PENSKE AUTOMOTIVE GROUP, INC. This Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those discussed in the forward-looking statements as a result of various factors, including those discussed in Part II, "Item 1A. Risk Factors" and "Forward-Looking Statements." We have acquired and initiated a number of businesses during the periods presented and addressed in this Management's Discussion and Analysis of Financial Condition and Results of Operations. Our financial statements include the results of operations of those businesses from the date acquired or when they commenced operations. Our period-to-period results of operations may vary depending on the dates of acquisitions or disposals. Overview
We are a diversified international transportation services company and one of the world's premier automotive and commercial truck retailers. PAG operates dealerships principally inthe United States , theUnited Kingdom ,Canada ,Germany , andItaly and is the largest retailer of commercial trucks inNorth America for Freightliner. PAG also distributes and retails commercial vehicles, diesel and gas engines, power systems, and related parts and services principally inAustralia and New Zealand . Additionally, PAG owns 28.9% of Penske Transportation Solutions, a business that manages a fleet of over 330,000 vehicles providing innovative transportation, supply chain, and technology solutions to North American fleets. We employ over 23,000 people worldwide.
COVID-19 Disclosure Overview - InMarch 2020 , COVID-19 was declared a global pandemic by theWorld Health Organization . The outbreak of the COVID-19 pandemic across the globe adversely impacted each of our markets and the global economy, leading to disruptions in our business. While the COVID-19 pandemic impacted all of our markets, we have experienced improved business conditions and improved financial results primarily driven by our cost cutting measures and increased gross profit on vehicles sold due in part to increased demand, coupled with lower inventory due to production shortages experienced by our vehicle manufacturers. In response to the COVID-19 pandemic, theU.K. reinstated shelter-in-place orders which required our dealership showrooms to remain closed during the first quarter of 2021. These shelter-in-place orders largely expired onApril 12, 2021 , and most of the remaining restrictions expired onJuly 19, 2021 . We continued to conduct sales through our online tools, which allowed vehicle sales without showroom access. If shelter-in-place orders are re-enacted or other restrictions are placed on our business, we may be adversely impacted. Risks and Uncertainties - The full impact that the COVID-19 pandemic will have on our business cannot be predicted at this time due to numerous uncertainties, including the duration of the outbreak, travel restrictions, business closures, the effectiveness of actions taken to contain the disease, the distribution rate and acceptance rate of a vaccine, the effect of government assistance programs, production levels from our manufacturing partners, and other unintended consequences. This impact could include changes in customer demand, our relationship with, and the financial and operational capacities of, vehicle manufacturers, captive finance companies and other suppliers, workforce availability, risks associated with our indebtedness (including available borrowing capacity, compliance with financial covenants and ability to refinance or repay indebtedness on favorable terms), the adequacy of our cash flow and earnings and other conditions which may affect our liquidity, and disruptions to our technology network and other critical systems, including our dealer management systems and software or other facilities or equipment. We believe that business disruption relating to the COVID-19 pandemic may continue to negatively impact the global economy and may affect our businesses as outlined above, or in other manners including supply chain disruptions, all of which would adversely impact our business and results of operations. 27 Table of Contents Business Overview During the six months endedJune 30, 2021 , our business generated$12.8 billion in total revenue, which is comprised of approximately$11.4 billion from retail automotive dealerships,$1.1 billion from retail commercial truck dealerships, and$296.8 million from commercial vehicle distribution operations. We generated$2.1 billion in gross profit, which is comprised of$1.8 billion from retail automotive dealerships,$182.7 million from retail commercial truck dealerships, and$72.9 million from commercial vehicle distribution operations.Retail Automotive . We believe we are the second largest automotive retailer headquartered in theU.S. as measured by the$17.9 billion in total retail automotive dealership revenue we generated in 2020. As ofJune 30, 2021 , we operated 305 retail automotive franchised dealerships, of which 144 franchised dealerships are located in theU.S. and 161 franchised dealerships are located outside of theU.S. The franchised dealerships outside theU.S. are located primarily in theU.K. In the six months endedJune 30, 2021 , we retailed and wholesaled more than 294,000 vehicles. We are diversified geographically, with 58% of our total retail automotive dealership revenues in the six months endedJune 30, 2021 , generated in theU.S. andPuerto Rico and 42% generated outside theU.S. We offer over 35 vehicle brands, with 71% of our retail automotive franchised dealership revenue in the six months endedJune 30, 2021 , generated from premium brands, such as Audi, BMW, Land Rover, Mercedes-Benz, and Porsche. Each of our franchised 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, the sale and placement of third-party finance and insurance products, third-party extended service and maintenance contracts, and replacement and aftermarket automotive products. We operate our franchised dealerships under franchise agreements with a number of automotive manufacturers and distributors that are subject to certain rights and restrictions typical of the industry. We also operate Used Vehicle SuperCenters in theU.S. and theU.K. which retail and wholesale used vehicles under a one price, "no-haggle" methodology under the CarShop brand. Our operations in theU.S. consist of seven retail locations operating inPennsylvania andNew Jersey . Our operations in theU.K. consist of twelve retail locations and a vehicle preparation center. During the second quarter of 2021, we opened one CarShop location in theU.S. and one location in theU.K. We expect to open four additional CarShop Used Vehicle SuperCenters by the end of 2021. For the three and six months endedJune 30, 2021 , these Used Vehicle SuperCenters retailed 18,742 and 30,137 units and generated$408.2 million and$650.8 million in revenue, respectively.
Retail automotive dealerships represented 89.4% of our total revenues and 87.8%
of our total gross profit in the six months ended
Retail Commercial Truck Dealership. We operate a heavy- and medium-duty truck dealership group known asPremier Truck Group ("PTG") offering primarilyFreightliner and Western Star trucks (bothDaimler brands) with locations inTexas ,Oklahoma ,Tennessee ,Georgia ,Utah ,Idaho ,Kansas ,Missouri , andCanada . InApril 2021 , we acquired Kansas City Freightliner ("KCFL"), a retailer of heavy- and medium-duty commercial trucks inKansas andMissouri . KCFL added four full-service dealerships, four parts and service centers, and two collision centers to PTG's existing operations. As ofJune 30, 2021 , PTG operated 35 locations which provide services such as new and used truck sales, parts and service, and collision repair. This business represented 8.3% of our total revenues and 8.7% of our total gross profit in the six months endedJune 30, 2021 .
Penske Australia. We are the exclusive importer and distributor ofWestern Star heavy-duty trucks, MAN heavy- and medium-duty trucks and buses (aVW Group brand), andDennis Eagle refuse collection vehicles, together with associated parts, acrossAustralia ,New Zealand , and portions of the Pacific. In most of these same markets, we are also a leading distributor of diesel and gas engines and power systems, principally representing MTU,Detroit Diesel , Allison Transmission, MTU Onsite Energy,Rolls Royce Power Systems , and Bergen Engines. This business, known as Penske Australia, offers products across the on- and off-highway markets, including in the construction, mining, marine, defense, and power generation sectors and supports full parts and aftersales service through a network of branches, field locations, and dealers across the region. These businesses represented 2.3% of our total revenues and 3.5% of our total gross profit in the six months endedJune 30, 2021 . 28 Table of Contents Penske Transportation Solutions. We hold a 28.9% ownership interest inPenske Truck Leasing Co., L.P ("PTL"). PTL is owned 41.1% byPenske Corporation , 28.9% by us, and 30.0% by Mitsui & Co., Ltd. ("Mitsui"). We account for our investment in PTL under the equity method, and we therefore record our share of PTL's earnings on our statements of income under the caption "Equity in earnings of affiliates," which also includes the results of our other equity method investments. Penske Transportation Solutions ("PTS") is the universal brand name for PTL's various business lines through which it is capable of meeting customers' needs across the supply chain with a broad product offering that includes full-service truck leasing, truck rental, and contract maintenance along with logistic services, such as dedicated contract carriage, distribution center management, transportation management, lead logistics provider services, and dry van truckload carrier services. We recorded$156.2 million and$43.5 million in equity earnings from this investment for the six months endedJune 30, 2021 , and 2020, respectively. Outlook Retail Automotive Dealership. During the six months endedJune 30, 2021 ,U.S. new light vehicle sales increased 29.2%, as compared to the same period last year, to 8.4 million units. We believe the year over year increase in overall sales in theU.S. is primarily attributable to improved consumer confidence and a stronger economy as compared to the same time last year at the onset of the COVID-19 pandemic when shelter-in-place rules limited operations in many states. Additionally, a lower supply of new vehicles available for sale due to disruptions in the supply chain as discussed below contributed to higher vehicle gross profit on both new and used vehicles sold, which, coupled with cost cutting measures enacted in response to the COVID-19 pandemic, resulted in improved profitability and earnings. Many of our principal vehicle manufacturers have announced production disruptions caused by a shortage of automotive microchips or other components. The shortage is reported to be due to the overall demand for microchips in the global economy and production disruptions caused by staffing and other COVID-19 related issues. According to IHS Markit, global automotive production was reduced by approximately 2.3 million units during the second quarter of 2021 due to the shortage. We expect the lower inventories of new vehicles to continue until the supply of certain components used to manufacture automobiles improves. TheNational Automobile Dealers Association has predicted sales for theU.S. light vehicle market to be approximately 16.3 million units in 2021. The lower supply of new vehicles contributed to higher vehicle gross profit on both new and used vehicles sold, which contributed to our higher overall profitability. Our new vehicle days' supply is 26 as compared to 50 as ofDecember 31, 2020 . While we expect to continue to have normal levels of used vehicles for sale (our current used vehicle days' supply is 38 as compared to 48 as ofDecember 31, 2020 ), prolonged shortages could result in lower new vehicle sales volumes
which could adversely affect us. During the six months endedJune 30, 2021 ,U.K. new vehicle registrations increased 39.2%, as compared to the same period last year, to 909,973 registrations. Premium/luxury unit sales, which account for over 92% of ourU.K. new unit sales, increased 40.6% during the six months endedJune 30, 2021 , as compared to a 39.2% increase for the overall market. We believe the year over year increase in overall sales in theU.K. is primarily attributable to improved consumer confidence and a stronger economy as compared to the same time last year at the onset of the COVID-19 pandemic when shelter-in-place rules limited operations. Additionally, we experienced improved profitability and earnings year over year as a lower supply of new vehicles available for sale due to disruptions in the supply chain as discussed above contributed to higher vehicle gross profits on both new and used vehicles sold, cost cutting measures, and our efforts to conduct sales digitally. In response to the COVID-19 pandemic, theU.K. reinstated shelter-in-place orders which required our dealership showrooms to remain closed during the first quarter of 2021. These shelter-in-place orders largely expired onApril 12, 2021 , and most of the remaining restrictions expired onJuly 19, 2021 . We believeU.K. sales were also impacted by the uncertainty of residual values, potentially higher taxes on diesel-powered vehicles, and consumer confusion about low emission zones as theU.K. and Western European countries consider the ramifications of diesel engines on the environment, while also providing government incentives on certain electric vehicles. Representatives of theU.K. government suggested a ban on the sale of gasoline engines in new cars and new vans as early as 2030 and a ban on the sale of gasoline hybrid engines in new cars and new vans as early as 2035. Sales of diesel-powered vehicles decreased 21.7% and non-diesel vehicles increased 52.8% during the six months endedJune 30, 2021 ended, as compared to the same period last year. 29 Table of Contents Retail Commercial Truck Dealership. During the six months endedJune 30, 2021 , North American sales of Class 6-8 medium- and heavy-duty trucks, the principal vehicles for our PTG business, increased 29.7% from the same period last year to 204,557 units. The Class 6-7 medium-duty truck market increased 16.1% to 66,200 units, and Class 8 heavy-duty trucks, the largest North American market, increased 37.4% to 138,357 units from the same period last year. The Class 8 heavy-duty market inNorth America is expected to increase from 233,000 units in 2020 to approximately 294,000 units in 2021 representing an increase of 28% driven by strong freight demand, an improving economy, and replacement demand. Commercial Vehicle Distribution. During the six months endedJune 30, 2021 , the Australian heavy-duty truck market reported sales of 5,790 units, representing an increase of 17.7% from the same period last year, while theNew Zealand market reported sales of 1,448 units, representing an increase of 15.4% from the same period last year. We expect the commercial vehicle and power systems markets to remain resilient in 2021 and continuing benefits from sales of replacement or upgraded engines. Penske Transportation Solutions. A majority of the PTS business is generated by multi-year contracts for full-service leasing, contract maintenance, and logistics services. We expect continued resilient performance throughout 2021 as PTS has experienced increased levels of utilizations and profitability as business conditions improved as compared to the same period last year. As described in "Forward-Looking Statements," there are a number of factors that could cause actual results to differ materially from our expectations. See Part II, "Item 1A. Risk Factors." Operating Overview
Automotive and commercial truck dealerships together represent over 95% and 75% of our revenue and our earnings before taxes, respectively. Income from our PTS investment represents over 20% of our earnings before taxes. New and used vehicle revenues typically include sales to retail customers, fleet customers, and leasing companies providing consumer leasing. We generate finance and insurance revenues from sales of third-party extended service contracts, sales of third-party insurance policies, commissions relating to the sale of finance and lease contracts to third parties, and the sales of certain other products. Service and parts revenues include fees paid by customers for repair, maintenance and collision services, and the sale of replacement parts and other aftermarket accessories as well as warranty repairs that are reimbursed directly by various OEMs.
