Penske Automotive Group (NYSE:PAG) FY Conference November 03, 2025 07:00 PM ET Company ParticipantsTony Pordon - EVPMario Gabelli - Chairman and CEOConference Call ParticipantsBrian Sponheimer - Research AnalystNone - Analyst 2None - Analyst 1None - Analyst 3Brian SponheimerAll right, moving along. Another great privilege to have Tony Pordon back from Penske Automotive Group. One of the most unique companies within the automotive and vehicular space. Company has 66 million shares. Trades around $160, about ...

Company Developments - Bayer (BAYN) shares faced a significant decline of 4%, marking their worst trading day since August 6, reflecting ongoing investor concerns [2][9] - Ayala Corporation (AC) is strategically ending its long-term dealership partnerships with Honda (HMC) and Volkswagen (VWAGY) by the end of 2025, focusing on electric vehicles (EVs) and next-generation mobility solutions [3][9] Industry Trends - China, the world's largest crude oil importer, is expanding its strategic oil reserves by adding eleven new sites, aiming to increase storage capacity by at least 169 million barrels by 2026 to enhance energy security amid global market volatility [4][9] - Political instability in France is escalating, with calls for President Emmanuel Macron to resign following the resignation of Prime Minister Sébastien Lecornu, which could impact the broader economic environment [5][9] - In Japan, the Komeito party expressed significant concerns to the new Liberal Democratic Party (LDP) leader, Sanae Takaichi, regarding her conservative stances, which may affect the stability of the ruling coalition [6][9]

Core Viewpoint - The handling of the transformation pains in the Chinese automotive industry is crucial for its high-quality development, as evidenced by the recent issues faced by automotive dealers and the impact on consumer trust [1][4]. Group 1: Industry Challenges - The automotive dealership sector is experiencing significant challenges, including high inventory levels, market competition disorder, and increased risks of financial chain breakage, leading to frequent closures and bankruptcies of dealerships [3][4]. - The number of automotive 4S stores in China is projected to decrease to 32,878 by the end of 2024, marking a 2.7% decline from the previous year, with 4,419 stores expected to exit the market, representing the first negative growth since 2021 [3][4]. Group 2: Relationship Dynamics - The relationship between automotive manufacturers and dealers is under strain, necessitating a shift from a zero-sum competition mindset to a cooperative approach to build a healthier industry ecosystem [4][5]. - A new cooperation mechanism involving government, manufacturers, and dealers is essential to establish a long-term model of shared risks and benefits [4]. Group 3: Responsibilities and Solutions - Automotive manufacturers must take on daily management responsibilities for their authorized dealers, as consumer trust is often tied to brand reputation rather than dealer performance [5]. - Dealers are urged to communicate promptly with consumers regarding store closures and to provide clear solutions, including the return of stored parts and the restoration of after-sales services [5].

Investment Rating - The report does not explicitly provide an investment rating for the automotive dealership industry [1]. Core Insights - The automotive dealership industry is facing significant challenges, including liquidity issues and high operational costs, particularly due to declining quality of sales leads and high customer acquisition costs [30]. - Approximately 84.4% of automotive dealers are experiencing varying degrees of price inversion, with 60.4% facing price inversions exceeding 15% [7][8]. - The average number of employees per dealership is projected to decrease from 64 in 2023 to 58 by the end of 2024, indicating a contraction in the workforce [6]. Summary by Sections Part 1: Survival Status of Automotive Dealers - The average number of employees in 4S stores is declining, with a notable reduction in management personnel and an increase in the after-sales department's share [6]. - The report highlights that 85% of automotive dealers are facing price inversion issues, which significantly impacts their profitability [7][8]. Part 2: Development Opportunities - The report indicates that leading dealers are accelerating their layout in the new energy vehicle sector, suggesting a shift towards more sustainable automotive solutions [38]. - There is a trend towards integration and optimization among manufacturers, with several brands merging their marketing and operational strategies to enhance efficiency [37]. - The report outlines several directions for transformation, including extending after-sales services, engaging in circular remanufacturing, and exploring overseas markets [44].

Investment Rating - Zhongsheng Group Holdings (0881.HK): Overweight (OW) with a price target of HK$15.00, down from HK$17.00, implying a 32% upside [10][38] - Meidong Auto Holdings (1268.HK): Equal-weight (EW) with a price target of HK$2.20, up from HK$2.10, implying a 12% upside [10][38] - Yongda Automobiles Services (3669.HK): Equal-weight (EW) with a price target of HK$2.40, down from HK$2.50, implying a -2% downside [10][38] Core Insights - The new car margin for luxury internal combustion engine (ICE) brands is expected to remain negative in 2025, with dealer margins hitting historical lows in 2024 due to increased discounts [2][12] - Zhongsheng's after-sales revenue grew by 9% year-on-year in 2024, outperforming Yongda, which saw stagnant growth [3][19] - The opening of Huawei and Xiaomi stores is anticipated to contribute significantly to earnings growth in 2025, with Zhongsheng expected to see a 9% increase and Yongda a 70% increase in incremental earnings [4][25] Summary by Sections New Car Margin - The new car margin for dealers reached a historical low in 2024, with Zhongsheng's sales margin falling to -2.6% and aggregate new car margin dropping from 10.6% in 2021 to 2.4% in 2024 [2][12] - The preference for Chinese electric vehicles (EVs) over global ICEs is expected to continue, impacting new car margins negatively [2][12] After-Sales Performance - After-sales performance is diverging among dealers, with Zhongsheng achieving a 9% increase in after-sales revenue in 2024, while Yongda's growth remained flat [3][19] - Zhongsheng's centralized repair facilities are a key factor in its ability to capture after-sales market share [3][20] Store Openings and Growth - Zhongsheng has opened 33 Huawei AITO stores, contributing to a 9% increase in earnings, while Yongda has opened 11 Huawei stores and plans to expand further [4][31] - Xiaomi store openings are expected to bring additional earnings, with estimates of Rmb10-15 million net profit per store for Yongda [25][31] Valuation and Market Position - Zhongsheng and Meidong are trading below their 5-year historical average P/E ratios, while Yongda is above average [26][32] - The report suggests that Zhongsheng's after-sales business and new car sales from Huawei stores will drive recovery in earnings from the 2024 trough [5][35]