Q4 2024 Penske Automotive Group Inc Earnings Call
Speaker Change: Good afternoon. Welcome to the Penske Automotive Group's fourth quarter 2024 earnings conference call.
Speaker Change: Today's call is being recorded and will be available for replay approximately one hour after completion through February 20, 2025 on the company's website under the Investors tab at www.penskeautomotive.com.
Speaker Change: Thank you, Julianne. Good afternoon, everyone, and thank you for joining us today.
Speaker Change: A press release detailing Penske Automotive Group's fourth quarter 2024 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.
Speaker Change: Joining me for today's call are Roger Penske, our chair, Shelly Hulgrave, EVP and Chief Financial Officer, Rich Shearing, North American Operations, Randall Seymour, International Operations, and Tony Ficcioni, who's our Vice President and Corporate Controller.
Speaker Change: Our discussion today may include forward-looking statements about our operations, earnings potential, outlook, acquisitions, future events, growth plans, liquidity, and assessment of business conditions.
Speaker Change: We may also discuss certain non-GAAP financial measures, such as earnings before interest, taxes, depreciation, and amortization, or EBITDA, and our leverage ratio.
Speaker Change: We have prominently presented the comparable gap measures and have reconciled the non-gap measures to their most directly comparable gap measures in this morning's press release and investor presentation.
Speaker Change: both of 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 forward-looking statements.
Speaker Change: I also direct you to our SEC filings, including our Form 10-K and previously filed Form 10-Qs, for additional discussion and factors that could cause future events to differ materially from expectations.
Speaker Change: At this time, I would now like to turn the call over to Roger Penske. Thank you, Tony. Good afternoon, everyone, and thank you for joining us today.
Roger Penske: I'd like to begin by thanking each of our team members for their hard work and commitment to exceeding expectations through their efforts at PAG and delivered a strong fourth quarter and another outstanding year of profitability.
Roger Penske: new and used vehicles and over 20,500 new and used commercial trucks.
We increased our revenue by 3%.
Roger Penske: to $30.5 billion. We generated $1.24 billion in earnings before taxes, $919 million of net income, and earnings per share of $13.
and Seventy-Four Cents.
Roger Penske: We continue to grow our business by completing acquisitions of $2.1 billion in expected annualized revenue and including expanding automotive operations.
Roger Penske: in the U.S. and U.K., entering the retail automotive market in Australia with three Porsche dealerships, and adding a strategic commercial truck location in Wisconsin.
Roger Penske: And our press release this morning, we announced the 17th consecutive increase.
Roger Penske: and our quarterly dividend, the increase was $0.03 per share to $1.22 per share.
Roger Penske: Since the end of 2023, we have increased our dividend by 54%.
Roger Penske: We maintain strong balance sheet and debt capitalization with ratios of 26.2 and leverage of 1.2x.
Now let's turn our attention to the latest quarter results.
Roger Penske: I'm very pleased with the financial performance during the quarter. Revenue increased 6% to a record $7.7 billion. New and used automotive gross profit per unit retailed remained strong.
Roger Penske: An overall gross margin was 16.3%, representing the sixth consecutive quarter of consistent gross margin.
Roger Penske: Our efforts to control costs drove a 70 basis point reduction when selling general and administrative expenses.
Roger Penske: as a percentage of gross profit when compared to the fourth quarter last year and a 90 basis points improvement sequentially when compared to the third quarter of 2024.
Roger Penske: In the fourth quarter of 2024, PAG generated $315 million in income before taxes.
Roger Penske: $236 million in net income, an income per share of $3.54.
Roger Penske: Income before taxes increased 23 percent, that income grew 24 percent, and earnings per share increased 25.
Roger Penske: On an adjusted basis, income before taxes increased 6%, and income grew by 2%, and earnings per share increased by 3% when compared to last year.
Looking at our retail auto business, we delivered 120,000.
530 units during the quarter, up nearly 3%.
Roger Penske: Our same SOAR units were flat. New units delivered increased 11%.
