Roger Penske shared some good news about Penske Automotive Group’s used-only chain, CarShop, during the company’s fourth quarter and full-year 2022 earnings call last week. He noted that CarShop unit sales increased 12% to 71,242 units during 2022 and that revenue increased 16% to $1.7 billion.

He also shared some CarShop news that was not so great.

“However, our variable gross profit per unit declined 19% … as vehicle acquisition prices, reconditioning costs and logistics continue to impact customer affordability and certainly our profitability,” said Penske, who is chair and CEO of Penske Automotive. The company released a slide presentation with the earnings call that showed CarShop revenue declining 15% in fourth quarter 2022 versus Q4 2021, from $394 million to $336 million.

Roger Penske went on to report more mixed news, noting that in fiscal-year 2022, CarShop self-sourced 73% of its inventory in the United States and only 37% in the U.K.

“We continue to focus on vehicle sourcing and cost improvement programs to improve CarShop profitability,” Penske said.

Turning to new vehicles, Penske reported strong demand, saying that vehicle availability is improving.

“However, we do expect supply constraints to remain during 2023 for most of the brands in the premium side that we represent,” he said.

An analyst during the Q&A portion of the earnings call asked Roger Penske to comment on whether franchise store used-vehicle customers were “a bit wealthier” and not hit as much in the area of affordability as CarShop customers.

Penske answered that affordability was an issue for CarShop customers, who he said were paying about $4,000 to $6,000 more than they paid 12 to 18 months ago.

“So, that's had some limiting factor for us to be able to source vehicles, recondition them, pay for logistics and be market share on a price for the customer,” Penske said.

Operational efficiencies, diversification

Penske chief financial officer Shelley Hulgrave said diversification and the company’s commitment to maintain operational efficiencies achieved through cost reductions beginning in 2020, were factors helping the company achieve a strong quarter. Automation and other efficiencies gained through artificial intelligence, or AI, were additional factors.

Roger Penske said the use of artificial intelligence is one of the company’s key efficiency initiatives, stating that the company continues testing and implementing AI on the service and sales sides of the business.

With AI, the company can automate tasks such answering customer inquiries and setting service and sales appointments, Roger Penske said.

“That allows our employees to be more efficient [and] provide quality support after hours,” Roger Penske said.

In the fourth quarter, 37,000 of the company’s U.S. online service appointments were created using AI, and total online business development center appointments increased 10% to more than 520,000.

Digital sales represented 5% of Penske’s total unit sales in the quarter.

“We continue to integrate digital solutions to automate and streamline processes to ensure consistency, our compliance and quality control, while pursuing digital sales through our preferred purchase program, our OEM digital programs and our proprietary website in the U.K.,” Roger Penske said. He added during the Q&A portion of the call that the company was looking into how to reduce its labor force using AI in many cases.

“Many of these people that were taking inbound calls can be put into other jobs within the company or they can move on,” Penske said.

Several times during the earnings call, Penske mentioned the importance of the company’s “diversified business model.” He said 2022 was a record year for the company, and he said that was “driven by our diversification.” Record fourth quarter revenue and earnings per share was also “driven by our diversified business model,” Penske said.

Penske said the company’s Premier Truck dealership business with 39 North American locations was an important part of that diversification. That business generated $3.5 billion in revenue in 2022.

In other news from the earnings call:

  • The company’s total inventory of $3.5 billion is approximately $400 million higher than Dec. 31, 2021. The company reported a 53-day supply of used vehicle inventory and a 25-day supply of new vehicles.
     
  • Hulgrave, the CFO, reported that the company in 2022 completed acquisitions and new “open points,” representing approximately $1.3 billion in annual revenue. Those included 19 retail automotive franchises, two open points and four commercial truck dealerships.
     
  •  EBT for the company’s retail truck business increased 14% in the quarter to $51 million. Approximately 75% of the new unit sales are Class 8 commercial trucks. Penske said the business’s entire allocation is sold out for 2023. “The Class 8 truck market remains strong, with retail sales of over 309,000 units in 2022,” Penske said.
     
  • The company’s leasing, rental and logistics business, Penske Transportation Solutions, or PTS, reported a record fourth quarter, with a 13% increase in revenue to $3.3 billion. Penske Automotive Group owns 28% of PTS, which manages a fleet of more than 414,000 units, with a goal to increase that number to 500,000 by 2025.
     
  • The company also announced recent management changes, including the naming of Greg Penske as vice chairman of the board. Rich Shearing, former president of Premier Truck, will oversee Penske Automotive Group's North American operations, including its automotive and commercial truck dealerships. Randall Seymore, former executive vice president, global operations for Commercial Trucks and Power Systems, will oversee Penske Automotive Group's international operations in the U.K., Europe, Japan and Australia.
     
  • Roger Penske said the company’s quarterly results show the benefit of its diversification across the retail automotive and commercial truck industries, the company’s cost control and a disciplined capital allocation strategy. “I continue to remain confident in our business model,” he said.