Penske Automotive Group, Inc. Q1 FY2021 Earnings Call

Good afternoon, ladies and gentlemen. Welcome to the Penske Automotive Group First Quarter 2021 Earnings Conference Call. Today’s call is being recorded and will be available for replay approximately one hour after completion through May 5, 2021, on the Company’s website under the Investors tab at www.penskeautomotive.com. I will now introduce Anthony Pordon, the Company’s Executive Vice President of Investor Relations and Corporate Development. Sir, please go ahead.

Thank you, Maria. Good afternoon, everyone, and also thank you for joining us today. A press release detailing Penske Automotive Group’s first quarter 2021 financial results was issued this morning and is posted on our website along with a presentation designed to assist you in understanding the Company’s results. As always, I’m available by phone or email for any follow-up questions you may have. Joining me for today’s call are Roger Penske, Chairman; J.D. Carlson, Chief Financial Officer; and Shelley Hulgrave, Corporate Controller. Our discussion today may include forward-looking statements about our operations, earnings potential, outlook, future events, growth plans, liquidity, and assessment of business conditions. We may also discuss certain non-GAAP financial measures such as earnings before interest, taxes, depreciation, and amortization, or EBITDA. We have prominently presented the comparable GAAP measures and have reconciled the non-GAAP measures in this morning’s press release and investor presentation, which are available on our website to the most directly comparable GAAP measures. 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. I direct you to our SEC filings, including our Form 10-K for additional discussion and factors that could cause results to differ materially. I would now turn the call over to Roger.

