Operator: Good afternoon. Welcome to the Penske Automotive Group First Quarter 2025 Earnings Conference Call. Today’s call is being recorded and will be available for replay approximately one hour after completion through May 7, 2025 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.

Tony Pordon: Thank you, Julianne. Good afternoon, everyone, and thank you for joining us today. A press release detailing Penske Automotive Group’s first quarter 2025 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 e-mail or phone for any follow-up questions you may have. Joining me for today’s call are Roger Penske, Chair and CEO; Shelley Hulgrave, EVP and Chief Financial Officer; Rich Shearing, North American Operations; Randall Seymore, International Operations and Tony Facioni, Vice President and Corporate Controller. Our discussion today may include forward-looking statements about our operations, earnings potential, outlook, acquisitions, future events, growth plans, liquidity and assessment of business conditions.

We may also discuss certain non-GAAP financial measures as defined under SEC rules such as adjusted net earnings before taxes, adjusted net income, adjusted earnings per share, adjusted selling, general and administrative expenses, earnings before interest, taxes, depreciation and amortization or EBITDA and adjusted EBITDA and our leverage ratio. We prominently presented the comparable GAAP measures and have reconciled the non-GAAP measures to their most directly comparable GAAP measures in this morning’s press release and investor presentation, 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.

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 will now turn the call over to Roger.

Roger Penske: Thank you, Tony. Good afternoon, everyone, and thank you for joining us today. I’m pleased with the results of our first quarter, our diversified international transportation services business generated record first quarter revenue, the seventh consecutive quarter of stable gross margin and a 70 basis point improvement of adjusted selling, general and administrative expenses as a percentage of gross profit when compared to the first quarter of last year. During the quarter, revenue increased 2% to a record of $7.6 billion. Same-store retail automotive revenue also increased 2%, while related gross profit was up 3%. Same-store retail automotive service and parts revenue increased 4%, our related gross profit was up 6%.

Service and parts gross margin increased 60 basis points to 58.6%. Our business generated $337 million in earnings before taxes, $244 million in net income and earnings per share of $3.66 each which increased by 14%. On an adjusted basis, earnings before taxes increased 5% to $310 million and net income increased 5% to $226 million and our earnings per share increased 6% to $3.39. As we look at the automotive and commercial truck markets, the current environment remains very fluid. We believe the administration is encouraging companies in individual countries to come to the table to discuss their plans. We remain in close contact with our OEM partners. Many OEMs who announced their intent to hold current prices while tariff negotiations continue, and we believe most brands are evaluating our individual geographic footprint, including production capacity, model mix, suppliers vehicle content, among others.

As we look to the future, the diversification of PAG will be a key differentiator. The diversification provided by a premium brand mix, our President in International Automotive markets, our retail commercial truck dealerships and our investment in Penske Transportation Solutions coupled with our highly variable cost structure provide us with opportunities reflects our businesses to meet the changing landscape. Approximately 59% of our revenue is generated in North America, 31% in the UK and 9% in other international markets. Our profitability is also diversified with 64% of our earnings in 2024 coming from our automotive retail operations and 36% from our non-automotive operations as we generate that profitability across multiple sources, such as new, used, service and parts and finance and insurance.

In fact, only 26% of our total gross profit in 2024 was generated from new vehicle sales. So now let’s turn our attention to a few additional details of the first quarter results. During the first quarter, we delivered 120,000 new and used automotive units and over 4,700 commercial trucks. New automotive units delivered increased 6% and 8% on a same-store basis. Used automotive units declined 16% and 11% on a same-store basis. The decline is associated with the realignment of our UK used-only dealerships, the Sytner Select, which took place in the last half of 2024. We sold or closed four locations, realigned the cost base changed the focus to retail and fewer units at higher margin. Excluding the performance of Sytner Select in both periods, used unit delivered only decreased 1% in total on a same-store basis.

Average new transaction price increased 4% to $59,202 while average used vehicle transaction price increased 12% to $37,624. New and used vehicle gross profit per unit retail remained strong. New vehicle gross was 5,059 down over $87 when compared to the fourth quarter of last year. Used vehicle gross increased $352 per unit when compared to the fourth quarter of 2024, largely due to our efforts with Sytner Select and the overall improvement in used vehicle inventory management. Variable vehicle profit, which includes new, used and F&I was $5,281 per unit, representing a $38 unit decline when compared to the fourth quarter of last year. In the quarter, service and parts revenue increased 6% to $789 million, including a 4% on a same-store basis with customer pay up 1% and we’re already up 17%.

Warranty continues to be driven by recall activity across several brands. Fixed absorption in the U.S. automotive business increased 310 basis points to 87.1%. It was 117.5% for our North American retail commercial truck business. As we look to continue growing this important part of our business, we’ve increased our technician head count by 5% since March of 2024 and the effective labor rate increased 5% in the U.S. and 6% in the UK. Last, I remain pleased with our efforts to control costs. On an adjusted basis, our SG&A to gross profit declined by 70 basis points to 70.0% and compared to the first quarter last year, and declined by 30 basis points sequentially when compared to the fourth quarter of 2024. Now let me turn the call over to Rich Shearing to discuss our North American operations.

