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Penske: Industry and Competitive Analysis TEAM 1 DAVID SPRIGGS KIM HETTIE COLIN DUBOIS ERIN Penske: Industry and Competitive Analysis TEAM 1 DAVID SPRIGGS KIM HETTIE COLIN DUBOIS ERIN KISSEBERTH TYLAH LOCKWOOD

History of Penske and its Divisions Penske Corporation Penske Automotive Group Penske Truck Leasing History of Penske and its Divisions Penske Corporation Penske Automotive Group Penske Truck Leasing Penske Logistics Penske Motor Group VM Motori (Detroit Diesel Corporation) Truck-Lite QEK Global Solutions Davco Technology Penske Racing

Penske Automotive Group 300 franchised dealerships in the US, the UK, Puerto Rico, and Penske Automotive Group 300 franchised dealerships in the US, the UK, Puerto Rico, and Germany Integrates parts, service, and aftermarket products with sales Founded in 1990 as United Automotive Group by Marshall Cogan

Penske Automotive Group Purpose Capitalize on consolidation Control costs and improve customer satisfaction Create Penske Automotive Group Purpose Capitalize on consolidation Control costs and improve customer satisfaction Create economies of scale Survive economic depressions by having majority of revenues come from service and new car financing Create supermarket dealerships

Penske Automotive Group Innovation and Strategy Acquire dealerships in geographic clusters Pay cash for Penske Automotive Group Innovation and Strategy Acquire dealerships in geographic clusters Pay cash for dealerships Sell used cars Security Blanket 132 point car inspection Negotiable prices Focus on service after initial car purchase Service and tune-up reminders Market warranty covered services Certified used vehicles The Internet

Penske Automotive Group Execution Begin in New York and Connecticut Open strictly used car Penske Automotive Group Execution Begin in New York and Connecticut Open strictly used car dealerships Expand to Florida, San Diego, Puerto Rico, Arizona, Arkansas, Connecticut, Florida, Georgia, Illinois, Indiana, Louisiana, Nevada, New Jersey, New York, North Carolina, South Carolina, Tennessee, and Texas Reorganization – sell unprofitable dealerships Find new investors – acquired by Penske in April 1998 Enter international markets – UK, Mexico, Germany

Penske Truck Leasing and Penske Logistics Began December 1, 1969 Commitment to customer service Penske Truck Leasing and Penske Logistics Began December 1, 1969 Commitment to customer service and innovation Penske Truck Leasing – fleet management services Penske Logistics – transportation, warehouse, and management solutions Currently operate in the US, Canada, Europe and South America

Penske Motor Group Owns and operates seven dealerships in California Believes in creating lifetime Penske Motor Group Owns and operates seven dealerships in California Believes in creating lifetime guests Sells Toyota, Lexus, Scion, Mercedes-Benz, Maybach, and Honda Longo Toyota is largest dealership in the world and country’s largest Toyota dealership Sells one car every eight minutes

VM Motori Began in 1947 in Italy to build diesel engines Produced first air-cooled, VM Motori Began in 1947 in Italy to build diesel engines Produced first air-cooled, direct injection diesel engine Developed first diesel engine for use in automobiles Acquired by Detroit Diesel Corporation in 1995 Now is a joint venture between GM and Penske

Truck-Lite Manufacturer of LED, sealed and bulb-replaceable safety lighting and accessories, harness systems, mirrors, Truck-Lite Manufacturer of LED, sealed and bulb-replaceable safety lighting and accessories, harness systems, mirrors, and forward and warning lighting Offers products in the US, Europe, South America and China Known for their See & Be Seen® technology Involved in truck and military industries

QEK Global Solutions & Davco Tecnology QEK Began in 1986 Provides vehicle management solutions QEK Global Solutions & Davco Tecnology QEK Began in 1986 Provides vehicle management solutions Provides automotive services for major events Olympic Torch Run, auto shows, PGA tours Developed proprietary asset management software Davco Technology Leader in heavy duty diesel powered systems Products include: Diesel fuel processors Fluid level management Biodiesel