Average new vehicle transaction price increased 5% to $60,288.
Roger Penske: Gross profit per new vehicle retailed remained strong at $5,146 and increased sequentially by $74 from the third quarter of 2024 and remained nearly $2,000 higher
in 2019.
Roger Penske: Use units declined 6%. Gross profit for vehicle retail increased $349 quarter over quarter.
Roger Penske: The Sittner Select dealerships sell fewer units, which contributed to the 6% decline in used vehicles retail during the fourth quarter. Excluding Sittner Select dealerships in both periods, used vehicles retail would have increased 8%.
Roger Penske: Variable gross profit per unit retail was $5,319, representing a $60 per unit increase.
Roger Penske: versus Q4-23, and a sequential increase of 203 when compared to the third quarter of 24.
Roger Penske: Approximately one-half of our gross profit is derived from our service and parts business.
Roger Penske: As we look to continue growing this important part of our business, we've increased our technician count.
by seven percent.
Roger Penske: during 2024, and our effective labor rate in the U.S. has increased.
Six percent.
In the quarter, service and parts revenue increased 13%.
Roger Penske: to $771 million, including 7% on a same-store basis with customer pay up 3%, already up 24%, and collision repair up 4%.
Roger Penske: Fixed absorption in the U.S. increased 320 basis points to 87.5 percent.
Rick Shearing: In the U.S., the average age of vehicle service is 6.1 years, up from 5.5 in 2019. The average miles on a vehicle service was 69,000. Let me now turn it over to Rick Shearing.
Rick Shearing: Thank you, Roger, and good afternoon, everyone. In our U.S. retail automotive operations, we experienced a surge in traffic post-election.
Rick Shearing: For the quarter, new units increased 10%, while used units increased 6%. During the quarter, 33% of the new units sold in the U.S. were sold at MSRP, demonstrating continued strength in demand.
Although we've done a great job working with our OEMs,
Rick Shearing: To manage BEV inventory, to be more closely aligned with customer demand, the majority of BEV units still require significant discounting. In Q4, the average discount on a BEV from MSRP was nearly $6,900 per unit.
Rick Shearing: Turning to our retail commercial truck business, we remain one of the largest commercial truck retailers for Diamond Trucks North America.
Rick Shearing: and the retail truck business is one of our core pillars of our diversified model. We operate 35 full sales and service facilities, 11 stand-alone service and parts facilities, and 12 collision centers.
Rick Shearing: We believe Class 8 commercial truck demand will continue to be driven primarily by replacement purchases in 2025.
Rick Shearing: During Q4, North American Industry Class VIII retail sales were flat at 82,000 units.
Rick Shearing: At the end of December, the current industry backlog was 145,500 units, or approximately five months, represented five months worth of sales.
Rick Shearing: Premier Truck Group sold 4,432 new and used units in Q4, which was down 18% when compared to Q4 last year.
Rick Shearing: The year-over-year decline in sales is related to the timing of deliveries as supply shortages pushed out deliveries from the first half to the second half of the year in 2023. However, during that same period, gross profit per unit retail increased by 21 percent.
Rick Shearing: Revenue was $774 million and EBT was $45 million for the quarter with a return on sales of 5.8% up 10 basis points.
Rick Shearing: Same store SG&A to Gross Profit was 60.8% and Fixed Absorption was 122%.
Rick Shearing: As we look towards 2025 and 2026, we expect replacement demand to continue while the anticipated emissions change for 2027 and the recovery in freight market could help drive higher retail sales.
Rick Shearing: Turning to Penske Transportation Solutions, during Q4 operating revenue increased 3% to $2.8 billion.
Rick Shearing: Full service revenue and contract increased 9%, logistics revenue increased 3%. Rental revenue declined 9% as the freight recession continued to impact the number of units on rent and our rental utilization.
Rick Shearing: The PTS operating profit increased $32 million but was offset by a higher interest cost of $9 million and a decline in gain on sale of $25 million.