Rich Shearing: Thank you, Roger, and good afternoon, everyone. In our U.S. retail automotive operations, we experienced a rise in traffic, especially near the end of March. For the quarter, U.S. new units increased 8%, while used units increased 2%. During the quarter, 29% of the new units sold in the U.S. were at MSRP. Leasing in the U.S. increased to 33% on new vehicle retail, up from 32% in Q1 last year, and leasing on our premium brands is in the mid-40% range compared to the mid-50% in 2019 prior to COVID. We sold 2,800 new BEV vehicles in the U.S. during the quarter, representing approximately 8.5% of new vehicle sales. Our U.S. days’ supply for BEVs has vastly improved at 56 days compared to 76 days at the end of December and 87 days in March last year.

Although we have done a great job working with our OEM partners to manage BEV inventory to be more closely aligned with consumer demand, the majority of BEV units still require significant discounting. The average discount on BEV from MSRP was over $7,400 during Q1 compared to $6,300 Q1 last year. In our automotive business, service and parts same-store revenue increased 6% during Q1 and same-store gross profit increased 8%. Turning to our retail commercial truck business. We operate 45 locations and remain one of the largest commercial truck retailers for Daimler Trucks North America. The retail truck business is one of the core pillars of our diversified model and represents 11% of revenue and gross profit. We believe Class 8 commercial truck demand will continue to be driven primarily by replacement purchases in 2025 rather than fleet growth.

Premier Truck sold 4,714 units in Q1, which was up 4% when compared to Q1 last year, and new units increased 7%, but declined 2% on a same-store basis. This compares favorably to the 12% decline in the North American Class 8 market in Q1 as the strength of our customer mix and the strength of the Freightliner, Western Star brands outperformed. As of the end of March, the current industry backlog was 132,000 units or approximately six months of sales, down from 163,000 units in March last year. Used units declined 7%, including 9% on a same-store basis. However, used gross profit more than doubled to $7,541 from $3,187. Revenue was $824 million and EBT was $45 million for the quarter for a return on sales of 5.5%. Same-store SG&A to gross profit was 63.1% and fixed absorption was 117.5%.

Looking to the future, Freightliner is committed to a minimal price increase related to tariffs. Initially, a tariff surcharge of $3,000 on heavy-duty and $1,500 on medium-duty trucks will be applied. Any customer who places an order prior to the end of May for production by the end of October will see it not to exceed maximum tariff of $3,500. Tariffs on future orders beyond this point are not known at this time. Further, the potential truck prebuy for 2027 emission changes will be dependent on the outcome of the current EPA review of the waivers granted to certain states. Turning to Penske Transportation Solutions. During Q1, operating revenue was flat at $2.7 billion. Full service revenue and contract business increased 5%. Logistics revenue decreased 1%, and rental revenue declined 10% as the freight recession continues to impact the number of units on rent and our overall rental utilization.

During the quarter, PTS sold over 11,000 units and ended the quarter with 428,000 units down from 435,000 at the end of December last year. PTS earnings were up $3 million when compared to the first quarter last year, and our share was $33.2 million, up 2% from $32.5 million in the first quarter last year. I would now like to turn the call over to Randall Seymore to discuss our international operations.

Randall Seymore: Thank you, Rich. Good afternoon, everyone. As a reminder, we operate retail automotive dealerships in the UK, Germany, Italy, Japan and Australia and the commercial vehicle and power systems business in Australia and New Zealand. Our international operations represents approximately 40% of PAG’s revenue. Looking at the UK retail automotive market, the new vehicle market registrations increased 6% compared to Q1 last year. We outperformed the market as same-store new units delivered in Q1 increased by 9%. New vehicle gross per unit remained resilient, declining only $138 per unit on a sequential basis when compared to the fourth quarter last year. Same-store used units declined 22% as a result of the transition of the UK car shop to Sytner Select and the closure and sale of four locations.

Excluding Sytner Select, same-store used unit sales in the UK would have only decreased by 2%. However, used vehicle same-store gross increased by $589 [ph] per unit when compared to the fourth quarter of 2024 as a result of improved vehicle inventory management. Service and parts same-store revenue increased 2% and gross profit increased by 3%. Turning to Australia. As you may recall, last year, we acquired three Porsche dealerships in Melbourne. During the first quarter, these dealerships retailed 540 new and used units and generated $60 million in revenue. We remain very pleased with our progress in the commercial vehicle and power systems business in Australia as well. Service and parts represented approximately 61% of our total gross profit.

So our focus on increasing units in operation is a key driver of the business. In the on-highway market, during the first quarter, we gained 150 basis points of market share. In the off-highway sector, revenue and margin were driven by strong Energy Solutions demand. We have a $300 million backlog for 2025 delivery in an order bank of over AUD600 million, predominantly related to growth in the large data center in battery energy storage solution businesses. We continue to maintain market leadership in the high horsepower power generation segment with over 55% share. I would now like to turn the call over to Shelley Hulgrave to review our cash flow, balance sheet and capital allocation.

Shelley Hulgrave: Thank you, Randall. Good afternoon, everyone. Our balance sheet remains in great shape, and our continued strong cash flow provides us with opportunities to maximize capital allocation. As you know, we follow an opportunistic approach, providing us with the ability to grow our business through acquisitions and return capital to shareholders through dividends and securities repurchases. We strongly believe that the strength of our balance sheet, strong cash flow, disciplined approach to capital allocation and our diversification will provide benefits as we work with our customers and partners in an uncertain environment. During Q1, we generated $283 million in cash flow from operations and our EBITDA was $400 million or $372 million on an adjusted basis.

