Good afternoon ladies and gentlemen, and welcome to the Penske Automotive Group second quarter 2009 earnings conference call. (Operator Instructions) Please refer to Penske Automotive’s press release dated July 10, 2009, for specific information about how to access the replay. I would now like to introduce Mr. Anthony Pordon, Senior Vice President of Penske Automotive Group; please go ahead sir.

Welcome everyone. A press release detailing Penske Automotive’s second quarter results was released this morning and is posted on the company’s website at www.penskeautomotive.com. Participating on the call today are Roger Penske our Chairman; Robert O’Shaughnessy our Chief Financial Officer; and J.D. Carlson our Controller. Before we begin today I’d like to remind you that we may make forward-looking statements relating to Penske Automotive Group on this call. We caution you that these statements are only predictions and are subject to risks and uncertainties relating to economic conditions, interest rates, consumer credit, confidence, spending, and ongoing restructuring of the US based automobile and auto parts sector, and other factors over which management has no control. Our actual results may vary materially from these predictions. Any such statements should be evaluated together with the information about Penske Automotive in our public filings including our Annual Report on Form 10-K. During this call we may discuss certain non-GAAP items including adjusted income from continuing operations and adjusted earnings per share from continuing operations. At this time I’d like to introduce the Chairman of Penske Automotive, Roger Penske.

Thank you Anthony, good afternoon everyone and thanks for joining us today. Today we reported second quarter income from continuing operations of $19.8 million or $0.22 per share. The company’s performance in the second quarter represents an improvement over the first quarter and exhibits the resiliency of our business model. And I think it also shows that the retail auto business through these tough times can sustain its profitability. As you know the economics in both the US and the UK continue to struggle and as a result US new vehicle industry unit sales declined 32% and market registrations in the UK declined 21% compared to last year. Our revenues declined 30% compared to the second quarter last year however, excluding the foreign exchange rate effect the decline was 24%. Despite the difficult operating environment I am encouraged by the performance of our business. The cost saving initiatives we discussed with you on our last call contributed to a positive earnings results. In fact our SG&A was down $65 million compared to last year. More importantly we’ve seen an improvement in our results versus the first quarter of this year. The following are some highlights of our second quarter performance compared to Q1. New and used unit retail sales increased 3% to almost 60,000. Total revenue increased $164 million or 7.6% to $2.3 billion in the second quarter. On a same store basis new units were up 7.8% and used units were down 3.5%. Same store retail revenues increased 8.1% versus the first quarter and same store F&I was up 12.2%. Its also important to note that our service and parts business remained resilient at 1% increase on a same store basis versus the first quarter. We achieved the increase in our service and parts business despite a continued reduction…

(Operator Instructions) Your first question comes from the line of Richard Nelson - Stephens, Inc.

Congratulations Roger, do you think the used car performance is sustainable given the price rise that we’re seeing at wholesale, higher sourcing prices that you need to pass along as well as the bank and their LTB requirements.

Let me first say that we saw higher margins on used cars and certainly as we see the marketplace, what’s happening we’re going to see less used cars available because we didn’t have sales in 2008 and we see that in the UK also, there’s been two years of downward new car sales. So as I see a supply of used cars really tightening up, you’re going to see the obviously the wholesale prices going up which I think is good in one case because it gets the transaction closer on a used to a new price that we’ll be able to generate some new sales. But overall we’ve seen our certified business go up. There is no question that we’ll start seeing probably some limits from the standpoint of advance rates from our lenders, but at the moment in think its been good and I don’t see it changing. Last year at this time I talked to our guys in the UK this morning and they started to see at the end of June used car prices falling. They don’t see that now so I’d say a strong wholesale market if you look at our wholesale we lost money on wholesale last year and made money this. And I think when you look at the gross per unit year over year without foreign exchange we were up $385.00 per unit. So it was significant.

I’d also like to ask you about regional areas of strength and weakness and specific commentary on California and Florida, if you could.

Well let me say this, our Florida business has been tough. We’ve done some reorganization down there with some of the brands that we have, but I’d say southern Florida hasn’t really improved. I know that there’s more action there based on cash for clunkers. I’d say California is a little bit better. We really are, in San Diego, and that market is staying even through this whole downturn has been probably one of our best markets. Northern California has certainly gotten better, Vegas is still tough and we experience in the Mid West a tougher market. So overall I’d say Florida is still tough and California better. The northeast basically with the financial markets and a meltdown we’d see some pressure in the Jersey City and some of the areas close to New York. United Kingdom on the other hand continues to perform well for us.

