Q4 2023 Penske Automotive Group Inc Earnings Call

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Operator: Good afternoon. Welcome to the Penske Automotive Group fourth quarter 2023 earnings conference call. Today's call is being recorded and will be available for replay approximately one hour after completion through February 14, 2024. On the company's website under the investors tab at www.penskeautomotive.com. I will now introduce Tony Pordon, the company's Executive Vice President of Investor Relations and Corporate Development. Sir, please go ahead.

Speaker Change: Good afternoon, and welcome to the Penske Automotive group fourth quarter 2023 earnings Conference call. Today's call is being recorded and will be available for replay approximately one hour. After completion through February 14th 2024 on the company's website under the investors tab at Www Dot Penske automotive dot com.

Speaker Change: I will now introduce Tony part on the company's executive Vice President of Investor Relations and corporate development Sir.

Please go ahead.

Anthony R. Pordon: Thank you, Brad. Good afternoon, everyone, and thank you for joining us today. As you know, a press release detailing Penske Automotive Group's fourth 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, Shelley Holgrave, our EVP and Chief Financial Officer, Rich Shearing, North American Operations, Randall Seymour, International Operations, and Tony Ficcione, 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, adjusted EBITDA, adjusted earnings before taxes, and adjusted income from continuing operations.

Tony: Thank you Brad good afternoon, everyone and thank you for joining us today.

Tony: A press release detailing Penske automotive group's fourth 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 call are Roger Penske, our chairman and C E.

Tony: Oh, Shelly how grave, our EVP and Chief Financial Officer, Rich sharing North American operations Randall C more international operations, and Tony Petrone, Our Vice President and corporate controller our.

Tony: 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 our EBA.

Tony: Adjusted EBITDA adjusted earnings before taxes adjusted income from continuing operations adjusted.

Anthony R. Pordon: Adjusted Earnings Per Share, and our Leverage Ratio. We have prominently presented the comparable gap measures and have reconciled the non-gap measures to the most directly comparable gap measures in the press release and investor presentation, which are available on our website. Our future results may vary from our expectations because of risks and uncertainties outlined in today's press release under the forward-looking statement. I 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 results to differ materially from expectations. I'll now turn the call over to Roger.

Tony: Earnings per share and our leverage ratio, we have prominently presented the comparable GAAP measures and have reconciled the non-GAAP measures to the most directly comparable GAAP measures in the press release and Investor presentation, which are available on our website.

Tony: Future results may vary from our expectation because of risks and uncertainties outlined in today's press release under forward looking statements.

Tony: I 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 results to differ materially from expectations.

Tony: Now I'll turn the call over to Roger Alright, Tony Thank you and good afternoon, everyone.

Roger S. Penske: All right, Tony, thank you, and good afternoon, everyone. 2023 was a strong year for PAG and reflected our third best year of net income in our company's history. Our performance is driven by a resilient new car market, our premium brand mix, the performance of a retail commercial truck dealership, and our capital allocation. During 2023, we delivered 486,000 new and used vehicles and over 21,000 commercial trucks. We increased our revenue by six percent to almost $30 billion. We generated $1.4 billion in earnings before taxes and nearly $1.1 billion of net income and earnings per share of $15.50. We continue to grow our business, announcing acquisitions of $1.3 billion in expected annual annualized revenue, including Rybrook in the UK, which closed early in January 2024. We repurchased 2.8 million shares, or approximately 4% of the shares outstanding at the beginning of the year.

Roger S. Penske: I appreciate everyone joining us today.

Roger S. Penske: 2023.

Roger S. Penske: <unk> year for Pag and reflected our third best year.

Roger S. Penske: Net income in our company's history.

Speaker Change: Our performance was driven by resilient new car market.

Speaker Change: Our premium brand mix.

Speaker Change: Performance of our retail commercial truck dealerships.

Speaker Change: And our capital allocation.

During 2023, we delivered 486000, new and used vehicles.

Speaker Change: And over 21000 commercial commercial trucks, we increased our revenue 6%.

So almost 30 billion.

Speaker Change: We generated $1 4 billion in earnings before taxes, and nearly $1 1 billion of net income and earnings per share of $15.50.

Speaker Change: We continue to grow our business announcing acquisitions of $1 3 billion.

Speaker Change: Expected annual annualized revenue, including a Rye Brook, and the U K, which closed.

Speaker Change: Early in January 2024.

Speaker Change: We repurchased two 8 million shares or approximately 4%.

Speaker Change: Outstanding at the beginning of the year.

Roger S. Penske: We increased our cash dividend paid to shareholders by 53% since the end of 2022 and from 57 cents to our current dividend of 87 cents. www.penske.com. We maintain a strong balance sheet and debt-to-capitalization ratio of 26% and a leverage ratio of one time. Now, let's turn our attention to the fourth quarter results that we announced earlier today. Excluding a non-cash impairment charge as noted in our press release, adjusted EBT was just under $300 million at $297.

Speaker Change: We increased our cash dividend paid to shareholders by 53% since the end of 2022.

Speaker Change: <unk> 57.

Speaker Change: Current dividend of 87.

Speaker Change: We maintain a strong balance sheet and debt to capitalization ratio.

Of 26% and a leverage ratio of one time.

Speaker Change: Now, let's turn our attention to the fourth quarter results that we announced earlier today, excluding a noncash impairment charges I noted in our press release adjusted EBT.

Speaker Change: Just under $300 million at $2 97.

Roger S. Penske: Adjusted income from continuing operations was $231 million, and related adjusted earnings per share was $3.45. In our automotive operation, we believe demand for new vehicles remains solid, and inventory availability continues to improve. We continue to take forward orders with pre-sold activity averaging between 10 and 20 percent in the U.S., depending on the brand and the region. The U.K. forward order book is healthy at 20,300 units.

Speaker Change: Adjusted income from continuing operations was $231 million related to an adjusted earnings per share were $3 45.

Speaker Change: In our automotive operations, we believe demand for new vehicles remains solid.

Speaker Change: Inventory availability continues to improve but can you just continue to take forward orders with pre salt activity, averaging between 10 and 20% in the U S. Depending on brand in the region.

Speaker Change: K forward order book is healthy at 20300 units.

Roger S. Penske: Although the order book is slightly less than last year, U.K. new vehicle registration has increased 18 percent in 2023, and the availability of inventory is an improvement compared to the same time last year. During the quarter, total automotive units delivered increased 8% to 117,000 units, which includes 8,113 agency units, same store, retail, and automotive revenue increased 4%, including a 7% increase in our service and parts business. Same short gross profit only declined 1%

Speaker Change: Although the order book is slightly less than last year.

New vehicle registrations increased 18%.

Speaker Change: 2023, and the availability of inventory improved when compared to the same time last year.

Speaker Change: During the quarter total automotive units delivered increased 8%.

Speaker Change: 117000 units, which includes 8113 agency units.

Speaker Change: Same store retail automotive revenue increased 4%.

A 7% increase in our service and parts business same store gross profit only declined 1%.

Roger S. Penske: Same store, retail, commercial, and truck gross profit only declined 1%, and earnings before taxes in Q4 were a record of over $51 million. And fortunately, our profitability was impacted by $21 million in additional interest costs, resulting from higher interest rates and greater inventory levels combined with lower equity earnings from our investment in Penske Transportation Solutions. Turning to PTS, December 31st.

Speaker Change: Same store retail commercial truck gross profit only declined 1%.

Speaker Change: Net earnings before taxes in Q4 was a record.

Speaker Change: Of over $51 million. Unfortunately, our profitability was impacted by $21 million in additional interest cost cost ratio.

Speaker Change: <unk> from higher interest rates greater inventory levels combined with lower equity earnings from our investment in Penske transportation solutions.

Speaker Change: Turning to Pts at December 31.

Roger S. Penske: PTS managed a fleet of over 439,000 vehicles, that included trucks, tractors, and trailers. In 2023, BGS operating revenue increased 6% and produced the third highest EBT of all time, just over one billion. Q4 PGS operating revenue increased 3% to $2.7 billion, full service lease and contract revenue increased 13%, logistics revenue increased 5%, but our rental business declined 13%. PTS generated $177 million in net income. Our share of PTS earnings was $51 million, which declined by 48% or $48 million compared to Q4 of last year. The decline in PTS earnings over the year period was impacted by the following: a $57 million increase in interest expense from higher rates related to bond refinancing, and Higher outstanding debt.

Speaker Change: P. J S managed a fleet of over 439000 vehicles that includes trucks tractors and trailers.

Speaker Change: 2023, Bts operating revenue increased 6%.

Speaker Change: And produced the third highest EBT of all time, just over $1 billion.

Speaker Change: In Q4, our Pts operating revenue increased 3% to $2 7 billion.

Full service lease and contract revenue increased 13%.

Speaker Change: Logistics revenue increased 5%.

Speaker Change: But our rental business declined 13%.

Speaker Change: Pts generated $177 million and net income our share of Pts earnings was 15, 1 million, which declined by 48% or $48 million compared to Q4 of last year.

Speaker Change: The decline in Pts earnings over the year period was impacted by the following.

