Good afternoon, ladies and gentlemen. Welcome to the Penske Automotive Group’s Second 2015 Earnings Conference Call. Today's call is being recorded and will be available for replay approximately one hour after completion through August 5, 2015 on the company's website under the Investor Relations tab at www.penskeautomotive.com. I will now introduce Tony Pordon, the company's Executive Vice President of Investor Relations and Corporate Development. Please go ahead.

John, thank you, and good afternoon, everyone. A press release detailing Penske Automotive Group's second quarter 2015 financial results was issued this morning and is posted on our website along with a presentation designed to assist you in understanding our performance. Joining me for today's call are Roger Penske, our Chairman; J.D. Carlson, our Chief Financial Officer; and Shelley Hulgrave, our Controller. On this call, we will be discussing certain non-GAAP financial measures such as earnings before interest, taxes, depreciation and amortization or EBITDA and EBITDAR, which adds back rent expense to EBITDA. We have reconciled these measures in this morning's press release and investor presentation, which is available on our website to the most directly comparable GAAP measures. Also, we may make forward-looking statements. Our actual results may vary because of risks and uncertainties outlined in today's press release, which may cause the actual results to differ materially from expectations. Additional discussion and factors that could cause results to differ materially are contained in our public SEC filings, including our Form 10-K. At this time, I’ll turn the call over to Roger Penske.

Thank you, Tony. Good afternoon, everyone, and thank you for joining us. We're pleased to report another quarter of record profitability, including the best quarter and six months in the history of our company. For the second quarter revenue increased 12% to $4.9 billion, income from continuing operations increased 17% to $94.4 million, related earnings per share increased 18% to $1.05. Excluding foreign exchange, revenue would have increased 17% to $5.1 billion, foreign exchange impacted earnings per share by $0.05 in the second quarter. Retail Automotive and U.S. commercial truck dealerships continued to produce outstanding results, driven by an increased unit volume, our fixed operations and focused on gross profit flow through. The performance continues to demonstrate the flexibility and the resiliency of the company's brand mix and our business model. As a record second quarter results were driven by 7.5% increase in Retail Automotive sales, a 50 basis point increase in Automotive Retail Service and Parts gross margin and a reduction of 110 basis points in selling, general and administrative expenses as a percentage of our gross profit. Based on our strong financial results, the Board of Directors approved a cash dividend of $0.24 per share for the second quarter. Let me now turn to our specific to our performance. Looking at our revenue mix, 62% was generated in the United States and internationally 38%. Approximately 93% of our revenue was generated through our Retail Automotive dealerships, while the remaining 7% was generated through our Commercial Vehicle businesses. Overall, gross profit improved $75 million or 11% and overall gross margin was 14.9%. SG&A to gross profit improved 110 basis points to $75.6 and overall gross profit flow-through improved to 34%. However, within our Retail Automotive businesses, SG&A to gross profit improved by 150 basis points and our gross profit…

[Operator Instructions] And first from the line of Rick Nelson with Stephens. Please go ahead.

Thanks. Good afternoon, Roger.

Hey, Rick.

So when you acquired heavy truck business back in November, I believe you said, you thought it would be $0.12 to $0.14 accretive. You’ve layered on now a couple of $100 million in revenue, you’ve got six months under your belt. What are your thoughts now in terms of the contribution there?

Well, I guess, we’d look at future acquisitions. We have a pipeline of opportunities which we’re looking at here domestically. And I think as you’ve seen the business we already have will generate probably $1 billion in revenue and I think when we look at it, overall, we could expect the $0.10 to $0.12 probably being realistic as we look -- as we look forward in 2015. And we would hope that as we move into this area of the business that we will see some additional profitability. Just to put in perspective, we see about 130 basis points higher return on sales. In the U.S., we compare our U.S. heavy truck business compared to our retail auto business. So again with the acquisitions, we will see some ability to increase our profitability. And also one of the good thing is we don't see the CapEx requirement that we have on the retail car side. So I feel pretty good that overall, if we did the acquisition that we had this year for $200 million, probably we’ll see probably $0.02 to $0.03 benefit to that.

Thanks for that color. You’ve got some concentration on the heavy truck business in Texas and Oklahoma. Is there any slowdown evident in those markets?

