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Penske Automotive Group Inc. Reports Operating Results (10-K)

February 28, 2011 | About:
10qk

10qk

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Penske Automotive Group Inc. (PAG) filed Annual Report for the period ended 2010-12-31.

Penske Automotive Group Inc. has a market cap of $1.87 billion; its shares were traded at around $20.27 with a P/E ratio of 16.89 and P/S ratio of 0.17. Hedge Fund Gurus that owns PAG: George Soros of Soros Fund Management LLC, Steven Cohen of SAC Capital Advisors. Mutual Fund and Other Gurus that owns PAG: Ron Baron of Baron Funds, Chuck Royce of Royce& Associates, Mario Gabelli of GAMCO Investors, Murray Stahl of Horizon Asset Management, Jeremy Grantham of GMO LLC.

Highlight of Business Operations:

We are the second largest automotive retailer headquartered in the U.S. as measured by total revenue. As of December 31, 2010, we operated 323 retail automotive franchises, of which 172 franchises are located in the U.S. and 151 franchises are located outside of the U.S. The franchises outside the U.S. are located primarily in the U.K. In 2010, we retailed and wholesaled more than 340,000 vehicles. We are diversified geographically, with 63% of our total revenues in 2010 generated in the U.S. and Puerto Rico and 37% generated outside the U.S. We offer approximately 40 vehicle brands, with 95% of our total retail revenue in 2010 generated from brands of non-U.S. based manufacturers, and 66% generated from premium brands, such as Audi, BMW, Cadillac, Mercedes-Benz and Porsche. Each of our dealerships offers a wide selection of new and used vehicles for sale. In addition to selling new and used vehicles, we generate higher-margin revenue at each of our dealerships through maintenance and repair services and the sale and placement of higher-margin products, such as third-party finance and insurance products, third-party extended service contracts and replacement and aftermarket automotive products.

We also own a 9.0% limited partnership interest in Penske Truck Leasing Co., L.P. (PTL), a leading global transportation services provider. PTL operates and maintains more than 200,000 vehicles and serves customers in North America, South America, Europe and Asia. Product lines include full-service leasing, contract maintenance, commercial and consumer truck rental and logistics services, including, transportation and distribution center management and supply chain management. The general partner of PTL is Penske Truck Leasing Corporation, a wholly-owned subsidiary of Penske Corporation, which, together with other wholly-owned subsidiaries of Penske Corporation, owns 41.1% of PTL. The remaining 49.9% of PTL is owned by General Electric Capital Corporation.

The majority of our revenues are generated in the U.S., which was the worlds second largest automotive retail market in 2010 with unit sales of approximately 11.6 million units, which represents an 11% increase over 2009. The majority of automotive retail sales in the U.S. are generated at approximately 18,500 franchised dealerships at January 1, 2010, which generated revenues of approximately $501.0 billion in 2009, including 52.3% from new vehicle sales, 32.0% from used vehicle sales and 15.7% from service and parts sales. Dealerships also offer a wide range of higher-margin products and services, including extended service contracts, financing arrangements and credit insurance. The National Automobile Dealers Association figures noted above include finance and insurance revenues within either new or used vehicle sales, as sales of these products are usually incremental to the sale of a vehicle.

We also operate in Germany and the U.K., which represented the first and third largest automotive retail markets, respectively, in Western Europe in 2010, and accounted for approximately 38% of the total vehicle sales in Western Europe. Unit sales of automobiles in Western Europe were approximately 13.0 million in 2010, a 5% decrease compared to 2009. In Germany and the U.K., new car sales were approximately 2.9 million and 2.0 million units, respectively, in 2010.

In the U.S., publicly held automotive retail groups account for less than 10% of total industry revenue. Although significant consolidation has already taken place, the industry remains highly fragmented, with more than 90% of the U.S. industrys market share remaining in the hands of smaller regional and independent players. The Western European retail automotive market is similarly fragmented. We believe that further consolidation in these markets is probable due to the significant capital requirements of maintaining manufacturer facility standards, the limited number of viable alternative exit strategies for dealership owners and the impact of the current economic and industry environment on smaller less well capitalized dealership groups.

We have the highest percentage of revenues from foreign and luxury brands among the U.S. based publicly-traded automotive retailers. Since 1999, foreign brands, which were responsible for generating 83% of our U.S. revenue in 2010 (Toyota/Lexus, Honda/Acura, BMW/MINI, Mercedes-Benz, Audi and Nissan/Infiniti), have increased their U.S. market share by nearly 80%. We believe luxury and foreign brands will continue to offer us the opportunity to generate same-store growth, including higher margin service and parts sales. In 2010, our revenue mix consists of 66% related to premium brands, 29% related to volume foreign brands, and 5% relating to brands of U.S. based manufacturers.

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