Speaker Change: $57 million increase in interest expense from higher rates related to bond refinancings.

Speaker Change: And higher outstanding debt.

Roger S. Penske: 58 million decline and gain on sale of used trucks when compared to the record performance of 2022, as used truck values continued to be impacted by the lower freight demand. We sold nearly 36,000 used trucks in 2023, an increase of 60%. Rental revenue fell 13%, including 400 basis points decline in commercial utilization rates at 82%.

Speaker Change: $58 million decline in gain on sale of used trucks when compared to the record performance in 2022 as used truck values continued to be impacted by the lower freight demand. We saw nearly 36000 trucks used in 2023, an increase of 60%.

Speaker Change: Rental revenue fell 13%, including 400 basis point decline in commercial utilization rates.

Speaker Change: At 82% higher depreciation and holding costs on older vehicles.

Roger S. Penske: Higher depreciation and holding costs on older vehicles. We had them because we're holding to replace the fleet. As we look into Q1 2024, PTS continues to be impacted by similar headwinds. We expect PTS earnings to decline at least 50% in the first quarter due to higher interest costs, lower gain on sale of used trucks, and higher depreciation.

Speaker Change: We had because we were holding to replace the fleet as you look into Q1 2020 for Pts continues to be impacted by some of our headwinds we expect PGS earnings to decline at least 50% in the first quarter due to higher interest cost and lower gain on sale of used trucks and higher depreciation units on order now.

Roger S. Penske: Units on order now are at 29,000 compared to 71,000 at the start of last year and continue to trend lower. We have nearly 18,000 units currently available for sale. In January, we sold 3,900 units, which was 27% higher than January 2023 and similar to the pace of Q4. I'd now like to turn it over to Rich Sherry.

Speaker Change: We are at 29000 compared to 71000 and the start of last year and continue to trend lower we have nearly 18000 units currently available for sale in January we sold 3900 units, which was 27% higher than January 2023 and silver.

Speaker Change: So Q4, I would now like to turn it over to risk sharing.

Rich Sherry: Thank you, Roger. Our Premier Truck dealership business represents 44 locations in North America and is an important part of our diversification. We are one of the largest commercial truck retailers for Dynamo Trucks North America. And, as most of you may know, earlier last year, we expanded into the greater Winnipeg-Manitoba market area, acquiring five new locations representing $180 million in estimated annualized revenue. The North American Class 8 Retail Truck had a strong year in 2023 with a 7% increase in retail sales to 331,000 units. At the end of December, the backlog was $178,000, which compares to a backlog of $244,000 at the same time last year, and the current backlog represents approximately a 5-6 month rate of retail sales.

Thank you Roger our Premier truck dealership business represents 84 locations in North America is an important part of our diversification. We have one of the largest commercial truck retailers for Daimler trucks North America.

Risk Sharing: And as most of you may know earlier last year.

Risk Sharing: Spanned it into the greater Winnipeg, Manitoba market area.

Risk Sharing: During five new locations, representing $180 million in estimated annualized revenue.

Risk Sharing: The North American class eight retail truck had a strong year in 2023 with a 7% increase in retail sales to 331000 units.

Risk Sharing: At the end of December the backlog was 178000, which compares to a backlog of 244000 at the same time last year and the current backlog represents approximately a five to six months.

Risk Sharing: Right of retail sales.

Rich Sherry: In 2023, our business generated over 21,000 new and used truck sales, 3.7 billion in revenue, and almost 600 million in gross profit, an improvement of 7% year-over-year. Premier Truck Group had a record year generating $225 million in EBT and more than a 6% return on sales. And I'm pleased that the business produced a solid Q4 with EBT of $51 million, as Roger referenced, a record, despite new unit sales for the quarter being down 13% related to later-than-normal deliveries in 4Q 2022 due to supply chain disruptions earlier that year. On a same-store basis, gross margin increased 140 basis points to 15.8%, and SG&A to gross profit remained well-controlled at 58 We believe commercial truck demand remains solid and will continue to be driven primarily by replacement demand, and we see strength across private fleets and Class 6-7 medium duty as well. I would now like to turn the call over to Randall.

Risk Sharing: In 2023, our business generated over 21000, new and used truck sales $3 7 billion in revenue and almost $600 million in gross profit an improvement of 7% year over year Premier truck group had a record year generating $225 million in EBT and more than 6% return on sales and I'm. Please.

The business produced a solid Q4 with EBT of $51 million as Roger referenced that record despite new unit sales for the quarter being down 13%.

Risk Sharing: Related to later than normal deliveries in <unk> 2022, due to supply chain disruptions earlier that year.

Risk Sharing: On a same store basis gross margin increased 140 basis points to 15, 8% and SG&A to gross profit remained well controlled at $58 eight fixed absorption was solid at 123%. We believe commercial truck demand remained solid and will continue to drive be driven primarily by replacement demand and we see.

Risk Sharing: Strength across private fleets in class six seven medium duty as well I would now like to turn the call over to Randall.

Randall: Thanks, Rich. 2023 was also a record year for our business in Australia. As you know, we are the exclusive importer and distributor of heavy, certain heavy, and medium duty trucks and buses, and a leading distributor of engines and power systems in Australia and New Zealand. We offer products in the trucking, mining, power generation, defense, marine, rail, and construction sectors, as well as support, full parts, and after-sales service through a network of branches, field service locations, and dealers across the region. In our Australia business, service and parts represents approximately 80% of all of our gross profits. So our focus on increasing units and operations is a key driver of the business. In 2023, the Australia business grew its revenue by 10%, largely due to the off-highway markets, which remain strong, particularly in the data center, energy solutions, and mining segments. In the energy solution space, we continue to lead the market in critical standby power, especially for data centers, and make significant deliveries of generators into prime power and hybrid applications.

Randall: Thanks, Rich 2023 was also a record year for our business in Australia.

Randall: As you know we are the exclusive importer and distributor of heavy certain heavy and medium duty trucks and buses and a leading distributor of engines and power systems in Australia, and New Zealand.

Randall: We offer products in the trucking mining power generation defense Marine rail and construction sectors and support and support.

Randall: Full parts and after sales service through network of branches field service locations and dealers across the region.

Randall: In our Australia business service and parts represents approximately 80% of all of our gross profit. So our focus on increasing units in operation is a key driver of the business.

Randall: In 2023, the Australia business grew its revenue by 10% largely due to the off highway markets, which remained strong, particularly in the data center energy solutions and mining segments.

Randall: And the energy solutions space, we continue to lead the market in critical standby power, especially for data centers and made significant deliveries of generators into prime power and hybrid applications.

Shelly Hildreth: In addition, we have started to deliver large-scale battery energy storage solution systems as well. Our current order book for energy solution delivery stands at over $500 million for 2024 and beyond. In mining, we continue to deliver repowers with the fuel-efficient MTU Series 4000 engine, and we're working with one of the world's largest miners to develop a hybrid repower solution that will reduce fuel consumption by 20%. I would now like to turn the call over to Shelly Hildreth. Thank you, Randall. Good afternoon, everyone.

Randall: In addition, we have started to deliver large scale battery energy storage solutions systems as well.

Randall: Our current order bank for energy solution delivery stands at over $500 million for for 2024 and beyond.

Randall: In mining, we continue to deliver re powers with the fuel efficient <unk> series 4000 engines, and we're working with one of the world's largest miners to develop a hybrid repower solution, which will reduce fuel consumption by 20%.

Randall: I'd now like to turn the call over to Shelly Wholegrain.

Shelly Wholegrain: Thank you Randall and good afternoon, everyone I'm pleased to report that we generated $1 $1 billion in cash flow last year, and our EBITDA was nearly one 7 billion in.

Shelly Hildreth: I'm pleased to report that we generated $1.1 billion in cash flow last year, and our EBITDA was nearly $1.7 billion. In 2023, we continue to maintain a disciplined and balanced approach to capital allocation, and our balance sheet remains strong, safe, and secure. At December 31st, we had $96 million in cash, $529 million in vehicle equity, and $1.7 billion in availability under our credit agreement. Our approach to capital allocation balances investing for growth through capital expenditures, diversified and opportunistic acquisitions, while also returning capital to shareholders through dividends and share repurchases. Since the end of 2022, we have raised the dividends five times from $0.57 to $0.87 per share, representing a 53% increase. We returned $189 million in dividends to shareholders last year. We also repurchased 2.8 million shares for $382 million. Total inventory was $4.3 billion, representing an increase of $800 million from the end of 2022. The floor plan debt was $3.8 billion.

Shelly Wholegrain: In 2023, we continue to maintain a disciplined and balanced approach to capital allocation and our balance sheet remains strong safe and secure.

Shelly Wholegrain: At December 31, we had $96 million in cash $529 million in vehicle equity and $1 7 billion in availability under our credit agreement.

Shelly Wholegrain: Our approach to capital allocation balancing investing for growth through capital expenditures diversified and opportunistic acquisitions.

Shelly Wholegrain: I'll also returning capital to shareholders through dividends and share repurchases.

Shelly Wholegrain: Since the end of 2022, we have raised the dividend five times from 57% to.

