We continue to focus our efforts on efficiencies and cost control. As part of our ongoing efforts, we continue to challenge our costs and focus on simplification, optimization, and digitization to drive further efficiency and lower cost structure. In fact, our U.S. same-store headcount remains down 11%, when compared to pre-COVID headcount levels. Further, in our U.S. automotive operations, variable compensation to gross profit improved 30 basis points and service and parts absorption improved 120 basis points, when compared to Q4 last year. At this time, I will turn the call back to Roger for some final remarks.
Roger Penske: Thanks, Shelley. As Shelley mentioned, our balance sheet is strong and we have the ability to flex our capital allocation opportunistically. We demonstrated that flexibility in January by expanding our brand footprint in the UK, as we completed an acquisition of 16 premium brand dealerships representing approximately $1 billion in estimated annual revenue. Our UK team is currently integrating these dealerships into our operations and we are thrilled to add the Rybrook team to our business. Lastly, I’m pleased to report that Penske Automotive Group was recently named as a Fortune World’s Most Admired Company for 2024 and was recently honored by Glassdoor, as the best place to work in 2024. Our results continue to demonstrate the benefit of our diversification across the retail automotive and commercial truck industries are cost control and discipline capital allocation strategy.
I remain confident in our model and the performance of our business. Again, thanks for joining us today, and we’ll open the call up for questions. Thank you.
Operator: Thank you. [Operator Instructions] And we can first go to John Murphy with Bank of America. Please go ahead.
John Murphy: Good afternoon, Roger, and everybody. I just wanted to start, Roger, with a question on the state of play on EVs. Shelley, I appreciate you giving us those inventory numbers so that they’re helpful. I just wonder if you could talk about sort of the pace of sales, the mood of consumers as they’re buying or not buying these EVs. They’re just a general environment with the automakers and what kind of capital requirements they’re making you invest in, either from charging or facilities, you have to support the sales. Just trying to get your general view of the state of play here. And how much it actually matters to you if you might be able to offset that by selling hybrids and ICE vehicles if we are really stalled here on the EV front?
Roger Penske: Okay, John, let me take a shot and have Rich make a comment. But there’s no question that demand for BEVs has slowed. And when you look at our business, 51% of our BEV businesses in California, and of that business, 90% is leased. So right now, the OEMs, in order to push the business in the luxury side at least, or having to lease it and have a residual risk. We think the bridging strategy is certainly going to be as hybrid. And that’s been proven with what [Tony has committed to now going forward with came] [ph] at 100%. 7% of the market was BEV, obviously, last year. And when we look at our day supply, we’re running at about 53 days as of the end of the year. In the UK, BEV units were really at that point, they were much higher at 36% of the market.
The BEV day supply in the UK is 67. So when we step back and look at it, right now, in California, we can’t even get chargers installed at our locations, because there’s not power available to obviously supply them. We see that not only on the retail car side, but also on the truck side. But those are a couple of comments from here. Rich, do you want to follow-up?
Richard Shearing: Yeah, John, I think we’re at an inflection point, where early on we had – customers that were early adopters certainly went out, bought the BEV, those early adopters now already have them, and you’re getting to the point where you’re trying to convince the customer to find their first BEV or their last ICE. And so, going back to what Roger said about our overall bet sales in the U.S. being in California, earlier this week talking to our management team there, we’re starting to think that that market is getting saturated. When you look across the balance of the country, certainly the BEV adoption percentages are a much lower rate. And so, we see that in our inventory starting to climb. With BEV inventory in the U.S., just under 1,500 units, 12% of our total inventory, that’s up 34% from the end of Q3, which is indicative of the sales rate starting to slow down a little bit.
John Murphy: That’s very helpful. Just a second question on GPUs that have been holding in better than many people have feared, obviously, that goes along with pricing. I’m just curious if you can talk about your expectations there for pricing and new GPUs. It may be put that in the context of how negative weight the GPUs are on EVs relative to sort of your total.
Richard Shearing: Tony, do you want to give some?
Tony Facione: Sure, Roger. John, thanks for the question. So when you take a look at how our gross looked at the overall business from Q4 to Q3, so when you look at the sequential side of things, we actually did quite well. New was down 257, used was down 123, and F&I was up on a total basis. When you look at our overall business in total, we were selling somewhere around 40%-ish of the cars at MSRP. So we’re very happy with that, and about 28% of the deals that we have right now are in cash. So when you look at the total variable gross profit that we generated on a sequential basis from Q3 to Q4, we were up in that $80, $90 range per unit. So we’re very pleased with our overall performance on the gross profit side.
