Anthony R. Pordon – Executive Vice President, Investor Relations and Corporate Roger S. Penske – Chairman and Chief Executive Officer David K. Jones – Chief Financial Officer and Executive Vice President–Finance.

N. Richard Nelson – Stephens, Inc John J. Murphy – Bank of America Merrill Lynch Brian C. Sponheimer – Gabelli & Company James J. Albertine - Stifel, Nicolaus & Company Brett D. Hoselton – KeyBanc Capital Markets Paresh Jain – Morgan Stanley David H.

Lim – Wells Fargo Securities, LLC, Research Division Scott Stember – Sidoti & Company David Whiston – Morningstar David Tamberrino – Goldman Sachs & Co. .

Ladies and gentlemen, thank you for standing by and welcome to the Penske Automotive Group Third Quarter 2014 Earnings Conference Call. Today's call is being recorded and will be available for replay approximately one hour after completion through November 5, 2014; on the company's website under the Investor Relations tab at www.penskeautomotive.com.

I will now introduce Mr. Tony Pordon, the Company's Executive Vice President of Investor Relations and Corporate Development. Please go ahead..

Thank you, John and good afternoon, everyone. A press release detailing Penske Automotive Group's third quarter 2014 financial results was issued this morning and is posted on our website along with the presentation designed to assist you in understanding our performance.

Joining me for today's call are Roger Penske, our Chairman; David Jones, our Chief Financial Officer; and J.D. Carlson, our Controller. On this call, we will be discussing certain non-GAAP financial measures such as earnings before interest, taxes, depreciation and amortization.

We have reconciled these measures in this morning's press release and investor presentation which is available on our website to the most directly comparable GAAP measures. Also we may make forward-looking statements.

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. Additional discussion and factors that could cause results to differ materially are contained in our public SEC filings, including our Form 10-K.

I’d now like to turn the call over to Roger Penske..

Thank you, Tony. Good afternoon, everyone and thank you for joining us today. We reported another strong quarter performance and record third quarter results including a 15.6% increase in income from continuing operations to $76 million and a 16.4% increase in earnings per share to $0.85.

Based on the strength of the company's performance, earlier this month, the Board of Directors authorized a 5% increase in the quarterly dividend to $0.21 per share, yielding approximately 2%, the highest in the automotive retail sector. Let’s now turn to specifics of our third quarter.

Our results were driven by a 10.2% increase in total retail unit sales to 105,000 units and a 17.5% increase in total revenues to $4.4 billion. On a same-store basis, automotive retail revenue increased 11.2%, including 7.5% in the U.S. and 18.1% internationally. Our operations in the UK continue to perform extremely well.

Foreign exchange rates increased revenue by $97 million excluding the effect of foreign exchange, same-store retail revenue increased 8.7% including 10.8% in our international markets. Our total revenue mix during Q3, the U.S. was 61% of our revenue and international was 39%.

97% of our revenue was generated through automotive dealerships and the remaining 3% came from our commercial vehicle business. In our automotive dealership business, our brand mix was 71% Premium/Luxury, 25% Volume Foreign and 4% Big Three.

Looking at our new vehicle performance, new unit’s retail increased 9% to 57,300 units, representing at 8% growth in the U.S. and 13% internationally. Same store new units retail increased 4%, U.S. was up 2%, international was up 8%. New vehicle revenue increased 14%, to $2.2 billion as an average selling price improved 4% to almost $39,000.

Gross profit per unit retail increased 6% to almost $3,000 of our gross margin improved 20 basis points to 7.7%. Our supply new vehicles were 49 days at the end of September, compared to 50 days at the end of the same quarter last year. Turning to used vehicles, we retailed 47,700 units in the quarter representing an increase of 12%.

Premium/Luxury was up 15%, Volume Foreign up 7%, the Big Three up 5% for a total of 12%. Our new-to-used ratio was 0.83 to 1 up slightly from last year approximately 36% of our used unit sales in the U.S. were certified pre-owned during the third quarter up from 34% last year. Same-store used units sales retail increased 7%, the U.S.

was up 6%, and international was up 9%. Our used vehicle revenue increased 21% to $1.3 billion. Used vehicle average transaction prices increased 8% to $27,300, our gross profit per used vehicle retail are declined $69 to $1,800. Gross margin declined 80 basis points to 6.6%.

Our supply of used vehicles was 39 days at the end of September as compared to 42 days last year. Turning to finance and insurance, third quarter revenue increased 17% and F&I improved $60 per unit to $1,092. F&I per unit was $1,042 in the U.S. and $1,200 per unit and our international markets.

Service and parts business had another solid quarter improving 16% with customer pay, warranty, collision repair generating double-digit growth in revenue. Service and parts on a same-store basis increased 11%, customer pay was up 10%, warranty was up 14%, our bodyshops up 17% and our PDI up 7%.

Service and parts gross margin was 59.4% largely due to a shift in mix in our international operations. In total, overall gross profit improved $88 million or 15%, and overall gross margin was at 14.9%.

SG&A to gross profit improved 30 basis points to 77.9% and our gross profit flow through was 24.1% in the third quarter and the flow through on the same store basis for the quarter was 26.4%. Operating income increased 17% to $128 million and the operating margin was 2.9%.

