David Whiston

David Whiston from Morningstar asked if Penske Automotive Group would need to sell any Lexus stores to remain under the cap after the Orlando deal closes. He also inquired about the company's preference regarding credit line draws for acquisitions, specifically whether they allow leverage to temporarily increase or aim for quick repayment.

Answer

Roger S. Penske, Chair and CEO, confirmed that upon completion of the Orlando deal, Penske Automotive Group would be in compliance with Toyota and Lexus requirements. He also stated that with current leverage at 1.5 and a target well under 2.0, the company views any increase from credit line draws as a short-term "flip," expecting significant free cash flow (over $750 million after CapEx) to manage it without needing to access external markets.

David Whiston asked if Penske Automotive Group would need to sell any Lexus stores to remain under the cap after the Orlando deal closes. He also inquired about the company's preference regarding credit line draws to fund deals, specifically whether they prefer to let leverage temporarily increase or repay quickly.

Answer

Roger Penske, Chair and CEO, confirmed that the company will be in compliance with Toyota and Lexus requirements, including Penske Motor Group, once the Orlando deal is completed. Regarding credit line draws, he stated that with current leverage at 1.5 (well under the 2.0 target) and anticipated free cash flow exceeding $750 million after CapEx, the increase in leverage is viewed as a short-term fluctuation, with no immediate plans to go to market for repayment.

David Whiston from Morningstar followed up on M&A, asking if the company's target of acquiring $1.5 billion in annual revenue was still achievable for 2025, and inquired about the drivers behind the success of the Porsche Australia acquisition.

Answer

Chairman & CEO Roger Penske conceded that the $1.5 billion target is not realistic for 2025 but affirmed the long-term goal of growing through acquisitions. Regarding the Porsche Australia dealerships, COO of International Operations Randall Seymore attributed the doubling of the used-to-new vehicle ratio to internal process improvements in trade-ins, reconditioning, and marketing. Roger Penske added that they are leveraging their existing commercial business infrastructure in Australia to enhance efficiency and support growth.

David Whiston asked for historical context on technician productivity, specifically requesting the gross profit per technician per month figure from before the COVID-19 pandemic.

Answer

Chair and CEO Roger Penske and EVP Rich Shearing attributed the growth in technician productivity to higher labor rates, digital tools that improve shop loading and customer communication, and better technician retention. After explaining the drivers, Roger Penske provided the specific pre-COVID figure, stating it was approximately $26,500 per month, compared to the current $30,000.

David Whiston asked if vehicle affordability and negative equity are significant issues for Penske's customer base and inquired about the target demographic for a potential partnership with [Coupa].

Answer

Chair Roger Penske explained that negative equity is not a major issue for the company due to its premium brand mix, high leasing penetration, and low subprime exposure of only 6%. Regarding the potential brand partnership, he confirmed discussions are ongoing but described it as a long-term '24- to 36-month journey' and declined to provide further details at this time.

David Whiston of Morningstar, Inc. asked if seller asking prices for dealership M&A are declining as industry profits normalize. He also inquired whether more OEMs in Europe are expected to adopt the agency sales model, following the lead of brands like Mercedes-Benz.

Answer

Chair and CEO Roger Penske responded that while multiples for premium auto brands remain high, the company's focus is on future profitability and market synergies, not just the initial multiple. Regarding the agency model, an executive noted it's a mixed situation, with BMW planning a 2026 launch while JLR has opted out. Roger Penske added that the Mercedes agency model in the U.K. has been beneficial, driving a 25% increase in agency units for the quarter and allowing PAG to capture approximately 90% of inquiries in its market area.

David Whiston asked about the status of headcount reductions, specifically on the Gentex side, inquiring if the current level is optimal or if more buyout packages are anticipated this year. He also questioned the realism of achieving core gross margins beyond the 35%-36% range, considering the current tariff environment, and asked if Gentex has seen any significant business pickup due to automakers onshoring production to the United States.