Also I would like to follow-up on Saturn, I realize there’s lots of similarities to smart, I’m sure a number of differences and if you could size up those differences, any look at the potential structure of the deal would be helpful.

Well we’ll form a stand alone company that we’ll capitalize for Saturn as we have in our smart operation. The one difference that we have today and basically the aspects of the deal are confidential, but from an overall basis the difference is we had to build and organization with smart, go out and actually register new dealer candidates and pick them. With the operation on Saturn, we’ll have roughly 350 rooftops and 200 owners. Now they’ll be given an agreement, sales and service agreement for the future and this is a distribution business as I said earlier not a manufacturing business. So similar to what we have a smart, we’ll have more people obviously because you’ve got units in operation of over 3.5 million which has been registered before and I think when we started out smart we had no units in operation. So I think that we’ll have to have a risk associated with this obviously because we started with Daimler with our friends with smart and we’re going to have GM to start with in this business and then we’ll be moving on to another OEM in the future. So I would say those are some of the key points that would be different.

Do you have that OEM lined up now post GM.

The answer is no. We’ve had conversations, there’s been speculation, domestically here and internationally but we’re not prepared to confirm or deny anything today relative to who that partner might be.

There’s some speculation as to purchase price out there too, I’m wondering if you could comment there.

That’s confidential based on our agreement with GM at this point. Obviously once we get to further along in the due diligence and we’ve got a deal we’ll make it transparent to the market.

Your next question comes from the line of Joe Amaturo - Buckingham Research

Couple of questions sticking with Saturn, could you give us your thought on what the recourse for the Saturn dealerships would be in the event let’s say two or three years from now you elected to exit the business or something doesn’t go exactly as planned.

Well as you know we are providing the new Saturn retailers new sales and service agreement under our terms and conditions. And at the time that they sign up they’ve got the right to accept or reject this agreement and I’m sure that while many of the laws differ state by state, the agreement that we have to offer will limit our liability subject to the requirements in each of the states.

And then sticking with the structure I know you’re limited in what you could say and what you can’t say but would it be inconceivable to assume that PAG owns less than 100% of this new separate entity.

Well we’ve done JVs before and I would say this, if we have strategic people, or businesses that we think that should be own part of that business we certainly will look at that but at this particular time we’re still in the formative stage as far as what the capital structure will be and if there’ll be any minority shareholders. That will be transparent once we get going.

Okay and with the business you have right now it looks like CapEx is tracking slightly ahead of what I had thought about, how do you think that goes for the second half of the year.

Let me say this just to go back, we had talked in the neighborhood of net CapEx around $40 million at the beginning of the year. Now since then we’ve had a little bit better market in the UK. There was two acquisitions we made there’s some CapEx associated with those and we also had an opportunity in Cleveland where we have the opportunity to pick up a shopping center and redo it for our Honda dealership there. Those are in our plans. We’re looking probably at between $25 and $30 million in the second half but also we’re actively pursuing some sale leasebacks both in the UK and here. We also, in Audi at Turnersville, we were able to add that franchise which had some CapEx associated with it. But we’re on a real decrease there when you look at the annual spend we’ve had over the last couple of years and a lot of these projects are just finishing up that we had on line which we’ll complete here in the next 30 to 60 days but I think we have it well under control.

And then just given this putable debt issue that you have out in the future, and given the stock performance are you entertaining any kind of capital transactions to better, to address that putable debt in the future with some sort of equity transaction or—

I would say this, we’re always looking. I think now that the markets have opened up, our share price is obviously we’re very happy that the sector not just us but the whole sector has moved positively that we’re going to look at options over the next 60 to 90 days obviously.

Good job in a tough environment.

Your next question comes from the line of John Murphy - Bank of America/Merrill Lynch John Murphy - Bank of America/Merrill Lynch : Just thinking about cadence through the quarter I’m just wondering if you could talk about it because it seems like from the first quarter to the second quarter the environment’s gotten a little bit better and obviously you’re cutting costs further so things are going pretty well, but just if you could maybe think about the months and then maybe even into July sort of how you’re seeing the business shape up particularly towards the end of the month with cash for clunkers.