Invest as we made a joint-ventures continue to perform well while providing another layer of diversification. In Q3 our income from these investments was $13 million representing an increase to $1.5 million or 13% from the third quarter of last year. Effective tax rate was 34% compared to 32% last year and affected EPS by $0.02 per share.

We continue to expect our full-year tax rate to be approximately 34%. EBITDA improved 18% in the quarter to $147 million. Let me now turn to our international automotive business. Our operations in the United Kingdom, Italy and Germany all performed well during the third quarter, highlighted by a 13% increase in total units retailed.

Our new units were up 13%, our used units were up 12%. In the United Kingdom, September represented the 31st consecutive month of year-over-year registration increases, in the month of September the market registered almost 426,000 vehicles this represents an increase of 5.6% when compared to the same period last year.

The overall UK market remains strong, is on track for more than 2.4 million units during 2014, which would represent an increase of approximately 6%. Despite the strength of the market over the last two and a half years the market still remains about 7% below the previous peak of nearly 2.6 million units.

Our new unit volume increased 9%, which compares favorably to the overall U.K. market, which improved 6% during the third quarter. Used unit sales increased 9% in the quarter and our used-to-new ratio in the U.K. is running at 0.93 to 1 for the first nine months of the year. Let me turn to our commercial vehicle business.

We’ve now been in Australia and New Zealand market for a little over one year. During this period we spend a lot of time focusing on customer interactions with the dealers and forging new relationships with our OEMs. We’re continually introducing initiatives to drive new market penetration and are driving improvements in the used vehicle remarketing.

We recently launched a new e-commerce site for this business allowing us to combine inventory or providing us an opportunity to gain leadership position in used truck remarketing. We also started a trading academy for dealers and our employees.

During the third quarter, the commercial vehicle business generated approximately $100 million in revenue and remains on track to meet expectations. Earnings before tax has generated approximately 4.2% of sales on a year-to-date basis. The product distribution business is very strong, has improved over 17% for the nine months of this year.

Further, at the beginning of the fourth quarter we completed strategic acquisition of MTU-DDA, the distributor of gas and diesel engines Allison Transmission and power systems across both on- and off-highway markets in Australia, New Zealand and the Pacific along with providing service in part supporting those markets.

MTU-DDA is an exclusive network for over 80 credited dealers and will help bring added scale to our existing operations in these markets.

This acquisition will provide us with an opportunity to provide a full range of product and services to customers across these regions and will provide an estimated annual revenue, approximately $225 million to $250 million. Looking at our balance sheet at the end of September, our liquidity was approximately $340 million.

Total non-vehicle debt was $1.2 billion. We had $150 million cash on our balance sheet. Our and used inventory was $2.3 billion. It increased $219 million when compared to September last year. New was up $161 million, used was up $58 million.

On a same-store basis, our new and used inventory increased $139 million compared to the end of September last year, new up $97 million and used up $42 million. Our capital expenditures for ID facilities were approximately $100 million year-to-date, additionally also purchased approximately $20 million in land for future development.

Turning to the acquisition we announced this morning in our press release, we’ve signed agreements to acquire the majority ownership In the Around-The Clock Freightliner business, a heavy and medium duty retail truck dealership group with operations in Texas, Oklahoma, and New Mexico.

This business retails new trucks from Freightliner, Western Star, and Sprinter and has sophisticated used vehicle remarketing programs like automotive dealership provides a full range of maintenance and repair services..

Like the automotive business, the truck dealership market is highly fragmented, provides an excellent opportunity for further consolidation. On the automotive side, we’ve started construction of our new Porsche dealership in Broward County, Florida. The new dealership will represent our seventh Porsche dealership in the U.S.

and our 15th on a worldwide basis as expected to open in 2015. In closing, I'm very pleased with our record performance so far this year and believe the results continue to demonstrate the benefit and strength of our brand mix and geographic diversification.

We’re excited about our acquisition opportunities available across both current truck dealership businesses. As we move forward, we will continue to evaluate our market position where we remain committed to pursuing strategic and opportunistic acquisitions to help our company to achieve long-term success and prosperity.

With a strong balance sheet and a positive outlook, we’re poised for continued growth. Thanks for joining us today and we’ll open up for questions..

(Operator Instructions) And first we will move on to Rick Nelson with Stephens. Please go ahead..

Thanks. Good afternoon, Roger..

Hi, Rick.

How are you?.

Good. I would just like to start with a question about ATC. You could talk about the multiple that you paid there and the margin profile a little bit – what appear to be bigger operating margins some PAG and while there is a near-term acquisition focus is now going to turn to consolidating truck business..

Well, when I look at the multiple, in this case, it’s probably 30% to 35% less than you’d pay for a premium luxury brand in the U.S. I think that’s the guidance I would give you from a standpoint.

From a margin perspective, our return on sales we look at this business is somewhere in the 4% to 4.5% and today we are at about 2.9% operating income in our business. From a focus perspective, I see this is a real opportunity. We run opportunity 220,000 trucks in their truck fleet.

We’ve focused on truck service for many years and this is another way for us to move into that market. When you think about the parts and service business on the car side and our business, it’s 10% of our revenue and it’s 40% of our gross profit.