Shelly Wholegrain: To 87 cents per share representing a 53% increase we've returned $189 million in dividends to shareholders last year. We also repurchased two 8 million shares for $382 million.

Shelly Wholegrain: Total inventory was $4 3 billion, representing an increase of $800 million from the end of 2022.

Shelly Wholegrain: Floorplan debt with three 8 billion.

Shelly Wholegrain: We had a 39 days supply of new vehicles, and a 48 days supply of used day supply of new vehicles for premium was 42 and volume foreign was 24.

Shelly Hildreth: We had a 39-day supply of new vehicles and a 48-day supply of used. The day supply of new vehicles for premium was 42, and volume foreign was 24. At December 31st, our supply of battery electric vehicles in the U.S. was 54 days for new and 50 days for use. In the UK, our supply of battery electric vehicles was 67 days for new and 45 days for use. At the end of the summer, our long-term debt was $1.6 billion, essentially flat, year over year.

Shelly Wholegrain: At December 31st our supply of battery electric vehicles in the U S was 54 days for Neil and 50 days for us and the UK our supply of battery electric vehicles was 67 days for new and 45 days for us.

Shelly Wholegrain: At the end of December our long term debt was $1 6 billion essentially flat year over year.

Shelly Hildreth: 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. The average interest rate on these notes is 3.6%. We also have $403 million in mortgages and $182 million in other borrowings at our international subsidiaries. Debt-to-total capitalization improved to 26% from 28% at the end of 2022, and our leverage sits at one time. It's important to reiterate that we have the ability to flex our leverage up to 4X on a lease-adjusted basis. Therefore, we have room under our credit agreement to deploy our capital allocation strategy. Our U.S. credit agreement provides for up to $1.2 billion in revolving loans for working capital, acquisitions, capital expenditures, investments, and other corporate purposes and was fully available at the end of December.

Shelly Wholegrain: Approximately 1 billion of the long term that represents our subordinated notes with $550 million maturing in 2025, and the other 500 million maturing in 2029 the.

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

Shelly Wholegrain: We also have $403 million in mortgages and $182 million and other borrowings at our international subsidiaries.

Shelly Wholegrain: Debt to total capitalization improved to 26% from 28% at the end of 2022 and our leverage sits at one time.

Shelly Wholegrain: It's important to reiterate that we have the ability to flex our leverage up to four acts on a lease adjusted basis.

Shelly Wholegrain: Therefore, we have room under our credit agreement to deploy our capital allocation strategy. Our U S. Credit agreement provides for up to $1 2 billion and revolving loans for working capital acquisitions capital expenditures and investments and other corporate purposes and was fully available at the end of December.

Shelly Wholegrain: SG&A to gross profit was 71% in the quarter and remains 700 basis points below the pre pandemic level of 77, 9% in 2019.

Roger S. Penske: SG&A to gross profit was 71% in the quarter and remained 700 basis points below the pre-pandemic level of 77.9% in 2019. We continue to focus our efforts on efficiencies and cost control. As part of our ongoing efforts, we continue to challenge our costs and focus on simplification, optimization, and digitization to drive further efficiency and a lower cost structure. In fact, our U.S. same store headcount remains down 11% when compared to pre-COVID headcount levels. Furthermore, in our U.S. automotive operations, variable compensation to gross profit improved 30 basis points, and service and parts absorption improved 120 basis points when compared to Q4 last year. At this time, I will turn the call back to Roger for some final remarks. Thanks, Shelly.

Shelly Wholegrain: We continue to focus our efforts on efficiencies and cost control.

Shelly Wholegrain: As part of our ongoing efforts, we continue to challenge, our cost and focus and simplification optimization and digitization to drive further efficiency and lower cost structure.

Shelly Wholegrain: In fact, our U S same store head count remains down 11% when compared to pre Covid head count levels.

Shelly Wholegrain: Further in our U S automotive operations variable compensation to gross profit improved 30 basis points and service and parts absorption improved 120 basis points when compared to Q4 of last year.

Shelly Wholegrain: At this time I will turn the call back to Roger for some final remarks. Thanks, Shelley Shelly you mentioned, our balance sheet is strong and we have the ability to flex our capital allocation.

Roger S. Penske: As Shelly mentioned, our balance sheet is strong, and we have the ability to flex our capital allocation opportunistically. We demonstrated that flexibility in January by expanding our brand footprint in the UK as we completed an acquisition of 16 premium brand dealerships representing approximately $1 billion in estimated annual revenue. Lastly, I'm pleased to report that Penske Automotive Group was recently named a Fortune World's Most Admired Company for 2024 and was recently honored by Glassdoor as the best place to work in 2024.

Shelly Wholegrain: Strictly.

Roger S. Penske: We demonstrated that flexibility in January by expanding our brand footprint in the U K as we completed an acquisition of 16 premium brand dealerships, representing approximately $1 billion and estimated annual revenue.

Roger S. Penske: Our UK team is currently integrating these dealerships into our operations and we are thrilled to add the <unk> team to our business.

Roger S. Penske: Lastly, I'm pleased to report that Penske automotive group was recently named as a fortune world's most admired company for 2024 and was recently honored by Glassdoor as the best place to work in 2020 for.

Operator: Our results continue to demonstrate the benefit of our diversification across the retail automotive and commercial truck industries, our cost control, and our disciplined capital allocation strategy. I remain confident in our model and the performance of our business. Again, thanks for joining us today, and we'll open the call up for questions. Thank you. Thank you, and ladies and gentlemen, if you do wish to ask a question, please press 1 and then 0 on your telephone keypad. You can withdraw your question at any time by repeating that 1-0 command. If using a speakerphone, please pick up the handset before pressing those numbers.

Roger S. Penske: Our results continue to demonstrate the benefit of our diversification across the retail automotive and commercial truck industries, our cost control and disciplined capital allocation strategy I remain confident in our model and the performance of our business again, thanks for joining us today, and we will open the call up for questions. Thank you.

Speaker Change: Thank you and ladies and gentlemen, if you do wish to ask a question. Please press one and then zero on your telephone keypad you can withdraw your question at any time by repeating that one zero command excuse me a speakerphone. Please pick up the handset before pressing those numbers again, one zero to ask a question.

John Murphy: Again, it's 1-0 to ask a question, and we can first go to John Murphy with Bank of America. Please go ahead.

Speaker Change: And well first go to John Murphy with Bank of America. Please go ahead.

Roger S. Penske: Good afternoon, Roger and everybody. I just wanted to start, Roger, with a question on the state of play on EVs. Shelley, I appreciate you giving us those inventory numbers so that they're helpful. I just wonder if you could talk about the pace of sales, the mood of consumers as they're buying or not buying these EVs, just the general environment with the automakers and what kind of capital requirements they're making you invest in, either from charging or facilities to support the sales, just trying to get your general view of the state of play here and how much it actually matters to you if you might be able to offset that by selling hybrids and ICE vehicles if we are really stalled here on the EV front.

John Murphy: Good afternoon, Roger and everybody.

John Murphy: Just a I want just wanted to start Roger with a question on the state of play on Evs.

John Murphy: Kelly I appreciate you, giving us those inventory numbers. So they are helpful. I'm. Just wondering if you could talk about sort of the pace of sales the mood of consumers as they are buying or not buying these evs.

John Murphy: The general environment with the automakers and what kind of capital requirements, they're making you.

John Murphy: Vesting, neither from charging or facilities.

John Murphy: The sales just trying to get your general view on the state of play here and how much it actually matters to you if you might be able to offset that by selling hybrids in an ice vehicles. If we are really sold here on the EV front.

Roger S. Penske: Okay, John, let me take a shot at it and then maybe have Rich make a comment, but there's no question that demand for BEVs has slowed, and when you look at our business, 51% of our BEV businesses in California, and of that business, 90% is leased. So right now, the OEMs, in order to push the business on the luxury side, at least, they're having to lease it and have a We think the bridging strategy is certainly going to be, and is hybrid, and that's been proven with what China is committed to now going forward with Camry at 100%.

Speaker Change: Okay, John Let me take a shot at it and then maybe I'll have rich make a comment but there's no question that demand for beverage has slowed and when you look at our business, 51% of our bad businesses in California.

John Murphy: And of that business, 90% is leased so right now the Oems in order to push our business in the luxury side at least they're having to lease it and have a residual risk. We think that bridging strategy is certainly going to be as hybrid and thats been proven with what China is committed.

John Murphy: Two now going forward it with camera at 100%.

Roger S. Penske: Seven percent of the market was BEV, you know, obviously last year, and when we look at our day's supply, we're running at about 53 days as of the end of the year. In the U.K., BEV units were really, at that point, they were much higher at 36 percent of the market. The BEV day's supply in the U.K. is 67.

John Murphy: 7% of the market.

John Murphy: Bev.

John Murphy: Obviously last year and when we look at our day supply were running at about 53 days as of the end of the year in the U K a bev.

John Murphy: Bev units were really at that point.

John Murphy: They were much higher at 36% of the market.

John Murphy: Bev days' supply in the U K is 67 show when we step back and look at it right now in California, we can't even get Chargers installed.

