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									Penske: Industry and Competitive

              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 andtune-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
 Developed first diesel engine for use in automobiles
 Acquired by Detroit Diesel Corporation in 1995
 Now is a joint venture between GM and Penske

 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

   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

 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

 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
   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
            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
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

            Group Inc          Everyone Else
              11%                  13%         AutoNation Inc
           Group 1                                 25%

                                                        CarMax Inc
                        Copart Inc
            Porter’s Five Forces Model

 Threat of Substitutes

 o   The majority of these threats come from outside
     the industry:
     o Airline industry (Southwest)
     o Public transportation
     o Hybrid cars
            Porter’s Five Forces Model

 Buyer/Supplier Power

 o   Fewer, but larger dealerships
 o   This should decrease competition among dealers and
     push up consumer prices on some cars by several
     thousand dollars
 o   Makes it harder for buyers to spark bidding wars

 o   Products within the industry are fairly standardized
 o   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   Substantial upfront investment is required just to be able to
  o   Large established companies already have leverage over any
      new companies with capital and existing R/D investment
  o   Government regulations restrict competition through the
      allowance of certain monopolies
  o   Many of the distribution channels are already occupied by
      high-profile marquee companies that have vehicles tailored to
      the current needs of the buyer
  o   Recent market conditions
                   Strategy Canvas

 A strategy canvas serves two useful purposes
 for comparing a company against its direct

 o   Captures the understanding of the range of
     factors the industry competes and invests in (i.e.
     price, quality, marketing, differentiation, etc.)
 o   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
   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
                  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     Importance     Environmental
                  Factors       of Factors     Threat

Economic            1             2               1

Political           5             4               4

Social              6             6               5
Technological       2             1               6
Competitive         3             5               3
Geographic          4             3               2
                                   Managerial Factors

                                                 0%   WEAK   50%   STRONG   100%
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
                                  Competitive Factors

                                                  0%   WEAK   50%   STRONG   100%
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
                                       Financial Factors

                                                   0%   WEAK   50%   STRONG   100%
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
                                        Technical Factors

                                                 0%   WEAK   50%   STRONG   100%
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
 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
  Resulted in Penske’s development of the Smart Car

 Acquisition of brands from diminishing
 automobile manufacturers
  Penske   agreeing to purchase Saturn from General
       Penske Automotive SWOT Analysis

 Strengths
   Offer outstanding brands in premium facilities

   Maintain diversified income streams and variable cost
   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
   Environmental regulations

   Principal stockholders have substantial influence over
       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
   Losing key personnel

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