Our gross profit tends to vary with the mix of revenues we derive from the sale of new vehicles, used vehicles, finance and insurance products, and service and parts transactions. Our gross profit varies across product lines with vehicle sales usually resulting in lower gross profit margins and our other revenues resulting in higher gross profit margins. Factors such as inventory and vehicle availability, customer demand, consumer confidence, unemployment, general economic conditions, seasonality, weather, credit availability, fuel prices, and manufacturers' advertising and incentives also impact the mix of our revenues and therefore, influence our gross profit margin. The results of our commercial vehicle distribution business inAustralia and New Zealand are principally driven by the number and types of products and vehicles ordered by our customers. Aggregate revenue and gross profit increased$3,336.4 million and$629.8 million , or 91.4% and 113.9%, respectively, during the three months endedJune 30, 2021 , and$4,101.1 million and$766.3 million , or 47.4% and 57.6%, respectively, during the six months endedJune 30, 2021 , compared to the same periods in 2020. See "COVID-19 Disclosure" above. As exchange rates fluctuate, our revenue and results of operations as reported inU.S. Dollars fluctuate. For example, if the British Pound were to weaken against theU.S. Dollar, ourU.K. results of operations would translate into lessU.S. Dollar reported results. Foreign currency average rate fluctuations increased revenue and gross profit by$313.2 million and$47.3 million , respectively, for the three months endedJune 30, 2021 , and increased revenue and gross profit by$514.9 million and$76.8 million , respectively, for the six months endedJune 30, 2021 . Foreign currency average rate fluctuations increased earnings per share from continuing operations by approximately$0.11 per share for the three 30 Table of Contents months endedJune 30, 2021 , and increased earnings per share from continuing operations by approximately$0.16 per share for the six months endedJune 30, 2021 . Excluding the impact of foreign currency average rate fluctuations, revenue and gross profit increased 82.8% and 105.4%, respectively, for the three months endedJune 30, 2021 , and increased 41.4% and 51.9%, respectively, for the six months endedJune 30, 2021 . Our selling expenses consist of advertising and compensation for sales personnel, including commissions and related bonuses. General and administrative expenses include compensation for administration, finance, legal and general management personnel, rent, insurance, utilities, and other expenses. As the majority of our selling expenses are variable and we believe a significant portion of our general and administrative expenses are subject to our control, we believe our expenses can be adjusted over time to reflect economic trends. Floor plan interest expense relates to financing incurred in connection with the acquisition of new and used vehicle inventories that are secured by those vehicles. Other interest expense consists of interest charges on all of our interest-bearing debt, other than interest relating to floor plan financing, and includes interest relating to our retail commercial truck dealership and commercial vehicle distribution operations. The cost of our variable rate indebtedness is based on the prime rate, defined London Interbank Offered Rate ("LIBOR"), theBank of England Base Rate , the Finance House Base Rate, the Euro Interbank Offered Rate, the Canadian Prime Rate, the AustralianBank Bill Swap Rate , or the New Zealand Bank Bill Benchmark Rate. Regulatory authorities in both theU.S. andU.K. have announced their intention to stop compelling banks to submit rates for the calculation of LIBOR after 2021. In theU.S. , we expect the Secured Overnight Financing Rate ("SOFR") will be adopted in lieu of LIBOR. In theU.K. , we expect the Sterling Overnight Indexed Average ("SONIA") to be adopted. Our senior secured revolving credit facilities in theU.S. andU.K. , and many of our floorplan arrangements, utilize LIBOR as a benchmark for calculating the applicable interest rate. We cannot predict the effect of the potential changes to or elimination of LIBOR or the establishment and use of alternative rates or benchmarks and the corresponding effects on our cost of capital.
Equity in earnings of affiliates principally represents our share of the earnings from PTS, along with our investments in joint ventures and other non-consolidated investments.
The future success of our business is dependent upon, among other things, general economic and industry conditions, including the recovery time frame for the global economy in light of the COVID-19 pandemic; the distribution rate and acceptance of vaccines for COVID-19; our ability to react effectively to changing business conditions in light of the COVID-19 pandemic; our ability to consummate and integrate acquisitions; the level of vehicle sales in the markets where we operate; our ability to obtain vehicles from our manufacturers, especially in light of the COVID-19 pandemic and global shortages in microchip availability or other vehicle components; our ability to increase sales of higher margin products, especially service and parts sales; our ability to realize returns on our significant capital investment in new and upgraded dealership facilities; our ability to navigate a rapidly changing automotive and truck landscape; the success of our distribution of commercial vehicles, engines, and power systems; and the return realized from our investments in various joint ventures and other non-consolidated investments. See Part II, "Item 1A. Risk Factors" and "Forward-Looking Statements" below.
Critical Accounting Policies and Estimates
The preparation of financial statements in accordance with accounting principles generally accepted inthe United States of America requires the application of accounting policies that often involve making estimates and employing judgments. Such judgments influence the assets, liabilities, revenues, and expenses recognized in our financial statements. Management, on an ongoing basis, reviews these estimates and assumptions. Management may determine that modifications in assumptions and estimates are required, which may result in a material change in our results of operations or financial position. The accounting policies and estimates that we believe to be most dependent upon the use of estimates and assumptions are revenue recognition, goodwill and other indefinite-lived intangible assets, investments, self-insurance reserves, lease recognition, and income taxes. Refer to "Management's Discussion and Analysis of Financial Condition 31 Table of Contents and Results of Operations" in our 2020 annual report on Form 10-K for additional detail and discussion of these critical accounting policies and estimates. There have been no material changes in critical accounting policies and estimates as described in our most recent annual report. Refer to Part I, Item 1, Note 1 and Note 3 of the Notes to our Consolidated Condensed Financial Statements for disclosures regarding estimates and judgments related to lease recognition. Refer to Part I, Item 1, Note 2 of the Notes to our Consolidated Condensed Financial Statements for disclosures regarding estimates and judgments related to revenue recognition. Refer to "Income Taxes" within Part I, Item 1, Note 1 of the Notes to our Consolidated Condensed Financial Statements for disclosures regarding estimates and judgments related to income taxes. Results of Operations The following tables present comparative financial data relating to our operating performance in the aggregate and on a "same-store" basis. Dealership results are included in same-store comparisons when we have consolidated the acquired entity during the entirety of both periods being compared. As an example, if a dealership were acquired onJanuary 15, 2019 , the results of the acquired entity would be included in annual same-store comparisons beginning with the year endedDecember 31, 2021 , and in quarterly same-store comparisons beginning with the quarter endedJune 30, 2020 . The results for the three and six months endedJune 30, 2021 , include a tax expense of$8.8 million , or$0.11 per share, related to revaluation of ourU.K. deferred tax assets and liabilities due to an increase in theU.K. corporate tax rate from 19% currently to 25%, effectiveApril 1, 2023 . We also incurred a$17.0 million expense in connection with the redemption of our 5.50% senior subordinated notes due 2026 during the second quarter of 2021, consisting of a$13.8 million redemption premium and the write-off of$3.2 million of unamortized debt issuance costs, resulting in an after-tax charge of$12.6 million , or$0.16 per share.
The results for the three and six months ended
Three Months Ended
Retail Automotive Dealership New Vehicle Data
(In millions, except unit and per unit amounts)
2021 vs. 2020
New Vehicle Data 2021 2020 Change % Change
New retail unit sales 57,789 30,687 27,102 88.3 %Same-store new retail unit sales 57,622 30,088 27,534 91.5 % New retail sales revenue$ 2,811.3 $ 1,384.7 $ 1,426.6 103.0 % Same-store new retail sales revenue$ 2,797.2 $ 1,365.3 $ 1,431.9 104.9 % New retail sales revenue per unit$ 48,648 $ 45,124 $ 3,524 7.8 % Same-store new retail sales revenue per unit$ 48,544 $ 45,378 $
3,166 7.0 % Gross profit - new$ 276.6 $ 106.2 $ 170.4 160.5 % Same-store gross profit - new$ 274.9 $ 105.3 $ 169.6 161.1 %
Average gross profit per new vehicle retailed$ 4,786 $ 3,462 $ 1,324 38.2 % Same-store average gross profit per new vehicle retailed$ 4,770 $ 3,499 $ 1,271 36.3 % Gross margin % - new 9.8 % 7.7 % 2.1 % 27.3 % Same-store gross margin % - new 9.8 % 7.7 %
2.1 % 27.3 %
Units
Retail unit sales of new vehicles increased from 2020 to 2021 primarily due to a 27,534 unit, or 91.5%, increase in same-store new retail unit sales. Same-store units increased 78.8% in theU.S. and 127.5% internationally. Overall, new units increased 75.5% in theU.S. and 124.9% internationally. We believe the increase in unit sales is due to a stronger economic outlook, lifting of lockdown restrictions due to COVID-19, favorable interest rates, and improved levels of consumer confidence when compared to the second quarter of 2020 at the onset of the COVID-19 pandemic. 32 Table of Contents Revenues
New vehicle retail sales revenue increased from 2020 to 2021 primarily due to a$1,431.9 million , or 104.9%, increase in same-store revenues. Excluding$98.3 million of favorable foreign currency fluctuations, same-store new retail revenue increased 97.7%. The same-store revenue increase is due to the increase in same-store unit sales, which increased revenue by$1,336.6 million , coupled with a$3,166 per unit increase in comparative average selling prices (including a$1,706 per unit increase attributable to favorable foreign currency fluctuations), which increased revenue by$95.3 million . We believe the increase in comparative average selling prices is due to increased customer demand and a lower supply of new vehicles available for sale caused by production disruptions resulting from a shortage of automotive microchips. Gross Profit Retail gross profit from new vehicle sales increased$170.4 million , or 160.5%, from 2020 to 2021 primarily due to a$169.6 million , or 161.1%, increase in same-store gross profit. Excluding$8.7 million of favorable foreign currency fluctuations, same-store gross profit increased 152.8%. The same-store gross profit increase is due to the increase in same-store new retail unit sales, which increased gross profit by$131.4 million , coupled with a$1,271 per unit increase in the average gross profit per new vehicle retailed (including a$150 per unit increase attributable to favorable foreign currency fluctuations), which increased gross profit by$38.2 million . The increase in comparative gross profit per new vehicle retailed is attributed to increased customer demand and a lower supply of new vehicles available for sale caused by production disruptions resulting from a shortage of automotive microchips.