The cadence, to use your word, I’ve used the same thing, we saw our new and used retail business get better April, May and certainly it was better in June. We probably were off about 20% in June versus the same month a year ago. One of the good things is we did our homework before the call, in June 24% of our dealerships in June of this year had retail sales increases versus the same period last year so that has to show that things are better. I think the showroom traffic is off probably 25% now. Certainly this cash for clunkers has kind of changed the ballgame here over the last six or seven days. We’ve seen traffic we haven’t seen before so the issue there is how do we handle this traffic. There’s lots of confusion over MPGs on vehicles that can be traded to get $3,500 or $4,500 accessing the treasury and the government that the register has been a real burden for the dealers. And now my understanding from our guys, it could take 15 minutes just to get one deal approved through the system. So I’m sure we’re going to be working a night shift to try to get all this stuff through because to me if you just did the math if they said its $1 billion and you’ve got 250 vehicles at $4,000 a vehicle, you’ve got 250,000 vehicles, we’ve got 20,000 dealers. It doesn’t take 20,000 dealers to do 10 or 15 deals and the deals shut down. Now I know in the UK and in Germany the program was much larger. We’ve had probably, this is our latest count was last night, was somewhere between 1,000 and 1,500 deals that we know are cash for clunkers. We’ve had some special…

Well let me tell you the buyer that we have seen have pretty good credit. A lot of these people, these are cars that have been handed down through the family or some way and these cars are coming in and we seek credit being a little bit better. You could say it’s a pull ahead but what I think it has done, there’s more noise about cash for clunkers then someone thinking about buying cars so I think it’s a positive. Now to me we know that the UK, it was 2.1 million units and they were thinking it was going to be 1.6 for the year, now they’re looking at 1.8 and when you look at the traffic for us this last weekend is one of the very best weekends we’ve had all year. Sure it’s a pull ahead but again we need something to drive an interest into the dealerships. So when you’re talking about a 10 million [inaudible] we need a big pull ahead to get to 16 million. John Murphy - Bank of America/Merrill Lynch : Let’s hope we get there soon. And then just lastly on Saturn and I hate to beat a horse here but you were mentioning that you have the agreement obviously or you’re working on the agreement for the US, is there the potential to launch this brand in the UK, in Germany where you have a presence already and really kind of expand over there and also what kind of risk do you see with this in the near-term in dealing with GM. Obviously they can be a tough customer in deals like this. What are the near-term risks that you see maybe in dealing with them for the next two years as sort of a place where you’d source the vehicles from.

Well I would say this, that our relationship with GM has never been better. We in 1988, 20 years ago, we had the opportunity to do the Detroit diesel deal with them which went well and I think that some of that benefit is getting us and the chance to have this transaction. So I see no risk. GM certainly is, the plants that we’re interested in sourcing vehicles from, Fairfax, Kansas, Mexico on the view and certainly the outlook at the Delta plant in Lansing, those are going to be strong plants for them because they’re building sister products. So I see that going on well. We have today in the negotiations we have these service agreements which we’re trying to go through because you just can’t unplug Saturn over night as its imbedded in GM and turn around and turn it on the next day so these transition agreements we’re working on today, our teams are working together and I would say GM has been very open obviously. One of the key things had to happen, they had to have the bright line from a bankruptcy perspective and then they could focus on this. As far as the product as we announced earlier that we would have the rights to the Saturn name and who knows maybe if we’re successful completing this transaction that we could use the Saturn brand somewhere else in the world but at this point we’re dealing strictly on this market. We’re looking at Canada at this point but right now the focus is on North America. John Murphy - Bank of America/Merrill Lynch : But you would wholly own the brand, right globally. It would be your brand.

Absolutely, all the things around the brand, that value which we think is part of this transaction is certainly there and then of course we have the ongoing parts and service business which is one of the benefits. I don’t know if I said that, if it was Rick or someone asked the question, that’s’ one of the benefits of this transaction because as you start a new brand in this market and don’t have any car park, you wouldn’t have the parts and service revenue for your retailer. That’s one of the things that we have here because we’ve got four million units in operation.

Your next question comes from the line of Matt Fassler - Goldman Sachs

Not to bore anybody but I want to take a look at the geographic mix of business and just think about the financial performance that you experienced in the US versus the financial performance you experienced in Europe compared to last year, if you could talk about perhaps the same store sales trends and the year on year profit trends that you saw in those markets.

Well its hard to give you right here the specifics but I would say this that from a UK perspective our same store business was pretty consistent to the first six months a year ago. I think we know the northeast has been tougher. The mid west has pretty much been the same. It continues to be down. There’s lots of unemployment. When you think about the market we’re in here in the mid west here in Detroit we’ve got 15% unemployment in Michigan and where I live four miles north in Pontiac, its 25%. So retail revenue was down 28% in the US and internationally it was down 36.1% so when you look at revenue but what I really look at is the bottom line and I would say that the expense reductions in these markets has given us our ability to generate a profit.

