Penske expects the pressure on car prices to ease up by the end of 2012

Article by Christian A., on November 3, 2012

Penske Automotive Group Inc. expects that before the year ends, the pressure on car prices could ease up. The No. 2 biggest dealership group in the country said that the average transaction prices on new vehicles in the third quarter declined by 3.8% from the previous year to $36,497. But for used vehicles, there was a 4.8% drop to $24,982.

The per-vehicle gross profits dropped as well. According to a statement by Chairman Roger Penske, when there were strong sales of new and used units, the markets experienced pricing pressure (especially when compared to the third quarter of 2011) when gross profits per units grew due to a lack of inventory at its Toyota, Honda and Nissan dealerships. Penske said that the U.S. sales environment will maintain its strength because of pent-up demand, strong credit and launches of new products.

He said that Penske dealerships currently have sufficient inventory since Japanese automakers have rebuilt stocks after the natural disasters it faced last year. Several nameplates may get higher margins in the present quarter but overall grosses and margins are "at a level we're going to have to deal with." He added that he hopes that these figure will remain stable or slightly increase. Its net income in the third quarter of $41 million reflected a $17.8 million cost linked to the redemption of senior subordinated notes.

The profit in the previous year of $55.7 million included an $11 million gain from income-tax adjustments. Penske said that earnings increased by 19% when out one-time costs are stripped out. The per-share earnings excluding those items were 60 cents, which is 3 cents higher than what analysts surveyed by Thomson Reuters I/B/E/S had predicted. The company, which depends a lot on German brands like BMW, said that its revenue increased by 17% to $3.4 billion. The retail sales at stores open at least one year grew nearly 12%.

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