Rick Shearing: The PTS earnings before tax of $188 million were consistent with Q4 last year. PAG's share of the PTS earnings was $52.3 million, up from $51.2 million in the fourth quarter of the prior year.
Rick Shearing: And for the year, PAG's share of PTS earnings totaled $198 million, and we received $98.4 million in cash distributions.
Speaker Change: I would now like to turn the call over to Randall Seymour. Thanks, Rich. Good afternoon, everyone.
Randall Seymour: Looking at the UK retail automotive market, our same store new units delivered in Q4 increased by 1.5%, which compares favorably with the 2.7% decline in the UK new vehicle market in Q4.
Randall Seymour: New vehicle gross per unit remained resilient, increasing $428 per unit on a sequential basis when compared to the third quarter.
Randall Seymour: Same store used units declined 18% as a result of the transition of the UK car shop locations to Sittner Select, which focuses on lower volume but higher quality premium vehicles.
Randall Seymour: Excluding those dealerships, same-store use units in the UK would have decreased 2%, but pleasantly, used vehicle same-store gross profit increased $542 per unit when compared to the fourth quarter in 2023.
Service and Park, same store revenue, increased 8.6 percent.
Randall Seymour: Turning to Australia, as you may recall in December we acquired our third Foreshore location in Melbourne, the second largest city in Australia.
Randall Seymour: We now operate three Porsche locations with an expected and annualized revenue of $260 million and one Penske Select used car location.
Randall Seymour: During the fourth quarter these dealerships retailed 468 new and used units, generated 53 million in revenue with a return of 4.5 percent on sales.
Randall Seymour: Turning to our on and off-highway markets in Australia, we remain very pleased with our progress.
Randall Seymour: In Q4, the business produced a record revenue and a reduction in SG&A to gross profit of 630 basis points.
and Michelle Hulgrave.
Randall Seymour: Service and parts represent approximately 65% of our total gross profit, so our focus on increasing units and operations is a key driver of the business.
Randall Seymour: In the on-highway market, we delivered a record number of MAN trucks in 2024, boosted by our largest fleet sale ever.
Randall Seymour: In the off-highway sector, revenue and margin were driven by strong energy solutions, mining, and defense business.
Randall Seymour: The Energy Solutions Order Bank is over 600 million Australian dollars for delivery in 2025 and beyond, predominantly related to the growth in large data center and battery energy storage solution business.
Randall Seymour: We remain market leadership in the high horsepower generation segment with over 55% share. In the defense market we provide power and support for submarines, frigates, and infantry fighting vehicles.
Randall Seymour: I would now like to turn the call to Shelly Hulgrave. Thank you, Randall. Good afternoon, everyone. I will review our cash flow, balance sheet, and capital allocation.
Shelly Hulgrave: Our balance sheet and strong cash flow provide us with opportunities to maximize capital allocation.
Shelly Hulgrave: As a result, we continue to grow our business through acquisitions and return capital to shareholders through dividends and opportunistic securities repurchases.
Shelly Hulgrave: During 2024, we generated $1.2 billion in cash flow from operations, and our EBITDA was $1.49 billion.
Shelly Hulgrave: Our free cash flow, which is cash flow from operations after deducting capital expenditures, was $811 million.
Shelly Hulgrave: In our press release this morning, we announced the 17th consecutive increase in our quarterly dividend. The increase was $0.03 per share to $1.22 per share. Since the end of 2023, we have increased the dividend 54%.
Shelly Hulgrave: Using yesterday's closing price, our current yield is approximately 2.9%, with a payout ratio of 36%.
Shelly Hulgrave: Dividends paid to shareholders during 2024 were $274 million, and we repurchased approximately 517,000 shares at $149.69 per share.
Shelly Hulgrave: for $78 million. Combined, we returned approximately $352 million to shareholders in 2024.
Shelly Hulgrave: In addition to the return to shareholders, we completed acquisitions of 23 retail automotive franchises and 5 commercial truck locations in 2024.
