Penske Automotive Group, Inc.

Good afternoon. Welcome to the Penske Automotive Group fourth quarter and full year 2021 earnings conference call. Today's call is being recorded and will be available for replay approximately one hour after completion through February 16th, 2022 on the company's website under the investors tab at www.penskeautomotive.com. I will now introduce Anthony Porton, the company's executive vice president of investor relations and corporate development. Sir, please go ahead.

Thank you. Good afternoon, everyone, and thank you for joining us today. A press release detailing Penske Automotive Group's record fourth quarter and record full year 2021 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 am available by email or phone for any follow-up questions you may have. Joining me for today's call are Roger Penske, our chair and CEO, Shelley Holgrave, Chief Financial Officer, and Tony Piccioni, Vice President and Corporate Controller. Our discussion today may include forward-looking statements about our operations, earnings potential, outlook, future events, growth plans, liquidity, and assessment of business conditions. We may also discuss certain non-GAAP financial measures, such as adjusted income from continuing operations, adjusted earnings per share from continuing operations, and earnings before interest, taxes, depreciation, and amortization, or EBITDA, and adjusted EBITDA. We have prominently presented the comparable gap measures and have reconciled the non-gap measures in this morning's press release and investor presentation, which are available on our website to the most directly comparable gap measures. Our actual results may vary materially because of risks and uncertainties outlined in today's press release, which may cause the actual results to differ materially from expectations. I direct you to our SEC filings, including our Form 10-K, for additional discussion and factors that could cause results to differ materially. I will now turn the call over to Roger Penske.

Roger Penske Thank you, Tony. Good afternoon, everyone, and thank you for joining us today. I'm pleased to report all-time record fourth quarter results as our diversified business and strong execution produced record revenue, earnings before taxes, net income, and earnings per share for revenue increased 8 percent to $6.3 billion. Our earnings before taxes increased 60% to $420 million, and our income from continuing operations increased 55% to $312 million. Earnings per share increased 59% to $3.97. Excluding the Q4 charges of $10.1 million reconciled in our press release and earnings presentations, Adjusted earnings before taxes increased 64% to $431 million. Our adjusted income from continuing operations increased 60% to $320.5 million. And adjusted earnings per share increased 65% to $4.10. Our Q4 performance was driven by strong retail automotive and commercial truck vehicle margins, a 26% increase and same-store gross profit and strong performance from Penske Transportation Solutions, which increased 62%. Looking at our retail automotive operations on a same-store basis, Q4-21 versus Q4-20, unit sales continue to be impacted by supply shortages and decline 9.45%, including a 19% on new and 1% on used. Revenue increased 4%, gross profit increased 26%, including a 320 basis point increase in gross margin. Unit gross profit increased 48% to $6,550 from 4,420. Looking at car shop, we added six car shop locations during 2021, including three in the fourth quarter, and we now operate 23 locations. During the fourth quarter, car shop unit sales increased 24% to almost 15,000 units. Revenue improved 61% to approximately 400 million and same store unit sales increased 7% and same store revenue increased 38%. Our gross profit per unit at car shop retailed increased 14% to $2,655. Our current annualized run rate is approximately 65,000 to 75,000 units and revenue of 1.6 billion, EBT of 35 to 40 million. Let me now turn to the retail commercial truck dealership business. During 2021, we added seven new dealerships and five parts and service locations to our acquisition, adding 650 million in annualized revenue. We now operate 37 commercial truck locations in the U.S. and in Canada. And during the fourth quarter, revenue increased approximately 19%. Same store was flat. Gross profit increased 51%, including a 35% increase in service and parts. Same store gross profit increased 29%. Service and parts represented 59% of our total gross profit and covered 121% of our fixed costs in the fourth quarter. Earnings before taxes increased 69 percent to $45 million and represented 11 percent of PAG's total revenue and EBT. For the full year, our commercial truck business generated $160 million in EBT, a 6.4 percent return on sales. Approximately 75 to 80 percent of unit sales are Class VIII commercial trucks. And that market really remains very strong. Class 8 retail sales increased 16% to 270,000 units, and the backlog increased 46% to 261,000 at the end of the year. Freight rates ended up last year at record levels, and ship shortages are creating pent-up demand in the market. Based on current industry forecasts, Class 8 retail sales are expected to increase over the next two years, and certainly will provide tailwinds to our commercial truck and truck leasing businesses. Let me now turn to Penske Transportation Solutions. As you know, we own 28.9 percent of PTS, which provides us with equity income, cash distributions, and cash tax savings. Since making our first investment, PTS has generated over $1.1 billion in equity earnings, paid nearly $600 million in dividend distributions, and generated nearly $800 million in cash tax savings. Currently, PTS is operating a fleet of 360,000 vehicles. In 2021, a stronger economy, industry capacity constraints, improving rental demand, and a move by fleets to more leasing drove our record profitability. This drove record revenue and profitability of $11.2 billion and $1.3 billion respectively. And Q4 PTS generated $3 billion in revenue and $316 million in profit. As a result, our equity earnings increased 62% to $91 million. Our leasing business was up 4.9%. Our commercial rental business was up at 48.6%. And key to our profitability was utilization was over 85%. Our consumer rental was up 29%. and our logistics increased 30%. Let me now turn over the call to Shelly Hullgrave, our Chief Financial Officer.

