Penske Automotive Group Inc (PAG) Q1 2021 Earnings Call Transcript

Penske Automotive Group Inc (NYSE:PAG)
Q1 2021 Earnings Call
Apr 28, 2021, 2:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good afternoon, ladies and gentlemen. Welcome to the Penske Automotive Group First Quarter 2021 Earnings Conference Call. Today’s call is being recorded and will be available for replay approximately one hour after completion through May 5, 2021, 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.

Anthony R. Pordon — Executive Vice President of IR & Corporate Development

Thank you, Maria. Good afternoon, everyone, and also thank you for joining us today. A press release detailing Penske Automotive Group’s first quarter 2021 financial results was issued this morning and is posted on our website along with a presentation designed to assist you in understanding the company’s results. As always, I’m available by phone or email for any follow-up questions you may have. Joining me for today’s call are Roger Penske, Chairman; J.D. Carlson, Chief Financial Officer; and Shelley Hulgrave, Corporate Controller. Our discussion today may include forward-looking statements about our operations, earnings potential, outlook future events, growth plans, liquidity, and assessment of business conditions.

We may also discuss certain non-GAAP financial measures such as earnings before interest, taxes, depreciation and amortization, or EBITDA. We have prominently presented the comparable GAAP measures and have reconciled the non-GAAP measures in this morning’s press release and investor presentation, which are available on our website to the most directly comparable GAAP measures. Our actual results may vary because of risks and uncertainties outlined in today’s press release, which may cause the actual results to differ materially from expectations. I direct you to our SEC filings, including our Form 10-K, for additional discussion and factors that could cause results to differ materially. I would now turn the call over to Roger.

Roger S. Penske — Chairman & Chief Executive Officer

Thank you, Tony. Good afternoon, everyone, and thank you for joining us this afternoon. I’m pleased to report an all-time record first quarter for Penske Automotive Group. Income from continuing operations before taxes increased 246% to $247.6 million, and income from continuing operations increased 254% to $182.5 million, and related earnings per share increased 253% to $2.26. The earnings growth was largely driven by higher gross profit per unit retailed, our expense leverage and lower interest costs due to a reduction in inventory and lower overall debt levels when compared to the same time last year. Further, our commercial truck dealerships improved their profitability by 101%, while the earnings from our investment in Penske Transportation Solutions increased 295%, demonstrating the strength of the company’s diversified business model. For the quarter, same-store retail automotive unit sales increased 5.5% to 110,000. New was up 25.5% in the U.S., and up 7.8% in the U.K. Used is up 14.5% in the U.S., and we were down 18.2% in the U.K. Despite the U.K. dealership showroom is being closed for the entire first quarter due to COVID restrictions, our team used digital tools and business development centers to deliver 40,000 new and used vehicles in the U.K. market for the quarter. In fact, our same-store unit sales in the U.K. increased nearly 8% during the first quarter, substantially outperforming the U.K. market, which declined 12%. Our total revenue increased 15% to $5.8 billion, including a 19% increase in retail automotive same-store revenue. Retail automotive same-store gross profit increased 19%; new was up 49%; used, up 29%; F&I, up 18%; and Service & Parts, up 2%. Same-store retail automotive variable gross profit increased $880 per unit, or 25%, to $4,368. I’m particularly pleased with the continued expense discipline, driving a 990 basis point improvement in SG&A as a percent of gross profit for the quarter.

Let me move on to CarShop, our used vehicle supercenters. As many of you know, we operate used vehicle supercenters in the U.S. and the U.K. and during the quarter, we renamed the U.S. supercenters from CarSense to CarShop, and now operate one brand on a global basis. This business represents a significant future growth opportunity. We currently operate 17 locations and expect to open two new car shop locations in the second quarter this year, at least, two more locations by the end of the year. During the first quarter, CarShop sold 11,400 units, including a 25% increase in the U.S. and a 43% decline in the U.K. as volume was impacted by COVID-related showroom closures. Despite the unit decline in the U.K., our variable gross profit per unit increased as we improve vehicle sourcing by increasing the volume of trade-ins purchased from the franchise dealership using our proprietary internal online transfer portal. Based on current sales rates since the reopening of the U.K. supercenters showrooms on April 12, we’re forecasting a monthly run rate of 5,000 units. Let me turn to retail to commercial truck dealership. We completed the acquisition of Kansas City Freightliner on April 12, and now operate 29 medium- and heavy-duty truck dealerships in the U.S. and Canada. We expect this acquisition to add $450 million in annualized revenue.

During Q1, we sold 3,000 new and used trucks, generating $450 million in revenue and earned 6.3% return on sales. New and used truck margin increased in Q1 versus the same time last year due to stronger market conditions. Service & Parts operation represented 66% of our total gross profit, and our fixed cost absorption was 125%. March 2021 was the third best fixed operations month in the history of our truck group. As a result of these items, our profitability from commercial truck dealerships increased 101% to $27.5 million. During the first quarter, North American Class eight net orders increased 226%, while retail sales increased 18%. At March 31, the Class eight heavy-duty truck order backlog was at 237,000 units, which represents a 137% increase when compared to March 31 last year. As a result, ACT Research is forecasting a 28% increase in retail sales to approximately 283,000 units for the North American Class eight truck market compared to 233,000 last year.