Shelly Hulgrave: Together, these acquisitions represent $2.1 billion in estimated annualized revenues, including $1.9 billion in retail automotive revenue and $200 million in retail commercial truck revenue.
Shelly Hulgrave: Additionally, as we focus on strategic capital allocation, we also divested or closed ten retail automotive locations in 2024, which represented approximately $650 million in estimated annualized revenue.
Shelly Hulgrave: Our strong cash flow has allowed PAG to keep its non-vehicle debt and leverage low.
Shelly Hulgrave: At the end of December, our non-vehicle long-term debt was $1.852 billion, up $223 million from the end of December 2023.
Shelly Hulgrave: Seventy-four percent of the non-vehicle long-term debt is at fixed rates.
Debt-to-Total Capitalization was 26.2% and Leverage was 1.2 times.
Shelly Hulgrave: When including floor plan debt, we have 4.5 billion of variable debt. 55% of our variable rate debt is in the U.S.
Shelly Hulgrave: We estimate a 25 basis point change in interest rates would impact interest expense by approximately $11 million.
Shelly Hulgrave: As of December 31st, we had $72 million of cash and the liquidity available to us was $1.8 billion.
Shelly Hulgrave: As we look ahead to the maturity of our 550 million of 3.5% senior subordinated notes in September of this year, we currently expect to repay those notes from cash flows from operations or borrowings under our credit agreement.
Shelly Hulgrave: Total inventory was $4.6 billion, up $350 million from the end of December 2023. Floor plan debt was $4 billion.
Shelly Hulgrave: New and used inventory remains in good shape. New vehicle inventory is at a 49-day supply, which includes 41 days in the U.S. and 65 days in the U.K.
Shelly Hulgrave: Day supply of new vehicles for premium was 52 and volume foreign was 32.
Shelly Hulgrave: The day's supply of new battery electric vehicles in the U.S. is 76 days at the end of 2024, down from 88 days at the end of June.
Shelly Hulgrave: Used Vehicle Inventory is at a 47-day supply, which includes 35 days in the U.S. and 60 days in the U.K. At this time, I'll turn the call back to Roger for some final remarks.
Roger Penske: Thank you, Shelly, Rich, and Randall. 2024 was a remarkable year for PAG and reflected record revenue and one of the strongest years of profitability in the company's history.
Speaker Change: I remain particularly pleased with the continued resilience of gross profit per new vehicle retailed and the focus on our cost controls.
Speaker Change: I'm very confident in our model and the performance of the business.
Speaker Change: Appreciate you joining us today. Let's turn it over to the operator for questions. Thank you.
Speaker Change: If you would like to ask a question, please press star followed by the number one on your telephone keypad. To withdraw any questions, press star one again. We'll pause for just a moment to compile the Q&A roster.
and Michelle Hulgrave.
Speaker Change: Our first question comes from Michael Ward from Freedom Capital. Please go ahead, your line is open.
Speaker Change: Thank you very much. Thank you, Mark. Thank you very much. Hi, Roger. Hello, everybody. Hi, Mike.
Speaker Change: When I look at that chart on page six of your slide deck, it's been pretty consistent.
Speaker Change: I mean, you know, since 2019 with your allocation strategy, has anything changed? I mean, is there anything, when you look at, it seems like we're in a wave where maybe acquisition opportunities are a little bit greater.
Speaker Change: And will I continue in 2025-2026, will you continue to look at your core competencies, whether it's overseas, whether it's in trucks, whether it's U.S.? Is there anything shifting there or can we expect more of the same, assuming that we're in a similar type environment?
Hey Mike, it's Shelly.
Speaker Change: We've talked before about our capital allocation strategy, about wanting to grow 5% through acquisition and 5% internally. We did a really good job of taking advantage of some of the opportunities that came available to us this year, acquiring $2.1 billion in annualized revenue.
