $3.92. Last week, we increased the dividend by 7 cents or 10 cents to 79 cents per share. I mean, now turn to our auto operations demand for new vehicles remain solid, and availability, I would say, is improving. We continue to take forward orders. Our US pre-sold inventory remains approximately 40 to 50 percent, and the UK afford order book is 24,000, 300 units in growth is only down 2 percent, representing about 98 million. Automotive operations in the UK during the third quarter were impacted by supply challenges, stop sales, challenging use vehicle market.

Date basis, it's down 13% for the quarter and that's the dynamics related to the supply chain in 2022, where a lot of retail sales got pushed later in the year. So we're still up on a year to date basis, 8% retail sales on the truck side.

And the pricing is still strong and so that's another good indication.

That's correct yeah yeah.

Thank you very much.

Alright. Thanks.

Next we go to a question from Daniel in Borough. Please go ahead.

Daniel Hi.

Hey, good afternoon everybody.

Roger maybe sort of one on the new vehicle side, just thinking about <unk>.

<unk> had been strong and they did step down a bit more I wanted to maybe double click on that EV demand has been pretty tepid, maybe at best can you talk about the GPU degradation or parse out what ice Gpus are doing it within the first happened at <unk> and then what E V. Gpus data and maybe is that part of the reason for this deeper step down in profitability here with all of them.

Roger Penske: Of course, March is a registration month, so it's awful key for us from the standpoint of our operation and profitability. Orders for 493 new vehicles were unable to be delivered in September. In addition, same store use vehicle growth profit declined 30 percent as pricing challenges impacted the use market.

In the quarter.

Well, we see grocers rationalizing I think we've talked about it.

Roger Penske: Let's look at our retail automotive business on the same store basis for Q3. Total units delivered increased 10 percent, service and parts revenue increased 9 and growth profit, by the way, was up 10 percent. Service and parts revenue growth has been driven by an increase of 10 percent in customer pay, 7 percent in warranty, and 14 percent in collision repair. Our variable growth property remains strong, and the higher than historical levels, obviously. For example, variable growth per unit of $5,180 is 2000 per unit higher than it was in Q3 2019.

Before.

We're not going to return.

Pre tax pandemic for sure in the near future I don't believe.

When you look at it.

Our business today.

52% of our businesses at MSRP, So and again, we have premium luxury player like we are we're not in the volume game. So we don't have as I said earlier, we might have 300, BMW stores and one of the big three is 6000 dealers. So a lot more competition in the market. So I think that.

At the present time, our decline was about 450 sequentially and again when you look at the first quarter of 'twenty three versus 19, Raleigh or excuse me of the first quarter. This year, we're down 140 <unk>.

Roger Penske: Let me now talk a little bit about Pansky Transportation Solutions. PhG on 28.9 percent of PTS would provide us with equity income, cash distributions, and cash tax PDS currently manages a fleet of over 442,000 trucks, tractors and trailers. In the third quarter, operating revenue increased 4% at 2.8 billion. Full service contract revenue increased 13%. Logistics revenue increased 2% while rental decline 9%. PTSD entered 291 million of net income. Our share of PTSD earnings was 84 million, which declined by 51 million compared to Q3 last year.

Key thing is here.

Average transaction price.

It's gone from 40000 in the third quarter and 2019 to.

56 six.

Certain amount of what we're getting is because of higher higher cost base and I think this gives us a higher base margin.

It's gotta be inventory driven there's no question about it.

But overall I would take the <unk>.

Margin will stay pretty much the same we will start to decline slightly based on more availability, let me, let randall talked a little bit about what you're seeing internationally.

I think on the new car side remember that the market in the U K is.

Nearly 17% 16, eight <unk>, which is up slightly versus last year, where because of our mix, we're higher than that we're going to be.

Roger Penske: However, the good news is our share of PTSD earnings increased 11 million sequentially than compared to Q2 of 2023. The decline in PTSD earnings over the prior year period was mainly impacted. Let me look at four items particularly. Supply constraints and lease extensions increased the number of older units in operation and drove higher maintenance cost of 40 million in Q3. We also granted 18,000 lease extensions so far this year and 37,000 if you look over the last 21 months.

Depending on the brand we range between 2020 and 25% on an average so interestingly as well the we're seeing the Bev margins erode a bit we wrote some business last year with deliveries this year towards the beginning of the year with better grosses, but on the Bev side for some.

The brands, it's a little bit weaker interesting on Mercedes as agency, we have a fixed.

Commission, obviously margin on that and typically the the.

Roger Penske: Interest expense increased 64 million due to higher average outstanding debt, obviously, from the growth of our fleet, combined with 1.5 billion in refinancing and over a higher interest cost. The lower gain on sale of 61 million when compared to the record performance in 2022 as use truck values declined from historically high levels in the past. Commercial revenue utilization was 80% compared to 84% in the third quarter. A full service long term contract ministry remains very strong increasing 13% in Q3.

Babs or more expensive so our margin on those with Mercedes bucking the trend a little bit better.

And I think also when you look at Bev sales here.

Here in the U S, where we're showing about 80%, 80% or under MSR paying my right talk a little bit probably about inventory on Bev here Oh right. So we've seen sequentially an improvement actually on inventory from the second quarter at the end of the second quarter, we were about 15% of our overall inventory was Bob that's down to just over 11.

<unk>.

Through the end of the third quarter Shelley alluded to the days supply earlier being about 14 days more than a comparable ice inventory and then you look at the.

Roger Penske: We believe the supply of new trucks, the stabilizing and will provide PTSD for an opportunity, replace the older vehicles in the fleet in the near future. And this obviously will drive lower maintenance expense. Also, we believe freight rates will begin improving in the near future, which has historically helped our remarketing profitability.

The percentage of our sales it represents on a year to date basis that sales about six 7% that's up slightly 112 basis points from a.

Our percentage of sales through the second quarter and.

Richard Shearing: Let me now call over to Richeering to discuss our commercial retail operation trucks. Thank you, Roger. Our premier truck dealership business represents 44 locations in North America. There's an important part of our diversification. Earlier this year, we expanded into greater Winnipeg Manitoba market area, acquiring five new locations and 180 million in estimated annualized revenue. Including the acquisition, our operations in Canada are approaching one billion and annualized revenue. These new dealerships have been fully integrated into our existing operations in Canada and are performing to expectations, adding an important new market and significantly expanding our operations in Canada.

To Roger's point earlier, we're seeing.