We expect the strong market will provide tailwinds to our commercial truck and truck leasing business in ’21 and ’22. Turning to Penske Transportation Solutions. We own 28.9% of PTS, which provides us with equity income, cash distributions and cash savings. In Q1, PTS currently operates a fleet of 333,600 vehicles that generated $2.1 billion in total revenue and income of $189 million, or 9%, return on sales. As a result, our equity earnings increased 295% to $53.7 million. Full-service leasing and contract sales were up 8%, and rental increased 14% and demand remains very strong, particularly in our consumer rental business. Our logistics business increased 26%, including the recent Black Horse Carriers acquisition, which is expected to contribute $600 million in additional annualized revenue in PTS for 2021.

The gain on sale of used trucks is much stronger than it was last year at this time due to the resurgence of the North American Class eight heavy-duty truck market. Lastly, within the last six months, PTS has issued $1.5 billion in 5-year notes at an average rate of 1.5% finance or increasing levels of business. Looking at our balance sheet, the balance sheet remains strong and in great shape. Total inventory is $3.3 billion, which is down approximately $148 million from December, and down $1 billion from March of 2020. Retail automotive inventory is $2.8 billion when compared to $2 — $2.95 billion in December of 2020. New vehicle inventory is down $140 million and remains in short supply for most brands. We expect this short supply to continue. Used vehicle inventory was down $28 million. Commercial truck and power systems inventor
y was up $24 million. Looking at our days supply, new was 40 days and used was 35.

The end of March, our long-term debt is down $111 million largely from repayments under our U.S. credit agreement. At the end of March, our debt-to-capitalization was 31.2% compared to 33.7% at December 31, and 49.2% at the same time in 2020. Our leverage ratio sits at 1.4 times, an improvement from 2.9 at the end of 2019. In Q1, we invested $42 million in capital expenditures, including $6 million to acquire land for future CarShop expansions. We ended the first quarter with approximately $1.1 billion in liquidity under our credit agreements. Moving on to our digital initiatives. Our omnichannel approach focuses on convenience and creating a connection with our customers, especially in the digital space. We continue to grow and expand and enhance our digital footprint, including introduction of new tools and technologies. This allows us to offer customers a hybrid type shopping model for the 40,000 vehicles we have online. Depending on their specific needs, customers can purchase either fully online, in-store or any combination of the two. In the first quarter, our digital marketing efforts drove over 18 million visitors to our website.

Our digital retailing, two in the U.S., is called Preferred Purchase. It’s implemented at every dealership and offers flexible buying options, accommodating customers at any point in their buying journey. We retailed 2,745 vehicles or approximately 4% of our U.S. unit sales directly through preferred purchase and 12% of our customer used preferred purchase in some way during their buying journey. In the U.K., a customer may reserve a car for GBP99, apply for financing through our proprietary platform, receive instant credit approval, obtain a guaranteed trade in price, and pay online. During the quarter, we sold 4,200 vehicles through these channels in the U.K., or 10% of our unit sales. Our online service scheduling tools continue to gain momentum. In Q1, over 100,000 service appointments were scheduled online and another 370,000 were scheduled to our business development centers. Additionally, more and more customers are opting for online payments, which we saw an increase of over 50% during the first quarter.

So when you combine our online buying tools in the U.S. and the U.K., along with our online service scheduling, online pay, we have the tools to allow a customer to perform any part of the transaction online or to shorten their visit to the dealership. Looking at corporate development, as previously noted, we completed the acquisition of Kansas City Freightliner, which is expected to add $450 million in annualized revenue. Additionally, we will add three new retail automotive franchise dealerships this year, which are expected to add another additional $150 million in annualized revenue. This includes a lead certified second force dealership serving the Washington, D.C. Metro area, which opened in January a new Audi dealership in Southern California; and a Honda dealership in Texas, both of which are currently under construction. We also intend to grow CarShop used vehicle supercenters. For the opening of Nottingham dealership in the U.K. in December, we have started the next phase of our expansion plan.

We plan to open two additional CarShop locations in the second quarter and another two locations by the end of 2021. We plan to execute our growth plan to increase the CarShop footprint from 17 locations to 40 by the end of 2023. At that time, we expect CarShop will generate at least 150,000 unit sales and between $2.5 billion and $3 billion in total revenue, doubling the size of the current business. We’re targeting CarShop to earn 3.5% to 4% return on sales, while generating income from continuing operations before taxes were approximately $100 million.