Roger S. Penske: So when we step back and look at it, right now, in California, we can't even get chargers installed at our locations because there's not enough power available, obviously, to supply them. We see that not only on the retail car side but also on the truck side. But those are just a couple of comments from me.

Speaker Change: At our location because theres not power available just to obviously to supply them. When we see that not only on the retail side, but also on the truck side, but those are a couple of comments from you or rich you want to follow up John I think we're at an inflection point, where early on we had a customer.

Rich Sherry: Rich, you want to follow up? Yeah, John, I think we're at an inflection point, you know, where early on we had, you know, customers that were early adopters certainly went out and bought the BEVs. Those early adopters now already have them, and you're getting to the point where you're trying to convince the customer to find their first BEV or their last ICE. And so going back to what Roger said about our overall BEV sales in the U.S. being in California, you know, earlier this week, talking to our management team there, we're starting to think that that market is getting saturated. When you look across the balance of the country, certainly, the BEV adoption percentages are at a much, much lower rate, and so we see that in our inventory starting to climb. With BEV inventory in the U.S., just under 1,500 units, 12% of our total inventory, that's up 34% from the end of Q3, which is indicative of the sales rate, you know, starting to slow down a little bit. That's very helpful.

Rich Randall: Customers that were early adopters certainly went out bought the bass those early adopters now already have them and you are to getting to the point, where youre trying to convince the customer find their first five or their last ice and so.

Rich Randall: Going back to what Roger said about our overall that sales and the USPS in California.

Rich Randall: Earlier, this week talking to our management team there.

Rich Randall: We're starting to think that that market is getting saturated and when you look across the balance of the country certainly the bev adoption percentages that are much much lower rate and.

Rich Randall: So we see that our inventory starting to climb with that inventory in the U S. Just under 500 units, 12% of our total inventory that's up 34% from the end of Q3, which is indicative of the sales rate.

Rich Randall: Starting.

Rich Randall: Slow down a little bit.

Speaker Change: That's very helpful. Just a.

Tony: Um, just a second question on GPUs that have been holding in better than many people have feared. And, you know, obviously, that goes along with pricing. I'm just curious if you can talk about sort of your expectations there for pricing and new GPUs. And, you know, maybe put that in the context of, you know, how negative the GPUs are on EVs relative to sort of your total. Tony, you want to give us... Sure, Roger.

Speaker Change: Second question on Gpus that have been holding in better than many.

Speaker Change: Many people had feared and obviously that goes along with pricing I'm. Just curious if you could talk about sort of your expectations are for pricing.

Speaker Change: And new Gpus and maybe.

Speaker Change: Maybe put that in context of how negative.

Wait the Gpus are on Evs relative to sort of your total.

Speaker Change: Tony you want to do so.

Speaker Change: Sure Roger.

Tony: John, thanks for the question. So when you take a look at Howard Gross, he looked at the overall business from Q4 to Q3. So when you look at the sequential side of things, we actually did quite well. New was down 257, used was down 123, and F&I was up on a total basis. When you look at our overall business in total, we were selling somewhere around 40-ish percent of the cars at MSRP. So we're very happy with that, and about 28% of the deals that we have right now are in cash. So when you look at the total variable gross profit that we generated on a sequential basis from Q3 to Q4, we were up in that $80, $90 range per unit.

Speaker Change: John Thanks for the question. So when you take a look at.

Anthony R. Pordon: How are gross.

Anthony R. Pordon: Looked at the overall business from Q4 to Q3, so when you look at the sequential side of things, we actually did quite well.

Anthony R. Pordon: <unk> was down $2 57 used was down 123, and an F&I was up on a on a total basis. When you look at our overall business in total we were selling somewhere around 40 ish percent other cars at MSRP.

Anthony R. Pordon: So we're very happy with that and about 28% of the deals that we have right now are in cash.

Anthony R. Pordon: So when you look at the total variable gross profit that we generated on a sequential basis from Q3 to Q4.

Anthony R. Pordon: We were up in that $80 $90 range per unit. So we're very pleased with our overall performance.

Tony: So we're very pleased with our overall performance on the gross profit side. And Tony, any color on how much of a weight the EVs are on that or where they're kind of landing for you on GPUs? Yeah, so they're running somewhere in the neighborhood of $5,000 or so below MSRP. Yeah, so you should. John, Tony said 41% or 40% of our cars last year at MSRP. If you look conversely at Beth,

Anthony R. Pordon: Performance on the gross profit side.

Anthony R. Pordon: And Tony just any color on how much of a weight that the vs are on that or were there kind of landing for you on Gpus.

Anthony R. Pordon: So they're running somewhere in the neighborhood of $5000 or so below.

Anthony R. Pordon: Below MSRP.

Anthony R. Pordon: Yes so.

Anthony R. Pordon: John Tony said, 41% or 40% of our cars last year at MSRP. If you look Conversely at <unk>, 83% of our best sales were below MSRP.

Roger S. Penske: 3% of our best sales were below MSRP, at more than $5,800. And if you look at just across all the brands we represent, on a weighted average, the ICE GPPU is almost $2,200 less than a comparable ICE. The discount is. Oh, GPU. Yeah.

Anthony R. Pordon: More than 48 volt $5800 and if you look at just across all the brands we represent.

Anthony R. Pordon: Weighted average the ice GPU is almost $2200 less than a comparable is the discount is now GPU of J P. S.

Roger S. Penske: And also, John, I would have to say that we have action on BEVs, probably 60,000 and below. And when you start looking at inventory above 60, EQS, EQE, 120, 115 days. Am I correct? Correct. Day supply, so there's no question. And we're starting to see, even in the UK, that there is another 1% discount for us on those vehicles last year or last month. Do you have any comment on that at all from internationally?

Anthony R. Pordon: Also John I would have to say that we have action on Bev is probably 60000 and below and when you start looking at inventory above 60, <unk> <unk> hundred 20, 115 days am I correct correct. Our day supply. So there is no question and we're starting to see even in the UK.

Anthony R. Pordon: That is another 1% discount for us.

Anthony R. Pordon: On those vehicles.

Anthony R. Pordon: Last year, our last month do you have any.

Any comment on it at all from internationally, yes.

Randall: Yeah, you know, in the UK, BEV was flat year over year. In fact, it was down 10 basis points. And looking at January, it was down another 180 basis points from a market share standpoint. So look at it. It's a little bit different there because it's, the retail BEVs would be de minimis. Meanwhile, it's all through corporate fleet programs because of the tax break. So, you know, it's a little bit like apples to oranges.

Speaker Change: The UK Bev was flat year over year February was down 10 basis points and looking at January was down another 180 basis points from a market share standpoint, so look at it it's a little bit different there because it's there's the retail bev would be de Minimis. Meanwhile, it's all through corporate fleet programs.

Speaker Change: Because of the tax break so it's a little bit apples to oranges and then you look at other parts of Europe, like Italy and Spain.

Randall: And then you look at other parts of Europe, like Italy and Spain, and they have, you know, 4% market share because there's no government incentive. So, you know, Germany, the government incentive is finished at the end of the year. So it's going to be interesting to see what happens there, you know, without this intervention by the government.

Speaker Change: 4% market share because there is no government incentives so.

Speaker Change: Germany.

Speaker Change: The government incentives finished at the end of the year. So it's going to be interesting to see what happens there.

Speaker Change: Out this.

Speaker Change: Intervention by the government.

Speaker Change: Incredibly helpful. Thank you very much guys.

John Murphy: Thank you very much, guys. All right. John, thanks. And next, we can go to Mike Ward with Freedom Capital. Please go ahead.

Speaker Change: Alright, John.

Speaker Change: And next we'll go to Mike Ward with Freedom Capital. Please go ahead.

Michael Patrick Ward: Roger, good afternoon, everyone. Thank you. Starting on car shop. You know, it wasn't long ago that everybody wanted car shop to spin off into a separate public entity. And we've had major disruption in the market over the last few years. Does that change how you look at it structurally?

Speaker Change: Mike.

Speaker Change: Okay.

Michael Patrick Ward: Hey, Roger Good afternoon, everyone and thank you Mike.

Speaker Change: Starting on car shop.

Michael Patrick Ward: It wasn't long ago that everybody wanted car shop to spin off into a separate entity and we've had major disruption in the market over the last few years.

Michael Patrick Ward: Does that change how you look at structurally how big is the advantage being part of Pag is it just part of the portfolio and with this reset or this adjustment tax adjustment in the U K.

Michael Patrick Ward: How big is the advantage being part of PAG? Is it just part of the portfolio? And you know, with this reset, or this tax adjustment in the UK? Is this a chance to accelerate on the pedal?

Michael Patrick Ward: Is this a chance to accelerate on the pedal or is it just reconfiguring it or change in the strategy. How are you looking at it.

Shelly: Or is it just, you know, reconfiguring it or changing the strategy? How are you looking at it? Hey Mike, it's Shelly.

Michael Patrick Ward: Hey, Mike It's Charlie I'll take that question, Yeah. We had mentioned in our press release that we had an impairment related to our car shop UK question, our Carhop U K business.