John Murphy: And Tony, just any color on how much of a weight that the EVs are on that or where they’re kind of landing for you on GPUs?
Tony Facione: Yeah, so they’re running somewhere in the neighborhood of $5,000 or so below MSRP.
Richard Shearing: Yeah, so, John, Tony said 41% or 40% of our cars last year at MSRP, if you look conversely at BEV, 83% percent of our BEV sales were below MSRP at more than $5,800. And if you look at just across all the brands we represent on a weighted average, the ICE GPPU [ph] is almost $2,200 less than a comparable ICE.
Roger Penske: The discount is?
Richard Shearing: No, GPU.
Roger Penske: GPU, yeah. And also, John, I would have to say that we have action on BEV’s probably 60,000 and below. And when you start looking at inventory above 60, EQS/EQE, 120, 115 days, am I correct?
Randall Seymore: Correct.
Roger Penske: Our days’ supply, so there’s no question. And we’re starting to see, even in the UK, they added another 1% discount for us on those vehicles last year or last month. Do you have any comment at all from internationally?
Randall Seymore: Yeah, in the UK, BEV was flat year-over-year. In fact, it was down 10 basis points. And looking at January, it was down another 180 basis points from a market share standpoint. So, look, it’s a little bit different there, because the retail BEVs would be de minimis. Meanwhile, it’s all through corporate fleet programs, because of the tax breaks. So it’s a little bit apples to oranges. And then you look at other parts of Europe like Italy and Spain is 4% market share, because there’s no government incentives. So Germany, the government incentives finished at the end of the year, so it’s going to be interesting to see what happens there without this intervention by the government.
John Murphy: It’s incredibly helpful. Thank you very much, guys.
Roger Penske: All right. Thanks, John.
Randall Seymore: John, thanks.
Operator: And next we can go to Mike Ward with Freedom Capital. Please go ahead.
Roger Penske: Hey, Mike.
Michael Ward: Hey, Roger. Good afternoon, everyone. Thank you.
Richard Shearing: Hi, Mike.
Michael Ward: Starting on car shop, it wasn’t long ago that everybody wanted car shop to spin off and go to a separate public entity, and we’ve had major disruption in the market over the last few years. Does that change or how you look at it structurally? How big is the advantage being part of PAG.? Is it just part of the portfolio? And with this reset or this adjustment, tax adjustment in the UK, is this a chance to accelerate on the pedal, or is it just reconfiguring it or change in the strategy? How are you looking at it?
Shelley Hulgrave: Hey, Mike. It’s Shelley. I’ll take that question. We had mentioned in our press release that we had an impairment related to our car shop UK question or our car shop UK business. And when you dig into the details and you try to establish a fair value, it became very clear that though we initially looked at these businesses separate from the franchise dealerships, if you will, there’s so many synergies that we’ve put in place over time. We’ve moved systems. We’ve incorporated a lot of the same franchise F&I products and the like. So, I think, there’s a great benefit to looking at the car shop businesses consistent with the franchise stores. There’s also a lot of sourcing opportunities and similarities there, so you know, buying off the curb, if you will, purchasing cars from customers directly, that’s had a huge benefit to us as well.
So I think there’s a lot of benefit. Certainly, those that have spun off have not always succeeded, as we’ve seen this year, and as we look forward to the future and looked at this from a calculation standpoint. Our focus isn’t so much on what the used car market is doing right now, but really what’s available from a new car perspective. And as you see the SAAR growing, we expect to see a similar used car SAAR, if you will grow as well and have more affordable cars available for our car shop locations.
Michael Ward: So as we look forward, then it becomes more of a partnership with the retail automotive.
Shelley Hulgrave: I think it’s been for a long time, Mike.
Roger Penske: But even more of a discharge, obviously, technically when they look at it, Shelley’s team along with the auditors look at this, so it wasn’t something that we didn’t expect. And, obviously, we reduced two locations in the U.S. this year, which had been losing money, and we have been able to sell one location, and one will move over to PTS from the standpoint from a leasing and rental location. But as far as the UK is concerned, we think it’s a valued brand, and as we go forward, we’ll continue to operate it. I think we had $150 million value, and we took 27% as a goodwill impairment on that.