Thank you, Roger. Good afternoon, everyone. Our capital allocation strategy continues to leave our balance sheet in great shape. At December 31st, we have $101 million in cash and over $1.1 billion in liquidity. In 2021, we generated $1.3 billion in cash flow from operations. We invested that cash flow as follows. We spent $249 million in capital expenditures, including $53 million to acquire land for future expansion. Our acquisitions were $456 million. And we spent $294 million on share repurchases and paid $142 million in dividends, returning $436 million to our shareholders. For the period of January 1st through February 8th, We repurchased 0.4 million shares for an aggregate amount of $36 million. Our existing repurchase authorization has $194 million remaining. When looking at our future capital allocation, we maintain a disciplined approach that focuses on opportunistic investments across our retail automotive and commercial truck businesses, capital expenditures to support growth, including our car shop growth strategy, delivering a strong dividend to our shareholders, reducing debt, and share repurchases. We have repaid approximately $900 million of long-term debt since the end of 2019. In addition, we have either repaid or refinanced our senior subordinated debt to lower rates while lengthening the terms to take advantage of current market conditions, which has contributed to a $42 million reduction in other interest expense in 2021. These initiatives lowered our debt to total capitalization to 26% compared to 34% at December 31, 2020 and 46% at the end of 2019. At the end of December, our long-term debt was $1.47 billion, which consists of $1 billion of subordinated notes, $350 million in mortgages, and 100 million in other items. Our leverage ratio sits at 0.8x compared to 2.9x at the end of 2019. At the end of December 2021, total inventory was 3.1 billion, down 300 million from December of 2020. Retail automotive inventory was 2.4 billion, which is down 533 million from December of last year. We have a 17-day supply of new vehicles. Our day supply of premium is 19 and volume foreign is seven. We continue to sell into our future pipeline. We expect the current supply challenges coupled with strong demand to keep our new vehicle supply at low but manageable levels at least through the first half of 2022. Used vehicle inventory is in good shape with 60 days supply. At this time, I will turn the call back over to Roger.

Thank you, Shelly. Moving on to our digital initiatives, we continue to grow, expand, and enhance our digital footprint. As part of our omnichannel customer experience, we focus on increasing engagement with our customer base and service through online service appointments, online payment, and the use of videos. Online payments have increased 76% since the fourth quarter of 19, Our online BDC appointments increased 49% to 475,000 when compared to the fourth quarter of 2019. We also strive to be a leader in online reputation, including online customer reviews and star ratings on Google. 94% of our Q4 Google reviews were positive. In addition to these items, we generate clicks by providing flexible buying options that allow customers to proceed at their own pace and buying their next vehicle. In 2021, we retail 10,500 units or 4% of our US unit sales via the preferred purchase tool. And 14% of our customers use the tool to initiate their buying journey. We also sold 3000 vehicles using our buy online tool in the UK during the quarter. We're also piloting many BMW, Nissan, Lincoln, and Porsche retailing tools at this time, and we expect to launch a pilot with Toyota and Lexus with their programs in Q2. We feel aligning with our OEM partners allows us to provide a consistent look and feel, participate in joint marketing efforts, and benefit from the future development of these integrations. Before closing, I'd like to highlight our record performance for the recently completed year in 2021. We retailed 460,000 new and used units while increasing our use-to-new ratio to 1.35 to 1. We completed acquisitions representing $1.3 billion in expected annual revenue, and we increased our revenue by 25% to $25.6 billion, including a 23% increase on a same store basis. More than double earnings before taxes to an all-time record of $1.6 billion. We increased income from continuing operations by 119% to $1.2 billion. Reduced selling and GA expenses as a percent of gross profit by 760 basis points. And we generated strong cash flow from operations of $1.3 billion and reduced long-term debt by $216 million. We returned $436 million to shareholders through dividend and stock repurchases. Also, 35 Penske U.S. dealerships were named by Automotive News to be the best 100 dealerships to work for, including six of the top 10 dealerships, 12 of the top 25, and Audi of Turnersville was ranked number one in the country. Penske had more dealerships on this list than any other automotive retailer. We issued our inaugural ESG report demonstrating our efforts towards sustainability. In closing, we had a terrific year. I'd like to thank our team for their outstanding contribution and our success in 2021. As I look forward to the future, I remain confident about the opportunities they see across our diversified enterprise, driven by our strong balance sheet, diligent capital allocation, our priorities, and our human capital. I want to thank you all for joining the call today, and I'll turn it now back over to the operator. Thank you.