Shelly: I'll take that question. You know, we had mentioned in our press release that we had an impairment related to our Car Shop UK question, or our Car Shop UK business. And when you dig into the details and try to establish a fair value, it became very clear that though we initially looked at these businesses separately from the franchise dealerships, if you will, there are so many synergies that we've put in place over time. You know, we've moved systems.

When you dig into the details of it and you try to establish a fair value. It became very clear that though we initially looked at these businesses separate separate from the franchise dealerships. If you will theres. So many synergies that we've put in place over time, we've moved systems.

Roger S. Penske: We've incorporated a lot of the same franchise F&I products and the like. So I think there's a great benefit to looking at the car shop businesses in a consistent way with the franchise stores. There are also a lot of sourcing opportunities and similarities there. So you know, buying off the curb, if you will, purchasing cars from customers directly, that's had a huge benefit to us as well. So I think there's a lot of benefit. You know, certainly those that have spun off have not always succeeded, as we've seen this year.

Michael Patrick Ward: We've incorporated a lot of the same franchise F&I products and the like so.

Michael Patrick Ward: There's a great benefit to looking at the car shop businesses consistent with the franchise stores. There's also a lot of sourcing opportunities and similarities there. So.

Michael Patrick Ward: Fine.

Michael Patrick Ward: Off the curve, if you will of purchasing cars from customers directly.

Michael Patrick Ward: Benefit to us as well, so I think theres a lot of benefit you know.

Michael Patrick Ward: Certainly those that have spun off its not always succeeded as we've seen this year and as.

Roger S. Penske: And you know, as we look forward to the future and consider this from a calculation standpoint, our focus isn't so much on what the used car market is doing right now but really what's available from a new car perspective. As you see the star growing, we expect to see a similar used car SAR, if you will, grow as well and have more affordable cars available for our car shop locations. So as we look forward, then it becomes more of a partnership with retail automotive. I think it's been for a long time.

Michael Patrick Ward: As we look forward to the future and looked at this from a calculation standpoint, our focus isn't so much on what the used car market is doing right now, but really what's available from a new car perspective.

Excuse me and as you see the Saar growing we expect to see a similar used car.

Michael Patrick Ward: Sorry, if you will grow as well and have more affordable cars available for our shop location.

Michael Patrick Ward: So as we look forward then it becomes more of a partnership with the retail automotive.

Michael Patrick Ward: I think it has been for a long time Mike.

Roger S. Penske: But even more, this charge, obviously, you know, technically when they look at it, and Shelly's team, along with the auditors, look at this, so it wasn't something that we didn't expect. And, you know, obviously, we reduced two locations in the U.S. this year, which had been losing money, and we have been able to sell one location, and one will move over to PTS from the standpoint of a But as far as the U.K. is concerned, you know, we think it's a valued brand, and as we go forward, you know, we'll continue to operate it. I think we had, what, 150 million in value, and we took 27 percent as a goodwill impairment on that. So, look, it's part of doing business, but I'm so glad that we didn't listen to people about spinning it off. Let me say that again. Myself included.

Michael Patrick Ward: But even more.

Michael Patrick Ward: Charge obviously.

Michael Patrick Ward: Technically when they look at and Shelley's team along with the auditors look at this so it wasn't something that.

Michael Patrick Ward: We didn't expect and.

Michael Patrick Ward: Obviously, we reduce two locations in the U S. This year, which had been losing money and we have been able to sell one location and one will move over to Pts from our standpoint from a leasing and rental location, but as far as the UK is concerned we think it's a value brand and as we go forward.

Michael Patrick Ward: We will continue to operate it and I think we hit out 150 million value and we took 27%.

Michael Patrick Ward: Goodwill impairment on that so look it's part of doing business excellence I'm, So glad that we didnt listen to people about spinning it off.

Michael Patrick Ward: Yeah.

Michael Patrick Ward: Yes.

Speaker Change: [laughter] myself included.

Speaker Change: On Pts one of the things that you've tried to do is use the.

Roger S. Penske: On PTS, one of the things you try to do is, the last couple of years, again, have been highly unusual. But when you look at the growth path, particularly if you go back to 2019, 2018, and those sorts of things, there are a lot of positive changes. So even if we're down again in 2024, some of the disruption we've seen in the last two to three quarters is more market-related. And is there anything that stops this company from, once we get through 2024, getting back into a growth phase? Oh, not at all.

Speaker Change: The last couple of years again have been highly unusual but when you look at the growth path, particularly if you go back to 2019, 2018, and those sorts of things.

Speaker Change: There are a lot of.

Speaker Change: Positive changes so even if we're down again in 2020 for some of the disruption we've seen in the last two to three quarters.

Speaker Change: Are more market related and is there anything that stops this company from once we get through 2024 gig getting back onto a growth phase.

Roger S. Penske: And when you look at it right now, I think we mentioned it earlier, you know, our lease business was up 21%, and our logistics business was up 5%. Unfortunately, we'd grown our rental fleet to almost 90,000 units. And, of course, as the market slowed, spot rates came down, and our utilization went down from 88 percent to roughly 82. And I think that gave us an excess supply. On top of that, a lot of those pieces were being used to support leases that we had written when we were at 70,000 units on order and couldn't get them from the manufacturers; we were using some rental units. So those have now come back, as we've seen the supply start to come in. Our issue is that we have approximately 16,000 to 18,000 units for sale.

Speaker Change: Not at all and when you look at it right now I think we mentioned it earlier.

Speaker Change: Our lease business was up 21%.

Speaker Change: Our logistic vessels was up 5%. Unfortunately, we draw on our rental fleet to almost 90000 units and of course as the market slowed spot rates came down our utilization went down from 88 down to roughly 82, and I think that gave us an excess supply on top of that.

Speaker Change: A lot of those pieces were being used to support leases that we had written when we were at 70000 units on order and couldn't get them from the manufacturers we were using some rental units. So those now come back as we've seen the supply start to come in our issue is we.

Speaker Change: Have approximately $18 $60 to 18000 units for sale and to get those out.

Roger S. Penske: And to get those out, that's about 8,000 more than we had a year ago. We're paying depreciation interest and maintenance on those as they sit. So we'll have to pull that stuff through. And I would say that impact will continue through the first quarter.

Speaker Change: 8000, more than we had a year ago, we're paying depreciation interest and maintenance on those as they sit so we'll have to pull that stuff through and I would say that impact will continue through the first quarter. So I would say we'd be similar as far as value and actually earnings in the first quarter.

Roger S. Penske: So I would say we'd be similar as far as value and actually earnings are concerned in the first quarter, similar to what we had in Q4, based on lower rental volume both. And on the consumer side, which is our one-way business, there are fewer people moving because of house prices. And when they do move, it looks like the mileage is down. So that's really hit us.

Speaker Change: Order similar to what we had in Q4 based on lower rental volume, both and on the consumer side, which is our one way business, there's less people moving because of the house prices and when they do move it looks like the mileage is down so that's really hit US and then we had the <unk>.

Roger S. Penske: And then we had the company had $213 million, I think, roughly, of total interest cost increase in 2023, 100 of that based on new debt and 100 on refinance. So gain on sale, financing, lower revenue in rental really impacted us. But from an energy standpoint, meaning from an offensive in sales, we were up in our core product. So Roger, Mike, I want to add to that that when you look at Q4, we actually saw the year-over-year change in maintenance become more favorable to us. So maintenance at OTF is down $11 million in the fourth quarter when you compare it to the prior year. So that means this process is working.

Speaker Change: Company had $213 million I think roughly of total interest cost increase in 2023.

Speaker Change: To that based on our new debt and 100 on rehab refinance so.

Speaker Change: Gain on sale.

Speaker Change: <unk> lower revenue and rental really impacted us, but from a energy standpoint, meaning from an offense in sales we were up in our core products.

Speaker Change: So Roger Mike we wanted to.

Speaker Change: And Mike I want to add to that that when you look at Q4, we actually saw the year over year change in maintenance. Good point, it became more favorable to us so maintenance at at.

Speaker Change: Down $11 million in the fourth quarter when a when you compare to the prior year. So that means this process is working.

Roger S. Penske: Taking the trucks out of the fleet is working. So we hope that that continues into the future. You know, with the extension, Mike, of some 28,000 older units that we had to extend from, say, six to 12 months, those just eat you up on maintenance, number one. And number two, we don't get any margin on that extension revenue. So that had a double impact on us. Thank you very much.

Speaker Change: Taking that the trucks out of the fleet is working so we hope that that that continues into the future because you know where the extension Mike.

Speaker Change: Some 28000 older units that we had to extend from let's say six to 12 months.

Speaker Change: Saying, each alpine maintenance number one and number two we don't get any margin on that extension revenue so that had a double impact on us.

Speaker Change: Yes.

Speaker Change: Yeah.

Speaker Change: Thank you very much really appreciate it.

Daniel Imbro: I really appreciate it. And next, we can go to Daniel Imbro with Stevens Incorporated. Please go ahead.

Speaker Change: And next we can go to Daniel <unk> with Stephens incorporated. Please go ahead.

Roger S. Penske: Hey, good afternoon everybody. Thanks for taking our questions. Welcome. Roger.

