CHICAGO — Penske Automotive Group Inc. is realizing when to pivot on certain strategies.
Take its standalone used-car business CarShop, for instance.
Keeping in stride with an ever-evolving market environment entailed Penske stepping back and putting its used-car strategy under the spotlight. Earlier this year, Penske slowed its plan to expand CarShop, with 21 stores in the U.S. and U.K., due to higher costs of acquiring vehicles. The company had hoped to have 40 CarShop stores by the end of 2023.
“What we’re experiencing now … is just a lot of pressure when it comes down to the ability to buy the [used] car right and the ability to get an acceptable margin because of where used-car pricing has gone,” Penske Automotive President Rob Kurnick told Automotive News Retail Forum in Chicago on Thursday.
The Bloomfield Hills, Mich., auto retailer is no stranger to the still-high demand for new vehicles brought on by the global semiconductor chip shortage and low inventory levels on its lots. Pent-up demand and high average vehicle sale prices has in part led to continued profitability for the public retailer, which posted record revenue of $6.9 billion in the third quarter.
Revenue for its CarShop division, however, decreased 7 percent to $406.4 million on sales of 17,567 vehicles, down 5 percent, in the third quarter. Penske did not say if that unit was profitable in the three month period.
Keeping in stride with the current environment also has meant coming to terms with consumers wanting more of a hybrid buying or selling experience, Kurnick said. That has been a learning process “in terms of where the technology is, where the dealer is, and ultimately where the customer is,” he said.
Customers who previously visited the dealership in-person to order a car now are either building and pre-ordering cars online, or buying them directly through Penske’s pipeline, Kurnick said.
Like its peers in the auto retail landscape, Penske felt some prodding to move further online as Carvana Co., for example, saw profitability and a spike in its stock price last year, Kurnick said.
But Kurnick said he’s realized there’s not a lot of profitability to be found in mimicking Carvana’s online model of selling used cars across the country. From a logistics standpoint, there’s not much profit in Penske transporting a sold vehicle from a dealership in Arizona to one in Philadelphia, he said.
Kurnick said despite current challenges with used-vehicle pricing and margins “none of that suggests that we don’t have a lot of confidence in the [used-only] concept. I think we do. I think we’re absolutely on the right path, especially with the addition of service and parts and I look forward to a little bit more rationalization on the used-car side to acquire the inventory more reasonably so that we can reinvigorate it.”
Penske Automotive ranks No. 3 on Automotive News‘ list of the top 150 dealership groups based in the U.S., retailing 195,384 new vehicles in 2021.