Penske Racing Began in 1966 with Roger Penske and Mark Donohue 1968 – debuted Penske Racing Began in 1966 with Roger Penske and Mark Donohue 1968 – debuted in Indy car racing 1970’s – ventured into NASCAR and Formula 1 Became Indy car powerhouse Penske Racing South – started by Rusty Wallace and Don Miller

History of Penske’s Competitors Auto. Nation Car. Max Group 1 Automotive History of Penske’s Competitors Auto. Nation Car. Max Group 1 Automotive

Auto. Nation Began in 1996 by H. Wayne Huizenga “Driven to be the best” Auto. Nation Began in 1996 by H. Wayne Huizenga “Driven to be the best” vision 1999 – exited from vehicle rental and vehicle megastores businesses Launched new branding strategy: Auto. Way Manages MSN’s automotive website 2001 – Auto. Nation University training program 2004 – Auto. Nation Pledge to customers Consolidated organizational structure

Car. Max Brainchild of Richard Sharp and W. Austin Ligon, Circuit City Execs Applied Car. Max Brainchild of Richard Sharp and W. Austin Ligon, Circuit City Execs Applied Circuit City’s mass merchandising “big box” business concept to automotive industry Strategy was to build customer confidence and satisfaction by offering high-quality vehicles Opened first lot in Richmond, Virginia in 1993 1996 - acquired first new car franchise 2000 - made first profit 2002 - Circuit City made Car. Max its own separately publicly traded company

Group 1 Automotive Began in 1995 by B. B. Hollingsworth, Jr. , Sterling Mc. Group 1 Automotive Began in 1995 by B. B. Hollingsworth, Jr. , Sterling Mc. Call, and Charles Smith Wanted to target franchise dealerships in attractive markets, decentralize company operations and create economies of scale Auto dealership consolidator with more than 70 dealerships and 110 franchises selling 29 different car brands Located in California, Colorado, Florida, Georgia, Louisiana, Massachusetts, New Mexico, Oklahoma, and Texas 2000 - had revenues of $3. 6 billion and net profits of $40. 8 million

Industry Characteristics Current Economic Conditions Consumer spending and interest rates primarily drive demand Frozen Industry Characteristics Current Economic Conditions Consumer spending and interest rates primarily drive demand Frozen credit markets and the decrease in availability of financing and leasing alternatives for consumers Increases in fuel prices have also resulted in rapid changes in consumer preferences and demand Unemployment levels are the highest in more than 25 years Other economic factors include inflation, discretionary income, and consumer confidence

Industry Characteristics Companies in the auto dealership industry produce a majority of retail sales Industry Characteristics Companies in the auto dealership industry produce a majority of retail sales from three main sectors: New vehicle sales Used vehicle sales Service and parts sales Dealerships also offer a wide range of higher margin products and services, including extended service contracts, financing arrangements and credit insurance

Industry Characteristics Industry Characteristics

Porter’s Five Forces Model Porter’s Five Forces Model

Porter’s Five Forces Model Rivalry The five largest firms own nearly 87% of the Porter’s Five Forces Model Rivalry The five largest firms own nearly 87% of the total industry Auto Dealership Industry Penske Automotive Group Inc 11% Group 1 Automotive Inc 5% Everyone Else 13% Copart Inc 24% Auto. Nation Inc 25% Car. Max Inc 22%

Porter’s Five Forces Model Threat of Substitutes o The majority of these threats come Porter’s Five Forces Model Threat of Substitutes o The majority of these threats come from outside the industry: Airline industry (Southwest) o Public transportation o Hybrid cars o

Porter’s Five Forces Model Buyer/Supplier Power o o o Fewer, but larger dealerships This Porter’s Five Forces Model Buyer/Supplier Power o o o Fewer, but larger dealerships This should decrease competition among dealers and push up consumer prices on some cars by several thousand dollars Makes it harder for buyers to spark bidding wars Products within the industry are fairly standardized Individual car parts and services give suppliers a moderate level of power (only accounts for 10 -15% of total revenues)

