Penske Automotive Group Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
April 26, 2023

Key Takeaways

  • Penske reported 8% year-over-year unit delivery growth, revenue up 5% to $7.3 B, and Q1 EPS of $4.31.
  • Excluding FX headwinds, revenue rose 9% to $7.6 B and EPS would have been $4.42, while the company repurchased 900,000 shares for $110 M.
  • Supply constraints persist, but the UK forward order bank grew 8% to 32,000 units generating $130 M of gross profit, and the company launched a new agency model for certain UK brands.
  • Used vehicle gross profit per unit fell 21% to $18.21, driven by higher acquisition, reconditioning and logistics costs that pressured customer affordability.
  • Penske Transportation Solutions delivered another record quarter with 30% growth in full-service contract revenue, but equity income declined by $38 M due to higher maintenance expenses, rising interest costs and lower rental utilization.
AI Generated. May Contain Errors.
Earnings Conference Call
Penske Automotive Group Q1 2023
00:00 / 00:00

There are 9 speakers on the call.

Operator

Afternoon, and welcome to the Pinsky Automotive Group First Quarter 2023 Earnings Conference Call. Today's call is being recorded and will be available for replay approximately 1 hour after completion through May 3, 2023, on the company's website under the Investors tab at www.pinskiautomotive.com. I would now like to introduce Anthony Perdon, the company's Executive Vice President of Investor Relations and Corporate Development. Sir, please go ahead.

Speaker 1

Thank you, Lois. Good afternoon, everyone, and thank you for joining us today. A press release detailing Penske Automotive Group's 1st Quarter 2023 financial results was issued this morning and is posted on our website along with a presentation designed to assist you and understanding the company's results. As always, I'm available by e mail or phone for any follow-up questions you may have. Joining me for today's call are Roger Penske, our Chair and CEO Shelley Hulgrave, our EVP and Chief Financial Officer and Tony Faccione, our Vice President and Corporate Controller.

Speaker 1

Our discussion today may include forward looking statements about our operations, earnings potential, outlook, Before interest, taxes, depreciation and amortization or more commonly referred to as EBITDA, our leverage ratio, free cash flow and cash flow yields. We have prominently presented the comparable GAAP measures and have reconciled the non GAAP measures in this morning's press release and investor Certainties outlined in today's press release under forward looking statements. I direct you to our SEC filings, including our Form 10 ks 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 will now turn the call over to Roger Penske.

Speaker 2

Thank you, Tony. Good afternoon, everyone, and thank you for joining us today. I'm pleased to report a strong Q1 as our performance continues to demonstrate the benefits of the company's diversification. During the Q1, total units delivered increased 8% to 122,431 units. Our revenue increased 5% to $7,300,000,000 and our SG as a percentage of gross profit was 67.5% and declined 140 basis points sequentially.

Speaker 2

Looking at net income, it was 298,000,000 And earnings per share were $4.31 If we exclude FX, revenue increased 9% $7,600,000,000 and earnings per share would have been $4.42 During the quarter, we repurchased 900,000 shares for $110,000,000 Let's turn to our automotive operations. Demand for new vehicles remains strong And vehicle availability is improving. However, we expect supply constraints to remain during 2023 for most of our brands that we represent. We continue to take forward orders. In fact, in the U.

Speaker 2

K, our forward order bank is 8% higher than it was this time last year and represents 32,000 units. Grosses on these forward orders are $130,000,000 compared to $83,000,000 at the same time last year. The U. S. Is approximately 40% to 50% for allocation remains forward sold.

Speaker 2

Beginning in the Q1 of 2023, We transitioned certain brands to the U. K. To an agency model for new vehicle sales. Under agency, we receive a fee from the manufacturer of the sale and delivery of each new vehicle. We do not record revenue, The price of the vehicle however, a delivery fee is included in our new vehicle gross profit.