And finally, as we look across our diversified portfolio of businesses, we’re targeting organic and acquisition growth coupled with operating efficiencies to drive income from continuing operations before taxes to at least $1 billion by the end of 2023, which compares to $708 million last year. And lastly, recently, CarFax awarded 114 of our U.S. Penske Automotive dealerships. It’s top-rated dealer award based on customer reviews. I’d like to congratulate the management and the employees at every one of those dealerships for that special recognition and for their ongoing commitment to excellence and customer care. Again, thanks all of you for joining the call today, and I’ll turn it back to the operator. Thank you.

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from the line of John Murphy of Bank of America.

John Joseph Murphy — BofA Securities — Analyst

Good afternoon, Roger. How are you doing? So if we think about what you just went over on the acquisitions, the new store, the new points that you’ve been awarded that you’re building out, plus these four CarShop stores. I mean I think that adds up roughly to almost $850 million in revenue year-to-date. The year has got a long way to go. I mean there’s a lot of other companies that are going very aggressive on acquisitions, others that are going very aggressive on opening used car stand-alone stores. You’re getting a lot done in a number of different ways here. I was just curious if you think about the asset intensity or the investment in these different channels versus making acquisitions, and how you’re making these decisions. And could we see a lot more come this year because I mean, we’re approaching $1 billion, and these are real numbers, but you’re just not getting a lot of credit for that kind of growth.

Roger S. Penske — Chairman & Chief Executive Officer

Well, I think, number one, the year is not over for sure. We have a pipeline, both on the retail auto side and also certainly, on the truck side. And I don’t want to miss pointing out, we did $600 million part of our ownership, obviously, of PTS, Black Horse on December 31. So we’re in the market, but we’re going to be disciplined on the multiples. I think, right now, anything you buy looks good because of the high margins. So I want to be disciplined from a standpoint of what we would buy. I also think that there’s got to be a discussion on where we go, i.e., from the used car perspective versus just adding on more bricks-and-mortar. And I think we’ve decided, as a company, that we’re going to grow our used car brand, CarShop, on a global basis. Because when you look at it, there are no OEM requirements.

The cost to get in the market is certainly less from just a capital perspective. And if you’re going to get any kind of volume, you’re going to need certainly large physical spaces, in our case, where we can be both online and offline. And we think when you look at the total returns, we think that you get a higher margin, lower SG&A, and certainly, better productivity from your salespeople. And then it’s the mix because if we try to grow our sales on used cars in our traditional OEM business, we are really because of certified use, and most of our trades come without OEM, we don’t have the benefit with those locations that have a multiple inventory or diverse inventory.

So we think driving the CarShop brand will be better for us. And then with the tools we have, as we’ve shown in the U.K. with a lockdown, we’re able to drive those tools and be able to continue a good online business. And we see when we put cars outside of really our marketing areas, we see lower margins. And again, from a CPO perspective on OEMs that there are higher costs in many cases. So to me, we’re going to continue looking at opportunistic purchases from an OEM brand perspective, both on truck and on car, where we’re definitely going to put our foot on the gas from the standpoint of growing the CarShop brand. And we want to meet that target or beat that target by 2023 with 150,000 units. I think when you look at a Freightliner, just as a particular, just the acquisition in Kansas Ci
ty, the multiple was 50% of what we’d be paying for $450 million of retail auto business today. So we think that’s well-disciplined, and certainly, the OEM requirements are very little compared to on the auto side.

So I think we got a pretty good plan. Right now, when you look at the SAAR, John, it’s down on new. It’s probably flat to down on used. And all of this discussion, all these acronyms, and all these things that we’re talking about are really substitutional because we’re really not growing the business at this point incrementally. And I think that’s going to be the true test that we can tell the analysts in the market. We’ve actually grown our overall business by using the online tool, and I think that that’s going to be an interesting time when we get there. So I think, overall, we’re going to continue to have our dividend growth, which we’ll have as we go forward for the rest of the year. So hopefully, that gives you some insight.

John Joseph Murphy — BofA Securities — Analyst

That’s helpful. And then just a second question on what’s happening in the U.K. because it does sound like I think, you’ve mentioned this. So the U.K. is really spurting or bouncing back as things are opening up there. I’m just curious on the new and the used side, if you could talk about maybe some more recent happenings on unit volume and performance post the quarter as things have opened up there.

Roger S. Penske — Chairman & Chief Executive Officer

Well, let’s talk about in Q1, we were updating, the market was down 12%. And what we did, we focused over there, it’s a finance product that they sell PCP. We’re really focused on taking those people out early like we would here on a lease basis. So that was one of our action items. And we kept our business development centers open seven days a week, 24 hours a day, along with our digital tool. And then also, we were able to upsell many of the used car customers who had deposits and put them in a new car to see. And I think our brand mix was very important for that growth. So as we look at where we are, I think, April probably is the best thing to look at right now when you look at where we are from the standpoint of the business. We’re up 128%. You take the first 12 days of April, we did 6,200 vehicles. And by the time we finished the 28th, we were at 14,000. So we’re up 128%, and this is equal or slightly above where we were in April of 2019. So there is no question that we’ve seen with the showrooms open on the 12, we’ve got really some acceleration.