Answer

Steve Downing, President and CEO, stated that Gentex is very close to the right headcount if sales continue as projected, having executed 90% of planned reductions, with further changes dependent on market conditions. He indicated that achieving core gross margins beyond 35%-36% is a best-case scenario, heavily dependent on the tariff environment and current precious metal costs. Regarding onshoring, he noted a lot of conversation but no drastic tailwinds yet, adding that such decisions would likely take 2-3 years to impact revenue, while also creating complexity with onshoring requests in other regions like Europe.

David Whiston inquired about the current status of headcount reductions, primarily on the Gentex side, asking if the company has reached its desired headcount or if further early retirement packages might be needed in 2026, contingent on market conditions. He also questioned the realism of core gross margins exceeding the 35%-36% range long-term, considering the current tariff environment and precious metal costs. Finally, Whiston asked if Gentex has seen any significant business pickup due to automakers onshoring production back into the United States.

Answer

Steve Downing, President and CEO, stated that Gentex is very close to its target headcount if sales continue as expected, but further adjustments would be necessary if the market softens. He confirmed that 90% of planned actions for 2026 are complete. Regarding gross margins, Downing indicated that exceeding 35%-36% is a 'best case scenario,' heavily dependent on the tariff environment. If tariffs were eliminated, there would be significant upside, but current precious metal costs and tariffs make 35%-36% a strong target. On onshoring, Downing noted a lot of conversation but no drastic tailwinds yet, adding that such changes would likely take 2-3 years to impact revenue, and that onshoring in other regions also adds complexity.

David Whiston asked if the October 17 proclamation regarding expanded parts rebates on U.S. assembly could lead to material upside in Gentex's guidance, or if it's already factored in. He also inquired about the resistance from automakers regarding Full Display Mirror (FDM) adoption, specifically whether it's a matter of waiting for future vehicle programs or if cost and logistical issues remain significant hurdles.

Answer

President and CEO Steve Downing indicated that the proclamation is unlikely to materially impact supply but should help lessen controversy around tariff recoveries. Regarding FDM adoption, he explained that cost is always an obstacle, and while most OEMs have adopted the product to some level, the biggest challenge is increasing take rates beyond small percentages into more mass-market applications, including standard equipment on high-level vehicles and optional content on lower-end models.

David Whiston from Morningstar asked if there was any potential for material upside to guidance due to the October 17 proclamation expanding parts rebates on U.S. assembly. He also inquired about the resistance from automakers who have not yet adopted Full Display Mirror (FDM), asking if it's due to waiting for future programs, cost, or logistical issues.

Answer

President and CEO Steve Downing indicated that the proclamation is unlikely to significantly impact supply but should help reduce controversy around tariff recoveries. Regarding FDM adoption, Mr. Downing noted that cost is always an obstacle, and German OEMs were initially slow adopters. He explained that the biggest challenge now is moving FDM beyond small take rates to more mass-market adoption, including standard equipment on high-level vehicles and optional content on lower-end vehicles, which is driving current revenue growth.

David Whiston from Morningstar asked about the remaining steps required for the core business to reach its 35-36% gross margin target and questioned the company's supply chain exposure to rare earths and magnet materials from China.

Answer

President & CEO Steve Downing stated that at the current mix, the company is already at its target margin level. He noted ongoing efforts include product redesigns, manufacturing improvements, and finding alternative suppliers to de-risk the business. Regarding supply chain, he confirmed exposure to precious metals for coatings in the core business and noted the VOXX acquisition introduced magnet exposure, which the audio team is actively de-risking.

David Whiston asked if the stock's current valuation makes the company more or less aggressive on share buybacks, given the weak 2025 outlook. He also inquired about the upstream impact of potential tariffs on raw materials and whether this is factored into guidance.

Answer

CEO Steve Downing stated that the current low stock price presents an opportunity to be more aggressive with buybacks, balanced against the need to fund the VOXX acquisition. CFO Kevin Nash clarified that most raw materials are from Asia with minor Mexico exposure, and the guidance does not include potential future tariffs on Mexican imports.