When you look at a truck dealership, the parts and service gross profit is approximately 70% of the total gross profit. So to me it’s makes a big difference. When we look at downturn, we’re going to see this parts and service cover a fixed coverage well over a 100%, which to me is key.

And to me when you look at this business is really fragmented, there is probably 2,200 dealerships, we have a framework agreement with Freightliner and then we would expect to grow in their markets. But to me, it’s going to a strong vertical with that overall business..

N. Richard Nelson – Stephens, Inc:.

:.

Well, I think we saw growth really on a same store basis, double-digit really across customer pay, our body shop and warranty. There is no question that we’re looking at in the zero to five year population.

There is a number of initiatives by the manufacturers [tire that care] (ph), the full service BMW offers and with our premium luxury mix, we see those customers coming back in.

And through our Internet process, we’re offering these customers different opportunities once at auto warranty that come in with a different menu pricing in order to attract them rather than going to be independent. So I think that’s paying off. We had some shift in the U.K. this past quarter to more warranty, which carries a little bit less margin.

We don’t get the markup on parts in the U.K. here we get full markup on warranty parts in the U.S. They only get 10% in the U.K. So they picked quite a bit more warranty there. So our margin was little bit less due to the Porsche markup.

But overall, we see the service business really coming on strong and we would expect that to continue to grow because of the (indiscernible) being at these higher rates over the last 36 months..

Okay, hey, great. Thanks a lot and good luck..

Thanks..

Our next question is from John Murphy with Bank of America Merrill Lynch. Please go ahead..

Good afternoon, Roger..

Hey, John..

Just a follow up on ATC, I mean, thanks for the information there, but as we think about this, I mean, you’ve mentioned consolidation, we think about this in a longer term. Is this kind of a mere image of kind of what you did was Sytner over in the UK.

And we’re looking at something that might be multiples of what it is right now within PAG in the next five to ten years?.

Well, I certainly, we bought Sytner back with $800 million in revenues and now it’s $900, it’s now $5 billion. Since roughly 2002, I’d expect to see this continued growth there is I think an aging population and some of the older, guys that own these dealerships there is some interest obviously for consolidation by the manufacture.

And there is no question as Freightliner is the market leader. We’re really poised with the right manufacture to go forward. I think if you look at Rush, Rush is a public company I think it trades at about 16 times are multiple. And they’ve been able to consolidate over the last few years both (indiscernible) international.

So this is I think a first step for us, and one thing you might real, we run more Freightliner trucks in our fleet from a Penske Leasing perspective. So this also gives us an opportunity for parts and service, we might not add before..

And Roger, when you think about capital allocation, there is certainly some return going on to shareholders and it’s certainly some massive reinvestment in the business for the – these growth drivers.

When you look at it, how do you allocate capital to growth versus return to shareholders, when you see these kinds of opportunities and or there just a lot more opportunities for acquisitions and business growth that will a lot more attractive and maybe reinvesting in the stock at this point..

Well, I think when you look at two major shareholders in PAG ourselves and Mitsui we have a significant share, we want to have a flow to out there this realistic. And then there is no question from a capital allocation perspective we got to meet certain brand ID, CI requirements.

We do pay a dividend, it looks I mentioned is $0.21 per share per quarter now with the yield at 2%, our payout ratio was 26%.

So I guess people have to think about, was stock buyback we want to continued income stream through dividends, certainly we have authorization of about $78 million left for buyback today either on our debt or on stock buyback and we continue to look at that.

But I think our Board and I think I do particularly look at the opportunity to make investments, because the base of this business is truly parts and services and sales of vehicles. And to me we need to continue to invest in that. And we build a good brand, not only here in the U.S. We led getting into Audi and some of these other brands early on.

We moved into the international market today and we have a $5 billion business in the UK today, which is a leader in almost every single premium brand. And then also going into Australia where we have distribution not just retail sites, but I think it’s important to know that we’re the distributor there.

So we engage with anywhere from 82, in the case of Western Star and MAN and Detroit Diesel up to almost 160 different dealers, where they sell our parts. So it gives us a tremendous reach into the service business, which is the high margin business.

And it will give us I think nice consistent growth and we can manage through some of the ups and downs of the economies in the particular market..

Okay, that’s great. And then just lastly, the used vehicle business was fairly strong, pricing seems like it was fairly strong as well up 8.2% and grosses were okay. There is a lot of concern that used vehicles pricing might come under pressure and create some real hiccups in that part of the business.

I am just curious if you can comment on what you’re seeing in used vehicle pricing? Why your pricing was up so much in the quarter and what you think are the prospect for that business are going forward regardless of where price goes?.

Well, I think when you look at used vehicles, you really got to go back or it was a kind of sea change in August. We had a 17.5 million SAAR for August for new car, which generated a tremendous amount of used opportunity. And I think we saw some of that in the month of September and if we go into the fourth quarter.

For us, we took action to be sure that our day’s supply went from 42 down to 39 was key, because we are in the premium luxury side and we have a number of the off-lease vehicles coming back. Our sale price across the sale probably is higher than the peer group.

And what we did, we wanted to move these vehicles from the standpoint of inventory, because it’s traditionally, we know in the fourth quarter, prices do deteriorate because lot of the wholesalers are dumping their inventories and we move into Q4. So I think in our case, we think it’s an opportunity for us with more used cars on the market price.