Thank you, Tony. Good afternoon, everyone, and thank you for joining us this afternoon. I’m pleased to report an all-time record first quarter for Penske Automotive Group. Income from continuing operations before taxes increased 246% to $247.6 million, and income from continuing operations increased 254% to $182.5 million, and related earnings per share increased 253% to $2.26. The earnings growth was largely driven by higher gross profit per unit retailed, our expense leverage, and lower interest costs due to a reduction in inventory and lower overall debt levels when compared to the same time last year. Further, our commercial truck dealerships improved their profitability by 101%, while the earnings from our investment in Penske Transportation Solutions increased 295%, demonstrating the strength of the Company’s diversified business model. For the quarter, same-store retail automotive unit sales increased 5.5% to 110,000. New was up 25.5% in the U.S., and up 7.8% in the UK. Used is up 14.5% in the U.S., and we were down 18.2% in the UK. Despite the UK dealership showroom being closed for the entire first quarter due to COVID restrictions, our team used digital tools and business development centers to deliver 40,000 new and used vehicles in the UK market for the quarter. In fact, our same-store unit sales in the UK increased nearly 8% during the first quarter, substantially outperforming the UK market, which declined 12%. Our total revenue increased 15% to $5.8 billion, including a 19% increase in retail automotive same-store revenue. Retail automotive same-store gross profit increased 19%; new was up 49%; used, up 29%; F&I, up 18%; and Service & Parts, up 2%. Same-store retail automotive variable gross profit increased $880 per unit or 25% to $4,368. I’m particularly pleased with the continued expense discipline, driving a 990 basis-point improvement in SG&A as a percent of gross profit for the quarter. Let me move on to CarShop, our Used Vehicle SuperCenters. As many of you know, we operate Used Vehicle SuperCenters in the U.S. and the UK. And during the quarter, we renamed the U.S. SuperCenters from CarSense to CarShop, and now operate one brand on a global basis. This business represents a significant future growth opportunity. We currently operate 17 locations and expect to open 2 new CarShop locations in the second quarter this year, and at least 2 more locations by the end of the year. During the first quarter, CarShop sold 11,400 units, including a 25% increase in the U.S. and a 43% decline in the UK as volume was impacted by COVID-related showroom closures. Despite the unit decline in the UK, our variable gross profit per unit increased as we improved vehicle sourcing by increasing the volume of trade-ins purchased from the franchise dealership using our proprietary internal online transfer portal. Based on current sales rates since the reopening of the UK SuperCenters showrooms on April 12, we’re forecasting a monthly run rate of 5,000 units. Let me turn to retail to commercial truck dealership. We completed the acquisition of Kansas City Freightliner on April 12, and now operate 29 medium and heavy-duty truck dealerships in the U.S. and Canada. We expect this acquisition to add $450 million in annualized revenue. During Q1, we sold 3,000 new and used trucks, generating $450 million in revenue and earned a 6.3% return on sales. New and used truck margin increased in Q1 versus the same time last year due to stronger market conditions. Service & Parts operations represented 66% of our total gross profit and our fixed cost absorption was 125%. March 2021 was the third-best fixed operations month in the history of our truck group. As a result of these items, our profitability from commercial truck dealerships increased 101% to $27.5 million. During the first quarter, North American Class 8 net orders increased 226%, while retail sales increased 18%. At March 31st, the Class 8 heavy-duty truck order backlog was at 237,000 units, which represents a 137% increase when compared to March 31st last year. As a result, ACT Research is forecasting a 28% increase in retail sales to approximately 283,000 units for the North American Class 8 truck market compared to 233,000 last year. We expect the strong market will provide tailwinds to our commercial truck and truck leasing business in '21 and in '22. Turning to Penske Transportation Solutions. We own 28.9% of PTS, which provides us with equity income, cash distributions, and cash savings. In Q1, PTS currently operates a fleet of 333,600 vehicles that generated $2.1 billion in total revenue and income of $189 million or 9% return on sales. As a result, our equity earnings increased 295% to $53.7 million. Full-service leasing and contract sales were up 8%, rental increased 14% and demand remains very strong, particularly in our consumer rental business. Our logistics business increased 26%, including the recent Black Horse Carriers acquisition, which is expected to contribute $600 million in additional annualized revenue in PTS for 2021. The gain on sale of used trucks is much stronger than it was last year at this time due to the resurgence of the North American Class 8 heavy-duty truck market. Lastly, within the last six months, PTS has issued $1.5 billion in five-year notes at an average rate of 1.5% financing for increasing levels of business. Looking at our balance sheet, it remains strong and in great shape. Total inventory is $3.3 billion, which is down approximately $148 million from December and down $1 billion from March of 2020. Retail automotive inventory is $2.8 billion when compared to $2.95 billion in December of 2020. New vehicle inventory is down $140 million and remains in short supply for most brands. We expect this short supply to continue. Used vehicle inventory was down $28 million. Commercial truck and power systems inventory was up $24 million. Looking at our days’ supply, new was 40 days and used was 35. At the end of March, our long-term debt is down $111 million largely from repayments under our U.S. credit agreement. Our debt to capitalization was 31.2% compared to 33.7% at December 31st, and 49.2% at the same time in 2020. Our leverage ratio sits at 1.4 times, an improvement from 2.9 times at the end of 2019. In Q1, we invested $42 million in capital expenditures, including $6 million to acquire land for future CarShop expansions. We ended the first quarter with approximately $1.1 billion in liquidity under our credit agreements. Moving on to our digital initiatives. Our omnichannel approach focuses on convenience and creating a connection with our customers, especially in the digital space. We continue to grow and expand and enhance our digital footprint, including the introduction of new tools and technologies. This allows us to offer customers a hybrid-type shopping model for the 40,000 vehicles we have online. Depending on their specific needs, customers can purchase either fully online, in-store, or any combination of the two. In the first quarter, our digital marketing efforts drove over 18 million visitors to our website. Our digital retailing tool in the U.S. is called preferred purchase. It’s implemented at every dealership and offers flexible buying options, accommodating customers at any point in their buying journey. We retailed 2,745 vehicles or approximately 4% of our U.S. unit sales directly through preferred purchase and 12% of our customers used preferred purchase in some way during their buying journey. In the UK, a customer may reserve a car for £99, apply for financing through our proprietary platform, receive instant credit approval, obtain a guaranteed trade-in price, and pay online. During the quarter, we sold 4,200 vehicles through these channels in the UK or 10% of our unit sales. Our online service scheduling tools continue to gain momentum. In Q1, over 100,000 service appointments were scheduled online and another 370,000 were scheduled through our business development centers. Additionally, more and more customers are opting for online payments, which we saw an increase of over 50% during the first quarter. So, when you combine our online buying tools in the U.S. and the UK, along with our online service scheduling and online payment options, we have the tools to allow a customer to perform any part of the transaction online or to shorten their visit to the dealership. Looking at corporate development, as previously noted, we completed the acquisition of Kansas City Freightliner, which is expected to add $450 million in annualized revenue. Additionally, we will add three new retail automotive franchise dealerships this year, which are expected to add an additional $150 million in annualized revenue. This includes an elite certified second Porsche dealership serving the Washington, D.C. metro area, which opened in January; a new Audi dealership in Southern California; and a Honda dealership in Texas, both of which are currently under construction. We also intend to grow CarShop Used Vehicle SuperCenters. With the opening of Nottingham dealership in the UK in December, we have started the next phase of our expansion plan. We plan to open two additional CarShop locations in the second quarter and another two locations by the end of 2021. We plan to execute our growth plan to increase the CarShop footprint from 17 locations to 40 by the end of 2023. At that time, we expect CarShop will generate at least 150,000 units in sales and between $2.5 billion and $3 billion in total revenue, doubling the size of the current business. We’re targeting CarShop to earn a 3.5% to 4% return on sales while generating income from continuing operations before taxes of approximately $100 million. And finally, as we look across our diversified portfolio of businesses, we’re targeting organic and acquisition growth coupled with operating efficiencies to drive income from continuing operations before taxes to at least $1 billion by the end of 2023, which compares to $708 million last year. And lastly, recently, CARFAX awarded 114 of our U.S. Penske Automotive dealerships a top-rated dealer award based on customer reviews. I’d like to congratulate the management and the employees at every one of those dealerships for that special recognition and for their ongoing commitment to excellence and customer care. Again, thanks to all of you for joining the call today, and I’ll turn it back to the operator. Thank you.