In fact, from a CarShop perspective, we’re forecasting as we get into the month of May. We’ll be at a 5,000 run rate on used, which will drive that negative number we had in Q1 to a positive number, if we go through the rest of the year. So the guys have done a great job. I think our premium/luxury brands were leaders in all of those, in all the markets. And I think the execution is good. We’ve taken cost out with personnel, some of the SG&As come out there also. So we think that we’ll see some strong growth here over the next two quarters.

John Joseph Murphy — BofA Securities — Analyst

For the last one, this is just lastly on inventory. You mentioned it being pretty tight. But it seems like in the U.S., the sales were generally pretty strong. Just curious if you can comment, I think, you had 40-day supply on the new, and, I think, 35 day on the used, I think, is what you mentioned. Do you see that tightening as we go through the second quarter? And at what levels, particularly lower than that, do you think you can still operate relatively normally? I mean, obviously, there are some puts and takes between automakers, but I mean, generally, what they supply, do you think you can manage the business relatively at just in case it does tighten up?

Roger S. Penske — Chairman & Chief Executive Officer

Well, I looked at the inventory. Tony and I looked at the inventory this morning and compared it to the end of the year, December 31. And we’re down 5,000 units, and yet we’ve operated the business now for roughly four months. And 3,200 of those units would be Honda and Toyota together. So basically, our inventory is not in great shape. We think there’s pressure on some of the key models. One thing you have to realize, we only have 1% of our mixes domestic. So we don’t quite have the pressure there. And I think that with our key brands, Mercedes and BMW and Audi, Porsche were flat, many of these were in decent shape, I wouldn’t say great shape as we go forward here in the quarter. Now if things get tighter through Q2, we could then have more impact in Q3. So I think the diversification that we have in our overall business will certainly help us from the standpoint of still generating a solid bottom line.

John Joseph Murphy — BofA Securities — Analyst

Okay, thank you so much, Roger. I appreciate it.

Roger S. Penske — Chairman & Chief Executive Officer

Thanks, John.

Operator

[Operator Instructions] Our next question comes from Rick Nelson of Stephens.

Nels Richard Nelson — Stephens Inc. — Analyst

Good afternoon Roger and Tony, congrats on a great quarter. So Roger, to some very simple math. You’ve gone pre-tax this quarter of $248 million. You can annualize that, it looks like you’re just about at that 2023 pre-tax income target and that also wouldn’t contemplate a seasonal pickup. The U.K. opening up Freightliner contribution, CarShop, just like to gauge your thoughts on that.

Roger S. Penske — Chairman & Chief Executive Officer

Well, I said the same thing to Tony when we looked at the numbers when they came out. We just take time for it, and we’ll be in good shape. But I wish it was that easy. I think we’ve kind of given you a chart to get there. Obviously, grosses will impact us as we go out through the year and maybe availability when we don’t know that now. I think that our acquisition target of $500 million a year and a 3% return is realistic. We talked about our CarShop and then our organic growth. Look, this was a forecast we put together. We want to be realistic and maybe under promise and over deliver. Hopefully, that would be the case here, but this is an unbelievable first quarter. And I think as we go into the second, there are some tailwinds we get in the second quarter based on Penske Truck Leasing, but their utilization has been so strong. I’m not sure but we’ll maybe get that bump this year in Q2, but I think it’s a realistic target. And I understand your math very easily, and I hope that we could get there sooner.

Nels Richard Nelson — Stephens Inc. — Analyst

Thanks for that. Also, some parts have been more challenged here during the pandemic. I’d like to get your thoughts about the outlook there as to when things might turn.

Roger S. Penske — Chairman & Chief Executive Officer

Well, there is no question that miles driven have come down. I guess you’d have to say over the last five or six months. And really, as we entered into Q1 2021, we saw just in January, we were down 16% in the U.S. in Parts & Service revenue. We’re down 18% in the U.K. and overall, down 16%. Now that’s really swung around. So things are and people are getting out. We’re doing a big job from our BDCs, calling customers saying, “Look, the fact you haven’t driven your car is one thing. We need to bring it in for certain checks to have based on a time.” And once that’s done, we generated an increase of 26% in March on our same-store Parts & Service revenue in the U.S., and a 48% increase in the U.K. So overall, 32%. So I don’t want to say that we’re going to be running at that kind of a growth rate.

But as you know, we were flat in Q1, and we’re up 2% on growth. So I think that we’ll see that move on. I don’t know
what the comparable number is as we look at the Q2 just sitting here. But at the end of the day, I think that we’re going to go against the number, which is not really realistic because of the close down last year with COVID. So I think we’ve got to look sequentially how we’re going to look from March to April. This year will probably give us a better picture, but I can say this year is definitely more momentum and more interest in the shop. The body shops are still weak. We’ve talked to PPG and some of the other people, and we’re showing probably, we’re down about 15% in the U.S., up slightly 9% in the U.K. and overall, down about 9%. So we still have some real opportunity there and just a matter of getting people out and that’s strictly miles driven will drive that.