Retail Automotive Dealership Used Vehicle Data
(In millions, except unit and per unit amounts)
2021 vs. 2020
Used Vehicle Data 2021 2020 Change % Change
Used retail unit sales 74,708 42,606 32,102 75.3 %Same-store used retail unit sales 73,270 41,952 31,318 74.7 % Used retail sales revenue$ 2,327.6 $ 1,166.0 $ 1,161.6 99.6 % Same-store used retail sales revenue$ 2,295.6 $ 1,151.3 $ 1,144.3 99.4 % Used retail sales revenue per unit$ 31,156 $ 27,368 $ 3,788 13.8 % Same-store used retail sales revenue per unit$ 31,330 $ 27,444 $ 3,886 14.2 % Gross profit - used$ 194.1 $ 55.8 $ 138.3 247.8 % Same-store gross profit - used$ 191.8 $ 55.5 $ 136.3 245.6 % Average gross profit per used vehicle retailed$ 2,598 $ 1,310 $ 1,288 98.3 % Same-store average gross profit per used vehicle retailed$ 2,618 $ 1,322 $ 1,296 98.0 % Gross margin % - used 8.3 % 4.8 % 3.5 % 72.9 % Same-store gross margin % - used 8.4 % 4.8 %
3.6 % 75.0 %
Units
Retail unit sales of used vehicles increased from 2020 to 2021 due to a 31,318
unit, or 74.7%, increase in same-store used retail unit sales, coupled with a
784 unit increase from net dealership acquisitions. Same-store units increased
42.1% in the U.S. and 121.3% internationally. Same-store retail units for our
U.S. and U.K. CarShop Used Vehicle SuperCenters increased 104.2% and 195.8%,
respectively. Overall, used units increased 41.1% in the U.S. and 124.8%
internationally. We believe the increase in unit sales is due to a stronger
economic outlook, lifting of lockdown restrictions due to COVID-19, favorable
interest rates, and improved levels of consumer confidence when compared to the
second quarter of 2020 at the onset of the COVID-19 pandemic, coupled with
consumers looking to acquire used vehicles to compensate for the lower supply of
new vehicles available for sale caused by production disruptions resulting from
a shortage of automotive microchips.
33
Table of Contents
Revenues
Used vehicle retail sales revenue increased from 2020 to 2021 due to a $1,144.3
million , or 99.4%, increase in same-store revenues, coupled with a $17.3 million
increase from net dealership acquisitions. Excluding $138.7 million of favorable
foreign currency fluctuations, same-store used retail revenue increased 87.3%.
The same-store revenue increase is primarily due to the increase in same-store
used retail unit sales, which increased revenue by $981.3 million , coupled with
a $3,886 per unit increase in comparative average selling prices (including a
$1,893 per unit increase attributable to favorable foreign currency
fluctuations), which increased revenue by $163.0 million . The average sales
price per unit for our CarShop Used Vehicle SuperCenters increased 12.0% to
$18,533 . We believe the increase in comparative average selling prices is
primarily due to consumers looking to acquire used vehicles to compensate for
the lower supply of new vehicles available for sale caused by production
disruptions resulting from a shortage of automotive microchips.
Gross Profit
Retail gross profit from used vehicle sales increased from 2020 to 2021 due to a$136.3 million , or 245.6%, increase in same-store gross profit, coupled with a$2.0 million increase from net dealership acquisitions. Excluding$10.7 million of favorable foreign currency fluctuations, same-store gross profit increased 226.3%. The same-store gross profit increase is due to the increase in same-store used retail unit sales, which increased gross profit by$81.9 million , coupled with a$1,296 per unit increase in average gross profit per used vehicle retailed (including a$146 per unit increase attributable to favorable foreign currency fluctuations), which increased gross profit by$54.4 million . The average gross profit per unit for our CarShop Used Vehicle SuperCenters increased 27.9% to$1,355 . The increase in average gross profit per used vehicle retailed is primarily due to consumers looking to acquire used vehicles to compensate for the lower supply of new vehicles available for sale caused by production disruptions resulting from a shortage of automotive microchips.
Retail Automotive Dealership Finance and Insurance Data
(In millions, except unit and per unit amounts)
2021 vs. 2020
Finance and Insurance Data 2021 2020 Change % Change
Total retail unit sales 132,497 73,293 59,204 80.8 %Total same-store retail unit sales 130,892 72,040 58,852 81.7 % Finance and insurance revenue$ 212.3 $ 97.1 $ 115.2 118.6 % Same-store finance and insurance revenue$ 209.9 $ 95.8 $ 114.1 119.1 % Finance and insurance revenue per unit$ 1,603 $ 1,324
Finance and insurance revenue increased$115.2 million , or 118.6%, from 2020 to 2021 primarily due to a$114.1 million , or 119.1%, increase in same-store revenues. Excluding$8.8 million of favorable foreign currency fluctuations, same-store finance and insurance revenue increased 109.9%. The same-store revenue increase is due to the increase in same-store retail unit sales, which increased revenue by$94.4 million , coupled with a$274 per unit increase in comparative average finance and insurance revenue per unit (including a$68 per unit increase attributable to favorable foreign currency fluctuations), which increased revenue by$19.7 million . Finance and insurance revenue per unit increased 24.2% in theU.S. and 15.0% in theU.K. We believe the increase in same-store finance and insurance revenue per unit is primarily due to our efforts to increase finance and insurance penetration, which include implementing interactive digital customer sales platforms, additional training, and targeting underperforming locations, coupled with the increase in average selling prices. 34 Table of Contents
Retail Automotive Dealership Service and Parts Data
(In millions)
2021 vs. 2020
Service and Parts Data 2021 2020 Change % Change
Service and parts revenue $ 546.2 $ 345.2 $ 201.0 58.2 %Same-store service and parts revenue$ 543.5 $ 340.0 $ 203.5 59.9 % Gross profit - service and parts$ 337.0 $ 201.2 $ 135.8 67.5 % Same-store service and parts gross profit$ 334.8 $ 198.5 $ 136.3 68.7 % Gross margin % - service and parts 61.7 % 58.3 % 3.4
% 5.8 % Same-store service and parts gross margin % 61.6 % 58.4 % 3.2 % 5.5 %
Revenues
Service and parts revenue increased from 2020 to 2021, with an increase of 44.4% in theU.S. and 95.4% internationally. The increase in service and parts revenue is primarily due to a$203.5 million , or 59.9%, increase in same-store revenues. Excluding$19.4 million of favorable foreign currency fluctuations, same-store revenue increased 54.1%. The same-store revenue increase is due to a$153.3 million , or 65.6%, increase in customer pay revenue, a$39.4 million , or 46.5%, increase in warranty revenue, and a$10.8 million , or 51.4%, increase in vehicle preparation and body shop revenue. We believe the increase in service and parts revenue is related to a stronger economic outlook, improved levels of consumer confidence, and the lifting of many COVID-19 restrictions resulting in increases in vehicle miles traveled when compared to the second quarter of 2020 at the onset of the COVID-19 pandemic. Gross Profit
Service and parts gross profit increased from 2020 to 2021 primarily due to a$136.3 million , or 68.7%, increase in same-store gross profit. Excluding$11.7 million of favorable foreign currency fluctuations, same-store gross profit increased 62.8%. The same-store gross profit increase is due to the increase in same-store revenues, which increased gross profit by$125.4 million , coupled with a 3.2% increase in same-store gross margin, which increased gross profit by$10.9 million . The same-store gross profit increase is due to an$80.4 million , or 73.8%, increase in customer pay gross profit, a$34.6 million , or 81.0%, increase in vehicle preparation and body shop gross profit, and a$21.3 million , or 45.3%, increase in warranty gross profit.
Retail Commercial Truck Dealership Data
(In millions, except unit and per unit amounts)
2021 vs. 2020
New Commercial Truck Data 2021 2020 Change % Change
New retail unit sales 3,314 2,063 1,251 60.6 %Same-store new retail unit sales 2,770 2,063 707 34.3 % New retail sales revenue$ 399.2 $ 235.5 $ 163.7 69.5 % Same-store new retail sales revenue$ 339.9 $ 235.5 $ 104.4 44.3 % New retail sales revenue per unit$ 120,445 $ 114,176 $ 6,269 5.5 % Same-store new retail sales revenue per unit$ 122,722 $ 114,176 $ 8,546 7.5 % Gross profit - new$ 19.6 $ 9.6 $ 10.0 104.2 % Same-store gross profit - new$ 17.9 $ 9.6 $ 8.3 86.5 % Average gross profit per new truck retailed$ 5,909 $ 4,640 $ 1,269 27.3 % Same-store average gross profit per new truck retailed$ 6,462 $ 4,640 $ 1,822 39.3 % Gross margin % - new 4.9 % 4.1 % 0.8 % 19.5 % Same-store gross margin % - new 5.3 % 4.1 %
1.2 % 29.3 % Units Retail unit sales of new trucks increased from 2020 to 2021 due to a 707 unit, or 34.3%, increase in same-store new retail unit sales, coupled with a 544 unit increase from net dealership acquisitions. We believe the increase in unit
sales
35
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is due to a stronger economic outlook, favorable interest rates, higher freight
rates, and improved levels of consumer confidence when compared to the second
quarter of 2020 at the onset of the COVID-19 pandemic.
Revenues
New commercial truck retail sales revenue increased from 2020 to 2021 due to a
$104.4 million , or 44.3%, increase in same-store revenues, coupled with a $59.3
million increase from net dealership acquisitions. The same-store revenue
increase is due to the increase in same-store new retail unit sales, which
increased revenue by $86.8 million , coupled with an $8,546 per unit increase in
comparative average selling prices, which increased revenue by $17.6 million .
Gross Profit
New commercial truck retail gross profit increased from 2020 to 2021 due to an$8.3 million , or 86.5%, increase in same-store gross profit, coupled with a$1.7 million increase from net dealership acquisitions. The same-store gross profit increase is due to the increase in new retail unit sales, which increased gross profit by$4.5 million , coupled with a$1,822 per unit increase in average gross profit per new truck retailed, which increased gross profit by$3.8 million . The increase in gross profit is largely due to stronger market demand as discussed above. 2021 vs. 2020 Used Commercial Truck Data 2021 2020 Change % Change Used retail unit sales 832 773 59 7.6 %
Same-store used retail unit sales 803 773 30 3.9 % Used retail sales revenue$ 59.0 $ 36.9 $ 22.1 59.9 % Same-store used retail sales revenue$ 56.8 $ 36.9 $ 19.9 53.9 % Used retail sales revenue per unit$ 70,932 $ 47,721 $ 23,211 48.6 % Same-store used retail sales revenue per unit$ 70,723 $ 47,721 $ 23,002 48.2 % Gross profit - used$ 9.5 $ (2.9) $ 12.4 427.6 % Same-store gross profit - used$ 9.1 $ (2.9) $ 12.0 413.8 % Average gross profit per used truck retailed$ 11,381 $ (3,731) $ 15,112 405.0 % Same-store average gross profit per used truck retailed$ 11,276 $ (3,731) $ 15,007 402.2 % Gross margin % - used 16.1 % (7.9) % 24.0 % 303.8 % Same-store gross margin % - used 16.0 % (7.9) % 23.9 % 302.5 % Units Retail unit sales of used trucks increased from 2020 to 2021 due to a 30 unit, or 3.9%, increase in same-store retail unit sales, coupled with a 29 unit increase from net dealership acquisitions. We believe the increase in used truck unit sales is attributable to higher demand for used vehicles as the higher freight rates and the forecast for an improving economy have driven higher Class 8 orders and a 182.7% increase in order backlog, causing our customers to turn to the used truck market to meet their requirements. Revenues
Used commercial truck retail sales revenue increased from 2020 to 2021 due to a$19.9 million , or 53.9%, increase in same-store revenues, coupled with a$2.2 million increase from net dealership acquisitions. The same-store revenue increase is due to a$23,002 per unit increase in comparative average selling prices, which increased revenue by$17.8 million , coupled with the increase in same-store used retail unit sales, which increased revenue by$2.1 million . We believe the increase in used retail sales revenue per unit is due to increased demand for used trucks in the market as discussed above. Gross Profit Used commercial truck retail gross profit increased from 2020 to 2021 due to a$12.0 million , or 413.8%, increase in same-store gross profit, coupled with a$0.4 million increase from net dealership acquisitions. The same-store gross profit increase is due to a$15,007 per unit increase in average gross profit per used truck retailed, which increased gross profit by$11.7 million , coupled with the increase in same-store used retail unit sales, which increased gross profit by 36 Table of Contents$0.3 million . We believe the increase in average gross profit per used truck retailed is attributable to increased demand for used trucks in the market
as
discussed above.