Our first question comes from John Murphy of Bank of America.

Considering your comments on acquisitions, the new store, and the new points you’re developing, along with the four CarShop stores, it seems that we are looking at nearly $850 million in revenue year-to-date. There's still a significant portion of the year remaining. Many companies are aggressively pursuing acquisitions while others are focusing on launching standalone used car stores. You're making substantial progress in various ways. I'm curious about how you evaluate the asset intensity or investment in these different channels compared to making acquisitions, and how you arrive at these decisions. Could we expect to see even more developments this year? We're nearing $1 billion, and these figures reflect real growth, yet it seems you're not receiving adequate recognition for it.

I believe it’s important to note that the year isn’t over yet. We have opportunities in both retail auto and truck segments. We recently made a significant investment of $600 million in PTS and Black Horse as of December 31st. We are active in the market, but we will be cautious regarding valuations. Currently, many purchases appear attractive due to high margins, but we aim to be selective in our acquisitions. We need to consider the strategy of expanding in the used car market instead of just increasing physical locations. Our intention as a company is to grow our used car brand, CarShop, globally. This approach has no OEM requirements and a lower capital entry cost. To achieve any volume, we will need sizable physical spaces that allow us to operate both online and offline. Analyzing the overall returns, we expect higher margins, lower selling, general and administrative costs, and improved productivity from our sales team. The issue arises when trying to increase used car sales within our traditional OEM framework, as many trades lack certified status and we do not benefit from diverse inventory at those locations. Thus, focusing on the CarShop brand seems more advantageous. We have demonstrated, like in the UK during the lockdown, that our tools facilitate a strong online business. However, when we place cars outside our marketing regions, we face lower margins and higher costs from certified pre-owned vehicles associated with OEMs. We will keep seeking strategic purchases from the OEM brand for both cars and trucks, and we'll actively push forward with expanding the CarShop brand, aiming to meet or exceed our goal of selling 150,000 units by 2023. For instance, with our recent acquisition of Freightliner in Kansas City, the multiple was much lower than what we would pay for a retail auto business today. Overall, we have a robust plan. Presently, the seasonally adjusted rate for new sales is down, with used sales being flat or declining. All of this discourse is substitutional since we aren't currently seeing incremental growth. The real challenge will be demonstrating to analysts that we have genuinely grown our business using our online tools. This will be a pivotal moment for us. I anticipate that we will continue our dividend growth for the remainder of the year, and I hope this provides you with some clarity.

That's helpful. I have a second question regarding what's happening in the UK, as it seems like there is a significant rebound occurring as things reopen. Could you provide some updates on the new and used sides, particularly on unit volume and performance after the quarter as the situation improves?