On average with the brands that we represent about a $2400 lower gross profit per unit on the bus sales.

We've got a discount them to move them in as the Oems are putting some money on there to try and drive customer demand.

I think <unk> talked about where we are selling them to I think it's interesting it's finishing yes. So if you just look at it at an industry.

Year to date 70.

37% of.

Year to date that sales are in California, but of our sales of Pag sales, 51% have gone to California, 70% of our sales are actually through our west region, which is Texas.

Richard Shearing: We remain one of the largest commercial truck retailers for dimer trucks in North America. New commercial truck demand remains solid and continues to be driven by replacement demand. Our Class 8 allocation for 2023 remains sold out. Through September 30th, North American Class 8 retail trucks sales were up 13% to 248,000 units. The current industry Class 8 backlog is 161,000 units representing approximately six months of sales. During the third quarter, same-store retail unit sales decreased 11% when compared to prior year due to production timing and delivery delays in calendar year 2022, resulting in higher than normal retail sales later in the year.

Arizona and California, So you.

<unk> got only three states right now in the United States that are above the national average sales rate, which is 8% and Thats, Texas, California and.

In New Jersey, and then if you look at California sales in Q3, it was 23% overall.

Sales were into California, so at some point those markets are going to get saturated.

It's going to be a little more challenging in the other markets that currently have a lower adoption rate of <unk> compared to the National average ran I'll talk a little bit about our beverage sales in the U K and the rest of Europe.

Richard Shearing: However, same-store gross profit increased 6% as gross margin increased on both new and used truck sales. Service and parts represented at 65% of total gross profit and covered 132% of fixed cost in the third quarter. Q3 EBT increased 16% to a record 61 million and was the highest EBT quarter in the company history. As we look forward to 2024, our order book recently opened and we are securing orders and expect another strong year of class eight sales. There's also good news on the freight front. After nearly two years of declining freight rates, recovery is also forecasted in calendar year 2024.

Yeah. So look it's like I said, a little bit challenging I think an interesting statistic is specific in the U K.

The market's up.

Like we said, but retail is only up 2% fleets really driving this and the beds are really coming through those fleet purchases as you get the tax incentives through the scheme. They have in the U K and then you look at countries like Italy, and Spain, where there's very very little government incentives in <unk>.

<unk> got Bev percentages between three and a half and 6% penetration. So it's really followed the incentives and the challenge that we've seen from an infrastructure standpoint and range anxiety all the all of the usual items.

Richard Shearing: Lastly, I'd like to congratulate the team at Premier truck group for being recognized as the truck dealer of the year for 2023 for its in its areas of customer responsiveness, workforce improvement and civic engagement.

Randall It is important to note too that the U K just within the last couple of months decided to push back the mandatory adoption of Evs from 2030 to <unk> 35.

Michelle Hulgrave: I would now like to turn the call over to Shelley Hulgrave. Thank you, Rich.

Michelle Hulgrave: Good afternoon, everyone. I would now like to walk you through several key financial highlights and discuss the strength of our balance sheet. We continue to focus on operational efficiencies through cost reduction, automation and other improvements gained over the last several years to help us maintain lower levels of SGNA to gross profit than historical averages. SGNA to gross profit was 69.9% in the third quarter and is 800 basis points below the 77.9% in 2019.

So I think that comes into play and we should watch that carefully too. So ice will continue to be a more prominent player in that market, we think for a longer period of time.

Similarly, Tony to California pushed back the ban of ice vehicles as well.

That's right. So I think today, we've got a lot of people in the premium side of bought their EV.

<unk> discussion about range correct.

Obviously, I know that that is a critical and then infrastructure about half of it's working and I think that are.

Michelle Hulgrave: SGNA includes costs related to tail damage sustained during the quarter, which represented approximately 50 basis points of SGNA to gross profit. As a result of our efforts to gain efficiencies and control expenses in our U.S, automotive operations, compensation to gross profit ratio has improved by 30 basis points, while service and parts absorption has improved 240 basis points when compared to last year. Looking at our cash flow, we generated over 1 billion in cash flow from operations in the nine months ended September 30, 2023.

Youre reading it in the papers today, I mean were pushing back I would have to say that.

Every day, we talk to our field and we're talking about Bev inventory and a thought about how much more do you want it's what do you have and we're very careful on unused pricing also what's your inventory in the U S.

Inventory of Jews beds is.

134 unit, so yeah, right what would it be in you don't know what is in the U K, but again, we're really watching it and I think the interesting.

We can actually take a bev in on trade and.

And sell it and get more for a usual gross profit that we can out of a new one.

Michelle Hulgrave: During this period, we repurchased 2.7 million shares for $365 million and returned $136 million in dividends to our shareholders. Last week, we increased the dividend by almost 10% to 79 cents per share. So far this year, we've increased the cash dividend by 39% from 57 cents to 79 cents. We continue to maintain a disciplined and balanced approach to capital allocation. Year-to-date, we have acquired 320 million in estimated annualized revenue and we have a pipeline of more than 2.5 billion under consideration.

So yes.

There are so many moving parts, we can spend an hour here and talk about it.

No that was all extremely helpful. I'll follow up with one of the commercial truck side, obviously overall solid profit quarter, but we did see service and parts growth, maybe moderate a bit I'm trying to.

Understand that in the context of what we said about Pts fewer.

Fewer deliveries the Pts means that fleet spending 40 million more year over year on maintenance costs.

Think if fleets are spending more on maintenance that would drive maybe more service and parts growth usually we talk about why there wasn't bard's growth moderated to kind of what the buckets, where within that piece on the commercial truck side.

Michelle Hulgrave: For the first nine months of 2023, 36% of our cash flow from operations funded share repurchases. 27% went to cat-backs for gross and expansion. 21% to acquisitions and 13% to dividends. The remaining 3% of our cash flow from operations was used to repay non-trade floor plans. Our trailing 12-month EBITDA is nearly 1.8 billion. At the end of the quarter, our long-term debt was 1.7 billion. Approximately 1 billion of the long-term debt represents our subordinated notes with 550 million maturing in 2025 and the other 500 million maturing in 2029.

Yeah. So if you look at fixed operations.

Premier truck group business year to date, we're up 8% for the quarter, we were up 4% versus prior year. So definitely.

Slow down slightly compared to.

Prior year, if you look into that a little bit deeper and the constituents of out of service and parts. The majority of that is going to be related to the retail and wholesale part side of the business. So you've got on the wholesale side, we've got a big business, there, where we're selling to independent repair centers.