Nels Richard Nelson — Stephens Inc. — Analyst

That’s great. Thanks a lot, and good luck.

Roger S. Penske — Chairman & Chief Executive Officer

Thanks, Rich.

Operator

[Operator Instructions] Our next question comes from Stephanie Benjamin of Truist.

Stephanie Lynn Benjamin — Truist Securities, Inc. — Analyst

Hi, good afternoon. I wanted to touch a bit on the SG&A costs for the quarter. Obviously, very impressive, and would just love to hear a bit about how much of this has been driven by the improvements we’ve seen in growth as well as internal initiatives. Just trying to get a sense of some of the what could potentially come back, if growth starts to come down a bit and what is also just based on structural changes to the business.

Roger S. Penske — Chairman & Chief Executive Officer

Well, obviously, our 990 basis points reduction in SG&A to gross was excellent. I think about 460 basis points. So maybe call it 500 within personnel. As you know, we’ve taken out about 13% of our overall workforce. If you go back and look at the same time, I think, advertising is another component that we’ve been able to reduce. I think the mix, we’re going more digital, obviously, more pointed. The traditional TV, radio, newspaper has been cut back. Some of the costs associated with that, which has given us a benefit. And then when you look at it just overall, less people, less T&E, less travel, less vehicle maintenance. With service down, we’ve had less loaner cars, which, certainly, some of that could come back in outside services. So those are all things which, I think, have been good. And we’ve got lower healthcare costs, we’ve got lower workmen’s comp cost because we have less people, which is something you really don’t think about that as you look at that.

Now we had some increase during the quarter due to some stock compensation we had to do. But I think overall, it was really — it will stick. Obviously, the gross will be the big test from a standpoint, the gross profit on new. Aand higher gross has obviously helped us drive that big number. I think on a run rate, we’re going to be in the 72% to 74%, if you look at it on a yearly basis when we get back to normal.

Stephanie Lynn Benjamin — Truist Securities, Inc. — Analyst

Great. That’s really helpful. And then switching gears to the used side of your business and particularly, CarShop and both what you’re doing in the U.S. and the U.K. I’d love to hear a bit about some of the sourcing initiatives. I believe you mentioned doing some more sourcing from your franchise dealers in the U.K., but if you can talk a bit about what you’re also doing in the U.S., just given how hot the environment and kind of your outlook as you look forward.

Roger S. Penske — Chairman & Chief Executive Officer

Well, I think, when you look at sourcing here in the U.S., just I’ve seen some other numbers that have been shown. We probably are a little bit over 50% trades, probably 13% would be our lease returns. Buy Your Car, 5% to 6%. And we have, certainly, our loaner cars and then the balance, which would be somewhere between 15% and 20%, depending on if it’s U.S. or U.K. from auctions. In the U.K., it’s kind of unique. I don’t know if I mentioned it on this call or not, but in the U.K., the OEM does not allow you to have a non-OEM make on a lot of your existing franchise. So what we’ve done with our Sytnernet, it’s an online tool, we have, wholesale tool. We put these cars online in CarShop and it takes these from that online tool and uses that probably as inventory. We think there is 400 to 500 a week that will be going from that online tool from our dealerships, which you could call trade in to a certain extent, go over to CarShop. That’s been really strong. Plus, we have a very strong relationship with the OEMs right now. The inventories, they’re not a lot of it there because they haven’t been running a lot of company cars.

But we’ve been a big buyer of the company cars along with the finance sources, being able to buy the cars coming off lease. And I think that Buy Your Car, we’re doing probably, when you look at our marketing, we’re doing it. Everyone else is, we’re not alone in that space are using Buy Your Car, which has also helped us not only in the U.K. but here. But those are the tools. I think we have probably over 60 buyers in the U.K. buying vehicles, which is significant. We’re over here in the U.S., we do it by region and by area, the individual managers have buyers that would be out. We don’t have the benefit of buying the used cars from the OEMs like you do in the U.K. or internationally, but still. And I think we had to ramp that up. I think there is competition out there. There is no question. And then we have a captive customer that arrives at the service department every single day, and I think there’s a real opportunity we’re showing the success there where we could have a VIP treatment for a customer in service and do deals in the service drive, which has been very helpful. And we’ve been successful with that, not just in 2021, but we’ve been doing this for a couple of years.

Stephanie Lynn Benjamin — Truist Securities, Inc. — Analyst

Got it. Well, that’s excellent, Roger. I really appreciate the time.

Roger S. Penske — Chairman & Chief Executive Officer

Good, thank you.

Operator

[Operator Instructions] Our next question comes from Rajat Gupta of JPMorgan.

Roger S. Penske — Chairman & Chief Executive Officer

Rajat, hi.