On a trailing 12-month basis, EBITDA was over $1.5 billion. Our free cash flow, which is cash flow from operations after deducting capital expenditures was $206 million. During Q1, we paid $82 million in dividends and invested $77 million in digital expenditures to improve or expand our facilities. When compared to Q1 last year, capital expenditures were down $26 million. During the quarter, we repurchased 255,000 shares of stock for $40 million and year-to-date through April 25, have repurchased 750,000 shares for $111 million. We expect to continue repurchasing shares on an opportunistic basis. As of April 25, we have $46 million remaining under the existing securities repurchase authorization. Our dividend is $1.22 per share. Since the end of 2023, we have increased the dividend by 54%.

Using yesterday’s closing price, our current yield is approximately 3.1% with a payout ratio of 36%. Additionally, as we focus on strategic capital allocation, we divested one retail automotive location in Q1, which represented approximately $200 million in estimated annualized revenue. Our strong cash flow has allowed PAG to keep its non-vehicle debt and leverage low. At the end of March, our non-vehicle long-term debt was $1.77 billion down $80 million from the end of December last year. 78% of the non-vehicle long-term debt is at fixed rates. Debt to total capitalization was 24.7% and leverage is 1.2 times. When including floor plan, we have $4.4 billion of variable debt. 55% of our variable rate set is in the U.S. We estimate a 25 basis point interest rate would impact interest expense by approximately $11 million.

At the end of March, we had $118 million of cash and the liquidity available to us was $2.1 billion. Upon the majority of our $550 million, 3.5% senior subordinated notes due in September. We currently expect to either repay those notes from cash flow from operations or borrowings under our U.S. credit agreement or refinance those notes in whole or in part with similar notes depending on the prevailing interest rates. Total inventory was $4.5 billion, down $140 million from the end of December 2024. Floor plan debt was $4 billion. New and used inventory remains in good shape. New vehicle inventory is at a 39-day supply, including 38 days for premium and 29 days for volume foreign. Used vehicle inventory is at a 36-day supply. At this time, I will turn the call back to Roger for some final remarks.

Roger Penske: Thank you. PAG’s Q1 performance was certainly strong. I remain particularly pleased with the continued resilience of gross profit for vehicle retail, performance of our automotive service and parts operations and the success we continue to demonstrate with our SG&A leverage and our focus on cost controls remain confident in our diversified model as ability to flex with market conditions and remain very pleased with the performance of our business in the first quarter. Operator, at this time, we can open up the call for questions.

Operator: Thank you. [Operator Instructions] Our first question comes from John Murphy from Bank of America. Please go ahead. Your line is open.

Roger Penske: Hi, John.

John Murphy: Hey, Roger, hey, everybody. Just a first question on the UK. I mean, Sytner Select sounds like it’s chugging along and you’re making great progress there. We’ve got another two quarters before that anniversaries itself. But it sounds like there’s some other really good work going on in the UK to make the business much more efficient and profitable over time. I wonder if you could just maybe comment and highlight some of the things that are going on there?

Roger Penske: I’ll let Randall give you an update on that.

Randall Seymore: Hey, John, how are you?

John Murphy: Good. How are you?

Randall Seymore: Yes, good. Thank you. Look, at the Q1, the UK total market was up 6%. And at Sytner, we were up 9%. So outperform. So that was certainly pleasing. But as you mentioned, the gross profit on used cars overall was up $589. We had a record fixed month in our after sales gross profit as well. In back to both new car and used car, I’d really – the kingpin there is inventory management. We – the aging is at the best it’s been in quite some time. We’re really focusing on our new car days supply by model. So what that’s doing is it’s translating in lower inventory, more efficient inventory, a better turn on the inventory and better gross profit. So really hats off to the team there. And then on the expense control as well, we’re really looking at all of our demos, where our head count, we’ve had natural attrition where we’ve had head count reduction there with some savings back to fixed gross profit.

Our gross profit per technician was up 7%. So I think there are a lot of levers there we’re pulling that has equated to the good result in Q1. And I think the best news is, it’s all sustainable as we move through the rest of the year.

John Murphy: That’s very helpful. And then just a second question on part to service. Results there are good, particularly on the margin side. But it sounds like warranty really dominated. I think Roger, you mentioned up 17%, customer pay was up only 1%. Is there a crowding out effect going on there, where there’s just so much warranty work, it’s kind of tough to get to the customer pay and grow it. And if also you could just remind us what the tech growth there is and door rate increases are as well in the quarter?

Roger Penske: I think, I mentioned that our head count is up by 5%. The average technician is driving about 30,000 gross profit for the month. And I think when you look at customer pay, it declined 3% in the U.S. and certainly 17% from a PTS perspective, I think the most important thing to think about from the standpoint, when we look at parts and service is really the utilization of base. And I think, Rich, you talked about it – we talked about earlier today, we’re running at about 80% utilization of the base, which is critical. We have a big focus on apprentices coming in because we’ve got to build these technicians from the bottom up, which I think is key. From a warranty standpoint, we’ve got Tundra, we’ve got Mercedes, we’ve got BMW all with big recalls, which is driving that mix where it is at 17% overall versus 1%.

And I think in the UK as Randall mentioned, we certainly have grown the gross profit there under – because of cost controls and better utilization. And I would say, we’ve driven a lower turnover in our service writers because we’re getting probably more share of wallet from the customer when they come in. And I think that absolutely is helping us grow our fixed absorption 300 basis points here, and I’m not sure what it grew in the UK.