2021 vs. 2020
Service and Parts Data 2021 2020 Change % Change
Service and parts revenue $ 157.3 $ 111.6 $ 45.7 40.9 %Same-store service and parts revenue$ 136.3 $ 111.6 $ 24.7 22.1 % Gross profit - service and parts$ 66.3 $ 49.2 $ 17.1 34.8 % Same-store service and parts gross profit$ 58.0 $ 49.2 $ 8.8 17.9 % Gross margin % - service and parts 42.1 % 44.1 % (2.0)
% (4.5) % Same-store service and parts gross margin % 42.6 % 44.1 % (1.5) % (3.4) %
Revenues Service and parts revenue increased from 2020 to 2021 due to a$24.7 million , or 22.1%, increase in same-store revenues, coupled with a$21.0 million increase from net dealership acquisitions. Customer pay work represents approximately 79.9% of PTG's service and parts revenue, largely due to the significant amount of retail sales of parts and accessories. The same-store revenue increase is due to a$22.7 million , or 26.4%, increase in customer pay revenue, a$1.8 million , or 8.3%, increase in warranty revenue, and a$0.2 million , or 3.4%, increase in body shop revenue. We believe the same-store increase in service and parts revenue is primarily due to higher freight rates and the increased reliance on used trucks, which generates additional service and parts revenues. Gross Profit Service and parts gross profit increased from 2020 to 2021 due to an$8.8 million , or 17.9%, increase in same-store gross profit, coupled with an$8.3 million increase from net dealership acquisitions. The same-store gross profit increase is due to the increase in same-store revenues, which increased gross profit by$10.4 million , partially offset by a 1.5% decrease in gross margin, which decreased gross profit by$1.6 million . The same-store gross profit increase is due to an$8.2 million , or 26.3%, increase in customer pay gross profit, a$0.9 million , or 7.7%, increase in warranty gross profit, and partially offset by a$0.3 million , or 5.0%, decrease in body shop gross profit.
Commercial Vehicle Distribution Data
(In millions, except unit amounts)
2021 vs. 2020
Penske Australia Data 2021 2020 Change % Change
Vehicle unit sales 436 253 183 72.3 %
Sales revenue $ 164.6 $ 98.4 $ 66.2 67.3 %
Gross profit $ 39.6 $ 26.4 $ 13.2 50.0 %
Penske Australia primarily distributes and services commercial vehicles,
engines, and power systems. Penske Australia generated $164.6 million of revenue
during the three months ended June 30, 2021 , compared to $98.4 million of
revenue in the prior year, an increase of 67.3%. It also generated $39.6 million
of gross profit during the three months ended June 30, 2021 , compared to $26.4
million of gross profit in the prior year, an increase of 50.0%.
These improved results from 2020 to 2021 are primarily due to an increase in
commercial demand for trucks in Australia and an increase in service and parts.
Excluding $23.7 million of favorable foreign currency fluctuations, revenues
increased 43.2%. Excluding $5.7 million of favorable foreign currency
fluctuations, gross profit increased 28.4%.
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Selling, General, and Administrative Data
(In millions)
2021 vs. 2020
Selling, General, and Administrative Data 2021 2020 Change % Change
Personnel expense $ 480.1 $ 253.7 $ 226.4 89.2 %
Advertising expense $ 31.9 $ 12.4 $ 19.5 157.3 %
Rent & related expense $ 82.5 $ 73.6 $ 8.9 12.1 %
Other expense $ 155.3 $ 113.9 $ 41.4 36.3 %
Total SG&A expenses $ 749.8 $ 453.6 $ 296.2 65.3 %
Same-store SG&A expenses $ 736.7 $ 447.5 $ 289.2 64.6 %
Personnel expense as % of gross profit 40.6 % 45.9 % (5.3) % (11.5) % Advertising expense as % of gross profit 2.7 % 2.2 % 0.5 % 22.7 % Rent & related expense as % of gross profit 7.0 % 13.3 % (6.3) % (47.4) % Other expense as % of gross profit 13.1 % 20.6 % (7.5) % (36.4) % Total SG&A expenses as % of gross profit 63.4 % 82.0 % (18.6) % (22.7) % Same-store SG&A expenses as % of same-store gross profit 63.3 % 81.7 % (18.4) % (22.5) %
Selling, general, and administrative expenses ("SG&A") increased from 2020 to
2021 due to a $289.2 million , or 64.6%, increase in same-store SG&A, coupled
with a $7.0 million increase from net dealership acquisitions. Excluding $32.5
million of favorable foreign currency fluctuations, same-store SG&A increased
57.4%. SG&A as a percentage of gross profit was 63.4%, a decrease of 1,860 basis
points compared to 82.0% in the prior year. SG&A expenses as a percentage of
total revenue was 10.7% and 12.4% in the three months ended June 30, 2021 , and
2020, respectively. The decrease in SG&A as a percentage of gross profit is
primarily due to a reduction of travel and entertainment expenses, and other
expense reductions as well as increased gross profit across our business lines.
Depreciation
(In millions)
2021 vs. 2020
2021 2020 Change % Change
Depreciation $ 30.2 $ 27.9 $ 2.3 8.2 %
Depreciation increased from 2020 to 2021 due to a
Floor Plan Interest Expense
(In millions)
2021 vs. 2020
2021 2020 Change % Change
Floor plan interest expense
Floor plan interest expense, including the impact of swap transactions, decreased from 2020 to 2021 primarily due to a$3.7 million , or 32.3%, decrease in same-store floor plan interest expense. The overall decrease is primarily due to decreases in applicable rates and decreases in amounts outstanding under floor plan arrangements as new vehicle inventory declined due to lower supply of new vehicles available for sale caused by production disruptions resulting from a shortage of automotive microchips. 38 Table of Contents Other Interest Expense (In millions) 2021 vs. 2020 2021 2020 Change % Change
Other interest expense
Other interest expense decreased from 2020 to 2021 primarily due to the decrease in outstanding revolver borrowings under theU.S. andU.K. credit agreements, decreases in applicable rates, and redemption and refinancing of certain senior subordinated notes.
Equity in Earnings of Affiliates
(In millions)
2021 vs. 2020
2021 2020 Change % Change
Equity in earnings of affiliates
Equity in earnings of affiliates increased from 2020 to 2021 primarily due to a$72.6 million , or 243%, increase in earnings from our investment in PTS, coupled with the increase in earnings from our retail automotive joint ventures. The increase in our PTS equity earnings is attributed to strong economic conditions inNorth America which is driving higher demand for PTS full-service leasing, rental demand, and logistics services, coupled with higher gains on sale from remarketing activities on used trucks. Income Taxes (In millions) 2021 vs. 2020 2021 2020 Change % Change Income taxes$ 123.4 $ 16.5 $ 106.9 647.9 %
Income taxes increased from 2020 to 2021 primarily due to a$402.5 million increase in our pre-tax income compared to the prior year. Our effective tax rate was 26.6% during the three months endedJune 30, 2021 , compared to 27.0% during the three months endedJune 30, 2020 , primarily due to fluctuations in our geographic pre-tax income mix, partially offset by the increase in net income tax expense of$8.8 million related toU.K. tax legislation changes.
39
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Six Months Ended
Retail Automotive Dealership New Vehicle Data
(In millions, except unit and per unit amounts)
2021 vs. 2020
New Vehicle Data 2021 2020 Change % Change
New retail unit sales 108,198 73,874 34,324 46.5 %Same-store new retail unit sales 107,944 72,463 35,481 49.0 % New retail sales revenue$ 5,232.7 $ 3,249.2 $ 1,983.5 61.0 % Same-store new retail sales revenue$ 5,212.0 $ 3,202.9 $ 2,009.1 62.7 % New retail sales revenue per unit$ 48,363 $ 43,983 $ 4,380 10.0 % Same-store new retail sales revenue per unit$ 48,285 $ 44,201 $
4,084 9.2 % Gross profit - new$ 481.6 $ 244.8 $ 236.8 96.7 % Same-store gross profit - new$ 479.3 $ 242.4 $ 236.9 97.7 % Average gross profit per new vehicle retailed$ 4,451 $ 3,315 $ 1,136 34.3 % Same-store average gross profit per new vehicle retailed$ 4,440 $ 3,345 $ 1,095 32.7 % Gross margin % - new 9.2 % 7.5 % 1.7 % 22.7 % Same-store gross margin % - new 9.2 % 7.6 %
1.6 % 21.1 %
Units
Retail unit sales of new vehicles increased from 2020 to 2021 primarily due to a 35,481 unit, or 49.0%, increase in same-store new retail unit sales. Same-store units increased 50.1% in theU.S. and 46.7% internationally. Overall, new units increased 47.2% in theU.S. and 44.9% internationally. We believe the increase in unit sales is due to a stronger economic outlook, lifting of lockdown restrictions due to COVID-19, favorable interest rates, and improved levels of consumer confidence when compared to the same period last year at the onset
of the COVID-19 pandemic. Revenues
New vehicle retail sales revenue increased from 2020 to 2021 primarily due to a$2,009.1 million , or 62.7%, increase in same-store revenues. Excluding$173.9 million of favorable foreign currency fluctuations, same-store new retail revenue increased 57.3%. The same-store revenue increase is due to the increase in same-store new retail unit sales, which increased revenue by$1,713.2 million , coupled with a$4,084 per unit increase in comparative average selling prices (including a$1,612 per unit increase attributable to favorable foreign currency fluctuations), which increased revenue by$295.9 million . We believe the increase in comparative average selling prices is due to increased customer demand and a lower supply of new vehicles available for sale caused by production disruptions resulting from a shortage of automotive microchips.
Gross Profit Retail gross profit from new vehicle sales increased from 2020 to 2021 primarily due to a$236.9 million , or 97.7%, increase in same-store gross profit. Excluding$15.2 million of favorable foreign currency fluctuations, same-store gross profit increased 91.5%. The same-store gross profit increase is due to the increase in same-store new retail unit sales, which increased gross profit by$157.6 million , coupled with a$1,095 per unit increase in the average gross profit per new vehicle retailed (including a$140 per unit increase attributable to favorable foreign currency fluctuations), which increased gross profit by$79.3 million . The increase in comparative gross profit per new vehicle retailed is attributed to increased customer demand and a lower supply of new vehicles available for sale caused by production disruptions resulting from a shortage of automotive microchips. 40 Table of Contents
Retail Automotive Dealership Used Vehicle Data
(In millions, except unit and per unit amounts)
2021 vs. 2020
Used Vehicle Data 2021 2020 Change % Change
Used retail unit sales 135,151 105,656 29,495 27.9 %Same-store used retail unit sales 133,085 104,004 29,081 28.0 % Used retail sales revenue$ 4,135.6 $ 2,785.6 $ 1,350.0 48.5 % Same-store used retail sales revenue$ 4,090.6 $ 2,748.2 $ 1,342.4 48.8 % Used retail sales revenue per unit$ 30,599 $ 26,365 $ 4,234 16.1 % Same-store used retail sales revenue per unit$ 30,737 $ 26,424 $ 4,313 16.3 % Gross profit - used$ 303.5 $ 141.7 $ 161.8 114.2 % Same-store gross profit - used$ 300.7 $ 140.2 $ 160.5 114.5 % Average gross profit per used vehicle retailed$ 2,246 $ 1,341 $ 905 67.5 % Same-store average gross profit per used vehicle retailed$ 2,260 $ 1,348 $ 912 67.7 % Gross margin % - used 7.3 % 5.1 % 2.2 % 43.1 % Same-store gross margin % - used 7.4 % 5.1 %
2.3 % 45.1 %
Units
Retail unit sales of used vehicles increased from 2020 to 2021 due to a 29,081
unit, or 28.0%, increase in same-store used retail unit sales, coupled with a
414 unit increase from net dealership acquisitions. Same-store units increased
27.4% in the U.S. and 28.5% internationally. Same-store retail units for our
U.S. and U.K. CarShop Used Vehicle SuperCenters increased 58.3% and 13.6%,
respectively. Overall, used units increased 25.9% in the U.S. and 30.0%
internationally. We believe the increase in unit sales is due to a stronger
economic outlook, lifting of lockdown restrictions due to COVID-19, favorable
interest rates, and improved levels of consumer confidence when compared to the
same period last year at the onset of the COVID-19 pandemic, coupled with
consumers looking to acquire used vehicles to compensate for the lower supply of
new vehicles available for sale caused by production disruptions resulting from
a shortage of automotive microchips.
