Penske Automotive Group Aktie

Good afternoon. Welcome to the Penske Automotive Group First Quarter 2026 Earnings Conference Call. Today's call is being recorded and will be available for replay approximately 1 hour after completion through May 6, 2026 on the company's website under the Investors tab at www.penskeautomotive.com. I will now introduce Anthony Pordon, the company's Executive Vice President of Investor Relations and Corporate Development. Sir, please go ahead.

Thank you, Krista. Good afternoon, everyone, and thank you for joining us today. A press release detailing Penske Automotive Group's first quarter 2026 financial results was issued this morning and is posted on our website along with the presentation designed to assist you in understanding the company's results. As always, I'm available by e-mail or phone for any follow-up questions you may have.

Joining me for today's call is Roger Penske, our Chair and CEO; Shelley Hulgrave, our EVP and Chief Financial Officer; Rich Shearing from North American operations; Randall Seymore, of International Operations, and Tony Facione, our Vice President and Corporate Controller.

We may make forward-looking statements on today's call about our earnings potential, outlook and other future events, and we also may discuss certain non-GAAP financial measures such as EBITDA and adjusted EBITDA. We've also prominently presented and reconciled any non-GAAP measures to the most directly comparable GAAP measures in this morning's press release and investor presentation, again, both of which are available on our website.

Our future results may vary from our expectations because of risks and uncertainties outlined in today's press release under forward-looking statements. I direct you to our SEC filings, including our Form 10-K and previously filed Form 10-Qs for additional discussion and factors that could cause future results to differ materially from expectations. At this time, I'll turn the call over to Roger Penske.

Thank you, Tony. Good afternoon, everyone, and thank you for joining us today. We're pleased to report a solid and productive first quarter. During the first quarter, PAG delivered over 123,000 new and used vehicles and nearly 3,600 new and used commercial trucks and that generated approximately $7.9 billion in revenue. We earned $324 million in earnings before taxes and $235 million in net income and generated earnings per share of $3.56.

The first quarter results include a $60 million gain on the sale of a dealership partially offset by $13 million in certain disposals and other charges as we continue to optimize our dealership portfolio. Excluding these items, adjusted earnings before taxes, was $276 million. Net income was $201 million and earnings per share was $3.05. This was a difficult comparison for the prior year period and challenging market conditions impacted year-over-year performance.

We also continue to grow our footprint. In February, we acquired 2 high-performing and strategic Lexus dealerships in Orlando metropolitan area of Central Florida, one of the fastest-growing regions in the U.S. These acquisitions complement the 2 Lexus and 2 Toyota dealerships we acquired in November 2025. Combined, these 6 dealerships are expected to generate $2 billion in estimated annualized revenue. We also repurchased 170,000 shares of common stock for $26 million. We increased the dividend to $1.40, which yields approximately 3.4%, the highest yield in our peer group.

Looking at the details for the quarter. Same-store retail automotive new units declined 5% and used increased 1%. Units retail were impacted by weather-related challenges and a difficult comparison to March 2025 when tariffs caused pull-ahead sales and lower BEV sales in the U.S. associated with the elimination of the BEV tax credit.

Gross profit per unit, new unit retail was $4,783, up $94 sequentially. Gross profit per used unit was $2,076, up $306 sequentially. Our service and parts revenue and gross profit was a Q1 record. Same-store revenue increased 4.6 and related gross profit increased 5.7%. Service and parts gross margin was up 60 basis points. In the Retail Commercial Truck segment, Q1 unit sales declined 953 units driven by reduced order intake during Q3 and Q4 2025, following the implementation of tariffs and weakness in the freight market.

However, we are encouraged today with the trends we are seeing across the commercial truck market. In recent months, we've seen an increase in new truck orders and expect the timing of these deliveries to take place in the second half of 2026. PTS equity income increased 24%. Growth in the full-service leasing revenue, improved fleet utilization lower operating and interest expenses resulting from continued fleet reductions, including maintenance and our depreciation were partially offset by continued challenges in the rental and lower gain on sale of trucks. At this time, I'll turn the call over to Rich Shearing.

Thank you, Roger, and good afternoon, everyone. In U.S. Retail automotive same-store new and used unit sales were affected by 2 major winter storms, liberation day tariff announcement and pull forward of retail sales in March of last year and lower BEV sales from easing emissions regulations and the elimination of the BEV tax credit at the end of September 2025. During the quarter, 25% of new units sold were at MSRP compared to 29% in Q1 last year. Same-store service and parts revenue increased 3.2% and gross profit increased 3.4%. Customer pay was up 4%, warranty was up 5% and collision repair declined 4%. Our U.S. automotive technician count is up 3% when compared to the end of March of last year, and our Bay utilization is 84%.

Turning to Premier Truck Group. During Q1, Premier Truck Retail 3,583 new and used trucks, generated $695 million in revenue and $128 million in gross profit. On a sequential basis compared to Q4 2025, new unit gross increased $111 and used unit gross increased $4,624. New unit sales were down 26% and were in line with the overall North American Class 8 market. The recessionary freight environment and market uncertainty associated with tariffs and the status of emissions regulations impacted new truck orders during the last half of 2025.

However, as Roger mentioned, in recent months, we have seen an increase in new truck orders. In fact, Class 8 orders increased 91% and the industry backlog grew 33% to 175,000 units in the first quarter when compared to March of last year. We expect this increase in order activity to result in higher new unit sales in the second half of this year. Service and parts revenue increased 5% as average daily activity continues to grow and service backlog is beginning to increase. Service and parts gross profit represented 73% of segment gross profit during Q1.

Turning to Penske Transportation Solutions. We are also encouraged by the stronger financial performance of Penske Transportation Solutions. During Q1, operating revenue declined 4% to $2.5 billion. Lease revenue increased 2%, rental revenue declined 17% and logistics revenue declined 3%. PTS sold 9,319 units in Q1, ending the quarter with a fleet size of 387,500 units compared to 435,000 at the end of December 2024. Gain on sale declined by $26 million in Q1 '26 compared to Q1 2025. As PTS continues to rightsize its fleet, higher fleet utilization, lower operating costs for maintenance, depreciation and interest expense contributed to an increase in earnings. Overall, our equity income from PTS increased 24% to $41 million. I would now like to turn the call over to Randall Seymore to discuss our international operations.

Thanks, Rich. Good afternoon, everyone. During Q1, international revenue was $3.3 billion, which is up 6%. International new units were up 2% and used increased 3%. Same-store service and parts revenue increased 7% as our strategies to increase customer pay drove a 10% increase, which was more than offset the 3% decline in warranty. In the U.K. market, Q1 automotive registrations increased 6% to 615,000 driven by private and retail demand and an increase in Chinese OEM sales. While we were encouraged by Q1, the U.K. automotive environment remains challenging as inflation, higher taxes, consumer affordability and the government mandate towards electrification impacts the overall market. During Q1, our U.K. same-store new units delivered were flat from lower sales of several German luxury brands and the elimination of the [indiscernible] programs for these luxury brands. Same-store used units increased 3% and gross profit per unit increased $500 sequentially when compared to Q4 2025.

Turning to Australia. Our EBT increased 15% compared to Q1 last year. In automotive, our 3 Porsche dealerships in Melbourne continue to gain market traction through implementing our Porsche 1 ecosystem process. This process has driven higher customer satisfaction with all 3 dealerships in the top 5, including the top position nationally. Although we had a decline in new unit sales associated with the transition of the McCann to an all-electric vehicle, we had a strong mix of higher-end vehicles and our focus on pre-owned and after sales continues to drive the business.

In the Australian Commercial Vehicle and Power Systems business, we are diversified with revenue and gross profit split approximately 2/3 off-highway and 1/3 on-highway. The off-highway business continues to grow. The current order book has exceeded our full year business plan with strength in in Energy Solutions, mining and defense sectors. We have over AUD 600 million in secured orders so far for 2026. The engines and support we provide will be critical as this segment evolves. We continue to see the potential for our Energy Solutions business to generate at least AUD 1 billion in revenue by 2030.

Over the last several years, our focus has been to increase units in operation to grow the recurring service, parts and remanufacturing aspects of our business, and this focus is starting to pay off. One of the major mining customers operates 125-megawatt power station with 20 Bergen engines that we installed 4 years ago. As part of the major maintenance interval, we have begun to remanufacture 300 cylinder heads which will generate approximately 15,000 hours of work for our business. I would now like to turn the call over to Shelley Hulgrave to review our cash flow, balance sheet and capital allocation.

Thank you, Randall. Good afternoon, everyone. We remain committed to a strong balance sheet and a flexible and disciplined approach to capital allocation while driving our diversification strategy, implementing efficiencies and striving to lower costs. SG&A expenses increased by 1.5%, which is lower than the rate of inflation, while gross profit declined 1.7%. SG&A as a percentage of gross profit for Q1 2026 was 74.3%. Adjusted SG&A to gross profit was 73.3%. Q1 SG&A to growth was impacted by employee benefit costs up $4 million, payroll taxes and other U.K. social programs of $3.5 million, rent and real estate taxes up $7 million and lower automotive units and the impact from lower sales of new and used commercial vehicles at Premier Truck Group.

During Q1, we generated $215 million in cash flow from operations and EBITDA of $397 million. During Q1 2026, we invested $63 million in capital expenditures. This is down from $85 million in Q1 2025. We completed acquisitions of 2 Lexus dealerships representing $450 million in estimated annualized revenue. We increased the cash dividend to $1.40 per share, representing the 21st consecutive quarterly increase. On a forward basis, our current dividend yield is approximately 3.4% with a payout ratio of 39% over the last 12 months and we repurchased 170,000 shares of common stock for $26 million. As of March 31, 2026, [ $221 million ] remained available for repurchases under our securities repurchase program. Since the beginning of 2023, we have returned approximately $1.6 billion to shareholders through dividends and share repurchases. At the end of March, non-vehicle long-term debt was $2.6 billion and leverage was only 1.8x, despite completing several large acquisitions over the last 6 months.

Floor plan was $4.1 billion, and we have $425 million in vehicle equity. For the quarter, total interest expense increased $2 million. Floor plan interest decreased $4 million due to our cash management and lower interest rates, while other interest expense increased $6 million, primarily from higher borrowings for acquisitions. We estimate a 25 basis point change in interest rates would impact interest expense by approximately $15 million. Our effective tax rate was 27.4% in Q1 2026. The prior year results have been recast for the acquisition of Penske Motor Group using common control as disclosed last quarter.

As a reminder, PMG was a partnership prior to our acquisition and was not subject to income tax. Q1 2025 does not reflect federal or state income taxes had PMG been included in our taxable group. Therefore, period-over-period comparisons of net income and earnings per share may not be directly comparable due to the change in tax status of PMG. The impact to the effective tax rate would have been approximately 100 basis points and the impact to earnings per share would have been $0.05. Total inventory was $4.9 billion, up $77 million from December 2025. New vehicle inventory is at a 44-day supply, including 46 days for premium and 29 days for volume foreign. Used vehicle inventories at a 39-day supply with the U.S. at 33 days and the U.K. at 42 days. At the end of March, we had $84 million in cash and liquidity of $1.2 billion. At this time, I will turn the call back to Roger for some final remarks.

Thank you, Shelley. As mentioned, we added 2 Lexus dealerships to PAG during the first quarter. And today, I'd like to welcome our new teams at Lexus Orlando and Lexus Winter Park to our organization. As I said earlier, we had a solid first quarter, and I continue to remain optimistic about our business. New and used retail on motive process remained strong and service and parts continue to grow. Our diversification remains our key strength of our business model, the recovery commercial truck market is underway. We expect to increase new truck orders to benefit the second half of the year and our retail truck dealerships and PTS investment should benefit. Again, today, thanks for joining our call. We'll take questions.

[Operator Instructions]

Your first question comes from Michael Ward with Citigroup.

I hope you all are doing well. Weather had a -- had a significant impact on the industry in January and February in the U.S. Can you quantify at all how much you were affected? And were you able to get any of that back?

Mike, this is Rich here. Good question. I mean as I mentioned in my prepared remarks, 2 significant storms, both -- one in January, one in February, impacted -- the first storm in January, I think, was almost 2,400 miles in its length. So it impacted our businesses from Texas all the way to the Northeast. And so we had either delayed openings, multiple day closures as we had to deal with the cleanup. So February wasn't as bad, but did impact pretty significantly the Northeast. Now the good news is, obviously, the competitors around us in those markets also suffered the same same challenges. So we don't think consumers were running to their dealerships to buy cars while were struggling. But certainly, from a fixed growth standpoint, there was lost business there because that's time you just can't get back.

So we had the added expense of the snow removal and then we attribute the fixed gross loss to about $4 million to $5 million. And then in total, overall, about a $6 million impact to our earnings in Q1 related to the weather.

Okay. So you called out -- I don't know if you were calling out or just the cost on the SG&A side of about $15 million. It sounds like some of those will be recurring, I guess, the rent and the health in the U.K. Are those onetime in nature? Are they not recurring? What were you kind of alluding to with that?

Mike. Yes, a little bit of both. Certainly, rent increases we see year-over-year health benefit plans. We certainly hope those costs go down, but that doesn't seem to be the trend. I wanted to highlight the fact that the U.K. social programs, this is the last quarter before we anniversary those. So it's a bit uncomparable compared to Q1 of 2025. But like I said, we'll see that anniversary here in Q2.

Okay. And that's about 30 to 40 bps, sorry?

Yes. We estimate without those that our SG&A to growth would be in that 71% to 72% range that we had talked about. So still comfortable in that low 70s range.

Okay. And just lastly, it looks like you've been doing some portfolio rebalancing. Usually, you don't see much movement in the retail automotive revenue mix, but you see a couple of good changes year-over-year. And I'm just wondering if that's a trend we can look to more. Are those going to our focused brands continue to focus on the luxury, the volume form, that's the strategy, correct?

Well, let me say this, that we actually sat with our Board probably 18 months ago to determine what was going to be our strategy on brands, locations not only domestically but internationally. And we felt that we would look at our low performers, and then we looked at what were the expectations of the manufacturers from a CapEx perspective. And then what could we grow that business? And we determined there were probably a number of locations that we would need to sell in order to get a return that we would want on top of that, because of our commitment to go forward with Penske Motor Group, and we had to commit to sell 2 Lexus stores, one in Norwich and one in Madison, Wisconsin, which we completed.

Obviously, that gave us the opportunity to buy the Orlando stores and the PMG stores. Along with that, we took out a number of other smaller locations, some larger, some in the U.K. and that generate about 300 -- I'd say, [ $25 million to $350 million ] worth of free cash flow back on these stores, which we sold, which obviously, we used some of that money to pay to buy these other key stores that we're going forward with. So we'll continue to prune the portfolio. We're still in the acquisition business. I think we made the decision in the U.K. to reduce our number of [indiscernible] select stores from 14 to 6, which is paying off. We are taking those locations and adding the Chinese brands in the same showroom. So overall, I think the strategy has worked and we've kept our leverage, as Shelley said, from around 1.5 to 1.8, am I right?

That's right.

So I think it's been a good movement and will continue. And I think I see our peers doing the same thing because today, the cost of doing business is so high and some of the smaller locations with all the controls you need and the high cost of the best people we just can't see the numbers, give us the returns we want. So all of us are obviously looking for locations, at least where we can add on in key markets.

So Mike, this is Tony. Just Page 9 of our earnings presentation is a key chart in the deck that lays out what total revenue is, right? And you can see there, in particular premium, 72% volume, volume non-U.S. is 22%. And then when you look at the Toyota Lexus number, it has jumped up to 18% of our overall business from an automotive standpoint. So very, very key with the acquisitions and the OEM presence that we have.

Proactive plan looks like you're just pulling it off.

Your next question comes from the line of Rajat Gupta with JPMorgan.

I just wanted to follow up on PTL. Pretty nice earnings growth in the quarter, obviously despite the lower gain on sale. Obviously, a lot of those improvements are coming from just lower maintenance, debt, fleet costs, et cetera. I'm curious how we should think about the trajectory of PTL earnings for the remainder of the year? Any kind of guardrails you can give us for the full year?

I think number one, we've come from roughly 430,000 units defleeted to 387,000 at the end of the quarter. So that's obviously reduced a significant interest cost in our depreciation has been impacted positively with that. But the good news is that our fleet utilization on the rental side which were before we were down to 71%. It's now moved up to 76%. And I think we've seen that the operating side of our business has been excellent during the quarter and really in Q4 also because our gain on sale obviously has been down $26 million in the quarter. So we were able to pick that back up through utilization through lease revenue and some of our logistics businesses, which provided an overall pickup in our profit -- their profit from $120 million to $142 million. We've got lower operating expenses, obviously, as I mentioned, maintenance, depreciation, et cetera. So it's operations. I think you think about interest, depreciation and gain on sale is down but still higher than it was a year ago, but we're seeing rental utilization up about 500 basis points.

Got it. Got it. So I mean, just like a lot of these trends are sustainable like from -- or at least from like a cost and earnings perspective through the remainder of the year on a year-over-year basis?

Rajat, could you repeat that, please?

I was trying to say that a lot of these trends seem sustainable for the remainder of the year directly from the cost side when you look at the year-over-year trend?

You're talking about PTS?

Yes.

Okay. Look, certainly, we are continuing. We probably have another 3,000 or 4,000 units that we'll take out easily during this year from a fleet perspective, we will continue to grow. And also, we're seeing the revenue coming back on rental, we can take some of our off-lease equipment and replace at that point. So I think the older trucks are out now, which we're providing much higher maintenance. So we're seeing that maintenance and entire maintenance much, much better. And I think that the customer acceptance -- this is a key one for you. We're starting to see people signing up for long-term leases.

We say there was a pause over the last 90 to 120 days with emissions, with costs, et cetera. and we weren't getting the traction in the month or the quarter, Q1, we saw our lease signings going up, which bodes well for us for the future because these leases are 3, 4, 5 years of economic escalators.

Got it. Got it. And just a follow-up on the parts and service business, more on the international side, pretty strong numbers overall. But it looks like if you look at it excluding the FX benefit, growth was probably flat to slightly up. I'm curious if sort of -- if that's correct? And what kind of initiatives are in place to maybe accelerate that growth going forward?

Rajat, it's Randall. We could take the FX out, that's correct. In the U.K., we were slightly up. But as an example, Italy, we were up 11%; Germany, up 20%, and it's really on the back of customer pay focus because warranty is actually down. And remember, internationally, we don't get the markup on parts like we do here in the U.S. So you only get 10% margin, we're on warranty on the parts, whereas customer pay it's the same. So it's the mix and the focus on customer pay that's driving it with the higher margin business.

Got it. What portion of international in the U.K. versus non-U.K. in your numbers there?

Italy was up 11%. Germany was up 20%.

I mean like just mix of services, just mix of your business in terms of contribution in U.K. and non-U.K?