Randall Seymore: Well, interestingly, in the UK in Q1, our customer pay was up 11%. So we’re able to grow that business. And you’re right, on the service advisor we’ve done a lot of training. Best device with service adviser with customers coming through the lane. So good, our fixed absorption was up just shy of 280 basis points.

Roger Penske: So John, better utilization, more productivity from the technicians, certainly more share of wallet on the RO. So I think that’s interesting. One point I want to make that maybe you won’t ask, but is we keep monitoring the BEV units, the battery electric vehicles, the average repair is running about $1,400 and the ICE vehicle at the same time, same brand is running about $700. So we still have a big opportunity. And I would say, all of BEV work is warranty. So that’s also driving the mix.

John Murphy: Got to love those BEV UIOs, Roger. Maybe just one last one. Tariffs are kind of impossible to call exactly where they’re going to land right now, but it sounds like costs are going to go up to automakers and pricing might go up to some extent. Roger, what’s your sort of gut feel on the price elasticity of demand, particularly for your imports and your high-end product. I mean is there room to inch up pricing and the consumer might not push back too much? I mean what’s your general just really gut check on that? It’s tough to call.

Roger Penske: Well, I think you’ve got to go back and we’ve got to look at the price increases that have taken place since 2019. I think the average selling price is up $17,000 just to put that in perspective. But I really want to focus on premium luxury because as we look back, we were at 55% leasing. We’ve gone now to 45% here in the last say, two quarters. So I see the ability to lease these vehicles with higher certainly residual values that the finance companies going to put on these, will mitigate some of the impact to the customer. And I think that’s going to be critical. And having those lease cars come back will be important later on because we’ve had kind of a dip in that from the COVID time when there’s more cash buyers.

But I think it’s going to be – certainly, as I look at it, it’s going to be a fluid situation. I mean things are expected to change. They did last night, obviously. When you put it in perspective, there’s about 7.9 million vehicles that are imported to the U.S. each year. And ironically, Mexico and Canada, I think, represent 51% or about 4 million units. So with certainly, the U.S. Mexico, Canada initiative, hopefully, that will drive that to be more fluid and costs will be more realistic based on that opportunity for the people involved. So overall, I think there will be some impact probably on the lower-priced vehicles depending if they’re coming in from outside the U.S. at the moment. But the stacking of tariffs, I think was taken off the table here last – or yesterday when it was announced.

So let me just say, I think it’s a fluid situation. Remember, when we look at our business today and look at overall, our total gross profit was $300 million in the first quarter and only 26% of that was new vehicle. And obviously, with that will give us – it’s not the whole gross profit chain because of parts and service and our diversification. So overall, we’re going to have to work brand by brand. And I think, Rich, you might want to comment today from an automotive standpoint and a truck standpoint.

Rich Shearing: Yes. So John, Rich here. I think I’ll start with the truck. Yes. I think we stay close to Daimler. And as you know, we support exclusively the Freightliner and Western Star brand. And I would say they’ve taken a real leadership position in their communication and position in the marketplace and provided some clarity for how tariffs will impact our products there through the October of this year. So I think initially, they stated there would be a not-to-exceed amount of 3,500 [ph] that was refined to 3,000 [ph] on heavy-duty, 1,500 [ph] on medium-duty through July 4 production. They subsequently come out and said, that for orders placed prior to May 31, they’d extend that pricing protection through October.

So really, the balance of this year from a production and subsequent delivery to us as a dealer standpoint, with the caveat that those orders placed prior to May 31 are non-cancelable. So we’ll have a high assurance of those orders when they come in that customers are committed to taking those trucks. So I think good that those customers have that certainty looking out in the future as things are very volatile at the moment. On the automotive side, a little bit varied brand by brand relative to the communication. But I would say, the majority of brands have committed for price production through May or June time frame. And with the units we have on ground in inventory at the moment, new units around $16,000, we think that carries us through June from a retail sales standpoint.

And as we’ve seen over the last 30 days with various different changes, it’s not unrealistic to think we’d see further change before the end of June as well.

John Murphy: Thank you very much guys. Appreciated.

Rich Shearing: Thanks, John.

Operator: Our next question comes from Mike Ward from Citigroup. Please go ahead. Your line is open.

Roger Penske: Hey, Mike.

Mike Ward: Thanks very much. Good afternoon everyone. Hello, everybody. SG&A costs as a percentage of growth has been pretty flat, it take even seven straight quarters. Is that sustainable? And what are some of the things you’ve done or can it even go lower?

Roger Penske: While I have you Shelley, answer that question for you, Mike.

Shelley Hulgrave: Hey, Mike, how are you?

Mike Ward: Nice, Shelly.

Shelley Hulgrave: Yes, we are really pleased with our performance in SG&A to grow. You’ve mentioned relatively flat in the low 70s as we have kind of guided and feel very comfortable with that continued guidance, down 70 basis points on an adjusted basis year-over-year, down 30 basis points sequentially. It’s really all about our team’s daily focus on what we can control. And so as our team has taken a look at headcount, we remain still down 10% from pre-COVID levels on a same-store basis. We look at turnover, which is a daily effort by our teams, and we remain below NADA averages across the board. So really keeping our personnel costs low, looking at comp to growth metrics and making sure that we don’t lead growth. We had an excellent result this quarter in the U.S. come to growth declined 30 basis points.