Revenues
Used vehicle retail sales revenue increased from 2020 to 2021 due to a $1,342.4
million , or 48.8%, increase in same-store revenues, coupled with a $7.6 million
increase from net dealership acquisitions. Excluding $210.4 million of favorable
foreign currency fluctuations, same-store used retail revenue increased 39.4%.
The same-store revenue increase is primarily due to the increase in same-store
used retail unit sales, which increased revenue by $893.8 million , coupled with
a $4,313 per unit increase in comparative average selling prices (including a
$1,581 per unit increase attributable to favorable foreign currency
fluctuations), which increased revenue by $448.6 million . The average sales
price per unit for our CarShop Used Vehicle SuperCenters increased 17.0% to
$18,202 . We believe the increase in comparative average selling prices is
primarily due to consumers looking to acquire used vehicles to compensate for
the lower supply of new vehicles available for sale caused by production
disruptions resulting from a shortage of automotive microchips.
Gross Profit
Retail gross profit from used vehicle sales increased from 2020 to 2021 due to a$160.5 million , or 114.5%, increase in same-store gross profit, coupled with a$1.3 million increase from net dealership acquisitions. Excluding$14.6 million of favorable foreign currency fluctuations, same-store gross profit increased 104.1%. The same-store gross profit increase is due to a$912 per unit increase in average gross profit per used vehicle retailed (including a$110 per unit increase attributable to favorable foreign currency fluctuations), which increased gross profit by$94.8 million , coupled with the increase in same-store used retail unit sales, which increased gross profit by$65.7 million . The average gross profit per unit for our CarShop Used Vehicle SuperCenters increased 46.9% to$1,174 . The increase in average gross profit per used vehicle retailed is primarily due to consumers looking to acquire used vehicles to compensate for the lower supply of new vehicles available for sale caused by production disruptions resulting from a shortage of automotive microchips.
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Retail Automotive Dealership Finance and Insurance Data
(In millions, except unit and per unit amounts)
2021 vs. 2020
Finance and Insurance Data 2021 2020 Change % Change
Total retail unit sales 243,349 179,530 63,819 35.5 %Total same-store retail unit sales 241,029 176,467 64,562 36.6 % Finance and insurance revenue$ 381.1 $ 241.5 $ 139.6 57.8 % Same-store finance and insurance revenue$ 377.7 $ 238.2 $ 139.5 58.6 % Finance and insurance revenue per unit$ 1,566 $ 1,345 $ 221 16.4 % Same-store finance and insurance revenue per unit$ 1,567 $ 1,350
$ 217 16.1 %
Finance and insurance revenue increased$139.6 million , or 57.8%, from 2020 to 2021 primarily due to a$139.5 million , or 58.6%, increase in same-store revenues. Excluding$13.9 million of favorable foreign currency fluctuations, same-store finance and insurance revenue increased 52.7%. The same-store revenue increase is due to the increase in same-store retail unit sales, which increased revenue by$101.2 million , coupled with a$217 per unit increase in comparative average finance and insurance revenue per unit (including a$58 per unit increase attributable to favorable foreign currency fluctuations), which increased revenue by$38.3 million . Finance and insurance revenue per unit increased 18.0% in theU.S. and 10.6% in theU.K. We believe the increase in same-store finance and insurance revenue per unit is primarily due to our efforts to increase finance and insurance penetration, which include implementing interactive digital customer sales platforms, additional training, and targeting underperforming locations, coupled with the increase in average selling prices.
Retail Automotive Dealership Service and Parts Data
(In millions)
2021 vs. 2020
Service and Parts Data 2021 2020 Change % Change
Service and parts revenue $ 1,049.4 $ 858.5 $ 190.9 22.2 %Same-store service and parts revenue$ 1,045.7 $ 844.3 $ 201.4 23.9 % Gross profit - service and parts$ 642.4 $ 504.9 $ 137.5 27.2 % Same-store service and parts gross profit$ 639.3 $ 497.1 $ 142.2 28.6 % Gross margin % - service and parts 61.2 % 58.8 % 2.4 % 4.1 % Same-store service and parts gross margin % 61.1 % 58.9 %
2.2 % 3.7 % Revenues
Service and parts revenue increased from 2020 to 2021, with an increase of 16.5% in theU.S. and 34.9% internationally. The increase in service and parts revenue is primarily due to a$201.4 million , or 23.9%, increase in same-store revenues. Excluding$33.1 million of favorable foreign currency fluctuations, same-store revenue increased 19.9%. The same-store revenue increase is due to a$165.8 million , or 28.8%, increase in customer pay revenue, a$31.1 million , or 14.8%, increase in warranty revenue, and a$4.5 million , or 7.8%, increase in vehicle preparation and body shop revenue. We believe the increase in service and parts revenue is related to a stronger economic outlook, improved levels of consumer confidence, and the lifting of many COVID-19 restrictions resulting in increases in vehicle miles traveled when compared to the same period last year at the onset of the COVID-19 pandemic. Gross Profit
Service and parts gross profit increased from 2020 to 2021 primarily due to a$142.2 million , or 28.6%, increase in same-store gross profit. Excluding$19.7 million of favorable foreign currency fluctuations, same-store gross profit increased 24.6%. The same-store gross profit increase is due to the increase in same-store revenues, which increased gross profit by$123.1 million , coupled with a 2.2% increase in same-store gross margin, which increased gross profit by$19.1 million . The same-store gross profit increase is due to a$91.9 million , or 33.8%, increase in customer pay gross 42
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profit, a
Retail Commercial Truck Dealership Data
(In millions, except unit and per unit amounts)
2021 vs. 2020
New Commercial Truck Data 2021 2020 Change % Change
New retail unit sales 5,479 4,874 605 12.4 %Same-store new retail unit sales 4,935 4,874 61 1.3 % New retail sales revenue$ 646.7 $ 553.8 $ 92.9 16.8 % Same-store new retail sales revenue$ 587.5 $ 553.8 $ 33.7 6.1 % New retail sales revenue per unit$ 118,026 $ 113,621 $ 4,405 3.9 % Same-store new retail sales revenue per unit$ 119,038 $ 113,621 $ 5,417 4.8 % Gross profit - new$ 33.8 $ 22.1 $ 11.7 52.9 % Same-store gross profit - new$ 32.2 $ 22.1 $ 10.1 45.7 % Average gross profit per new truck retailed$ 6,176 $ 4,534 $ 1,642 36.2 % Same-store average gross profit per new truck retailed$ 6,516 $ 4,534 $ 1,982 43.7 % Gross margin % - new 5.2 % 4.0 % 1.2 % 30.0 % Same-store gross margin % - new 5.5 % 4.0 %
1.5 % 37.5 % Units Retail unit sales of new trucks increased from 2020 to 2021 due to a 544 unit increase from net dealership acquisitions, coupled with a 61 unit, or 1.3%, increase in same-store new retail unit sales. We believe the increase in unit sales is due to a stronger economic outlook, favorable interest rates, higher freight rates, and improved levels of consumer confidence when compared to the same period last year at the onset of the COVID-19 pandemic. Revenues New commercial truck retail sales revenue increased from 2020 to 2021 due to a$59.2 million increase from net dealership acquisitions, coupled with a$33.7 million , or 6.1%, increase in same-store revenues. The same-store revenue increase is due to a$5,417 per unit increase in comparative average selling prices, which increased revenue by$26.4 million , coupled with the increase in same-store new retail unit sales, which increased revenue by$7.3 million .
Gross Profit
New commercial truck retail gross profit increased from 2020 to 2021 due to a$10.1 million , or 45.7%, increase in same-store gross profit, coupled with a$1.6 million increase from net dealership acquisitions. The same-store gross profit increase is due to a$1,982 per unit increase in average gross profit per new truck retailed, which increased gross profit by$9.7 million , coupled with the increase in same-store new retail unit sales, which increased gross profit by$0.4 million . The increase in gross profit is largely due to stronger market demand as discussed above. 43 Table of Contents 2021 vs. 2020 Used Commercial Truck Data 2021 2020 Change % Change Used retail unit sales 1,673 1,471 202 13.7 % Same-store used retail unit sales 1,644 1,471 173 11.8 % Used retail sales revenue$ 110.0 $ 71.5 $ 38.5 53.8 % Same-store used retail sales revenue$ 107.7 $ 71.5 $ 36.2 50.6 % Used retail sales revenue per unit$ 65,729 $ 48,622 $ 17,107 35.2 % Same-store used retail sales revenue per unit$ 65,536 $ 48,622 $ 16,914 34.8 % Gross profit - used$ 15.9 $ (5.3) $ 21.2 400.0 % Same-store gross profit - used$ 15.5 $ (5.3) $ 20.8 392.5 % Average gross profit per used truck retailed$ 9,518 $ (3,626) $ 13,144 362.5 % Same-store average gross profit per used truck retailed$ 9,434 (3,626)$ 13,060 360.2 % Gross margin % - used 14.5 % (7.4) % 21.9 % 295.9 % Same-store gross margin % - used 14.4 % (7.4) % 21.8 % 294.6 % Units Retail unit sales of used trucks increased from 2020 to 2021 due to a 173 unit, or 11.8%, increase in same-store retail unit sales, coupled with a 29 unit increase from net dealership acquisitions. We believe the increase in used truck unit sales is attributable to higher demand for used vehicles as the higher freight rates and the forecast for an improving economy have driven higher Class 8 orders and a 182.7% increase in order backlog, causing our customers to turn to the used truck market to meet their requirements. Revenues
Used commercial truck retail sales revenue increased from 2020 to 2021 due to a$36.2 million , or 50.6%, increase in same-store revenues, coupled with a$2.3 million increase from net dealership acquisitions. The same-store revenue increase is due to a$16,914 per unit increase in comparative average selling prices, which increased revenue by$24.9 million , coupled with the increase in same-store used retail unit sales, which increased revenue by$11.3 million . We believe the increase in used retail sales revenue per unit is due to increased demand for used trucks in the market as discussed above. Gross Profit Used commercial truck retail gross profit increased from 2020 to 2021 due to a$20.8 million , or 392.5%, increase in same-store gross profit, coupled with a$0.4 million increase from net dealership acquisitions. The same-store gross profit increase is due to a$13,060 per unit increase in average gross profit per used truck retailed, which increased gross profit by$19.2 million , coupled with the increase in same-store used retail unit sales, which increased gross profit by$1.6 million . We believe the increase in average gross profit per used truck retailed is attributable to increased demand for used trucks in the market as discussed above. 2021 vs. 2020 Service and Parts Data 2021 2020 Change % Change Service and parts revenue$ 281.9 $ 236.0 $ 45.9 19.4 %
Same-store service and parts revenue$ 260.9 $ 236.0 $ 24.9 10.6 % Gross profit - service and parts$ 119.0 $ 102.5 $ 16.5 16.1 % Same-store service and parts gross profit$ 110.7 $ 102.5 $ 8.2 8.0 % Gross margin % - service and parts 42.2 % 43.4 % (1.2)
% (2.8) % Same-store service and parts gross margin % 42.4 % 43.4 % (1.0) % (2.3) %
Revenues Service and parts revenue increased from 2020 to 2021 due to a$24.9 million , or 10.6%, increase in same-store revenues, coupled with a$21.0 million increase from net dealership acquisitions. Customer pay work represents approximately 79.5% of PTG's service and parts revenue, largely due to the significant amount of retail sales of parts and accessories. The same-store revenue increase is due to a$25.7 million , or 14.2%, increase in customer pay revenue, 44
Table of Contents
a$1.0 million , or 2.4%, increase in warranty revenue, and partially offset by a$1.8 million , or 14.1%, decrease in body shop revenue. We believe the same-store increase in service and parts revenue is primarily due to higher freight rates and the increased reliance on used trucks, which generates additional service and parts revenues. Gross Profit Service and parts gross profit increased from 2020 to 2021 due to an$8.3 million increase from net dealership acquisitions, coupled with an$8.2 million , or 8.0%, increase in same-store gross profit. The same-store gross profit increase is due to the increase in same-store revenues, which increased gross profit by$10.6 million , partially offset by a 1.0% decrease in gross margin, which decreased gross profit by$2.4 million . The same-store gross profit increase is due to a$9.4 million , or 14.2%, increase in customer pay gross profit, a$0.6 million , or 2.5%, increase in warranty gross profit, and partially offset by a$1.8 million , or 14.5%, decrease in body shop gross profit.
