Penske Automotive Group, Inc. (NYSE:PAG) Q4 2024 Earnings Call Transcript

Penske Automotive Group, Inc. (NYSE:PAG) Q4 2024 Earnings Call Transcript February 13, 2025

Penske Automotive Group, Inc. beats earnings expectations. Reported EPS is $3.54, expectations were $3.37.

Operator: Good afternoon. Welcome to the Penske Automotive Group Fourth Quarter 2024 Earnings Conference Call. Today’s call is being recorded and will be available for replay approximately one hour after the completion through February 20, 2025, on the company’s website, under the investors tab, www.penskeautomotive.com. I’ll now introduce Tony Pordon, the company’s Executive Vice President of Investor Relations and Corporate Development. Sir, please go ahead.

Tony Pordon: Thank you, Julianne. Good afternoon, everyone, and thank you for joining us today. A press release detailing Penske Automotive Group’s fourth quarter 2024 financial results was issued this morning and is posted on our website along with a presentation designed to assist you in understanding the company’s results. As always, I’m available by email or phone for any follow-up questions you may have. Joining me for today’s call are Roger Penske, our Chair; Shelley Hulgrave, EVP and Chief Financial Officer; Rich Shearing, North American Operations; Randall Seymore, International Operations; and Tony Facioni, who’s our Vice President and Corporate Controller. Our discussion today may include forward-looking statements about our operations, earnings potential, outlook, acquisitions, future events, growth plans, liquidity, and assessment of business conditions.

We may also discuss certain non-GAAP financial measures such as earnings before interest, taxes, depreciation, and amortization, or EBITDA, and our leverage ratio. We have prominently presented the comparable GAAP measures and have reconciled their most directly comparable GAAP measures in this morning’s press release and investor presentation, both of which are available on our website. Our future results may vary from our expectations because of risks and uncertainties outlined in today’s press release under forward-looking statements. I also direct you to our SEC filings, including our Form 10-K and previously filed Form 10-Qs, for additional discussion and factors that could cause future events to differ materially from expectations. At this time, I would now like to turn the call over to Roger Penske.

Roger Penske: Thank you, Tony. Good afternoon, everyone, and thank you for joining us today. I’d like to begin by thanking each of our team members for their hard work and commitment to exceeding expectations. Through their efforts, PAG delivered a strong fourth quarter and another outstanding year of profitability. During 2024, PAG delivered 491,000 new and used vehicles and over 20,500 new and used commercial trucks. We increased our revenue by 3% to $30.5 billion. We generated $1.24 billion in earnings before taxes, $919 million of net income, and earnings per share of $13.74. We continue to grow our business by completing acquisitions of $2.1 billion in expected annualized revenue, including expanding automotive operations in the US and UK, entering the retail auto market in Australia with three Porsche dealerships, and adding a strategic commercial truck location in Wisconsin.

In our press release this morning, we announced the seventeenth consecutive increase in our quarterly dividend. The increase was three cents per share to $1.22 per share. Since the end of 2023, we have increased our dividend by 54%. We maintain a strong balance sheet and debt capitalization with ratios of 26.2% and leverage of 1.2x. Now let’s turn our attention to the latest quarter results. Very pleased with the financial performance during the quarter. Revenue increased 6% to a record $7.7 billion. New and used automotive gross profit per unit retailed remains strong, and overall gross margin was 16.3%, representing the sixth consecutive quarter of consistent gross margin. Our efforts to control costs drove a 70 basis point reduction with selling, general, and administrative expenses as a percentage of gross profit when compared to the fourth quarter last year, and a 90 basis points improvement sequentially when compared to the third quarter of 2024.

In the fourth quarter of 2024, PAG generated $315 million in income before taxes, $236 million in net income, and income per share of $3.54. Income before taxes increased 23%, net income grew 24%, and earnings per share increased 25%. On an adjusted basis, income before taxes increased 6%, income grew by 2%, and earnings per share increased by 3% when compared to last year. Looking at our retail auto business, we delivered 120,530 units during the quarter, up nearly 3%. Our same-store units were flat. New units delivered increased 11%. Average new vehicle transaction price increased 5% to $60,288. Gross profit per new vehicle retailed remains strong at $5,146 and increased sequentially by $74 from the third quarter of 2024, remaining nearly $2,000 higher than in 2019.