Then on the retail side a lot of.

Okay.

Carriers transition ore transport goods down the federal highway system, So you've seen as the freight rates have declined.

Michelle Hulgrave: The average interest rate on these notes is 3.6%. We also have 504 million in mortgages and 160 million in other borrowings at the city areas. That to total capitalization improved to 27.3% from 28.3% at the end of the second quarter. Leverage sits at 1x at the end of September. We also have the ability to flex our leverage up to 4x on a lease-adjusted basis, leading significant opportunity for acquisitions and returning capital to shareholders.

Year over year that the activity and utilization of some of the assets has declined as well and so that's where you're seeing that.

Slight softening in the.

The fixed operation side of the business I think we had a.

Benefit out of big price increases, yes, we have some parts depreciation in calendar year.

2022 as well.

I would not be in those comparable this year.

Daniel.

So covering 132% in fixed absorption so.

Not a bad story by any means.

Michelle Hulgrave: Our US credit agreement provides for up to 1.2 billion dollars in revolving loans for working capital, acquisitions, capital expenditures, investments, and other corporate purposes, and was fully available at the end of September. At September 30th, we had 104 million in cash, 415 million in vehicle equity, and 1.4 billion in availability under our credit agreements. Total inventory was 3.7 billion, representing an increase of 200 million from December 31st. Floor plan debt was 3 billion.

No. That's really helpful. I appreciate all the color and best of luck on progress.

Thanks Ann.

Next we go to Russia Gupta. Please go ahead.

Hi, great.

Thanks for taking the question everyone.

Could you unpack the SG&A to growth.

Quarter, a little bit.

Much of the sequential move.

Well it wasn't driven by.

Just the GPU weakness.

Now some of the delivery delays and U K.

BMW Volkswagen.

We heard from one of your peers, but that was an issue.

Michelle Hulgrave: We had a 34-day supply of new vehicles, including 30 days in the US and 34 days in the UK. Day supply of new vehicles for premium was 37, and volume 4 was 19. Our current day supply of new battery electric vehicles is 52 days in the US and 38 days in the UK. Use vehicle inventory had a 38-day supply.

And just like any other items that you might want to call out that might have influenced the opportunity grows.

And I have a follow up thanks.

I can take that as I mentioned SG&A to growth was 69, 9% those 300 basis points. So he's really whittled it down to three main areas. So as we mentioned $5 5 million or 50 basis points related to the hail damage within a quarter. So we've got that the other there's another.

Roger Penske: At this time, I will turn the callback to Roger for some final remarks. Thank you, Shelley. She mentioned our balance sheet is strong, safe, and secure, obviously. The capitalization ratio of 27%, and leverage ratio of 1.0x, we have the ability to flex our balance sheet to maximize capital allocation. As we said earlier, since 2018, we returned over 2.5 billion to our shareholders. For 9 months ended, September 30th, 2023, we generated 1.2 billion in earnings before taxes, and that's approximately, if you can believe it, double the earnings before taxes we generated for the full year in 2019.

100 basis points that relate to service owners.

And vehicle maintenance, so up $11 million, but as we've talked about service owners represents an opportunity for us is the way to cater to our service customers and improve our service gross profit as we saw as a result.

It's also an excellent source of you.

Tom just talked about we're certainly struggling for sourcing used cars. So the fact that we've got almost 7400 a service loaner is available.

Really will be future gross profit for us.

But it also helps with servicing our customers right now so as they have affordability concerns if somebody comes in and wanting to buy a new X five and can't quite stomach the higher payment. We can turn to our service loaner fleet and that not only helps the customer he's walking away with a almost brand new X five.

Roger Penske: I think our results continue to demonstrate the benefit of our diversification across retail automotive. Commercial industries, cost control, and a different capital allocation strategy. We continue to challenge our cost while focusing on simplification and optimization and digitization to drive efficiency. Our remain confident in our model and the performance of the business.

But his team and is more in line with what he sees to so sometimes those costs arent always a bad thing and then the other 160 basis points or so those increased costs related to our personnel, but as we've talked time and again, we're still very comfortable that everything will eventually normalize it out in that 70 ish.

Unknown Executive: Thanks for joining us today. I look forward to your questions. Ladies and gentlemen, as a reminder, if you'd like to ask a question, you may press 1, then 0.

John Murphy: And our first question is from John Murphy. Please go ahead. Good afternoon, Roger and team. Hi John. You know, Roger, just a first question and you guys talked about this a bit and she'll give us some numbers. But you know, as far as inventory levels, as we think about the light vehicle business in the US and the UK, how much were you hampered by shortages? I mean, some of the numbers don't sound too bad and I think people are thinking that chip shortage is done, but the reality is I think there's some hiccups still there.

Per cent range and you know, there's some seasonality in there here and there but overall we think.

We will ultimately get to that low 70% range. Some of the personnel cost was related to some of the vehicles that couldnt be delivered that Randall spoke to earlier yep.

So our groceries gas currently probably let's say $4 million to $5 million of growth that we didn't get.

We are up $3 million gross for the quarter year over year, when we lost four or five years at one point and then of course, we had a higher cost.

John Murphy: And then on the commercial side, as well, I mean, it sounds like you got real shortages there. You know, when do you think those get, you know, resolved and will take some time and what kind of impacts are these having on the business?

And we've really talked about with the hail stuff right.

Other little things in there, where we just don't talk about at this point.

Got it.

And then just in the U K.

Roger Penske: Okay. Let's put it in perspective, John, you know, our total inventory at the end of nine months only went up 200 million. So obviously we're still, you know, in a tight inventory situation. And then the impact in the third quarter, because it's a registration month, you know, in the UK, the almost 500 units that hit us there, obviously, that had some impact. And I think that at this point, you know, we look at US inventory today, is it two million units and three pandemics at 3.6?

And any updated learning.

Samsung from the Mercedes Agency model.

Looks like the GPU actually went up sequentially from Q2 to treat you what drove that.

Roger Penske: And our inventory, obviously, is only up. I don't know what it is on a cost per sale, but obviously it's not up much when you look at nine months, but I think right now, remember, we're premium, so we don't get the big swings in the domestics that they might have in other companies, and our volume foreign, obviously Toyota is one of our lowest-age supply, along with Honda, and it continues to be there.

Any other learnings you can share on profitability, you know SG&A changes et cetera.

