M&A opportunities abound as industry strengthens, Penske says
Photo credit: Joe Wilssens
DETROIT -- Publicly-owned automotive retailers with the financial muscle to buy new stores now have the perfect opportunity to do so, both in the United States and abroad.
That's what Roger Penske, 75, told industry leaders in his keynote address at the Automotive News World Congress Tuesday evening.
"While the public company peer group had annualized revenues of approximately $50 billion last year, the industry is still over 90 percent unconsolidated in the United States alone and the worldwide opportunities are abundant," said Penske, CEO of Penske Automotive Group Inc. of suburban Detroit.
Penske said demands by carmakers on their dealers, particularly for store renovations, are helping to pave the way for private dealers to sell out to publicly traded ones. The cost to dealers to "cater to the new retail environment" can be $15 to $20 million for facility investments.
Many dealers are looking at these costs and considering getting out of the business, Penske said. He added that Penske is getting "a lot of calls" from interested sellers.
"It's very apparent to me that the public retailers have the capital and expertise to meet these requirements," Penske said.
Penske also sees new opportunities for dealership ownership in Russia. He expects public retail groups to be the first ones there and to expand aggressively in other markets as well.
"The public company peer group has a combined market capitalization of over $12 billion," Penske said. "Just think about what that market capitalization may grow to in the next decade."
Penske Automotive Group Inc. is ranked No. 2 in the Automotive News list of the top 125 U.S. dealership groups with new retail unit sales of 154,829 in 2011.
Penske's retail journey
Penske outlined the tale of his retailing success in his speech. After acquiring a stake in a troubled automotive company called United Auto Group in 1999, he quickly went to work improving the employee culture, factory relationships, brand mix offered and store locations. He also made store improvements and focused on customer satisfaction.
To attract and keep employees, he built a field network of human resource professionals. Penske started job-suitability testing and background checks, focused on compensation, benefits, workplace safety and training.
In 1999, Penske annual turnover surpassed 80 percent. In 2012, employee turnover was 19 percent.
Penske improved his relationships with manufacturers, partnering with them to grow his business. He bought stores in the United Kingdom and Europe. He also added several luxury and volume foreign brands to his brand mix, and invested more than $2 billion into various facility improvements.
"The premium and volume foreign brands were not over-dealered," Penske said. "Instead, they chose to grow with the existing dealer base."
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