We will now begin our Q&A session. At this time, if you have a question, please press star, followed by the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. Our first question will come from Rick Nelson with Stevens. Please proceed with your question.

Thanks a lot. Good afternoon, Roger, Tony.

Hi, Rick.

Hi. So the balance sheet is in great shape. I'm curious how we should think about capital allocation. You've done a combination of acquisitions, buybacks, debt pay down. How should we think about that as we push forward into 2022?

Rick, let me have Shelly answer that. Okay, Shelly, go ahead.

Sure, Rick. So when we look at our capital allocation, we spent approximately 50% this year on growth, either between CapEx and our acquisitions. We spent another 15% reducing our debt. We've talked many times about how we are a disciplined buyer and we're waiting for the right opportunities. So while we sat there, we repaid $216 million of our debt and then returned about 35% of that cash flow. to our shareholders through dividends and share repurchases, as we mentioned. So, you know, our approach remains disciplined. We wait for the right opportunities, and we had a lot of them this year, and we've got more in the pipeline coming up for next year.

And also, let me just add to that.

I think we're going to continue to focus on our diversification, obviously, through our acquisitions, whether it be retail, auto, be Australia. PTS, PTG, and certainly, as Shelley said, our top priority is shareholder return.

Great. So you're coming off record 2020, a new record in 2021. Curious how you see the drivers for growth in 2022, and can you, in fact, grow on top of

Well, I think when you think about growth, let's just talk about the new and used car side. I think supply is going to generate, you know, the amount of growth we can get from, you know, from new and used car volume. I think because of the short supply, and when you look at our business today, Rick, go back a year ago, we had 18,000 new cars in stock a year ago today, and today we have 2,000. And I think that, you know, that just shows you the pivot that's taken place as far as supply. And we don't know when that's really going to slow us down. I think right now we're delivering everything that's on the truck, but we're even down 500 units from December 31st at the end of the year. As we see growth, we think we'll have acquisitions somewhere around 5% of our 2021 total revenue of 26 billion. So that would equate to about 1.3 billion. And we're hoping that our same store growth will be somewhat between 4% and 5%. That's what it was in the fourth quarter. I think overall, right now, we're seeing the tightest market on new. And what's happened, when you think about the last two years from the SAR perspective, we've had about 4 million units come out of the marketplace, which probably would generate another 50%, maybe more, of used vehicles. You know, we've had to pivot to buy cars from customers in the drive-thrus, call customers, buy cars on the curb, and I think that's going to be something we're going to have to continue to do, but I'm not sure how deep that well is. I think parts and service are going to continue to grow because there's more miles driven, and I think that'll be key. One thing that is good news is we're seeing a springback in the U.K. because, remember, they were shut down between January 1st in the middle of April last year. So we're going to see some benefit out of that when we look at it. So I think the order book, when we look at it for March, which is the registration month, is up about 25% from last year. So that should give us some good runway here in Q1.

That's great. Thanks for the color and good luck.

Thanks, Rick.

Your next question will come from John Murphy with Bank of America. Please proceed with your question.

Hey, John.

Hi. Good afternoon, Roger, Shelley, and Tony. How are you?

Great, John. How are you?

