Penske Automotive Group Inc. is bullish on its standalone used-vehicle store strategy — three years in the making — as profits and volume grow.
Penske, the nation's second-largest new-vehicle retailer, plans to add four used-only superstores this year, including two on the East Coast and two in the United Kingdom. Sales volume at the company's used-vehicle stores is projected to increase by nearly 30 percent in 2019.
Used-vehicle sales at Penske's superstores in the U.S. and U.K. jumped 75 percent last year to 71,013.
"That number will grow to probably 90,000 in 2019," CEO Roger Penske told Automotive News this year. "It gives us a tremendous opportunity from the standpoint of diversity, from the standpoint of our business."
The used-vehicle superstores generated $1.27 billion in revenue in 2018 for Penske Automotive, up 78 percent, and earnings before taxes totaled $42 million last year. One superstore in Wakefield, England, consistently sells about 700 vehicles monthly. The outlets generated average transaction prices of $14,913 in 2018, up 2.7 percent year-over-year.
Penske got into the standalone used-vehicle business two years ago by buying CarSense, a U.S. chain with five stores in the Pittsburgh and Philadelphia markets, and CarShop, another chain of used-only supercenters with five locations in the U.K. In January 2018, Penske completed the acquisition of The Car People, a used-car superstore company in the U.K. with four stores.
The company's standalone used-vehicle business is aided by higher industry volume compared with new-vehicle sales, no concerns with franchise laws or having to sell certain brands, less-expensive facilities and rent costs that are a lower percentage of its sales, Penske said. There are also savings on personnel costs, with superstore employees receiving a salary and unit sales bonus. All give the company a competitive advantage, Penske said.
Penske's superstores also feature no-haggle prices, and sales employees become "more of an ambassador of the car," he said. Compared with new-vehicle stores, turnover is lower and sales-per-employee numbers are about double, Penske said.
"When you look at the compensation, we typically run between 25 percent and 30 percent of gross profit in a traditional retail store," he said. "And in the superstores, we run at half that, about 17 percent."
Penske plans to expand from 14 superstores to 18 this year. Stores in Glen Mills, Pa., outside Philadelphia; near Princeton, N.J.; and in Bristol and Nottingham in the U.K. will open in the second half of 2019.The new stores should be profitable after six to seven months, Penske told analysts this year.