Yes, I'm talking about.

Yes, sure, yes, you're right reach out that the gross profit.

<unk> has gone up and again with the fixed commission that is going to be predicated on the on.

On the sell price of the car. So we were at.

$32 78 to 3278 pounds per unit, which was up if I look at 2019. It was 2595 pounds per unit interestingly.

And the acquisition, we made about a year ago, the London stores. That's at 3564 pounds per unit. So you get that richer mix of car, obviously, we get the benefit from that so our challenge and what the team has done a nice job and continues to do is we just got to reduce our cost base as we have a bit of a paradigm shift in.

Richard Shearing: So anyhow, let Rich talk about, Rich, what do you think about the truck inventory? What do you see it as we go forward on heavy trucks? Yeah, John, just a clarification on the cost. So we've seen a studier supply this year of the commercial trucks. The comparison to the third quarter of last year was related to the peak in supply chain challenges at the beginning of 2022, mostly related to semiconductors and the commercial vehicles from a production standpoint.

How the customers transact you knew you see the traffic foot traffic into the stores down but our.

Our digital our Internet traffic is way up so it's really trying to convert and we've improved our conversion ratio on those leads by eight points a.

Year to date compared to last year. So that's the kind of stuff. We're working on we see service and parts continued to be strong there.

Richard Shearing: And so those delays early last year pushed more retail sales into the third and fourth quarter of last year than what would have, say, normally occurred. And so now that we're back to a more normal and even distribution of delivery from the OEM, the comps look in comparison, we're down compared to Q3 of last year. So from an inventory standpoint, we're still, as I said, sold out on every truck that's being given to us.

Gross so.

Look at those margins are good we just got to continue to work on those costs underneath and drive those drive those opportunities to the store both digitally and walking in and I think the I think the good news here is that.

We were the first guys in a barrel with agency.

We're shifting to more product specialists and salespeople, which are the lower cost.

We're getting a lot more inquiries by significantly higher than we had before because 95%.

Richard Shearing: We've had minor cancellations that have been sucked up by other customers who haven't got enough trucks over the last couple of years. And we're seeing that delays come down in bodybuilders. This is a cab chassis manufacturing that goes to some sort of body company after the fact their supply chain is improving somewhat as well. And then if you look at overall commercial truck inventory, just from a numbers perspective, we ended last year 506 million in inventory and we're at 494 today, so fairly, fairly flat across the board.

Coming out of our PMA as we call. It over here, which is there is a real positive.

We've got 13000 vehicles that are on site from the standpoint that the customer can look at they've given us now some stock cars, which we didn't have to be getting and theres some incentive to sell off the floor. So it's very interesting. We had no idea interest rates are going to go where they are aware complained about agency, but I can tell you one thing we are.

No.

Cost and they are paying for our marketing cost to certain extent, so I think our understanding our cost base and a fixed margin, which is good by the way on bes.

John Murphy: Okay, and this is a second one real quick. You know, parking service was particularly strong in the quarter. Roger, I don't know if you can talk about sort of the different channels, customer pay warranty. I may have missed some of those numbers, but you know, how should we think about that going forward because that remains a significant bright spot for the business and seems like there's even more opportunity going forward? Well, I think the same stress talk same story as really meaningful, you know, revenue is up nine and a half.

Getting an extra 100 basis points correct. So.

I would say that.

But we're learning and I'm certainly Mercedes is learning tool now they backed up a little bit we understand other parts of Europe, where they were going to introduce it theyre pushing it back because we're learning a lot about what's going on in the U K. So it might be a little bit about like bands do that overnight theyre going to say, it's we're going that way everywhere. So I think we've got <unk>.

John Murphy: And our gross problem is up 10.3. And I think the key thing here is that we're implementing AI. That's driving higher after our appointments, who we didn't have before. We're tech video. In fact, 74% of our arrows in the West are using tech video now. So we're not only getting better clarification of the service, but also ability to upsell. And then our ELR are are rate of. We charge the customer effective labor rate is up 5%.

Any comment up.

Next year and we'll see it in 2006, we had BMW, but we're all over it.

Got it got it thanks for the color.

Next we go to the line of John Healy. Please go ahead.

Hey, John Thanks for taking my question guys.

So I just wanted to ask just a minute.

Early thoughts in the last month or so on just the UAW impact maybe on the industry as a whole obviously I know you guys have minimal exposure to the big three but part of me feels like there is a cross currents.

John Murphy: And we don't see bev also not being a detriment to our fix. In fact, it's really better right now because the parts costs are higher. And many of these cars have to be in the shop for a longer period of time. So I think the other good news is that our tech count is up 4% in the US at 3% up overall. And just one follow up on that the ELR for warranty work.

Looking for an explorer that might be looking for it.

CRB, as well or something or something along those lines.

Any sort of thought about grosses in Q4 do you think that.

There is a magic number in terms of the strike last for so long that maybe.

It has a little bit of a sequential bump on grosses and do subscribe to the theory that the strike and that may be taken margins higher in the short run and we start next year, maybe at a higher level than maybe where we're at today.

John Murphy: Is that up in a similar similar rate or is that different between customer paying and warranty? I would say the warranty rate is we have to go to the manufacturer on at least on 12, 18 months. And we have to show established door rate. Then they give us a rate. So we probably could move the door rate to the customer higher faster than we get it from the OEM. But it somewhat follows that, you know, continuously. Okay. That's very helpful. Thank you very much. All right.

Unknown Executive: Thanks, John.

This is one time when I read the paper it doesn't affect us because when you look at our brand mix, we only have 1% of our total revenue comes out of.

The big three and Toyota Honda.

At this point affected in most of the German brands already already dealing with there.

Overseas.

Look having owned Detroit diesel and heading the UAW look what's happening is.

Michael Ward: Next we will go to the line of Michael Ward. Please go ahead. Hey, Mike. Thanks. Hey, Roger. Thanks very much for for doing the call. So it looks like basically some of the supply constraints on the heavy duty trucks out are hitting you both on PTS and also retail truck. And I'm just curious on PTS. If I did my math right, the fleet management fleet is grown about 8% annually over the last decade.

See all these profit.

The Union workers and I think the unfortunate thing is that there is a cost base that has been put in place which is much higher than the competition and that's the biggest concern I think they have tried to mitigate that with good negotiations with the big three and with Cola with with new hires coming in and.