I guess the second question I’d ask relates to cash for clunkers and other than smart where clearly the price point is appropriate for the vouchers and for the customer, how would you think this would impact your large dealerships, if at all, obviously that’s 65% of your mix, are they seeing flow as well or are they sort of out of the picture as it relates to that program.

I think the key thing here is is we seen this program both in Germany and the UK we did not get the big up tick in the premium luxury in those markets because most of the people trading in these kinds of cars are not going to step up for probably a premium luxury. Sure they’re the one series, you’ve got some of the lower series in the premium luxury you might see that though. But I think it’s a volume [foreign] its certainly going to benefit the big three, the domestic players. Interesting when you look at our inventory now too, we’ve got an inventory shift that primarily now is cars versus trucks so I think everybody is in a pretty good shape too because most of the cars that are being built in the last six months people have been looking at, at least the manufacturers, OEMs the cars that have better mileage and probably lower MSRP. So I think we’ve kind of managed ourselves from an OEM inventory perspective into the marketplace and this cash for clunkers is going to fit nicely. The question is is it going to come and go so quickly we won’t get the full benefit out of it because its only a billion dollars and to me that seems light in comparison to what they had in Germany and the other countries. So we’ll wait and see.

Your new car gross margin rate improved nicely, it’s the best its been in three quarters, almost back up to 8%. It sounds like industry inventories are coming down to very rational levels so do you think that margins can break through the 8% level again and stay there or would there be reason for more volatility on the new car side.

I’ve got two comments every time I talk to our key guys, its gross and CSI and I can tell you with a market that’s been slowed down, we’ve got to get paid for the cars that we’re selling and I would see that going through 8% there’s no question when you look at it. And to me we have the ability to manage that. That’s strictly managing it and I think that if production speeds up and all of a sudden we get loaded with vehicles and then the consumer demand would slow way down further than it is you might see a down tick. I think right now we saw good management of inventories in the UK and we felt inventories and grosses were in good shape now. I understand that they’re going to push hard in the second half there so there might be some deterioration but I think at the moment, 50 basis points I think is really should be the responsibility of the management.

Your next question comes from the line of Hamanshu Patel - JPMorgan

Two questions on Saturn if you could answer them, when you think of the negotiating parties at the table whether its GM, the other OEM or OEMs you may pair up with or the dealers, could you at least shed some color on where are the negotiations the most stickiest and sort of hardest to get through right now.

I think I said to someone that if you ask me about negotiations I think we’re past mid field with GM and there’s always issues you have to deal with as you go through this but I’d say they’re progressing well and I think that at this time we’re basically, we’re in cadence on where we’re going. Its going to take time. One of the things that had to happen that GM had to get through their bankruptcy, that was the first priority. Now they’re looking at the divestitures, Hummer and Saab, and Saturn, etc. so we’ve said to I think everyone that our goal is to close this transaction by the end of September. We’re prepared to do that if we can get all of the regulatory and other things, we have Hart-Scott-Rodino that we have to file, etc. so there’s other things that we have to do.

And then also on that same line of thinking just given that you’d have to enter into many of these transitional service agreements with GM and maybe the vehicle pricing terms with GM may be different that what it would be with the eventual future OEM, is it possible that you would enter into a deal on Saturn that would actually be dilutive to earnings in the initial few years for the hopes that it could get better down the road or are the financial metrics you’re looking at such that you want this thing to actually add to the bottom line from day one.

I really, I can’t give you the specifics of the transaction obviously because we’re in due diligence but I would hope that we went into this project and transaction that it would be profitable for the company but again, I can’t measure the markets that we’re going to be into starting in the fourth quarter, we’ll have two years minimum two years with GM on product. It depends on do we have a domestic or an international supplier of vehicles to us in the future. So there’s plenty of things to deal with.

Your next question comes from the line of Scott Stember - Sidoti & Company Scott Stember - Sidoti & Company : Just back to the cash for clunkers I know that you said that you’re not expecting a big benefit on the premium side but have you seen the traffic just increase just as people are coming out to the showrooms at those locations.

Absolutely, as I said earlier, maybe I didn’t make it clear, I think that there’s been a benefit and we do see more people out thinking about buying cars and to me that’s positive. So its absolutely stimulated the market. I’m not sure, I haven’t talked to many of my peers, but from what I can see in the newspaper, its been key. Scott Stember - Sidoti & Company : Can you talk about the customer pay business versus warranty on the parts and service side, what were the comps there.

