Penske Automotive pushes further into commercial vehicles
DETROIT -- Penske Automotive Group Inc. is putting its attention and investment dollars deeper into the commercial vehicle business.
The company announced today its U.S.-based commercial-vehicle dealership business will be called Penske Commercial Vehicles, U.S. It had been called ATC Holdco.
It also said it has hired Richard Shearing, 40, as president of Penske Commercial Vehicles, U.S. He will help grow Penske Automotive’s U.S. commercial truck business, the company said in a statement.
Penske Automotive has been investing hundreds of millions in the commercial vehicle space recently. And while Penske Automotive will continue to buy and sell U.S. car dealerships this year, President Rob Kurnick told Automotive News, he also said the heavy-duty commercial truck segment is attractive. That’s because it provides strong growth opportunities because it is largely unconsolidated.
It is also less costly to buy truck dealerships than car dealerships because of very high valuations presently on most car dealerships, say buy-sell experts.
Penske Automotive ranks No. 2 on the Automotive News list of the top 125 dealership groups in the U.S., with retail sales of 199,795 new vehicles in 2013.
Expanding into trucks
Shearing started Feb. 1. He brings extensive experience in Freightliner trucks, account management, strategy and building strong customer relations from Daimler Trucks North America where he was vice president of national accounts. Before that, he was general manager of component sales and director of product strategy.
Penske Automotive’s expansion into commercial trucks has been ongoing. Last week, it said it completed the acquisition of two medium- and heavy-duty commercial truck dealerships operating in Chattanooga and Knoxville, Tenn. These dealerships represent the full line of Freightliner commercial truck products under the brand names Freightliner, Western Star, Sprinter and Freightliner Custom Chassis.
Penske Automotive estimates these dealerships will generate about $200 million in annualized revenue.
In November 2014, Penske Automotive bought a majority stake in The Around the Clock Freightliner Group, a heavy- and medium-duty truck dealership group located in Texas, Oklahoma and New Mexico. Penske Automotive Group now owns 91 percent of ATC. ATC operates fourteen locations, including eight full-service dealerships offering Freightliner, Western Star, and Sprinter-branded trucks. ATC is projected to generate revenue of $600 million to $700 million a year.
All told, Penske Automotive estimates U.S. truck dealership acquisitions will add around $800 million to $900 million in annualized revenue. But the automotive retail business still comprised 97 percent of Penske’s Automotive revenue for the first nine months of 2014.
“As we move forward the truck dealerships and the distribution business will be a larger part of our revenue because we will have had them longer,” said Tony Pordon, executive vice president of investor relations and corporate development. “It gives us a nice opportunity to grow our business in a different way and diversity of our business even further.”
At the time of the deal, Chairman Roger Penske said in a media statement, “ATC represents a strategic opportunity for our company. Like the automotive retail dealership business, the heavy-duty truck dealership industry is highly fragmented and provides an excellent opportunity for our company to build scale through further consolidation.”
In 2013, Penske Automotive bought commercial vehicle distributor Western Star Trucks Australia from Transpacific Industries Group. Western Star Trucks Australia distributes Western Star, Dennis Eagle and MAN medium- and heavy-duty trucks through more than 80 independent dealers in Australia, New Zealand, Indonesia, the Philippines and Papua New Guinea.
Alternate revenue generator
Penske said in August he was looking at more acquisitions in Australia to expand the company's commercial vehicle business there. The company reports its fourth-quarter and year-end earnings on Wednesday.
The diversity of investment gives the company some flexibility if the auto retail market takes a downturn, Kurnick said.
“If things get crazy here, we have the ability to shift to different marketplaces where we already have businesses,” Kurnick said.
Truck dealerships are a good investment presently, said Alan Haig, president of Haig Partners, a dealership buy-sell advisory firm in Fort Lauderdale, Fla.
“The multiples that people are paying to acquire truck dealerships are lower than the multiples they are paying to acquire car dealerships,” Haig said.
Haig said there is still risk in the truck sector because it is a highly cyclical business.
“But this is a new investment strategy for the Penske Automotive Group. They have decided that investing in the truck side is attractive,” Haig said. “There is only one other big consolidator in the heavy truck space.”
That consolidator, Haig said, is Rush Enterprises Inc.
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