Rajat Gupta — JPMorgan Chase & Co — Analyst

Hi Roger, Hi Tony. Thanks for giving me the question. So I just had a question on the $1 billion target by 2023 on the bridge. You talked about the $160 million from organic growth. You mentioned that your current level early rates is because of gross margin. So presumably, a lot of that $160 million is going to be driven by just volumes and the service business recovering. Just curious as to how does the online strategy play into that number. Is there any incremental contribution assumed from the online channels? Or do you just see the online channel more of a supplementary offering and not really very incremental to your growth profile? And then I have a follow-up.

Roger S. Penske — Chairman & Chief Executive Officer

I think you hit the first one right on the nail on the head. The service will obviously help drive that. We think that there will be a higher SAAR as we look during this three-year period, which will drive certainly more use. I think we’ll be going more to a single price and will be commissioned, and compensation will certainly be adjusted during that time. We’ve seen the productivity in our one price selling in our CarShop businesses, where we’re getting better productivity, maybe 15 to 20 units per person versus maybe 10 to 12 or 13 units on the traditional business. So we see that giving us some opportunity to grow and also wit
h cost out. So I think, overall, we’ll do more use because of the sourcing we’re doing and also the focus, and that’s irrespective of what’s going on with our CarShop business. Again, we get some tax sharing benefits from our PTS investment, and I think that’s key. And I think we’ll continue to see the organic growth coming out of PTS with their business, with the market share they’re taking, the size of the fleet and our 30% that we get out of that will certainly help that organic growth.

Rajat Gupta — JPMorgan Chase & Co — Analyst

Sorry, Hello? Sorry.

Roger S. Penske — Chairman & Chief Executive Officer

Go ahead.

Rajat Gupta — JPMorgan Chase & Co — Analyst

I was on mute. And on the digital aspect of this, like is that meaningful incremental growth contribution from that resumed in that? Or is that just more supplementary at this point?

Roger S. Penske — Chairman & Chief Executive Officer

Well, as I said earlier, I think that to a certain extent, it’s substitutional where people have the opportunity to buy online, delivery at home, come to the dealerships. There is no question about it. But as we get more tools available and just a perfect example, as we’re seeing, I think, we need to be careful because as we, not different than Carvan and maybe Vroom and I think CarMax, the OEMs now are getting into the game. And I think it’s important that we think about that today because today, we buy Toyotas from Toyota as they finance them through their Toyota financial. They also are the ones that provide probably 70% to 80% of our financing, all of our leasing, and they’re coming out with a digital path for their customer and our customer. And I think on the Toyota side, they call it smart path and on the Lexus side, they call it monogram. And when you look at it, it’s almost a carbon copy of what all of us are trying to do with some of these acronyms and the tools that we can buy outside.

And think about it, maybe eight or 10 years ago, when we were all using different sources for our websites, and the OEMs have come to us and said, “Hey, we want you to use these tools in order to compete with the brand.” And I think we’re going to see that some pressure from the OEM. So what we want to do is be flexible and not build certainly an infrastructure here that we’re going to have to try to adapt to all these OEM’s requests. And when you think about it, it will be a seamless online in-store solution with a brand. It will be exclusively built for Toyota and Lexus. So again, all that money, all that technology is going to be honed by Toyota and Lexus based on what they’re learning from their own dealer group, plus their own, they’ve added a tremendous amount of capability. And I think that it will be supported by TFS, the captive and also from an ecosystem, they’re going to be able to secure our data. So what I want to be sure is that we continue to drive digital, which we are. And we think that having this, I would say, playbook for the customer or he can go in different directions is key. I just want to be sure that we’re savvy enough being technical, like on the racetrack, we still know how to go, but we got to go faster. And I think what’s being driven here by these tools and the opportunities in this technology, and we’re going to take that into consideration no matter if it’s new or used, but with the support of the OEMs and I think there’s another opportunity coming for us probably at much less cost. Now they don’t have the used car capability yet, but I think as we get down the road, they’re going to tie together all aspects of the customer journey.

Rajat Gupta — JPMorgan Chase & Co — Analyst

Got it, got it. That’s really helpful, Roger. I just had a follow-up on PTL. You talked earlier about some of the contributions of PTL’s trend also going forward. But then today, if you look at the run rate of earnings at PTL, I mean, obviously, rental pricing, deurbanization, like some of the gain on sales is helping the earnings in the near term. I mean how should we think about the new normalized run rate of annualized earnings at PTL once you’re back to a more normal environment? Obviously, taking the factor like the acquisition that you closed in December as well, that would be really helpful.