Daniel: Hey, good afternoon, everybody. Thanks, taking my questions.

Daniel: Welcome Roger May want to expand a little bit on the last topic I think we start with car shop, there maybe just to expand their broader use business on the franchise side could you talk about the headwinds on that business that are weighing on same store units kind of close to flat. This quarter. It seems like obviously theres demand headwinds, but you guys have been historically a high lease penetration or are we starting to see more supply.

Roger S. Penske: I may want to expand a little bit on that last topic. I think we started with a car shop there, maybe just to expand to the broader used business on the franchise side. You know, can you talk about the headwinds on that business that are weighing on same store units kind of close to flat this quarter? It seems like obviously there are demand headwinds, but you guys having historically a high lease penetration, are we starting to see more supply issues, maybe a lack of lease returns coming back? As you look at those headwinds, how that plays out through 2024. Well, look, number one, we know the market's stabilized because as we look at our wholesale units, both in the UK and the US, we're profitable in Q4. That's point number one and point number two.

Daniel: Issues, maybe lack of lease returns coming back and just curious.

Daniel: As you look at those headwinds how that plays out through 'twenty four.

Roger: Well look number one we know the market stabilize because as we look at.

Roger: In our wholesale units both in the U K and the U S. We were profitable in.

Roger: Q4 is point number one point number two I think availability one of the thing that's impacted us is getting the right car to right price certainly as car shop, we were looking to in the U S is somewhere between say, 19% and 22000 or those cars that we can get we're almost 10000 more from the standpoint of being able.

Roger S. Penske: I think availability, you know, one of the things that's impacted us is getting the right car at the right price. Certainly, as a car shop, we were looking in the US for somewhere between, say, $19,000 and $22,000. Well, those cars that we could get were almost $10,000 more from the standpoint of being able to get them to purchase and then sell them. Same thing in the UK.

Roger: Get them to purchase and then sell them same thing in the U K well I think what's going on now is we're starting to see those numbers come down.

Roger S. Penske: Well, I think what's going on now is we're starting to see those numbers come down as, I guess you'd say, deflation on unused vehicles in the UK. But more importantly, with leasing being down to something like 25% in the past two years. And we haven't had, obviously, the lease returns have not come back, and probably even more important is on the premium side. I think we have, what, Shelly, 6,000 or 7,000 loaner cars on the premium side? That's right. I can't give you an exact number.

Roger: I guess just a deflation.

Roger: Used vehicles in the U K, but more importantly, with leasing being down to somewhat 25%.

Roger: In the past two years.

Roger: And we haven't had obviously the lease returns have not come back and probably even more important is in the premium side I think we have what shelly six or 7000.

Roger: Loaner cars in the premium side, that's I cant give you exact number we were turning those units anywhere from <unk>.

Roger S. Penske: That's right. We're returning those units anywhere from 60 to 90 to 120 days. Those are great used car units. We really didn't have those because, I can tell you, at our big BMW store at Corvier in California, they were running used cars for almost 12 months. So we didn't have the ability to take them out.

60% to 90 to 120 days.

Roger: Great used car units, but it really didn't have those because I can tell you in our big <unk>.

Roger: <unk> and <unk> in California. They are running used cars almost 12 months. So it didn't have the ability to take them out and those will become really prime used cars. So thats going to help us as we go forward and certainly on.

Roger S. Penske: Those would become really prime used cars, so that's going to help us as we go forward and certainly overall, it gives us a chance to have more units, 7,200 units, maybe more than we could sell that we put through the system, which is key for us. Rich, any other comments you have? No, I think you know the availability, you mentioned demand versus availability, and I think the demand is still there; it's just the availability of cars, with the new car star being down. Cumulatively, almost $9.5 million in the last four years. The best source for used cars is new car purchasers on trades, and that just hasn't been there. You combine that with the low lease rates that Roger mentioned, and it certainly has been a challenge. And then I think we've been more disciplined as well to make sure that we're not buying cars in segment two, segment three, just to keep sales rates up, because you end up with customer service issues and policy goodwill expenses. That's all helpful color.

Roger: The overall it gives us a chance to have more units 7200, maybe more that we can sell that we've put through the system, which is key for us rich any other comment you know I think.

Roger: The availability of <unk>.

Speaker Change: You mentioned demand versus availability and I think the demand is still there. It's just availability of cars with the new car Saar being down cumulatively almost $9 5 million in the last four years. The best source for used cars as new car purchasers trades and that just hasnt been there you combine that with.

Speaker Change: The low lease rates that Roger mentioned.

Speaker Change: It certainly has been a challenge in that I think we've been.

Speaker Change: We're disciplined as well to make sure that we're not buying cars and segment to segment three just to keep sales rates up because you end up with customer service issues and policy goodwill expense.

Speaker Change: No.

Speaker Change: That's all helpful color, maybe if I could follow up on the commercial truck side of the house, obviously, a strong full year result, but if I look at <unk> parts and service slowed a little bit more than we thought it would Rogers David lighter, it's easier to talk through the puts and takes of.

Rich Sherry: Maybe if I could follow up on the commercial truck side of the house, obviously a strong full-year result. But if I look at 4Q parts and service, maybe it slowed a little bit more than we thought it would, Roger, or stayed lighter. Can you talk through the puts and takes of what is going on there, maybe some of it's the wholesale part side, and then same question, kind of how that plays out through 2024 and 2025, as you guys see the market developing? I'll let Rich answer that one directly. Yeah, Daniel. You're definitely right.

Speaker Change: What is going on there maybe some of it the wholesale part side and then same question on kind of how that plays out through 2024 and five as you guys see as you guys see the market developing.

Let rich answer that one directly yes, Daniel Youre definitely right. We did see that slow down the second half of last year. Obviously, the freight was very robust utilization of assets was very high.

Rich Randall: Get a lot of owner operator single truck operators coming into the market to take advantage of those rates because they can make substantial money.

Rich Randall: They generally we're getting their truck service to the independent repair centers and that creates big parts revenue and profit opportunities for us. So we've seen a decline in our wholesale parts sales and then our just our general retail traffic of part sales over the counter.

Rich Sherry: We did see a slowdown in the second half of last year. You know, obviously, freight was very robust. Utilization of assets was very high. You had a lot of owner-operators, single-truck operators coming into the market to take advantage of those rates because they could make substantial money. They generally were getting their trucks serviced at independent repair centers, and that created big parts revenue and profit opportunities for us. But we've seen a decline in our wholesale parts sales and in just our general retail traffic for parts sales over the counter. If you look at our service shops; we're still busy. We don't have the backlog of service work that we had previously, but we're still steady with the number of ROs that we generate on a monthly basis.

Rich Randall: Look at our service shops, we are still busy we don't have the backlog of service work that we had previously but we're still steady with the number of borrowers that were generating on our <unk>.

Rich Randall: Monthly basis, and then because of the freight decline and the asset utilization down you've got some carriers.

Rich Randall: That was parked trucks and maybe pull it pull another truck from the fence.

Rich Randall: Versus <unk>.

Rich Randall: Having extensive repairing it so we're seeing some of that as well until some of that capacity tightens in the marketplace. I think I think rich also when you look at our fixed coverage, we're running about 120 plus percent almost 130 and I think we're utilizing tools to be more efficient. We've also been able to fill a lot of it.

Rich Sherry: And then because of the freight decline and the asset utilization down, you've got some carriers that would park trucks and maybe pull another truck from the fence versus having the expense of repairing them. So we're seeing some of that as well until some of that capacity tightens in the marketplace. I think, Rich, also, when you look at our fixed coverage. We're running at 120 plus percent. Yeah, almost 130.

Rich Randall: The mechanics.

Rich Randall: Requirement should we couldnt get during the Covid time, we're now seeing them come in and our turnover really has been down so I would say we've put more service trucks on the road going out to the customers too which has certainly also been a benefit so I think through our acquisitions that we will see that it will start to get some more traction there.

Roger S. Penske: And I think we're utilizing tools to be more efficient. We've also been able to fill a lot of the mechanics requirements that we couldn't get during the COVID time. We're now seeing them come in, and our turnover really has been down.

Rich Randall: Putting in some of the same conditions and.

Rich Randall: And action plans, we have in the core business.

Speaker Change: It makes sense I appreciate all the color best of luck guys alright.

Roger S. Penske: So I would say we put more service trucks on the road going out to the customers too, which has certainly been a benefit. So I think through our acquisitions that we'll start to get some more traction there by putting in some of the same conditions and action plans we have in the core business. Make sense. Well, I appreciate all the color.

Speaker Change: Alright, Thanks Danielle.

Speaker Change: And just a reminder, it is one zero to ask a question. We'll go next to Richard <unk> with J P. Morgan.

Richard: They are as yet.

Richard: Oh, Hey, great. Thanks for taking the question.

Richard: Just had one question.

Richard: And then one on F&I.

Richard: Based on how things have trended over the last few months and quarters.

Daniel Imbro: Best of luck, guys. All right. Thanks.

Rajat Gupta: Thanks, Daniel. And just a reminder, it is 1-0 to ask a question. We'll go next to Rajat Gupta with J.P. Morgan. Hey Rajat,

Richard: Including what you may have seen in January.