Rajat, I'll get that back to you off-line after the call.

Your next question comes from the line of Jeff Lick with Stephens.

Question for Rich. Rich, we get into this part of the year kind of April through the rest of the year, lapping against last year. Last year at this time, luxury started to lag the broader auto sector with the exception of April and -- I mean, of August and September with the EVs. Just kind of curious how you're seeing things now as the year plays out because you guys are a bit unique and that you have easier compares. Just kind of curious how you're thinking about the rest of the year on the new luxury and then maybe also talk about as we lap the EV compare with anything to think about there?

Yes. So I'll touch on the last comment you made relative to EVs. So if you look Q1 this year versus Q1 of 2025, our EV sales were down 61% this year compared to last year. And certainly, in our West Coast in California, there's still a certain level of demand for the BEV. And so the consumer out there. We haven't completely replaced that with hybrids or ICE. So that was a tough compare year-over-year. We thought that the Iran conflict would drive some near-term or short-term demand in BEVs that we just haven't seen materialize. So that escalation in fuel prices hasn't overcome the consumers' concerns about battery electric vehicles, either from a range or infrastructure charging perspective.

And so I don't see really a material change occurring in the balance of this year. I think it's kind of stabilized post the tax credit going away in that 4% to 5% of the overall retail sales market. So then coming back to the luxury, you mentioned or someone did earlier that the tough compare, certainly in March, we were at $17.6 million [indiscernible]. April, is it at $17 million. And so we've got some tough comps year-over-year.

You look at the premium luxury market, certainly, the sales are a little bit down in those brands. If I look at Audi in Q1 was down about 30% overall as they're launching some new models that need to come into the marketplace. BMW about 15%. And Porsche with the Macan going away, we knew that this year, next year until they relaunch that model will be a little more challenging. So we're down about 18% with them and Mercedes, about the same as BMW down about 15% overall.

The good news, I would say, is that the OEMs have now adjusted to the -- what the tariff impact is going to be on their business. Certainly, I think they were holding back money on incentives and programs certainly in the latter half of last year. I'd say they're back in the market. I wouldn't say the incentives are great, but they're good. And the products they're producing are still very desirable. We tend these annual dealer meetings and every single one of them has a bevy of new products that are going to be launching in the market this year that I think are going to be highly desirable. So I think from a model mix and brand mix with our 72% premium luxury, we're still in a good position there.

And anything to call out with service and parts with respect to warranty that you're lapping stop sales, especially on the luxury side?

So our fixed gross overall was up about 3.5%. We talked about the impact from the storms. An encouraging nugget in there is our customer pay ROs. We talked about that in the last couple of calls, we've been really focused on that segment, too. The recalls, they continue to happen. So if you look at Toyota, they increased the Tundra recall on engines to the 23 and 24 model year units. BMW has got a starter recall that was recently announced, and then Audi on their 3-liter engine has piston replacements, which is about a 30-hour job, and then we're doing a proactive software campaign, too, on the Q5 product. So look, I know the OEMs would prefer not to have these recalls, but they continue to have quality leakage into the marketplace.

Your next question comes from the line of John Babcock with Barclays.

Just a quick one on the truck market. I know you're expecting an increase in truck orders, particularly in the second half. Just curious on the sustainability [indiscernible]. I mean I'm sure there's probably a portion of the truck demand is probably driven by expectations for higher prices with some of the regulatory changes. So I'm just kind of curious if you think this is something that you think is long-term sustainable truck demand? Or is this something that you temporarily driven by some of the short-term factors like regulations.

I certainly think there is some short-term influence on the truck orders similar to what we saw with lack of truck orders in Q3, Q4 last year, John. I think once there was some finality on what the EPA 27 guidelines were going to look like and customers could understand what the rule set was going to be that's what drove the order intake here in the first part of this year, as Roger quoted, up 91% on Class 8. I also think we had a near-term bump in particular for Premier Truck Group with tariff announcements in February. And so there was a grace period that was granted to customers that if they placed orders by the end of -- or sorry, by the beginning of March, they could avoid that tariff price increase, which was between $1,000 and $1,500 depending on heavy-duty or medium-duty and then there's some things structurally that I think have been going on that we've talked about for the last 18 months with the administration, right?

The Department of Transportation and FMCSA have really been cracking down on illegal carriers and non-domiciled CDL holders, and that has had an effect of tightening capacity. You see that in the spot rates up 30% to 40%. And year-over-year, and that's driving higher utilization of, say, the legal operators on the road, and we're seeing that manifest itself in our parts and service revenue up just over 4% in that business.

And that's the first first time in 6 quarters that we've seen a growth in our fixed gross profit there. And then when you look at the freight rates increasing, we're seeing that drive near-term used truck demand as well. So our volume sales are trending upward there, and our gross profit, as you saw in the quarter, was up almost $4,000. So -- and I think if you look -- if you follow any of the public, J.B. Hunt, Covenant Transport, that they've reported, they would reiterate that they feel that the changes are structural and not temporary in nature.

Thanks for all that color. Now just on the M&A side of things, you've increased exposure to Texas -- Toyota and Lexus recently. But on a go-forward basis, should we think about expanding brands? Are there certain geographies you want to tack on to? Also, how are you balancing that with leverage? And what's your comfort level of leverage right now?

Well, I think our leverage gives us all sorts of opportunity, point number one. Point number two, we're sitting with 70-plus percent premium luxury and 21% or 22% volume foreign. And we're focusing obviously on the mix of our business in those particular areas probably more critically and looking for opportunities. I think our goal obviously is to maintain, as Shelley said, our dividend, our buyback and our CapEx. We think by eliminating some of the stores that we have, have allowed us to reduce our CapEx whole fleet by $100 million this year, and that's going to give us the opportunity to continue to focus. I would say, internationally, we've also done some pruning of our businesses there.

I think at the end of the day, we're focusing on investments in Australia, in the defense area and the power system and power generation. So a good thing is we have such a diversification. And then obviously, the returns that we're getting from Premier Truck Group, their Freightliner business, they are market share leaders and we'd be looking for other locations in the U.S. and Canada to represent them because those have been turned out to be quite good. And I think what's key is we'll look right now, like the stores we did in Orlando, the right brand, certainly the right location and profitability.

So I think we have the luxury of not being in a hurry when you put $2 billion of revenue on, now we've got to continue to integrate those into our company, which I think we're doing well. And we'll again look for ones with a brand, look at Titan and Lexus right now. the lowest day of supply of the industry. We're talking 120 days when you think about it, some of the Lexus stores under 10, and they could continue to keep the product tight and that, to me, is going to be critical, and they're saying, that's where they're going to operate in the future. And we're getting some of that already also.

When you look at Land Rover, you look at Porsche and our business is down, not because we're down it's because of supply of the vehicles we want, and that's being impacted by tariffs, et cetera. So we're going to be cautious and there will be people that are confused down because on these businesses, some of the smaller operators if they're contiguous to our circles, we're going to pounce all over those if we can. That's a long answer, I'm sorry.

Yes. no thanks. That's perfect. Appreciate it.

Your next question comes from the line of Mike Albanese with StoneX.

Could you guys just comment on what you saw in Q1 regarding Chinese models and taking share in international markets? And then a house view on how you think about the implications to premium luxury? And I mean, do you think about leaning into building exposure with these models or just kind of continue to take it slow and monitor.

Let's let -- Randall is the expert on -- in fact just came back from the auto show in China. So he's most current that we have on the phone. But that's again what we're doing, what we're seeing in the U.K. and Europe.

Yes, Mike. So obviously, the Chinese brands are gaining share in Europe. In fact, the markets that were in the U.K., Italy and Germany, they've more than double. In fact, if you look at Australia last year, the Chinese brands were 15% and year-to-date this year, through the first quarter, they're up to 23%. So we are -- we've put our toe in the water in the U.K. and in Germany starting really effectively at the beginning of the year, we started late last year, but this is our first full quarter. We've got 11 locations between the U.K. and Germany right now, 4 different brands. And I would say, first of all, our strategy has been to put these brands into existing facilities.

So in the U.K., we have our Sytner Select, which is our big box used car retail. So we're able to put the brand there with a, call it, a minimal CI spend and we're in business. So we don't have additional fixed expense, we can sweat the asset a little bit more. But frankly, first blush so far has been positive. We're going to take a walk before run approach in the big box used car retail, we get about 400 guests per week. So these Chinese OEMs are eager to partner with us more. So that's one of the reasons I went to the auto show is really to understand the difference between these brands. You can't just throw an umbrella, say, Chinese brands, just like any Western brands that each of them have their pros and cons. So look, we're going to expand where it makes sense, but we're going to be, let's say, eyes wide open, cautious as we do it.

Great. And then probably just follow up to that, it probably matters brand by brand as you alluded to. But could you just comment on what you're seeing in terms of unit profitability on these vehicles?

Yes. It's -- look, it differs slightly, I would say, in the U.K., Geely and Cherry have both been good to deal with. One concern like with any brand, got to make sure they don't have over inventory that they're not going to over dealer the market because then it's just a race to the bottom. And the other channels as you think about you open a brand-new store stand-alone, you don't have any fixed operations. So instead of running at 75% fixed absorption at 0, right, at the beginning. Now over time, that will increase. But that's to get a return on that investment. So -- and then in Germany, we have BYD and MG, and we just started those. So I would say it's too early to tell.

I'd say when you look at the margins in the big boxes, we're probably getting a couple of thousand pounds more on the Chinese brands that are with our used vehicles we're selling in the same store. So right now, it could be Christmas. We don't know what's going to happen as we go forward.

But look at the product's good -- we're not seeing any consumer pushback. The mix has been about 50% retail, 50% fleet. Obviously, they're going to put some in fleet to seed the market and get some volume up and awareness in the marketplace. But I think their approach has been sensible overall. Again, as a dealer, you just caution not to -- that they don't saturate the market.

Okay. And then just my last question on this front. Is there anything we should be thinking about in terms of implications on after sales with these brands? I mean, is it the same process, getting them in the service lines and the same general RO that you would get on premium luxury. Yes, go ahead.

Look, it's a good question, more from the standpoint of, hey, are they prepared and hence, are we prepared that we've got all the right safety stock from a parts standpoint that when the customer does come in, that we can handle them officially. So that's 1 big message I had with these OEMs as I met with them, and they seem to understand that we haven't had any challenges yet. But it's been so minimal, Mike, relative to the number of customers we've had come in. I can't say dollar period. But one thing is these cars have a 7-year warranty on it. So we think the customer is going to be stickier rather than having a 3- or 4-year warranty, they'll keep coming back.

We don't know what the used car bias going to be. That's -- and then also is the captive finance companies, which lead the brands around the world that has the best captive finance the ones that we see are best for us. So right now, they're using banks and other things in order to support it, then they will buy down the rate to be competitive in the market. So those are all things. And we don't have units in operation. That's why Randall decide if we're going to do it, we're going to put it in places where we already have revenue and we have a parts and service just in different cargoes on the left on the more ...

Those select locations where we have full fixed operations in each of them. So it's -- again, we're just -- we're utilizing our assets better.

We're trying in a different market to what's going on in Germany versus what's happened in the U.K., you might talk a little bit about Australia.

Yes, from a Chinese standpoint?

Yes.

Yes. Well, look, we don't have any Chinese brands there now. But like I said, it's up to 23% and that's 1 market where the Australia is pinched a little bit more with lack of fuel. They've only got 2 refineries there, so they're dependent on imports. So their fuel price went up more than most countries. And they've seen significant increase in BEV sales along with the Chinese sales. So think about it, they went from 15% to 23% in just 1 quarter. And those customers now are getting the taste of the quality of those brands. So it's it's a disruptor for sure.

Your next question comes from the line of Daniela Haigian with Morgan Stanley.

So switching gears a little bit to a more thematic question. The trend of energy and auto is converging on a global scale is getting a lot of interest from investors. Could you speak a little bit about your Australian, New Zealand segment? And any opportunity there?

Well, thanks, Danielle. It's Randall again. So first of all, let's say, the energy business is vital across the world, but particularly in Australia, the data center business is exploding. And we have a 75% market share in data center backup power for the power range of 1,250 kilowatt and higher, which the majority of them are. So that's just our business pipeline there is extremely strong. We're very tight with numerous customers and that's good news. The bad news with that is you sell the engine and it sits there, right? You go, you do maintenance on it once a month, but it doesn't run. So you don't have that after sales annuity. So where we're focused is to continue to grow our prime power strategy and units in operation.

So as an example, 4 years ago, we built a power station with our Bergen engines in the Northwest of Australia, which for our biggest mining customer, 175-megawatt stations, 15 engines, 20 cylinders per engine. These are massive engines, 18 liters per cylinder. These are and these run 7,000 to 8,000 hours a year. And so we're in the cycle right now after they got this commissioned, where the 16,000-hour maintenance interval, you have to take the heads off and remanufacture them. We have all that capability and expertise to remanufacture these heads in country as part of Penske Australia. So after those 15 engines or 300 cylinder heads, that's about 15,000 hours worth of work. So our strategy is to do more -- get more units in operation than our prime power, and we've got that whole vertical strategy and approach and solution for those customers in the market. So it's a key strategy without a doubt for us.

Your next question comes from the line of Alex Perry with Bank of America.

Congrats on the strong quarter. I wanted to ask about the outlook in the U.K. sort of ex the Chinese brand sort of the core outlook in the U.K. And then just 1 piece on the Chinese brands. Are you expecting -- I know you said earlier you're going to take a measured approach there, but will you continue to add doors there. So just wanted to get your thoughts on the U.K. sort of outside of what's going on with the Chinese brands.

Yes. I think we're going to be measured is the right word, but it was interesting, again, meeting with all these OEMs and understanding the strengths and what some of their strategies are, how that aligns with our strategies. I think we'll continue to evaluate 2 things. Number one, which brands make sense, most sense to continue to partner with. And number two, where we have available facility infrastructure, again, with the strategy of saying we already have it, let's put it there. And because, again, with the lack of units in operation, you don't have that after sales.

So the cost to get in is minimal. And then look, we're going to, as usual, be good partners with these brands and want to grow and help them understand the market better.

But they're going to limit us based on [indiscernible].

Yes.

Now we start to see what the discounting is because we don't want to handle [indiscernible].

Correct. Correct.

Yes, that makes a lot of sense. And then just on inventory levels across the network more broadly. Can you just talk about how you feel about inventory levels? It sounds like there are certain brands [indiscernible] Lexus where you're light any where you think you're over in inventory? And then -- and the brands that you're like, how much do you think that, that sort of restricting the sales velocity and any line of sight into those improving?

Yes, Alex, Rich here. So I'll speak to the U.S. and then Randall can cover internationally. Just as a top side from an overall perspective, new, we ended the quarter 43 days and unused 33 days and the new compared to 52 days a year ago. So we're down from a day to supply standpoint, 9 days. You've got to look at both the day supply and the model mix within the inventory that you have by brand. And so even though we would say that Toyota Lexus is great from a days supply standpoint, we would prefer to have maybe more wrap forwards in that inventory and less [indiscernible] as an example. So you've got to look at it from both perspectives.

But certainly, they are the healthiest in maintaining that supply versus demand balance. We talked last year, we saw Honda maybe overproduced a little bit and our days supply crept up there. They had a plant closure earlier this year that has got them back more in line. And then we still got to balance the BEV mix in there. We've seen that come back up after the the tax credit went away at the end of September, and we had that sell-through. We were down 12 days supply on bev. We're up to 78 days supply now. And so that's higher than certainly our overall new car averages and certainly higher than we would want it to be.

And then I think from a use perspective, we would prefer to have more used right now. There is demand in the used car market. but we've been disciplined again on our sourcing of used cars. We could go out and buy more used cars, but it would have the counter effect of lowering our grosses on the other side of the ledger. So we've stayed within our wheelhouse of 0- to 4-year-old used cars, not going upmarket in the 8-plus year range for used cars. So that's -- that's a little bit of color on the U.S. So Randall?

Yes. Look, it's very similar in the U.K., our new car supply is 40 days and giving you an idea the lowest day supplies land over at 35 days and the highest is Audi at 45 days. So the band is pretty small with all the brands in between. And then our used car supply is 42 days, similar to the U.S. is difficult now, but I would say -- our team in the U.K. has done a fantastic job with acquisition of used in proper appraisal. The available growth we have in our used cars right now is as best it's been in months. So anyway, we feel we're in very good shape.

Your next question comes from the line of David Whiston with Morningstar.

On service [indiscernible] utilization, you talked about it being, I think, 84%. So I was just curious what prevents that from being -- not being 100%? Is it purely labor shortages or other variables?

Yes. There's -- it's a combination of tax because that is a measure of tech ratio to base. And so our tech count is up 3%. Our guys would tell you, you don't want and we're probably never going to have 100% [indiscernible] utilization because in order to achieve that, you need that, to Randall's comments earlier, have every part you need at the time you need it and invariably, that's never the case. And so you -- you're in a process of having a car torn down, waiting on a part that's tying up a bay or you -- in the case of battery electric vehicles, you've got a flat Bay and you've you need a bay next to it to reinstall the battery. So we feel pretty good at 84%. We probably can tick that up a few percentage points more. But with the flexibility we need for the type of work we do, growing north of 90% would be a challenge.

Yes, I think, Rich, also these bigger jobs or we're taking engines out of [indiscernible] and things like that, you will see the second [indiscernible] year [indiscernible] in order to be able to do the work. It's flexible. But we are -- to put it in perspective, we're adding -- we're going to 100 bays at Longo Toyota, in California. We're building a full dealership with 100 bays and Hutto Texas outside of Austin, and we're adding another 30 bays to Central Florida Chadwell get us to almost 100%. So our commitment because the units in operation for this brand, make this a real opportunity, talk about where growth will be. And depending on its warranty, look, we like to warranty work, but the customer comes back because you've got a car that's not in for warranty every day. So I think that's key and as for Toyota, in many cases, leads the market. And there's no question that our biggest push when we talk about investment is some of the showroom CapEx that's required because in many cases, that means we got to tariff our billing. We just did this in San Diego at Lexus, we spent by almost a year, new furniture, et cetera, et cetera. I think it's done great, but we have to go further than that.

This is some of the questions that we have today. what is the store making, what's the expectation of the OEM. And we're pushing back to them in a good way, trying to explain to them, we needed to spend more in parts of service let's make the showroom smaller, let's put more cars outside and work on more inside. I know it's opposite of what the thinking is. But we have Bill Brown Ford, #1 Ford dealer in the country, we could put 3 cars in the showroom and they sold 600 cars this month. And what are we doing, we're expanding the service. So there is no question in the back end. And that's why we like Rich's business in premium truck, what are you 120%, 130% fixed coverage?

That's Premier Truck, yes, we're 127%.

127%. So how many trucks you have in the showroom?

Zero, [indiscernible].

[indiscernible] based, David.

