Penske Holds Off on Adopting NADA Compliance Program
February 18, 2014
BLOOMFIELD, Hills — Penske Automotive Group (PAG) officials said the dealer group will “wait and see” on whether to implement the National Automobile Dealers Association (NADA)’s new fair lending compliance program, noting that the company counts reserve as only a “small portion” of its overall income. The group also reported a record fourth quarter and year in 2013.
At its annual convention and expo in January, the NADA announced a new program that would allow dealers to document variations in rate markups on retail finance contracts. The program was developed in response to the Consumer Financial Protection Bureau (CFPB)’s recent scrutiny of rate participation policies.
“Today, the CFPB has not approved the NADA plan,” said Roger Penske, chairman of the group, during the group’s investor call on Feb. 13. “And we like the move that the NADA is getting out in front of the dealers ...
“We continue to review their plan but …,” he said. “At this particular time, it’s a small portion of our overall income as finance reserve. I just think we have to wait and see.”
Penske went on to note that he was “not real enthused” about having dealers write down multiple reasons for changing a rate because “that would encumber the transaction.” He noted that the group has taken to econtracting, a move designed to make the transaction quicker for the customer and more efficient for the group’s dealers and finance sources.
“… I think we are in the first inning here advancing to see what guidance we get as we go forward,” Penske added.
Last year was the most successful year in the company’s history, officials said, with revenue hitting $14.7 billion. During the fourth quarter, income from continuing operations attributable to common shareholders increased 19.3% to $61.7 million, while related earnings per share increased 19.3% to $0.68 per share when compared to the same period last year.
Total revenue increased 15% to $3.9 billion during the fourth quarter. The revenue increase was driven by an 11.4% increase in total retail unit sales, including a 9.8% increase on a same-store basis. Gross profit improved 14.2% to $586.4 million, while operating income increased 15.9% to $106.7 million.
In the F&I space, revenue increased 17.4% and 15.5% on a same-store basis. F&I improved $52 per unit to $1,037. In the U.S. market, the group’s F&I per copy average was $1,021, while average profit per retail unit in International markets was $1,076.
“Seventy percent of our F&I income comes from the [United States] and 30% internationally,” Penske noted. “And when you look, 60% is product and 40% is reserve, so you will see, obviously, some … pressure as interest rates would go up. But today when you think about 40% or 70%, about 30% of it is really F&I reserve.
“And we've been operating in an environment with leases,” Penske added. “And quite honestly, in leases margins and interest rates really don’t come in to play because you are really talking about our lease payment and that's 55% of our Premium/Luxury business would be leased.”
The company retailed 366,200 units in 2013 and has a positive outlook for the coming year. In 2013, PAG acquired commercial vehicle distribution businesses in Australia and New Zealand, as well as dealerships in the United States, United Kingdom and Italy.
“I am very pleased with our performance and believe our results continue to demonstrate the strength, the diversity and the resilience of the PAG business model,” Penske said. “With a strong balance sheet and the product outlook across our automotive dealership, our car rental and commercial vehicle businesses are poised for continued growth.”