Commercial Vehicle Distribution Data
(In millions, except unit amounts)
2021 vs. 2020
Penske Australia Data 2021 2020 Change % Change
Vehicle unit sales 695 472 223 47.2 %
Sales revenue $ 296.8 $ 199.5 $ 97.3 48.8 %
Gross profit $ 72.9 $ 56.2 $ 16.7 29.7 %
Penske Australia primarily distributes and services commercial vehicles,
engines, and power systems. Penske Australia generated $296.8 million of revenue
during the six months ended June 30, 2021 , compared to $199.5 million of revenue
in the prior year, an increase of 48.8%. It also generated $72.9 million of
gross profit during the six months ended June 30, 2021 , compared to $56.2
million of gross profit in the prior year, an increase of 29.7%.
These improved results from 2020 to 2021 are primarily due to an increase in
commercial demand for trucks in Australia and an increase in service and parts.
Excluding $43.8 million of favorable foreign currency fluctuations, revenues
increased 26.8%. Excluding $10.7 million of favorable foreign currency
fluctuations, gross profit increased 10.7%.
Selling, General, and Administrative Data
(In millions)
2021 vs. 2020Selling, General, and Administrative Data 2021 2020
Change % Change Personnel expense$ 877.0 $ 627.6 $ 249.4 39.7 % Advertising expense$ 58.1 $ 38.6 $ 19.5 50.5 % Rent & related expense$ 162.7 $ 157.5 $ 5.2 3.3 % Other expense$ 316.3 $ 271.7 $ 44.6 16.4 % Total SG&A expenses$ 1,414.1 $ 1,095.4 $ 318.7 29.1 % Same store SG&A expenses$ 1,396.9 $ 1,079.4 $ 317.5 29.4 %
Personnel expense as % of gross profit 41.8 % 47.2 % (5.4) % (11.4) % Advertising expense as % of gross profit 2.8 % 2.9 % (0.1) % (3.4) % Rent & related expense as % of gross profit 7.8 % 11.9 % (4.1) % (34.5) % Other expense as % of gross profit 15.1 % 20.4 % (5.3) % (26.0) % Total SG&A expenses as % of gross profit 67.5 % 82.4 % (14.9) % (18.1) % Same store SG&A expenses as % of same store gross profit 67.4 % 82.1 % (14.7) % (17.9) %
Selling, general, and administrative expenses ("SG&A") increased from 2020 to
2021 due to a $317.5 million , or 29.4%, increase in same-store SG&A, coupled
with a $1.2 million increase from net dealership acquisitions. Excluding $53.9
million of favorable foreign currency fluctuations, same-store SG&A increased
24.4%. SG&A as a percentage of gross profit was 67.5%, a decrease of 1,490 basis
points compared to 82.4% in the prior year. SG&A expenses as a percentage of
total revenue was 11.1% and 12.6% in the six months ended June 30, 2021 , and
2020, respectively. The
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decrease in SG&A as a percentage of gross profit is primarily due to employee
reductions, a reduction of travel and entertainment expenses, and other expense
reductions as well as increased gross profit across our business lines.
Depreciation
(In millions)
2021 vs. 2020
2021 2020 Change % Change
Depreciation $ 59.5 $ 56.4 $ 3.1 5.5 %
Depreciation increased from 2020 to 2021 due to a $2.8 million , or 4.9%,
increase in same-store depreciation, coupled with a $0.3 million increase from
net dealership acquisitions. The overall increase is primarily related to our
ongoing facility improvements and expansion programs.
Floor Plan Interest Expense
(In millions)
2021 vs. 2020
2021 2020 Change % Change
Floor plan interest expense
Floor plan interest expense, including the impact of swap transactions,
decreased from 2020 to 2021 primarily due to an
Other Interest Expense
(In millions)
2021 vs. 2020
2021 2020 Change % Change
Other interest expense $ 37.6 $ 60.1 $ (22.5) (37.4) %
Other interest expense decreased from 2020 to 2021 primarily due to the decrease
in outstanding revolver borrowings under the U.S. and U.K. credit agreements,
decreases in applicable rates, and redemption and refinancing of certain senior
subordinated notes.
Equity in Earnings of Affiliates
(In millions)
2021 vs. 2020
2021 2020 Change % Change
Equity in earnings of affiliates
Equity in earnings of affiliates increased from 2020 to 2021 primarily due to a$112.7 million , or 259%, increase in earnings from our investment in PTS, coupled with the increase in earnings from our retail automotive joint ventures. The increase in our PTS equity earnings is attributed to strong economic conditions inNorth America which is driving higher demand for PTS full-service leasing, rental demand, and logistics services, coupled with higher gains on sale from remarketing activities on used trucks. 46 Table of Contents Income Taxes (In millions) 2021 vs. 2020 2021 2020 Change % Change Income taxes$ 187.9 $ 36.6 $ 151.3 413.4 %
Income taxes increased from 2020 to 2021 primarily due to a$578.6 million increase in our pre-tax income compared to the prior year. Our effective tax rate was 26.4% during the six months endedJune 30, 2021 , compared to 27.6% during the six months endedJune 30, 2020 , primarily due to fluctuations in our geographic pre-tax income mix, partially offset by the increase in net income tax expense of$8.8 million related toU.K. tax legislation changes.
Liquidity and Capital Resources
Our cash requirements are primarily for working capital, inventory financing, the acquisition of new businesses, the improvement and expansion of existing facilities, the purchase or construction of new facilities, building additional CarShop Used Vehicle SuperCenters (including four additional sites currently planned to open in 2021), debt service and repayments, dividends, and potential repurchases of our outstanding securities under the program discussed below. Historically, these cash requirements have been met through cash flow from operations, borrowings under our credit agreements and floor plan arrangements, the issuance of debt securities, sale-leaseback transactions, mortgages, and dividends and distributions from joint venture investments. We have historically expanded our operations through organic growth and the acquisition of dealerships and other businesses. We believe that cash flow from operations, dividends and distributions from our joint venture investments, and our existing capital resources, including the liquidity provided by our credit agreements and floor plan financing arrangements, will be sufficient to fund our existing operations and current commitments for at least the next twelve months. In the event that economic conditions remain impacted for longer than we expect due to the COVID-19 pandemic or vehicle component shortages, we pursue significant acquisitions or other expansion opportunities, pursue significant repurchases of our outstanding securities, or refinance or repay existing debt, we may need to raise additional capital either through the public or private issuance of equity or debt securities or through additional borrowings, which sources of funds may not necessarily be available on terms acceptable to us, if at all. In addition, our liquidity could be negatively impacted in the event we fail to comply with the covenants under our various financing and operating agreements or in the event our floor plan financing is withdrawn. Future events, including acquisitions, divestitures, new or revised operating lease agreements, borrowings or repayments under our credit agreements and our floor plan arrangements, raising capital, and purchases or refinancing of our securities, may also impact our liquidity. We expect that scheduled payments of our debt instruments will be funded through cash flows from operations or borrowings under our credit agreements. In the case of payments upon the maturity or termination dates of our debt instruments, we currently expect to be able to refinance such instruments in the normal course of business or otherwise fund them from cash flows from operations or borrowings under our credit agreements. Refer to the disclosures provided in Part I, Item 1, Note 9 of the Notes to our Consolidated Financial Statements set forth below for a detailed description of our long-term debt obligations and scheduled interest payments.
Floor plan notes payable are revolving financing arrangements. Payments are generally made as required pursuant to the floor plan borrowing agreements. Refer to the disclosures provided in Part I, Item 1, Note 7 of the Notes to our Consolidated Financial Statements for a detailed description of financing for the vehicles we purchase, including discussion of our floor plan and other revolving arrangements. Refer to the disclosures provided in Part I, Item 1, Note 11 of the Notes to our Consolidated Financial Statements for a description of our off-balance sheet arrangements which includes a repurchase commitment related to our floor plan credit agreement withMercedes Benz Financial Services Australia .
As of
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borrowing under our
Securities Repurchases From time to time, our Board of Directors has authorized securities repurchase programs pursuant to which we may, as market conditions warrant, purchase our outstanding common stock or debt on the open market, in privately negotiated transactions, via a tender offer, through a pre-arranged trading plan, or by other means. We have historically funded any such repurchases using cash flow from operations, borrowings under ourU.S. credit agreement, and borrowings under ourU.S. floor plan arrangements. The decision to make repurchases will be based on factors such as the market price of the relevant security versus our view of its intrinsic value, the potential impact of such repurchases on our capital structure, and our consideration of any alternative uses of our capital, such as for acquisitions and strategic investments in our current businesses, in addition to any then-existing limits imposed by our finance agreements and securities trading policy. InJuly 2021 , our Board of Directors increased the authority delegated to management to repurchase our outstanding securities to$250.0 million . Prior to the increase, we had$142.5 million in remaining authorization. Refer to the disclosures provided in Part I, Item 1, Note 12 of the Notes to our Consolidated Condensed Financial Statements for a summary of shares repurchased during the six months endedJune 30, 2021 . Dividends
We paid the following cash dividends on our common stock in 2020 and 2021:
Per Share Dividends
2020
First Quarter $ 0.42
Second Quarter -
Third Quarter -
Fourth Quarter 0.42
2021
First Quarter $ 0.43
Second Quarter $ 0.44
We also announced a cash dividend of $0.45 per share payable on September 1,
2021 to shareholders of record on August 10, 2021 . Future quarterly or other
cash dividends will depend upon a variety of factors considered relevant by our
Board of Directors, which may include our expectations regarding the severity
and duration of the COVID-19 pandemic, earnings, cash flow, capital
requirements, restrictions relating to any then-existing indebtedness, financial
condition, and other factors.