David Whiston inquired whether the high level of store disposal activity in 2025 was an outlier or if frequent divestitures are expected annually. He also asked about Group 1 Automotive's capital allocation preferences for the current year, specifically between acquisitions, share buybacks, or reducing leverage below three times.

Answer

Daryl Kenningham, CEO, clarified that 2025 was an outlier year for divestitures, largely driven by U.K. underperforming stores and consolidation efforts, with less activity expected long-term. He affirmed the ongoing discipline to review the portfolio for underperforming U.S. stores. Daniel McHenry, CFO, stated the preference is to maintain leverage below 3x. He emphasized growing the company through instantly accretive acquisitions without overpaying, while also continuing aggressive share buybacks, noting significant repurchases in 2025 and early 2026.

David Whiston asked if the high level of store disposal activity in 2025 was an outlier or indicative of an ongoing annual strategy, and about capital allocation priorities for 2026.

Answer

Daryl Kenningham, CEO, clarified that 2025 was largely an outlier year for divestitures, primarily driven by U.K. underperforming stores and OEM consolidation, with less activity expected long-term, though portfolio review remains ongoing. Daniel McHenry, CFO, outlined capital allocation priorities for 2026: maintaining leverage below 3x, pursuing accretive acquisitions without overpaying, and continuing aggressive share repurchases, noting over 10% of shares repurchased in 2025 and 0.6% in early Q1 2026.

David Whiston from Morningstar inquired about the rationale for divesting two Mercedes-Benz stores in the UK and whether the company's Toyota inventory is currently too low.

Answer

CEO Daryl Kenningham clarified that the UK Mercedes-Benz store disposals were a strategic consolidation, not a sign of dissatisfaction, as the locations were near other company-owned stores. CFO Daniel McHenry added one site will be redeveloped into a larger store. Regarding inventory, Kenningham confirmed Toyota supply is low but stated the company is comfortable with the tight supply.

David Whiston asked for details on the roles of the over 450 employees who were let go in the U.K. restructuring and inquired about the reason for the low 16-day supply of new vehicle inventory in the U.K.

Answer

CFO Daniel McHenry explained the U.K. headcount reductions targeted duplicated central office and administrative roles following acquisitions. CEO Daryl Kenningham clarified that customer-facing positions like salespeople and technicians were not reduced and are, in fact, being added. McHenry attributed the low inventory primarily to the cyclical nature of the U.K. market, where March is a major registration and sales month.

David Whiston asked about the potential impact of new tariffs on vehicle costs and whether Group 1 has discussed cost-sharing arrangements with OEMs. He also inquired if the new vehicle affordability issue has lessened post-election and what the outlook is for 2025.

Answer

CEO Daryl Kenningham stated that while OEMs are evaluating potential tariff impacts, there have been no specific discussions with retailers about cost sharing. On affordability, Kenningham noted that strong transaction prices and sales growth indicate a healthy consumer, and he sees potential for improvement with changes in tax or interest rates, independent of the election.

David Whiston inquired whether Newmar's competitiveness in lower price segments was driven by new product introductions or actual price reductions, given its positioning as a luxury brand with limited flexibility for price cuts.

Answer

CEO Michael Happe clarified that Newmar's strategy for competitiveness in lower price segments is focused on introducing new products, not price reductions. He cited the Freedom Aire in the Class C space as an example of a premium yet affordable entry point into the Newmar brand, emphasizing the company's commitment to maintaining Newmar's luxury brand promise and providing catalog access across multiple segments.

David Whiston asked for clarification on Newmar's competitiveness in lower price segments, specifically whether it involves new products or price reductions, given Newmar's luxury brand positioning.

Answer

CEO Michael Happe clarified that Newmar's strategy for competitiveness in lower price segments is centered on introducing new products, not price reductions. He explained that the focus is on managing floor plan and model mix to ensure the right products are in the market. He cited the Freedom Aire in the Class C space as an example of a premium yet affordable entry into the Newmar brand, aiming to provide access across multiple segments while upholding the brand's luxury promise.