Richard: As the recent quarterly cadence you know like Lockheed 215 $200.

Richard: Some sequential declines in new GPU, a good rule of thumb.

Tony: I just have one question on new GPUs and then one on FNI. Based on how things have trended over the last few months and quarters, including what you may have seen in January, is the recent quarterly cadence, you know, roughly $250, $300 of sequential declines in new GPUs a good rule of thumb? Or as you progress through 2024, you know, if you could give us any color or guidance on that would be helpful. And I have a quick follow-up on FNI. So Rajat, this is Tony. I'll handle that one.

Speaker Change: Or as you progress through 'twenty going forward, if you could give us any color or guidance around that would be helpful. A quick follow up on that.

Thanks.

Speaker Change: So <unk> this is Tony I'll handle that one when you take a look at the year over year.

Anthony R. Pordon: Decline from Q4, 'twenty two to Q4 'twenty three new gross was down about $956 a car that's on a same store basis across.

Anthony R. Pordon: The portfolio and I think as I previously mentioned when we looked at it sequentially. It was down $2 57 from.

Anthony R. Pordon: $50 775 down to $55 18, so I think we're able to manage the growth very well.

Tony: When you take a look at the year over year decline from Q4'22 to Q4'23, new gross was down about $956 a car. That's on a same-store basis across the portfolio. And I think, as I previously mentioned, when we looked at it sequentially, it was down $257 from $57.75 to $55.18. So I think we're able to manage the gross very well.

Anthony R. Pordon: Some of it will be dependent upon how the mix might change from one period to the next and the level of <unk> sales I think rich made the comment that we were down over $5000 versus MSRP on the on the <unk> side of things. So I think we're very happy with how the new vehicle.

Roger S. Penske: Some of it will be dependent upon how the mix might change from one period to the next and the level of BEV sales. I think Rich made the comment that, you know, we were down over $5,000 versus MSRP on the BEV side of things. So I think we're very happy with how the new vehicle gross has performed so far in the past 12 months. I'd make one comment, Rajat, that we're seeing internationally, you know, Ferrari and Porsche, Lamborghini, some of those big cars that are now, you know, in the $200,000, $300,000 range; people could drive them for a year and come back and trade them in and be able to get into the next car We're seeing some people saying, "Look, I'll keep my car for another year." So that's having some impact on canceled orders where we have to resell those at a lower margin. I wouldn't say it's dramatic, but I think it's something we should note.

Anthony R. Pordon: Gross has performed so far.

Anthony R. Pordon: In the past 12 months I'd make one comment on <unk> that we're seeing internationally.

Anthony R. Pordon: Ferrari and Porsche Lamborghini some of those big cars are now.

Anthony R. Pordon: And the 200 $300000 range people could drive them for a year and come back and trade them and be able to get into in a nice car were saying some people are saying look I'll keep my car for another year. So that's having some impact on canceled orders, where we after re sell loans at a lower margin, but I wouldn't say, it's dramatic but I.

Anthony R. Pordon: I think it's something that we should note because of the used vehicle decline.

Anthony R. Pordon: That happened in the fourth quarter and the fourth quarter, yes.

Speaker Change: Got it that's helpful.

Speaker Change: And then on F&I.

Very strong performance here in the fourth quarter.

Roger S. Penske: Because of the used vehicle decline that happened in the fourth quarter. Yeah, in the fourth quarter, yeah. And then on FMI, a very strong performance here in the fourth quarter, you know, despite what we're hearing that leasing is coming back. We can see that in the data. What drove the strength there?

Speaker Change: Despite.

Speaker Change: What we are hearing that leasing is coming back in the data.

Speaker Change: What drove the strength, there and how should we think about it.

Speaker Change: Sustaining these kind of F&I gross levels into 'twenty four.

Speaker Change: Well there is that this is Tony if you look at the fourth quarter on a same store basis. We did $18 97, a unit that was up from $18 66, and then sequentially. It was up about $76.

Tony: And how should we think about, you know, sustaining these kind of, you know, F&I gross levels into 2024? Thanks. Rajat, this is Tony.

Tony: If you look at the fourth quarter on a same-store basis, we did $18.97 a unit. That was up from $18.66, and then sequentially, it was up about $76 a unit from $18.21 to $18.97. I think it's important to point out that when you look at the U.S., our overall product sales are about 68% of the total. Therefore, our reserves are about 32%. Then you look at some of the different penetration rates.

Anthony R. Pordon: A unit from 18% to 21% to $18 97, I think it's important to point out that when you look at the U S. Our overall product sales or about 68% of the total therefore reserves are about 32, and then you look at some of the different penetration rates, we've increased our capital.

Anthony R. Pordon: Penetration again.

Anthony R. Pordon: Leasing is up a little bit and then when you look at.

Anthony R. Pordon: At some of the different programs that we are selling like prepaid maintenance and protection products tire and wheel, that's toughest state of real strong for us.

Tony: We've increased our captive penetration again, and leasing is up a little bit. Then when you look at some of the different programs that we're selling, like prepaid maintenance and protection products, tire, and wheel, that stuff has stayed real strong for us. So I think overall, our team's doing a really strong job on the F&I side of things. And those are products that we can sell to the premium lease customer too, which is helpful. Got it.

Anthony R. Pordon: So I think overall our team is doing a really strong job on on.

Anthony R. Pordon: On the F&I side of thing and those are products that we can sell to the premium lease customer too.

Anthony R. Pordon: Which is helpful.

Speaker Change: Got it got it thank you feel okay about it and.

Speaker Change: You've kind of like level on a same store basis.

Rajat Gupta: So you feel okay about, you know, sustaining these kind of levels on a same-store basis? Obviously, pricing might play a role there, but what are the penetration levels you think are sustainable at these levels into 2024? Some of it will depend upon the absolute lease level that we have, particularly in the U.S. And then we also have to look at any potential affordability concerns that customers may have with respect to extended service contracts.

Speaker Change: Do you like pricing.

Speaker Change: They were all there, but like the penetration level would you think.

Speaker Change: Our sustainable.

Speaker Change: That'd be level.

Speaker Change: We're just waiting for some of it will depend upon the absolute lease level that we have particularly in the U S and.

Speaker Change: And then we also have to look at any.

Speaker Change: Potential affordability concerns that customers might have with respect to extended service contracts.

Tony: But I think if you look at the second half of the year and you see any rate reduction that might happen in interest rates, that could actually help the F&I side of the business as well, making vehicles more affordable. But it's only 32% of our revenues coming from the actual reserves and flats we would get on leasing. Correct. Thank you and good luck. And next, we'll go to David Whiston with Morningstar. Please go ahead.

Speaker Change: I think if you look at the second half of the year.

Speaker Change: And you see any rate reduction that might happen in interest rates, so that could actually help the F&I side of the business as well making vehicles more affordable.

Speaker Change: It's always a priority to churn of our.

Speaker Change: Our revenue is coming from from the actual reserves correct flat, we would get on leasing correct.

Speaker Change: Got it that's helpful color. Thank you and good luck.

Speaker Change: <unk>.

Speaker Change: And next we'll go to David Whiston with Morningstar. Please go ahead.

David Whiston: Thanks, good morning, or good afternoon. Two questions, kind of on the capital allocation front. First, on M&A. Can you say what your preference would be this year for M&A in terms of what it would be like, vehicle, car shop, or trucks? And on top of that, what geographic areas would be your first choice?

David Whiston: Hi, David Thanks, Good morning, or good afternoon.

David Whiston: Is it two questions like economy capital allocation front Bruce on the M&A.

David Whiston: Can you say what your preference would be this year on M&A in terms of would it be light vehicle car shopper trucks and on top of that what geographic areas would be your first choice.

Roger S. Penske: Well, I guess we'll look at the different businesses. We're actively looking on the premier truck side. There's no question in Europe that we had the opportunity with Rybrook, the 16 locations. We have a number of opportunities here in the US.

Speaker Change: Well I guess.

Speaker Change: Let's look at the different businesses, we are actively looking and thats been premier truck side.

Speaker Change: There is no question in Europe, we had a.

Speaker Change: <unk> with.

Speaker Change: With Rye Brook 16 locations, we have a number of opportunities here in the U S and I would say, we look primarily where we already have scale. So we can consolidate our back offices, our management team with Rye Brook.

Roger S. Penske: And I would say we look primarily where we already have scale. So we can consolidate our back offices, our management team with Rybrook. You know, we looked at Pendragon. We have a business at Pendragon, and when we looked at that business in conjunction with Heddon, we had a central office that we'd have to deal with with Ryebrook. We just bought the stores and plugged them right in.

We looked at.

Speaker Change: The business had pendragon and when we looked at that business in conjunction with head and we head of schedule off because we'd have to deal with <unk>. We just bought the storage and plugged right. In so we wanted to look where we have the least amount of additional SG&A that would be a key factor and I think right now we're seeing the.

Roger S. Penske: So we want to look where we have the least amount of additional SG&A, and that would be a key factor. I think right now we're seeing prices coming down to a more realistic time frame, and obviously, with $1.7 billion of capital available, we've got plenty of firepower to make a big move or small move, but again, they're going to be strategic. But you don't have a strong preference then for truck versus light vehicle. That doesn't really matter.