Speaker Change: If you stay along that same line, 5% of revenue, I think that's a good target in terms of our acquisition strategy. We're of course gonna balance that with multiples on our stock, but you're absolutely right. We're gonna look at every corner of our business. And we did that this year, right?
Speaker Change: We took a look at international to start the year with the acquisition in the UK. We expanded into the Australia retail market, which is a significant opportunity for us.
Speaker Change: We also expanded domestically, and we expanded with trucks, so we'll continue to do that. We like being safe and secure, but for the right price and for the right opportunity, we will definitely take advantage of that. On the other side of that...
Speaker Change: We've got our return to shareholders, you know, over $350 million this year return, which is important to us and something that
Speaker Change: We've got $150 million of authorization from our board to look at share repurchases, and so we'll just go on down the line.
Thank you.
Speaker Change: This question comes from John Murphy from Bank of America. Please go ahead your line is open.
John Murphy: Hey Jeff, good afternoon. Hey Roger, good afternoon Roger and team. You know Roger, just a first question, you know it seems like the business is particularly on the new auto side is hitting an inflection point and I think this was the the first time in a while we've seen the...
John Murphy: The front end grows, as you mentioned, up sequentially and on a year-over-year basis.
Speaker Change: There's constant fear that your GPUs are going to keep falling.
Speaker Change: but that's not what actually happened this quarter sequentially for sure. Do you think we're hitting a reflection point here in the auto business, specifically, and maybe in the total business?
Speaker Change: you know as well and and we're back to sort of this this period of you know growth in front of us for the next few years.
Well, I think, number one,
Speaker Change: I think as you look at PAG, you've got to look at our brand mix.
Speaker Change: And as you know, overall, we're about 77% premium. In the UK, we're 95. And when you look at brands like Mercedes, BMW, Porsche, Land Rover, where we have very high concentration,
Speaker Change: We see that those brands are maintaining the growth, which certainly helps us.
Speaker Change: And overall, when you look at the go back to July of last year on new, we were at 6.
6500.
Speaker Change: And we're at 6,600 when I look at the January numbers. So look, I'm not saying that there won't be some deterioration. That would not be the right thing to...
Speaker Change: communicate today. But overall, I think that from an overall standpoint,
We have the opportunity to
Speaker Change: to continue to have the strong growth profit. Obviously, F&I is a piece of that and we're really flexing to have more product and probably less F&I or finance because of the mix of leasing coming back.
Speaker Change: That'll help us on the premium side because a lot of these cars will go out they'll come back on a three-year lease and we'll get those as good used cars and I think we can also use the vehicles we had.
in the past.
Speaker Change: We couldn't use new loaner cars in service, we're doing that now, and those cars...
coming out or make terrific used cars, so.
I think the gross unused will continue to be strong.
Obviously, as we look at the U.K., we've taken
The day's supply over 90.
Speaker Change: in the UK on use from 6.1 or 6.2 down to just over 1%, so that's driving a higher margin.
Speaker Change: And again, Toyota is very strong now, which could be some ability to determinate some downward pressure because we're dealing with Toyota with a single day.
a single-digit supply of new cars right now.
Speaker Change: I feel good about it. I think interest rates coming down, hopefully we'll see more. So affordability will be key. And again, I see the captive finance companies, you know, being very active right now also. So that helps us maintain the growth.
Speaker Change: Just to follow up on that, BEVS has been a weight on that GPU for quite some time now. Do you see relief from that going forward? I know the automaker is becoming...
Speaker Change: more realistic about what they're going to be delivering to you with BEVs, you know, and you're not going to be overburdened with those.
Speaker Change: Well, if you asked me that question, you know, six months ago, I would say that our inventories were 30 to 40 percent BEVs in the two premium, the high premium brands.
Now that that is now down to
It's more.
Speaker Change: active from the standpoint of what we're selling. We were at 8% last year.
Speaker Change: They've made a big pivot and, you know, Porsche, who had the new Macan that came out, which was fully electric, has already notified to the dealers that they're going to have an ICE version, which is really key. And when we look at the discount right now...
