DETROIT -- Shares in Penske Automotive Group Inc. surged to a new four-year high today after the nation's second-biggest dealer group reported a 67 percent jump in first-quarter profits, helped by higher new- and used-vehicle sales.
Penske shares closed up 12.3 percent at $23.06. That represented the highest level for the stock since 2007, the last strong year for U.S. car sales.
In 2007, industry-wide U.S. vehicle sales were just more than 16 million. Sales dropped to a low of 10.4 million in 2009 and have been in a slow recovery since.
The company said net income totaled $33.9 million for the quarter, up from $20.3 million a year ago.
Revenues in the quarter jumped about 16 percent to $2.9 billion, Penske said.
New-vehicle sales revenue rose to $1.4 billion from $1.2 billion, and used-vehicle sales revenue jumped to $823 million from $696 million.
Like other retailers, Penske warned that production cuts following last month's earthquake in Japan will affect availability of new vehicles from certain brands later this year.
For Penske, sales from Toyota, Honda, and Nissan represent about a third of revenue. The uncertainty around the performance of the Japanese automakers has been a concern for investors in related U.S. retailers.
Retail over fleet
Penske Automotive CEO Roger Penske dismissed the impact of the Japanese quake as “temporary.”
He told analysts during the company’s quarterly earnings call today that he is “more concerned about the people going through this traumatic situation in Japan” than he is about auto supply disruptions.
Penske said several factors will offset new-vehicle shortages, which he estimates will hit in June and last through the third quarter.
He said changes in manufacturers' incentive and fleet policies will ease the potential effects of the disaster on supplies.
For example, Honda has reduced sales incentives so that models in short supply won’t sell too quickly. And Toyota’s finance arm, Toyota Financial Services, is allowing lease customers to extend their lease terms by up to a year, among many other initiatives.
“We’ll see more of this from the other manufacturers,” Penske said.
Factories are also expected to divert fleet units to the retail market. Penske said fewer cars are already being sold to fleet users and rental agencies.
The manufacturers “could sell 200,000 to 400,000 units to fleets in a quarter,” he said. “If these go to retail they make a big difference.”
At the retail level, Penske Automotive Group is also preparing for shortages.
The company is stocking up on used vehicles as an alternative to new units in short supply. Within a large, diverse store network Penske also noted that vehicles can be redistributed to meet acute shortages.
He said store managers have been told to ease up on “discounting just to sell cars” to keep inventories from getting too low.
And he says Penske Automotive Group’s auto malls have a competitive edge because they allow consumers to cross shop a variety of brands. If one brand is in short supply they can easily shop and buy at one of the other brands Penske sells.
“We have a number of campuses with seven to 12 franchises that are contiguous,” Penske said. “Where we do not have the brand consumers want they can walk three or four minutes and be at one of our other stores. We have good traffic within those campuses.”
Parts shortages in the wake of the March 11 earthquake have caused all three Japanese automakers to curtail production, and Toyota has said it does not expect to be back to normal output levels until the end of the year.
Penske said the dealership group began the second quarter with about 60 days of inventory of new cars and trucks from Japanese manufacturers, about the same level as a year earlier.
The company, in a statement, said: "We believe the diversification of the retail automotive business model, including our recurring fixed operations … and our ability to offer a full range of used vehicles, will enable us to manage through any reduction in the availability of new vehicles caused by these unfortunate events."
Penske acquired three franchises during the first quarter: an Audi franchise in Willoughby, Ohio, and BMW and Mini franchises in the United Kingdom. The three franchises are expected to generate about $100 million of revenue on an annualized basis.
Penske also was awarded the rights to Nissan and Infiniti franchises in San Francisco, which are expected to open in the third quarter this year.
The company operates 326 retail automotive franchises, representing 39 brands -- mostly Asian and European -- and 26 collision repair centers.
Donna Harris, David Phillips and Reuters contributed to this report.