In the UK, they declined 110 basis points. And when you factor in that more of their compensation is fixed, it’s a tremendous result by our team. So they did a really great job containing those costs. And the other side of that equation, obviously, is growing growth. And when you look at some of our higher margin growth line, we’ve grown service in parts 40% since the same Q1 of 2019. Randall and Rich both talked about fixed absorption and their business line and then some of the other items that we can control advertising, for example, down $3 million quarter-over-quarter. Things like travel and entertainment, down $1 million, all of those items really continue to add up, and we’re seeing the price result.

Mike Ward: And so if what I gathered from what Randall was saying, it sounds like the UK market has maybe bottomed and have start to turn the other direction, gaining some momentum. And if a lot of those costs are fixed, then if we start getting some momentum in the UK, we should see additional improvement. Am I hearing that right?

Randall Seymore: Yes. Look, I would say as far as the macro market overall, being up 6%, I don’t expect it to go up significantly. But I think just our leadership team over there is doing an amazing job when we’re pulling some levers like I talked earlier, relative to inventory management. One thing I didn’t mention was upside on F&I. We’ve introduced some more products. And remember, March was a registration on to September will be the next one. But I think our performance and as it pertains to managing the growth opportunity and our expenses is absolutely sustainable and super proud of what the team is doing.

Roger Penske: Why don’t you mention too on the Sytner Select what you’re doing on inventory?

Randall Seymore: Yes. So we typically hold about 2,000 units in inventory. And just to give you a note as of today, we had 11 cars over 90 days. So we’re really managing the age. But I think even more important than that is the sourcing and really trying to get more stickiness on trades, whether it be on new car or used cars because our gross profit opportunity on trades is a lot better than raising your hand at the auction next to 50 other people. So the result of that was a record gross profit per unit at Select in March after escalating even from January, February being strong. And the other point in that business, I mean, we’re really focused on younger used cars, meaning the zero to four, maybe five, six, but as soon as you start getting over that, we – that space, you end up selling it and then you invariably have problems and you got to take care of the customer.

So your policy expense goes up or you’re buying the car back. So we’ve just found it better to keep it clean with the newer cars there on the Select side.

Mike Ward: Shelley, is the share count currently or what we’ll see on the 10-Q, is it about $66 million?

Shelley Hulgrave: It’s pretty consistent with the prior year since when we make those buybacks, that number is weighted, Mike. And we also had a share grant within the quarter. So you’ll see a fairly consistent 66.7% in the quarter. However, we’ll continue to see that go down as repurchases are weighted differently throughout the year.

Mike Ward: For 2Q or 1Q? Because you bought back in April, right?

Shelley Hulgrave: We bought back in March and in April. So you’ll see the full effect of the March during Q2 and then waited Q2 number for April repurchase.

Mike Ward: And so the weighted 2Q number is going to be 66.7% or it’s going to be lower than that?

Shelley Hulgrave: I’m sorry. I thought you were talking about EPS for Q1, but yes.

Tony Pordon: Yes. So Mike, this is Tony. So with the shares that we repurchased in the month of April, the share count will be lower in the second quarter than what it was in the first quarter.

Shelley Hulgrave: Correct.

Roger Penske: Right.

Mike Ward: Okay. Now Shelly, when you’re looking at repurchase, is it just the big selloff in April with the tariff talk opportunistic? And is that the way you’re going to look at it? I know you balance it out with acquisitions and other stuff has that side of the market dried up and you just find your stock cheap enough, and that’s why you picked up a little bit?

Shelley Hulgrave: I wouldn’t say that it’s dried up by any means, Mike. I would say the industry as a whole seems to be taking a pause as we await different outcomes of the tariff discussion. We are certainly still interested from an acquisition standpoint. That will remain opportunistic. And so if the market remains consistent or if we find ourselves with different options, we’re going to weigh them as they come.

Roger Penske: Yes. Mike, we’ve operated, we really haven’t changed any offense. We’ve been operating under a 10b5 obviously, which goes out as of, I think, today. But that’s been the driver specifically over the last quarter.

Mike Ward: Okay. And when are your Board meetings scheduled? Is there a specific date like Tuesdays of the month or anything like that?

Tony Pordon: No, they vary. We – our Board meets five times a year and the time varies based upon availability of the Board.

Mike Ward: Okay. Perfect. Thank you very much everyone.

Tony Pordon: Thanks.

Roger Penske: Thank you.

Operator: Next question comes from Daniela Haigian from Morgan Stanley. Please go ahead. Your line is open.

Daniela Haigian: Thank you. So within used, I know you mentioned in Q&A, there’s a focus on zero to four year old, maybe five to six-year-old vehicles. But with the younger used supply still tight and vehicle pricing only moving upwards from here, do you see greater opportunity in this mix shift towards this kind of middle age cohort and how does that impact your GPUs?

Roger Penske: Yes. Daniela, let me say this. I’ve been in this business a long time, and we have tried every model car shop over here going down into the double-digit car years from an old perspective. And in the UK, as we were trying to do 5,000 cars a month, we were down deep into double digit. And the outcome with brand damage because of so many cars that we had to deliver policy on or buyback. So we focused on the one to four. And because of our premium business from the standpoint of new cars on the lease returns that we get, we see a much better profitability. And we’re running thousands of loaner cars, which we can turn into young used cars on a quarterly and annual basis, which makes a big difference. So I would say at the moment, we’re staying in the one to four.