That does conclude our question-and-answer session. And I would now like to turn the conference back over to Mr. Penske for closing comments.

Thanks for joining us. We'll see you next quarter. Thank you.

Ladies and gentlemen, that does conclude today's call. Thank you all for joining, and you may now disconnect.

Good afternoon, and welcome to the Penske Automotive Group Fourth Quarter 2025 Earnings Conference Call. Today's call is being recorded and will be available for replay approximately 1 hour after the completion through February 18, 2026 on the company's website under the Investors tab at www.penskeautomotive.com. I will now introduce Anthony Pordon, the company's Executive Vice President of Investor Relations and Corporate Development. Please go ahead, sir.

Thank you, Regina. Good afternoon, everyone, and thank you for joining us today. A press release detailing Penske Automotive Group's fourth quarter 2025 financial results was issued this morning and is posted on our website, along with the presentation designed to assist you in understanding the company's results. As always, I'm available by e-mail or phone for any follow-up questions you may have. Joining me for today's call are Roger Penske, Chair and CEO; Shelley Hulgrave, EVP and Chief Financial Officer; Richard Shearing North American Operations; Randall Seymore, International Operations; and Tony Facione, Vice President and Corporate Controller.

During the fourth quarter, we acquired Penske Motor Group from a commonly controlled affiliate. As a result, the information contained in today's press release has been retrospectively recast to include the full quarterly and annual results of Penske Motor Group in both periods, which is required by GAAP under common control accounting, we have provided schedules in today's press release to help you better understand the impact of the recast. Additionally, we may include forward-looking statements on today's call about our earnings potential, outlook, and other future events, and we may also discuss certain non-GAAP financial measures such as EBITDA and adjusted EBITDA.

Our future results may vary from our expectations because of risks and uncertainties outlined in the press release today. We have also prominently presented and reconciled any non-GAAP measures to the most directly comparable GAAP measures in this morning's press release and investor presentation, both of which are available on our website. Our future results may vary from our expectations because of risks and uncertainties outlined in the press release under forward-looking statements. I direct you to our SEC filings, including our Form 10-K and previously filed Form 10-Q for additional discussion and factors that could cause future results to differ materially from expectations. I will now turn the call over to Roger Penske.

Thank you, Tony. Good afternoon, everyone, and thank you for joining us today. Today, I'd like to begin with thanking each of our team members for their hard work and commitment to exceeding expectations in 2025. Despite several challenges, our business generated another year of strong profitability. I look forward to the future, I am even more optimistic about PAG. The recent strategic acquisitions of Toyota and Lexus dealerships combined -- with our existing diversification provide a solid foundation for future growth and improve profitability. During 2025, PAG delivered 485,000 new and used vehicles and nearly 19,000 new and used commercial trucks. We generated $31 billion in revenue we earned almost $1.3 billion in earnings before taxes and $935 million in net income and generated earnings per share of $14.13. We continue to grow in the U.S. and Italy with the acquisition of 2 Toyota and Lexus dealerships and 1 Ferrari dealership.

We followed that up with the announcement of the 2 Lexus dealerships we plan to acquire in the first quarter. These are located in Orlando, Florida. In total, these acquisitions represent $2 billion and estimated annualized revenue. We also completed strategic divestitures representing approximately $700 million in revenue. These divestitures generated million in proceeds that were redeployed into higher returning assets. We expect to generate another $140 million in proceeds from additional divestitures planned for 2026. In our press release this morning, we announced the 21st consecutive increase in our quarterly dividend. The increase was $0.02 per share to $1.40. Our dividend payout ratio increased to 37.4% and the forward yield is 3.4%. We repurchased 1.2 million shares of stock representing 1.8% of our outstanding shares for $182 million.

Let me now turn your attention to the fourth quarter. The automotive -- our business was impacted by weaker premium sales in both U.S. and U.K. by tariff and BEV related pull-forward unusually high unit sales in the prior related to stop sale -- the Land Rover Cipher incidence, which resulted in 800 units of fewer sales in Q4 and the macroeconomic conditions in the U.K. For example, our new sales of the German luxury brands were down 20% in the U.S. and 22% in the U.K., including the decline of over 2,800 units when compared these are bed units when compared to Q4 of the prior year. As a result, automotive same-store units delivered declined 8% and used declined 4%. Gross profit per unit retail in Q4 was $4,689 and it was up $47 per unit sequentially. Gross profit per used unit was $1,770, which was consistent with Q4 in the prior year and in line with seasonal expectations.

In the Commercial Truck segment, PTG outperformed the market, however, the continuing freight recession drove lower new and used unit sales and also impacted our equity income from PTS. In total, PG Q4 revenue was $7.8 billion, down 4%. The decline in revenue from a lower unit sales, coupled with strategic divestitures and dealerships impacted the quarter revenue by $200 million. EBT was $256 million, net income $186 million, and earnings per share was $2.83. On an adjusted basis, EBT was $263 million, net income, $192 million and earnings per share was $2.91. We estimate fourth quarter EBT was impacted by $29 million or $0.32 a share. First item was the U.K. social programs of approximately $3 million. the cyber event with Jag Land over $8 million, continued freight weakness impacted by Premier Truck 11 and PTS5 and cost of strategic divestitures of approximately $2 million.

Additionally, when you compare Q4 of the prior year, a higher tax rate reduced net income by approximately $8 million or $0.12 per share. At this time, I'd like to turn it over to Rich Shearing to discuss our North American operations. Rich?

Thank you, Roger, and good afternoon, everyone. In U.S. Retail Automotive, same-store new and used unit sales decreased 4% with new decreasing 6% and used decreasing 1%. In Q4, new unit sales of our German luxury brands declined 20% and were impacted by pull-forward activity for the tariffs and the expiration of Bet credit. Also Land Rover new unit sales decreased 37% as production was halted for 6 weeks, limiting our available inventory for sale. Fed sales declined 63% or 1,700 units in Q4 2024 versus Q4 2024. During the quarter, 25% of new units sold were at MSRP and compared to 29% in the same quarter last year. Used vehicle sales continue to be constrained by fewer lease returns and affordability. Lease returns bottomed in 2025 and are expected to begin improving in 2026.

Our U.S. same-store service and parts revenue increased 6% and related gross profit increased 5.5%. Customer pay gross was up 7% and warranty was up 9%. On average, in the U.S., we estimate each of our automotive technicians generate approximately $30,000 of gross profit per month. Our automotive technician count is up 2% when compared to the end of December last year. Our automotive service and parts revenue and gross profit is at a record level, and we continue to focus on driving higher utilization in our base. Turning to Premier Truck Group. During Q4, Premier Truck outperformed the industry retail sales of new trucks, which decreased 14% compared to an industry decline of 28% for Class 8 sales. We retailed 3,789 new and used trucks generated $725 million in revenue and $121 million in gross profit.

Tariffs pulled some orders previously scheduled for delivery in Q4 up to earlier in the year, while other customers remain on the sidelines due to Section 232 tariffs and the resolution of the EPA 2027 and emissions rules. Service and parts revenue declined 1% and represented 74% of the total gross profit during Q4. EBT declined $11 million from $45 million to $34 million when compared to Q4 last year as the prolonged recessionary freight environment impacted Class 8 orders, new and used unit sales and fixed operations activity. Turning to Penske Transportation Solutions. The freight environment also impacts the full service lease, rental and logistics operations of PTS. During Q4, operating revenue declined 5% to $2.6 billion. Rental revenue declined 17% and logistics revenue declined 3%.

Throughout this past year, PTS has reduced its fleet size in rental, leading to reduced operating costs for maintenance while also reducing depreciation and interest expense. PTS sold 9,750 units in Q4 and 41,500 units for the full year of 2025, ending the quarter with a fleet size of just under 397,000 units down from 435,000 units at the end of December 2024. The weak freight market continues to impact gain on sale. Overall, the gain on sale declined by $18 million in Q4 and and $87 million for 12 months of 2025. Despite market headwinds, equity earnings from PTS were down less than 10% to $48 million. The PTS team continues to focus on cost reductions, including rightsizing of the fleet and operating cost reductions. The actions will see future benefits when the freight environment recovers. In fact, in January, PTS experienced a net increase in full service lease fleet, tractor rental utilization of 82% and improved operating profit in rental versus the prior year as a result of these actions. I would now like to turn the call over to Randall Seymore to discuss our international operations.

Thanks, Rich, and good afternoon, everyone. During Q4, our international revenue was $2.8 billion, down 2%. The U.K. remains challenging as inflation, higher taxes, consumer affordability and the government push towards electrification impacts the overall market. We are encouraged to see the Bank of England cut interest rates to their lowest level since early 2023 with additional cuts predicted in 2026. We have taken steps to realign our U.K. operations with current market conditions. These reducing the footprint of our Sytner select locations closing unprofitable franchise dealerships and reducing our headcount in the past year by 1,000 people. At the beginning of January, we also changed our management approach from a brand driven to a market-driven offense. We believe this strengthens our management team and enhances our focus on a market-by-market basis across the U.K.

This approach is similar to the structure that we have in the U.S. During Q4, same-store new units delivered were impacted by weaker national sales of the German luxury brands, which declined by 20%. However, our new car gross improved by $34 per unit. Same-store used units decreased by 10% as lower new car volume impacted vehicle availability, combined with lower unit sales at the Sytner Select locations the Sytner select locations retailed 1,000 fewer cars from a reduction in the number of dealerships and the macro environment in the U.K. However, pleasingly, our used car gross increased by $150 per unit. Service and Parts same-store revenue increased 2% as our strategies to increase customer pay resulted in a 9% increase, which was offset with the 18% decrease in warranty.

We see an encouraging environment across our Germany and Italy businesses, leading to an improvement in those markets of profitability during our Q4. Turning to Australia. We had a very strong fourth quarter. nearly doubled when compared to the same period in the previous year. In automotive, we have spent the last 12 months implementing the 1 ecosystem strategy for our 3 Porsche stores in the Melbourne market. Through this process, we have improved the customer experience, increase the performance of our used vehicles and grown our service and parts business while increasing profitability. On the Australian Commercial Vehicle and Power Systems business, we are diversified with revenue and gross profit split of approximately 2/3 off-highway and 1/3 on highway.

In particular, we see strength in the off-highway market segments of Energy Solutions, mining and defense. We completed projects worth nearly $700 million in revenue last year and already have $500 million in secured orders so far for 2026. In Energy Solutions, this growing segment provides power solutions for data centers to support the growth of artificial intelligence, and these data centers require robust infrastructure with reliable power at the core of its operations. The engines and support we provide will be critical as this segment evolves. We see the potential for our Energy Solutions business to generate at least $1 billion in revenue by 2030. I would now like to turn the call over to Shelley Hulgrave, to review our cash flow, balance sheet and capital allocation.

Thank you, Randall. Good afternoon, everyone. We remain committed to our diversification strategy, a strong balance sheet and a flexible and disciplined approach to capital allocation while implementing efficiencies to lower costs. During 2025, total SG&A expenses grew by 2.1% and were in line with inflation as a percentage of gross profit for the 12 months ended December 31, 2025, was 72.1%. Excluding certain onetime items in 2025, adjusted SG&A to growth was 71.5% and is in line with our previous guidance. As Roger mentioned earlier, Q4 SG&A to growth was impacted by lower new and used units previously discussed, lower business volume at Premier Truck Group and higher social program costs in the U.K. For the 12 months ended December 31, 2025, we generated $1 billion in cash flow from operations and EBITDA of $1.5 billion.

Our free cash flow, which is cash flow from operations after deducting capital expenditures was $651 million. We used our cash flow and strong balance sheet to allocate capital as follows: -- we repaid $550 million of senior subordinated notes at their scheduled maturity. We invested $325 million in capital expenditures. We completed acquisitions representing $1.6 billion in estimated annualized revenue, which included Toyota, the #1 Toyota and, the #4 Lexus dealership in the U.S. At the same time, we generated cash proceeds of $200 million by divesting of nonstrategic dealerships representing $700 million in revenue and $4.5 million in EBT. Through December 31, we paid $344 million in dividends.

Today, we announced an increase in our dividend to $1.40 per share, representing the 21st consecutive quarterly increase. On a forward basis, our current dividend yield is approximately 3.4% with a payout ratio of 37.4% over the last 12 months. During 2025, we repurchased 1.2 million shares of common stock or approximately 1.8% of outstanding shares for $182 million. As of December 31, 2025, a 47.5 million remained available for repurchases under our securities repurchase program. Over the last 4-plus years, we have returned approximately $2.5 billion to shareholders through dividends and share repurchases. At the end of December, our non-vehicle long-term debt was $2.17 billion, which is only up $314 million since the end of December 2024. Floorplan is $4.1 billion. While we continue to evaluate the impact of the 1 big beautiful bill on our financial statements, we do expect to recognize positive cash flow impacts related to our 28.9% ownership in the PTF partnership.

We estimate the bonus depreciation feature will provide an estimated $120 million to $150 million of additional cash flow each year. For the year, total interest expense declined $18.8 million or 7% due to our cash management and lower interest rates. We estimate a 25 basis point change in interest rates would impact interest expense by approximately $12 million. Total inventory was $4.8 billion, up $104 million from December 2024. At December 31, new vehicle inventory is at a 49-day supply including 52 days for premium and 34 days for volume foreign. Used vehicle inventory is also at a 49-day supply with the U.S. at 34 days and the U.K. at 66 days. At the end of December, we had $65 million of cash and liquidity of $1.6 billion. At this time, I will turn the call back to Roger for some final remarks.

Thank you, Shelley. As I look towards 2026 and beyond, I'm quite optimistic. We anticipate the long-awaited recovery in the commercial truck market, and we expect a stronger macro environment in the U.S., the big beautiful bill, tax refund for interest rates and GDP growth will have a positive impact on all of our operations. One thing we can't control is the weather a few weeks ago, our businesses in the Southern, Midwest and Northeast U.S. were impacted by so and ice storms, which lasted several days. Over half of our location felt some level of impact. I'd like to thank all of our team members for their efforts and recovery taking care of this storm, which we had not expected. I want to thank all of you for joining us today, and we'll open it up for questions. Thank you.

[Operator Instructions] Our first question will come from the line of Michael Ward with Citigroup.

I don't know if I'm looking at this the right way, but I tried to check back a couple of years ago, look where your brand mix has trended. And it seems like it's Toyota-Lexus BMW Porch have been the growers? And is that in the U.S. and the U.K.? Is it mostly in the U.S. net growth? Is that strategic? And then it also looks like you're getting focused on, if you look regionally, Northeast Florida, California, Texas, Am I looking at that the right way? Is that a strategic direction for Penske?

First, let me say strategically. Obviously, when you think about Florida, you think about Texas and California, where we have a big footprint, these would be, obviously, typically where we'd like to have add-on brands. And there's no question when you think about Titles and certainly, BMW, we've grown with these brands over the last 4 or 5 years significantly, not just in the U.S., but I would say internationally, we look at these brands as premium luxury. Obviously, the volume foreign, which would be the Toyota business has been very strong across the country with everyone that handles that particular brand. As I look at the future and you take your BMW business, you take our Title Lexus, including Orlando and add portion to it, it's probably over 50% of our business from a sales volume.

So to me, we know how strong those brands are. And one of the things that drives us here is the captive finance companies. Financial, Lexis Financial, Porsche and also BMW. These are the strongest players that we have within the market. And I think at the end of the day, we continue to keep our mix primarily, I think it's 71%, if I'm correct, Tony. 71% premium luxury current, which will go up when we look at adding the 2 Lexus stores. So I would say California, Texas, and Florida strong markets, brands right where we want to be. And then we've divested, Mike, which we've talked about before, stores where we weren't getting the returns that we needed, the markets we're not the ones ahead of the growth and we had certain CI requirements. So again, adding those markets where they're we have, I think, Shelly, what almost $2 billion worth of business. in Arizona, it puts us really in the sweet spot.

Secondly, could you talk a little bit about the cadence of earnings in 2026 because Q1 is a tough comp. And any of the weather sitting on top of it. Can you talk about the cadence, how we should look at it going through the year?

Yes, Mike, this is Tony. Thanks for that question. So Q1 will be impacted by the tariff-related effect that we saw the pull forward into March of last year. So with that, we expect some headwinds there on top of that, we saw a SAAR of $17.8 million in that month, I believe, and it carried forward into April. And then in the U.K. last year in the month of March and into April, they had a new tax that came on in April last year, which actually caused some pull forward of demand into the first quarter. So our earnings are always judged and predicated upon how the registration periods for the U.K. do in Q1 and Q3. And then typically Q2 is a really, really strong period for the U.S. marketplace. If you go back and look at our historical trends as you know, the summer selling season kicks off. You've got all the tax refunds that have come in and through everything. So I think you'll have those types of challenges in front of us in the first quarter with those year-over-year comparisons.

I think in Q2, we'll have -- it's great for our One-Way business. We see a spike in Q2 at people coming out of school and going out for the summary of end of Q2 beginning throughout Q3.

Yes. So you have soft Q1, big Q2 and then you go from there.

I never want to use the word soft -- that's your word. Yes.

Our next question will come from the line of Alex Perry with Bank of America.

I guess, first, I just wanted to talk through your outlook on the parts and service business as we move through the year here. Obviously, it's sort of been a big outperformer should we continue to expect really strong growth on a same-store basis? And maybe just walk us through what key company initiatives are driving strong growth for you guys?

Alex, it's Rich here. So I can speak to the U.S. and kick it over to Randall for the international. But I think, obviously, as you pointed out, continues to be the bedrock and foundation the profitability of the business. And I think whether it was truck or automotive dealerships, we continue to grow our effective labor rate up 5% on the auto side, up 2%. And on the truck side. And we saw our fixed absorption rate go up by 200 basis points as well in the U.S. automotive business to $89 million -- and so as we look to this year, certainly, we would target to kind of have that same mid-single-digit growth in our fixed operations business we've got to always take a look at the balance of what is customer pay versus warranty and we've been very fortunate the last couple of years on the warranty side that the OEMs have had a lot of recalls.

That is never guaranteed from 1 year to the next, so we need to continue to work on our customer pay opportunities. And we've talked in the past about what we're doing with with artificial intelligence, tech videos and then really targeting segment 2 and 3 customers, right? Because if you look at the age of the car park, we've talked about this before, it's at an all-time high. mileage -- average mileage for cars in the car park is at almost 70,000 miles. We need to make sure those customers that are operating in those older vehicles and maybe aren't in the market right now to buy a new car are coming back into our dealerships. We haven't cracked that code yet. It's something we're still working on, but those are some of the opportunities.

And then I think you look at where we're investing I think everybody thought maybe that the radar and ADAS systems were going to eliminate collisions and that's just not the case. In fact, we're seeing when the repairs need to be made on these vehicles, the severity of those repairs is higher from a labor dollar standpoint. There is -- because of the cost of that technology depending on the damage of propensity maybe for those cars to get written off by the insurance companies, but it's an area we're investing in, and we just opened an 85,000 square foot facility on the truck side in our Dallas market as well. So I think those are going to be the areas that we continue to focus on.