In the first quarter, we experienced an 8% increase while the market declined by 12%. We concentrated on a finance product called PCP, aiming to transition customers early, similar to our leasing approach. We maintained our business development centers' operations 24/7 and utilized our digital tools effectively. Additionally, we successfully upsold numerous used car customers with deposits into new vehicles, which has positively influenced our brand mix and growth. Looking ahead, April shows promising results with a 128% increase. In the first 12 days of April, we sold 6,200 vehicles, and we expect to reach 14,000 by the end of the month, matching or even slightly surpassing our numbers from April 2019. With showrooms reopening on the 12th, we've experienced significant acceleration. From a CarShop perspective, we forecast a run rate of 5,000 used vehicles in May, which could turn our previously negative Q1 figure positive for the rest of the year. Our teams have performed exceptionally well, particularly with our premium luxury brands leading in all markets. We've also managed to reduce costs, including personnel and various SG&A expenses, which bodes well for strong growth in the coming two quarters.

That’s helpful. And then, just lastly on inventory. You mentioned it being pretty tight. But it seems like in the U.S., the sales were generally pretty strong. Just curious if you can comment, I think you had a 40-day supply on the new and I think a 35-day supply on the used, I think, is what you mentioned. Do you see that tightening as we go through the second quarter? And at what levels, particularly lower than that, do you think you can still operate relatively normally? I mean, obviously, there are some puts and takes between automakers. But I mean, generally, what supply do you think you can manage the business relatively at, just in case it does tighten up?

I examined the inventory this morning and compared it to the end of the year on December 31st. We are down 5,000 units after operating for about four months, with 3,200 of those units being Honda and Toyota combined. Overall, our inventory is in good condition, although we see some pressure on certain key models. It's important to note that only 1% of our mix is domestic, so we don’t face much pressure there. Our key brands like Mercedes, BMW, Audi, and Porsche are stable, though I wouldn’t describe them as being in great shape as we move forward in this quarter. If conditions tighten in Q2, we may see greater effects in Q3. However, our diversification across the business will help ensure we still achieve a solid bottom line.

Our next question comes from Rick Nelson of Stephens.

Good afternoon, Roger and Tony. Congrats on a great quarter. So, Roger, I wanted to do some very simple math. You’ve done pre-tax this quarter of $248 million. If I annualize that, it looks like you’re just about at that 2023 pretax income target and that also wouldn’t contemplate a seasonal pickup. The UK opening up Freightliner, contribution CarShop, just like to gauge your thoughts on that?

Well, I said the same thing to Tony when we looked at the numbers when they came out. We just take a time for, and we’ll be in good shape, but I wish it was that easy. I think we’ve kind of given you a chart to get there. Obviously, grosses will impact us as we go out through the year and maybe availability, we don’t know that now. I think that our acquisition target of $500 million a year and a 3% return is realistic. We talked about our CarShop, and then our organic growth. Look, this was a forecast we put together. We want to be realistic and maybe under promise and over deliver. Hopefully, that would be the case here. But this is an unbelievable first quarter. And I think as we go into the second, there are some tailwinds we get in the second quarter based on Penske Truck Leasing. But, their utilization has been so strong. I’m not sure we’ll maybe get that bump this year in Q2. But I think it’s a realistic target. And I understand your math very easily, and I hope that we could get there sooner.

Also, service and parts have been more challenged here during the pandemic. I’d like to get your thoughts about the outlook there as to when things might turn?

There is no doubt that miles driven have decreased over the past five or six months. As we entered Q1 2021, we noticed a 16% decline in parts and service revenue in the U.S. and an 18% decline in the UK, resulting in an overall drop of 16%. However, the situation has changed. People are starting to go out more, and our BDCs have been actively reaching out to customers to emphasize the importance of bringing in their vehicles for necessary checks, regardless of their driving habits. This outreach has led to a 26% increase in March for same-store parts and service revenue in the U.S. and a 48% increase in the UK, resulting in an overall increase of 32%. While I don’t want to imply that we’ll maintain that growth rate, we were flat in Q1, and we’re currently seeing a 2% growth. Looking ahead to Q2, I’m not sure what the comparable numbers will be, but we do expect to see an improvement, especially considering the closure during last year’s COVID situation. We should assess the figures sequentially from March to April this year for a clearer picture. There is certainly more interest and momentum in the shop, although body shops remain weak. Discussions with companies like PPG indicate a 15% decline in the U.S. while the UK is slightly up by 9%, with an overall drop of about 9%. We have significant opportunities to increase this part of the business, and it all hinges on getting more people out on the roads, as that will drive demand.