Well, we've seen some slowdown on the new truck sale side but it’s -- that is more of a service area for us and a lot of the rigs and things that have come back in are in now for service. So we’re seeing that probably in pretty good shape. But remember the Freightliner brand is primarily a large fleet brands. So the big carriers are the big customers of Freightliner. So their business is strong. Their operating ratios were the best they've been. So they are outbuying trucks when you see the backlog. So we don't see any real impact on it right now.

All right. Thanks. And finally, if I could ask you about flow-throughs at 35% and auto at 61%, relatively stable gross profit per unit. But could flow-throughs -- do you think those types of levels are sustainable?

I hate to post the big number like that because you'll forget it. But I think on the automotive side, we had strong gross profits in the quarter with our international businesses and also in the U.S. And when you look at our gross profit from the standpoint of per unit, we run about two times the volume foreign. If you look at Audi, Mercedes, Lexus and BMW, the margin, total all-in margin on premium luxury is twice that we would see on a volume foreign with our 72% mix. I think that really played well for us in the second quarter. And along with that, we had a 50 basis points increase on our parts and service which really was strong. And U.K. had an outstanding quarter. When you think about UK from the standpoint of overall business, this is the 40th month in a row, they’ve had an increase and we were up over 16% in that market and they were up -- the market was up 7%. So I think there's number of things that we probably hit just on head properly that gave us the flow-through on the automotive.

Great. Thanks a lot and good luck.

Yeah. Thanks Rick.

Our next question is from John Murphy with Bank of America/Merrill Lynch. Please go ahead.

Good afternoon Roger.

Hey, John. Hi.

Just a first question, as we think about China slowing a little bit and the German lux guys may be shifting their focus to the European and U.S. market. I was just wondering if you're seeing improvements in availability for vehicles for you to sell, coming from them?

Well, there’s no question. I think that that with China slowing down, this was a sweet market for the OEM to send the key premium luxury vehicles and that slowed down. So we’re seeing more availability on Land Rover, some of SUV products, that we -- trucks, the GL/MLs et cetera, the Q5s, Q3s, the BMW and really have seen a great impact with Porsche on Cayenne and Macan. So that’s favorable to us not only here domestically but internationally. I think you'll see that for a while. The only question we have is if they don't have the production there, are the people wanting to buy vehicles at demand, I would say. Then I hope they don’t push too many vehicles on our way because it could have some impact on margins and pressure on individual dealerships. But I think right now, we are glad to see that shifting. We’re seeing it not only here in the U.S., we’re seeing it globally.

Okay. And then just the second question, if you think about the margins in parts and service, obviously they are pretty incredible. I’m just curious as we think about where those margins can go, if you could sort of dimension where capacity utilization is in your service base and if there is more room to really run those fixed assets a little bit harder and maybe even get better margins over time?

Well, we’ve been investing probably $2.5 billion in CapEx over the years as we’ve talked about it before. Some people thought we were maybe expanding too much. But I think today with the increased parts and service, it's made a big difference. And what we've done is taken capacity where we've had single shift operations, we’re going to a second shift where we’re primarily doing our PDI pre-delivery inspection in our pre-owned vehicles and we’re getting more utilization. And I think that that’s proved to help us immensely. When you look at the increase in our 0.84 to 1 on our used vehicles, we’re getting more used vehicles and that's driving our parts and service. And I think that's one thing as people concern themselves on lower margin on used cars, they really got to look at the full formula because every car that goes through your shop prior to delivery have some work done on those, it sets at margin and drives our parts and service. So to me, we’ve got good efficiency. We’ve got utilization. We’ve added probably 200 technicians already this year and actually 77 in the body shops. So we’re having -- they see the strength of the parts and service certainly with warrant being key now and all other recalls. We as the downstream partner of the OEM are getting the benefit of this. So overall, we think that that it's good. And warranty is the higher margin because we set that rate on an annual basis, so maybe twice every couple years and we get that rate to 100% where in many cases you have to negotiate on depending on the age of the vehicle, that might give you lower margin. So to me, I think we’re really in a good spot here because the OEM cannot survive without the downstream partner. And I think that’s a message we have to give the investment community as we go forward in good shape. We've all invested in shops. We got the best equipment and we’re getting more share of wallet. Oil changes front end alignments, tires, all of those things are playing part of it.