Roger S. Penske — Chairman & Chief Executive Officer

Well, when you look at PTL or PTS for the quarter, our revenue grew was up 13%, and our pre-tax was up, as we know, 284%. So these are tremendous numbers when you look at it. But again, it’s driven by an increase in our logistics business. Year-over-year, we were up 26%. Our lease business was up 8%, and you look at our commercial rental was up 8%. So to me, I’m leaving consumer out. Consumers rented here leave or leave that out all together. I think the other thing that’s been key is to use truck pricing. So there could be some impact slightly if used truck prices go down. We saw that both in the freightliner business. But on the other hand, I think that we’re seeing a market share gain. Our largest competitor announced our earnings, and I think our revenues were a couple of hundred million more than theirs. And I think that just shows you the market share that we’re able to take here. But overall, I think, the only thing would be the lease penetration is up. Our contract maintenance continues to grow, and rental has been strong. And we’ve cut our rental fleet back because of after 2019, and we had these lower used truck prices, we actually cut it back maybe too far. And we see growing that fleet as we go into 2022 and 2023. So we should see a good ride here over the next 12 months for sure.

Rajat Gupta — JPMorgan Chase & Co — Analyst

Got it, great. Thanks for all that, Roger. And good luck.

Roger S. Penske — Chairman & Chief Executive Officer

Thank you.

Operator

[Operator Instructions] Our next question comes from the line of Michael Ward of Benchmark Company.

Michael Patrick Ward — The Benchmark Company — Analyst

Good afternoon, Roger. Good afternoon, Tony. Roger, just talking a little bit about CarShop. I think you’ve touched on some of them, but are there any structural differences between the U.S. and the U.K. used business that favors expansion in one region versus the other?

Roger S. Penske — Chairman & Chief Executive Officer

No, I would just say that the CarShop brand started when we made the acquisition back. When was it, Tony? I think four years ago.

Anthony R. Pordon — Executive Vice President of IR & Corporate Development

Four years ago.

Roger S. Penske — Chairman & Chief Executive Officer

Four years ago, and then we added CarPeople and obviously changed that to CarShop. And we already had CarSense here in the U.S. So we just want to have one global brand and it’s one price, sales commissions are flat. And it’s large. These are over there. Obviously, online is probably today, one of the areas that we’re continuing to grow in with our tools, but large footprints and big inventory. Today, we’re sitting with about 6,000 units in inventory as we sit here today, plus 2,500 going through reconditioning. And if we can sell 5,000 in the month of May, you can see what we’re running, what, a 45-day supply. So I would say, we’re in good shape, and that would be the same period. And we have a front-end growth over there and a back-end growth in the F&I, which pretty much are the same as we go forward.

And again, the margins as we see both in the U.K. and over here are about the same when you look at the combined finance and front end. And I think the thing that we’ve been able to do over there is the sourcing that they have in the U.K., and what we’re doi
ng is looking at how we can improve the sourcing here as we expand the footprint in the U.S. But the marketing, obviously, some nuances. So we’ve really taken their playbook from a marketing and branding perspective and really utilizing that over here. So we have a consistent look on a global basis.

Michael Patrick Ward — The Benchmark Company — Analyst

So as you go from 17 to 40 stores, will some of that expansion be acquisition? Or will all be in the greenfield sites?

Roger S. Penske — Chairman & Chief Executive Officer

All be greenfield. I mean we might make an acquisition to get a location, but we’ve looked at that do we buy an existing location. But by the time you get the branding done, you don’t buy cars, you’ll either have people in locations. And I think the current format is that we would look at maybe we take a whole base or a whole depot that was shut down a big footprint like we did over in New Jersey. We’ve repurposed that. But in most cases, we would build from the ground up or we would continue to expand the online connection with the customer.

Michael Patrick Ward — The Benchmark Company — Analyst

And is there a ballpark investment for a greenfield site?

Roger S. Penske — Chairman & Chief Executive Officer

Yes. We’ve said that to get to the 40 locations, we’re probably looking somewhere around $200 million to $225 million. So you could say, it’s $10 million to $12 million, depending if the sale leaseback are we buying or what, are we repurpose something. But I think if you look, if you had to do the same to get to the same level of, say, $3 billion, and we’re talking about 3.3% return, you’re probably going to spend an acquisition of goodwill and what have you, you’re going to spend two or three times more maybe four or five times for that today in order to get the same revenue with a lot more complexity, if it’s an OEM brand, for sure.

Michael Patrick Ward — The Benchmark Company — Analyst

Fantastic. Thank you.

Roger S. Penske — Chairman & Chief Executive Officer

Alright, Mike. Thank you.

Operator

[Operator Instructions] Our next question comes from David Whiston of Morningstar.

Roger S. Penske — Chairman & Chief Executive Officer

Hey, David.

David Whiston — Morningstar Inc., Research Division — Sector Strategist

Hey, Roger, Hey, Tony. I want to start on the U.K. business. In particular, the retail automotive segment. The numbers in the press release there are just outstanding when considering the stores were closed. But it looks like CarShop in the U.K. didn’t get that any help from any kind of digital expertise that the retail group did. So is there room to maybe improve the digital capability for CarShop?