David Whiston asked for clarification on the company's strategy of "redefining value" in its products and how that differs from simply de-contenting them to lower prices.

Answer

CEO Michael Happe explained that their approach is not to simply remove features, but to redefine value by focusing on what consumers prioritize most, which is currently interior fit, finish, and comfort. This may involve de-emphasizing some features to enhance others, all while delivering on a key price point, which he noted remains the number one factor for consumers.

David Whiston asked about strategies to increase used vehicle volume, particularly through acquiring cars off the street, and the effectiveness of various marketing approaches, both traditional and digital.

Answer

Paul Whatley (VP of Operations) highlighted the Clicklane acquisition tool as a key digital platform for generating leads to buy cars off the street, along with focusing on the service drive and retaining more wholesale cars. David Hult (President and CEO) added that the company balances volume with profitability, avoiding chasing volume at lower gross profits that could raise SG&A. He also noted that the used car market is expected to naturally recover in volume from 2026 to 2028 as the pool of available cars deepens.

David Whiston of Morningstar asked if Toyota and Lexus inventory levels were being impacted by tariffs, questioned potential OEM pressure on EV allocations after the tax credit expires, and inquired if Asbury would reconsider expanding into California.

Answer

COO Daniel Clara stated that while Toyota inventory is lean, it is not abnormally so, and that OEMs have been preparing for the EV tax credit change, mitigating pressure on dealers. President & CEO David Hult firmly stated that California is not a near-term expansion target due to unfavorable franchise laws and economics, emphasizing a focus on optimizing the current footprint and long-term value drivers like TCA and Techeon.

David Whiston sought clarification on whether personnel cost savings from Tekion would come from headcount reductions or reduced hiring. He also asked how automakers might implement tariff-related price increases and whether the March sales lift was from pull-forward or pent-up demand.

Answer

President & CEO David Hult clarified that while headcount has not yet been reduced, increased productivity from Tekion is expected to enable a flatter organization with a lower headcount over time. On tariffs, he speculated that OEM responses will vary by brand, with incentive cuts being a likely first step. He characterized the March sales increase as a slight uptick in the last 7-10 days of the month, driven by tariff concerns.

David Whiston of Morningstar asked about potential contingency plans for tariffs, whether consumer affordability concerns have eased post-election, and the specific reason for the $11 million noncash impairment charge.

Answer

President and CEO David Hult stated it is too early for tariff discussions with OEMs and believes the issue will be worked out given the auto industry's economic importance. SVP of Operations Dan Clara noted that while affordability remains a concern, consumer sentiment improved post-election, releasing pent-up demand. SVP & CFO Michael Welch explained the impairment charge was the result of a standard annual impairment test on the cash flow models for approximately five stores.

David Whiston asked about the impact of negative equity on consumers, particularly for domestic and import brands, and about the company's capital allocation priorities between debt reduction and M&A, given its leverage ratio.

Answer

SVP of Operations Dan Clara confirmed that negative equity is a concern and is more heavily weighted toward domestic brands, though it affects all segments. President & CEO David Hult added that consumer credit scores have remained resilient. SVP & CFO Michael Welch stated that while leverage ticked up due to opportunistic share buybacks, the company continues to evaluate capital deployment across all avenues, including deleveraging.

David Whiston sought clarification on the discrepancy between increased web traffic and improved conversion rates versus declining unit volumes, asking if consumers are staying away or experiencing sticker shock despite prolonged elevated pricing.

Answer

President and CEO Bill Nash clarified that while overall web traffic is up, 'selling opportunities' (customers taking concrete steps) are down. He noted that higher FICO customers, a core segment, are showing reduced app volume, indicating some consumer hesitation, which is also observed by finance partners and not unique to CarMax.

David Whiston sought clarification on CarMax's web traffic versus selling opportunities, and whether consumer 'sticker shock' or a general reluctance to buy is driving the decline in unit volumes despite elevated prices.