Speaker Change: That's helpful and just lastly on the technician hiring plus 7% for 2024 you know what do you think you're you're going to be able to hit in 2025 as far as
Speaker Change: Tech growth and how scarce are these folks are you you're finding more and more people coming in
Speaker Change: Well, I would say this and you know from talking across the network
Speaker Change: that we're seeing more applicants than we have in the past. Now, do they meet our criteria? Probably the answer probably is no, many of them. But we see filling this funnel with people that can move up in the organization. And we team them up with an A-TECH. And it's really paid off, because this is a great business. And when we look at the text.
Speaker Change: helps us, and we're driving efficiency, and we're using technology, obviously, to get this gross profit. And again, I think this is key to us. One of the areas that we're always concerned about is body shop.
Speaker Change: And we're investing a lot in body shops, both on the auto side and also the commercial truck. And we see this as a secret sauce where we're staying in it.
Speaker Change: You know, not divesting of our body shops, because as we get into the premium side, not many people can fix a BMW or a Porsche properly, so we get the benefit of negotiating a better rate with the insurance companies.
Speaker Change: And I think when we grow our own, we certainly have less turnover. And I would say our turnover for the company last year was about 18% on a worldwide basis. And I think on the techs, it probably was somewhere in 12 to 13%.
That's very helpful. Thank you very much, Roger. Yeah, thanks.
Thank you.
Hey, good afternoon everyone. How are you? Hey Tom.
Speaker Change: I wanted to start off with just the commercial truck demand in 2025. How impactful do you think some of the pre-buying could be prior to the emission changes in 2027?
Speaker Change: Yeah, Thomas Rich Shearing here. I, you know, I think there's a little bit of a wait-and-see at the moment because obviously you've seen, you know, the Trump administration and the new head of the EPA taking a look at
Speaker Change: rescinding some of the waivers that are out there today, whether that's advanced clean truck.
Speaker Change: you know, the truck crew or transportation refrigeration unit regulation, and then also looking at a national standard, you know, and taking away California's ability to have independent regulations. And so none of those things are
meeting the 2027 standards that are on the book.
Speaker Change: And so that's going to play into the results as well. So.
Speaker Change: I think as it relates to 2025, I don't think we'll see much of a pre-buy effect there. As we go into 2026, you know, we'll have better clarity then on what the regulations are going to look like in 2027. It may be a little bit easier to answer your question. I think the other thing...
Speaker Change: you know, that would temper a pre-buy is this rate recession. There's been, you know, it's lasted a lot longer than any of the previous cycles because of the amount of capacity that's in the marketplace at the moment.
Speaker Change: Typically, when you have a freight recession, the capacity comes out fairly quickly. You have a big reduction in used truck pricing, and then you get to a new state of equilibrium where the capacity and the trucks available meet the loads that are there, and that's not the case at the moment.
Speaker Change: With the with the huge trucks that were sold at very high prices in the 21-22 time frame You know We're not seeing those carriers come out of the market as fast as they did in the past and so that's that's adding to the Length of the freight recession, so there's still an excess capacity for the amount of freight in the market at the moment
Speaker Change: That was perfect, thank you. And then maybe shifting gears a little bit here over to SG&A, 70 pips of improvement year over year this quarter. How should we be thinking about the major kind of puts and takes to SG&A in 2025?
Hey, Tom. It's Shelly. Thanks for your question.
Speaker Change: You know, our teams, first off, should be commended for their daily efforts in FG&A, and they're continuing to.
fight against inflation by watching, you know,
Speaker Change: all of the costs that go into that numerator of the equation. We saw some success this year.
this quarter in terms of lowering our...
Vehicle Maintenance for Service Owners.
Speaker Change: We saw an improvement in our advertising as we streamlined our approach there. So, really great job by our team of just a daily battle to keep those costs low. When you look at the other side of the equation, though,
Speaker Change: We're looking at growing margin and the more profitable business lines. So with fixed growth up 9%, and that's got a 58% gross margin to it, reducing inventory costs so we get more out of those used vehicles.