Roger S. Penske — Chairman & Chief Executive Officer

Well, I think it’s a different customer because when we’re talking about GBP12,000 car or $15,000 cost of sale in the U.K. And we saw that business fall off because with showrooms closed, our big days are on the weekends, and that business really stopped in the U.K. And I said as we open here just on the 12th of April, that’s shot ahead, and we’re going to operate at 5,000 units. So from our perspective, right now, we’re up 43% just over these last 14 or 15 days. And it was strictly having the showrooms close there because people want to see the car. they know it’s a new car, but wanting a used car at that price level, I think, that customer probably is not as sophisticated and wants to see that especially, and even that customer wanting to travel out of their home and what the restrictions were in the U.K. probably was a bigger factor for that poor performance.

David Whiston — Morningstar Inc., Research Division — Sector Strategist

Okay. And shifting over to trucks, I guess, a two-part question. First of all, why is used so strong when new isn’t? And I know we used to have a really bad quarter a year ago. But then also, despite the weakness in new volume, the ASP was only up 1%, yet new GPU was up 48%. So was there a stable mix shift on your new truck sales to get that nice GPU growth?

Roger S. Penske — Chairman & Chief Executive Officer

Well, I think, look, number one, it was just timing on our new truck units. As I said, the plants were shut down in Mexico, where we get the majority of our Cascadia product. And so that had some impact. And a lot of those trucks were pushed forward into Q2 and Q3. And I think that at the end of the day, we’re going to see the backlog is going to move up 237,000. So a lot of those trucks will be built. And basically, what we’ve checked yesterday, it looks like starting the beginning of the month, they were not pushing anything out based on availability, either COVID problems or availability of components. So that’s strictly timing.

And on the used truck side because the shortage of new trucks availability just because something just drives used truck prices. I mean it’s a supply and demand. I think it’s key. And with a freight movement today and all the distribution and all the things going on, and then with COVID and people moving across the country from a social perspective or utilizing a lot of this equipment, which obviously is certainly driving prices up these vans that we have. You almost can get new prices for them because people want those. GrubHub and a lot of these guys are using these types of pieces, and they buy used. And it’s just a trading frenzy on that stuff right now. That’s driving some very strong used truck profits on a per-unit basis.

David Whiston — Morningstar Inc., Research Division — Sector Strategist

Okay. And on 528, you talked about 6% of total unit sales were completed online. Does that mean for those customers making up that 6%, it was a 100% digital? They didn’t come into a store at all?

Roger S. Penske — Chairman & Chief Executive Officer

I would say, I don’t have the exact numbers. I don’t think would be here. But they started online, and at the end of the day, when you take a look at the U.K., we had 4,200 vehicles. I got the numbers here. 4,200 vehicles were sold fully online in Q1. CarShop, obviously, that’s all they really had, was 3,200. And the franchise sold 1,000, that was on the new car side because we can reserve a vehicle in the U.K. for GBP99. And then they apply for finance, we had 570 transactions, instant online approval. We had in fact, 71 paid by credit card. So we have the data to support that and digitally process documentation, which we have here. And then they had the choice of over 100 locations for delivery.

We had some YouTube videos to tell the customer exactly how they would operate. And I think that’s been quite good, and that’s why we like somewhat the ability to use this online tool to yet have the ability for the customer. They want to get off at some point, they can and go directly to the source. They can do that rather than staying online. And I think that this, obviously, gives — provides the convenience that we’re trying to do. This is what we’re trying to do with this online. Make it convenient, personal. I think we want the flexibility and the transparency, and it’s all self-directed, isn’t by you or by me. And it’s a low-pressure environment, which certainly is important, and we shortened the buying process.

David Whiston — Morningstar Inc., Research Division — Sector Strategist

Okay. And just last question. In your opinion, do you think the chip shortage gets better in the second half of this year?

Roger S. Penske — Chairman & Chief Executive Officer

Well, I’ll tell you, I can’t tell you that. I know on
the truck side, the heavy truck side, they say we’re going to be fine. I think what I’m seeing, hearing is that the premium/luxury players might be in better shape than the big 3. That’s the only thing I can say for sure. I think because of some of the fires and some of the issues they have is their capacity out there to meet the demand.

David Whiston — Morningstar Inc., Research Division — Sector Strategist

I appreciate that, thank you.

Roger S. Penske — Chairman & Chief Executive Officer

Thank you.

Operator

[Operator Instructions] And at this time, I’d like to turn the floor back over to Mr. Penske for any additional or closing remarks.

Roger S. Penske — Chairman & Chief Executive Officer

I just want to thank everybody for joining us today and thank our people for a great execution during the quarter. Thank you.

Operator

[Operator Closing Remarks]

Duration: 55 minutes

Call participants:

Anthony R. Pordon — Executive Vice President of IR & Corporate Development

Roger S. Penske — Chairman & Chief Executive Officer

John Joseph Murphy — BofA Securities — Analyst

Nels Richard Nelson — Stephens Inc. — Analyst

Stephanie Lynn Benjamin — Truist Securities, Inc. — Analyst

Rajat Gupta — JPMorgan Chase & Co — Analyst

Michael Patrick Ward — The Benchmark Company — Analyst

David Whiston — Morningstar Inc., Research Division — Sector Strategist

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