Speaker 2

Beginning in 2023, we've broken out these agency units separately. There is no impact to our used business or service in part. Looking at our retail automotive operations on a same store basis for the quarter versus last year, new units increased 15%, Used units declined slightly at 2%, largely due to the challenges in acquiring affordable inventories. Retail automotive revenues increased 2%. However, when excluding FX, our retail automotive revenue increased 6%.

Speaker 2

New vehicle gross profit declined $483 or 7 percent to $6,383 Used vehicle gross declined $4.82 or 21 percent to $18.21 When compared to Q1 of last year, variable gross profit declined 10% or $580 to $5,483 However, We exclude FX, our variable gross only declined $3.74 If you look on a sequential basis, Excluding FX, variable vehicle gross profit per unit only declined $156 Variable gross profit remains strong And higher than historical levels. If we take an example, variable gross profit per unit of $5,483 is more than $2,000 more per unit higher than 20 19 Q1 or 66%. Our fixed operations business continues to perform well. Revenue increased 10% or 14% when excluding FX and is being driven by customer pay, warranty and collision repair. Looking at CarShop, CarShop unit sales decreased 2% to just under 2019,165 units.

Speaker 2

Revenue decreased 5% to $489,000,000 and variable gross profit per unit declined 5%, As vehicle acquisition prices along with reconditioning costs and logistics continue to impact customer affordability and our profitability. Excluding FX, revenue increased 3% and variable gross profit per unit would have increased 3%. We continue to focus on vehicle sourcing and cost improvement programs to improve CarShop profitability. I'm pleased to report CarShop's profitability improved sequentially. Turning to retail commercial truck dealership business, our premium truck dealerships business represents 39 locations in North America It is an important part of our diversification and continues to perform well.

Speaker 2

New commercial truck demand remains solid As being driven by replacement demand associated with supply constraints over the last several years. In fact, our entire allocation of Class 8 Product for 2023 is essentially sold out. The current industry Class 8 backlog is 218,000 units, Representing 7 months of sales. During the quarter, total unit sales increased 10% The 5,172 units, the same store sales increased 7,000 4974 units. Our total revenue increased 13% to just under 900,000,000 And our gross profit increased 4% to $147,000,000 Looking at same store revenue, it increased 10%, including 11% increase in service and parts.

Speaker 2

Service and parts represented 67% Of the total gross profit and covered 136 percent of our fixed costs, EBT was $57,000,000 compared to 58 in the Q1 of last year. Turning to Penske Transportation Solutions, PAG owns 28.9 percent of PTS, which provides us with equity income, cash distributions and cash tax savings. PGS currently manages a fleet of over 419,000 trucks, Tractors and Trailers with a goal of increasing its fleet to 500,000 units by 2025. During the Q1, PTS had another strong performance generating $3,300,000,000 in revenue $280,000,000 in income. Full service contract revenue increased 30% to a 1st quarter record, while logistics increased 10%.

Speaker 2

We believe demand remains strong for PTS that has 550,000 trucks on order. However, over the last 2 years, PGS has extended the contracts on 41,000 units simply due to supply challenges. As a result, our maintenance costs increased $73,000,000 in the Q1. The rise in maintenance costs coupled with higher interest costs associated with rising interest rates And high debt levels, lower utilization of our rental fleet from 81% to 77% and a lower gain on sale compared To the record level gain on sale of 22. Compared to the record performance of last year, the income we record at PTS declined 38,000,000 I'd like to now turn it over to Shelly Hargrave, our Chief Financial Officer.

Speaker 2

Shelly?

Speaker 3

Thank you, Roger. Good afternoon, everyone. As Roger indicated, we had another Strong quarter driven by our diversification. In addition, our commitment to maintain and achieve operational efficiencies through cost reductions, Automation and other improvements gained through the implementation of AI continues to help us maintain lower levels of SG and A to growth than historical averages. SG and A to gross profit was 67.5% in the 1st quarter and is 10.40 basis points below the 77.9 percent in 2019 prior to the pandemic.