Used units declined 6%, but gross profit per vehicle retailed increased $349 quarter over quarter. The unit decline is associated with the disposal of three UK car shop locations as we transition the UK-based car shop location to Sytner Select. In 2024, Select dealerships sell fewer units, which contributed to the 6% decline in used vehicles retailed during the fourth quarter. Excluding Sytner Select dealerships in both periods, used vehicles retailed would have increased 8%. Variable gross profit per unit retailed was $5,319, representing a $60 per unit increase versus Q4 2023 and a sequential increase of $203 when compared to the third quarter of 2024. Approximately one-half of our gross profit is derived from our service and parts business.

As we look to continue growing this important part of our business, we’ve increased our technician count by 7% during 2024, and our effective labor rate in the US has increased 6%. In the quarter, service and parts revenue increased 13% to $771 million, including 7% on a same-store basis, with customer pay up 3%, warranty up 24%, and collision repair up 4%. Fixed absorption in the US increased 320 basis points to 87.5%. In the US, the average age of vehicles serviced is 6.1 years, up from 5.5 in 2019. The average miles on our vehicles serviced was 69,000. Let me now turn over to Rich Shearing.

Rich Shearing: Thank you, Roger, and good afternoon, everyone. In our US retail automotive operations, we experienced a surge in traffic post-election. For the quarter, new units increased 10% while used units increased 6%. During the quarter, 33% of the new units sold in the US were sold at MSRP, demonstrating continued strength in demand. Although we’ve done a great job working with our OEMs to manage BEV inventory to be more closely aligned with customer demand, the majority of BEV units still require significant discounting. In Q4, the average discount on a BEV from MSRP was nearly $6,900 per unit. Turning to our retail commercial truck business, we remain one of the largest commercial truck retailers for Daimler Trucks North America, and the retail truck business is one of our core pillars of our diversified model.

We operate 35 full sales and service facilities, 11 standalone service and parts facilities, and 12 collision centers. We believe Class A commercial truck demand will continue to be driven primarily by replacement purchases in 2025. During Q4, North American industry Class 8 retail sales were flat at 82,000 units. At the end of December, the current industry backlog was 145,500 units, representing approximately five months’ worth of sales. Premier Truck Group sold 4,432 new and used units in Q4, which was down 18% when compared to Q4 last year. The year-over-year decline in sales is related to the timing of deliveries as supply shortages pushed out deliveries from the first half to the second half of the year in 2023. However, during that same period, gross profit per unit retailed increased by 21%.

Revenue was $774 million, and EBT was $45 million for the quarter, with a return on sales of 5.8%, up 10 basis points. Same-store SG&A to gross profit was 60.8%, and fixed absorption was 122%. As we look towards 2025 and 2026, we expect replacement demand to continue, while the anticipated emissions change in 2027 and the recovery in the freight market could help drive higher retail sales. Turning to Penske Transportation Solutions. During Q4, operating revenue increased 3% to $2.8 billion. Full-service revenue and contract increased 9%, logistics revenue increased 3%, and rental revenue declined 9% as the freight recession continued to impact the number of units on rent and our rental utilization. The PTS operating profit increased $32 million but was offset by higher interest costs of $9 million and a decline in gain on sale of $25 million.

The PTS earnings before tax of $188 million were consistent with Q4 last year. PAG’s share of the PTS earnings was $52.3 million, up from $51.2 million in the fourth quarter of the prior year. For the year, PAG’s share of PTS earnings totaled $198 million, and we received $98.4 million in cash distributions. I would now like to turn the call over to Randall Seymore.

Randall Seymore: Thanks, Rich. Afternoon, everyone. Looking at the UK retail automotive market, our same-store new units delivered in Q4 increased by 1.5%, which compares favorably with the 2.7% decline in the UK new vehicle market in Q4. New vehicle gross per unit remained resilient, increasing $428 per unit on a sequential basis when compared to the third quarter. Same-store used units declined 18% as a result of the transition of the UK car shop locations to Sytner Select, which focuses on lower volume but higher quality premium vehicles. Excluding those dealerships, same-store used units in the UK would have decreased 2%, but pleasingly, used vehicle same-store gross profit increased $542 per unit when compared to the fourth quarter in 2023.