Porter’s Five Forces Model Threat of New Entrants o There are several barriers to Porter’s Five Forces Model Threat of New Entrants o There are several barriers to entry in the automotive industry: o Substantial upfront investment is required just to be able to start-up Large established companies already have leverage over any new companies with capital and existing R/D investment Government regulations restrict competition through the allowance of certain monopolies Many of the distribution channels are already occupied by high -profile marquee companies that have vehicles tailored to the current needs of the buyer Recent market conditions o o

Strategy Canvas A strategy canvas serves two useful purposes for comparing a company against Strategy Canvas A strategy canvas serves two useful purposes for comparing a company against its direct competitors: o o Captures the understanding of the range of factors the industry competes and invests in (i. e. price, quality, marketing, differentiation, etc. ) Captures the offering level that buyers receive across these competitive factors

Strategy Canvas Strategy Canvas

Environmental Scan Use: Economic Political Social Technological Social Competitive Geographical Environmental Scan Use: Economic Political Social Technological Social Competitive Geographical

Economic Factors Overall business cycle of Penske Entire automotive industry experienced operational and financial Economic Factors Overall business cycle of Penske Entire automotive industry experienced operational and financial difficulties the past year Seasonal changes Higher volume of vehicle sales in the 2 nd and 3 rd quarter of eah year due to customer buying trends and introduction of new vehicle models Inflationary trends Somewhat change according to overall trends of the U. S. Not so much in the past but has been more recently

Economic Factors For New vehicle sales this past year: Penske sold 171, 872 new Economic Factors For New vehicle sales this past year: Penske sold 171, 872 new vehicles Generated 56. 9% of their retail revenue Generated 28. 0% of the retail gross profit For USED vehicle sales this past year: Penske sold 101, 769 vehicles Generated 27. 2% of their retail revenue Generated 12. 3% of the retail gross profit

Fun Fact Penske sells: 40 brands of domestic and import family, sports, and premium Fun Fact Penske sells: 40 brands of domestic and import family, sports, and premium cars, light trucks and sport utility vehicles Through. . 304 franchises In. . 17 states, Puerto Rico, the UK and Germany

Economic Factors Employment Currently employs 14, 300 people Investment Truck leasing 9% partnership in Economic Factors Employment Currently employs 14, 300 people Investment Truck leasing 9% partnership in PTL smart. USA (aka Smart Car; fortwo) Targeted aqcuisition-especially now

Political Factors Foreign rules and regulations A large portion of Penske’s new vehicle business Political Factors Foreign rules and regulations A large portion of Penske’s new vehicle business involves the sale of vehicle, vehicle parts, or vehicles made up of parts that are manufactured outside the area which they are sold Fluctuations in the value of currencies Import duties Exchange controls Differing tax structures Trade restrictions Transportation costs General political & economic conditions

Political Factors Environmental Laws Discharges into the air and water Contracts for recycling Water Political Factors Environmental Laws Discharges into the air and water Contracts for recycling Water quality protection programs Operation and removal or storage tanks Use, storgae, and disposal of hazardous substances Ex: motor oil, filters, transmission fluid, antifreeze, refrigerant, waste paint, lacquer thinner, batteries, lubricants, fuels, etc) Penske is committed to full compliance with the environmental laws and regulations that are applicable to their business as an automotive retailer.

