Penske bullish on used-car ventures


Huge in used

Listed here are 2nd-quarter outcomes for Penske Automotive’s stand-alone used-only shops, CarSense and CarShop.
Items retailed: 11,125
Income: $192.eight million
Common transaction costs: $14,344
Gross per unit retailed: $1,177
F&I per unit retailed: $1,202
Whole variable gross per unit: $2,379
Supply: Penske Automotive Group

When Penske Automotive Group Inc. agreed to purchase used-only retailers CarSense within the U.S. and CarShop within the U.Okay. a number of months in the past, Chairman Roger Penske stated he was “cautiously optimistic” in regards to the ventures.

Penske has dropped the “cautiously.”

“We find it irresistible,” Penske advised Automotive Information. “We’ll scale it. We have now superb folks, good processes, 5 good areas [in each country] and we’ll be capable to replicate these. All of that could be very optimistic.”

So whilst Asbury Automotive Group Inc. shutters its Q auto used-only shops, Penske Automotive, of suburban Detroit, expects the used-only shops to usher in annual income of $350 million within the U.S. and $340 million within the U.Okay., and to carry a four to five p.c return on gross sales.

Used-vehicle costs are underneath stress due to a wave of off-lease automobiles that has precipitated provide to balloon, “however we’re shopping for automobiles at marketplace for these supercenters after which we’re making our margin on them,” Penske stated. “We’re really $400 extra per unit within the U.S., all in, which means finance and insurance coverage” included, in contrast with gross earnings on used automobiles offered at Penske’s U.S. franchised new-vehicle shops.

The upper margins stem from a number of distinctive gross sales methods on the CarSense shops, together with one-price promoting, he stated.

“The salesperson isn’t there to haggle with you. The salesperson is presenting a automobile and so the penetration of merchandise is increased than it’s within the conventional approach,” Penske stated. “It is also having a seven-day return coverage.”

For the primary six months or 6,000 miles, CarSense will restore or change any accent or working half free of charge, with no deductible. It provides a lifetime engine assure on many fashions.

The shops haven’t any variable compensation prices, Penske stated in a convention name with analysts and reporters. Salespeople are paid salaries, plus quantity bonuses.

“That is made an enormous distinction” in decrease turnover and better items per salesperson, he stated. The common salesperson at CarSense “is promoting about 23 automobiles. Should you take a look at the standard automotive enterprise, it is roughly 10,” Penske stated. “We even have 50 p.c repeat referral on this enterprise within the U.S.”

CarSense has 5 shops round Philadelphia and Pittsburgh. CarShop has 5 shops within the U.Okay. Penske Automotive intends to double the variety of areas for each retailers inside the subsequent 24 months.

“These companies present a limiteless white area for scalable enlargement,” Penske stated.

Penske owns land within the U.S. and U.Okay. earmarked for future shops, he stated. Now it is a matter of securing permits to construct them.

Penske offered 66,208 used automobiles within the second quarter, of which 11,125, or 17 p.c, have been retailed by means of the used-only shops.

As Penske basks in its used-only success, Asbury stated final month that it’s going to shut its two remaining used-only Q auto shops in Florida. Asbury, of Duluth, Ga., launched Q auto in mid-2014, however the shops didn’t generate earnings. CEO Craig Monaghan stated getting stock was a part of the issue.

“If you are going to an public sale to purchase a automobile, you are the final one along with your hand up. That is not a scenario we wished to be in,” Monaghan stated.

Penske’s sourcing has been sturdy due to a “seasoned” staff that buys automobiles at auctions and “on the curb” utilizing analytical instruments to seek out the proper automobiles that may promote, he stated.

“They do not simply purchase automobiles as a result of they’re on the proper value,” Penske stated. “They purchase sure automobiles for sure markets, which makes a distinction. They know what they have been capable of promote in these markets.”

Within the U.Okay., Penske has contracts with sure leasing firms to offer it with a gradual stream of off-lease automobiles.

Asbury’s Monaghan stated Q auto additionally struggled to rearrange financing for a lot of used-car consumers with subprime credit score scores. With no captive lender, Q auto was at an obstacle, he stated.

Penske doesn’t really feel that stress. CarSense and CarShop use third- get together financing, however he admires CarMax’s success with captive financing and is open to it — later.

“I do not know that for the time being we’ve the capital obtainable to start out a finance firm. It is one thing we are able to take a look at as soon as we’ve a historical past and perhaps we get a associate to do one thing like that,” Penske stated. “I would not say that is high of the record proper now.”

Huge in used

Listed here are 2nd-quarter outcomes for Penske Automotive’s stand-alone used-only shops, CarSense and CarShop.
Items retailed: 11,125
Income: $192.eight million
Common transaction costs: $14,344
Gross per unit retailed: $1,177
F&I per unit retailed: $1,202
Whole variable gross per unit: $2,379
Supply: Penske Automotive Group

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