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
 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 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 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 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 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 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 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, 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, 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
 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 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
 AutoNation
 CarMax
 Group 1 Automotive
AutoNation
 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: AutoWay
Manages MSN’s automotive website
2001 – AutoNation University training program
2004 – AutoNation Pledge to customers
Consolidated organizational structure
CarMax
 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 CarMax its own separately
publicly traded company
Group 1 Automotive
 Began in 1995 by B.B. Hollingsworth, Jr., Sterling McCall, 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 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 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
Porter’s Five Forces Model
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%
AutoNation Inc
25%
CarMax Inc
22%
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
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 entry in the automotive industry:
o
o
o
o
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
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
Environmental Scan
 Use:
 Economic
 Political
 Social
 Technological
 Social
 Competitive
 Geographical
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 2nd and 3rd 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 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
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 PTL
 smartUSA (aka Smart Car; fortwo)
 Targeted aqcuisition-especially now
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 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 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 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 Availability
 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 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 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 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
 AutoNation – number 97 in Fortune 500 in 2004
 CarMax – high-quality vehicles for a low price
 Group 1 Automotive – market penetration
 L2 Auto
 Rental shops that sell used vehicles
 Independent dealers
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, 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
 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
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
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
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
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.
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 Motors
 Developing the fuel efficient vehicle – “Smart Car”

Planting trees in recognition for every Smart Car purchased
 AutoNation
 Launched the Payment Protection Plan
 CarMax
 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
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 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 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
 Strengthen customer loyalty
 Leverage scale and implement “Best Practices”
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