By any measure, Penske Automotive Group Inc. had a good second quarter, including a 17.3 percent rise in operating income and a 7.5 percent rise in unit sales of new and used vehicles. One especially bright area? International sales. Same-store retail revenue per unit at international stores rose 16.5 percent versus a 1.3 percent rise in U.S. sales.
“The U.K. has done extremely well for an extremely long time,” Anthony Pordon, the Group’s executive vice president in charge of investor relations, told Automotive Buy Sell Report.
Penske owns 148 international dealership, the majority in the U.K. International revenue accounts for 39 percent of the Group’s total revenue, and the U.K. accounts for around 95 percent of total international revenue, said Pordon.
The U.K. market has grown for 43 consecutive months, said Pordon. Luxury brands account for 25 percent of the total market in the U.K. and Penske’s dealerships are mainly in the luxury segment, he said. Its new/used sales ratio is 1/1, he added.
“We are in the strong point of the market,” said Pordon.
Different franchise rules
Europe in general has been a fertile acquisition ground for the Penske Group. The franchise system is different in Europe, and that has helped Penske grow there.
The U.K. is where Penske’s European footprint began to really take off. “As OEMs would restructure their dealership networks under Block Exemption Rules in the U.K., we were the beneficiary,” said Pordon.
Under existing rules in the Europe Union, which includes the U.K., an OEM can elect to restructure the dealership eliminating underperforming and/or undercapitalized dealerships.
“Dealerships are constantly evaluated by the OEMs,” said Pordon, “Month-by-month, in fact.”
Dealers have two- or five-year contracts with the manufacturers, which can be cancelled if the manufacturer is not satisfied with the dealer’s performance. That produces more ownership turnover, and Penske has benefitted.
Before 2002, Penske owned a few international dealerships. That year, the Group embraced the international market wholeheartedly when it acquired the Sytner Group, a premium brand group founded by British Touring Car champion Frank Sytner and his brother Alan.
Penske Group’s easy access to capital and good operating practices have endeared it to manufacturers who want to improve their European dealerships, said Pordon.
It has grown by “revolutionizing” the market place there, he said, including building larger, image-compliant facilities and emphasizing customer service. “We are succeeding by working with the manufacturers in Europe,” said Pordon. “We are in lock-step with them in the U.S. as well,” he added.
Rather than resisting upgrading facilities, “we tend to embrace” image programs, said Pordon.
That attitude has helped Penske grow internationally outside the U.K. as well. For example, Penske is working with BMW AG in Italy to improve the automaker’s dealership network in the Milan/Monza and Bologna areas, which Pordon described as “underperforming and underinvested.”
“We look to continue growing in Italy, perhaps even with other brands,” he said.
Succeeding in Europe requires one of the same elements as success in the U.S – good people. For Penske, that means local talent, not executives that it parachutes in from the U.S.
“We have stayed true to our belief that the way you become successful in an international market is by having people on the ground that understand the customs and traditions,” he said.
So, for example, in Italy Penske partnered with a local BMW dealer in 2012, and began expanding. “I can’t run an operation in Bologna or Milan by being in Michigan,” said Pordon. “It is all about being local.”
Overseas connections have also helped Penske expand in the U.S. Many U.K. executives also do stints here, for example Jim O’Donnell, a past head of BMW’s North American operations, is from the U.K. Penske was on good terms with him based on the Group’s success there.
Perhaps not coincidentally, BMW/Mini combined accounts for 27 percent of the Penske Group’s total revenue, the most of any manufacturer.
Said Pordon: “One of the biggest and most important things we have done is go international.”