And you can see our margin and typically, we don’t get the F&I bang because we get flats in many of the leases that we do. So – but it’s a three-year, maybe max four-year and we get that – we have the opportunity to buy that vehicle back. Obviously, everybody does, but we focus on that along with trades is our first offense as we look for used cars.

Tony Pordon: Daniela, the other thing to remember on used cars with our heavy leasing percentage, approximately 40% of our used vehicle sales in the U.S. are certified preowned. So that helps skew it in that zero to four year or one to four year-old time frame.

Daniela Haigian: That’s helpful. Thank you. And then one more on parts and service. you have relatively inelastic demand there. You mentioned 80% utilization. Is there demand to grow your current capacity? Or do you think you have the base and capacity currently to service incremental demand?

Rich Shearing: Certainly, Daniela. Rich here on the U.S. side, we have capacity. I mean we’re – as Roger said, we’re about 80% utilization. So we probably have requisitions open right now for about 50 technicians. We grew our technician base in the first quarter by 94 technicians. And we would obviously look to continue to grow that technician base to leverage the utilization higher on our existing service facilities. And so I think we would do that certainly near term before we need to look at adding any brick-and-mortar to…

Roger Penske: Yes. We added 100 base in 2024.

Rich Shearing: Yes. Correct.

Daniela Haigian: Great. Thank you.

Rich Shearing: Thank you.

Operator: Our next question comes from Ron Jewsikow from Guggenheim. Please go ahead. Your line is open.

Ron Jewsikow: Yes. Good afternoon, Roger.

Roger Penske: Hey Ron.

Ron Jewsikow: Thanks for taking my questions. And maybe starting off with kind of the tariff impact on parts and service. Any sense for how much parts inflation could hit your parts and service segment? And it sounds like customer willingness to pay is quite strong. But just wanted to get your sense of how the customer will absorb those costs because I assume you’re going to look to pass them through.

Roger Penske: I don’t think we’ve calculated that now when you think about today, typically two-thirds of the repair order is labor and one third of the repair order is parts. And when we think about a lot of parts that are being utilized and older cars are really not genuine parts and they’re coming out of China. And if China has a higher say, 145% tariff, that’s going to drive their cost base up and we’ll get probably even with what we have here with the genuine parts so we might even see a benefit from that as we go forward. But that speculation, I can’t say I see it today, but it will certainly help us a lot in body shop parts where there is a lot of non-genuine parts being used. So we’ll see.

Ron Jewsikow: No, that’s helpful color on how you could become more competitive versus some of the independent shops. I think it’s been a while since we’ve been into a call this long and haven’t really touched on new GPU kind of outlook. But it seems like we got another data point this quarter, the trends are stabilizing at a much higher level. I guess specific to your portfolio of brands, should we expect a couple $100 of new GPU moderation on a go-forward basis? Or do you think we’re closer to the bottom and maybe that second derivative of declines continues to improve?

Roger Penske: Well, when you look at new, in Q1, we were down 3% and new – usually we’re up 15%. This is on a total basis. And our F&I would say, was up 4%. So overall, variable is up 6%. And on a same-store basis, we actually were up on new, 5% and used, we were up 10%. And I think that the last five quarters, we were at really $5,229 in first quarter of 2024, $5,300, $5,072 [ph] in Q3 and $51.46. So we’ve been, I guess, hovering around $5,000 and a lot of that has to do, I think our mix of BEV vehicles has gone down, if you look at it overall, replaced by ICE. And I think someone mentioned it earlier that our we’re discounting BEV vehicles probably about $7,000 under MSRP. So that has some impact on it. And that mix is now down. I think we’ve got an inventory, Rich, of what?

Rich Shearing: 16,000 new units.

Roger Penske: No of BEV.

Rich Shearing: Oh, BEV Sorry, yes. We’re – with of 10% of total and under 1,700 units.

Roger Penske: Under 1,700 units at this point. So overall, I say I think that as I look into Q2, you’d have to think about with our businesses up 11% this month. And if you look at the quarter, you’d have to think there would be some momentum going to the end now before the current vehicle inventory we have is sold out because then you’re going to be dealing with different cost pressures from the tariffs.

Rich Shearing: And Ron, to your point on our brand mix, I would only add that in the quarter, compared to our peer group, we had the lowest decline in new growth, and we had the highest increase in used growth. So I think that supports the premium brand mix that we’ve got.

Ron Jewsikow: Any sense for how that trended in Europe versus the U.S.? Because typically, we would see, I think, luxury underperformed going from 4Q to 1Q. So just trying to get a sense of unpacking that by region.

Roger Penske: Yes. In the UK, our new gross profit was down slightly. So it trended very similar to what it was in the U.S. on a new car side. And again, it’s going to be predicated on mix.

Rich Shearing: In the U.S., Ron, we were down 76 [ph] a unit or 1%.

Roger Penske: We had a registration month in March, which drives some bonuses and other things at the end of the quarter, which could affect upward gross profit.

Ron Jewsikow: Okay. No, I really appreciate the color. Thanks for taking my questions.

Roger Penske: Yes. Great, Ron. Thank you

Operator: Our next question comes from Jeff Lick from Stephens. Please go ahead. Your line is open.

Roger Penske: Hey, Jeff.

Jeff Lick: Hi Roger. Good afternoon, everybody. Thanks for taking my question. Question for Rich. Rich, in the U.S., I know some of your brand partners on the luxury side, Mercedes, particularly BMW, last year, we’re a little more focused on BEVs. And I think that had implications in terms of both how the sales play out in the GPU. And I wonder if you could maybe just unpack that just share how that benefited Q1 or how that rolled through Q1 this year?

