After a budget-cutting campaign prompted by the credit crisis last year, Penske Automotive Group, the nation's second-largest auto retailer, plans for steady growth.
The publicly held retailer has acquired three businesses operating six franchises. Auto manufacturers also have granted Penske rights to open 10 new dealerships. Altogether, these locations are expected to generate $350 million in annual revenue. The company anticipates spending $27 million on capital expenditures to complete the projects.
And Penske is also seeing an improvement in same-store retail sales, whereas last year revenue at stores Penske operated at least a year were down. In the third quarter, the company saw healthy increases in same-store used-vehicle sales and finance and insurance income, and a modest increase in new-vehicle sales.
“The new vehicle retail environment was challenging,” Chairman Roger Penske told analysts this afternoon during the company's quarterly earnings call. “Our performance at our premium and luxury franchises and our focus on increasing used-vehicle sales drove our same-store retail revenue growth.”
The company saw double-digit increases in used-vehicle unit sales — a 16.5 percent increase overall and a 20.6 percent jump in its U.S. markets — though used-vehicle margins were lower.
Penske said overseas operations maintained a one-to-one ratio of used-to-new unit sales. U.S. operations improved the used-to-new sales ratio, though the results lag the group's foreign stores.
Penske posted a 9 percent year-over-year increase in net income during the third quarter, reflecting healthy performance of its luxury franchises, strong used-vehicle sales and a drive to reduce long-term debt.
The retailer posted profits of $29.98 million on revenues of $2.76 billion in the third quarter, compared with profits of $27.42 million on revenues of $2.59 billion in the third quarter of 2009.
Net income was up 38 percent in the first nine months of the year. Penske reported net income of $79.77 million on revenues of $7.95 billion, compared with net income of $57.78 million on revenues of $7.07 billion in the first nine months of 2009.
Penske also noted that the company paid down more than $210 million of long-term debt since the beginning of 2009.
Analyst Ravi Shanker with Morgan Stanley Research said Penske's used-vehicle departments had a “great” quarter but noted that profit margins were “close to a record low for the segment.” Shanker assumes this could be due to high acquisition costs, which continue to hurt dealers.