Speaker 3

Most important, SG and A as a percentage of gross profit declined by 140 basis points sequentially when compared to Q4 2022. As we look to the future, we continue to expect the ratio of SG and A to gross profit to be in the low 70s. During Q1 on a combined basis, share repurchases and dividends represented 152,000,000 and returned to shareholders. We repurchased $110,000,000 in shares and most recently increased the cash dividend by 7% to $0.61 per share and returned $42,000,000 in dividends to our shareholders. We continue to maintain a disciplined approach to capital allocation.

Speaker 3

For example, in 2022, 52% of our cash flow from operations funded share repurchases, 23% to acquisitions, 9% to dividends and 16% to CapEx for growth and future expansion. Our EBITDA is nearly $2,000,000,000 over the last 12 months and we continue to focus on being safe and secure in the current rate environment in terms of debt. Debt to total capitalization was 28% and leverage sits at 0.9x at the end of March. On March 31, our long term debt was $1,700,000,000 representing an increase of $79,000,000 compared to December last year, largely related to an increase in mortgages on property. Approximately $1,000,000,000 of our long term debt represents subordinated notes with 50% that matures in 2025, while the remaining 50% matures in 2029.

Speaker 3

The average interest rate on these notes is 3.6%. We also have $591,000,000 in mortgages $69,000,000 in borrowings under lines of credit at our other automotive and Australia businesses. Last week, we amended our U. S. Credit agreement to increase the facility borrowing capacity by 400,000,000 The amended agreement provides for up to $1,200,000,000 in revolving loans for working capital, acquisitions, Capital expenditures, investments and other corporate purposes.

Speaker 3

We have the ability to flex our leverage up to 4 times, leaving us plenty of opportunity to grow our business through acquisitions and to continue returning capital to shareholders. At March 31, we had $100,000,000 in cash, dollars 481,000,000 in vehicle equity and over $1,000,000,000 in availability under our credit agreement. Total inventory was $3,600,000,000 representing an increase of $121,000,000 from December 31. Floorplan debt was $2,900,000,000 We had a 26 day supply of new vehicles, including 22 days in the U. S.

Speaker 3

And 26 days in the UK. However, U. S. Inventory was 19 days at the beginning of this week. As a data point, Our day supply of new battery electric vehicles in the U.

Speaker 3

S. Is 42 days. Day supply of new vehicles for premium was 27, Volume 4 was 14. Used vehicle inventory had a 39 day supply. At this time, I will turn the call back over to Roger.

Speaker 2

Thank you, Shelly. As Shelly mentioned, we're committed to implementing operational improvements, which we believe will lead to a lower cost structure. We're committed to operating sustainability and we continuously seek ways to reduce our carbon footprint by applying modern Building practices, embracing energy efficiency and eliminating waste and recycling materials throughout our organization. We're committed to offering our customers options to meet their shopping needs. This ranges from 100% online to our superior customer experience traditionally offered in store.

Speaker 2

These digital options include hybrid shopping solutions, Virtual test drives, remote signing on the sales side as well as online scheduling, photo and video collision estimation And digital approvals on the service side. Additionally, one of our key efficiency initiatives is leveraging artificial intelligence on both Service and sales sides of our business. The AI allows us for automated interactions with our customers to answer basic customer inquiries, Set service and sales appointments using natural conversational language. In Q1, we saw a 14% increase in service online appointments and In addition, service RO payments made online increased 8%. In closing, our results continue to demonstrate the benefit from our diversification across the retail automotive and commercial truck industries, Our cost control and a disciplined capital allocation strategy.

Speaker 2

I personally remain confident in our business model and about the opportunity I see continuing to drive our businesses forward. Thanks for joining us today and we appreciate your continued confidence in PAG. At this time, I'll turn it back to the operator for questions. Thanks.

Operator

Thank you. Please press 1 then 0 on your touch tone phone. You will hear an acknowledgment tone that you've been placed in the queue and you may remove yourself from queue And our first question is from John Murphy from Bank of America. Please go ahead.

Speaker 2

Hey, John. Good

Speaker 4

afternoon. Hey, Roger. Hey, Shelly. Hey, Tony. Just First question here, Roger, on agency in the U.