I think also -- when you look at the acquisition of Longo, Rich talked about our expansion to try to have the opportunity to grow on the car side and the truck side, Longo Toyotas body shop generates $1 million worth of gross profit just in the body shop. So they have per month, and they have a tremendous opportunity for us to learn how they do that across the country. And also, internal will continue to be a key asset of ours coming into revenue for used cars and also the PDI on new cars and also adding accessories. We have 2 businesses in out in Oklahoma, where we provide all the accessories for both Ford and GM products, which are not put on the cars on the assembly line. So that business continues to grow for us also with a great return.

That's incredibly helpful. And then I wanted to ask my second question on -- what is your outlook on the freight market for the year? Are you seeing some relief in terms of the supply side overcapacity headwinds that had been facing the industry? Or are you a little more optimistic on the freight side?

Yes. Thanks, Alex. I'd say, yes, generally a little bit more optimistic. There has been some green shoots as of late. Some things that I think are driving that. We've talked in the past about the administration's efforts to cracked down on nondomicile CDL and illegal CDL holders. We are seeing that have an effect -- and when we talk to some of our shippers, they say that there is a capacity tightening in certain areas of the country. They mentioned specifically Chicago, Northeast, parts of Texas and some parts of California as well. And for the first time in years, they've been able to turn down loads that maybe are less desirable from an economic standpoint. So I think that's -- that's a positive. Of course, I think Q3, Q4 last year, you had uncertainty around tariffs. You had uncertainty around what the EPA 27 regulations were going to look like I think this caused a number of carriers to just sit on their hands with respect to order placement.

I think as those things get more clarity, we'll see people that are kind of on the sidelines right now getting in the market. And we saw I think some of that in January where industry orders were up 20%. So I think we'll continue to see the tightening. I think interest rates will help -- and then obviously, the investment the administration has been talking about with respect to onshoring of manufacturing, that's a big driver of freight as well. when those dollars start to get deployed and the construction begins relative to those investments, it's really going to be beneficial for the trucking market -- you had smaller fleet carriers exit the market, too, right, which scales overall.

Yes. Yes. That's all incredibly helpful. Best of luck going forward.

Our next question will come from the line of John Babcock with Barclays.

Just 1 quick question just while we're on the trucking side of things on PTS, I was wondering if you could talk about what sort of utilization rate is going to take to see earnings start to meaningfully inflect there? And then I have a follow-up.

Well, look, I don't think so much, it's -- you look at utilization is 1 because we're balancing our fleet. The big impact when you think about it, the total of loss on gain on sale versus 2024 was $87 million. And you get that back to where it normalize, but when you're defleeting in a soft market, obviously, the opportunity to take that profitability we normally had we went away. And then what we've had to do, we've had an interest we've seen some interest costs come down because our total fleet is down. When you defleet, you generate capital, and we're down about $1.4 billion in total debt in the leasing company. So that's going to be a benefit. I think what will take place is that the customer, when you look at our business, the 2 components which you're here, obviously, full service leasing, and we provide the truck, the licensing, the maintenance, et cetera, -- but then also, we provide extra vehicles when there are spikes in their business.

And I would say that for the last 2 years, the rental revenue we get from our existing lease customers has been off I'm going to -- maybe this is not a -- I don't want to say it's a guess, but I think it's off 50%. And on top of that, the mileage that's being driven by our lease customers because you have a fixed rate per week and then you have a mileage rate without miles, we don't get the revenue. I see that coming back, which will be very positive for us as this market, as Rich talked about, starts to expand and accelerate. So if we get the gain on sale, the level off, think about it. Operationally, we were off about $16 million or $17 million total last year EBT.

And we had $87 million less than gain on sale. So from an operating standpoint, the guys knocked the ball on to the court, but it's a good core business. No 1 has a fleet like we have -- on the other hand, our logistics business there continues to grow with key customers. And we're being very selective, just not trying to grow logistics we want 1 where we can provide not just warehousing, but try to provide warehousing and dedicated carriers, et cetera. So I think there's lots of areas there will give us some real opportunity. And again, there, we've reduced the number of people also, obviously, in our rental area because of the slowdown in rental. But when you think about units coming out of the fleet, the amount of depreciation, interest and maintenance that comes out with that is massive, and that's helped us a lot.

All right. That's very helpful. And then just my last question or really follow-on here, I guess. On the M&A market, how does that feel right now? And also, what are your goals on the M&A front '26? So for example, are there certain geographies or brands that you're looking to fill out?

Well, I would say that with the acquisition that we made with Penske Motor Group and also what we have in the bucket here for Orlando, the 2 Lexus stores will give us about $2 billion. And I think we've talked about it over the years about a 5% increase through acquisitions and organically. So I think that we're hitting 1 of those right in the target. And we will continue to look for strategic areas in markets where we have scale. I don't see any markets that we're going to break into today, unless we buy another big group. And I think from a ratio from the standpoint of our leverage, we want to keep it well under 2%. And with that, so we're going to be very selective as we go forward, and obviously, capital allocation, as Shelly could talk about, we'll be looking at share buyback and certainly the CapEx requirements we have.

Our next question comes from the line of Rajat Gupta with JPMorgan.

I just wanted to double quick a little bit from used car GPUs. Typically, I mean, fourth quarter is always down slightly versus the third quarter. But this is the largest decline we've seen sequentially. I understand year-over-year was up slightly, but the prior quarter are was up a lot because of the site consolidation. So I'm just curious if you could comment or unpack the fourth quarter dynamics a bit. We've seen some of this weakness across your peers as well. So I'm wondering like if there's anything changed in the market landscape recently anything to do with mix? Anything you would call out to help us understand that better and how we should think about 2026 -- and I have a quick follow-up.

So Rajat, this is Tony. Thanks for the question. So basically, when you take a look at our overall gross per unit in Q4 was $1,770, that compares to $1,773 in Q4 last year. So it was flat. -- average selling price stayed relatively flat. But 1 of the things we did see is that there was a mix shift between our business in the international markets, principally the U.K. fewer units in that market where we saw a larger decline in same-store unit sales, and we saw better results in the U.S. on a used unit side of things, but we make less in the U.S. on the overall growth on a used vehicle. So the combination of those 2 things really caused the biggest decline that you saw in that growth between Q3 and Q4. On top of that, you have seasonality that comes into play in the fourth quarter. where there's defleeting that's taking place. So as you saw what happened in Q4 of 2024, same phenomenon happens in Q4 of each year. We would expect some improvement as we move sequentially into Q1, Q2 of this year in the gross per unit.

One thing, Tony, just to mention, as we were and I'll use the word struggling to try to get the right focus on Sytner Select. The big issue there in that business was to get enough used cars every month to sell 500 or 600. And we were never able to get to that kind of number and have any profitability when we bought cars at the auctions, et cetera. So we shifted down a year, and we decided we would go out and try to buy big blocks of cars, which we hadn't done before. Well, I think we bought -- don't hold me to this between 1,000 and 1,500 cars, and we're paying for some of those in gross, so we're not getting the profitability. We expected I think the good news now is that 46% or 47% of the cars that we generated for used cars was actually from internal or from trades, and that's gone up to over 60% now. So I think we're going to see a better mix coming out of the -- getting them from our existing stores, plus we'll see better margins.

And we're -- I think we've got another quarter probably to work through this 1,500 cars. It's not anything to worry about, but it just is another stumbling block that we hit because we continue to try to figure out what's the right solution because used car prices are up, hard to get them. We want to make a margin on them. We don't want to over recondition when we do, it takes away from the -- think 1 thing that's key is really the amount of money that the finance company will allow to be financed. If you got a used car and you put touch reconditioning in it, it limits your profitability. So when you pull all those together, I think that we're traveling, Randall, you might want to make a comment on that as we go forward here in '26.

Yes. Look, we feel confident if you look as we finish the month of December compared to October and November and where we are in January, sequentially, the gross profit per unit continues to go up and January over January was good as well. So you're right, it is the inventory, the health of the inventory, aging in terrific shape. So look, it is hard to acquire cars. But in the same breadth, as you said, Roger, the profile, 68% of the cars that we acquired are either from trade or buying off the street which is up about 20 points versus what it was last year at the same time.

And we're not in the old car business. I know some people feel that it's a great opportunity. But I can tell you when we were selling these older cars in the U.K., the amount of cars that came back for policy or buyback, I just couldn't -- we couldn't control it. So that was another reason we decided to pull back and go down a year because the older car gets, you can't do the full reconditioning. And remember, when you buy a car, you're expecting to be able to drive it not have to take it back to the dealership 3 days later. So we're in this probably 1- to 5-year sweet spot when we look at our business on a going-forward basis. Would that be What do you feel, Rig.

Yes. No, I was going to add to comment Roger said earlier, right? We think we bottomed out last year on lease returns. Lease returns were only 7% of our used car sales last year. That was down from 11% in '24. So that gives us good cars that come back to our dealership that generally, we're not competing against other dealers or.

Or other third parties to acquire. Well, the other thing, we haven't been able to get the right cars because of some on the premium luxury side because of tariffs, et cetera. So we've been unable to turn our loaner cars you take our BMW store, we have a -- where we can turn loaner cars 30 3x. That's 1,000 young used cars that we really haven't had to play with here over the last couple of years. So that's only going to help us going forward.

Got it. Got it. That's all very helpful. I had a follow-up on PTL. -- just following on Alex's question. based on like how January might have started and like capacity coming out, in the past, you've talked about maybe there's an opportunity on reducing the bad debt expenses as well. Just keeping all these things in mind, would you expect PTL income to grow in 2026? What's like a good expectation for us to model for that segment?

I think from an overall business, we will see it increase because our rental business is up, it will probably towards the second half as we've seen this good utilization here in January on the weather is going to put a little dent in our tender here short term. But I see that up. There's no question that with the money that's going to be put into the economy by the government coming up with new tax rates, et cetera. I think you'll see the One-Way business starting to accelerate. It's been kind of on hold due to the fact that people didn't have having the money, obviously, to move out of their homes. So I see that as certainly a benefit Logistics will continue to grow based on our acquisition of new business. But again, many of our logistics customers have been operating with slower revenue also from their customers, and we've seen that ourselves as we have some of the direct business with some of the OEM manufacturers who supply parts to the OEMs.

But I see an increase in revenue. I think you talked about bad debts. We've faced for the last couple of years in the rental side, people are maybe not aware of this, but we've faced a lot of fraud or people come in, make a reservation online with all the high-tech stuff we have. People come in with the credentials. When we check them, they're fine. It turned around a week later, we can't get our truck back or they never pay us. So we've gone to some very, very detailed techniques, not to be discussed here in order to be able to take that down. And we've seen that already that offense and at the end of the fourth quarter and early this year already taking shape, which is another impact to bottom line, but we can reduce our bad debts by $10 million or $15 million next year, it gives us some runway to exceed everyone's expectations.

Understood. Great.

Our next question comes from the line of Daniela Haigian with Morgan Stanley.

So Roger, you've spoken about affordability pressures and going into 2026. So how have you seen any change in consumer behavior either in the finance business or in after sales for maybe retention on those older model year vehicles.

Let me let Rich talk about after sales, you want to just where you think we are in aftersales. I can talk on the other.

Yes. So we. I think, Daniela, the affordability topic obviously gets mostly talked about from a new and used vehicle selling price perspective. But as we looked at our business towards the end of last year, as we meet with our team on a monthly basis to go over the operations. And it was conveyed to us during that time, the third-party financing for our after-sales repair orders is starting to climb. So obviously, repairs on cars are generally not anticipated unless it's a routine oil change. But if you have a mechanical issue with your car, the repairs can exceed $1,000. And as stretched as some people are today, it's just very difficult to forward that out-of-pocket with everything else costing more money. So we have seen an increase and the financing of some of our aftersales repair orders.

And we're focusing on Level 2 and Level 3 to try to keep this customer it's out of warranty also.

Yes, we're evaluating what we can do from a labor rate perspective, what we can do from a parts pricing perspective, whether it's offering an alternative part to make that repair, so that the customer has a choice and can decide how they want to spend their money.

When you look at the business right now, affordability you've talked about everybody else has, but we have this pressure of the really undecided Washington on where they're going with tariffs. And of course, that has a tremendous impact of 25% on the German OEMs. Today, the U.K. is 10% for the first units. So that will be pressured putting more cost on our trucks, more cost on our cars and our light vehicles. I think that what's going to have to happen we're going to have to start getting equipment or vehicles or less equipment because they load these things up in order to get margin. So it's going to have to be a definite look at -- I'm not talking about strip versus, but I mean less equipment -- and then when we look at bed vehicles because they do have some production, and we're starting to see that inventory creep up because they still want to utilize those lines.

I think an ICE vehicle is going to have to be the same price as a bed vehicle. They want -- they probably don't like me to say that, but I feel that they're going to have to get in that range in order to keep this market going the way they want to. But I don't see a lot of escalation except when they can say it's all tariff driven. I don't know how you I think Daniel, I think the other thing is they're going to have to get back in the game from a leasing standpoint, rather heavily because they can control the residual value and can drive what that payment needs to be in the U.S. market typically has been a leasing market. We were flat year-over-year at about 32% overall but we still have upside in our premium luxury. That historically has been between 50% and 55%, and we're still in the low to mid 40s from a leasing standpoint on the premium luxury at the moment.

And my follow-up is switching gears a little bit to Chinese OEMs in EU and rest of world markets. has your strategy or how has your strategy evolved as it relates to the influx and changing market shares that you're seeing in these international markets?

Randall, do you want to take that question?

Yes, sure. Daniela. So look, there's no doubt that in the -- some of these foreign markets, particularly in Europe, the Chinese are gaining share. So particularly in the U.K., they doubled their share. They have nearly 10% of the market now. And our strategy has been through our Sytner Select stores. So we've got our big box pre-owned retail, these off brand from our franchise -- we've put Chinese brands. So cherry in 3 of the locations, Geely and 5 of them and then we're opening 1 BYD store. So we're utilizing our existing assets -- of course, we need to spend some money on the corporate identity. But in Q4, we retailed Chinese vehicles out of the cherry and Geely. We're really in earnest, we're in business really starting at the beginning of November. So Q1 will be the first full quarter. So look, it gives us an opportunity to understand the brand, understand the cars, gain relationships and understand that with these OEMs as well.

And our final question comes from the line of David Whiston with Morningstar.

Congrats on the Orlando deal, once that closes, are you going to need to sell any Luxe stores that remain under the gap?

We will be -- 1 shows deal is completed, will be in compliance with the requirements from both Ton and let, including Penske Motor Group.

Okay. And then on the credit line drives the funds partially fund these deals, do you prefer to let leverage and jump a little bit after the deal? Or do you want to repay those credit line draws quickly?

Well, let's take a look at it. Our leverage is at 1.5. I said we want to be well under 2.0, but the cash flow if we have a similar year that we had this year and we -- our CapEx will probably come down $100 million, we'll have free cash flow after CapEx we could have over $750 million. So we see this as a short-term slip in our leverage, but we don't see going into the market right now.

Okay.

All right. Thanks, David. Thanks, everybody. We'll see it at the end of the next quarter.

This concludes today's call. Thank you all for joining. You may now disconnect.

All right. Moving along, another great privilege to have Tony Porton back from Penske Automotive Group. One of the most unique Companies within the automotive and vehicle space. The company has 66 million shares, trades around $160, about $10.7 billion equity cap. -- as $1.5 on net debt and also owns 28.9% of Penske Transportation Solutions. Total enterprise value is in the $10 billion range. Apart from being 1 of the largest dealership groups in the country. Penske has also grown and is now 1 of the largest commercial vehicle dealership groups and has a host of other businesses that we'll talk about, a mistake was not booking Tony for longer than 30 minutes. So we're going to get right into Q&A. But Tony, thank you very much for being here.

Brian, you're welcome. Glad to be here, as always. You and Mario put on a great show. I think this has got to be, what, 20 years or so is '18 and 49 total.

Do you want to take 1 minute just talk about the business just give a better overview than I did you did a great job. But I mean, .

I will quickly talk about our business. So retail automotive, we have 356 franchises, predominantly premium luxury were based in the U.S., U.K., Germany, Italy, Japan, selling -- and now Australia is selling automobile deals. We just expanded into Australia with 3 Porsche dealerships. We sell about 20,000 commercial trucks every year through 45 different dealerships that we have. It's all unlike Rusty, who just got these various brands we're specifically Freightliner -- we're 100% freight wider, Freightliner dedicated, looking to grow in that we're both in Canada and in the United States. -- based out of Dallas. And then we have a 28.9% ownership interest in Penske Transportation Solutions. There's 3 partners to that business. As Mitsui, who owns 30%; and our parent Penske Corporation, who owns and that business is the 50% dividend policy that they have. So they pay us 50% dividend every year. And then they generate tax partnership that generates tax losses. Those tax losses passed to us via the partnership when we get to pay less federal income tax because of that. And then we hang it up on the balance sheet as a deferred tax liability.

So it's a brilliant play with respect to doing that. And then with the 1 big beautiful bill, as you guys were just talking about with Rusty, I think Mario's question is talking about the accelerated depreciation of things. We estimate conservatively that the 1 big beautiful bill will give us an extra $120 million to $150 million a year in cash flow from the deductions that TTL will get in terms of expensing the trucks at 100% for all their purchases on an annual basis. That's based off of roughly $300 million of purchases -- or I'm sorry, $3 billion of truck purchases that they will do every year. So my left off a couple of 0, so I apologize. And then -- and it's amazing when you think about the cash that, that will throw out. We we made our first investment, believe it or not, on July 1, 2008, what happened in September. Everything went to hell, right? But we bought 9% of the business, and then we bought 2 more tranches to get up to 28.9% in 2016 and 2017. And in total, we have $956 million in cash invested in that business. We've taken out $2 billion in cash. $2 billion in cash.

What do you think our debts were is right? I mean it's -- we're in a great position with that business. Now there's some trials and tribulations going on with there right now. But Penske Truck Leasing this year has been relatively flat in terms of performance. We've taken out people. We've cut the vehicle fleet by 40,000 gone from 445,000 to 405,000 and what you see in terms of the pressures in our rental business, our commercial rental and consumer rental. And once the once the economy turns around or the capacity, as Rusty was talking about, comes out of the marketplace, you're going to see a company like Penske Truck Leasing become a first mover because people aren't going to be able to order and get trucks and haven't built on time, they're going to come to us, have us rent them the trucks.