Vehicle Financing
Refer to the disclosures provided in Part I, Item 1, Note 7 of the Notes to our Consolidated Condensed Financial Statements for a detailed description of financing for the vehicles we purchase, including discussion of our floor plan and other revolving arrangements. Long-Term Debt Obligations
As of
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were used to redeem our
June 30 , (In millions) 2021
-
U.K. credit agreement - overdraft line of credit -
3.50% senior subordinated notes due 2025 544.0
5.50% senior subordinated notes due 2026 -
3.75% senior subordinated notes due 2029 493.9
Australia capital loan agreement 29.3
Australia working capital loan agreement 7.5
Mortgage facilities 398.9
Other 44.2
Total long-term debt $ 1,517.8
As of June 30, 2021 , we were in compliance with all covenants under our credit
agreements, and we believe we will remain in compliance with such covenants for
the next twelve months. Refer to the disclosures provided in Part I, Item 1,
Note 9 of the Notes to our Consolidated Condensed Financial Statements for a
detailed description of our long-term debt obligations.
Short-Term Borrowings
We have four principal sources of short-term borrowings: the revolving portion
of the U.S. credit agreement, the revolving portion of the U.K. credit
agreement, our Australian working capital loan agreement, and the floor plan
agreements that we utilize to finance our vehicle inventories. We are also able
to access availability under the floor plan agreements to fund our cash needs,
including payments made relating to our higher interest rate revolving credit
agreements.
During the six months ended June 30, 2021 , outstanding revolving commitments
varied between $0.0 million and $250.0 million under the U.S. credit agreement,
between £0.0 million and £40.0 million ($0.0 million and $55.3 million ) under
the U.K. credit agreement's revolving credit line (excluding the overdraft
facility), and between AU $0.0 million and AU $26.0 million ($0.0 million and
$19.5 million ) under the Australia working capital loan agreement. The amounts
outstanding under our floor plan agreements varied based on the timing of the
receipt and expenditure of cash in our operations, driven principally by the
levels of our vehicle inventories.
Interest Rate Swaps
The Company periodically uses interest rate swaps to manage interest rate risk
associated with the Company's variable rate floor plan debt. In April 2020 , we
entered into a new five-year interest rate swap agreement pursuant to which the
LIBOR portion of $300.0 million of our U.S. floating rate floor plan debt is
fixed at 0.5875%. This arrangement is in effect through April 2025 . We may
terminate this arrangement at any time, subject to the settlement at that time
of the fair value of the swap arrangement. As of June 30, 2021 , the fair value
of the swap designated as hedging instruments was estimated to be a net asset of
$0.4 million .
PTS Dividends
We hold a 28.9% ownership interest in PTS as noted above. Their partnership agreement requires PTS, subject to applicable law and the terms of its credit agreements, to make quarterly distributions to the partners with respect to each fiscal year by no later than 45 days after the end of each of the first three quarters of the year and byApril 15 of the following year. PTS' principal debt agreements allow partner distributions only as long as they are not in default under that agreement and the amount they pay does not exceed 50% of its consolidated net income. We receive pro rata cash distributions relating to this investment, typically in April, May, August, and November of each year. During the six months endedJune 30, 2021 , and 2020, we received$55.1 million and$25.0 million , respectively, of pro rata cash 49
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distributions relating to this investment. We currently expect to continue to receive future distributions from PTS quarterly, subject to its financial performance.
Sale/Leaseback Arrangements
We have in the past and may in the future enter into sale-leaseback transactions to finance certain property acquisitions and capital expenditures, pursuant to which we sell property and/or leasehold improvements to third parties and agree to lease those assets back for a certain period of time. Such sales generate proceeds that vary from period to period. Operating Leases We estimate the total rent obligations under our operating leases, including any extension periods that we are reasonably certain to exercise at our discretion and assuming constant consumer price indices, to be$5.5 billion . As ofJune 30, 2021 , we were in compliance with all financial covenants under these leases consisting principally of leases for dealership and other properties, and we believe we will remain in compliance with such covenants for the next twelve months. Refer to the disclosures provided in Part I, Item 1, Note 3 and Note 11 of the Notes to our Consolidated Condensed Financial Statements for a description of our operating leases.
Supplemental Guarantor Financial Information
The following is a description of the terms and conditions of the guarantees with respect to senior subordinated notes ofPenske Automotive Group, Inc. ("PAG") as the issuer of the 3.50% Notes and the 3.75% Notes (collectively
the "Senior Subordinated Notes"). Each of the Senior Subordinated Notes are unsecured, senior subordinated obligations and are guaranteed on an unsecured senior subordinated basis by our 100% ownedU.S. subsidiaries. Each of the Senior Subordinated Notes also contain customary negative covenants and events of default. If we experience certain "change of control" events specified in their respective indentures, holders of these Senior Subordinated Notes will have the option to require us to purchase for cash all or a portion of their Senior Subordinated Notes at a price equal to 101% of the principal amount of the Senior Subordinated Notes, plus accrued and unpaid interest. In addition, if we make certain asset sales and do not reinvest the proceeds thereof or use such proceeds to repay certain debt, we will be required to use the proceeds of such asset sales to make an offer to purchase the Senior Subordinated Notes at a price equal to 100% of the principal amount of the Senior Subordinated Notes, plus accrued and unpaid interest. Guarantor subsidiaries are directly or indirectly 100% owned by PAG, and the guarantees are full and unconditional and joint and several. The guarantees may be released under certain circumstances upon resale or transfer by us of the stock of the related guarantor or all or substantially all of the assets of the guarantor to a non-affiliate. Non-wholly owned and foreign subsidiaries of PAG do not guarantee the Senior Subordinated Notes ("Non-Guarantor Subsidiaries"). The following tables present summarized financial information for PAG and the Guarantor Subsidiaries on a combined basis. The financial information of PAG and Guarantor Subsidiaries is presented on a combined basis; intercompany balances and transactions between PAG and Guarantor Subsidiaries have been eliminated; PAG's or Guarantor Subsidiaries' amounts due from, amounts due to, and transactions with non-issuer and Non-Guarantor Subsidiaries and related parties are disclosed separately. 50 Table of Contents
Condensed income statement information:
PAG and Guarantor Subsidiaries
Six Months Ended Twelve Months Ended
June 30, 2021 December 31, 2020
Revenues $ 7,198.0 $ 11,576.7
Gross profit 1,274.3 1,908.9Equity in earnings of affiliates 156.5 164.5 Income from continuing operations 383.2 400.1 Net income 383.3 400.4 Net income attributable to Penske Automotive Group 383.3
400.4
Condensed balance sheet information:
PAG and Guarantor Subsidiaries
June 30, 2021 December 31, 2020
Current assets (1) $ 2,380.6 $ 2,627.3
Property and equipment, net 1,203.8 1,128.8
Equity method investments 1,525.3 1,424.7
Other noncurrent assets 3,497.1 3,173.6
Current liabilities 2,000.2 2,156.3
Noncurrent liabilities 3,914.3 3,848.5
(1) Includes
31, 2020, respectively, due from Non-Guarantors.
During the six months ended
Cash Flows
The following table summarizes the changes in our cash provided by (used in)
operating, investing, and financing activities. The major components of these
changes are discussed below.
Six Months Ended June 30,
(In millions) 2021 2020
Net cash provided by continuing operating activities $ 916.7 $ 784.4
Net cash used in continuing investing activities (331.6) (47.8)
Net cash used in continuing financing activities (470.1) (605.2)
Net cash provided by discontinued operations 0.1 0.1
Effect of exchange rate changes on cash and cash equivalents 0.6 (0.3)
Net change in cash and cash equivalents $ 115.7 $ 131.2 Cash Flows from Continuing Operating Activities
Cash flows from continuing operating activities includes net income, as adjusted for non-cash items and the effects of changes in working capital.
We finance substantially all of the commercial vehicles we purchase for
distribution, new vehicles for retail sale, and a portion of our used vehicle
inventories for retail sale under floor plan and other revolving arrangements
with various lenders, including the captive finance companies associated with
automotive manufacturers. We retain the right to select which, if any, financing
source to utilize in connection with the procurement of vehicle inventories.
Many vehicle manufacturers provide vehicle financing for the dealers
representing their brands; however, it is not a requirement that we utilize this
financing. Historically, our floor plan finance source has been based on
aggregate pricing considerations.
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In accordance with generally accepted accounting principles relating to the statement of cash flows, we report all cash flows arising in connection with floor plan notes payable with the manufacturer of a particular new vehicle as an operating activity in our statement of cash flows, and we report all cash flows arising in connection with floor plan notes payable to a party other than the manufacturer of a particular new vehicle, all floor plan notes payable relating to pre-owned vehicles, and all floor plan notes payable related to our commercial vehicles inAustralia and New Zealand as a financing activity in our statement of cash flows. Currently, the majority of our non-trade vehicle financing is with other manufacturer captive lenders. To date, we have not experienced any material limitation with respect to the amount or availability of financing from any institution providing us vehicle financing. We believe that changes in aggregate floor plan liabilities are typically linked to changes in vehicle inventory and therefore, are an integral part of understanding changes in our working capital and operating cash flow. As a result, we prepare the following reconciliation to highlight our operating cash flows with all changes in vehicle floor plan being classified as an operating activity for informational purposes: Six Months Ended June 30, (In millions) 2021 2020
Net cash from continuing operating activities as reported
(181.9) (309.9)
Net cash from continuing operating activities including all
floor plan notes payable $ 734.8 $ 474.5 Cash Flows from Continuing Investing Activities
Cash flows from continuing investing activities consist primarily of cash used for capital expenditures, proceeds from the sale of dealerships, proceeds from sale of equipment and improvements, and net expenditures for acquisitions and other investments. Capital expenditures were$90.8 million and$76.8 million during the six months endedJune 30, 2021 , and 2020, respectively. Capital expenditures relate primarily to improvements to our existing dealership facilities, the construction of new facilities, the acquisition of the property or buildings associated with existing leased facilities, and the acquisition of land for future development. We currently expect to finance our retail automotive segment and retail commercial truck segment capital expenditures with operating cash flows or borrowings under ourU.S. orU.K. credit agreements. Proceeds from the sale of dealerships were$4.3 million and$10.3 million during the six months endedJune 30, 2021 , and 2020, respectively. Proceeds from the sale of equipment and improvements were$31.7 million and$19.8 million during the six months endedJune 30, 2021 , and 2020, respectively. Cash used in acquisitions and other investments, net of cash acquired, was$278.0 million during the six months endedJune 30, 2021 , and included cash used to repay sellers' floor plan liabilities in such business acquisitions of$24.3 million .
Cash Flows from Continuing Financing Activities
Cash flows from continuing financing activities include issuance and net borrowings or repayments of long-term debt, net repayments of floor plan notes payable non-trade, repurchases of common stock, dividends, payments for contingent consideration, and payments for debt issuance costs.
We issued$500.0 million of senior subordinated notes due 2029 inJune 2021 and repaid$500.0 million of senior subordinated notes due 2026. We had net repayments of other long-term debt of$171.1 million and$205.8 million during the six months endedJune 30, 2021 , and 2020, respectively. We had net repayments of floor plan notes payable non-trade of$181.9 million and$309.9 million during the six months endedJune 30, 2021 , and 2020, respectively. We repurchased common stock for a total of$28.1 million and$29.4 million during six months endedJune 30, 2021 , and 2020, respectively. We also paid cash dividends to our stockholders of$70.2 million and$34.2 million during the six months endedJune 30, 2021 , and 2020, respectively. We made no payments to settle contingent consideration to sellers related to previous acquisitions during the six months endedJune 30, 2021 , compared to$21.1 million during the six months endedJune 30, 2021 . We made payments of$6.1 million for debt issuance costs during the six months endedJune 30, 2021 . 52 Table of Contents
Cash Flows from Discontinued Operations
Cash flows relating to discontinued operations are not currently considered, nor are they expected to be, material to our liquidity or our capital resources. Management does not believe that there are any material past, present, or upcoming cash transactions relating to discontinued operations. Related Party Transactions Stockholders Agreement Several of our directors and officers are affiliated withPenske Corporation or related entities.Roger S. Penske , our Chair of the Board and Chief Executive Officer, is also Chair of the Board and Chief Executive Officer ofPenske Corporation and through entities affiliated withPenske Corporation , our largest stockholder owning approximately 44% of our outstanding common stock. Mitsui & Co., Ltd. and Mitsui & Co. (USA), Inc. (collectively, "Mitsui") own approximately 17% of our outstanding common stock. Mitsui,Penske Corporation , and certain other affiliates ofPenske Corporation are parties to a stockholders agreement pursuant to which the Penske affiliated companies agreed to vote their shares for up to two directorswho are representatives of Mitsui. In turn, Mitsui agreed to vote their shares for up to fourteen directors voted for by the Penske affiliated companies. This agreement terminates inMarch 2030 , upon the mutual consent of the parties, or when either party no longer owns any of our common stock.