Speaker Change: Prices coming down to a more realistic time frame and obviously with one.

Speaker Change: $1 billion seven of capital available, we've got plenty of firepower to make a big move or small moves, but again theyre going to be strategic.

Speaker Change: But you don't have a strong preference then on truck versus light vehicle that doesn't really matter.

Roger S. Penske: I think we should look at them one at a time. I mean, we don't have a goal to grow the truck at some speed or else. I want to see a minimum of a billion dollars worth of new business that we would generate on an annualized basis across the entire portfolio. Okay, and on buybacks, can you talk about how you guys are feeling about buybacks this year relative to the 2023 spending level? Well, look, I think, as we've done before, we look at CapEx, we look at dividends, we look at acquisitions, we look at buybacks. And I think that, you know, we certainly will look at that to continue. The board has to approve those buybacks and make recommendations to us.

Speaker Change: I think we look at them one at a time I mean.

Speaker Change: It's not.

Speaker Change: We don't have a <unk>.

Speaker Change: Youll grow the truck at some speed or else I want to see a minimum of $1 billion worth of new business that we would we would generate four for 2024 on an annualized basis that would be cross across the entire portfolio.

Speaker Change: Okay and on buybacks can you talk about how you guys are feeling about buybacks this year relative to the 2023 spend spending level.

Speaker Change: Well look I think as we've done before we look at Capex, we look at dividend. We look at acquisition, we look at buybacks and I think that we.

Speaker Change: We certainly will look at that to continue the board has to approve those those buybacks and make recommendations to us but at this point.

Roger S. Penske: But at this point, you know, we would continue with our buybacks. Okay, and just one last thing on used vehicles. In the press release, you guys specifically called out how pleased you were with that sequential GPU performance in Q4 versus Q3. If it kind of, for lack of a better word, is that like a green shoot that maybe the worst of this is over?

Speaker Change: We continue with our buyback.

Speaker Change: Okay, and just one last thing on used vehicles used in the press release, you guys specifically called out.

Speaker Change: How pleased you were on that sequential GPU performance Q4 versus Q3.

Speaker Change: Is it.

Speaker Change: Kind of.

Speaker Change: For lack of a better word is that like a green shoot that may be the the worst of this is over.

Randall: You're talking about used vehicles, David? Yeah. So I'll tell you Randy, you might want to comment about what we're seeing in the UK because that was one of the big headwinds, if you will. So you want to get- As all the valuations went, you know, significantly up over 21, 22. And then obviously, starting April last year, they were going down anywhere from two to 4% a month. And in the fourth quarter, it was down 4%, 4%, and 2% from October, November, and December. So look, it was a challenge without a doubt. You had to turn the inventory quickly.

Speaker Change: Are you talking on used vehicles David.

Speaker Change: Yes.

Speaker Change: So I.

Speaker Change: Randall will tell you Randy you might want to comment about what we're seeing in the U K because that was.

Speaker Change: One of the big headwinds if you will so.

Randall: Alright, so it has all the valuations win.

Randall: Significantly up over 'twenty, one 'twenty two and then obviously starting April last year, they were going down anywhere from 2% to 4% a month in the fourth quarter. It was down 4%, 4% and 2% from October November December. So look it was a challenge without a doubt yet to turn the inventory quickly. Otherwise you are you are caught with that.

Randall: Otherwise, you're caught with that at a lower number than you can sell it. But as we've come into the new year in January, it's absolutely stabilized. And we're seeing that in February as well. Our gross per unit will definitely be up in January, you know, for the first handful of trading days in February. The same thing. I'll make one other point.

At a lower number you can sell it but as we come into the new year in January it's absolutely stabilized and we're seeing that in February as well our gross per unit will definitely be up in January.

The first handful of trading days in February the same thing I'll make one other point when we when we were right sizing the inventory, we wholesale 10000 cars, but our wholesale we actually made about 370 pounds per unit, which was down from 400 pounds per unit Q4.

Randall: When we were right-sizing the inventory, you know, we wholesaled 10,000 cars, but our wholesale, we actually made about 370 pounds per unit, which was down from 400 pounds per unit in Q4 last year. So it wasn't down much. You know, you think about the market going down, that is the way it did. So there certainly wasn't a fire sale.

Randall: Last year, so it wasn't down much and you think about the market going down that is the way. It did so theres certainly wasn't a fire sale, but conversely to that.

Randall: But conversely, we in late November and December went out and acquired a bunch of used cars strategically as the market was deflated. And now, as the market stabilizes and hopefully goes up some, that's part of the reason we're seeing better grosses this month. So I think we were a bit advantageous there with our team.

Randall: <unk>.

Randall: In late November and December went out and acquired a bunch of used car strategically as the market was deflated and now as the market stabilize and hopefully goes up some that's part of the reason we're seeing better grosses. This month. So I think we were a bit advantageous there with <unk> well I think Dan.

Roger S. Penske: Well, look, I think the key thing, David, is that we were paying money for used cars. It was, in some cases, near, what they could buy a new car for. So the amount of gross profit that was available to us from an advance rate from the finance company.

Speaker Change: The key thing.

Speaker Change: David is that we were paying money for used cars. It was almost in some cases near where they could buy a new car for show the amount of gross profit.

Speaker Change: Was available to us from an advance rate from the finance company I remember, we finance a lot of the used cars left is a very small margin is the cost of sale comes down now it's going to give us a change that we've got an interest rates pushing that up on a finance deal, but I think we're going to see our margins will.

Roger S. Penske: Remember, we financed a lot of the used cars and left us with a very small margin. As the cost of sale comes down now, it's going to give us a chance. Now, we've got interest rates pushing that up on a finance deal. But I think we're going to see our margins increase as we go forward. And I feel good about the used car business. To be able to turn around the loaner cars, all these things are going to help us as we go forward, especially on the premium side. And hopefully, we'll start to get some lease returns. You talked about advantageous buying 250 cars from Mercedes, I think, last year, in the fourth quarter. So, these things will start to help us, and we can execute on them.

Speaker Change: <unk> as we go forward and I feel good about the used car business, we're able to turn the loaner cars. All of these things are going to help us as we go forward, especially on the premium side and hopefully we'll start to get some lease returns you talked about advantageous by 250 cars from Mercedes I think in last year in the fourth quarter.

Speaker Change: Leasing you will start to help us that we can.

Roger S. Penske: I mean, our average transaction price last year was over $34,000 for a used car. That's high. And what was it? Do you know what it was a year before? It was flat on a year-over-year basis, roughly.

Speaker Change: He can execute on our average transaction price last year was over $34000.

Speaker Change: Used car, that's high and what wasn't what it was a year before.

Speaker Change: It was flat on a year over year basis, roughly so it really when you go back I think to 2019 prior to the pandemic.

Roger S. Penske: So, it really, when you go back, I think, to 2019, prior to the pandemic, it was $25,000. The car shop number is coming down. We can see the sale price of the car shop. So, I'm not sure exactly what it is.

Speaker Change: It was 25 number is coming down we can we can see the sale price of car shop shall I am not sure exactly what anybody I know, it's coming down and that's going to help us get back in the sweet spot. That's right, we're not competing with what I call. The OEM dealership right because it can be done in a different market.

Roger S. Penske: But I know it's coming down, and that's going to help us get back in the sweet spot. That's right. So, we're not competing with what I call the OEM dealership, right? Because we'll be down in this different market that we have. Sorry, was that $34,000 at the car shop or the retail stores? That's the total consolidated number; that's everybody. If you look at the car shop, the average transaction price was just under $21,000 in the fourth quarter.

Speaker Change: <unk>.

Speaker Change: Sorry was that 34000 at car shopper the retail stores.

Speaker Change: Total consolidated every number that's everybody if you look at car shop. The average transaction price was just under 21000 in.

Speaker Change: In the fourth quarter.

Speaker Change: Okay. Thank you very much.

David Whiston: Okay, thank you very much. All right, David, thank you. And with no further questions in queue, I'd like to turn the call back over to Mr. Penske for closing remarks. Brad, thanks. Good quarter. We had some headwinds, obviously, but we feel good about the balance of the year, obviously.

Speaker Change: Well David Thank you.

Speaker Change: And with no further questions in queue I'd like to turn the call back over to Mr. Penske for closing remarks.

Brad: Brad Thanks, good good.

Brad: Good quarter.

Roger S. Penske: Headwind, obviously, but feel good about the balance of the year. Obviously, we've talked about battery electric vehicles is going to have a big focus on us and how we deal with that as we go forward here. So thanks again, we'll talk to you next quarter.

Roger S. Penske: We talked about battery electric vehicles. That's going to be a big focus for us and how we deal with that as we go forward here. So thanks again. We'll talk to you next quarter. And that does conclude the call for today. Thanks for your participation. You may now disconnect. We're sorry, your conference is ending now. Please hang up.

Speaker Change: And that does conclude the call for today. Thank you for your participation you may now disconnect.

Speaker Change: Okay.

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