That's helpful. And then just lastly, as we think about sort of the stepped-up requirements that we hear from a lot of automakers for image programs and facility enhancements, just curios if you could comment on that? Where you think you stand on a relative basis and does that give you an advantage as a large well-run company over some of the smaller players out there and might we see more acquisitions as a result of that?

Well, number one, it is ironic as the industry is better and we do better, we get them knocking on our door for more corporate identity. We're just about amortized what we've done four, five years ago and they won new tile or something else, that's going to be a constant challenge for us across all of brent. I think much of the CI is terrific. I think the customer experience, these product specialists, product geniuses, they want to be part of the CI upgrade, I think that's key. But what's happening is when you go to a smaller independent retailer, he has a bill for $2 million or $3 million to do over his showroom and the expansion requirements as they look at the market growing, it puts pressure on it. But to me, I think the acquisition pipeline is good right now. And I don't think there's anything now that would keep us back. For us, worldwide opportunities continue from the standpoint of us because of our global footprint. And to me, we've got the most geographic diversity. So that should give us a great chance to grow on the auto side and then we tie in with our Australian business on the power systems and in the commercial truck side, I think we are in good shape.

And truly just last question. When you think about the multiples on the commercial truck acquisitions versus the light vehicle or new vehicle dealership acquisitions, how disparate on them? I mean, it sounds like the profit and capital intensity once you get the commercial truck dealerships, it’s a lot lower. I’m just curious what the entry cost is you think?

Goodwill is 30% to 40% less and CapEx. There's standardization signs and of course certain types of equipments. But you probably have more real estate from the standpoint of, because you get trucks and trailers being part. But it’s significantly less from a CapEx perspective. So, I like the model. I like being associated with Freightliner, the leader in the marketplace and we are going to remain an opportunistic buyer where we want to buy, where we can that’s contiguous. On the other hand, we are now out in Texas. We are up in Oklahoma. We are on the East Coast. So, I think that we will build a real network and we call our group -- it's called the Premier Truck Group, is the name of our Freightliner group today.

Great. Thank you very much and great quarter.

Thanks. Thanks, John.

Our next question is from Jamie Albertine with Stifel. Please go ahead.

Hey Jamie.

Hey. Good afternoon, Roger and Tony and congratulations on a great quarter.

Thanks, James.

And it doesn’t get said enough but thank you to Tony for the great slide and disclosure and details you provide every quarter. It's super helpful to understand, kind of your position in the market. So, thank you for that. Roger, if I may. I think most of us know that used vehicle supply, if you kind of look at the lagging effect of new vehicles are over the last few years, it seems but stands to reason that used supply should continue to improve over the next few years. Can you sort of help us understand what you're seeing on the demand side? Is there enough demand to support that? And then sort of as an aside, you mentioned something very important I think to your parts and service business with respect to the internal work and the profit flow through there. So it's not just about the used sales as you said, but help us understand how it touches the other parts of your business in a positive way as we think about sort of where consolidated op margins can go over time? So, I’m sorry for the long question but I think it's an important one to sort of touch on.

Well, I think that when you think of the market, let's just step back a minute. The used market today is three times of the new market. And certainly with e-commerce what’s happened to give an example, just in Atlanta, we have two BMW stores there that do anywhere from a 100 to 125 new a month and they do 300 use. And you can imagine that everybody is not driving by the front door. So the impact of e-commerce there is amazing. It is being able to have the supply. And one of the benefits that I see coming, as we go into ‘16 and ‘17 on the premium luxury side in the U.S., I'm specifically talking about. There has been a huge amount of leasing and probably 50% to 55%, at least in our book of business is lease. So, we get the opportunity to access those cars when they come back and I think with the certified, many of those become certified and with that, we get the benefit of running those cars through the shop and we would spend anywhere from a $1,000 to $2,000. In some cases, it replaces the tires for certification. So that adds internal gross profit. So, the Internet has opened the market up to us as individual dealers across the country, not just Penske, but AutoNation and the rest of our peers, I think have the same opportunity. But to me, we have this flow of premium luxury used cars coming back. Remember, we also have the large fleets of loaner cars, which we have to employee to take care of our premium customers and we are turning those now and it weighs 2 to 3 times per year and those vehicles now become very positive from the standpoint of what I would call cars that are priced right. They’ve got some depreciation. They’ve got some support from the manufacturers. So those are very effective in our sale side. But to me, I think that that the used growth is really unlimited from the standpoint of us. We are at 0.84. In the U.K., we are one-to-one. We’ve got some stores here and you take the two stores I talked about. In Atlanta, we have other ones that are over two to one. So, I think it’s up to the operator that is accessing the car. It is also flow-through. You’ve got to get these cars in and out because the profits will diminish if you carry the cars too long. And what we've done is really done a good job on our pictures and trying to outline the details of the car and make a big difference. So the Internet is so powerful and I think we’ve got good consistency. Penske cars.com probably has, at any point 25,000 to 30,000 vehicles on it. And I think that it gives you online capabilities to see these vehicles.