Social Factors Geographic Distribution Education Universal Technical Institute (UTI)-national provider of technical education for Social Factors Geographic Distribution Education Universal Technical Institute (UTI)-national provider of technical education for individuals seeking careers as professional automotive technicians Charitable Donation Matching Program-Penske directors are eligible to participate in a matching gift program Meetings and Education programs Reimbursed for out-of-pocket expenses

Social Factors Work and Business Attitudes In Code of Business and Ethics Corporate Governance Social Factors Work and Business Attitudes In Code of Business and Ethics Corporate Governance Committee and Board of Directors reviews this every year Family Values No “performance based awards” to promote a “family”

Technological Factors Rate of Technological Change Smart Car (aka fortwo) Raw Materials Cost and Technological Factors Rate of Technological Change Smart Car (aka fortwo) Raw Materials Cost and Availability going down; prices of materials going up Cost of purchasing raw materials increases; Penske’s gross margin decreases Between Jan 2007 and Dec 2007, the price of hot rolled steel coil rose from $549 per metric ton to $630 per metric ton Price of hot rolled steel plate rose from $747 per metric ton to $837 per metric ton Doesn’t want to put the extra cost on the customers

Technological Factors Technological Developments R&D team looking for ideas to build safe cars for Technological Factors Technological Developments R&D team looking for ideas to build safe cars for a cheaper cost Racecar team Product Life Cycle FASB Staff Positioning to determine life of intangible assets Property and equipment are recorded at cost and depreciated over estimated useful lives using Straight-Line Method Useful life ranges from 3 to 15 years

Competitive Factors Entry and Exit of Major Changes by Competitors Entry and exit is Competitive Factors Entry and Exit of Major Changes by Competitors Entry and exit is so easy (as long as abiding by the rules and regulations of states and countries) Competitors Franchised dealers Dealerships owned by automotive manufacturers Dealers that sell the same brands of new vehicles

Competitive Factors Competitive Edge Low costs but marketing campaigns to spread word Wide selection Competitive Factors Competitive Edge Low costs but marketing campaigns to spread word Wide selection of new and used vehicles Location of dealerships Quality of customer experience Low prices (even with steel prices rising) Low overhead costs Manufacturer rebates Special offers Warranties

Competitive Factors Competition Size, Number, Capacity and Location Auto. Nation – number 97 in Competitive Factors Competition Size, Number, Capacity and Location Auto. Nation – number 97 in Fortune 500 in 2004 Car. Max – high-quality vehicles for a low price Group 1 Automotive – market penetration L 2 Auto Rental shops that sell used vehicles Independent dealers

Competitive Factors Competition Production/Market Segments US market UK Puerto Rico Not only are the Competitive Factors Competition Production/Market Segments US market UK Puerto Rico Not only are the located in many countries/states, they have a large number of dealerships in each country/state Their competitors’ locations cannot compare to the size of Penske

Geographical Factors Plant/Warehouse Location Largest volume Audi, Bently, BMW, Land Rover, Lexus, Mercedes-Benz, Maserati, Geographical Factors Plant/Warehouse Location Largest volume Audi, Bently, BMW, Land Rover, Lexus, Mercedes-Benz, Maserati, and Porsche dealers in the market based on number of dealerships Second largest automotive retailer headquartered in the U. S. As of February 1, 2009 Penske owned and operated: 156 franchises in the U. S. 148 franchises outside the U. S. (primarily in the UK)

Geographical Factors Relocation of Facilities Detroit Diesel Corporation relocated from Sugar Land to Utah Geographical Factors Relocation of Facilities Detroit Diesel Corporation relocated from Sugar Land to Utah Headquarters 2555 Telegraph Rd. , Bloomfield Hills, Michigan Foreign Markets UK, Germany, Mexico, Puerto Rico

Environmental Threat and Opportunity Profile (ETOP) Factors Impact of Factors Importance of Factors Economic Environmental Threat and Opportunity Profile (ETOP) Factors Impact of Factors Importance of Factors Economic 1 2 1 Political 5 4 4 Social 6 6 5 Technological 2 1 6 Competitive 3 5 3 Geographic 4 3 2 Environmental Threat

Managerial Factors 1. Corporate Image, Social Responsibility 2. Use of Strategic Plans and Analysis Managerial Factors 1. Corporate Image, Social Responsibility 2. Use of Strategic Plans and Analysis 3. Environmental Assessment & Forecasting 4. Speed of Response to Changing Conditions 5. Flexibility of Organizational Structure 6. Management Communication & Control 7. Entrepreneurial Orientation 8. Ability to Attract & Retain Creative People 9. Ability to Meet Changing Technology 10. Ability to Handle Inflation 11. Aggressiveness in Meeting Competition 0% WEAK 50% STRONG 100%