Good. You know, Roger, just a similar question to what Rick kind of posed to you. I mean, you know, we get this often from folks that, you know, that you may be over-earning in the light vehicle business, the commercial dealership business, and in PTS. I'm just curious if you can give us your view on that. I mean, I certainly, you know, don't think you are, and I think there's opportunity to grow the business structures over time, but maybe not thinking about just 2022 outlook, just, you know, the puts and takes and gross, particularly around new, in the new vehicle business, what's going on in the commercial and the PTS side. I mean, how do you think about where, you know, how to answer that question, you know, are you over-earning at the moment, or is there the potential to structurally grow over time?

Well, I think one of the things that we have in PTS, that's the truck rental leasing and logistics business, is we have a backlog of vehicles that are on order of over 54,000. Now, all of those aren't really for new customers, but a lot of them are. And I think we're short of rental vehicles when you run at 85% to 87% utilization. So that's certainly going to drive more business. And we're seeing more mileage driven on our PTS lease and rental units, which obviously is a variable a revenue piece for us, which will also drive profitability. The only thing that I see that might impair maybe some of the bottom line might be is used truck sales. We just don't have the volume of trucks that we're going to sell off until we get this backlog of new vehicles come in. And we were up 100 million during 2021. And we expect that to come back during 2022 based on just availability of trucks to market. is still very hot on these types of vehicles, especially the vehicles that we put into the market as used. So we see our rental and leasing business continuing to grow. There's no question that our commercial rental is really off the charts when you look at it. It was up 49%. And I think the CPI adjustments that we make on all of our leasing businesses and logistics, as you know, we have economic escalators on an annual basis, and I think that'll be key And I think on the other hand, when you think about Premier Truck, that's our Freightliner business, John, you asked about that also. They're sold out for 2022. And with the acquisitions that we've made and the growth that we've made during the year, that's going to drive considerable revenue for us in 2022. And when you look at ACT, which represents the marketplace for the heavy trucking business, they say that really We don't see any lift from the standpoint of someone lifting off the gas and less business during 22 and 23. So we see that business strong. Used truck prices there are also at all time levels. So you could maybe see some backing off of that, but as long as there's no volume or any supply, we're going to see higher marks. So overall, and then we have acquisitions in that space, which obviously we continue to do in our diversified portfolio.

And I'm sorry, on the light vehicle side, Roger, I mean, you know, there's a lot of push that, you know, the grosses are, you know, way too high. And when volume comes back, they'll go back down. But, I mean, it seems like it's kind of a seesaw. I mean, you're going to get the benefit of volume as the grosses are coming under pressure. The use, as you said, will grow and parts and services will continue to grow. So how do you think about sort of the, you know, the formula around this idea that you may be overrunning in the new vehicle business or new vehicle dealerships in total? Or are there lots of offsets?

Okay, you're talking about the new vehicle retail car business, not the truck business, correct?

Well, I was asking about that as well. Yeah, I'm sorry. I asked a lot of questions. Sorry.

No problem. As you think about availability of new units, you know, we had 18,000 units at the end of last year at this time, and we have 2,000, and that's down 500. So I would say that's going to continue to put pressure – you know, on margins to keep them up because we're selling in the pipeline. And we have, when you're selling in the pipeline, coming in, vehicles coming in, you're going to have ability to get more content on those vehicles and probably make a higher margin with a customer. You know, the question is, is used trucks or used cars because we just don't, won't see the supply of them at this particular, through the normal channels. And we've really shifted from auctions now to buying cars from from consumers, but parts and service will continue to grow. But I don't see anything in the light vehicle market now, other than the supply chain, that's going to change the structure and where we're going from the standpoint today, because we have plenty of demand. As I said earlier, in the UK alone, we're up 25% when we look at March, which will be a registration month, which is key. I think the bigger issue that we have to execute across all of our businesses is our people. And I've heard people talk about everything but human capital. I think for the people on the line would understand that we're just having a tough time at this particular time to maintain the number of key people that we need to carry on the business in a professional way. We've accelerated our training. We've certainly accelerated our acquiring of new candidates. But again, people have learned to live differently. And in the type of businesses we're in, it's going to be something that's going to challenge us. And I think it's going to challenge the OEMs also because you hear many of these don't have a number of people in the day to build the trucks or cars that they need. So I think that's going to be something that's going to be more apparent. The good news is what we've been able to do is right-size our business since COVID started and we're down about 9% on a same store basis. So that may be too much color, but that's, I wanted to be sure I got that in.