Speaker Change: You know, we're kind of pulling on all levers there. In terms of 2025, I think we're still comfortable with that low 70s guidance.
Speaker Change: You know, we've maintained it for the last five quarters, so it certainly seems to be more normalized as opposed to just a trend. And, you know,
Speaker Change: We continue to see some improvements quarter-over-quarter, being down 90 basis points from the third quarter. It feels really good about our efforts, and again, our team should be commended.
All right, thank you very much, go ahead.
Speaker Change: We're really watching our comp to gross. You know, this is a metric that people don't talk about much, but to me, we're looking at somewhere between 25% on the variable side and 25% on the fixed. And, you know, this is how you balance your compensation and also the number of employees you have per location. So.
Speaker Change: that inventory controls, you know, comp to gross, and we talked about the technology obviously that we're doing and I think all this is driving this and if you look at us
Speaker Change: probably, when you look at 2025, we're going to be in that low 70%. I don't think we want to say we're going below 70% at all. So to be realistic, as you're looking to maybe some support or guidance on that, I'd say it's probably somewhere around 70% to 71%.
Perfect. Thank you for answering my questions.
Thank you.
Speaker Change: Our next question comes from Rajat Gupta from J.P. Morgan. Please go ahead, your line is open.
Speaker Change: Great, thank you for the question. I just had one quick one on the property leasing business.
Speaker Change: It looks like we've talked quite a few of us through the light game. You know, you mentioned that there's an advantage to a song.
Speaker Change: Could you give us a sense of, you know, your outlook there for 2025, you know, keeping the moving parts in mind? I mean, could we expect ETL to grow again, you know, despite, you know, some of the interest rates and other things? And have a quick follow-up on these.
Speaker Change: Well, what I would say to you is, number one, we have a headwind.
on Gain On Sale, when you look at that.
Speaker Change: from this last year was about $160 million down from the previous year. And certainly, our interest costs were up $124 million. I think we're going to still see higher interest costs in 2025 because we're replacing
Speaker Change: 3% bonds with 5%. We just did $700 million here in the last 10 to 12 days.
Speaker Change: And those were, of course, made at higher rates, which have a five-year term on them. From the standpoint of the used truck market, we think, from the standpoint we're thinking, maybe we hit bottom. So, obviously, we hope that that's going to turn in our favor. Remember, last year, we sold 41,000 units.
Speaker Change: which was a record for us. And even as we look at January, February going forward, we expect to have a strong first quarter. And that'll help us balance.
Speaker Change: Our rental fleet was $88,000, and I think at the present time, we've taken out probably close to 10%.
Speaker Change: And to me, that's going to make a big difference on utilization, which is key. It doesn't take much. Remember, we don't have to buy more trucks at this point to get revenue or gross profit.
Speaker Change: We just got to move our utilization because once we balance our fleet...
Speaker Change: It's all about utilization, and that's where we're focusing today. Obviously, we're balancing the personnel around the rental business also.
Speaker Change: From our perspective, I'd be looking at a little bit ahead when fill on gain, certainly on the interest side. But when you look, we're up in sales from a lease standpoint, from a contract maintenance
Speaker Change: and also in logistics. So, you know, overall, I think that, you know, we're in good shape and the number is available. You can see it. We were, I think we posted.
Speaker Change: a pre-tax, about $717 million of pre-tax, and that income was somewhere around $685 million. And I would say we'll be around that same area, hopefully a little bit better. We'll get through 2025.
Thank you.
Speaker Change: Got it. Got it. That's helpful. And then just on the auto business of the used car side, I mean, you're still going through the reset of the UK stores. Could you give us a sense of, you know, when you expect your used business to start growing again?
Speaker Change: You know, maybe if you could break it apart across the U.S. and U.K., you know, just in context of, you know, the supply challenges of younger cars, you know, when do you expect them to, you know, start to grow again? On a unit, they've obviously grown since, or have been very strong.