Service and parts same-store revenue increased 8.6%. Turning to Australia, as you may recall, in December, we acquired our third Porsche location in Melbourne, the second-largest city in Australia. We now operate three Porsche locations with an expected annualized revenue of $260 million and one Penske Select used car location. During the fourth quarter, these dealerships retailed 468 new and used units, generating $53 million in revenue with a return of 4.5% on sales. Turning to our on and off-highway markets in Australia, we remain very pleased with our progress. In Q4, the business produced record revenue and a reduction in SG&A to gross profit of 630 basis points. Service and parts represent approximately 65% of our total gross profit, so our focus on increasing units and operation is a key driver of the business.

In the on-highway market, we delivered a record number of MAN trucks in 2024, boosted by our largest fleet sale ever. In the off-highway sector, revenue and margin were driven by strong energy solutions, mining, and defense business. The Energy Solutions Order Bank is over 600 million Australian dollars for delivery in 2025 and beyond, predominantly related to the growth in large data center and battery energy storage solutions. We remain market leaders in the high horsepower generation segment with over 55% share. In the defense market, we provide power and support for submarines, frigates, and infantry fighting vehicles. I would now like to turn the call to Shelley Hulgrave.

Shelley Hulgrave: Thank you, Randall. Good afternoon, everyone. I will review our cash flow, balance sheet, and capital allocation. Our balance sheet and strong cash flow provide us with opportunities to maximize capital allocation. As a result, we continue to grow our business through acquisitions, return capital to shareholders through dividends, and opportunistic securities repurchases. During 2024, we generated $1.2 billion in cash flow from operations, and our EBITDA was $1.49 billion. Our free cash flow, which is cash flow from operations after deducting capital expenditures, was $811 million. In our press release this morning, we announced the seventeenth consecutive increase in our dividend. The increase was three cents per share to $1.22 per share.

Since the end of 2023, we have increased the dividend by 54%. Using yesterday’s closing price, our current yield is and with a payout ratio of 36%. Dividends paid to shareholders during 2024 were $274 million, and we repurchased approximately 517,000 shares at $149.69 per share for $78 million. Combined, we returned approximately $352 million to shareholders in 2024. In addition to the return to shareholders, we completed acquisitions of 23 retail automotive franchises and five commercial truck locations in 2024. Together, these acquisitions represent $2.1 billion in estimated annualized revenues, including $1.9 billion in retail automotive revenue and $200 million in retail commercial truck revenue. Additionally, as we focus on strategic capital allocation, we also divested or closed ten retail automotive locations in 2024, representing approximately $650 million in estimated annualized revenue.

Our strong cash flow has allowed PAG to keep its non-vehicle debt and leverage low. At the end of December, our non-vehicle long-term debt was $1.852 billion, up $223 million from the end of December 2023. Seventy-four percent of the non-vehicle long-term debt is at a fixed rate. Debt to total capitalization was 26.2%, and leverage was 1.2 times. When including floor plans, we have $4.5 billion of variable debt. Fifty-five percent of our variable rate debt is in the US. We estimate a 25 basis point change in interest rates would impact interest expense by approximately $11 million. As of December 31, we had $72 million of cash, and the liquidity available to us was $1.8 billion. As we look ahead, the maturity of our $550 million of 3.5% senior subordinated notes in September of this year, we currently expect to repay those notes from cash flows from operations or borrowings under our credit agreement.

Total inventory was $4.6 billion, up $350 million from the end of December 2023. Floor plan debt was $4 billion. New and used inventory remains in good shape. New vehicle inventory is at a 49-day supply, which includes 41 days in the US and 65 days in the UK. Day supply of new vehicles for premium was 52, and volume foreign was 32. The day supply of new battery electric vehicles in the US is 76 days at the end of 2024, down from 88 days at the end of June. Used vehicle inventory is at a 47-day supply, which includes 35 days in the US and 60 days in the UK. At this time, I’ll turn the call back to Roger for some final remarks.

Roger Penske: Yeah. Thank you, Shelley, Rich, and Randall. 2024 was a remarkable year for PAG and reflected record revenue and one of the strongest years of profitability in the company’s history. I remain particularly pleased with the continued resilience of gross profit per new vehicle retailed and the focus on our cost controls. I’m very confident in our model and the performance of the business. Appreciate you joining us today. Let’s turn it over to the operator for questions. Thank you.