So we're going to be moving along pretty quickly right away. So -- and then on top of that, I didn't talk about the small business that we have in Australia. What's really interesting about that business is not only are we both providing on-highway trucks, we're doing an off-highway business, and I'm really, really interested in our Energy Solutions business today because we're providing the power plant that's going in and building data centers in Australia that's part of the AI revolution. So we've got AUD 1 billion under contract by 2030 to be able to supply these power systems into these big data centers. And it's -- honestly, it's less about that $1 billion. It's more about the service contracts that we get from those engines that are in service. And once they start hitting their useful life and they need to start having their server into it's like printing money.

Just as a rule of thumb, you mentioned the $125 million or so a year in free cash flow. -- about $100 million by about $400,000, $500,000 -- $400 million to $500 million of revenue in a...

Yes, depending on what -- it could be a little less than that if it's super luxury or Porsche stores, BMW and Mercedes, those types of stores will cost a little bit more. Toyotas and Hondas will cost a little less. And honestly, if it's a truck dealership costs even less. .

Yes. I guess the broader point I'm trying to make is that just a growth engine for you to be able to increase your own profitability.

And we just announced on our call last week that we have approximately $1.5 billion in the hopper to close before the end of the year.

Yes. And you just opened the -- or you just bought the Ferrari mode in.

We did. We bought Frode may be the smallest acquisition the biggest inflow simply in the overall company.

Let's take a step back and just talk about your core retail automotive business in the U.S., but it's predominantly luxury, -- we've heard a couple of comments about there being some excess inventory with some of the luxury OEMs. Maybe just talk about what you're seeing in the higher-end business.

First of all, let's back up. Let's look at the industry in total. And I don't know if this has been talked about today or not, but the industry has got about 2.6 million units of inventory right now. That $2.6 million compares to $4 million prior to the pandemic. So the inventory is still down about 35% from where it was. Now you bifurcate that and you look at what we have. We have 50 -- 49 days supply in the U.S., 51 day supply in the U.K. So I think our inventory is in good shape. We have 20 days of Toyota, 18 days of Lexus 70, 80, 90 days of Audi, okay? So Audi is a brand that doesn't have a lot of cash right now is very tough to manage because they don't have a lot of new product, okay.

BMW, while their inventory at a little bit longer, I think, in the month of October, what we're comparing it against is a year ago where they were recovering from a stop sale that took place over 12 months ago. So the numbers in October last year were pretty darn high. So yes, we're down on a year-over-year basis in October for BMW. Nothing to get worried about yet. I mean I do think that we have to watch the inventory closely and see what it does, but I'm not overly concerned because the compare is really tough.

Broadly speaking, we just went over $50,000 in average transaction price. Your average ticket is obviously higher given your mix. When you are examining strength of your customer base, whether it's FICO score, whether it's anything that within your F&I business, you can get some color on. What's your sense of the tranches of strength with the consumer?

So our subprime business is only about 6% to 7%. So we really don't even qualify to talk about that part of the business. I think every customer out there is a little squeamish with respect to affordability. I mean our average used vehicle transaction price is $40, new $60. That's up from 42% prior to the pandemic. So you take a look at that, higher interest rates even though they started to come back a little bit, you return to a dealership to lease a new car or purchase a new car and you get sticker shock. You really do. And what -- I'm not going to say it's a symptom of a customer or a problem with customers. What my symptom is or that I look at -- and the only thing that bothers me is that customers are now financing cars beyond 6 years, 7 years and 8 years, that's the part that bothers me. That's the part that we're watching very, very carefully and trying to dissuade people and ultimately, right, I want to sell a car. If a customer wants to finance a car at 8 years, even though I don't want them to because I want that customer back, I don't want to create a negative equity situation for that customer.

That's really what concerns me more, they're pushing out that financing term more and more. Now how can we combat that lower interest rates. We've got 50 basis points of rate decline so far in the last few months, and that's going to help. We do 32% leasing. That's down from 40%, right? Leasing can be more affordable because you don't have to pay for the whole car, right? So we think that leasing will increase. And then the other thing that we see is that it's right around 26% of our customers right now are paying cash for their car. So they're trying to not finance it at the higher rate and pay for that car.

So I still don't see a huge distress in customers of 26% can still pay cash for the car.

And where is that relative to where it's been in the past?

It's much high. It's down from its peak. We were 32%, 33%, 35%, 36%.

When you're talking about an average sales price that is now SP-6 Versus I mean, it's basically your new car -- or your used car now is the price of what a new car was to afford within a couple of thousand dollars.

And it's not -- I mean we're making bigger grosses off of those. So obviously, because the selling price is higher. But this is -- we have to think about the strength of the OEMs. And if you look at all the OEMs that you follow, right, the OEMs have a better product lineup, they're not selling as many of the loss leaders that they had before. And we've got a mix shift to 84% SUV in truck that's driving the business as well. Yes, Mario? .

I guess I've got a 4-year old BMW. I'm trading it in. I'm

Getting a higher price. So is it my net cost unched.

Yes. that well, it depends on what you have.

Yes, I agree with that. And the miles .

You're not driving very much, right? .

I only do 15,000 miles a year.

That's still a lot. Okay. So it's -- that's not the year. .

I made that up. It's probably more than...

Definitely more than that.

My concern is the customer that buys a Toyota Camry or Honda cord, right? .

Yes. I got it. Yes. The second question for me is I got interest expense that everybody focused on -- but that insurance company, all of a sudden is hitting me hard to they are. SP1 How much -- what Yes, but a number like what it would be today versus 2 or 3 years ago?

I don't.

It's okay.

Yes, I don't -- I can look at my personal insurance, right, and it's probably up $1,000.

I don't blame the .

Yes, for me, for sure. exactly. -- how I drive SP1 Before you talked about enormous cash flow from the various rules that have changed. But that doesn't impact PAG's book tax.

It helps your cash flow, but you booked.

It doesn't help my tax rate. My tax rate stays the same.

Cash flow enormously .

Correct. And then I end up putting the deferred tax liability on the balance sheet. .

Absolutely yes. But I just want to make sure we understand the difference between the book tax effective cash and the cash flow that shows up on the balance sheet, not a year P&L. That's right. Talk about the used market. franchise model is a lot different than maybe that which the Carvanas and CarMax's face. But what are you seeing as far as availability on the use side, quality, your ability to secure off-lease, which has to be down The base .

Yes, it's a really good question, Brian. I think that's probably the toughest part of the business today is trying to acquire the right used car to sell in our dealerships, whether it's a standalone used business or in the franchise dealerships. We have very low lease returns. As a matter of fact, I think they bottomed out. I think from here, they're probably going to start getting a little bit better over the next few years. And it's not going to be like a huge jump.

But at -- It will be better.

Right? It will be better than what it is today. We source 84% of the vehicles that we sell self-source. Those come from various different sources, the highest percentage is trade-in, which is about 55%. Our challenge is that we like the 0- to 4-year-old marketplace. We are not going after the 5, 6, 7, 8, 9, 10-year-old cars. So the 0- to 4-year-old marketplace is particularly difficult because everybody is looking for those -- and the prices tend to be elevated there. So the question then becomes, well, Tony, why aren't you expanding your view in going after older cars? And number 1 is I don't think we're good at it. Number 2 is those are the cars that end up causing high warranty rates, failure rates, costing more to get them ready for sale. And our customers premium luxury customers just don't want that.

Yes. You mentioned it effectively. -- the 0- to 4-year-old car population is smaller and in terms of lower Lower sales in 2020.

Right. So 1 of the things you look at, if you take and you go to our service business, right, that's growing very nicely, and we target mid-single digits in terms of overall revenue growth there. And quite frankly, we're growing our gross profit at a higher rate. So our margins increasing our challenge on the service side is to get that Tier 2 group of vehicles and to bring them back in, these are the cars that would be 5, 6, 7 years old and might be beyond their second ownership cycle where you sort of lose track of that customer. So that's our focus on the used side and on the service side is to try to get more of those Tier 2 customers and Tier 2 vehicles. .

Lester talked about is the U.K. And just maybe a couple of minutes on just the market there and how that market's evolved.

So we do about $9 billion in revenue in the U.K. It's about 35% of our business. Great business from for the past 20 years that we've been over there. Right now, it's a bit challenged, I think, because of government policy. And Mario, I know that doesn't surprise you at all -- but the government policy is making it very difficult on consumers over there. Whether or not it's an EV policy that's increasing every year and saying, look, if you don't get to a certain percentage of sales, you were going to have to pay a fine for not hitting a BEV target and that fine can be excessive, up to what is I think it's 15,000 pounds a car. -- right? 15,000 pounds of car for not hitting some arbitrary target.

So the target right now went from 22% last year to 28%. Next year, it goes to 32% the year after it goes to 38%. And then they're getting rid of the -- they're going to be in the sale of ice cars by 2035 and bandwidth sale of hybrids by 2030. They don't want hybrids because, guess what, they found out the customers were buying the hybrid car to get the tax credit but never plugging it in. And then on top of it, you've got higher taxes. We've got higher Texas for social programs. Our SG&A was a little bit higher this last quarter until we can start to anniversary and take some more cost out because they've added health care taxes minimum wage taxes that cost us probably $3 million each quarter right now.

And then the consumer, whether -- I'm not sure if you guys know this or not, but mortgages in the U.K. are much different than they are in the U.S. In the U.K., the mortgages, I think they reprice every 5-ish years or so. So everybody has had their mortgage repriced at much higher rates, where over here, we can finance it at 15 or 30 years and not have to worry about it. So that energy prices and that have caused some challenge with the U.K. consumer. The market is still not bad. But there's some challenging factors behind it. We just got to continue to work through. Service and parts is really good over there. F&I is really good. And we've restructured how we do our used business over there and how we do aging or used cars, and we closed our car shop locations. -- because they weren't making any money. We had too much overhead.

We went to this -- you've heard us talk about this thing called Select. The Select is a used only business that ties into the dealership itself. So a long story short with that is we've been able to increase our used vehicle grosses per car by several hundred dollars by just changing what we sell over there.

Yes. Do you have any updated thoughts on the competitive threat of direct sales to the dealerships?

So we are working through agency for 2 brands in the U.K. right now. We are 100% agency with Mercedes. Mercedes is somewhat struggling with that. many went direct on March 1. And we're waiting to hear what BMW will do. Jag, Land Rover came back and said they're not going direct, but they don't like it. in the U.S., no direct sales whatsoever. The franchise laws are still in place. Do I think the manufacturers want to do it, some probably do. Others don't. Others like the the dealership mix that they have and the fact that we can handle the customers themselves directly.

So it's a mixed bag out there. I would say that Mercedes struggled a lot with it. hundreds and hundreds of additional changes that they didn't anticipate that we had to help them out with. One of the big voids was lack of used cars in the marketplace. -- and we still struggle with that today. The other part, believe it or not, that is they came to us. And for those of you that don't know, when the manufacturer decides to go sell agency and go direct to the consumer in the U.K. they're controlling the selling price. They go from a negotiated transaction to here, so it's a 1 price model. bottom line. One, everybody pays the same.

So -- and I can talk more and more about that. But basically, that gives us an advantage if we're in population centers because the consumer that no longer goes out and negotiates. The problem with it is when they go direct, the manufacturer who said, we will take over and pay the marketing expenses, you don't need to pay any of those traditional expenses that you've had to pay. You don't have to pay floor plan and blah, blah, blah, stuff like that. Well, when sales weren't materializing, they came back to us and said, "Well, we need your help to sell more cars. We need you to go to the market discount some cars and we kind of want -- sorry, this is what you wanted. You guys got to figure this out. We'll help you, but you got to figure this out.

We're not -- you cut our margin what we're doing. What I can tell you is that we're making more per car on a net basis under agency for Mercedes than we were when we were selling the car ourselves.

Did you have a question? Can we get the microphone over here.

So I just want to go back to 1 of the questions, Brian. On the luxury demand -- so if I heard you correctly, it sounds like there's some -- it is socratic moves between the brands and with Audi, BMW etch. But -- are you seeing -- if you step back, are you seeing a weaker demand -- weaker consumer demand for luxury lately?

Look, if we look at the less several months, I would say that it's probably a little weaker than it was in the first part of the third quarter. I would say, as it went through the quarter -- through the quarter, September was probably a little weaker than July or August were. Now I'm not sure that if that's because people were out buying BEVs or if it was something more symptomatic than that. The other thing is we look at the month of October, we sold 130 EVs, 130 in the U.S. Again, I'll say that again, 130. In the third quarter, in the U.S., we sold 4,200 BEVs.

So the demand dried up. Over 50% of the BEVs that we sold were BMW. So -- and then on top of it, with that recall that BMW had the year before, I think it's too early to make a decision exactly what's going to happen there. Now if it's Audi, again, I'll say this again, Audi is a brand that is very, very, very challenging right now. I'd be surprised if anybody told you anything differently. It's just they've got to get their act together. Porche solid, Jag Land Rover is solid.

Go ahead, George.

Tony, I was just wondering if you could comment a little bit about on the addition of the Chinese dealerships and U.K. I know that you said the CapEx will be pretty limited because of the storage we've taken over. But you could you just talk a little bit about the strategy you have in adding those.

So for those of you that don't know, we announced last week that we have we're adding 8 Chinese brands into our dealerships in the U.K. We're putting in 3 cherry locations and 5 July stores. It is nothing more than trying something different, right? Trying something in the marketplace. They are clearly gaining share in the U.K. market. If you go back to the third quarter, and you look at the market itself, I believe that if you pulled out the Chinese brands, the market would have been down, but because the Chinese brands were there, I think the market was flat.

So we think that there's some type of potential growth perspective that's there. So we're putting them into these Sytner select dealerships. These are used only dealerships or what we've been treating them is used only dealerships. We're literally slapping a cherry or Geely sign on the front of the building. We're dedicating a little bit of the service area for Geely doing a little bit of spit shining based on their corporate identity image and trying to sell cars. It's 40 cars a month.

What's the average transaction price delta between what they're selling and what the average alternative

So it's probably what we're selling there is probably 30,000 pounds -- so a lot cheaper, a lot cheaper. It's nothing more than just trying to get our hands around and see what's going to happen. We're going to put in to additional stores, 1 with BYD, 1 with MG in Germany to see if any of this makes sense. And if it does, if it makes sense, then we can grow great. If it doesn't, we don't have much invested in it, and we pull back from there. So I tend to think that they're going to do okay though.

Thinking about your parts and service business, obviously, a major profit driver you've grown it really nicely despite the fact that your a 4-year car population is smaller that you're addressing. As that population rises again, isn't that kind of a double boost for you or...?

I think so. Yes, I think so. We had record levels. I think the entire peer group has. Our parts and service revenue, if you look at Three, we just finished and you compare that back to where we were in 2019, it's up 35%. All-time record parts and service revenue growth or margins is high, I think as it's ever been.

So it's driven by warranty and customer pay right now warranty is probably a little bit higher than customer pay, and it just keeps getting bigger and bigger. I don't know if you guys saw on Friday, Toyota and Lexus, we call the 1 million cars, 1 million. right? 1 million cars. So we're going to have to service those.

Warranty has obviously been a major growth driver for 5 or 6 years now. and I'll wrap up soon. But how much brand damage are these warranty issues doing relative to maybe what you would have thought they would have done? It doesn't seem like there's massive brand dilution from them over time.

It's not. And it depends on what the recall is, I think, too, right? This is the Toyota and the Lexus thing is a rearview camera issue. It's not like there's a catastrophic failure of the entire car. And look, if exploding airbags didn't cause your market share to go down and cause a big issue for you. I don't think anything well. I mean it's always something to be cognizant of. The biggest issue we have with Recall is the government process behind it. When a recall is announced and notifications to consumers take place, they want the dam car fixed. We don't even know what the fix is by the time when it's announced. Or when parts will become available? .

We've always -- we've been part of that. Next year, you're getting 45 minutes. I go to keep going. That's -- I know, but we out of respect for Harold. We're going to to shut it down. I appreciate you comment.

No, you're welcome. I'm glad to be here. Remember, Rusty said in the truck business is a little tough right now. But there's -- everything on this country moves on a truck. And once we get the capacity taken out of the marketplace, whether it's everything he was talking about and I didn't hear him mention the legals and the CDLs that are being granted and shouldn't be there. When that all gets aligned and gets better, that's going to take a lot of capacity out and look, these businesses are all going to shine. So -- thank you very much for your time. I appreciate it. .

Thank you. Thank you very much.

Good afternoon. Welcome to the Penske Automotive Group Third Quarter 2025 Earnings Conference Call. Today's call is being recorded and will be available for replay approximately 1 hour after completion through November 5, 2025, on the company's website under the Investors tab at www.penskeautomotive.com. I will now introduce Tony Pordon, the company's Executive Vice President of Investor Relations and Corporate Development. Sir, please go ahead.

Thank you, Rob. Good afternoon, everyone, and thank you for joining us today. A press release detailing Penske Automotive Group's third quarter 2025 financial results was issued this morning and is posted on our website, along with a presentation designed to assist you in understanding the company's results. As always, I'm available by e-mail or phone for any follow-up questions you may have. Joining me for today's call are Roger Penske, our Chair and CEO; Shelley Hulgrave, EVP and Chief Financial Officer; Rich Shearing, North American Operations; Randall Seymore, International Operations; and Tony Facione, our Vice President and Corporate Controller.

We may include forward-looking statements on today's call about our earnings potential, outlook and other future events, and we may also discuss certain non-GAAP financial measures such as EBITDA. Our future results may vary from our expectations because of risks and uncertainties outlined in today's press release. We also have prominently presented and reconciled any non-GAAP measures to their most directly comparable GAAP measures in this morning's press release and the investor presentation, both of which are available on our website.

Our future results may vary from our expectations because of risks and uncertainties outlined in today's press release under forward-looking statements. I also direct you to our SEC filings, including our Form 10-K and previously filed Form 10-Qs for additional discussion and factors that could cause future results to differ materially from expectations.

At this time, I'll now turn the call over to Roger Penske.

Thank you, Tony. Good afternoon, everyone. I'm pleased with the performance of PAG during Q3. Our teams navigated through several challenges across our business and delivered solid results. Q3 revenue was $7.7 billion, up 1%. For the quarter, EBT was $292 million, net income, $213 million and earnings per share of $3.23. Retail automotive same-store revenue increased 5%, which included a 5% increase in service and parts revenue, partially offset by approximately $200 million of annualized revenue of strategic divestitures and dealership closures made during the last year.

Q3 each year typically is impacted by seasonality as we navigate the change to a new model year. This year's seasonality was coupled with the expiration of EV tax credit in the U.S., which drove a higher penetration of BEV sales during the quarter to more than 10% of our total sales, and that's up from 6% to 7% in previous quarters. The average discount from MSRP on BEV we sold in the U.S. in Q3 was $7,100. We estimate the higher percentage of BEVs sold during the quarter reduced total new vehicle gross per unit by approximately $100.