Competitive Factors 0% 1. Product Strength 2. Customer Loyalty & Satisfaction 3. Market Share Competitive Factors 0% 1. Product Strength 2. Customer Loyalty & Satisfaction 3. Market Share 4. Low selling & Distribution Costs 5. Use of Experience Curve for Pricing 6. Life Cycle of Products & Replacements 7. Investment in New Product & R&D 8. High Barriers to Entry into Markets 9. Advantage Taken of Market Growth Potential 10. Supplier Strength & Material Availability 11. Customer Concentration WEAK 50% STRONG 100%

Financial Factors 0% 1. Access to Capital when Required 2. Degree of Capital Utilization Financial Factors 0% 1. Access to Capital when Required 2. Degree of Capital Utilization 3. Ease of Exit from the Market 4. Profitability & Return on Investment 5. Liquidity, Available Internal Funds 6. Degree of Leverage, Financial Stability 7. Available to Compete on Prices 8. Capital Investment, Capacity to Meet Demand 9. Stability of Costs 10. Ability to Sustain Effort in Cyclic Demand 11. Price Elasticity of Demand WEAK 50% STRONG 100%

Technical Factors 0% 1. Technical & Manufacturing Skills 2. Resource & Personnel Utilization 3. Technical Factors 0% 1. Technical & Manufacturing Skills 2. Resource & Personnel Utilization 3. Level of Technology Used in Products 4. Strength of Processes 5. Production & Delivery Schedules 6. Value Added to Products 7. Intensity of Labor to Produce the Product 8. Economies of Scale 9. Newness of Plant & Equipment 10. Application of Computer Technology 11. Level of Coordination & Integration WEAK 50% STRONG 100%

WHO will likely make WHAT competitive moves? Penske Automotive Group Purchasing Saturn from General WHO will likely make WHAT competitive moves? Penske Automotive Group Purchasing Saturn from General Motors Developing the fuel efficient vehicle – “Smart Car” Planting trees in recognition for every Smart Car purchased Auto. Nation Launched the Payment Protection Plan Car. Max Created an Advanced Search Tool for the company website “Cash for Clunkers” legislative proposal

Key Success Factors of Industry President Obama signed the “National Fuel Efficiency Policy” Raised Key Success Factors of Industry President Obama signed the “National Fuel Efficiency Policy” Raised the miles per gallon standard for automobile manufacturers Resulted in Penske’s development of the Smart Car Acquisition of brands from diminishing automobile manufacturers Penske Motors agreeing to purchase Saturn from General

Penske Automotive SWOT Analysis Strengths Offer outstanding brands in premium facilities Maintain diversified income Penske Automotive SWOT Analysis Strengths Offer outstanding brands in premium facilities Maintain diversified income streams and variable cost structure Diversification outside the US Smart distribution Investments in Penske Truck Leasing

Penske Automotive SWOT Analysis Weaknesses Manufacturing restrictions limit growth Restrictions on import production and Penske Automotive SWOT Analysis Weaknesses Manufacturing restrictions limit growth Restrictions on import production and foreign trade Subject to substantial regulations, claims, and legal proceedings Environmental regulations Principal stockholders have substantial influence over decisions

Penske Automotive SWOT Analysis Opportunities Expand revenue at existing locations Growth through targeted acquisitions Penske Automotive SWOT Analysis Opportunities Expand revenue at existing locations Growth through targeted acquisitions Strengthen customer loyalty Leverage scale and implement “Best Practices”

Penske Automotive SWOT Analysis Threats Competition in automotive sales and service may adversely affect Penske Automotive SWOT Analysis Threats Competition in automotive sales and service may adversely affect profitability Performance of subleases Sales of shares may cause market price to drop significantly Property loss, business interruptions, and liabilities at dealerships Losing key personnel