Operator: To withdraw any questions, press star one again. We’ll pause for just a moment to compile the Q&A roster. Our first question comes from Michael Ward from Freedom Capital. Please go ahead. Your line is open.

Q&A Session

Michael Ward: Hey, Mike. Oh, thank you very much. Hi, Roger. Hello, everybody. Hi, Mike. When I look at that chart on page six of your slide deck, it’s been pretty consistent, I mean, you know, since 2019 with your allocation strategy. Has anything changed? I mean, is there anything when you look at it, it seems like we’re in a wave where maybe acquisition opportunities are a little bit greater. Will that continue in 2025, 2026? Will you continue to look at your core competencies, whether it’s overseas, whether it’s in trucks, whether it’s US, is there anything shifting there, or can we expect more of the same? Assuming that we’re in a similar type environment?

Shelley Hulgrave: Hey, Mike. It’s Shelley. Hey, Shelley. So we’ve talked before about our capital allocation strategy. About wanting to grow 5% through acquisition and 5% internally. We did a really good job of taking advantage of some of the opportunities that came available to us this year, acquiring $2.1 billion in annualized revenue. So you know, if you stay along that same line, 5% of revenue, I think that’s a good target in terms of our acquisition strategy. We’re, of course, gonna balance that with multiples on our stock, but you’re absolutely right. We’re gonna look at every corner of our business, and we did that this year. Right? We looked we took a look at international to start the year with the acquisition in the UK.

We expanded into the Australia retail market, which is a significant opportunity for us. We also expanded domestically, and we expanded with trucks. So we’ll continue to do that. We like being safe and secure, but for the right price and for the right opportunity, we’ll definitely take advantage of that. On the other side of that, we’ve got our return to shareholders over $350 million this year return, which is important to us and something that we’re gonna continue to prioritize. We’ve got $150 million of authorization from our board, so look at share repurchases. And so we’ll just go on down the line.

Michael Ward: Thank you, Shelley. Thank you very much.

Operator: Next question comes from John Murphy from Bank of America. Please go ahead. Your line is open.

John Murphy: Hey, Chad. Good afternoon. Hey, Roger. Good afternoon, Roger and team. You know, Roger, just a first question. You know, it seems like the business is particularly on the new auto side is hitting an inflection point. And I think this was the first time in a while we’ve seen the front-end gross, as you mentioned, up sequentially and on a year-over-year basis. There’s cuts in fear that new GPUs are gonna, you know, keep falling. It’s not what actually happened this quarter sequentially for sure. Do you think we’re hitting an inflection point here in the auto business, you know, specifically, and maybe in the total business as well, and we’re back to sort of this period of growth in front of us for the next few years?

Roger Penske: Well, I think number one, I think as you look at PAG, you gotta look at our brand mix. And as you know, overall, we’re about 77% premium. In the UK, we’re 95%. And when you look at brands like Mercedes, BMW, Porsche, Land Rover, where we have very high concentration, we see that those brands are maintaining the growth, which certainly helps us. And overall, when you look at the go back to July of last year on new, we were at $6,500. And we’re at $6,600 when I look at the January number. So look, I’m not saying that there won’t be some deterioration. That would not be the right thing to communicate today. But overall, I think that from an overall standpoint, we have the opportunity to continue to have the strong gross profit.

Obviously, F&I is a piece of that. And we’re really flexing to have more product, probably less F&I or finance because of the mix of leasing coming back. That’ll help us on the premium side because a lot of these cars will go out. They’ll come back on a three-year lease, and we’ll get those as good used cars. And I think we can also use the vehicles we had in the past, that we couldn’t use new loaner cars in service. We’re doing that now, and those cars coming out make terrific used cars. So I think the gross on used will continue to be strong. Obviously, as we look at the UK, we’ve taken the day’s supply over 90 in the UK on use from 6.1 or 6.2 down to just over 1%. So that’s driving a higher margin. And, again, Toyota is very strong now, which could be some ability to determine some downward pressure because we’re dealing with Toyota with a single-digit supply of used cars right now.