Speaker 4

K, because there's a lot of folks that have some fears around this. But I'm just curious if you could expand on what is actually changing and what is staying the same? And maybe if you have a comment on what the motivations are, particularly for the automakers like Mercedes, that are going after this At this point, because in some ways it seems like they're trying to favor some of their stronger partners and front of more business in your direction, but there are some changes in the economics. So if you could kind of highlight what's actually changing, what's staying the same and what you think the motivations are?

Speaker 2

Well, first, let's talk about income. For us as a dealer, we got fixed national pricing. There are no volume targets. It's a fixed commission and today we get 5% from Mercedes. There's the elimination of brokers, so there's no discounting on new vehicles.

Speaker 2

The commissions we get paid on our financing is exactly the same. We can still have add ons from the standpoint of things that would come under the F and I manner. All the fleet sales are handled by the OEM. We have no marketing costs. There's no demonstration.

Speaker 2

They're all supplied free. The stock we have on-site is free. And again, from an inventory perspective, we're dealing out of a 5,000 unit inventory that's online for the brand. And there's no floorplan cost, obviously, no new car training costs. The allocation, obviously, is based on zip codes From the standpoint of allocating leads that come in through the Internet and really the transaction Really is what I look at is basically handling the customer, transitioning from a sales process really to A person who really has a capability of understanding of the vehicle and the brand probably better than the current sales force we have.

Speaker 2

So it's probably a product expert. I think the we would call them a delivery specialist, I guess, in this point. When I look at it from the standpoint of what's the impact, Our average gross profit on the vehicles in the month of March was US39100 dollars And it includes F and I. And if I go back to 2019, it's actually higher than it was then that was pre pandemic. So From a gross perspective, on new, we feel quite good about it now.

Speaker 2

Again, the OEM could change That number of 5% at some point. I think we have a 3 year commitment at this particular time, but I'm sure we'll both look at that as we go forward. I think it's been slow to get started. The delivery time to take the car out of the pool, get it to the dealer so we can deliver it and PDI it It's gone from maybe 10 days to 7, and now it's looking at probably we're trying to get to 3 days, which obviously is key. When you look at the number of units that we sold from a retail perspective in the month of March, we have 21 stores, Was 20% of the market retail market for MB in the UK.

Speaker 2

From the motivation of the OEMs, I think that they had consultants have looked at the probably the ability for them from a cost perspective, from incentives and residual supports By having a direct line with the consumer and setting those prices, it would be a clear channel and obviously the ability, the transparency And confidence that the customer would get would be a benefit to the brand. So I guess the only thing negative you'd say that the customer still wants to negotiate. On the other hand, what we're seeing is that the admin work that's required online by the customer probably is a little more complicated than we Would happen if you were dealing with an F and I person or delivery specialist right at the dealership. But I think its Motivation is cost and to own that customer. And I think in today's world, the Internet to have a clear transparency of the product.

Speaker 2

So To me, I think overall, we've been quite satisfied with it at the moment.

Speaker 4

And Roger, you maintain the ability to take The used vehicle in trade or the trade in, as the transaction is occurring, right? There's nothing that's changed with that part of the process either.

Speaker 2

So I

Speaker 4

just want

Speaker 2

We own an option to take the trade or buy the trade from the customer, correct. There's no one involved from a factory perspective OEM Demand or declaration as far as the used cars are concerned. There's really no changes both in used or in our service and parts business.

Speaker 4

Great. And then just lastly on SG and A, for Roger or Shelly, the 67.5% in the quarter was pretty good, much better than we were expecting. Doesn't seem like you're seeing a reinflation in your costs there, like some other folks might be in the industry. I'm just curious what gives you the confidence that you can keep this in the low seventy That range, over time as grosses maybe normalize over the next year or 2?

Speaker 3

Hey, Don, I can take that. I think it's a number of things. I think one, if you look at our service and parts, we continue to be more efficient. We've gained a lot like we talked about with the implementation of AI, We're better. We're scheduling better.