And melding into the top rate instead of six years, three or four years. All of these things are probably ways that you can kind of get together, but I don't think we've seen in the last page of this and unfortunately, it's going to put higher cost for the big three and I'm glad where we are with our brand mix.

Michael Ward: Is there any reason we won't continue to see that type of growth? And then you've also had exponential growth in the profitability despite it being down year over year for some quirky things. But is that what we can expect from PTS going forward?

Roger Penske: Well, I can say this. I think I've set it on the call. We want to be at 500,000 units by 2025. Now, that'll move up and down a little bit on rental utilization because right now we're at 18,000 say tractors in the rental fleet. Probably moving it down to say 14,000 here while we go through a little slower period to maintain our 80 to 85% utilization. But I see no reason not to continue the continued growth.

Got it.

You brought up play out just given the last couple of days there was an issue with wanted to tell you that it's closer to suppliers.

Does that have any sort of meaningful or risk to you guys. In Q4. Once you have next year and they communicated anything to be aware you have on just their production outlook.

Well look whats your destination like 10 or 12 days.

Alright.

Less than 10, yeah look if they get a they get.

With a supplier.

You know, obviously and for the U S plants, all stuff comes out of parts of the world for them it could impact us for sure.

Roger Penske: Now that's a mix remember now of straight trucks, light duty trucks, tractors and trailers. And I think our tractor fleet is the biggest in the world right now. And we continue to grow the problem is from our main vendors is getting the equipment. And you know, there we get one gives the truck in the next one has a stop sale, et cetera. So I think when you look at our contract business, remember if we're up 13% in contract, that's for one year.

Thanks, Chris.

And our next question is from David Whiston. Please go ahead.

Hi, David.

Hey, everyone.

Couple of questions.

First.

Shelly you were talking earlier about the the example of customer Barking at our New X five you could get sell them money are loners and they use I guess my question that would be how quickly can you then replenish that loaner.

Roger Penske: And typically these contracts now would go forward for three to four to five years. So we really have a trailing opportunity here. So I see this revenue continuing to grow. And obviously it's easy for us to grow the fleet. We're not limited by franchise laws or any other things you might have on the automotive side. Now, have you seen any easing in some of the constraints of the industry?

Well I think that that's what we're seeing today.

Everybody is looking at our used cars I said look we were hampered by not being able to turn loners week turned loners typically.

And 90 to 120 days now that supply is coming we're going to suck up some of that availability into loaner cars. So it's all going to be done by based on availability, but in the premium luxury side.

Richard Shearing: Let me let Rich, you want to answer that. Yeah, so Mike, you look at the parts side of the business, which really is an indicator of the challenges on the supply side of the business. And at its peak, there was 250,000 nationwide back orders from the dealers. And we at any given time as an entity for Merit Truck Group had about 10% of those nationwide back orders. To put that number in perspective, it was less than 10,000 would have been pre-pandemic level, less than 10,000 national back orders for all of the Diamond Truck North American dealerships.

It is really key because I can turn that 'twenty 1000, loners three times a year. It's 20 really at 21000 more used cars, but I think we fill the pipeline based on the individual OEM.

Maybe that's not what you want but that's kind of what my thoughts are.

Okay.

Our loaner cars are up about 10% at least from where they work out of their 7300 versus 700, So thats, a big change and that's going to help drive more of the used vehicle.

Richard Shearing: So, right now, as we sit here today, it's just below 100,000. So, it's come down significantly in the supply chain as improving on componentry, but still 10X where it was, say, pre-COVID levels. And then when you look at equipment, as long as we go back to our new unit sales, so we're up 8% through nine months on a year-to-date basis, it's down 13% for the quarter. And that's the dynamics of related to the supply chain of 2022, where a lot of retail sales got pushed later in the year. So, we're still up on a year-to-date basis, 8% retail sales on the truck side. Yeah, and the pricing is still strong, and so that's another good indication. That's correct, yeah.

Michael Ward: Thank you very much. All right, Mike, thanks.

Turn for the business, but I think it would take about it David we.

Have an MSRP and you say, we depreciate the vehicles at 2% per month.

Higher some lower but say, 2%, so you've got 6% off of invoice and typically.

The new card programs.

Programs, whether it's financing or whatever it is go along on this on this vehicle that's coming out of Loners logged. It has a certain limited number of miles. So we get new car rates, we have a depreciated vehicle and we take a customer that didnt want to step up maybe to the X five what have you. We can give our next three it's a loaner car.

Daniel Imbro: Next, we go to a question from Daniel Imbro. Please go ahead. Daniel, hi. Yep. Hey, good afternoon, everybody. Roger, maybe sort of one on the new vehicle side, just thinking about, you know, GPUs have been strong, and they did step down a bit more. I wanted to maybe double-click on that. EV demand has been pretty tepid, maybe at best. Can you talk about the GPU degradation, or parse out what ICE GPUs are doing?

<unk> with a lower cost base.

And the Oems want us to have the service loaner, So we're incentivized to have them.

We're also starting to see a return of CPO business too because of the PPO business certified preowned used sales are up year over year because of <unk>.

Because we're having more availability.

Other other impact we've had is lease returns with alright hadn't been a lot of leasing so leasing went down to 21% I think overall right in the premium luxury side, we were as high as 55% were for some months as we were 27% leasing does.

Daniel Imbro: Maybe from the first half into 3Q, and then what EV GPUs did, and maybe, is that part of the reason for this deeper step down in profitability here? We saw a little bit in the quarter. Well, we see gross as rationalizing. I think we've talked about it again and more.

Last quarter right.

Roger Penske: We're not going to return the free-temp pandemic, for sure, in the near future, I don't believe. And when you look at, you know, our business today, 52% of our businesses at MSRP. So, and again, we have premium luxury players like we are, you know, we're not in the volume games. We don't have, as I said earlier, we might have 300 BMW stores. And one of the big three has 6,000 dealers. So, a lot more competition in the market.

Yes.

I'm sorry, what was your leasing penetration this quarter.

27% leasing this past quarter.

Yes.

That's up from 2000.

David.

Oh.

Yeah.

You said that was up from 20 Tony.

'twenty one.

'twenty one.

And then going back to the EV discussion from a few minutes ago.

What is your.

Roger Penske: So, I think that at the present time, you know, our decline was about 450 sequentially. And again, when you looked at the first quarter of 23 versus 19, we're only, excuse me, the first quarter this year, we're down 140. The key thing is here's the average transaction price has gone from 40,000 in the third quarter in 2019 to 566. So, a certain amount of benefit we're getting is because the higher cost base, and I think this gives us a higher-based margin. Now, obviously it's got to be inventory driven, there's no question about it. You know, but overall, I think the margin will save pretty much the same, will start to decline slightly based on more availability.

