Penske Automotive Group had a rough third quarter where used vehicles were concerned, with sales falling 7.0% to 65,523 units compared to the same quarter in 2021. Used-vehicle revenue fell 4.1% and gross profit was down 32% to $131.3 million.

On the earnings call, chairman and CEO Roger Penske dissected the environment. On the premium side of the business, the number of leases has dropped, and people are buying out their cars rather than returning them, he said. “We aren’t getting the trade; that has had a significant impact,” said Penske.

That has contributed to the age of the used vehicles it can source dropping to 5 to 6 years from zero to 4 years. “The reconditioning cost is significant,” said Penske. “It hurts our brand.”

It has also impacted sales and profitability at CarShop, the group’s used-only chain, with stores in the U.S. and the U.K.

The higher cost of preparing older vehicles for sale has moved CarShop out of its “sweet spot,” said Penske. “We aren’t getting the customer lead on those cars, we can’t get enough vehicles, (and) we have to recondition them to make them saleable,” he said. “And yet they are not durable for our customer base, and we have to buy them back.”

The Group has not “given up on the used-car business,” said Penske, but “we will not meet the goals we set a year ago. We will do 80,000 at CarShop.”

In March of 2021, the Group announced it would adopt the name CarShop for its global used car supercenters. It set a goal of selling 150,000 units annually by the end of 2023, expanding locations from 17 to 40, increasing revenue to $2.5 to 3.0 billion, and generating earnings before taxes of approximately $100 million.

As of Sept. 30, there were 21 CarShop locations in the U.S. and the U.K. In the third quarter, retail sales fell by 5.0% to 17,567, and total revenue decreased by 7.0% to $406.4 million including a 12% decrease on a same-store basis.

“Availability, affordability, and again, at this point, we want to be sure we don’t damage our brand by going downstream to zero-to-eight-year-old vehicles,” said Penske.

In other results, the Penske Automotive Group sold 44,446 new retail vehicles in the third quarter, up 0.2% compared to the same quarter in 2021. Total automotive revenue increased 2.0% to $5.8 billion including a 3.0% decrease on a same-store basis when compared to the same period in 2021. Total retail automotive gross profit decreased 0.4% to $1.0 billion, including a 5% decrease on a same-store basis

The Group has retail automotive operations in the U.S., U.K., Germany, Spain, Japan, and Italy. The U.S. accounts for 83% of its retail automotive revenue.