Speaker 3

We're more efficient. And it's enabling us to use Different periods of time with our scheduling to be better with our tax. And overall, our service and parts is up, which adds to That gross profit line, if you look at PTG, our fixed cost absorption was 134%. That compares to 128% in Q4 of 2022. So certainly an improvement there, but the margin for supply or for service and parts, excuse me, is huge.

Speaker 3

We've taken a really hard look at our costs and we continue to be really strict in terms of our cost control. We're still down 8% to 9% of the folks that we took out during the pandemic and that serves us in a number of ways. We look really hard at whoever we're going to add to the business, as people are cost, but we also work really hard to retain the folks that we have. We know that it's cheaper to keep an employee than it is to attract and to train up a new employee. And as our folks get a bigger piece of the pie, they're happier, they're keeping their comp up.

Speaker 3

But overall, our comp The growth is down about 100 basis points quarter over quarter, so that's a big factor of it too.

Speaker 2

Great. Thanks.

Speaker 5

I would

Speaker 2

say, Shelly, also, John, when you look at think about 27,000 employees and our overall compensation in real dollars is up $4,000,000 So big, big number when you look at cost controls and we had some increase in rent and taxes, etcetera, but our Marketing was only up $700,000 So those are things that we're watching very carefully, not just globally, but looking at it right down at the store level. That's very helpful.

Speaker 4

Thank you guys.

Speaker 2

Thanks, John.

Operator

The next question is from Daniel Imbro from Stephens. Please go ahead.

Speaker 5

Hey, Daniel. Good afternoon, everybody. Thanks for taking our questions. I wanted to ask one, starting on the automotive side, just on demand. Sorry if I missed it, Could you provide some color, Roger, on maybe what percent of the new vehicle inventory is pre sold today?

Speaker 5

How different is that by OEMs? And then when you look at that data, what does that tell you about the True consumer demand out there for the new vehicle marketplace today.

Speaker 2

Well, look, there's got to be some pent up demand because of availability Over the last several months, I think from a pre sold inventory perspective, we talked to our guys prior to the call And we're looking at 40% to 50%. Remember, we're really primarily premium, which makes a difference. So I'd say 40% to 50% in the U. S, Which gives us probably a nice tailwind. Looking at internationally in the UK order book, we've got 32,000 units compared to $28,000,000 a year ago.

Speaker 2

So probably almost $50,000,000 more in gross profit, which I think is key and that should be 3 to 6 months of Tailwind in the UK. So again, our day supply when you look at it is very, very low when you look at the different I think we're 20 days overall as we sit this morning, but Toyota and Lexus would be single digit. When you think about Our premium side, our biggest brand is BMW. We're sitting at 14 days. So again, Availability is key for us from the standpoint of our business.

Speaker 2

Looking as of yesterday morning, our new business vehicle was up 2% Over last year and our used vehicle was flat sales for the month. So again indicating that we have a solid base here at least Leading off into the quarter.

Speaker 5

Got it. So 40%, 50% presold. I guess, are you surprised by how strong that demand is coming into this year, Given the consumer backdrop and some of the headlines around affordability issues, Roger, or is that premiumluxury consumer behaving as you would expect?

Speaker 2

I think that the interest rates are not affecting the premiumluxury person as much as it would maybe the middle market customer. And I think the pent up demand is still there. And to me, on the luxury side, many of our customers are in 3 2 3 year leases rather than 5, 6 year contracts that they have from a financing perspective. So we see those people coming back into the market. Now some of those we've had to extend because we didn't have vehicles.

Speaker 2

So that's going to be an opportunity For us to convert those again into a current 2023 vehicle. And I think that I expect leasing to increase. When you think about it, We were 50% to 55% our mix in our company on leasing and that's dropped down into the mid to low 30s and we think that's going Grow back as the OEMs start to support the reschedules to get these payments in line as we go forward when they want They want these sales numbers as they go forward.