Team's opinion on especially next year once a lot of Oems get access to the Tesla supercharger network and over time, we get more non Tesla charging outlets out there in the U S.

Do you think that's enough to get.

<unk> demand moving or do we also need a lot more affordable models or is it still just way too early for Evs.

Well I think you've hit on a couple of different things I think the price points right now are still substantially higher with certain models than compared to ice and so when you combine that with the interest rate environment. We're in that's that's problematic. So that's one thing that hurts the demand for Evs Raj.

You talked about the infrastructure.

So you've got.

The <unk>.

<unk> network that's out there.

Randall Seymour: I'm going to let Randall talk a little bit about what you see internationally. Yeah, I think on the new car side, remember the market in the UK is nearly 17 percent, 16.8 Bev which is up slightly versus last year. We're because of our mix, we're higher than that. We're going to be, depending on the brand, we range between 20 and 25 percent on an average. So interestingly as well, we're seeing the Bev margins erode a bit.

From a public standpoint, you've got about 20% success rate.

Of the charter being successful when you pull into it which is pretty alarming.

When you think about it so that reduces the confidence you still got the range anxiety.

And then I think as it relates to all of these other Oems signing up on.

Tesla's charging network.

Just to see how that plays out with the Tesla owners today, because obviously that that was a network that was exclusive to them at some at one point now it has been opened up to everybody else.

Randall Seymour: You know, we wrote some business last year with deliveries this year towards the beginning of the year with better grosses. But on the website, for some of the brands, it's a little bit weaker. Interesting on Mercedes as agency. You know, we have a fixed condition obviously margin on that. And typically the beds are more expensive. So our margin on those with Mercedes, it was just bucking the trend a little bit better. And I think also when you look at Bev sales, you know, here in the US, we're sounding that 80 percent 80 percent are under MSRP. Am I right?

I don't know off the top of my head how many additional chargers tesla's installing on them on a monthly basis as to whether or not they'll keep up with this additional brands and other OEM evs that have access to that network now.

But if I'm, a tesla owner that would.

Upset me a little bit that I had this proprietary network to the vehicle that I purchased that gave you. Some assurances that charging was going to be more convenient now I've got to compete with all these other Oems on the same network. So I think it's going to be a while before we get to it.

Randall Seymour: Talk a little bit probably about inventory on Bev's here. Yes, so we've seen sequentially an improvement actually on inventory from the second quarter, the end of the second quarter, we were about 15 percent of our overall inventory was Bev. That's down to just over 11 percent, you know, through the end of the third quarter. Shelley alluded to the day supply earlier being about 14 days more than comparable ice inventory. And then you look at the percentage of our sales represents on a year-to-date basis that sales about 6.7 percent.

Critical mass, where the charging infrastructure really supports massive.

Mass adoption of the vehicles.

And David if it helps you heard Randall penetration numbers on Evs, and the U K and it almost gives us.

Oh preview of what it's like in the U S and over in the UK I can tell you. They still have the same range anxiety. They still have the broken Chargers. So even despite a much higher EV penetration, there's still that range anxiety and those issues with the infrastructure. So it may help next year, but I don't think a tougher problem.

Randall Seymour: That's up slightly 112 basis points from our percentage of sales through the second quarter. And, you know, to Roger's point earlier, we're seeing an on average with the brands that we represent about a $2,400 lower gross profit per unit on the Bev sales. We've got a discount them to move them and as the OEMs are putting in some money on there to try and try to cross come or demand. Now, I think it's talking about where we're selling them to, I think it's interest estimation.

Okay. Thanks for all the detail.

David Thanks. Thanks.

And we have no other questions I will turn the conference back over to Mr. Penske for closing remarks, alright, thanks to everybody for joining US we'll see at the end of next quarter have a great day.

Ladies and gentlemen that does conclude your conference for today. Thank you for your participation you may now disconnect.

Yeah.

Randall Seymour: Yeah, so if you just look at an industry year-to-date, 77 percent of year-to-date sales are in California, but of our sales of PAG sales, 51 percent are going to California. 70 percent of our sales are actually through our West region, which is Texas, Arizona, and California. So, you know, you've got only three states right now in the United States that are above the national average sales rate, which is 8 percent. And that's Texas, California, and New Jersey. And then if you look at California sales in Q3, it was 23 percent overall of sales were in the California.

Randall Seymour: So, at some point, those markets are going to get saturated, and it's going to be a little more challenging in the other markets that currently have a lower adoption rate of beds compared to the national average.

Roger Penske: Randall, talk a little bit about Bev sales in the UK and the rest of Europe. Yeah, so look, like I said, a little bit challenging. I think an interesting statistic is it's specific in the UK. You know, the markets up, like we said, but retail is only up 2 percent. Fleets really driving this, and the beds are really coming through those fleet purchases as you get the tax incentive through the scheme they have in the UK.

Roger Penske: And then you look at countries like Italy and Spain, where there's very, very little government incentives, and you've got, you know, Bev percentages between three and a half and 6 percent penetration. So, you know, it's really followed the incentives, and, you know, the challenge that we've seen for an infrastructure standpoint and range anxiety, all the, all the usual items. Randall, it's important to note to that the UK, just within the last couple months.

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Roger Penske: [inaudible] to push back the mandatory adoption of BEVs from 2030 to 2035. So I think that comes into play and we should watch that carefully too. So ICE will continue to be a more prominent player in that market we think for a longer period of time.

Roger Penske: Well, similarly, Tony, to California, push back the ban of ICE vehicles as well. They did. That's right. So I think today we've got a lot of people behind the premium side of what they're EV. They're still discussion about range, correct? Yeah, obviously. That is critical. And then infrastructure about half of it's working. And I think that you're reading it in the papers today. I mean, we're pushing back. I would have to say that every day we talk to our field. We're talking about BEV inventory. It's not about how much more do you want? It's what do you have? And we're very careful on use pricing also.

Unknown Executive: What's your inventory in the US? I'm sorry, it used bad. There's a 134 units. So what would it be? And you don't know what is in the UK. But again, we're really watching it. And I think the interesting. We can actually take a bath in on trade and sell it and get more for a useful and gross profit. And we can on a new one.