As we looked about our customer pay for the, we were down probably about 5% in the US and warranty we were up almost 2% and I think that was consistent on warranty in the UK and we were down in customer pay probably just around 10% in the UK. Then you’ve got to use the FX on that so I can’t give you the tight numbers. But overall you have some warranty which is involved in these full circle programs. As you know our BMW warranty was cut and that probably had a $2.5 million impact on us on gross profit in BMW in the first six months. Scott Stember - Sidoti & Company : And on the cost cut side you’ve done about $66 million it looks like at least.

It was $65 if you looked at the financials today, year over year its $65 million on a same store basis its $74 million so we’re on track. I think the guys have done a tremendous job. Scott Stember - Sidoti & Company : What’s the full year goal again.

Its $100 million. Remember when we get into Q3 and Q4 we’ve got to realize you have some of those cuts started to happen there so, and it will have some increase in SG&A because part of that cost is variable and you know as our gross goes up you’re going to have some of that cost so the key thing is we need to have SG&A as a percentage of gross going down and I think we had 250 or 300 basis points in the quarter and that’s going to be the real test as we go forward. Scott Stember - Sidoti & Company : Circling back to the cash for clunkers could you talk about how you would expect that to impact your late model used car business since those cars are not included in the program.

Well I think probably what its done right now, we’ll have the key thing to remember we have to take these vehicles and I got a metric which you probably haven’t heard you can’t move this vehicle more than 10 miles because when the customer signs in with a vehicle but if its got 100,000 miles, it can’t have more than 100,010 when you get it to the junkyard so there’s going to be no reselling of these cars even though some of them in the old days you might have sold it as a transportation piece. So that’s coming out of the market. I think the standard used car business though we’re still looking for trades and I don’t think that unless there’s such an attractive new car pricing out there I think that I’ve seen that GM this morning in The Wall Street Journal said they’re going to maybe get back in to leasing then you might see a little more impudence in the new car side but right now I think that used vehicle prices are strong. We’ve certainly seen no deterioration in the UK which is key for us because last year I think that we saw UK prices go down quicker and I think we’re going to see the prices stay firm for a couple of years.

Your next question comes from the line of Ed Antoian – Chartwell Ed Antoian – Chartwell : Parts and service just a little more detail, you talked about the weakness in new car prep, can you give us that negative comp number without new car prep.

Why don’t you talk to Anthony Pordon on that, I don’t have that with us here today but when you think about our new and used car vehicles down, and it’s a high margin part of our parts and service too. Ed Antoian – Chartwell : That was the other question I wanted to ask just on the margin mix in parts and service, what did you do, what happened to get it to start to improve again.

Well I think, you’re not dollar for dollar labor to parts and typical parts margins are in the probably in the 30% to 35% and then you’re labor is could be anywhere from 50% to 60% and so when you get that mix, we were at 55% and then today we see that pretty much consistent. What’s going on for us is we’re getting utilization today we can see some of our mechanics where they work a 40 hour week with the ability of the turn, to turn more hours we’re getting utilization in some of our bays at 120% 130% which is driving more gross for us overall.

Your final question comes from the line of Chris Sommers – Greenlight Chris Sommers – Greenlight: I noticed your used margins are tracking very [healthfully], I know you talked about new vehicle margins earlier but just kind of wanted to better understand what’s helping out a lot on the used margin side.

Well I think that we have been focusing on used based on where the market was, we didn’t have any new car business and I think that the sales guys are motivated to grow the used car margin and I think that’s again a management piece of that and when you look at overall the big increase on that we’ve always been lower in the UK and we were up about 300 basis points in the UK during the quarter and the US was down about 10. Chris Sommers – Greenlight: That’s on a margin basis.

That’s on the gross profit, yes and on a pure dollar and cents basis we were up about $400.00 per unit in GP across both the domestic and international markets. Chris Sommers – Greenlight: When you said US was down 10, you mean 10 basis points.

Yes. Chris Sommers – Greenlight: Secondly the fleet and wholesale gross margin which has historically run negative is running nicely positive this year, what’s behind that and should that continue.

That’s just used vehicle prices. That’s just strictly, we’re able to get more money as we wholesale, we cannot certify and because we’re so committed to CSI, you’ve got to be so careful just to sell cars and then have them come back in 30 to 60 days so we’ve had the ability to sell some of those vehicles and there’s a lot of people want those so where we had negative losses may be on wholesale we have our own in house auctions that we’re running in many of our markets so they’ve been very efficient. And we’ve been getting a better return on those auctions and what I’m really saying the market’s strong on any used vehicle so we’re even seeing it on the clunkers if you want to call that.

There are no additional questions at this time; I would like to turn it back over to management for any additional or closing comments.

Thanks everyone for joining us today, we’ll talk to you at the end of the next quarter. Thanks.