Our next question comes from Stephanie Benjamin of Truist.

I wanted to touch a bit on the SG&A costs for the quarter. Obviously, very impressive, and would just love to hear a bit about how much of this has been driven by the improvements we've seen in growth as well as internal initiatives? Just trying to get a sense of some of what could potentially come back, if growth is to start to come down a bit? And what is also just based on structural changes to the business?

Our reduction in SG&A to gross by 90 basis points is commendable. We're looking at around 460 basis points, possibly closer to 500 when considering personnel changes. As you know, we've reduced our workforce by about 13%. Additionally, we've managed to decrease advertising costs by shifting more towards digital platforms, while cutting back on traditional media like TV, radio, and newspapers. This shift has helped us save costs. Overall, with fewer employees, we've seen reductions in travel expenses, vehicle maintenance, and lower service needs, leading to fewer loaner cars. While we may see some spending in outside services again, these changes have been beneficial. Furthermore, our healthcare and workers' compensation costs are down due to having fewer employees, which is often overlooked. We did experience some cost increases this quarter from stock compensation, but overall, I believe these changes will have a lasting impact. The big test will be the gross profit performance on new business, and the higher gross profit is certainly aiding our overall numbers. On an annual basis, we're expecting to normalize our run rate to about 72% to 74%.

Great. That's really helpful. And then switching gears to the used side of your business and particularly, CarShop and both what you're doing in the U.S. and the U.K. I'd love to hear a bit about some of the sourcing initiatives. I believe you mentioned doing some more sourcing from your franchise dealers in the U.K., but if you can talk a bit about what you're also doing in the U.S., just given how hot the environment and kind of your outlook as you look forward?

When considering sourcing in the U.S., we estimate that over 50% comes from trades, around 13% from lease returns, and 5% to 6% from Buy Your Car. We also have loaner cars, with the remaining 15% to 20% coming from auctions, varying between the U.S. and U.K. In the U.K., it's interesting since OEMs don't permit non-OEM makes to be sold through existing franchises. To address this, we have developed Sytnernet, an online wholesale tool. We list these vehicles online and they are taken by CarShop as inventory. We anticipate that 400 to 500 cars a week will flow from our dealerships through this online platform to CarShop, which has been performing strongly. Our relationships with OEMs are solid, though current inventories are low due to a decrease in company cars. We have been actively purchasing company cars, alongside financing sources, especially those coming off lease. Our marketing for Buy Your Car has gained traction, benefiting us in both the U.K. and U.S. We have more than 60 buyers in the U.K. focusing on vehicle acquisitions, while here in the U.S., purchases are made regionally by individual managers. Although we lack access to buy used cars from OEMs like in the U.K. or elsewhere, we recognize the competitive landscape. Daily, we have customers arriving at our service department, presenting a significant opportunity. We've seen success by offering VIP treatment to customers in service, which has allowed us to close deals right there. This initiative has been effective not just in 2021 but has been in place for several years.

Our next question comes from Rajat Gupta of JPMorgan.

So I just had a question on the $1 billion target by 2023 on the bridge. You talked about the $160 million from organic growth. You mentioned that your current level early rates because of gross margin. So presumably, a lot of that $160 million is going to be driven by just volumes and the service business recovering. Just curious as to how does the online strategy play into that number? Is there any incremental contribution assumed from the online channels? Or do you just see the online channel more of a supplementary offering and not really very incremental to your growth profile? And then I have a follow-up.