Other Related Party Interests and Transactions
Robert Kurnick , Jr., our President and a director, is also the Vice Chair and a director ofPenske Corporation .Bud Denker , our Executive Vice President, Human Resources, is also the President ofPenske Corporation .Greg Penske , one of our directors, is the son of our chair and is also a director ofPenske Corporation .Michael Eisenson , one of our directors, is also a director ofPenske Corporation .Masashi Yamanaka , one of our directors, is also an employee of Mitsui & Co. We sometimes pay to and/or receive fees fromPenske Corporation , its subsidiaries, and its affiliates for services rendered in the ordinary course of business or to reimburse payments made to third parties on each other's behalf. These transactions are reviewed periodically by our Audit Committee and reflect the provider's cost or an amount mutually agreed upon by both parties. We own a 28.9% interest in PTS. PTS, discussed previously, is owned 41.1% byPenske Corporation , 28.9% by us, and 30.0% by Mitsui. We have also entered into other joint ventures with certain related parties as more fully discussed below. 53 Table of Contents Joint Venture Relationships
We are party to a number of joint ventures pursuant to which we own and operate
automotive dealerships together with other investors. We may provide these
dealerships with working capital and other debt financing at costs that are
based on our incremental borrowing rate. As of
Location Dealerships Ownership Interest
Fairfield, Connecticut Audi, Mercedes-Benz, Sprinter, Porsche 80.00 % (A)
Greenwich, Connecticut Mercedes-Benz 80.00 % (A)
BMW, MINI, Maserati, Porsche, Audi,
Land Rover, Volvo, Mercedes-Benz,
Northern Italy Smart, Lamborghini 84.10 % (A)
Frankfurt, Germany Lexus, Toyota, Volkswagen 50.00 % (B)
Barcelona, Spain BMW, MINI 50.00 % (B)
Tokyo, Japan BMW, MINI, Rolls-Royce, Ferrari, ALPINA 49.00 % (B)
(A) Entity is consolidated in our financial statements.
(B) Entity is accounted for using the equity method of accounting.
We previously owned a 20% interest inBentley , Ferrari, and Maserati dealerships located inEdison, New Jersey which we sold inJune 2021 to our joint venture partner for$3.0 million . Additionally, we are party to non-automotive joint ventures representing our investments in PTS (28.9%) and Penske Commercial Leasing Australia (28%) that are accounted for under the equity method. Cyclicality
Unit sales of motor vehicles, particularly new vehicles, have been cyclical historically, fluctuating with general economic cycles. During economic downturns, the automotive and truck retailing industries tend to experience periods of decline and recession similar to those experienced by the general economy. We believe that these industries are influenced by general economic conditions and particularly, by consumer confidence, the level of personal discretionary spending, fuel prices, interest rates, and credit availability. Our business is dependent on a number of factors, including general economic conditions, fuel prices, interest rate fluctuations, credit availability, environmental and other government regulations, and customer business cycles.U.S. light vehicle sales have ranged from a low of 10.4 million units in 2009 to a high of 17.5 million units in 2016. Unit sales of new commercial vehicles have historically been subject to substantial cyclical variation based on these general economic conditions. According to data published byACT Research , in recent years, totalU.S. retail sales of new Class 8 commercial vehicles have ranged from a low of approximately 97,000 in 2009, to high of approximately 334,000 in 2019. Through geographic expansion, concentration on higher margin regular service and parts revenues, and diversification of our customer base, we have attempted to reduce the negative impact of adverse general economic conditions or cyclical trends affecting any one industry or geographic area
on our earnings. Seasonality
Dealership. Our business is modestly seasonal overall. OurU.S. operations generally experience higher volumes of vehicle sales in the second and third quarters of each year due in part to consumer buying trends and the introduction of new vehicle models. Also, vehicle demand, and to a lesser extent demand for service and parts, is generally lower during the winter months than in other seasons, particularly in regions of theU.S. where dealerships may be subject to severe winters. OurU.K. operations generally experience higher volumes of new vehicle sales in the first and third quarters of each year, due primarily to new vehicle registration practices in theU.K. Commercial Vehicle Distribution. Our commercial vehicle distribution business generally experiences higher sales volumes during the second quarter of the year, which is primarily attributable to commercial vehicle customers completing annual capital expenditures before their fiscal year-end, which is typicallyJune 30 inAustralia . 54 Table of Contents Effects of Inflation We believe that inflation rates over the last few years have not had a significant impact on revenues or profitability. We do not expect inflation to have any near-term material effects on the sale of our products and services; however, we cannot be sure there will be no such effect in the future. We finance substantially all of our inventory through various revolving floor plan arrangements with interest rates that vary based on various benchmarks. Such rates have historically increased during periods of increasing inflation. Forward-Looking Statements Certain statements and information set forth herein, as well as other written or oral statements made from time to time by us or by our authorized officers on our behalf, constitute "forward-looking statements" within the meaning of the Federal Private Securities Litigation Reform Act of 1995. Words such as "anticipate," "believe," "estimate," "expect," "intend," "may," "goal," "plan," "seek," "project," "continue," "will," "would," and variations of such words and similar expressions are intended to identify such forward-looking statements. We intend for our forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and we set forth this statement in order to comply with such safe harbor provisions. You should note that our forward-looking statements speak only as of the date of this report or when made, and we undertake no duty or obligation to update or revise our forward-looking statements, whether as a result of new information, future events, or otherwise. Forward-looking statements include, without limitation, statements with respect to:
? our expectations regarding the COVID-19 pandemic;
? our future financial and operating performance;
? future dealership openings, acquisitions, and dispositions;
? future potential capital expenditures and securities repurchases;
? our ability to realize cost savings and synergies;
? our ability to respond to economic cycles;
? trends in the automotive retail industry, commercial vehicles industries, and
in the general economy in the various countries in which we operate;
? our ability to access the remaining availability under our credit agreements;
? our liquidity;
? performance of joint ventures, including PTS;
? future foreign exchange rates and geopolitical events;
? the outcome of various legal proceedings;
? results of self-insurance plans;
? trends affecting the automotive or trucking industries generally and our future
financial condition or results of operations; and
? our business strategy.
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Forward-looking statements involve known and unknown risks and uncertainties and
are not assurances of future performance. Actual results may differ materially
from anticipated results due to a variety of factors, including the factors
identified in our 2020 annual report on Form 10-K filed February 19, 2021 .
Important factors that could cause actual results to differ materially from our
expectations include those mentioned in Part II, "Item 1A. Risk Factors" and the
following:
we depend on the success, popularity and availability of the brands we sell,
and adverse conditions affecting one or more vehicle manufacturers, including
the adverse impact on the vehicle and parts supply chain due to natural
disasters or other disruptions that interrupt the supply of vehicles and parts
? to us (including any disruptions resulting from the shortage of microchips or
other components or the COVID-19 pandemic discussed in Part I, Item 2,
Management's Discussion and Analysis of Financial Condition and Results of
Operations and Part II, "Item 1A. Risk Factors"), may negatively impact our
revenues and profitability;
our business and the automotive retail and commercial vehicles industries in
general are susceptible to adverse economic conditions, including changes in
interest rates, foreign exchange rates, customer demand, customer confidence,
? fuel prices, unemployment rates and credit availability (including any adverse
impact from the COVID-19 pandemic discussed in Part I, Item 2, Management's
Discussion and Analysis of Financial Condition and Results of Operations and
Part II, "Item 1A. Risk Factors");
? increased tariffs, import product restrictions, and foreign trade risks that
may impair our ability to sell foreign vehicles profitably;
? the number of new and used vehicles sold in our markets;
the effect on our businesses of the trend of electrification of vehicle
? engines, new mobility technologies such as shared vehicle services, such as
Uber and Lyft, and the eventual availability of driverless vehicles;
vehicle manufacturers exercise significant control over our operations, and we
? depend on them and the continuation of our franchise and distribution
agreements in order to operate our business;
certain manufacturers are exploring an agency model of distribution which would
? lower our revenues, although the other impacts to our results of operations
remain uncertain;
? we are subject to the risk that a substantial number of our new or used
inventory may be unavailable due to recall or other reasons;
the success of our commercial vehicle distribution operations and engine and
power systems distribution operations depends upon continued availability of
? the vehicles, engines, power systems, and other parts we distribute, demand for
those vehicles, engines, power systems, and parts and general economic
conditions in those markets;
? a restructuring of any significant vehicle manufacturer or supplier;
? our operations may be affected by severe weather, such as the recent hurricanes
in
? we have substantial risk of loss not covered by insurance;
we may not be able to satisfy our capital requirements for acquisitions,
? facility renovation projects, financing the purchase of our inventory, or
refinancing of our debt when it becomes due;
our level of indebtedness may limit our ability to obtain financing generally
? and may require that a significant portion of our cash flow be used for debt
service;
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? non-compliance with the financial ratios and other covenants under our credit
agreements and operating leases;
higher interest rates may significantly increase our variable rate interest
? costs and, because many customers finance their vehicle purchases, decrease
vehicle sales;
? our operations outside of the
relating to changes in foreign currency values;
with respect to PTS, changes in the financial health of its customers, labor
strikes or work stoppages by its employees, a reduction in PTS' asset
utilization rates, continued availability from truck manufacturers and
suppliers of vehicles and parts for its fleet, changes in values of used trucks
which affects PTS' profitability on truck sales, compliance costs in regard to
? its trucking fleet and truck drivers, its ability to retain qualified drivers
and technicians, risks associated with its participation in multi-employer
pension plans, conditions in the capital markets to assure PTS' continued
availability of capital to purchase trucks, the effect of changes in lease
accounting rules on PTS customers' purchase/lease decisions, and industry
competition, each of which could impact distributions to us;
we are dependent on continued security and availability of our information
technology systems, which systems are increasingly threatened by ransomware and
? other cyberattacks, and we may be subject to fines, penalties, and other costs
under applicable privacy laws if we do not maintain our confidential customer
and employee information properly;
? if we lose key personnel, especially our Chief Executive Officer, or are unable
to attract additional qualified personnel;
new or enhanced regulations relating to automobile dealerships including those
recently enacted by the
? certain compensation we receive relating to automotive financing in the
and those enacted in certain European countries and
in
? changes in tax, financial or regulatory rules, or requirements;
we could be subject to legal and administrative proceedings which, if the
? outcomes are adverse to us, could have a material adverse effect on our
business;
if state dealer laws in the
such as those selling electric vehicles are able to conduct significant vehicle
? sales outside of the franchised automotive system, our automotive dealerships
may be subject to increased competition and may be more susceptible to
termination, non-renewal, or renegotiation of their franchise agreements;
? some of our directors and officers may have conflicts of interest with respect
to certain related party transactions and other business interests; and
? shares of our common stock eligible for future sale may cause the market price
of our common stock to drop significantly, even if our business is doing well.
We urge you to carefully consider these risk factors and further information under Part II, "Item 1A. Risk Factors" in evaluating all forward-looking statements regarding our business. Readers of this report are cautioned not to place undue reliance on the forward-looking statements contained in this report. All forward-looking statements attributable to us are qualified in their entirety by this cautionary statement. Except to the extent required by the federal securities laws and theSecurities and Exchange Commission's rules and regulations, we have no intention or obligation to update publicly any forward-looking statements whether as a result of new information, future events, or otherwise. 57 Table of Contents
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