We will buy at market and we’re going to sell to – try to sell at a point, where we get a fair margin, then we got the F&I opportunity. We got the internal opportunity from remand perspective.

And again, I guess for us, it gives us an opportunity to make more money in the better availability from the standpoint of used cars to lower prices it helps our acquisition costs..

Great. Thank you very much..

Thanks John. .

Our next question from Brian Sponheimer with Gabelli and Company. Please go ahead..

Hey, Brian..

Hi, Roger. Hi, Tony..

Hi, Brian..

Just want to talk about your new pricing and gross per new unit, one area where I thought it was particularly strong was on the volume import and they really kind of bucked the trend from what we’re seeing for some of the other dealers, particularly in mid-sized.

So can you just talk about what you’re kind of seeing there and how your pricing enabled you to get that margin expansion..

Well, we’re focusing, the good news is in the Premium/Luxury it’s not high volume. So the sales can take more time. I think that in many cases we’re getting a repeat referral customer there. So it allows us to take advantage of may be good customer interaction and service we’ve given them in the past.

So I see the Premium/Luxury continue to drive our business, because as you look at our number at $4,000 almost $4,100, I think, that shows you the strength of that. Now that’s not only, I mean that’s a combined number, not only in the U.S., but also internationally. So I think that’s key as we go forward.

When you look at the volume, Foreign, on the other hand there’s been pressure in that area. But I think we’ve got as we look at the 17 Honda stores, we have similar amount of Toyota stores. These stores have been in place, we’ve owned them for almost half the time we’ve been in this business.

And we’ve got a great following there and obviously, we are focusing on gross profit and that to me is the most – it’s a management tool. And the we’re just not going to get into giving it away if we’re going to meet some target, we’re going to look at what does it do to our bottom line, because I think it gets more important long-term.

I think that at the end of the day, it’s about focusing. When you look at CPO, 36% of our units were CPO on the U.S. and I think that’s key. And the good news is from the standpoint of our ability to make money, when you look at the finance companies, that are associated with the Premium/Luxury, obviously BMW Finance, Mercedes, Audi, et cetera.

And also on the volume foreign when you take that combination together, we really end up with a strong offence. We’re looking at over 60% of all of its contracts that we do is with the captives and that gives us some offense because we’re not going to a third party. This business primarily is a premium business.

It’s not subprime that gives us a chance, I think, to have a better outcome from the standpoint of margins..

I appreciate that. Just one more, you identified a total liquidity of about $340 million and back of the envelope that buys about another $1.5 billion in revenue if you were to come across it.

What’s the acquisition pipeline for you right now in the traditional light vehicle business? Should we expect to see or – if something large were to come along like what you did in Northern Ireland, is the capacity there to still do that?.

Well, I would say yes. I wish there was more Northern Ireland opportunities for us, I mean that was a relationship that was generated by Gerard Nieuwenhuys over the years with the [Agnews] (ph). It’s turned out to be an outstanding purchase. We’ll look internationally.

We’ve done some joint ventures with minimal capital, both in Germany and in Italy and Spain. Those are turning out to be quite good. So we have a pipeline here in the U.S. So if a potential acquisition is on the car side and obviously as we look at commercial vehicle side, we have some of those in our sides also.

So to me when you look at our EBITDA, it’s $450million. For the first nine months, our cash flow is strong..

We’ve seen what a great business Rush is too. Congratulations on ATC and good luck..

Thanks, Brain. Appreciate it.

And next we’ll go to James Albertine with Stifel. Please go ahead.

Great. Good afternoon Roger and Tony..

Thank you..

Very quickly if I may on ATC and let me add my congratulations as well.

The $0.12 to $0.14 of EPS accretion that you called out on an annualized basis, is implicit in that figure some expense related to infrastructure investment that could support future acquisitions? And so said another way, if you were to go out and to buy the same sort of revenue base in another heavy duty dealership base, could it theoretically be more accretive to EPS in the future from here?.

I think it would be more accretive and each one is different. In this particular case, part of it we bought the real estate, which was in the Dallas, Oklahoma market. The west Texas stores are leased.

So there’s a mix and obviously with the ability from a Daimler perspective, I talked about the strength of the captives with Daimler, it’s very happy to provide us mortgage financing on these facilities because it’s a key part of the business.

So we would look at sale-leasebacks and seller financing or seller providing us the facilities on a long-term lease which would reduce the amount of capital. So I think the one thing you have realize from a floor plan perspective, we’re significantly less floor plan required in this business.

We probably carry more parts and service and you’ll have the turns you might have in automotive, but I see this model as one that is really going to be good for us because we’ve got the benefit of the knowledge of the truck business.

It’s a smaller group of dealers competing in this market place and with Freightliner being the leader in the industry both in medium and in heavy duty it give us the chance for more opportunities and I would say that any other investment that we would make in this – we wouldn’t make unless it was accretive..

I appreciate that additional color. If I may just ask kind of a higher level strategic question, over time you develop a very clear it seems focus around Premium Luxury in the U.S. in auto retail perspective you’ve taken that on the road to the U.K.

and then subsequently to the EU, you made a lot of investments in technology and penskecars.com and now you’re starting to leverage those investments and now you’re on the heavy duty truck business.