Speaker 5

Got it. And if I could squeeze one more in, just following up on John's question on the agency model. You mentioned you have the ability to sell, I think, Full F and I Products. Do you see a similar financing attachment? I guess when the consumer buys a car directly from Mercedes in the UK, Are they getting offered captive finance upfront on the website and then you guys sell non captive finance to the dealership?

Speaker 5

Or how does that F and I relationship work under the agency model?

Speaker 2

I think this is all the things that we're working with the OEM and the deals are now on the website. So they're competitive. There's a deal out there at Mercedes, I'm assuming BMW or Audi, they have the ability. We're seeing that on the website now. So we have the ability To sell product and insurance at any level during the transaction as a dealer.

Speaker 2

Great.

Speaker 5

And no noticeable difference on financing attachment over there?

Speaker 2

Not at the moment that we know. But look, it's early. I think I'll answer that question better. We will as a team here probably after another 3 to 6 months, but once we get mature. But I would say overall, The ability for us to partner for the overall business agency plan has been excellent.

Speaker 2

And We're learning every day the fact that we've got instead of having 300 or 400 cars online, we got 5,000. Think about it when you go online. So you're really So the customer can really fish in a big pond that we get the benefit of where you are from a postcode. Now that inquiry comes directly to us And it's clear and really the customer really you're going to walk down the road now to try to get $200 or pounds off. You can't do that.

Speaker 2

So then it becomes down to us Being sophisticated enough to handle the trade in, but I think the big change will be in taking cost out will be that we have product specialists That understand the trading and we'll have people who can price the used vehicle, but we don't everyone don't have to have that complete capability. So we're kind of changing the mix, which will take Some of our cost out for the sales process and hopefully have a better informed product specialist with a customer, which should be a better customer experience As we go forward, I can tell you in our business, fleet business, meaning where we call in big Customers, we cut that unit down in half on people already. So I think we've got some real opportunity. We're also consolidating Yes. One of our service locations that we have in the U.

Speaker 2

K. In our big location in West London, these are things that we're already doing In order to take advantage of our scale and our technology.

Speaker 5

Great. I really appreciate all the color and best

Speaker 2

of luck moving forward. Thanks.

Operator

The next question is from Mike Ward from Benchmark. Please go ahead.

Speaker 6

Hey, Mike. Thanks very much. Good afternoon, everyone. Hey, Mike. Two things.

Speaker 6

Shelley, If it works and it seems like the initial agency model in the UK is set up pretty well. And if it's effective and it expands to other brands, Does the business itself become less capital intensive?

Speaker 7

Well,

Speaker 3

It's Roger Rontgen. There's no change to use and to service. The service will continue to be a big portion of our business over there. I think we're still expected to maintain a beautiful delivery site. So from a capital allocation standpoint, I don't see it becoming But in the U.

Speaker 3

K, there's not a lot of space over there anyway for new cars as property prices are at a premium. If things were to change over here, certainly, I think we'd look at smaller sites. But as we've mentioned several times, we are way away from that and

Speaker 2

Yes. The only thing I would say, Shelly, is we don't have a floor plan requirement. So when you look at our total debt, You follow me, including floor plan, you would that would be eliminated from our overall debt. So it does make a difference because Yes. It's several $1,000,000

Speaker 6

Yes. And then Roger, on the acquisition front, I think over the last couple of calls, you've talked about There being more opportunities on the truck distribution side. Is that still the case?

Speaker 2

I would say that ones that we feel are Rational from the standpoint of pricing and ones that would fit into us because of the geographical location, I would say yes. I think as we look into The rest end of this quarter, we would look at between truck and automotive somewhere between $300,000,000 $500,000,000 that we would close on Potential opportunity. So again, I think that the multiples are probably more realistic, certainly on the truck side Versus automotive at the moment. Now whether that changes, but there's still lots of activity we're looking at. But we're being really safe and secure on what we're going to go forward on.

Speaker 6

Thank you very much.

Speaker 7

Thanks Mike. Bye Mike.

Operator

Thank you. Our next question is from Rajat one second, he disconnected. We'll go to Rajat Gupta from JPMorgan. Please go ahead.