The U.S. retail automotive business was strong during Q3 as same-store new units delivered increased 9% and revenue increased $300 million or nearly 10%. The strong U.S. performance was offset by two areas. The first, the U.K. retail automotive and retail commercial trucking businesses. In the U.K., a cyber incident at Land Rover impacted delivery of new vehicles during the September registration period as well as an interruption to our service and parts business. We estimate the impact reduced the total new gross per unit by approximately $61. Gross per new unit retail in Q3 was $4,726. If you add back the impact of the higher mix of BEV units during the quarter and the impact of Land Rover gross per new unit, we have been approximately $150 per unit higher.

In addition to the cyber incidents, higher costs for government-mandated social programs in the U.K. drove higher SG&A costs. The net impact of these two events drove a reduction in EBT of approximately $5 million during the quarter. Also, the challenging freight backdrop continues to impact commercial truck sales and service and parts. As a result, PTG same-store unit sales declined 19% during Q3 and EBT declined $15 million.

In summary, we estimate the impact -- EBT during the third quarter was approximately $23 million or $0.25 per share. Outlining at JLR cyber incident, $4 million; our social programs, $2 million to $3 million; premier truck freight and tariff impacts, $15 million; and we had a higher bad debt expense at PTS of approximately $2 million. Our teams have taken action to reduce the impact from these macro events through various initiatives, including headcount reduction, driving efficiencies, which should benefit future periods.

Let me now turn it over to Rich Shearing to discuss our North American operations.

Thank you, Roger, and good afternoon, everyone. As Roger indicated, our U.S. automotive retail business was strong during the third quarter. Same-store new and used unit sales increased 5% with new increasing 9% and used increasing 1%. During the quarter, 26% of new units sold were at MSRP compared to 32% in the third quarter last year. Used vehicle sales continue to be constrained by fewer lease returns, and we expect the lower level of lease return maturities to bottom this year and begin improving in 2026. We further expect franchise dealers, in particular, to benefit from these increasing lease returns for used vehicle sourcing.

Our U.S. same-store service and parts revenue increased 6% and related gross profit increased 8%. Same-store gross margin also increased 120 basis points. Customer pay gross was up 5% and warranty was up 15%. On average, in the U.S., we estimate our automotive technicians generate approximately $30,000 of gross profit per month. Our automotive technician count is up 2% when compared to the end of September last year. While automotive service and parts revenue and gross profit is at a record level, we continue to focus on driving higher utilization of our base and increasing fixed cost absorption. And in Q3, our U.S. fixed cost absorption increased 380 basis points.

Turning to Premier Truck Group. We operate 45 locations and remain one of the largest commercial truck retailers for Daimler Truck North America. As Roger indicated, EBT declined $15 million when compared to Q3 last year as the prolonged recessionary freight environment impacted orders, new and used unit sales and fixed operations. Tariffs pulled some orders previously scheduled for delivery in Q3 up to the second quarter, while other customers remain on the sidelines due to Section 232 tariffs and ultimate resolution of the EPA 2027 Emissions Regulations.

As a result, the Class 8 market saw a 30% decline in orders and a 22% decline in retail sales during Q3. At the same time, industry backlog dropped 24% to approximately 88,000 units or 4 months of replacement demand. During Q3, Premier Truck Group was in line with the industry as new and used unit sales declined 19%. Service and parts revenue declined 3% as lower freight volumes caused customers to defer repairs and maintenance to future periods. Premier Truck Group remains one of the core pillars to the Penske Automotive Group diversification story, and we continue to adjust our cost structure to a level of business and are well positioned for an inevitable rebound.

Turning to Penske Transportation Solutions. The freight environment also impacts the full-service lease, rental and logistic operations of PTS. During Q3, operating revenue declined 3% to $2.7 billion. Full service revenue, contract maintenance and logistics revenue was flat, while rental revenue declined 14%. In Q3, PTS sold 10,600 units and ended the quarter with 405,000 units, down from 414,000 units at the end of June.

During the quarter, PTS incurred an increase in bad debt expense on its rental business of approximately $7.5 million from higher write-offs related to the freight environment. That increase impacted the PAG equity income by approximately $2.2 million during the quarter. Despite these challenges, equity earnings from PTS were $58 million, only down $2 million from the $60 million we reported in Q3 last year as PTS has been aggressive in rightsizing its fleet, reducing expenses and preparing for the rebound in the freight environment.

I would now like to turn the call over to Randall Seymore to discuss our international operations.

Thanks, Rich, and good afternoon, everyone. During Q3, international revenue was $2.9 billion. In the U.K., the macro operating environment remains challenging as inflation, interest rates, higher taxes, consumer affordability and the government push towards electrification impacts the overall market.

During Q3, the number of same-store units we delivered declined by 7% as the zero-emission mandates, the cybersecurity incident at JLR and the previously discussed disposed or closed dealerships impacted our new unit sales. In fact, our unit volume at JLR was down approximately 700 units in Q3 2025 when compared to the same period last year. Despite the challenging operating environment, the loss of JLR units during Q3, new vehicle gross has only declined $163 per unit.

Turning to used cars. Our same-store used units declined 8% as we closed or sold 4 locations and realigned the U.K. CarShop used-only dealerships to Sytner Select last year. We have now reached the 1-year anniversary of making the change to Sytner Select. As a result of this change and better management of used cars, total used gross profit in the U.K. increased 19%, contributing to the overall increase in used vehicle gross per unit. Service and same-store revenue -- service and parts same-store revenue was flat during Q3, while gross profit increased 4%, including a 270 basis point increase on gross margin.

We also have operations in Italy, Germany, and Japan, and these businesses generated an increase in revenue of 23% during Q3 and an EBT increase of 54%. As we look to future opportunities in the U.K. and Europe, we opened our first Chinese brand locations. We will have 8 dealerships co-located in our Sytner Select locations as we look to drive further efficiencies to augment the investments at those sites.

Turning to Australia. We operate 3 Porsche dealerships in Melbourne and distribute heavy-duty trucks and power systems through a network of more than 20 dealers across Australia. The Porsche dealerships are fully integrated and performing well. We have sold 1,700 vehicles year-to-date. And during Q3, the used-to-new ratio grew to 1.4:1 and fixed absorption increased 250 basis points. We utilize our existing scale of the Commercial Vehicle and Power Systems business in Australia to leverage costs while executing our one ecosystem strategy, which provides for a superior customer experience.

For the Australian Commercial Vehicle and Power Systems business, we are diversified with revenue and gross profit split approximately 50-50 between on- and off-highway markets. We are really pleased with the growth we see in Australia. In fact, the recent announcement of rare earth minerals deal between Australia and the U.S. should help drive further growth in the off-highway mining segment.

The Defence and Energy Solutions segments provide us with additional opportunities. In Defence, we have in-service support contracts on a variety of applications ranging from infantry fighting vehicles to frigates, destroyers, and armed personnel carriers. In Energy Solutions, we believe we are at the forefront of a rapidly growing segment that provide power solutions for data centers to support the future growth of artificial intelligence. Data centers require robust infrastructure with reliable power at the core of its operation. The engines and support we provide will be critical as this segment evolves. We see the potential for our Energy Solutions business in Australia to generate at least $1 billion in revenue by 2030.

I would now like to turn the call over to Shelley Hulgrave to review our cash flow, balance sheet, and capital allocation.

Thank you, Randall. Good afternoon, everyone. We remain committed to our diversification strategy, a best-in-class balance sheet and a disciplined approach to capital allocation while implementing efficiencies and lowering costs across our businesses. Our SG&A to growth was 72.7% during Q3. The third quarter typically has a higher SG&A due to seasonality. However, Q3 SG&A to growth was also impacted by the higher social program costs in the U.K. the cyber incident in Land Rover and the lower business volume at Premier Truck Group. We believe these items contributed 120 basis points to SG&A to growth during Q3. Excluding these items, SG&A to growth increased by 30 basis points when compared to Q3 last year.

For the 9 months ended September 30, 2025, we generated $852 million in cash flow from operations and adjusted EBITDA was $1.1 billion. Our free cash flow, which is cash flow from operations after deducting capital expenditures, was $625 million. On a trailing 12-month basis, adjusted EBITDA was over $1.5 billion, representing an increase of 3.2% compared to the same time last year. EBITDA for Q3 was $357 million.

During the third quarter, we repaid $550 million of senior subordinated notes at their scheduled maturity, further reducing our non-vehicle debt. At the end of September, our non-vehicle long-term debt was $1.57 billion, which is down $281 million since the end of December last year. We have $5.6 billion total debt, of which $4 billion is floor plan and the remaining $1.6 billion is related to our 2029 senior subnotes, credit agreements and mortgages. 15% of the non-vehicle long-term debt is at fixed rate. We estimate a 25 basis point change in interest rates would impact interest expense by approximately $12 million.

Debt to total capitalization improved to 21.5% from 26.2% at the end of December last year and leverage declined to 1.0x. Through September 30, we paid $253 million in dividends and invested $227 million in capital expenditures. We increased our dividend by 4.5% to $1.38 per share in October, representing the 20th consecutive quarterly increase. On a forward basis, our current dividend yield is approximately 3.2% with a payout ratio of 36.5% over the last 12 months. Year-to-date through October 24, we repurchased 1,086,560 shares of stock for $145 million, representing approximately 1.6% of our outstanding shares. We have $262 million remaining under the existing securities repurchase authorization. Over the last 4-plus years, we have returned over $2.5 billion to shareholders through dividends and share repurchases.

As part of our strategic capital allocation, during the third quarter, we acquired the iconic Ferrari dealership in Modena, Italy and have 9 Ferrari dealerships worldwide. This dealership is strategic to both Penske and Ferrari and will enhance our relationship at the home of the Ferrari brand. We have an acquisition pipeline of over $1.5 billion of revenue we expect to close during Q4 and expect to meet our acquired revenue target for the year.

Total inventory was $4.7 billion, down $145 million from the end of June and up $65 million from the end of December 2024. Retail automotive inventory is down $9 million, while commercial vehicle inventory is up $74 million. New and used inventory remains in good shape. New vehicle inventory is at a 51-day supply, including 54 days for premium and 34 days for volume foreign. Our BEV inventory is at 12 days in the U.S. at the end of September. Used vehicle inventory is at a 43 days supply. At the end of September, we had $80 million of cash and liquidity of $1.8 billion.

At this time, I will turn the call back to Roger for some final remarks.

Thanks, Shelley. As I mentioned earlier, I continue to be pleased with our performance and remain confident in our diversified model and its ability to flex with market conditions. Thanks for joining the call today. We'll now open it up for your questions.

[Operator Instructions] Your first question today comes from line of Michael Ward from Citigroup.

Randall, I wanted to clarify something. You went over kind of quickly. You mentioned 8 locations with Chinese brands, and then you tied in Sytner Select together with it. What were you talking about there? And can you identify the brands you're kind of working with now with the Chinese-based manufacturers?

Yes, sure. So as we made the transition from CarShop to Sytner Select last year, we reduced the number of these big box retail stores down to 8. And -- so these are high-quality locations. The strategy there was to have less inventory, I'd say, better inventory through better source and increase our gross profit. And for the numbers we just went over, we were successful with that and happy and proud of the team with what they've executed over there. But we had the opportunity to take on some Chinese brands. So Chery, we've taken on in 3 locations. We launched that in October. And then Geely, we're in the process of launching right now. So we'll be running in November at 5 other locations.

So look, these are existing locations, no capital expenditures to speak of. We've got fixed operations there. So it's a really good opportunity. And then just while we're on the Chinese topic, 2 other locations in Germany. So in Aachen, we're going to take on BYD again, at an existing location facility we already have. And then MG in Heinsberg, Germany, same thing with the location that we already have.

I think, Mike, also, when you think about these big box stores, these are built first-class originally for CarShop, and we've obviously changed the brand name, the Sytner Select, but we're getting about 400 people coming through the store, am I right, Randall?

Per week. Yes.

Per week. So this isn't like opening up a new branch or a new dealership with no service and no sales. This gives us a chance really to do with the Chinese brands. And it's minimal, very minimal impact from the standpoint of capital expenditure.

Okay. Wow, so you're doing with the Chinese brands at a Sytner Select location?

Correct. Maybe that's the easy way to put it, correct.

Okay. Rich, you talked a little bit about on the truck side. In the Big Beautiful Bill, there was the tax deduction for depreciation. Is that or will that have any impact on 4Q demand? Or is that more of a '26 type story?

No, I think it will have impact. In fact, the production schedule for DTNA is closed for Q4. So they filled their production schedule. And we saw, I wouldn't say significant activity as a result of the Big Beautiful Bill. I think that was a piece of it, but I also think DTNA extended the aluminum and steel tariff pricing through the end of the year and customers who are waiting or don't want to wait to understand what the impact of Section 232 tariffs are decided to lock in that pricing from the steel and aluminum tariffs and place orders in the fourth quarter this year if they're looking for business early next year. So I'd say it was a combination of those two things, Mike.

So we should expect a little uptick relative to Q3 and Q4.

I think it's going to be consistent. If I look at what we've delivered on a year-to-date basis, just over 2026 -- sorry, 12,700 units. You look at what our backlog is for the fourth quarter, it's going to be in line with those quarterly numbers. Of course, they've got to deliver them to us, and we've got to get them retailed to our customers, but I think it will be in line with what we've seen from the first 3 quarters.

And then Shelley, that's still -- from a cash standpoint, that's still a positive rate depreciation intent?

Definitely, Mike. So it will ultimately depend on how many trucks PCS decides to buy, but I think we're still comfortably in that 125 to 150 range, especially as you look out at each of the next 3 years.

Your next question comes from the line of Rajat Gupta from JPMorgan.

Just wanted to follow up on PPG. I appreciate the call out on the headwinds in the quarter. But it doesn't look like -- I mean, those headwinds are going away anytime soon. I'm curious what kind of visibility you have on the cadence there bottoming out. I'm assuming like once that business comes back, it's going to lever pretty well. But I'm curious like what kind of visibility do you have on the recovery there? And I have a follow-up.

Yes. Sure, Rajat. Rich again here. I think if you look at freight rates, I think they have bottomed out. They just haven't improved. So they've been fairly consistent in the last 6, 9 months. The issue we've got at the moment is the capacity, meaning there's too many trucks and trailers for the goods that need to be moved. And I think as I look into next year, just returning from the American Trucking Association Conference, there were some discussions there that were encouraging to me.

So there was two executive orders written this year, one in April and one in September, and they're both under the responsibility of the Department of Transportation and the FMCSA to enforce related to non-domiciled CDL holders and non-English-speaking CDL holders. These two groups of CDL holders is estimated between 500,000 and 600,000 or about 6% of the total CDL driver population. And so as enforcement and kind of reconciliation occurs with these CDL drivers, we think that's going to take some capacity out of the marketplace. What we're also hearing is that it's not a one-for-one removal because we think that a number of these CDL holders are operating illegally around electronic logging devices. So if you take out one of them, it's like taking 1.5 drivers out of the market. So I think those two things are going to be beneficial for capacity tightening and freight rates as we go forward.

The other thing I would add is, obviously, we're anticipating some news today on interest rates. The housing market is a significant driver of freight as well. We're about 1 million units below the 2006 peak of housing starts at the moment. And if we get lower interest rates, that could drive some activity in the housing, whether it's relocations, people becoming more mobile, certainly refinancing. And I think those things will be beneficial as well. And as we look here in October, our fixed operations, we're still 122% fixed coverage. We are seeing that customers are only repairing what they have to repair. We are seeing our collision business is a bright spot. That is up year-over-year, but certainly, parts that are consumed as trucks go up and down the road is reduced and service activity is reduced as well from an RO count perspective.

Got it. Got it. That's clear. Maybe just to follow up on just the U.S. parts and service business. If I heard you correctly, you said the U.K. was up 4%, which would mean the U.S. business is probably up like high single digit, double digit on growth. I mean, it's a pretty solid number considering you do not have the easy compares from -- because you didn't have CDK issues last year. I'm curious, is there anything you would point out that's driving that kind of double-digit growth? Is that sustainable? Anything that you're doing company-specific that might be supporting that?

Yes. Sure, Rajat. Rich here again. You look at our business, same-store performance, customer pay was up 3.5%. Warranty was up over 14% and collision is up 7.5%. And so I think each aspect of the fixed ops continues to perform well. And I think it's a combination of a couple of things. First of all, you look at the age of the car park, it continues to increase almost 13 years now. The average age of the vehicle we're servicing is 6.25 ages or years of age. And then average mileage is approaching 70,000 miles as well. So I think that's going to continue as even the SAAR this year is forecasted to be below historical norms. And so we're going to continue to see that increase.

You look at what we're doing on the service lane and what we're doing with technician videos, all of these things are driving efficiencies. We're using AI in our service scheduling and reception answering. And these are driving efficiencies, which we see manifested in our effective labor rate, which is up 4% or almost $7 per hour, which comes to discounting and a focus there as well. So I think all those things combined are paying dividends. Obviously, the OEMs try to mitigate recalls, but we continue to see new recalls on a monthly basis from each of the OEMs. And so we'll see that warranty work, I think, continue.

I think the focus also on body shop, we were up significantly both in the U.S. and internationally, and we're making investments. And our return, Rajat, return on sales on the body shop somewhere between 10% and 12%.

Got it. Got it. If I can join like just one quick one. You mentioned like the data center like opportunity in Australia going very well. I'm curious like if there's any parallels there for you to tap into that opportunity in the U.S. at all, either through PTL or just building that business given how much build-out is happening here? I know the scale levels are very different, but any thoughts on that would be helpful.

Yes, Rajat, it's Randall. So yes, this has been the fastest-growing part of our business in Australia. We've got about 60% market share when you talk about 1,250 KBI and higher. But one benefit we have in Australia and New Zealand is we're the exclusive importer for that MTU product.

The challenge in the U.S. -- and look, we've looked at opportunities in the U.S. and continue to, but it's much more fragmented where you have numerous distributors in North America, contrasting that where we're the sole distributor in Australia. And then MTU, who's the provider, manufacturer of the engine, they go direct to some of the bigger players, data center players in North America, whereas everything in Australia is through us. So it's a little bit hard to copy and paste it, but we have a great relationship with them and evaluate opportunities as they come.

[Operator Instructions] Your next question comes from the line of Jeff Lick from Stephens.

A question for Rich. Rich, I was wondering, there's been some -- a lot of comments amongst the other dealers that have reported already about where things are in luxury in October and just kind of going into the all-important kind of December to remember season. I was just curious if you can just talk about where you see things playing out there? And then also, if you can maybe address the GPU was down about $300 on a year-over-year basis, where you see GPU trends heading?

Yes. So Jeff, if you look at the Q3, start there first. Our premium luxury was up almost 9%, so we felt good about our mix and performed well in the quarter. As you look to where we're at right now, it's certainly a brand-by-brand situation. And of course, we've talked on the call here about Jag Land Rover. If you look at where we're at when the production cyber incident occurred, we had about a 74-day supply. As I sit here today, we're down to a 39-day supply. We expect to get visibility to their wholesales and what we'll receive in the fourth quarter on November 8, when their production software system comes back online. So in the interim, obviously, with the demand still being high for that product, it enables us to hold price, and that should be good for our grosses. So that's kind of the story on JLR.