Rich Shearing: So yes, so if you look at Mercedes, let’s start there. If we go back about a year ago now, they were north of 40% of our total inventory was battery electric vehicle and not only battery electric vehicle, but on the high end of the price point with the EQS and EQE. Probably midyear last year is when they realized they had to make adjustments to balance production with supply. And so they’ve made almost 180-degree turn as we sit here today, the Mercedes day supply is significantly reduced and under 5% of our total inventory at this point. And so we’ve seen a significant benefit in that to our West Coast dealerships and their profitability with the right mix and the right day supply for the demand in the market.

BMW has come off their peak as well, but they are still around that 25% to 30% as a percent of total from a BEV mix, but they have probably the broadest product line of battery electric vehicles, servicing the lower end of the market to the higher end of the market. And certainly, the i4 is a good seller there. If you look at days supply overall for battery electric, we peaked in June of last year at a 91-day supply new. And as we sit here today, we’re at 56 days at the end of the quarter. And I think in April here, we’re at 51 days. So it continues to trend in a more positive direction. And obviously, from a growth standpoint, we see that the gross profit on BEVs all in, when you look at the front side money and F&I is generally 65% to 70% of what we would have on an ICE vehicle and heavily discounted, as Roger said, over $7,400 now.

So anything that balances that improves. The other thing BMW is doing in this month of May is pausing wholesale deliveries of BEVs and supplementing with ICE vehicles, which I think is going to be very beneficial for our stores that are high on the BEV concentration at the moment. So that’s another adjustment they’re making to the market conditions.

Jeff Lick: And then just a quick follow-up or a side question on commercial truck or retail truck. I’m just – can you give any context to the delay in the 2027 emissions standards and just how big of a deal do you think that is? There was some thought that there’d be some pull forward of demand here over the next 18 months. Just curious by way of magnitude, how much you think that’s going to affect your business?

Rich Shearing: Well, I think that any pull ahead in demand will be predicated on the outcome of the Congressional Review Act of the waivers have been submitted by the legislation has been submitted by the house for potential rescindance of the Advanced Clean Car, Advanced Clean Truck and the Omnibus rule. So those will be voted on we think, by the end of May. And if that – if those waivers do get rescinded, that not only impacts California, but the other 13 states that opted into those regulations, Oregon being one of them that we operate in and so that will have positive impact, but it will obviously not spur any pre-buy at that moment because there won’t be the rush to purchase trucks that aren’t going to be impacted by the increased cost of those vehicles, which our intelligence would say is north of $20,000 per vehicle for the technology has got to be added to meet these emissions requirements if they were to go into effect.

I think the other important aspect of that legislation reform is that one emission standard across the U.S. that creates a lot of complexity for the manufacturers today and for us as retailers to make sure that, that truck is certified for the state it’s going to operate in and it’s being registered correctly. So I think if successful in those legislative reforms it will only be positive for the transportation on the commercial side.

Jeff Lick: That’s great. Thanks for that amount of detail. Well, best of luck in Q2 and we’ll look forward to talking to you soon.

Rich Shearing: Thanks, Jeff.

Roger Penske: Thank you, Jeff.

Jeff Lick: Thank you.

Operator: Our next question comes from Rajat Gupta from JPMorgan. Please go ahead. Your line is open.

Roger Penske: Hi, Rajat.

Rajat Gupta: Great. Hey Roger. Hey everyone. Thanks for taking the question. Just one last question on just the used car. I know you’ve got a lot of that given the pretty substantial improvement. The level of GPU that you had in the first quarter, the $2,100 level, is that a new like base level we should be thinking about going forward? Do you feel comfortable sustaining those kind of growth? I know it can be a little volatile here in 2Q with the pre-buy and like just to pull forward a bit and just used car inflation, but $2,100 is that like a new normal for the business medium term?

Roger Penske: Well, I think it can vary, but we’re getting the benefit. When you look at the total company, meaning international plus domestic, the impact of certainly Sytner Select now highly profitable and the use is driving a significant amount. I think, Randy, you said you were up in UK on used gross it was.

Randall Seymore: Yes. $580.

Roger Penske: $580, and we ended up being $357, I think, on a global basis. So to me, I think the one thing that could impact us some is at the vehicles during COVID, there was not a lot of leasing. So some of the cars that we would get back, we’re not getting. So they’re building that pipeline back for us. But I think the lack of new vehicles, when you think about it during COVID drove the used vehicle business. So again, we’re probably going to see some upward pricing. And with that, we might see advance rates from the finance companies capped. So it would reduce our ability to get higher gross margins. But I think we’ll deal with that case by case as we go forward. But I’m comfortable that we’ve got to lead the peer group on the used side because we’re not into the 10- and 20-year old cars.

We’re in vehicles that are one to four, which we can obviously and are certified as Tony said, that it gives us the opportunity to get more margin and 70% of our sales in the quarter were one to four years old. And I think that and five to eight was 20. So you see it’s a very small part of that. And I think overall, the same thing in the UK, 65% was one to four and about 30% five to eight, and that was probably skewed still by Sytner Select.

Rajat Gupta: Got it. That’s helpful. And then just one question on PTL. Not a lot of discussion today. Just curious, any thoughts on the outlook here. I know you’ve talked about like some choppiness in the freight market. Curious like how that impacts the PTL business? Should we expect the first quarter type of trends, flat year-over-year growth type of trends to continue for the remainder of the year? Or should we expect to be a little more volatile? Thanks.