So I feel good about it. I think interest rates coming down. Hopefully, we’ll see more. So affordability will be key. And, again, I see the captive finance companies, you know, being very active right now also. So that helps us maintain the growth.

John Murphy: Maybe, Roger, just to follow-up on that. Your BEVs have been a weight on that GPU for quite some time now. Do you see relief from that going forward? You know, are the automakers becoming more realistic about what they’re gonna be delivering to you with BEVs, you know, and you’re not gonna be overburdened with those?

Roger Penske: Well, if you answer that question, you know, six months ago, I would say that our inventories were 30 to 40% BEVs in the two premium, the high premium brands. Now that is now down to about 11%, which really is more active from the standpoint of what we’re selling. We’re at 8% last year. So they’ve made a big pivot. And, you know, Porsche, who had the new Macan that came out, which was fully electric, is already notified to the dealers that they’re gonna have a nice version, which is really key. When we look at the discount right now, just take MSRP across all of that that we sell. It’s about $6,800 less than an ICE vehicle in each brand.

John Murphy: That that’s helpful. And just lastly, on the technician hiring plus 7% in 2024, what do you think you’re gonna be able to hit in 2025 as tech growth, and how scarce are these folks? Are you finding more and more people coming in?

Roger Penske: Well, I would say this, and, you know, from talking across the network, that we’re seeing more applicants than we have in the past. Now do they meet our criteria? Probably the answer probably is no, many of them. But we see, you know, filling this funnel with people that can move up in the organization, and we team them up with an ATEC, and it’s really paid off because, you know, this is a great business, and when we look at the techs, they’re generating about $30,000 of gross profit per tech per month, which really helps us. And we’re driving efficiency, and we’re using technology, obviously, to get this as gross profit. And, again, I think this is key to us. One of the areas that we’re always concerned about is the body shop.

We’re investing a lot in body shops, both on the auto side and also the commercial truck, and we see this as a secret sauce where we’re staying in it, you know, not divesting of our body shop. So because as we get in the premium side, not many people can fix a BMW or a Porsche properly, so we get the benefit of negotiating a better rate with the insurance companies. And I think when we grow our own, we certainly have less turnover. And I would say our turnover for the company last year was about 18% on a worldwide basis. And I think on the techs, it probably was somewhere in 12 to 13%.

John Murphy: That’s very helpful. Thank you very much, Roger.

Roger Penske: Yeah. Thanks.

Operator: Our next question comes from Thomas Wendler from Stephens Inc. Please go ahead. Your line is open.

Thomas Wendler: Hey. Good afternoon, everyone. How are you?

Roger Penske: Hey, Tom.

Thomas Wendler: Yeah. I wanted to start off with just the commercial truck demand in 2025. How impactful do you think some of the pre-buying could be prior to the emission changes in 2027?

Rich Shearing: Yeah, Thomas. Rich Shearing here. I, you know, I think it’s a little bit of a wait and see at the moment because, obviously, you’ve seen, you know, the Trump administration and the new head of the EPA taking a look at, you know, rescinding some of the waivers that are out there today, whether that’s advanced clean truck, you know, the truck true or transportation refrigeration unit regulation, and then also looking at a national standard, you know, and taking away California’s ability to have independent regulations. And so none of those things are turned around quickly or easily. But I think there’s a lot of support around some of those initiatives. And, you know, so I think time will tell, but I think right now, most of the OEMs have probably made a significant investment already in meeting the 2027 standards that are on the book.

And so that’s gonna play into the results as well. So I think as it relates to 2025, I don’t think we’ll see much of a pre-buy effect there. As we go into 2026, you know, we’ll have better clarity then on what the regulations are gonna look like in 2027. It may be a little bit easier to answer that question. I think the other thing, you know, that would temper a pre-buy is this freight recession. There’s been, you know, it’s lasted a lot longer than any of the previous cycles because of the amount of capacity that’s in the marketplace at the moment. Typically, when you have a freight recession, the capacity comes out fairly quickly. You have a big reduction in used truck pricing. And then you get to a new state of equilibrium where capacity and the trucks available meet the loads that are there, and that’s not the case at the moment.