Answer

Bill Nash, President and CEO, clarified that while web traffic is up, 'selling opportunities' are down, though conversion from those opportunities is improving. He explained that the challenge lies in prompting customers to take action on the website, noting that app volume for higher FICO customers (600 and above) is down, indicating consumer angst. Jon Daniels, EVP of CarMax Auto Finance, confirmed this trend is not unique to CarMax.

David Whiston sought clarification on the discrepancy between increased web traffic and improved conversion versus declining unit volumes, asking if consumers are staying away or experiencing sticker shock despite prolonged elevated pricing.

Answer

President and CEO Bill Nash clarified that while web traffic is up and conversion *after* a selling opportunity is improving, the number of 'selling opportunities' (customers taking action on the website) is down. He noted that app volume for higher FICO customers (600 and above) is down, while low FICO (550 and below) is less impacted, a trend also observed by finance partners.

David Whiston of Morningstar inquired about the expected trend for share buyback spending for the rest of the fiscal year and asked for an assessment of the consumer's current financial stress level.

Answer

EVP and CFO Enrique Mayor-Mora stated that the pace of future buybacks will depend on valuation, cash flow, and the macro environment, after a sizable increase in Q1. President & CEO Bill Nash assessed that while consumers are not necessarily more stressed, they are 'less positive about the future,' a sentiment the company is monitoring.

David Whiston asked for the reasoning behind completely withdrawing the timeline for the long-term 2 million unit sales goal, rather than simply extending it, noting the move could seem pessimistic.

Answer

CEO William Nash stated the decision was not pessimistic but prudent, given the high level of uncertainty in the current macro environment. He explained that factors like appreciating prices could accelerate the timeline, while a slowdown could delay it. CFO Enrique Mayor-Mora added that the focus is on driving sales and profitability, and they will revisit the timeline when there is more stability, but the long-term goals themselves remain.

David Whiston asked about the reason for the inventory build that drained free cash flow and whether the growth in Extended Protection Plan (EPP) was driven by penetration or pricing.

Answer

CEO William Nash explained that the inventory build is a normal, seasonal preparation for the upcoming tax season and noted that inventory turns have improved year-over-year. SVP Jon Daniels confirmed that EPP growth was driven by price increases initiated in Q4 of the prior fiscal year, which the company will begin lapping next quarter.

David Whiston sought clarification on the profile of customers using outside financing, asking if they are more wealthy or budget-conscious. He also asked about the capital allocation plan and the outlook for share buybacks given credit concerns.

Answer

SVP Jon Daniels clarified that customers using outside financing are 'definitely our higher-end consumer,' who are rate-sensitive and often have access to cash or low-rate credit union loans. On capital allocation, EVP & CFO Enrique Mayor-Mora stated that he expects the company to continue its share repurchase program at the pace previously communicated for the remainder of the year.

David Whiston asked if customers of premium German brands might have a greater willingness to absorb tariff-related price increases. He also posed a long-term question about the company's strategy for its share count and whether a regular dividend might be considered in the future.

Answer

CEO Mike Manley acknowledged that premium brands typically have more pricing power but emphasized that every customer ultimately has an alternative choice in the market. On the long-term capital strategy, CFO Tom Szlosek stated there is no specific target for the share count and that the focus remains on a balanced allocation approach to drive the best returns, including M&A. Manley concluded that the ultimate goal is maximizing shareholder return, regardless of the specific tool used.

David Whiston requested specific examples of the 'mindset change' management wants to see in areas like Aftersales and asked for clarification on whether the company is facing technician or service bay shortages.

Answer

President and CEO Bryan DeBoer explained the mindset change involves leaders believing in their store's potential and taking action, such as implementing driveway pickup/repair services. He emphasized a new '60 to 90 day' mantra for seeing performance improvements before leadership changes are considered. He explicitly stated that technician or bay shortages are a symptom, not the root cause, and the real issue is a belief that they can't do more with existing resources.