I believe you nailed the first point. The service will clearly play a significant role in driving that. We expect a higher SAAR over the next three years, which will certainly lead to increased usage. I anticipate moving towards a single pricing model, and adjustments will be made to commissions and compensation during this period. Our one-price selling approach in our CarShop businesses has shown improved productivity, with 15 to 20 units per person compared to 10 to 12 or 13 units in the traditional model. This improvement gives us room for growth, especially with cost reductions. Overall, we expect usage to increase due to our sourcing efforts and focus, independent of the performance of our CarShop business. Additionally, we benefit from tax-sharing related to our PTS investment, which is crucial. I believe we will continue to experience organic growth from PTS due to their market share gains and fleet size, and the 30% we derive from that will support this organic growth.

And just, hello. Sorry.

Go ahead.

I was on mute. And on the digital aspect of this, is that meaningful incremental growth contribution from that resumed in that? Or is that just more supplementary at this point?

As I mentioned earlier, there is a substitution effect where customers have the option to buy online, have deliveries at home, or visit the dealership. It's important to be cautious because, similar to Carvana, Vroom, and CarMax, original equipment manufacturers (OEMs) are entering the market. Currently, we purchase Toyota vehicles through Toyota Financial, which provides a significant portion of our financing and leasing. Toyota is developing a digital platform for both their customers and ours, which they refer to as Smart Path for Toyota and Monogram for Lexus. This is similar to the tools we are trying to implement. About a decade ago, we used different web sources, and OEMs encouraged us to adopt their tools to compete with their brands. As a result, we anticipate some pressure from OEMs, so we aim to remain adaptable and avoid creating infrastructure that would be difficult to modify to meet OEM requirements. Our goal is to have a seamless online and in-store experience tailored for Toyota and Lexus, supported by their technology and capabilities. Additionally, this ecosystem will help secure customer data. Moving forward, we must continue to enhance our digital engagement while offering customers a range of options. We need to stay technically agile and keep up with advancements. OEMs could present new opportunities at a lower cost down the line, and while they may not currently have used vehicle capabilities, they are expected to integrate all elements of the customer journey in the future.

Got it. Got it. That's really helpful color. I just had a follow-up on PTL. You talked earlier about some of the contribution of PTL trend also going forward. But then today, if you look at the run rate of earnings at PTL, I mean, obviously, rental pricing, deurbanization, like some of the gain on sales is helping the earnings in the near term. I mean, how should we think about the new normalized run rate of annualized earnings at PTL once you're back to a more normal environment? Obviously, taking into account factors like the acquisition that closed in December as well, that would be really helpful.

Well, when you look at PTL or PTS for the quarter, our revenue grew was up 13%, and our pretax was up, as we know, 284%. So these are tremendous numbers when you look at it. But again, it's driven by an increase in our logistics business. Year-over-year, we were up 26%. Our lease business was up 8%, and you look at our commercial rental was up 8%. So to me, I'm leaving consumer out. Consumers rented here leave or leave that out all together. I think the other thing that's been key is to used truck pricing. So there could be some impact slightly if used truck prices go down. We saw that both in the Freightliner business. But on the other hand, I think that we're seeing a market share gain. Our largest competitor announced our earnings, and I think our revenues were a couple of hundred million more than theirs. And I think that just shows you the market share that we're able to take here. But overall, I think the only thing would be the lease penetration is up. Our contract maintenance continues to grow, and rental has been strong. And we've cut our rental fleet back because after '19, and we had these lower used truck prices, we actually cut it back maybe too far. And we see growing that fleet as we go into '22 and '23. So we should see a good ride here over the next 12 months for sure.

Our next question comes from the line of Michael Ward of Benchmark Company.

Roger, just talking a little bit about CarShop. I think you've touched on some of them, but are there any structural differences between the U.S. and the U.K. used business that favors expansion in one region versus the other?

No, I would just say that the CarShop brand started when we made the acquisition. When was it, Tony?

Four years ago.

Four years ago, we acquired CarShop and integrated our existing CarSense brand in the U.S. We aim to establish a single global brand with a flat commission sales model. We are focused on expanding our online presence while maintaining large inventory levels, currently around 6,000 units, with an additional 2,500 in reconditioning. If we can sell 5,000 units in May, we'll have about a 45-day supply. Overall, we are in a strong position, with consistent growth in both frontend sales and finance and insurance margins in the U.K. and U.S. Our sourcing strategy is improving as we grow our footprint in the U.S., and while marketing has its complexities, we're implementing best practices from the U.K. to ensure a cohesive global brand image.