With the used trucks that were sold at very high prices in the 2021, 2022 time frame, you know, we’re not seeing those carriers come out of the market as fast as they did in the past. And so that’s adding to the length of the freight recession. So there’s still an excess capacity for the amount of freight in the market at the moment.

Thomas Wendler: That was perfect. Thank you. And then maybe shifting gears a little bit here over to SG&A, 75 basis points improvement year over year this quarter. How should we be thinking about the major kind of puts and takes to SG&A in 2025?

Shelley Hulgrave: Hey, Tom. It’s Shelley. Thanks for your question. You know, our team, first off, should be commended for their daily efforts in SG&A, and they’re continuing to fight against inflation by watching, you know, all of the costs that go into that numerator of the equation. We saw some success this quarter in terms of lowering our vehicle maintenance for service owners. We saw an improvement in our advertising as we streamlined our approach there. So really great job by our team of just the daily battle to keep those costs low. When you look at the other side of the equation, though, we’re looking at growing margin and the more profitable business lines. So with fixed growth up 9%, and that’s got a 58% gross margin to it.

Reducing inventory costs so we get more out of those used vehicles, you know, we’re kind of pulling on all levers there. In terms of 2025, I think we’re still comfortable with that low seventies guidance. You know, we’ve maintained it for the last five quarters, so it certainly seems to be more normalized as opposed to just a trend. And, you know, we continue to see some improvements quarter over quarter, being down 90 basis points from the third quarter. It feels really good about our efforts. And, again, our team should be commended.

Roger Penske: That also is…

Thomas Wendler: Alright. Thank you very much.

Roger Penske: We’re really watching our comp to gross. You know, this is a metric that people don’t talk about much. But to me, we’re looking at somewhere between 25% on the variable side and 25% on the fixed. And, you know, this is how you balance your compensation and also the number of employees you have per location. So that inventory controls, you know, comp to gross, and we talked about the technology, obviously, that we’re doing. And I think all this is driving this. And if you look at us probably, and you look at 2025, we’re gonna be in that low seventy percent. I don’t think we wanna say we’re going below seventy at all. So be realistic as you’re looking to maybe some support on guidance on that. I’d say it’s probably somewhere around seventy to seventy-one percent.

Thomas Wendler: Perfect. Thank you for answering my questions.

Shelley Hulgrave: Thank you.

Operator: Our next question comes from Rajat Gupta from JPMorgan.

Rajat Gupta: Great. Thanks for giving the question. I just had one quick one on the truck leasing business. Looks like the stock price was stabilized on No. Could you give us a sense of, you know, your outlook there for 2025? You know, keeping the moving parts in mind? I mean, could we expect this year to grow again or just despite, you know, some of the interest rate and have a quick follow-up on your end?

Roger Penske: Well, what I would say to you is number one, we have a headwind on gain on sale. When you look at that from this last year, it was about $160 million down from the previous year, and certainly our interest costs were up $124 million. I think we’re gonna still see higher interest costs in 2025 because we’re replacing 3% bonds with 5%. We just did $700 million here in the last ten to twelve days. And those were, of course, made at higher rates, which have a five-year firm autumn. From the standpoint of the used truck market, we think from the standpoint we’re thinking maybe we hit bottom. So, obviously, we hope that that’s gonna turn in our favor. Remember, last year, we sold 41,000 units, which was a record for us.

And even as we look at January, February going forward, we expect to have a strong first quarter. And that will help us balance our rental fleet. Our rental fleet was 88,000. And I think at the present time, we’ve taken out probably close to 10%. And to me, that’s gonna make a big difference on utilization, which is key. It doesn’t take much. Remember, we don’t have to buy more trucks at this point to get revenue or gross profit. We just gotta move our utilization because once we balance our fleet, it’s all about utilization, and that’s where we’re focusing today. Always, obviously, you know, we’re balancing the personnel around the rental business also. So from our perspective, I’d be looking at a little bit of headwinds still on gain, certainly on the interest side.

But when you look, we’re up in sales from a lease standpoint, from a contract maintenance, and also in logistics. So, you know, overall, I think that, you know, we’re in good shape, and the number is available. You can see it. We were, I think, we posted a pretax about $717 million of pretax, and net income was somewhere around $685 million. And I would say we’ll be around that same area, hopefully, a little bit better to get through 2025.

