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SEC Filings

10-K
PENSKE AUTOMOTIVE GROUP, INC. filed this Form 10-K on 02/24/2017
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the used vehicle market, as the number of lease returns increases, providing our business with an additional supply of late model, low mileage vehicles.

 

In 2016, U.K. new vehicle registrations increased 2.3% from 2015 to 2.7 million registrations and are at record levels. During 2016, we experienced a 7.4% increase in same-store new units in the U.K. While we believe the overall market in the U.K. is being positively impacted by generally strong economic conditions, including low levels of unemployment, access to credit and attractive financing offers, the June 2016 referendum whereby a majority voted to exit the European Union (“Brexit”) may impact the future economic environment and new vehicle registrations. Since no country has previously left the European Union, the outcome of any future negotiations between the U.K. and the European Union is uncertain and may impact the terms of trade and the level of new vehicle registrations in those markets.

 

Retail Commercial Truck Dealership. In 2016, North American sales of Class 5-8 medium and heavy-duty trucks, the principal vehicles for our PTG business, were approximately 484,100 units, a decrease of 9.9% from 2015.  The Class 5-7 medium-duty truck market increased 3.2% to 234,200 units from 227,000 units in the same period in 2015. The largest market, Class 8 heavy-duty trucks, decreased 19.4% to approximately 249,900 units from approximately 310,200 units in 2015, as softer freight demand and excess fleet capacity impacted the marketplace.  The sale of new Class 8 heavy-duty truck sales are anticipated to decline again in 2017. Additionally, softer used truck demand and pricing is being driven by a larger supply of late model used trucks, as de-fleeting from the excess fleet capacity impacts volume and prices; however, the service business of our PTG commercial truck dealerships is expected to remain strong, as end users retain existing equipment longer than previously anticipated.

 

Commercial Vehicle Distribution. Our PCV Australia distribution business and the on-highway portion of our PPS business each operate principally in the Australian and New Zealand heavy and medium duty truck markets. In 2016, the Australian heavy-duty truck market reported sales of 9,880 units, representing a decrease of 0.2% from 2015. The New Zealand market reported sales of 2,679 units in 2016,  representing a decrease of 10.8% from 2015. The brands we represent in Australia hold a 5.9% market share in the Australian heavy-duty truck market, and a 5.2% market share in New Zealand. We expect the Australian commercial vehicle market to lag behind historical sales levels partly due to difficult macroeconomic conditions and the relative weak price of commodities in these markets. We expect the parts distribution portion of this business will continue to be resilient due to the delayed vehicle replacement cycle resulting from the difficult macroeconomic conditions. We also expect continued new order growth from the off-highway engine distribution business.

 

Penske Truck Leasing. We expect PTL to benefit from continued strong demand for its full-service truck leasing, contract maintenance, and logistics services resulting from continued positive economic conditions in the United States and customers’ desire to increase efficiency and lower costs by outsourcing non-core responsibilities such as fleet ownership. As a global logistics services provider, we also expect PTL to experience increased demand for its logistics supply chain solutions based primarily on optimizing the use of drivers, trucks, warehouses, and other services within the supply chain. The trucking industry has experienced steady freight growth since 2009, which we believe is an indication of the ongoing post-recession recovery and the health of the overall economy, which has a strong correlation to PTL’s business. The rate of growth slowed in late 2015 and 2016 as freight demand did not match projected levels and a decade-high sales year for Class 8 trucks in 2015 led to excess capacity in the market and a reduction in utilization rates. As a result, fleets right-sized their capacity to meet freight demand in the marketplace and new and used truck sales were impacted, resulting in a decline in the North American Class 8 new and used heavy-duty truck market. However, beginning in 2017, we have seen improved conditions within PTL’s commercial truck rental business that indicate the supply and demand balance may be improving.

 

As discussed in “Item 1A. Risk Factors,” there are a number of factors that could cause actual results to differ materially from our expectations. For a detailed discussion of our financial and operating results, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

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