So I guess very broadly can you talk little bit about the vision you have for PAG going forward and then maybe more directly as it relates to sort of SG&A and some of – where you leveraging those investments now in the form of kind of continued SG&A to grow its benefits quarter-in, quarter-out?.

Well, let me first say, I think the vision today we’re 69% our business in the U.S.

and 31% international I think you’ll see as we go forward we will tend to go probably 60%, 40% I would say if you look at over the next 12 to 24 months you could see that I think from a commercial vehicle business I would like to see that business grow from 5% to 10% over the next 24 to 36 months.

From a leverage perspective, I think one of the things that you have to step back when you think of 220,000 trucks we spend $100 million a month in maintenance on these trucks so you can imagine the trucks and how it’s being spend, so we get the benefit maybe of leveraging those buys along with the PAG buys and also the buys that we have on the truck side from the standpoint of parts so that’s going to give us something that we’ll look at our marketing consolidation of our back offices – our legal, certainly our e-commerce all of those things.

I think are key and all of them are focused on customer service and repeat referral.

So the vision obviously is to grow more internationally, I think that gives us balance when we look at Spain and we look at Italy today right out of the box they’ve been performing well and we think there is more opportunity there, every manufacturer has knocked on our door in Europe now to say hey we have an opportunity and to me those are ones that are not in any of the multiples that we look at here.

So we are going to continue to look at those you want to stay in the premium side I would say this strategically there might be, if we look at certain domestics here in the U.S.

there are some domestic opportunities that have popped-up for us and we’ll look at, but to me we are going to pretty much stay in line as a premium/luxury volume foreign player and there is no question that the service in parts, when you think about commercial vehicles will play a key part going in the future because when I look at commercial vehicles 70% of the total gross profit in those businesses is parts and service, so there may be less capital involved in those from a acquisition standpoint, less from a working capital perspective.

And again I think it’s a more stable business because it will us drive us through any ups and downs and we don’t have the facility requirements, the tile floors and the fancy showrooms that you have on the automotive side.

And I think if you look at our CapEx we are spending $150 million a year that’s driven, a lot of that’s driven because of the corporate ID and CI we don’t have that to any real extend obviously you got to have nice facilities on the truck side, but I would say you don’t need some of the things that are necessary to meet the CIs in the future we don’t have that.

That’s a long answer to your question, I’m sorry, it was a long question too..

Yes, admittedly, it was. Thanks again for taking it and best of luck in the fourth quarter..

Thanks.

And next we got Brett Hoselton with KeyBanc. Please go ahead..

Hi Brett..

Hi, Roger and Tony.

Hi Brett..

Starting off on the parts and service side, I think in the last conference call you were kind of thinking longer term parts and service would grow in that mid-single digits and certainly you've been outperforming that this year and significantly so this quarter.

So kind of two questions, one, as you looked at this quarter, was there anything unusual in this quarter or maybe last year's quarter that might have drove some pretty good outperformance, maybe some recall activity or something like that? So and then the second question is do you still feel mid-single digits growth is kind of the reasonable target for the parts and service growth?.

Well, if you look at the U.S. by itself it was around 8% and internationally, we are up almost 20% and that was driven by a strong warranty component was up about 23%. And I think that really when you look at the total and together we’re up 11%. So I think traditionally, we will be looking at somewhere of in that 7% to 8% in the U.K.

The one thing when we look at the international business, the parts margin on Audi is a maximum of 10% and certain big items, you get no margin on. So we got to be careful, we don’t think that margin is also – as this going to drive we get more top-line, we’re going to drive that margin. There will be some of that we will get.

We will get the full labor component of that which will be good. But at this particular time, I think if you look at mid-single digits is a fair estimate as we go forward..

And then as we think about just the size of the commercial vehicle business potentially and just follow-on to your earlier question, is that a business that you think can get to 25% of your mix or 30% or 40% of our mix over a five year period of time? Is there that much emphasis there or is it more opportunistic?.

Well, we certainly wouldn’t or not getting into it to say we have just an operation in the Texas, Oklahoma market. We let it to grow. We made that quite clear to our OEM partner and I think that we’ve demonstrated to all the OEMs, how we run our business from a truck perspective.

To me, there is no reason this business over the next couple of years can’t be 10% of our overall business, how it gross from there will be up to us, and the opportunistic buys that we would make in that particular line. We have a framework agreement that allows us to grow nicely over the next several years. So there is no muffler on us to stop it.

So it will be opportunities once if we can glue on in the markets that are contiguous. Then also as we look in different parts of the country, where we think it’s strategic for us to go.

I think there is – if we grow the business four or five times, we could have a $3 billion business here, which would be – I think very good for us from the standpoint because the returns typical around this business, we are looking at the mid force. I talked about Australia today 4.5%, we’re running at 2.9%.

One other piece of leverage, which I have in this business is the SG&A to gross is probably in the low-70s, which is a six or seven points below where we’re in the other lower side, which will certainly help us drive that number down..

And then changing gears, on a gross profit throughput, kind of running I think in the mid-20s here for few quarters now and I think in the past you’ve kind of talked about ideally like to get up around that 35% range.

And I’m wondering is that still an objective of yours? And then secondly, what do you need to see change potentially to get those gross profit throughput up from the mid-20s into that mid-30s range?.