Rajat Gupta: Got it. Got it. That’s helpful. And then just on the auto business, on the used car side, I mean, you’re still going through the reset of the UK stores. Could you give us a sense of, you know, when you expect your used business to start growing again? Maybe if you could break it apart across the rest of the UK, you know, in just in context of, you know, the supply challenges of lenders, you know, you expect the balance to start to grow again. On units, it’s probably obviously grossed have been raised by.

Randall Seymore: Hi, Rajat. It’s Randall. I’ll start with the UK. I would say it’s gonna continue to be challenged. The estimate for the market for new cars next year in the UK is about flat. I think we’re gonna be in a similar market condition. So that’s why we’ve taken the strategy to really focus on how we organically get inventory instead of going to the auction and buying cars that are very expensive. So it’s more of a gross strategy given the available inventory. Look, we’re really focused with our team too is how you maximize our retention of trades. You know, when people are buying a new vehicle or a used vehicle. So those are some of the levers we’re pulling to get more inventory given the market conditions. But when you strip out, Randall, you strip out the car shop closures, actually, our used vehicle business was up on a worldwide basis. Rich, you better come.

Rich Shearing: Yeah. Rajat, you look in the US market then. Just as a comparison, you know, when the new market’s up, that generates the used cars, and we saw that certainly when you compare the fourth quarter and the activity level there compared to the full year. If you look at the fourth quarter, our used retail sales were up 6%. And you had a new car, SAAR, in the fourth quarter that was near 16 million. Right. Whereas for the full year 2024, our used car retail was up 1%. So I think if we see the SAR that’s being forecasted for this year in that 16 to 16.5 million car range, I think we’ll see used cars, you know, correspondingly from a retail standpoint up as well. We have, this is probably the last twelve months. Right? The next twelve months would be the end of the difficult cycle of the lease return. Right? Right. So then when you go beyond 2025 into 2026, the lease returns should start kicking back up.

Roger Penske: Well, that’s one of the issues we have today. The lease return. Because the leasing went from, say, in the premium side from 55% probably down in the thirties. Our lease business has gone from 25 to 33, but, you know, it takes three years before this really starts to impact us. And these are critical vehicles for us. Because they’re young vehicles. We can get good margin on those plus we can certify them. It makes a big difference, especially on the premium side.

Rajat Gupta: Got it. Got it. Great color. So pending the question.

Operator: Next question comes from David Whiston from Morningstar. Please go ahead. Your line is open.

David Whiston: Good afternoon, everyone. Just two questions for me. First on affordability and somewhat related to that is negative equity. Given your clientele, is that really not a problem for you guys right now?

Roger Penske: Well, I think negative equity, you know, when people were buying used cars, what, twelve to eighteen months ago, a car we were selling for thirty sold for forty. Obviously, this is an issue from the standpoint of trade-ins. Now, we don’t see a lot of that in the premium side because we had a lot of leasing, and the manufacturers obviously were taking the residual risk on those. So we want more of those vehicles coming back. So I think because of our mix, and primarily premium, we don’t quite have that customer. I don’t know if our team agrees with that. We’re not dealing with that customer. When you look at our subprime business, it’s only about 6% across the company.

David Whiston: Where is your subprime exposure, actually? Is it more on the import side, or is it in the premium luxury?

Roger Penske: It would be on the volume foreign and used car. Primarily, probably it’s more used car than it is new.

David Whiston: Okay. And it’s been reported that you are working with the Cupra. If that deal were to come together, I mean, who do you envision that brand’s demographic being to buy those vehicles?

Roger Penske: Well, you read about the discussions we’re having with Cupra. This is a twenty-four to thirty-six-month journey, and there are a lot of open items here, so we really can’t comment on where we are. But we are talking with them. We felt it would be proper to let the market know that we’re in discussions, but we don’t really have anything tangible at this point.

David Whiston: Thank you.

Roger Penske: Thank you.

Operator: We have no further questions. I’d like to turn the call back over to Mr. Penske for any closing remarks.

Roger Penske: Thank you, operator. Thanks, everybody. We had a great quarter, a great year, and we’re looking forward to 2025, hopefully, to continue our progress. Thanks, everybody.

Operator: This concludes today’s conference call. Thank you for your participation. You may now disconnect.