Well, that's, that's incredibly helpful. And just, just, just lastly, um, on inventory, I mean, if we step beyond the short term, um, you know, inventory crunch, whether it be chips or whatever else is inducing this and get back to a time when the automakers have the ability to produce as they would like, How do you think they're going to run? I mean, obviously, you'd like a bit of inventory rebuilt, but maybe not back to the heady levels of pre-COVID. I'm just curious, what's your stance of what they're going to do when things are normal and they can act as they wish?

Well, number one, I think we've got to look at capacity. What's the current capacity to build the hot trucks and things they need? So they're going to have to match the supply and demand, but You know, another phenomenon that will take place is when you look at the floor plan support, you look at the customer support, and you look at the incentives that are being paid over the traditional years where we had normal business, the OEMs are digging deep in their pocket. Now, they've seen a real benefit by backing that off. In fact, I think that's helping them look rationally down the road that will help them fund the R&D that's going to be necessary when we look at electrification. So hopefully, you know, they got a taste of that and that will be a slow return and they'll keep the day's supply, you know, in the 30 to 45 days. And we won't obviously be where we are today in single digits, but I think we can manage that carefully brand by brand.

Gotcha. All right. Thank you very much. Appreciate it.

Thanks, John. Operator, are you there?

I'm not able to hear me.

Can you hear us, operator?

Hello, can you hear me?

Yes, we can.

All right. Your next question is from Michael Ward from Benchmark. Please proceed.

Thanks very much. Good afternoon, everyone. So, Roger, if you look back over the last 20 years or so, the dealer model has continued to kind of evolve. As you look out over the next 10 years, what do you think are some of the bigger opportunities that Penske has as it evolves even further? You know, is it consolidation in the auto retail or the retail truck? Is there another link to this tool? What do you think about as you look out, you know, five to ten years?

Are you asking me this question because I'm the oldest guy on the phone here, I wonder? It's because you're the most admired. Talking about a 30-year swing. Well, I think, well, from a PAG perspective, when you go back to really 1999, 2000, we were 100%. retail automotive and only a domestic U.S. company. I think that we're going to continue to grow internationally, taking our expertise around the globe. And that could even, from the standpoint of looking to grow our special used car shop type business, I think the truck rental and leasing continues to grow. We opened up in Australia. And obviously, as we look at continental Europe, the opportunity to buy stores there will continue to be attractive to us. So we have opportunities to add, I think, a finance company at some point, maybe. I think we've got more used opportunities as we look forward. And I think overall, we'll continue to invest, as Shelly had said, for growth, and that's 50% of our cash flow. So I see the same trajectory. I don't see us jumping into many things that would be way off our Our landscape, the truck leasing and logistics business, with 360,000 trucks today, I think if I look 20 years from now, I hope they have 700,000. But we're growing at 20,000 to 30,000 a year, and we expect to be close to 400,000 at the end of 2022. And certainly at the end of 2025, we'd like to be at 500,000. So this just shows you, with our own footprint that we have today – in the business we have, there's a big extension of opportunity of revenue and profit.

Makes sense. It sounds like a lot more growth out in front of you. Shelly, on page 34, it shows your cash flow from operations. In the last two years, it's been like $1.2, $1.3 billion each year, and it looks like 2022 and 2023 could be similar type levels. You kind of outlined the allocation. Your balance sheet's in such good shape, and just tying into what Roger was just talking about, Do you or would you have an appetite for one of these billion-dollar-plus type acquisitions if the right one came along?

Yeah. You know, when we talked about capital allocation, we talked about paying down our debt. That's to put us in the best position possible when an opportunistic investment comes around. And, yeah, as long as the price is in line with what we're willing to pay and And it fits with our strategy. We certainly have the dry powder to do it.

Yeah, no question. Thank you. Thank you both very much. Thanks, Johnny.

Your next question will come from Stephanie Moore with Truist. Please proceed with your question. Hi.

Hi. Good afternoon, everybody.

Hi, Steph.

I wanted to touch a little bit, maybe as a follow-up to the last question, and if you wanted to, you know, Roger, maybe provide some insight on what you're seeing with the introduction of EVs, the threat of the direct-to-consumer model, and kind of how you see that panning out over the course of the next couple years. Again, I think your insight would be very helpful. Thank you.

