Shelley Hulgrave: That’s right.
Roger Penske: So, look, it’s part of doing business, but I’m so glad that we didn’t listen to people about spending it off, let’s say that…
Michael Ward: Myself included. On PTS, one of the things you try to do is, the last couple of years, again, have been highly unusual. But when you look at the growth path, particularly if you go back to 2019, 2018, and those sorts of things, there are a lot of positive changes. So, even if we’re down again in 2024, some of the disruption we’ve seen in the last 2 to 3 quarters are more market-related. Is there anything that stops this company from, once we get through 2024, getting back onto a growth phase?
Roger Penske: Oh, not at all. When you look at it right now, I think we mentioned it earlier, our lease business was up 21%, and our logistics business was up 5%. Unfortunately, we’d run our rental fleet to almost 90,000 units, and of course, as the market slowed, spot rates came down. Our utilization went down from 88 down to roughly 82, and I think that gave us an excess supply. On top of that, a lot of those pieces were being used to support leases that we had written when we were at 70,000 units on order and couldn’t get them from the manufacturers. We were using some rental units, so those will now come back as we’ve seen the supply start to come in. Our issue is that we have approximately 16,000 to 18,000 units for sale.
And to get those out, that’s about 8,000 more than we had a year ago. We’re paying depreciation, interest and maintenance on those as they sit. So we’ll have to pull that stuff through. And I would say that impact will continue through the first quarter. So I would say we’d be similar as far as value and actually earnings in the first quarter, similar to what we had in Q4 based on lower rental volume, both. And on the consumer side, which is our one-way business, there’s less people moving because of house prices. And when they do move, it looks like the mileage is down. So that’s really hit us. And then the company had $213 million, I think roughly of total interest cost increase in 2023, 100 of that based on new debt and 100 on refinance.
So gain on sale. financing lower revenue and rental really impacted us. But from an energy standpoint meaning from an offense in sales we were up in our core products.
Michael Ward: So Roger, thank you.
Richard Shearing: Mike, I want to add to that that when you look at Q4 we actually saw the year-over-year change in maintenance it became more favorable to us. So maintenance at PTS is down $11 million dollars in the fourth quarter, when you compare it to the prior year. So that means this process is working, taking the trucks out of the fleet is working, so we hope that that that continues into the future.
Roger Penske: With the extension, Mike, of some 28,000 older units that we had to extend from, say, 6 to 12 months. Those two things each up on maintenance number one; and number two, we don’t get any margin on that extension revenue so that had a double impact on us.
Michael Ward: Thank you very much. I really appreciate it.
Operator: And next we can go to Daniel Imbro with Stephens Incorporated. Please go ahead.
Roger Penske: Hi, Daniel.
Daniel Imbro: Yeah. Hey, good afternoon, everybody. Thanks for taking our questions.
Roger Penske: Welcome.
Daniel Imbro: Roger, may I want to expand a little bit on the last topic. I think we start with cars out there maybe just to expand their broader use business on the franchise side. Can you talk about the headwinds on that business that are weighing on same-store units’ kind of close to flat this quarter? It seems like, obviously, there’s demand headwinds, but you guys having historically a high lease penetration, are we starting to see more supply issues maybe lack of the lease returns coming back and just curious as you look at those headwinds how that plays out through 2024?
Roger Penske: Well, look, number one, we know the market stabilized because as we look at our wholesale units both in the UK and the U.S. were profitable in Q4. That’s point number one. And point number two, I think availability – one of the things that’s impacted us is getting the right car at the right price. Certainly, as a car shop, we were looking in the U.S. at somewhere between, say, 19,000 and 22,000. Well, those cars that we could get were almost 10,000 more from the standpoint of being able to get them to purchase and then sell them. Same thing in the UK. Well, I think what’s going on now is we’re starting to see those numbers come down as, I guess you say, deflation on unused vehicles in the UK. But more importantly, with leasing being down to somewhat 25% in the past 2 years, and we haven’t had, obviously, the lease returns have not come back, and probably even more important is in the premium side, I think we have, what Shelley, 6,000 or 7,000 loaner cars in the premium side, I’ll give you an exact number
Shelley Hulgrave: That’s right.
Roger Penske: We’re returning those units anywhere from 60 to 90 to 120 days and those are great used car units. We really didn’t have those because I can tell you in our big BMW store at Grovia [ph] in California, they’re running used cars almost 12 months. So we didn’t have the ability to take them out and those would become really prime used cars. So that’s going to help us as we go forward. And certainly on the overall, it gives us a chance to have more units, 7,200 units, maybe more that we could sell. And we put through the system, which is key for us. Rich, any other comment you have?
Richard Shearing: No, I think the availability, you mentioned demand versus availability, and I think the demand is still there. It’s just the availability of cars with the new car SAAR being down, cumulatively almost $9.5 million in the last 4 years. The best source for used cars is new car purchasers on trades and that just hasn’t been there. You combine that with the low lease rates that Roger mentioned, it’s certainly been a challenge. And then, I think, we’ve been more disciplined as well to make sure that we’re not buying cars in segment two, segment three, just to keep sales rates up, because you end up with customer service issues and policy goodwill expense.
Daniel Imbro: No, that’s all helpful color. Maybe if I could follow-up on the commercial truck side of the house, obviously a strong full year result. But if I look at 4Q parts and service and we slowed a little bit more than we thought it would Roger stayed lighter, can you just maybe talk through the puts and takes of what is going on there? Maybe some of it’s the wholesale part side and then same question, kind of how that plays out through 2024 and 2025 as you guys see the market developing?
Roger Penske: Yeah, I’ll let Rich answer that one directly.
Richard Shearing: Yeah, Daniel, you’re definitely right. We did see a slowdown in the second half of last year. Obviously, the freight was very robust, utilization of assets was very high. You had a lot of owner operators, single truck operators coming into the market to take advantage of those rates, because they could make substantial money. They generally were getting their truck service at independent repair centers and that creates big parts revenue and profit opportunities for us. So we’ve seen a decline in our wholesale part sales and then our just our general retail traffic of part sales over the counter. You look at our service shops, we’re still busy, we don’t have the backlog of service work that we had previously, but we’re still steady with the number of ROs that we’re generating on a monthly basis.
And then because of the freight decline and the asset utilization down, you’ve got some carriers that are with parked trucks and maybe pull another truck from the fence versus having an expense of repairing it. So we’re seeing some of that as well until some of that capacity tightens in the marketplace.
Roger Penske: I think, Rich, also, when you look at our fixed coverage, we’re running at 120%-plus.
Richard Shearing: Yeah, almost 130%.