Well, number one, I think that we said 30% to 35%, I’m not sure what’s, I guess, you’d like to be at 50%. But we also want to grow the business, it depends on how you deploy your capital. I think at this particular time, we’re 24% year-to-date, we’re 26% on a same store basis in the quarter.

So we’re going in the right direction and we’ll continue to focus on that. But again we spent more money in marketing this quarter than we did in the previous. One of the areas that we‘ve been looking at probably is a focus is on vehicle maintenance.

With the Premium/Luxury side, we have a considerable number of loaner cars, which you have to have within the franchise which you don’t have in the domestics and the volume foreign. As we look at our gross profit, a piece of that’s being eaten up from the cars of these loaner cars.

We’re almost 6,000 loaner cars in our fleet today which if you look at the cost of those as to depreciation, that’s hurting some of our flow through..

Thank you very much gentlemen..

Thank you, Brett..

And we go to Ravi Shanker with Morgan Stanley. Please go ahead..

Good afternoon, everyone. This is Paresh Jain in for Ravi. I had a couple of questions. First, you’ve been testing the no haggle pricing in one of your stores in Arizona if I’m collect where one sales associate handles the entire transaction. It’s kind of a similar to – a peer of yours that’s already planning to roll it out nationwide.

And your own initial results were from the store was quite favorable in terms of traffic conversion and transaction time.

Has that sustained through the recent months and any updates if the test has been expanded to other stores?.

Paresh, at this particular time, we’re focusing on that one location. And we think we need to get six or eight months under our belt. I will say the business has grown nicely from a Greenfield site.

One thing we’re seeing our margin based on one price is competitive in the marketplace maybe a couple of $100 per unit higher, but the one benefit we get is that the customer deals with one individual from the time they walk in the store until they walk out, so there is some – obviously some savings from a standpoint of the midline management that you might have to have in a normal sales transaction.

We’re a long, long way from saying it’s going to be a standard way we do business from a retail standpoint. But I think we have to be constantly looking at these as our peers are and the other publics and I think they will take our experience coupled with what we see and read from the other folks in different parts of the country.

And I think that today, we are looking at this one pilot is one that will give a some insight, and then we would give you some daylight on what we plan to do, if we want to roll it out to other brands going into 2015..

That’s great color actually. Question on the CV space, when you look at the potential acquisition targets into space, they’re typically of the size of 80C or perhaps even bigger..

I think today we are probably going to see the average size somewhere in the 200 million and 250 million. I think that’s where most of these where they typically have two or three locations and 50 million to 60 million and each one of them would probably be realistic. Now, there are some that are larger, but that’s what I would see at the moment..

Got it. That’s all I had, thanks..

Thank you..

And go to David Lim with Wells Fargo Securities. Please go ahead..

Good afternoon, gentlemen..

Hi, David..

Hi, most of my questions have been answered. But I just wanted to revisit the ATC acquisition.

Is it true that it is probably easier to acquire a commercial vehicle dealership relative to the Premium/Luxury brand and evaluations or more compelling?.

Well. Number one, they are not consolidated. And today, I think the – our peer group is quite active in the Premium/Luxury side, whether be Mercedes, Lexus, BMW, Audi, Porsche, et cetera.

And on the commercial vehicle side, I think its rush has been the leader there and they’ve chosen the brand of Peterbilt in international and they’ve been able to grow at nicely if you look back at their track record over the last three to four years. So I think to say it’s easy. I would say I think there is an opportunity there.

And we will certainly as we get a reputation in this area and especially the fact that we are truck guys should give us a chance to continue at a reasonable pace..

Got you. And then on the fixed operation side of CV, Roger as the trucks age, do you see the owners of these trucks still coming back to the original dealerships or is there more of an aftermarket component where they may go to a so called mom-and-pop and please excuse me I’m not well versed in the CV fixed operation side..

Okay. Let me say this the good news here I’ll go back 70% of the gross profit in a heavy duty dealership today is from parts and service and the bigger piece of that gross is coming from parts.

So whether you have the customer come back to you, whether might be during the warranty period when you think about warranty – the warranty on trucks today is much longer than it is typically on a car that the average warranty probably it somewhere around 250,000 to 300,000 miles and then on the five Cs which your crankshaft, your silver valve, silver head your camshaft and interconnecting rod in some case it’s a million mile.

So that gives you a real handle on getting these customers back into the shops and the good news is if they decide to get down the street somewhat they got to get the parts from somewhere and the good news we’re franchise dealers.

So when you talk about original equipment OEM parts we would be able to supply them through our dealerships in our market. Also the great thing about Freightliner they have a line of parts called Alliance and that gives us the chance to be able to have other aftermarket parts which we can supply for other makes if we take in trade.

So to me I think that’s key and the customer service is important as lot of these people they don’t have another truck.

So being able to come in we run 24/7 in fact Around The Clock Freightliner the name came from 24 hours by seven where they can provide service for the trucker and it will be very interesting to have many of the people on underline here to-date that you see one of these operations, you see how detail that is in order to supply the customer reception and interface.

So I see whether they go into the existing dealership where the truck is sold in many cases the fleets have their own captive shops. So when their captive shops they bring warranty work to us or in many cases we might even put mechanics at these larger fleets and then we supply the part.