Well, when we look at electric vehicles, you know, there's no question that that more and more we're reading about them. There's more activity at the OEMs. I think the infrastructure is still a key problem. How much is going to be subsidized by the government from the standpoint of the U.S. market? I'm not going to talk about Europe and the rest of the world, but to me, I think as we look at 300 million units in the car park today, and we've sold about 85 million units over the last three years, I think average sales 98% of those have been ICE, so the Bev Park is less than 2%. So as we look at this, I think each manufacturer has committed, at least verbally, that they will have a fully electric vehicle in most of their model lines. And I think that the key thing here is they're going to have to connect with the dealers in order to be sure they have an infrastructure that meets the customer requirements when he joins the dealer. However, when I look at this, I think it's going to take time because right now the cost of an EV vehicle is considerably higher than an ICE. Now, if it's mandated in states and cities and what have you, I guess cost won't make a difference. But we think that it's going to come. I think it's going to take longer than people expect, and they're going to have to get the pricing. I think today the range anxiety has pretty much been mitigated by some of the vehicles that have come to market. But I think when you look at Tesla and you look at Rivian, people like that that are going direct, I think that's a particular couple of OEMs. But when you look at the existing OEMs, and let's go back to Hummer. GM just announced they took orders and deposits, but those vehicles are all being delivered through the dealer network. And when we were the distributor for Smart a few years ago, remember, we took 30,000 deposits on reservations for Smart. But again, repurpose those once the cars were built to the dealer network. So I think this go direct thing probably has blown up a little bit higher than it will be because of the franchise network that we have today and the way it's being managed through the laws of retailing and the automobile business. So again, I think right now the startups are really overblown. I think it's going to be part of a product line. As I said earlier, we got the franchise laws. There's no question. And at the end of the day, I think it's going to be up to the customer. Do they want to pay more? Range anxiety isn't in good shape. Some people are buying these from the standpoint of decarbonization, which obviously makes a difference. But overall, I think it's going to take time. And I think we'll see ICE engines here for quite a while. And I think hybrids are going to continue as you see the numbers when you look at pure EV and you look at hybrids. Hybrid has been a big part of this, and I think that will continue to play a role here for the next three to five years.

Absolutely. That's really helpful. And then switching gears to the used side for the retail automotive business, It looks like inventory levels are definitely manageable as you stood where we stand today. Could you maybe talk about some of your sourcing capabilities and how that's changed over time and how you view your position both in the U.S. and U.K. for this year with that used inventory?

Well, when we look at our inventory between today, the end of the year, and as we sit here today, It's about flat. So we've been able to, and this is in the U.S. only, I might say, been able to sustain that. But what's really happened is we've seen quite a change. You know, our trades, you know, are 52% of the used cars we get or vehicles. Lease returns are 14. And I think at the end of the day, our auction numbers are down from, say, roughly 25%, down to below 20%. And I think overall... lease returns have been pretty much the same because they come back on a one-to-one basis. When you think about the UK, on the other hand, we see that opportunity the same way because their sourcing had really been, when you looked at car shops specifically, I'm going to talk about car shop here. In 2020, we were about 54% from auction. Today, when we looked at 2021 complete and we're a little bit the market is a little bit changed because of the first three and a half months we were out we were at we were at 66% but that has changed considerably now because our sitting our auction is down and obviously we're looking buying more cars at the curb and I think that's what we're going to see as we go forward both in the US and the UK but it's going to be availability and that's going to put prices up and remember a lot of our vehicles use vehicles are financed or leased, primarily financed. And there's a cap on those what the finance company will be able to finance. So that's going to put ultimately a damper on these big margins that have been made if the cost of sale is going up.

Absolutely. Well, that's it for me. Thanks so much.

Thank you.

Your next question will come from Rajat Gupta from JP Morgan. Please proceed.

Oh, great. Thanks for taking the question. I had one question on F&I. Clearly at highly elevated levels today, $1,900. How should we think about a normalized level there once prices move back to normal? Have there been any structural changes that will stick, maybe penetration? you know, impact of rates, you know, that that can offset, you know, the eventual declining prices. You're just curious what's like a normalized, new normal level there, you know, once you're back to more normal prices. I had a follow-up.

Yeah, let me say this. I think what's happened during this short supply of vehicles, the F&I process, obviously our reserve is about 40% of the total F&I income. and product is 60%. So there's more product being sold add-ons to the vehicles today maybe than there was in the past. So that's driving more F&I when you look at it and reserves. So to me, that probably is some of the shift. But we've done a big job in training. I think that our markups are pretty much the same. The captives is about 75 basis points, and our preferred lenders is close to 100. Then we receive flats on most of our leasing. So Our subprime business really is only 6%. So I think we're doing a better job. We've always trailed really some of our peers in that, but that's because we have such a big penetration of leasing, which I think makes a big difference. But, you know, overall, I just have to say we're selling more products and not just F&I income, but more products in the sale during this pandemic as people want to buy particular cars.