So as you go from 17 to 40 stores, will some of that expansion be acquisition? Or will all the greenfield sites?

We may consider making an acquisition to secure a location, but we have evaluated whether to purchase an existing site. However, by the time we complete the branding, it's more practical to focus on people in those locations rather than acquiring vehicles. Currently, we are leaning toward taking over a whole base or depot that has been shut down, similar to our approach in New Jersey where we repurposed a large space. Generally, though, we prefer to build from the ground up or enhance the online connection with our customers.

And is there a ballpark investment for a greenfield site?

We estimate that reaching 40 locations will require an investment of approximately $200 million to $225 million. This translates to about $10 million to $12 million per location, depending on whether we engage in a sale-leaseback arrangement or make purchases, or if we repurpose existing properties. Additionally, to achieve a revenue target of around $3 billion with a return of about 3.3%, you might need to invest two to three times more today, possibly due to the complexities involved, especially if dealing with an OEM brand.

Our next question comes from David Whiston of Morningstar.

I wanted to start on the U.K. business. In particular, the retail automotive segment, the numbers in the press release there are just outstanding when considering the stores were closed. But it looks like CarShop in the U.K. didn't get that any help from any kind of digital expertise that the retail group did. So is there room to maybe improve the digital capability for CarShop?

I believe it's a different customer segment because when you consider a £12,000 car or a $15,000 sale in the U.K., we noticed a decline in that business due to showroom closures. Our peak sales typically occur on weekends, and that business essentially halted in the U.K. However, since reopening on April 12th, we've experienced a significant rebound, aiming to operate at 5,000 units. Currently, we've seen a 43% increase over the past 14 or 15 days. The showroom closures were crucial because customers prefer to see the car in person. While they recognize it's a new car, those looking for a used car at that price point may not be as discerning and are particularly cautious about traveling during the restrictions in the U.K., which likely contributed to the weaker performance.

Okay. And shifting over to trucks, I guess, a two-part question. First of all, why was used so strong when new isn't, and I know we used that a really bad quarter a year ago. But then also, despite the weakness in new volume, used ASP was up 1%, yet new GPU was up 48%. So was there a mix shift on your new truck sales to get that nice GPU growth?

It was mainly a timing issue with our new truck units. The plants in Mexico, which produce most of our Cascadia products, were shut down, impacting our supply. Many of those trucks have been rescheduled for Q2 and Q3. Ultimately, we expect the backlog to increase to 237,000, and those trucks will be built. As of the beginning of the month, there have been no delays due to COVID or component availability; it's purely a timing matter. On the used truck front, the shortage of new trucks has driven up demand and prices due to basic supply and demand dynamics. With the current conditions in freight movement and distribution, along with changes in consumer behavior related to COVID, there's significant demand for used vans, especially for businesses like GrubHub. The result is a competitive market for used trucks, leading to strong profits on a per-unit basis.

Okay. You mentioned that 6% of total unit sales were completed online. Does that mean that for those customers making up that 6%, their purchases were entirely digital and they did not visit a store at all?

I don't have the exact numbers, but in the U.K., we sold 4,200 vehicles fully online in Q1. CarShop had 3,200 vehicles, while the franchise sold 1,000 new cars, with the option to reserve a vehicle for £99. We facilitated 570 transactions with instant online approval, including 71 payments made by credit card. Customers also had the option to choose from over 100 locations for delivery. We created YouTube videos to guide customers through the process. This online tool enhances convenience, allowing customers to transition from online to in-person interactions if they prefer. Our goal is to make the experience convenient and personal, providing flexibility and transparency in a low-pressure environment, while also shortening the buying process.

Okay. And just last question. In your opinion, do you think the chip shortage gets better in the second half of this year?

I can’t provide specific information on that. From what I gather on the heavy truck side, they believe things will improve. It seems that the premium and luxury manufacturers might fare better than the major three automakers. That's the only certainty I have. I believe their ability to meet demand is impacted by capacity issues due to some recent fires and other challenges.

And at this time, I'd like to turn the floor back over to Mr. Penske for any additional or closing remarks.

I just want to thank everybody for joining us today and thank our people for great execution during the quarter. Thank you.

Thank you, ladies and gentlemen, this does conclude today's conference call. You may now disconnect.