So to me that’s something different there is a lot less cannibalization in the heavy duty area where the premium parts when you look at Detroit Diesel DD-15 or DD-13 are common engine they got a captive transmission how the DD-12 they’ve got we’re actual.

So all of the stuff is captive and that’s going to be supplied by the manufacture through the dealer network. So they don’t have a secondary distribution..

Yes, just one follow-up question on the car [indiscernible] 2015 in the U.S. what’s your industrial read there..

Well, I think we’re seeing the car creeping towards 17. I don't have a crystal ball here, quite honestly. I think one thing you’ll see and is that you will see the market share - the foreign nameplates continually growing and obviously that is where we have our primary focus and position.

And today when you look at the vehicle park, it’s about 11.4 years old and on the heavy truck side it’s 6.1. With financing as strong as it is and as we talked about earlier in these captive finance companies are really the strength of many of these brands, and along with leasing – leasing has now moved to 25% or 26% of the market.

And on the premium luxury side, I think it’s over 50%, when you look at most of the key brands that's got to drive more business for us in 2015..

Great. Thank you so much..

Thank you..

And our next question is from Scott Stember with Sidoti & Company..

Good afternoon, and how are you, guys?.

Good..

Can you talk about on the parts and service what was the U.S.

parts and service the same store sales and maybe break that out by customer pay and warranty?.

Well customer pay was up about 6%, warranty was up 11%. Our get-ready which is our PDI was up about 7% and body shop was up about 11% giving us just under 8% from the standpoint of the U.S. performance. And I think I said earlier that the international was up about 19.6%, driven by a 23% increase in the warranty over there..

Got you. And just moving over to ATC, you talked about how gross the parts and service represents about a 70% of gross profits.

How much of the sales does that represent?.

Well on the new side or new and used?.

No, no, on the parts and service side of ATC?.

Well you break down your finances about 1% and I think when you look at the new on the new side, it would be broken up probably you’ve got about 29% left. It would be probably half of that would be under the new 27% would be on the new side, from the standpoint of margin..

Okay.

And can you talk about what the parts and services growth has been in recent periods for ATC, just looking at the sense of how fast that is growing?.

Well if I go back and look at the business before – we’re growing probably similar to what we talked about around 10% would be probably the right number in parts and service.

When you think about West Texas with all the oil and fracking and everything else going on out there in Oklahoma, we would even see those markets may be growing a little bit more, but Dallas is right in the middle of a big industrial, commercial transport hub. So it’s right in the sweet spot..

And just last question back on ATC again and the parts and service, could you maybe just give us a break down of how much is customer pay versus warranty versus any other revenue drivers in that segment?.

I’ll get Tony to get that. I don’t think I have that – we have that here today. I’ll get him to follow-up with you on that.

I’m not sure what that is?.

Okay, great. Thanks for taking my questions..

Sure..

And we’ll go to David Whiston with Morningstar. Please go ahead..

Good afternoon..

Hi, David..

Hi, guys.

First on ATC, are you planning on taking on any debt for that deal?.

Well, we are using, we’ll use our credit line that we have available through our financing sources. We have plenty of liquidity there from a standpoint of availability..

Okay.

And on a longer question on penskecars.com particularly on the used vehicle side I’m just trying to get a better understanding of how your site compares to site such as BeepBeep or some other sites that specialize in used luxury brands specifically can Penske car customers buy used car online and have Penske deliver it or do they have to come to a showroom, what kind of return policy is there and you guys also have an advantage over these independent websites and that you can do CPO sales but they cannot?.

Well, let me say this, all our customers in order to buy the car they come to the showroom and I think it’s in most cases I think in all cases from a new perspective the OEM expects you to deliver to the car or to the customer. We look at our mobile traffic in a digital website.

I think 32% of our business is coming from mobile phones and we are up almost 50% through the nine months compared to the same period last. So mobile is key, we are using it obviously for paying our service customers paying their repair orders as the number varies and the website traffic continues to grow.

We are up probably 10% versus last year for nine months. And I think at the end of the day, we are getting about a 100,000 leads in the third quarter from our dealer sites.

So we coupled with our OEM site, its driving some real good traffic and we’ve made it a priority from a used car perspective from the standpoint of how we show the cars on our sites and I think that’s paid off.

Because when we look at two success stories would be in Atlanta where we have two BMW stores and they’re doing over 300 used a month, each one of them – probably a third of that from a new perspective. So there is no question. We can take an order through a phone, over the internet, but then we will deliver directly to the customer.

And I think that at the end of day, people want to come into the show room, we can show 50 or 60 pictures, but still.

I think what the web does, it gives us reach because the people are not driving by, but once you display them then I think it’s the phone capability because they typically phone after that and want more information and you’ve got to be able to have your people and trained accordingly in order to be sure that you make a contact and be able to come in for to close a particular transaction.

But the internet has changed the game and certainly I think it’s been a positive for all retailers on the used side. And we do a very little wholesaling now. When you look at wholesaling as a percent, our wholesale has gone way down, wholesale cars.

If you look on PenskeCars.com, today we probably have over 10,000 vehicles under $15,000, which is we wouldn’t ever heard of that. We didn’t have the internet, especially as a premium/luxury player, we would have wholesaled those cars in the past..

Okay.

So just so I understand part of your answer, for the used customer on PenskeCars.com, they still have to go to a dealer to take delivery?.