Unknown Executive: There's so many moving parts we can spend an hour here and talk about it. No, that was all extremely helpful.

Daniel Imbro: I may follow up with one of the commercial truck side. You know, obviously overall solid profit quarter. But we did see service and parts growth, maybe moderate a bit.

Daniel Imbro: I'm trying to confirm, you know, understand that in the context what we said about PTSD. Yes, you know, fewer deliveries to PTSD means that fleet spending 40 million more year over year on maintenance costs. So I would think if fleets are spending more on maintenance, that would drive maybe more service and parts growth.

Richard Shearing: Usually we talk about why service and parts growth are moderated and kind of what the buckets were within that piece on the commercial truck side. Yes, if you look at fixed operations in the Premier truck group business year to date, we're up 8% for the quarter. We were up 4% versus prior year. So definitely a slowdown slightly compared to prior year. If you look into that then a little bit deeper in the constituents that are service and parts, the majority of that is going to be related to the retail and wholesale parts side of the business.

Richard Shearing: So you've got on the wholesale side, we've got a big business there where we're selling to independent repair centers. Then on the retail side, a lot of carriers transition or transport goods down the federal highway system. So you've seen as the freight rates of decline year over year that the activity and utilization of some of the assets is declined as well. And so that's where you're seeing the slight softening in the fixed operations side of the business.

Richard Shearing: I think we had a benefit out of price increases. We had some parts appreciation in calendar year 2022 as well that would not be in those comparables this year. Daniel, we're still covering 132% fixed absorption so not a bad story by any means.

Daniel Imbro: No, that's really helpful. I appreciate all the color and that's what I'm going to progress next.

Rajat Gupta: We go to Rajat Gupta. Please go ahead Rajat. Hi. Great. I think that's not something to question everyone. Could you unpack the SGNA to gross in the quarter a little bit? How much of the sequential move was driven by just the GPU weakness? We're through some of the delivery delays in UK, for BMW or Volkswagen. We've heard from one of the peers that that was an issue. And just like any other item that you might want to call out, that might have influenced the SGNA to gross.

Rajat Gupta: And I have a follow-up. Thanks. I can take that as I mentioned, you know, SGNA to gross was 69.9%. Those 300 basis points, we've really whittled it down to three main areas. So as we mentioned, five and a half million or 50 basis points related to the hail damage within the quarter. So we've got that the other, you know, there's another hundred basis points that relate to service loners in vehicle maintenance.

Rajat Gupta: So up 11 million. But as we talked about service loners represents an opportunity for us. It's a way to cater to our service customers and improve our service growth profit as we saw as a result. But then it's also an excellent source of use cars. And then all this years has talked about was certainly struggling sourcing use cars. So the fact that we've got almost 70, 400 of service loners available really will be future growth profit for us.

Rajat Gupta: But it also helps with servicing our customers right now. So as they have affordability concerns if somebody comes in wanting to buy a new X5 and can't quite stomach the higher payment. We can turn to our service loner fleet. And that not only helps the customer, he's walking away with a almost brand new X5, but his payment is more in line with what he's used to. So sometimes those costs aren't always a bad thing.

Rajat Gupta: And then you know, the other 160 basis points or so is increased costs related to our personnel. But as we've talked time and again, we're still very comfortable that everything will eventually normalize out in that 70-ish percent range. And you know, there's some seasonality in there here and there. But overall, we think, you know, we'll ultimately get to that low 70 percent range. Some of that personnel cost was related to some of the vehicles that couldn't be delivered that Randall spoke to earlier.

Rajat Gupta: Yeah. So our growth was probably say four or five million of growth that we didn't get, you know, that we're up three million growth for the quarter year over year. We lost four or five of that one point. And then of course we had the higher cost. The only we've really talked about with the hail stuff. Right. And there's other little things in there where we just don't talk about it this point.

Rajat Gupta: Got it. Let's take care. And then just in the UK, you know, any big learning. Sometimes from the Mercedes agency model looks like the GPU actually went up sequentially there from ticket to 3Q. What drove that? Any other learnings you can share on, you know, for profitability, you know, SGH changes attack. [inaudible] Sure. Yeah, I'm talking about you. Yeah, sure. Yes, you're right, Rajat, that, you know, the gross profit has gone up.

Rajat Gupta: And again, with a fixed commission, that's going to be predicated on the, on the, on the sell price of the car. So, you know, we were at 32, 78, so 3,270 pounds per unit, which was up. If I look at 2019, it was 2,595 pounds per unit. Interestingly, in the acquisition we made about a year ago, the London stores, that's at 3,564 pounds per unit. So, you know, you get that richer mix of car.

Rajat Gupta: Obviously, we get the benefit from that. So, our challenge and what the team said, a nice job and continues to do is we just got to reduce our cost base as we have a bit of a paradigm shift and how the customers transact. You know, you see the traffic, foot traffic into the stores down. But our, our digital, our internet traffic is way up. So, it's really trying to convert. And we've improved our conversion ratio on those leads by 8 points a year to date compared to last year.

Rajat Gupta: So, that's the kind of stuff we're working on. We see service in parts continue to be strong there. And grow. So, you know, look at those margins are good. We just got to continue to work on those costs underneath and drive those, drive those opportunities to the store, both digitally and walking in. And I think the, I think the good news here is that we were the first guys in the barrel with the agency.

Rajat Gupta: We're shifting to more product specialists and salespeople, which are the lower cost. We're getting a lot more inquiries by significantly higher than we had before because 95% are coming out of our PMAs we call it over here, which is a, it's a real positive. We've got 13,000 vehicles that are on site from the standpoint that the customer can look at. They've given us now some stock cars which we didn't have it to be getting in there.

Rajat Gupta: Some incentive to sell off the floor. So, it's very interesting. We had no idea interest rates are going to go where they are. We're complained about agency, but I can tell you one thing. We have no interest cost and they're paying for our marketing cost to certain extent. So, I think our understanding our cost base, the fixed margin, which is good. By the way, on bams, getting an extra 100 basis points.

Rajat Gupta: Correct. So, you know, I would say that at the moment we're learning. And I'm certainly Mercedes is learning to now they backed up a little bit. We understand other parts of Europe where they were going to introduce that they're pushing it back. Because they're learning a lot about what's going on in the UK. So, it might be a little bit about like bams tonight overnight. They're going to say we're going that way everywhere. So, I think we've got many coming up. You know, next year and we'll see in 26. We have BMW. But, you know, we're all over it. John, thanks for the color.