Hi Rajat, it's Randall. I'll start with the UK.
I would say it's going to continue to be challenged.
Speaker Change: Estimate for the market for new car next year in the UK is about flat.
Speaker Change: So, I think we're going to be in a similar market condition. So, that's why we've taken the strategy to really focus on how we organically get inventory instead of going to the auction and buying cars that are very difficult to make gross on. So, it's more of a gross...
Speaker Change: strategy given the available inventory. We're really focused with our team too is how you maximize our retention of trades you know when people are buying a new vehicle or a used vehicle so those are some of the levers we're pulling to get more inventory given the market conditions.
Randall Seymour: And when you strip out, Randall, you strip out the car shop closures, or actually our used vehicle business was up on a worldwide basis.
Yeah, Rajat, you look in the U.S. market then.
Speaker Change: As a comparison, you know, when the new market's up, that generates the used cars, and we saw that certainly when you compare fourth quarter and the activity level there compared to the full year. If you look at the fourth quarter, our used retail sales were up 6 percent, and you had a new car, SAR, in the fourth quarter that was near 16.
$16 million.
Speaker Change: Whereas for the full year, 20, for our used car retail was up 1%. So I think if we see the SAR that's being forecasted for this year and that 16 to 16.5 per million car range, I think we'll see...
Speaker Change: use cars, you know, correspondingly from a retail standpoint, up as well. We have that.
Speaker Change: This is probably the last 12 months, right? The next 12 months would be...
The end of
Speaker Change: the difficult cycle of the lease returns, right? So then when you go beyond 25 into 26, the lease returns should start kicking back up. Well, that's one of the issues we have today, is lease returns, because leasing went from...
Speaker Change: Say, in the premium side, from 55%, probably down in the 30s, our lease business has gone from 25 to 33, but it takes three years before this really starts to impact us. And these are critical vehicles for us.
Speaker Change: because they're young vehicles, we can get a good margin on those plus we can certify them and it makes a big difference, especially on the premium side.
Speaker Change: Got it, got it. Great color. Thanks for answering the questions, and good luck. Yeah, thanks, Rajat.
and Laurie. Thank you. Thank you.
Speaker Change: As a reminder, to ask a question, please press star followed by one.
Speaker Change: Our next question comes from David Whiston from Morningstar. Please go ahead, your line is open.
David Whiston: Good afternoon, everyone. Just two questions for me. First on affordability and somewhat related to that is negative equity. Given your clientele, is that really not a problem for you guys right now?
David Whiston: Well, I think negative equity, you know, when we saw people buying used cars.
David Whiston: What 12 to 18 months ago a car we were selling for 30 sold for 40 Obviously, this is an issue from the standpoint of trade-ins now. We don't see a lot of that
David Whiston: in the premium side because we had a lot of leasing and the manufacturers obviously were taking the residual risk on those. So we want more of those vehicles coming back. So I think because of our mix
David Whiston: and primarily premium, we don't quite have that customer. I don't, if our team agrees with that, that we're not dealing with that customer. When you look at our subprime business, it's only about 6% across the company.
and Michelle Hulgrave. Thank you.
Speaker Change: Where is your subprime exposure actually? Is that more on the import side or is it in the premium luxury space too?
David Whiston: It would be on the volume four than used car, primarily, probably it's more used car than it is new.
Thank you.
Speaker Change: Okay, and it's been reported that you are working with Cupra. If that deal were to come together, I mean, who do you envision that brand's demographic being to buy those vehicles?
Thank you.
Thank you.
Speaker Change: We have no further questions. I'd like to turn the call back over to Mr. Penske for any closing remarks.
Roger Penske: Thank you, Operator. Thanks, everybody. We had a great quarter, a great year, and we're looking forward to 25, hopefully, to continue our progress. Thanks, everybody.
Speaker Change: This concludes today's conference call. Thank you for your participation. You may now disconnect.
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