Yes, correct..

Okay, thanks very much..

And we’ll go to David Tamberrino with Goldman Sachs. Please go ahead..

Hey, thanks for taking my questions. Just kind of going back to the loaner cars you mentioned as being a reason for somewhat of the reduced flowput – excuse me – flow through at this point.

Is that elevated? How much has that grown over the year and is that population expected to continue to grow or what's kind of driving that?.

Well, I think it’s the fact that our parts and service business continues to grow. We talked about a growing mid to single-digit. We’re up about 1200 units year-over-year, which I think is key and then vehicle maintenance around that is important because we sell those cars into the market after they’ve been used. And that’s really a benefit.

Another source that we get for used cars is running these cars for 3, 6, 9, 12, or 18 months and then they become great used cars. In many cases, the OEMs would let us sell those cars using the current financial rates or programs that are out there. So where it’s a deficit on one side, it’s also an opportunity on the other..

Okay. So I mean just by that math, it's up about 25% year-over-year. Does that growth kind of slow down going forward relative to parts and service being up 11%..

Well, I think, I would hope it does because we’ve got a real focus on it now because we’ve seen it spike, and we need to look at – we’re looking at mileage on cars and we’ve got people taking cars running them 30 miles and coming back. We probably could have taken them it some sort of a shuttle rather than putting a car out there.

So are we getting the cars back, are people using the cars over the weekend. There’s a lot of things that we need to look at and I think we need to compensate our service riders probably on the number days that we have cars out with customers.

Then also we’ve got look at productivity in our shops to be sure that some of this isn’t because we don’t have the right part or we don’t have the right productivity. So that’s going to drive either more technicians to two shifts. So those are things that all drive the cost up if you have to have more owner vehicles..

Understood. For used average selling prices, I mean it's up pretty nicely year-over-year. What's the driver of that? Was that all mix from CPO growth or is that – and then in that vein, what drove the lower used gross margin year-over-year because…..

I think, the revenue per unit was really was up a basis shift to more luxury and I think some of that has to do with the international. International was up I think all over 12% on units..

And then on just a lower gross margin year-over-year for used?.

Exactly, yeah, I think that, we’re trading more, and some of these vehicles, by the way, that come off these full-circle programs from BMW and other.

And we take those at their market price, we don’t have too much of an opportunity to negotiate those, so sometimes their limits our ability to sell a vehicle at a higher price because you’re bumping right into someone could potentially for a lease or a payment price could get into a new car.

So that has some downward pressure and I think that at the end of the day, we trimmed our inventory at the end of September going into 2000 or into the fourth quarter in 2014, which obviously we do that either by wholesaling or you do it by selling, I mean, we get the benefit of the F&I if we do selling them in many cases.

So we had a wholesale loss during the quarter, which we take when we’re trying to move out some of these vehicles, but the good news is that our day supply is 39 days rather than 42. So to me, that puts us in great shape for the Q4..

Understood.

And just last one from me on ATC, just broadly, how much of the revenue there is from the over-the-road Class 8 tractors versus your medium duty vehicles or 4 through 7?.

90%..

Okay..

90% both on the sales side new unused and also the Parts and Service.

Sprinter you know Sprinter is a vehicle that sold by even the Mercedes dealer so that’s we get more service benefit probably than sales and then the mid range, if you look at the market it’s about 350,000 units so 260, 270 would be heavy duty and the balance would be mid range trucks, probably 5 and 6 class vehicles..

That makes sense and that’s a very highly fragmented market I think 98% of fleets out there 5 trucks or less, I mean what’s the largest customer in terms of you know just that business I mean how bigger the fleets such you’re dealing with I know you mention that in earlier on the service side?.

I think the there are plenty of fleets there 3 to 5 trucks there are people you know in those markets you know 4,000 to 5,000 and turning those trucks may be every 3.5 to 4 years so we’ve got some fleets that are for successful going forward you could have 500 to 600 to a 1,000 units you know available to you from a new vehicle prospective and then – at this particular time in many times when you code on those new units you get an opportunity code on the used units, the day the mark on used so a strong a lot of the carriers are selling their own, but on the other hand some of them don’t want to get into the used business and that gives us an opportunity to take those vehicles, recondition them and sell them on our lots and I think they have been quite successful..

And that makes sense, but just trying to understand the makeup of the customers you have, I mean what percentages your larger fleets, (indiscernible) your hard ones et cetera swift which will be the, some of the large public (indiscernible) space versus again kind of smaller you know 200 truck fleets?.

Well we wouldn’t sell our big fleet if that wasn’t in our territory so the good news is that you have there is I think some integrity in the systems that set up in the primary market areas you know by the manufactures.

So that would have to be depending on what markets you were in I would say this, from the service stand point most the trucks you see in the shop would be small fleets and fleets that have warranty work to be done so to me you know most our sales if you looked at – they’ll do about 4,000 this year I would say you know half of them would be big fleets..

Alright, thank you very much for your time..

Great..

And, Mr. Penske, no further questions in queue..

All right, thanks everybody. And we'll see you next quarter. Thank you, John..

Bye-bye..

You’re welcome. And ladies and gentlemen, that does conclude your conference for today. Thank you for your participation. You may now disconnect..