Speaker 8

Thanks for taking the question. We just had a question on PTL. Would you be able to unpack the drivers a bit more On the trends that you saw year over year related to interest expense or utilization and even gain on sale, If you could quantify some of that for us and any updated thoughts on what do you expect Gain on sale to be for the year, I believe it was close to $500,000,000 for the full entity last year. I think last time you had mentioned Maybe down 20%. I'm just curious if that's still the case and maybe any updated thoughts on like how we should think about BPL through the remainder of the year?

Speaker 8

And I have a follow-up.

Speaker 2

Well, I think it's the when you look at the interest cost, I think we had 2 bonds we Security in the marketplace over the last several weeks and those interest rates were up probably 300 to 400 basis points. So Our interest cost in the quarter, our piece of it of the $38,000,000 decrease in profit that we took into the PAG's Our balance sheet was $38,000,000 $12,000,000 of that was interest. So to annualize that to us, which is That would be roughly $50,000,000 So, it's 150 percent of interest cost you would look at baked into your model if you looked at The balance of the year. And I think from a rental utilization standpoint, look, 77%, we're down from 81% is tremendous. Because we had days that we were 80,000 units on rent, but we're able to flex that fleet very easily.

Speaker 2

And I think our revenue utilization It was down for the quarter, so it was down probably somewhere about $30,000,000 to $35,000,000 So you take a look at that and you can annualize and say we straight lined it. And then gain on sale, I think you're going to see probably somewhere around $100,000,000 off in gain on sale. We'll sell more units, But I think the market, just the values in the market, spot prices for trucks utilization by drivers is down and there's more availability on vehicles. So I think that probably would be and we look at it probably again on about $100,000,000 But again, our maintenance costs offset some of this, When you look at maintenance costs, I think I mentioned it before in conversation I had lately was that because of the Late delivery and no delivery from the OEMs, we've had to extend over 40,000 of our customer leases, Meaning units, these are units that were probably 4 or 5 years old. We had to extend these to another 6 months or a year where we didn't get when we extended, We didn't get the initial more revenue to offset some of these maintenance costs.

Speaker 2

So we see that maintenance returning back down to normal levels when you look at that Once this equipment has been delivered and we'll really rationalize that through the fleet. So I see some ability to pull that back. But again, looking at the growth, We did $600,000,000 of sales of leasing that would be new business, add on business and renewals in the Q1. That was an all time record. And when you look at it, at the end of the day, that's at a rate of 2,400,000,000 And that's 1 year of revenue.

Speaker 2

So I think overall, the business is strong, Interest rates, delivery by OEMs, obviously, and utilization is based on the market. So taking those into consideration, I think the guys are running a great business for

Speaker 8

us. Got it. That's helpful. And then maybe just on the new GPUs, very strong results here in the Q1, like in the non agency stuff. How are you seeing the supply side develop here in the Q2 so far?

Speaker 8

Any updated thoughts on how we should Think about that GPU trajectory for the remainder of the year.

Speaker 2

I think if you look sequentially, we've been on new vehicles, but somewhere in the 11.5% to 11.8%. I don't see that changing because on the premium side, we've been able to hold the gross. I think overall, If you look at the gross profit from a year ago, we're down right about $500 when you look at the variable gross Per unit on new vehicle including F and I. So I don't see a big deterioration on that. Used on the other hand has been running In the low to mid fives, and I'd look at that as probably a number as we look out over the next quarter.

Speaker 1

I mean, Rajat, this is Tony. So as you look at The overall new vehicle gross and you compare 4th quarter to 1st quarter on a sequential basis, I think we mentioned in the prepared comments, it was only down about $150 So I think that that remains strong. And when you talk about demand, we still see forward orders. We still see forward Supply being sold in advance to our allocation at that 40% to 50%. And when you think about our days Why of the units that are out there were 21 days in the U.

Speaker 1

S. Right now. So I think demand remains strong. We're seeing inventory come in. It's higher than it was, but we're turning it very quickly.