John Healy: Next we go to line of John Healey. Please go ahead. Hey, John. Thanks for taking my question, guys. I guess you're registered. Just wanted to ask just kind of early thoughts in the last month or so. I'm just the UAW impact maybe on the industry of the whole. Obviously, I know you guys have minimal exposure to the big three, but part of me feels like there is a cross turned up. You know, someone's looking for an explorer.

John Healy: They might be looking for a, you know, a CRV as well or something along those lines. So, you know, any sort of thought about grosses in Q4. Do you think that, you know, there's a magic number in terms of the strike glass for so long that maybe, you know, it has a little bit of a sequential bump on grosses. And you subscribe to a theory that the strike ended up maybe taking margins higher in the short run. And we start next year maybe at a higher level than maybe where we're at.

Roger Penske: You know, this is one time when I read the paper, it doesn't affect us because when you look at our brand mix, we only have one percent of our total revenue comes out of, you know, out of the big three and, you know, Toyota Honda, we're not at this point, affected in most of the German brands are, are you dealing with their unions that they have overseas, but look, you know, having own Detroit Diesel and adding the UAW, look, what's happening is, you know, they see all these profits, the union does and the workers, and I think the unfortunate thing is that there's a cost base that has been put in place, which is much higher than the competition, and that's the biggest concern I think they have, and they're trying to mitigate that with good negotiations with a big three, and with Cola, with new hires coming in and melding into the top rate instead of six years, three or four years, all these things are probably ways that you can kind of get together, but I don't think we've seen the last page of this, and unfortunately, it's got to put higher cost, you know, for the big three, and I'm glad where we are with our brand mix.

John Healy: And you brought up Toyota, I think it's in the last couple of days, there's with an issue with one of Toyota's coil suppliers. Does that have any sort of meaningful or risky guys in Q4 or one QM next year, but they communicated anything to be wary of on just their production outlook? Well, look, what's our get decent flight? 10 or 12 days? I don't know, like less than 10. Yeah, look, if they get an issue with a supplier, obviously, and for the U.S, plans, stuff comes out of parts of the world for them. It could impact us for sure.

David Whiston: And our next question is from David Wiston, please go ahead. Hi, David. Hey, everyone. A couple of questions. First, I think, Shelley, you were talking earlier about the example of customer blocking at a new X5. You could get sell them one of your loaners as a use. I guess my question, that would be how quickly can you then replenish that loaner? Well, I think that's what we're seeing today. Everybody's looking at our use cars.

David Whiston: I said, look, we were hampered by not being able to turn loaners. We turned loaners typically in 90 to 120 days. Now that supply is coming, we're going to suck up some of that availability in the loaner cars. So it's all going to be done by based on availability. But in the premium luxury side, you know, it's really key because I can turn that 21,000 loaners three times a year. It's really a 21,000 more use car to it.

David Whiston: I think we fill the pipeline, you know, based on the individual OEM. I mean, that's not what you want, but that's kind of what my thoughts are. Okay. And our loaner cars are up at 10 percent, at least from what they work. They're 7,300 versions. So that's a big change and that's going to help drive more of the used vehicle turn for the business. Well, but think about it, David. You have an MSRP and you say we'd appreciate the vehicles at 2 percent per month.

David Whiston: Some higher, some lower, but say two percent. So you got six percent off of invoice and typically the new card program for the financing or whatever it is, go along on this on this vehicle that's coming out of loners, long as it has a certain limited number of miles. So we get new car rates. We have a depreciated vehicle and we take a customer that didn't want to step up maybe to the X5, but have you, we can give an X3.

David Whiston: It's a loner car. The lower cost base and the only ones want us to have these service loners so we're incentivized to have them. We're also starting to see a return of CPL business to because of the CPL business certified pre on used sales are up year over year because of because we're having more availability. We got the other other impact with that is least returns would have been a lot of leasing.

David Whiston: So leasing went down to 21% and it go overall right in the premium luxury shine. We were high 55% were some ones and we were 27% leasing this past quarter. I'm sorry. What was your leasing penetration in this quarter? 27% leasing this past quarter. That's up from 20 years ago, David. You said there was up from 20 Tony 21 21 and then going back to the EV discussion from a few minutes ago, what is your team's opinion on especially next year, once a lot of OEM get access to the Tesla supercharger network and over time to get more non toughest charging out with out there in the US, do you think that's enough to get?

David Whiston: EV demand moving or we often need a lot more affordable models or is it still just way too early for EVs? Well, I think you hit on a couple of different things. I think the price points right now are still substantially higher with certain models than compared to ice and so when you combine that with the interest rate environment, we're in. That's that's problematic. So that's that's one thing that that hurts the demand for EVs Roger talked about the infrastructure.

David Whiston: You know, so you've got the charging network that's out there, you know, from a public standpoint, you got about 20% success rate of the charger being successful when you pull into it, which is pretty alarming when you think about that produces the confidence, still got the range anxiety. And then, you know, I think as it relates to all these other OEM signing up on, you know, Tesla's charging network, I'm interested to see how that plays out with the Tesla owners today because obviously that that was a network that was exclusive to them at some point.

David Whiston: Now it's been opened up to everybody else. I don't know off the top of my head how many additional chargers Tesla is installing on a monthly basis to whether or not they'll keep up with this additional brand and other OEM EVs that have access to that network now. You know, but if I'm a Tesla owner, you know, that would upset me a little bit that I had this proprietary network to the vehicle that I purchased.

David Whiston: It gave me some assurances that, you know, charging was going to be more convenient. Now I've got to compete with all these other OEMs on the same network. So I think it's going to be a while before we get to a critical mass where the charging infrastructure really supports mass adoption of the vehicle. David, if it helps, you heard Randall's penetration numbers on EVs in the UK, and it almost gives us a preview of what it's like in the US, and over in the UK I can tell you they still have the same range anxiety, they still have the broken chargers, so even despite a much higher EV penetration, there's still that range anxiety and those issues with the infrastructure, so it may help next year, but I don't think it's possible problem. Okay, thanks for all the details. David, thanks. Thanks.

Unknown Executive: And we have no other questions.

Roger Penske: I will turn the conference back over to Mr. Penske for closing remarks. All right, thanks, everybody. If you're joining us, we'll see you at the end of the next quarter. Have a great day.

Unknown Executive: Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation. We're sorry your conference is ending now. Please hang up. Thank you.