Roger Penske: Well, let’s say the freight market, let’s just answer with that first freight market, obviously, has not been good for the last 36 months when you think about it. And – the rental businesses is certainly seasonal. But with the freight market down, and what we’re seeing is that our customers who are leasing trucks on a three to five-year basis with CPIs, we see those customers not reaching out for extra vehicles, which is typically 50% of our rental revenue so what we’ve had to do is reduce our fleet, which we’ve done from 88,000 down into the 70s, and that’s driven lower maintenance, lower cost, lower depreciation. So we’re trying to match it. But if we don’t see an increase certainly and because of the freight, I think our rental business will continue to suffer.

And again, that drives maybe gain on sale of vehicles because when you’re defleeting, we can’t get the margins, you can if you’re selling them one at a time, and we sold 4,000 vehicles last month. So it’s a – we’re watching it. The good news is we outperformed the first quarter of last year. Our income was about $1 million more for our percentage that we own of the company. But overall, our fleet is young I think that we’re well balanced on the headcount. We’ve taken out hundreds of people in the rental product line because of the lower utilization and the lower demand.

Rajat Gupta: Got it. That’s helpful. Just last one here. You talked a little bit about some pull forward or maybe some pre-buy here in the second quarter, primarily for the premium luxury brand. Did you expect the second half to like see some material deceleration here or irrespective of what happens with prices? Just curious if there’s any way to size one degree of pull forward a pre-buy you might be seeing in the business?

Roger Penske: Let me say, if we got any momentum, it’s going to be momentum on our existing inventory isn’t it?

Randall Seymore: Correct.

Roger Penske: For us to be able to project what potential cost increase we have in the vehicle, we don’t know that right now other than some of the things that were brought up last night and Trump’s latest declaration as far as tariffs. So I would say the second half would be more cloudy for me from the standpoint of where we’re going to be. We’ve got 16,000 vehicles that we can sell at current cost with no increases due to tariffs. And of course, we hope to go through those over the next 60 days. So again, we’re going to then have to look at what have we been able to be supplied at what price as we go forward. Rich, do you have any other comment?

Rich Shearing: No, I think you’ve covered it. I mean to your point, Rajat, we saw a little bit of a tailwind at the end of March, and certainly, that carried into the beginning of April but with each discussion around tariffs and then subsequently becoming lower, it’s difficult to predict what that demand looks like in the near term.

Roger Penske: Yes. One other thing that I didn’t mention when you talked about the freight market, we’re understanding that the ports receiving container ships from China, it looks like it’s going to be down 60% here over the next several weeks. So that will certainly have some impact on the freight market. Yes.

Rajat Gupta: Understood. Thanks for all the color and good luck.

Roger Penske: Thanks.

Rich Shearing: Thank you.

Operator: Our last question comes from David Whiston from Morningstar. Please go ahead. Your line is open.

Roger Penske: Hey, David. How are you?

David Whiston: Good, Roger. Hey everyone. I actually just have one question. You mentioned that earlier in the call, you said on a monthly basis, technicians contributing about $30,000 in gross profit per month. I was just curious roughly what was that number right before COVID?

Roger Penske: I don’t if anybody have that number. I’d be – I’ll get Tony to get that for you. But we’ve been growing that. We’ve been growing it for a couple of reasons because our effective labor rate has gone up, you following me? And we pay a percentage of that to the technician. Obviously, that’s driven the opportunity plus our ROs from the standpoint we’ve had more ROs, more service. So that’s driving it. That’s one of the reasons we want to continue to grow the mechanic base because we can drive more business, which I think which is key, which will drive gross margin and for the technician because it’s the best job in the company because we provide the customer provide the location, and we collect the money either from the factory or the customer.

And I think that our turnover when you look at turnover in that sector, I think we’re running probably about 11% or 12% or 13%, which is world-class because it’s so important to get these highly skilled people to stay with you because of the complexity of the vehicles today.

Rich Shearing: And David, I would add to Roger’s comments on the growth. So I would attribute some of it to our digital tools as well that we’ve deployed that enable us to load the shop more effectively. So we’re getting better utilization out of the available hours that the technicians have through our artificial intelligence with service booking and reception. Tech video adoption is something that is still relatively new that we get better proficiency out across the businesses. Last August, we launched a communication tool for customers booking service appointments with us called Fastlane. That enables us to add previous recommended not done items that the customer declined at a previous event enables us to get that information in front of them.

That generated an additional $5.4 million in revenue in the first quarter or on average about $704 per appointment. So all those things collectively and then other things we’re doing in the shop from an efficiency standpoint to keep the technicians in the Bay where they’re most productive and most happy are things we continue to look at as well as service advisor training. So it’s not any one thing. It’s a bunch of little things that are adding up year-over-year to make that improvement.

Roger Penske: Yes. I just checked and pre-COVID, the average technician growth was about $26,500.

David Whiston: Okay, great. Thanks, guys. That’s all. Very helpful. That’s all I had.

Rich Shearing: All right. Thank you, David.

Roger Penske: Thank you, everyone for joining us today.

Operator: Ladies and gentlemen, this concludes today’s conference call. Thank you for your participation. You may now disconnect.

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PENSKE AUTOMOTIVE GROUP INC

Q1 2025

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