Speaker 1

And we're doing a good job of maintaining the growth Across the industry. So I think that the setup is pretty good as we look towards the future.

Speaker 2

I think our premium brand makes 71% will drive probably our ability to maintain these grosses versus maybe The U. S. Big 3, which looks like they have more availability right now, which is driving some probably some of these deals are starting to discount.

Speaker 8

Got it. That's helpful. Thanks so much and I'll get back in queue.

Speaker 1

Thank you.

Operator

And the next question is from the line of David Westin from Morningstar. Please go ahead.

Speaker 2

David, hi. Hi, everyone. I

Speaker 7

guess, first on agency, once you guys get your Commission or payout or whatever you want to call it from Mercedes, does the portion of that money go to the Penske associate to help Customer in

Speaker 2

store? Well, we have a variable we have a compensation. Now, quite honestly, he'll be we would think of a delivery commission For a salesperson plus some, if he's involved in the F and I PC, we get that. But we might go to more salary people depending on how the model works as we go forward. But I think it's too new to rate that at the moment.

Speaker 7

And you're getting

Speaker 2

The comp plan, David probably is more fixed in the UK anyhow, it always has been.

Speaker 7

The F and I business for the vehicle though, that goes to you guys?

Speaker 2

Oh, yes. Yes. However, I think Tony said or I said it earlier that we get a delivery fee For the sale of the new car, everything else stays the same. We have the F and I income, we get the benefit of that, all our parts and service, All that gross profit drops to the bottom line is normal.

Speaker 1

And David, if you go back and you look at the agency units in the Q1, you compare that to What we did for on a normal basis or before agency, the F and I was about the same in the U. So I think that that's very positive and shows that the people at the stores are selling the product or the insurance products effectively. Well, and also we

Speaker 2

looked at if you go back and look pre COVID 2018 2019, the 5% margin we're getting today quite honestly, In most cases, somewhat has due to mix at certain stores is actually higher than it was back then

Speaker 1

because we were chasing volume targets and bonus plans.

Speaker 2

Yes, and we had brokers in the middle of our business.

Speaker 3

And David, I think it's important to remember, when you look at agency and you look at MB in particular historically, their new gross profit was only 1% of our total gross profit last year in 2022 in the height of all of it. So there is still so much opportunity with these businesses in used and particularly in service and parts where we make Higher margins for their impact to our total bottom line. So it's important to keep that in perspective.

Speaker 7

Okay. Thank you. And on the M and A environment, is there either in the U. S. Or U.

Speaker 7

K, are you seeing any surge in the number of sellers coming to market, perhaps You're full of a recession coming soon?

Speaker 2

We've got a number of these brokers coming to us with deals, but I would say, I don't know that it's any more or any less. I think some of the bigger deals we're not seeing. We're focusing on ones that we can glue on where we have Capability and have lower SG and A when we take over somewhat or it's a brand, which we think fits our premium basket. But I don't see it Being higher at this point, you'd have to ask the brokers themselves that are moving these things around the country. I'm just not up to speed on that.

Speaker 2

I know we're getting our phone is ringing, but I would say we're being very selective.

Speaker 7

Okay. And just one more on the credit line increase. I was just curious, is that just to grow the facility as the company has grown over time? Or are you looking to be more aggressive in M and A and or

Speaker 2

I would say what it does because of our, I guess, our results, we want to put in place this evergreen line of credit because As we look at the business over the next, I think it expires in 2025 and it's evergreen and it gives us flexibility now From the standpoint of the use of our capital and to me that's important. We're aggressive. We're willing to take risks. But I think in today's business environment, I think that We want to be cautious as we go forward here for the next 6 to 12 months. But when we can load our gun, I certainly want to do that.

Speaker 7

Okay. Thank you, everyone.

Speaker 2

Great.

Operator

Thank you. And at this time, there are no further questions in queue.

Speaker 2

All right. Thank you, everybody, and we'll see you next quarter. All the best.

Operator

Thank you. And ladies and gentlemen, that does conclude our conference today. Thank you for your

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