Got it. Got it. That's helpful. And then maybe on car shop, you know, given given the supply situation that has evolved over the last couple years, you know, unlikely to ease anytime soon. And given more of a historical reliance on, you know, auction versus, you know, trading like you have with the franchise stores. Is there any change to the thinking around, you know, the 40 store network over the next couple years? Do you think that's still viable? I'm just curious how you're thinking about that given the supply dynamics.

Well, let me say this. I think there's no question that from a car shop situation in the UK, we've seen using the Sittner auction, those vehicles have come down considerably here in the fourth quarter and where we are here in January because Most of the dealerships are keeping the trades, even if they're non-branded, and selling those directly. So we're seeing some input there. But our off-street purchases, when you look at car shop, have gone from 6% to 30%. So I think that shows you bodes well from where we are. But that's the big change from what I can see from the standpoint of sourcing. And we did use a lot of auctions in the U.K., but, again, we're going to – to purchasing, I call it, on the curb. And when you look at the quarter, we did between 17,000 and 18,000 units, and our revenue was over 400 million, and our earnings were approximately 9 million. So when you look at it, I think it's balancing. We're going to really need to rebalance during Q1 and Q2 because of the shutdown, because of COVID, you know, in the UK and also here in the US, which makes, obviously, you know, made a difference. And again, we were really... impacted from the standpoint of shutdown and car shop, no question, for three and a half months last year in Q1, Q2. Got it.

That's helpful. Great. I'll get back in queue. Thank you.

Again, as a reminder, if you would like to ask a question, that is Star 1. Your next question is from David Whiston with Morningstar. Please proceed with your question.

Thanks. Good afternoon.

Hey, David.

Roger, you mentioned a labor shortage earlier. Is that across the whole company, or were you just referring to car shop or a particular geographic market?

I'm saying that just generally today, you have attrition in the retail auto business because a lot of the compensation is variable. People have worked from home. They've seen other ways that they can you know, add to their income. So number one, we see that. And then entry-level technicians coming in, people in the body shops, truck drivers, et cetera. All of these things are under pressure. And what we've had to do is really not upgrade, but add additional recruiters across the whole country, whether it's in truck leasing, rental, or logistics, or overall business. So I see that, you know, as a big challenge for us. And we've had a significant increase investment not only in people, but in training in order to be able to keep people loyal to the company and also to attract them going forward.

Okay. And earlier on PTS, I think you were discussing that earlier. It sounds like you're pretty optimistic on continued robust equity earnings growth. But I mean, this quarter, for example, is plus 62%. That Should we kind of expect more like low double-digit, or are we still talking north of 20%, 30% even next year for 22?

I can't really give you that number here just on the phone. I mean, obviously, they're going to continue to grow. Obviously, it's the comparables that you're going to be looking at quarter to quarter. But on an overall basis, their growth has been outstanding. Their market share, as I said, we're up to 360,000 vehicles. And there is no slowdown in the commercial rental and the consumer rental. We get a little bit of dip when some of these trucks come back from UPS and FedEx after Christmas. But it's ironic that we're seeing those going right back out. And obviously, some of those don't bring the margin that we had from a one-way basis. And I think the truck market is going to grow. We've got a strong economy. You're only going to see lower gain on sale because we don't have enough units. The profit per unit I don't think will deteriorate much at all. It'll be just the number of units that we're going to be able to have available to retail or sell from PTS.

Okay. And just one question on the balance sheet. It's probably for Shelly. The 2025 minutes, I think they have a change in their call provision on September 1. Do you have any interest in moving that maturity even to 2029 or even next decade?

No, not at this time. The premium and the low interest rate where we're at, we think we'll take advantage of that longer term for some time.

Okay, thanks. All right, thanks.

At this time, there are no further questions in queue. I would now like to turn it back over to Roger Penske for any closing remarks.

Thank you, operator. Thanks, everyone, for joining us. We had a great year, and 2021, the aspects that look out for 2022 look favorable. I think our brand mix, our people, the diversification we have across all of our businesses is structured properly. And now we have to execute. So we'll see you after the first quarter. Thanks.

This concludes today's conference call. Thank you for participating. You may now disconnect.