Penske Automotive Group Inc. is pausing on its goal to have its standalone used-vehicle CarShop locations sell 150,000 vehicles annually by the end of 2023, as it deals with higher costs of sales and vehicle acquisition woes.
Penske announced in February 2021 that it planned to expand its CarShop locations in the U.S. and U.K. to 40 by the end of 2023, up from 17 at the time, and nearly triple the unit’s annual sales to 150,000 during the same period. It also aimed for the CarShop business by that time to generate annual revenue of between $2.5 billion and $3 billion and pretax earnings of about $100 million.
But the industry’s vehicle shortage and increased competition to source used cars has disrupted Penske’s ability to reach those goals. CarShop vehicle sales of 110,000 may be more realistic for 2023, CEO Roger Penske told Automotive News last month.
“Acquisition prices are significantly higher [and], which is putting pressure upon margins,” Penske stated.
Penske told analysts in April that new-vehicle supply shortages have hurt used-vehicle affordability, and wholesale prices have continued to increase. Penske pointed out that sometimes, the pricing for a 1-to 3-year-old vehicle is higher than a comparable new one.
“We remain optimistic about the CarShop model,” he said. “We will continue to grow CarShop based on the ability to procure affordable vehicles, which may impact our goal of retailing 150,000 by the end of ’23, obviously reflecting our current market conditions. “
Public rivals AutoNation Inc. and Sonic Automotive Inc. also have bullish plans to expand standalone used-vehicle centers through their respective AutoNation USA and EchoPark units. For example, AutoNation aims to have more than 130 used-only stores by the end of 2026, up from 11 today.
Penske opened six CarShop locations last year — two in the U.S. and four in the U.K. At the end of the first quarter, Penske had 23 CarShop outlets — eight in the U.S. and 15 in the U.K.
Penske closed two of its small CarShop Express locations in the U.K. during the first week. This was according to Anthony Pordon, Penske spokesperson. The express locations are located in city centers and allow customers to order and pick up their vehicles.
The shuttered express sites had increased costs and hadn’t added incremental CarShop sales in the U.K., Pordon said.
Some locations under construction could have delayed openings. Penske has four full-fledged CarShop stores, which feature service departments and reconditioning centers, being built in the U.S. and U.K.
“We’re going to monitor the market before we open those up,” Penske said. Penske stated that they would open the store at the appropriate time. “
CarShop sold 63,403 vehicles last year, up 19 percent from 2020. It earned $1. 48 billion in annual revenue in 2021.
The business continued to grow in the first quarter of 2022, as revenue more than doubled to $515.8 million on sales of 19,523 vehicles, up 71 percent from the first quarter of 2021. CarShop’s average transaction price rose 23 percent to $21,700, while its average gross profit per vehicle sold dropped 2 percent to $2,155.
The CarShop business is running at a sales rate that would produce sales of 80,000 to 90,000 vehicles