You look at Lexus, they've been one of the hotter luxury brands this year. Certainly, the launch of the GX and the TX, those models are taking a younger demographic that they really haven't played with in the past. And I think they're competing neck and neck with BMW for the highest volume luxury car this year. So I would expect BMW and Lexus to be pretty aggressive in the fourth quarter incentive-wise to try and knock down that trophy.

If you look at BMW, I think the challenge we have in the fourth quarter this year with BMW is the comps to last year. If you recall, last year and really into the first part of this year, they had a significant recall that impacted almost their entire model range with the integrated brake system, stop sale and fix. And it was about this time last year where all those BMWs came off stop sale. And so the fourth quarter was a heavy delivery schedule for BMW last year. So that's kind of some color on what I would say from a premium luxury standpoint for the fourth quarter.

Going to your second question on grosses, I think Roger talked about in his commentary, a couple of things I'd say when you look sequentially or compared to Q1, you got to add back the impact from the higher BEV sales in Q3. We think that was about $100 in gross. And then the JLR impact with the deferred deliveries about $60. So you add that $160 back, we're just under $5,000 all in, which is comparable to Q1. And the reason I'm not putting Q2 in there is because that's when we had a little bit of that tariff bump as people rushed out to get cars when we fully didn't understand what that impact was going to be and what the OEMs are going to pass along.

Jeff, let me add a little bit here. When you think about BMW going into the fourth quarter, BMW probably in the premium side was the most successful selling EVs. So we're seeing this drop. If you look at October month-to-date, we've sold 128 in the total U.S. versus 4,000 in Q3 -- for the Q3. So when you look at that, there's going to be a pivot here because BMW, they're pulling back, obviously, production. Now they're still supporting it to a certain extent. They're going to have to fill that back with ICE units. And I think that's going to be a conversion.

We see the California where we had sometimes 20% of our business was going to be EVs. We're going to see that have a little bit of dynamic, I think, in Q4. And I'm sure it will smooth out as we go into the new product line and more of the hybrid units available for sale. So our days supply today, if you can believe it is only 10 days. We were talking about 100 days in the past. So taking the money out it certainly has impacted the business.

Appreciate that color. And just kind of a quick one for Shelley. Shelley, on the net kind of $150 million tax benefit you're receiving from the accelerated depreciation on the one Big Beautiful Bill, never get tired of saying that. Where will that show up? And when will that show up in the P&L?

I don't really get tired of talking about it either, Jeff. So it's cash flow. It's -- we are able to defer taxes -- cash taxes paid. So you will ultimately see that at the top of the cash flow statement under cash flow from operations. When we add back the change in deferred income taxes, it will be a positive, whereas last year it was a negative or at least it will swing by that amount. So you'll see that in cash flow from operations, and we certainly look to utilize that in our capital allocation. It does not impact income or our tax rate though, Jeff.

And does that start hitting now? Or is that kind of -- part of it was retroactive, correct?

Yes. It was retroactive to purchases made starting January 19 of this year. We would -- we've certainly seen it as we've made quarterly tax estimates. But as it wasn't effective until July 4, it didn't really have much of a cash impact until the second half of the year.

Your next question comes from the line of David Whiston from Morningstar.

So on the retail used, the GPU was up over 12% to a little over $2,100. And I'm just curious how much of that 12% is Sytner versus other variables?

Could you repeat that, David? It was a little hard to hear you.

Sorry.

How much of Sytner versus U.S. unused growth impact?

Yes.

It basically was -- this is Tony. It basically was all coming out of Sytner. It's coming all out of Sytner and the change that we had with respect to the Sytner Select locations and moving to a lower amount of inventory but better quality used cars.

Yes. The GPU, David, was up 37%, up 600 pounds per unit, which obviously when you melt that in with the U.S., everything else, it is exactly what we wanted to see happen. I would say that part of the Sytner Select has worked out well then when you add on the ability to see the margins, at least initially that we're seeing somewhere in GBP 3,000 to GBP 3,500 on the Chinese brands. It will be interesting to see how that plays out over time when they add more dealers to see if the competition would drive that down. But obviously, our big issue on used in the U.S. is acquisition.

And I think Rich has talked about it before that we're going to start seeing considerably more lease returns as we look at Q4 and Q1 next year.

And remember that probably what today, Shelley, 55% of our new vehicles at premium are leased. So -- and those are 3- and 4-year leases, which are perfect for us as we bring those back in. And then on top of that, now with the supply will be available, we'll be able to turn our loaner cars quicker. And you think about Crevier out in California has 300 loaners. We turn it 3x. That's 1,000 used cars that come internally, and we get all the new car programs for those. So those are levers that we're pulling here as we go forward. But it's a big focus, even our CarShop business. If I look at the month of September and October, we're a little off in volume because we just can't buy the right cars and just to buy them and try to -- we're just not a 8-, 9-, 10-year-old car supplier. We want to be in the sweet spot. And I would say when you look at that, that's probably in the 3 to 6 year.

One more comment on that. From the U.K. standpoint, certainly, the Sytner Select strategy has worked. But our franchise used car gross profit is up about the same as Select. So I think it's more of a I'll use the word institutional change that we've done with our team over there. It really boils down to, if you look at our total used inventory right now, less than 1% over 90 days old. So it's an age factor. It's better sourcing, so buying cars better. And then it's just discipline. I mean it is intense focus on units and then agility of pricing, quickness of reconditioning. So it's really a big -- I'd say a big, big effort for sure and discipline by the team in the U.K.

Reducing aging has been a big part of that as well. So you didn't have to discount as much.

And there are no further questions at this time. I will now turn the call back over to Mr. Roger Penske for some final closing remarks.

Yes. Thanks, everyone, for joining us for Q3. We look forward to the remainder of the year, and we'll see you on the next call. All the best. Thank you.

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

Good afternoon. Welcome to the Penske Automotive Group Second Quarter 2025 Earnings Conference Call. Today's call is being recorded and will be available for replay approximately 1 hour after completion through August 6, 2025, on the company's website under the Investors tab at www.penskeautomotive.com. I will now introduce Tony Pordon, the company's Executive Vice President of Investor Relations and Corporate Development. Sir, please go ahead.

Thank you, Julianne. Good afternoon, everyone, and thank you for joining us today. A press release detailing Penske Automotive Group's second quarter 2025 financial results was issued this morning and is posted on our website, along with a presentation designed to assist you in understanding the company's results. As always, I'm available by e-mail or phone for any follow-up questions you may have. Joining me for today's call are Roger Penske, Chair and CEO; Shelley Hulgrave, EVP and Chief Financial Officer; Rich Shearing, North American Operations; Randall Seymore, International Operations; and Tony Facione, Vice President and Corporate Controller. Our discussion today may include forward-looking statements about our operations, earnings potential, outlook, acquisitions, future events, growth plans, liquidity and assessment of business conditions.

We may also discuss certain non-GAAP financial measures as defined under SEC rules, such as earnings before interest, taxes, depreciation and amortization or EBITDA, adjusted net income, adjusted earnings per share, adjusted selling, general and administration expenses and our leverage ratio. We have prominently presented the comparable GAAP measures and have reconciled the non-GAAP measures to the most directly comparable GAAP measures in this morning's press release and investor presentation, both of which are available again on our website.

Our future results may vary from our expectations because of risks and uncertainties outlined in today's press release under forward-looking statements. I also direct you to our SEC filings, including our Form 10-K and previously filed Form 10-Qs for additional discussion and factors that could cause future results to differ materially from expectations. I will now turn the call over to Roger Penske.

Thank you, Tony. Good afternoon, everyone. I'm really pleased with the performance of our diversified international transportation service business in the second quarter. Our revenue was $7.7 billion, which was consistent with Q2 last year. Our Q2 revenue was impacted by strategic divestitures of dealership closures made since quarter 2 in 2024, representing approximately $200 million in revenue. EBT increased 4%, our net income increased 4% and earnings per share increased 5% when compared to the second quarter of 2024. Q2 represented our third consecutive quarter of year-over-year earnings growth, and we generated $337 million of income before taxes, $250 million in net income and $3.78 per share.

Our EBT margin increased 20 basis points to 4.4% when compared to Q2 last year. The second quarter performance was highlighted by a 9% increase in same-store retail automotive service and parts gross profit and a 50 basis point increase in service and parts gross margin, also an increase in fixed cost absorption of 330 basis points in the U.S. and 30 basis points in the U.K. Our gross profit increased to $1.3 billion, which compares to $868 million in Q2 in 2019. The company gross profit margin increased 50 basis points to 16.9%, representing the eighth consecutive quarter of strong and stable gross margin.

New and used vehicle grosses increased 141% -- $141 in the quarter for new and $384 sequentially. Used grosses increased $504 per unit for the quarter and $177 sequentially. New and used vehicle gross and F&I combined or what we call variable gross profit increased $583 per unit or 11% to $5,691. Our focus on controlling costs such as advertising compensation as a percentage of gross profit helped drive selling, general and administrative expenses as a percentage of gross profit or SG&A to 69.9%, a 30 basis point improvement.

As we look at the current environment, we are encouraged by the recent trade agreements. In fact, the recent agreement with the EU is expected to provide benefits to 2 of our largest partners that should benefit from the agreeing by exporting U.S. production. We've seen some OEMs increase prices modestly while others have extended during the current pricing. The situation remains fluid, and we remain close -- in close contact with our OEM partners. I think our diversification is a key differentiator as approximately 61% of our revenue is generated in North America, 29% in the U.K. and 10% from other international markets. PAG's premium brand mix, our presence in the U.S. and international automotive markets, our North American retail commercial truck dealerships and earnings from Penske Transportation Solutions, coupled with our highly variable cost structure, provide us with opportunities to flex our business to meet the changing automotive and commercial truck landscape. Let me now turn it over to Rich Shearing, who handles our North American operations. Rich?

Thank you, Roger, and good afternoon, everyone. In our automotive retail business, during the second quarter, we experienced elevated traffic during April and May. We believe the pent-up demand is driving customer resilience, and we have seen stronger traffic and closing ratios so far in July with sales up approximately 10% month-to-date versus prior year. In the second quarter, our new units in the U.S. were up 1%. Some OEMs held off from shipping product as tariff negotiations took place, limiting inventory of some brands. During the quarter, 34% of new units sold were at MSRP compared to 35% in the second quarter last year.

Second quarter used vehicle sales declined 3% and were constrained by fewer lease returns and rising prices. We expect the lower level of lease maturities to bottom this year and begin improving in 2026. We expect franchise dealers will benefit from increasing lease returns for used vehicle sourcing in that time period. Our U.S. service and parts operations generated record levels of revenue and gross profit. Same-store service and parts revenue increased 7% and related gross profit increased 9%. Same-store gross margin increased 90 basis points. Customer pay gross was up 6% and warranty was up 24%. We have approximately 6,000 service bays and 5,800 technicians, and our technician count is up 2% from June of last year. While our service and parts revenue and gross profit is at a record level, we continue to focus on driving higher utilization of our bays and increasing fixed cost absorption.

Turning to Premier Truck Group. We operate 45 locations and remain one of the largest commercial truck retailers for Daimler Trucks North America. Daimler Trucks North America continues to have the largest share in the Class 8 market at 42.5% year-to-date. Premier Truck Group is one of the core pillars of our diversified model and represents 12% of revenue and 11% of gross profit. As we look ahead, the U.S. Congress revoked the EPA waiver that allowed California to adopt more stringent emission rules, which means manufacturers and dealers will no longer have to navigate different rules across different states. Coupled with the waivers being rescinded for Advanced Clean Truck and Advanced Clean Fleet rules, the ZEV mandates have also been effectively removed. As a result, we believe the potential cost increases for the 2027 model year Class 8 trucks will be more muted than originally expected.

During Q2, Premier Truck Group sold 5,339 new and used units. New was up 4% and used units was down 8%. Although used units declined, used truck grosses increased over 50% to $7,037 from $4,502 as late model low-mileage trucks continue to be in short supply. At the end of June, the current industry backlog was 90,400 units or approximately 4 to 5 months' worth of sales. We did note some pull-ahead ordering during the quarter as a result of tariffs as some customers look to lock in lower prices. Same-store service and parts revenue increased 1% as well. Looking out over the next 6 months, for the first time in approximately 5 years, Daimler Trucks are no longer being allocated on a distribution level to their dealers. This provides us with an opportunity to conquest new customers.

Now turning to Penske Transportation Solutions. Penske Automotive Group owns 28.9% of PTS and records equity income receives cash distributions and cash tax savings. PAG invested $956 million for its ownership and has received nearly $2 billion in cash flow benefits since making that first investment. During Q2, operating revenue was $2.8 billion. Full service revenue and contract increased 4%. Logistics revenue was flat, while rental revenue declined 9%.

During the quarter, PTS sold over 11,000 units and ended the quarter with 414,000 units, down from 428,000 units at the end of March. PTS income increased during Q2 as a result of efforts to optimize costs, improve utilization rates and hold pricing. Equity earnings from PTS investment were $53.5 million, up from $52.9 million in the second quarter last year. I would now like to turn the call over to Randall Seymore to discuss our international operations. Randall?

Thanks, Rich, and good afternoon, everyone. PAG's international operations represent approximately 40% of total consolidated revenue. During Q2, international revenue was $2.9 billion. In the U.K., the macro operating environment remains challenging as inflation, interest rates, higher taxes and consumer affordability impact the overall market. The U.K. market continues to transition new vehicle sales to BEVs and hybrids. In 2025, the government target for BEV penetration is 28%, many of which are being sold through the corporate fleet channels. During Q2, the number of new units we delivered declined by 16% and were impacted by several factors resulting from OEM product changes and reduced incentive offerings, also impacts to the new car markets from the U.K. ZEV mandates and the previously discussed disposed or closed dealerships.

Turning to used cars. Same-store used units declined 23%, which is attributable to the realignment of the company's U.K. CarShop used-only dealerships to Sytner Select in 2024. Through this realignment, we have taken out approximately 500 people through attrition, which helped drive a lower cost structure. The realignment began in Q3 2024, so the year-over-year decline is expected to abate in the second half of this year. We view this as a positive change for our business. And as a result of this strategy and improved management of overall used inventory, gross profit per unit has increased by over $800 or 56% quarter-over-quarter and $221 sequentially when compared to the first quarter of 2025. Service and parts remained strong as same-store revenue increased 6% and gross profit increased 8%. Pleasingly, customer paid gross profit increased 10% and warranty declined 5%, largely due to the 20% growth we achieved in Q2 of last year.

Turning to Australia. We operate 3 Porsche dealerships in Melbourne, which we acquired in 2024. During the first half of this year, these dealerships retailed 1,136 new and used units and generated $128 million in revenue. The used-to-new ratio is nearly 1:1 and has doubled when compared to the ratio prior to the acquisition. We use our existing scale of the Commercial Vehicle and Power Systems business in Australia to leverage costs while executing our One Ecosystem strategy at the Porsche dealerships, which provides for a superior customer experience. We anticipate generating approximately AUD 450 million in annualized revenue through these automotive dealerships.

Turning to Australia Commercial Vehicle and Power Systems business, we are diversified with revenue and gross profit, which is split approximately 50-50 between our on- and off-highway markets. In the on-highway markets, the brands we represented picked up 30 basis points in market share as the products we continue to sell gain customer preference. In the off-highway sector, revenue and margin were driven by strong energy solutions demand. We have $350 million backlog for 2025 delivery and a total order bank of over $500 million, predominantly related to the large growth in data center and battery energy storage solution businesses. And we see a potential for the total Energy Solutions business to generate over $1 billion in revenue by 2030.

Our defense business continues its strong momentum, too, with projects for infantry fighting vehicles and several Navy applications for frigates and submarines. I'd now like to return the call over to Shelley Hulgrave to review our cash flow, balance sheet and capital allocation.

Thank you, Randall. Good afternoon, everyone. Our strategy has been to focus on the strength of our balance sheet, cash flow, disciplined approach to capital allocation and our diversification. Our balance sheet remains in great shape, and our continued strong cash flow provides us with opportunities to maximize effective and opportunistic capital allocation. For the 6 months ended June 30, 2025, we generated $472 million in cash flow from operations and EBITDA was $800 million. On a trailing 12-month basis, EBITDA was over $1.5 billion. Our free cash flow, which is cash flow from operations after deducting capital expenditures was $325 million. Through June 30, we paid $165 million in dividends and invested $147 million in capital expenditures.

We increased our dividend by 4.8% to $1.32 per share last week, representing the 19th consecutive quarterly increase. Since the end of 2023, we have increased the dividend by 67%. On a forward basis, our current dividend yield is approximately 3.1% with a payout ratio of 34.7% over the last 12 months. During the quarter, we repurchased 630,000 shares of stock for $93 million. And year-to-date through June 30, we have repurchased 885,000 shares for $133 million, representing approximately 1.3% of our outstanding shares. Over the last 4-plus years, we have returned over $2.5 billion to shareholders through dividends and share repurchases. In May, our Board authorized an increase in the repurchase authority of $250 million. As of June 30, we have $295.7 million remaining under the existing securities repurchase authorization.

As part of our strategic capital allocation, in July, we acquired a Ferrari dealership in Modena, Italy. As many of you know, Modena is the home of the Ferrari brand. While we continue to evaluate the impact of the One Big Beautiful Bill on our financial statements, we do expect to recognize positive cash flow impacts related to our 28.9% ownership in the PTS partnership. Bonus depreciation, in particular, will provide an estimated benefit of approximately $150 million on the $3 billion worth of capital expenditures in trucks that PTS expects to purchase in each of the next 3 years and beyond. At the end of June, our non-vehicle long-term debt was $1.78 billion, down $69 million from the end of December last year. Debt to total capitalization improved to 24% from 26.1% at the end of December last year and leverage remained at 1.2x. 77% of the non-vehicle long-term debt is at fixed rates.

When including floor plan, we have $4.6 billion of variable debt. 54% of our variable rate debt is in the United States. We estimate a 25 basis point change in interest rates would impact interest expense by approximately $12 million. At the end of June, we had $155 million of cash and liquidity of $2.3 billion. In September, our $550 million of 3.5% senior subordinated notes will mature. We currently expect to repay those notes from cash flow from operations or borrowings under our U.S. credit agreement. Total inventory was $4.8 billion, up $209 million from the end of December 2024. Retail automotive inventory was up $44 million. New vehicles declined $20 million, used vehicles increased $49 million and parts increased $15 million. Commercial vehicle inventory was up $166 million. Floor plan debt was $4.2 billion. New and used inventory remains in good shape. New vehicle inventory is at a 57-day supply, including 59 days for premium and 38 days for volume foreign. Used vehicle inventory is at a 44-day supply. At this time, I will turn the call back to Roger for some final remarks.

Thank you, Shelley. As I mentioned earlier, I continue to be pleased with our performance and the resilience of our business. I would like to thank each of our 28,000 team members that work in our business each day for their efforts to exceed expectations. Our results continue to demonstrate the benefit from our diversification across the retail automotive, commercial truck industries, our cost control and a disciplined capital allocation strategy and certainly a strong balance sheet and cash flow. I remain confident in our diversified model and its ability to flex with market conditions and remain very pleased with the performance of our business. I want to thank all of you for joining the call today, and we'll open it up for questions with the operator. Thank you.

[Operator Instructions] Our first question comes from Mike Ward from Citi Research.

I wonder if you can quantify a few of the moving pieces that affected your unit sales in the U.S. and the U.K.?

Sure, Mike. It's Shelley. I'm happy to take that. As we mentioned, we had approximately $200 million of revenue in the quarter in 2024 that we did not have in 2025. We sold and divested of a few stores. We also closed some stores, some of which related to the Sytner Select business in the U.K., as mentioned. So when you look at new and used vehicle units that had an impact as well, new units related to those divested stores were approximately 2,000 units. And we also had the mini brand transfer over to agency. So that impacted the new units by approximately 1,300. When you take that against the units that we reported, we actually were only down about 17 new units quarter-over-quarter. From a used perspective, those divested or closed stores attributed to about 4,400 used units.

Okay. And what about -- that's the U.K., right? The divested in the MINI?

It's -- well, it's all of it. We had some stores that we divested in the U.S. as well, but -- is just the U.K.

We also had, Mike, mobility in the U.K. is a product that people that qualify for mobility credits that was really slowed way down by Audi, BMW and Mercedes during the quarter really were not in that business, which obviously was an impact to us from the premium sector. We see that coming back this quarter. I think this was all part of a strategy. They were waiting to see what the tariff structure was going to be and didn't want to pour a lot of their incentive money into mobility. Now that's changed now, we'll have to see how that rolls out here based on the current information we have regarding the 15% tariff for the European Union.

And Mike, I think on a smaller scale, to add to Roger's point, in the U.S., we had Audi, Porsche and Land Rover kind of suspend wholesales for a period of 45 days in the second quarter as they were further looking to understand what the tariff outcome was going to be. That probably impacted our Porsche business the most. If you look at that brand, our EBT was down 9% in the second quarter, whereas year-to-date, we're up 1%, and that certainly hurt our mix. But that wholesale from those brands now is flowing again. So it was a short-term impact.

Okay. And so is that partly attributed -- you said July was up 10%. Is some of that coming back? Is that what that is?

Well, I think it's resiliency of the consumer. We're seeing traffic counts kind of remain flat year-over-year, but conversion has ticked up. So there's more serious buyers. I would say in June, our conversion of the traffic was down a little bit because I think there was still uncertainty in what the ultimate tariffs are going to look like. Now that we've got conclusive positions with Japan, which obviously impacts our Toyota, Honda business, the U.K. with Land Rover, Mini and then the EU with Audi, Mercedes-Benz, BMW, Porsche, the majority of the brand mix we have in the U.S. has some certainty on what the tariffs are going to look like going forward.

And Shelley, the $150 million from the Big Beautiful Bill, that's in addition to any dividend income you get from your equity stake, correct?

That's right, Mike. So we still have the 50% dividend policy that we receive each year. And then the One Big Beautiful Bill, bonus depreciation, in particular, was an item in the Tax Cuts Jobs Act (sic) [ Tax Cuts and Jobs Act ] that was starting to sunset. So we were starting to have to pay more in income taxes from a cash perspective in '24 and projected for '25 when that bonus depreciation was supposed to go away. The One Big Beautiful Bill made it permanent and retroactive back to purchases to mid-January. So it's an estimate of the deferred cash taxes that we expect to enjoy this year and into the future.

That will benefit this year?

Yes.

We look at about $3 billion to $3.5 billion of asset purchases at PTS each year going forward. So obviously, with 30 -- roughly 30% of the ownership, it's a partnership, we get the benefit on our tax line. So overall, it was a terrific benefit to us. And if you look at this year and say it's the same in '26 and '27, it could be as much as $450 million that we would not have to pay due to this in corporate taxes.

And I want to highlight, it doesn't impact our rate. It's really just the cash taxes that we have to pay. But given that it's a cash benefit, we certainly will look to deploy that cash through our capital allocation strategy. So we certainly see that as a benefit going forward.

And on PTS, we have a program there that typically 50% of our earnings before taxes is paid out to the shareholders based on their ownership piece. So based on our current projection, this could be roughly another $100 million. So you'd look at almost $250 million of benefit during 2025 in cash.

Our next question comes from Ron Jewsikow from Guggenheim Securities.

Roger. Yes, just before my questions, I wanted to say congratulations, Roger, on the Centennial Award recognition last month.

Thank you. That is a byproduct of the 74,000 people that work for us every day, but I appreciate you mentioning it. Thank you.

And I appreciate the quarter-to-date commentary on volumes, but maybe if you could just touch on the GPU trajectory and the cadence throughout the quarter and then into July, if you can talk about that as well.

Yes, Ron, Rich here. I think when you look at the initial tariff announcement in March, I think it was. That certainly drove some activity. We saw activity spike probably into April and to a lesser extent in May and June. And obviously, we knew that our inventory that was non-tariff impacted at that point in time became more valuable. So there was no need to be giving those cars away, not knowing what the ultimate tariff impact was going to be and when final resolution was going to be made between these countries.

So throughout the quarter, in the U.S., our grosses were very stable. Certainly, they were the highest in April at $7,250. But then you look over the quarter between May and June, the spread between those other months was no more than $125. So I think our team did a really good job of balancing the volume with the grosses during that environment. I think as we go forward, as we look to May, and I said the sales activity has increased, I think we'll see a little bit of a gross compression, and it's going to be different by brand. Certainly, I think the other impact when you look at BEVs with the IRA tax credit going away at the end of September, our team is keenly focused on making deals with consumers that are interested in the BEV so that we have the least amount of inventory in that time frame as possible.

And I think the OEMs are similarly motivated as well. We've seen -- with the announcement of those -- that tax credit going away, increased incentives on various different models as OEMs look to reduce that inventory. I think when you look at the margin that we have on the new vehicles, our margins have remained the same, but the average vehicle selling price continues to increase. I think we've talked about this before, pre-COVID or 2019 and earlier, our average selling price was $41,000. Our average selling one price today is almost $61,000.

That's super helpful color. And you kind of touched on my next question a bit there, but on the sunsetting of electric vehicle tax credits at the end of the third quarter in the U.S., you do have more BEV sales than your peers, just given your luxury mix. How should we think about the impacts, not just in the third quarter from volume pull forward, but also long term? I guess, what would the impact of weaker electric vehicle sales mean for your business because they are GPU dilutive. We do know that, but just kind of the puts and takes.

I think, first of all, you got to remember that the overall BEV sales as a percentage of our total sales is in that 6.5% to 7% range. So it's a small portion of our overall sales. Certainly, in some markets, it's a much higher percentage when you look at California or some of the Sun Belt states where you don't have the degradation of the range and other operating concerns associated with the BEV. But we've already seen actually some improvement in those markets as the OEMs have adjusted to demand.

So if you look at our West region, which is California, Texas, Arizona, that market -- those markets sell about 70% of that 6.5% to 7% of our sales in BEVs. And Mercedes and others started to adjust last year to match the BEV wholesale supply to the demand. I think most aggressively, it was Mercedes. And so when you look at our area there, our California businesses are up 45% or almost $13 million compared to a year ago as a result of some of that BEV being adjusted.

So if you look at the incentives, it's -- even before the tax credits were announced, incentives are almost $7,200 for BEVs. It's about twice the average incentive that we see on the ICE vehicles. And our inventory is down on BEVs. A year ago, we were about 12% to 15% of our new car inventory was BEVs, it's at 10% today, down 20% on a unit basis year-over-year. And so I think BEVs -- we're going to continue to have BEVs. Obviously, the OEMs have made significant capital investments in the technology and vehicle platform architectures, it's a matter of making sure that they balance the BEV wholesale supply to us with the actual market demand, whether -- and we've been doing that now with the tax credit, and we'll continue to do it after the tax credit.

And one last point on BEVs, still relatively small percentage overall of our fixed business, 2% to 3%. But we see on a dollars per RO almost 2x the benefit from a BEV repair as we do to a -- on ICE repair. I think as the vehicles get more mature over time, that could normalize, but right now, BEVs are still more advantageous in the fixed area.

Yes. I think also when we step back and look at supply, when the manufacturers were trying to balance BEV vehicles versus ICE, we actually lost some of the volume and supply during the time when BEVs were at the top of the list to try to generate this big market share. When that goes away, I think we're going to see it, obviously, in some of the key SUVs and areas that we were looking for vehicles will now not be BEVs, and they'll come back in the market as ICE vehicles. And I think they'll adjust, if necessary, some of the content if we have to in order to be -- have the vehicles affordable under any tariff impact they might have. So I see it being a benefit. This is my own personal opinion.

Yes. I think we lean in that direction as well, but it's good to hear that from you, Roger.

Our next question comes from Jeff Lick from Stephens.

Roger, Rich, Randall, Shelley, Tony, just a quick clarification before I get my main question. On the 10% units you mentioned being up in July, is that all units or just new?

Just new.

Okay.

New U.S.

Perfect. Awesome. Rich, I was wondering if we can maybe double-click on service and parts. We're starting to get into the -- lapping the BMW stop sales and other pretty big warranty items. Just curious how you see that playing out? And are the OEMs making any adjustments in terms of how they handle warranty claims? Just any color there would be great.

No, I don't think we're seeing any adjustment from the OEMs on how they're handling warranty claims. I think they're frustrated, obviously, with the number of recalls that continue to occur. You mentioned BMW. Certainly, the IBS recall is still active. Their focus last year was on vehicles at the plant, getting those cleaned and dealer inventory, and now we're into the customer repairs, but we've got Mercedes-Benz fuel pump, Honda fuel pumps. And then the big one that we just had release and direction on is Toyota and the Tundra long block replacement, which is a 14-hour repair. We've got close to 400 of those in inventory that have been on stop sale.

So certainly, we've got to balance those repairs with customers who are looking to bring their existing cars into the shops so we don't end up with long backlogs and things of that nature. But I think there's enough customer demand that even if these recalls and the warranty as a percent of our total repair orders goes down, when you look at the car park being 12 to 13 years of age, average mileage being close to 70,000 miles, we're going to continue to see the benefit in the fixed ops department. And then I think with some of the initiatives that we've undertaken relative to shop load, operating hours, shift schedules, those are all paying benefits as well.

And I think Roger mentioned that in our fixed absorption increase, our margin improvement up 50 basis points to just under 60%. And then our effective labor rate as well at up 6%. And I think it's going to take a while for that car park to adjust. You look at the vehicles we're selling today or servicing today, they're almost 6.25 years of age on average, and that's up from 5.6 years in 2019. And with the SAAR continuing to struggle to find a new high watermark, I think I see fixed operations remaining strong.

And I would say automotive, the complexity, Jeff, of the premium luxury cars when you open the hood, and all the things that they have LiDAR and all these things that go with it that the vehicles are coming back to the dealership and they're not going anymore to the local guy around the corner. So that's driving the business. And I think that in most cases, as you know, for us on the premium luxury side, which is 71%, a lot of these vehicles are leased and have some maintenance component with them, and that drives them back to our shops, which I think is key.

And the good news is that the cost structure in our service department from a labor perspective is flat rate, along with high bonus part of compensation for our service riders. So we see the ability, obviously, we raise labor rates. And by the way, we typically get a bump in labor cost support from the manufacturers on warranty typically on a 12- to 18-month basis. So obviously, we get that benefit. And then on the parts side, we get paid our full list price on parts on warranty. So this is something that is very positive. And ironically, in Europe and in the U.K., we only get 10%. So this -- I look at it as a real bonus here in the U.S. based on the current support of parts and service.

So Jeff, the other thing to think about -- this is Tony, is the efficiency that we're creating in the service departments, too, through use of AI in terms of scheduling appointments, tech videos, online pays and numerous other things that we're doing to try to drive not just more tech efficiency, but just overall efficiency and utilization. So I think all of that plays very well into the margin that we're generating and the growth of the parts and service business.

Yes. When you look at -- let's just jump to PTS for a minute, and we've taken some of the lessons learned on both sides. Every night, Jeff, we unload data from 200,000 vehicles into -- from the cloud. And we look at that and it determines predictive maintenance, we might have a truck that's hauling cement and the same truck hauling feathers, well, obviously, the maintenance requirements certainly would be different. And with this data, then we can adjust the predictive maintenance. And on top of that, when the truck comes in, the mechanic plugs into the ECU and it gives him guided repair, tells him exactly what to do on that truck and how to do it. And this has taken our efficiency way up. So I would say we've been using AI a long time, specifically at PTS, and we're looking how we can get some of that crossover into the automotive side.

Our next question comes from Rajat Gupta from JPMorgan.

Roger, congrats as well. Just wanted to follow up on PTL. It looks like if we exclude the gain on sale, PTL income was up year-over-year overall. Should we expect that kind of cadence to continue here in the second half? And just maybe if you could give us some broader outlook around where we are in the freight cycle and when you could expect that to reflect? I have a quick follow-up.

Well, from the operating side, when you look at the quarter, our gain on sale was $44 million last year, in the quarter was $16 million. So obviously, down $28 million. So our guys did a great job from an operating standpoint. And as I look out into Q3 and Q4, basically gain on sale will be a real trigger up or down based on what the market pricing is. And we have some disposals that we'll look at. We dropped 14,000 units out of our fleet during the quarter. So I think that it's important -- or through the year, I'm sorry. I think it's important that we look at gain on sale or loss or what have it might be, at the end of the day, freight is still flat and that freight, obviously, and will drive excess rental from our existing lease customers and also from just a casual renter.

And I think that, that will be the driver. If I look at the numbers in the quarter, our lease revenue, I think we talked about it before, 5% to 6% and logistics was up 1% and rental was down 9%. So you can see overall cost controls and the gain on sale really gave us a return of over $50 million. And if you went -- if you looked at that for the rest of the year, it would be about $200 million. But again, that can be affected by gain on sale.

Understood, understood. That's clear. And just a broader question on capital allocation. If you take into account the extra $150 million you're going to be getting from the taxable changes, I mean that's a pretty step change in your cash flow profile. I'm curious, does that in any way change how you're thinking about capital allocation, maybe being more aggressive on share buyback versus -- or just like other forms of use of cash? And if you could just tell us if you're looking to reprioritize that.

Rajat, it's Shelley. It certainly provides us with more opportunity. And as we said before, we're going to continue to weigh current market conditions. The first half of 2025 certainly had a bit of tariff uncertainty. And so you saw us as well as some of our peers really look to take advantage of a down market and focus on buybacks. We are always going to remain focused on our dividend. And so year-to-date, about $300 million of return to shareholders. we've started to see folks come out and make some purchases and acquisitions, and we're still focused on growing that side of the business as well. So I think it will be a tale of 2 halves, and we will certainly look at different market conditions, but the additional $150 million of benefit that we're estimating certainly helps to provide us with more opportunity.

I would say from an M&A perspective, obviously, our doors are open, and we're looking at a decent pipeline right now. How those will mature, I can't say, but certainly, we'll look to do M&A, more M&A, obviously, in the last 6 months than we did in the first 6, Shelley, that would be probably fair.

Right.

Our last question comes from David Whiston from Morningstar.

I wanted to stick on the M&A topic actually because if I remember correctly, you've talked in the past about wanting to acquire $1.5 billion in annual revenue, and you've just done the prior deal so far. So even if you do end up closing some of these deals in your pipeline, do you think the $1.5 billion acquired number for '25 is still on the table? Or is it going to be lower?

I would say it's not realistic to think we're going to -- on an annualized basis, maybe we could look at it. But I guess if I had the perfect storm, I'd like to grow 5% organically and 5% through acquisition. Now we're not meeting those targets right now, but certainly, in the capital position we're in from -- certainly from an acquisition standpoint, we really should be in really in good shape. And when you look at the capital allocation, we had a strong cash flow of $472 million from operations. And certainly, with the uncertainty that followed the tariffs, I think that we have to -- we paused, and I think that certainly made a difference. We've talked about 1.3% the outstanding shares we purchased already about $900,000, and we paid out $165 million in dividends.

So I think the shareholder themselves is getting a benefit from dividends, I think the yield at 3.1% is strong. We're certainly paying out at over 35% roughly in payout. So we're going to hit all those levers. But trust me, we are definitely looking at acquisitions. But what I don't want to do, I think Ferrari was kind of a special one when you think about that brand, we're the largest dealer in the world, and we have the ability to have the house dealership next door was key.

But as we look at these, we want to be sure that we can tuck things in where we have scale, look at markets, and we're going to be prudent as our peers have been. But I think with the size of the U.S. auto market, when we look at internationally, these businesses have an opportunity to grow through acquisition for many years to come.

And just one other question on Porsche Australia. You mentioned the used to new ratio has already doubled in about a year's time. And I'm just curious, was that mostly due to a lot more advertising or just changing internal operations at those stores?

Look, let me ask -- let Randall see more. He's calling in from the U.K. Hopefully, we connect you around. You want to make a comment on what you've been able to accomplish in Australia in just less than a year?

Sure. No problem. Good question. So this was mostly internal. In fact, it was virtually all internal processes relative to just taking advantage, focusing on getting more trades, whether it be on selling a new or a used, the efficiency of reconditioning the marketing them properly. But the big opportunity, a lot of the independent used car providers we're getting a lot of these cars. So we're just organically keeping them. And then we're opportunistically out there buying them as well. So it was a big focus and the team did a great job.

And that business really has turned out to be really amazing when you think about it, we have the 3 stores in the big city of Melbourne. Randall and the team are really looking at as 1 dealership with 3 locations in the city. We can combine customer service, 1 inventory for all 3 dealerships and the marketing. I think it's really key.

And then we have the benefit of our commercial business that's taking place in Australia, our financing, our legal, our insurance, our HR, all of those functions are -- we can take the advantage of those in our auto business and will give us a runway, hopefully, to continue to grow the auto business in Australia as we go forward. I think we need to get the Porsche dealerships solid and have a year or so under our belt, but we certainly would look, is that a place that we could grow some of our business with our expertise.

All right, everyone. Thanks for joining us today. I think it was a great quarter. As we said earlier, lots of moving parts, but I think the management team we have across all aspects of the business has really been great. I think our turnover is the lowest in the industry, and I think that provides us the best management. So look forward to talking to you next quarter. Thank you.

This concludes today's conference call. You may now disconnect.