I thank you for that very detailed answer. And I'll leave it to my colleagues and my peers here. But thank you and good luck in the next quarter.

All right. Thanks, Jamie.

The next question is from Brett Hoselton with KeyBanc. Please go ahead.

Hi, Bret.

This is actually Irina Hodakovsky for Brett Hoselton. How are you guys?

Hi, Irina. How are you?

Good. Thank you, I had a couple of questions for you on the new vehicle demand outlook. There has been concerns raised by a few of the peers reported earlier about the new vehicle gross profit per unit declining and potentially signaling a waning demand in new vehicle going forward, potentially suggesting that we are kicking in far. What are you seeing and what is your opinion on the new vehicle demand?

Well, we have a SAR that’s increasing, that’s going to drive demand across all of the different brands. I think that in the premium luxury side, where we are, we can't get enough Land Rover product. We can get enough Porsche product. When you look at the X product and BMW and some of the Q product in Audi and certainly the S-Class, veteran Mercedes, these are hot cars. And when the mix of those you have is higher, it's going to drive a bigger gross profit. And we've seen with gas prices that people really disregard driving Sedan and they're going to trucks and SUVs. And because of the shortness of supply capability in some of these, we see some shortage, which will help drive margin. But new product, new vehicles coming out is going to keep driving this margin up and we always have a tendency to see it coming down in demand, as the supply comes up. But at this point, we're managing it everyday and I for me to be, I wish I knew exactly where I'd be 6 to 18 months from now. But I think we sustained as we see without FX, we’ve sustained on an overall company standpoint, we've seen, we’ve been able to sustain our new car market. And we've not done that in used cars. I think that’s because we are reaching further into this Internet to use it as a tool, to be able to drive more used cars business, which drives service and parts growth. So, I think you’ve got to look at the whole business from the standpoint key. And also when you look at lease returns, they are also going to drive demand.

Thank you. One other question in terms of the U.K. market. One of your competitors mentioned that they are already seeing that inflection of supply in U.K. that cars are being brought in that normally would have gone to China. And that is also pressuring the gross profit per unit in new. It seems that longer term, when you look at the trends your total gross profit tends to stay pretty stable. So, wondering how likely is it that in case that pressure occurs you would be able to compensate in your other segments such as used vehicles or in the F&I department.

Well, I think you’ve got to look at brand mix. One of the nice things in the U.K. for us, we have market areas. So typically, we have three or four, five dealerships in the market. So, we don't have the interbrand competition and when I look at the year-to-date gross profits in the U.K., we’re up, probably 100 pounds per vehicle all in the U.K. So to me, that's a pretty strong indication if that market is good. And in the U.S., on a year-to-date basis we are flat. So, we’ve held the margin. I think it's getting the right inventory and I think it's also from the standpoint of how you get your mix. And to me that’s what we’ve tried to do. So, I think there is lot of things. We have available to us to make a difference But U.K. specifically, it’s always been competitive. There was a lot of pricing on the Internet. But again, I think the way we are set up there is much better because today the premium 26% of the market and probably 10% of that market are ourselves.

And then lastly, we are hearing that there is an increasing number of sellers in the U.S. market, or perhaps expectation are little high. Have you seen any changes over the past, maybe three, four months, in terms of the M&A market and expectations?

Well, I think there's an active market and it's ironic. We very seldom run into each other. I think that the publics are interested in growing. They’ve got capital, low price capital and we see a good pipeline. I would say this that for the right store and the right location, we are probably paying 20% to 25% more money we did two or three years ago. But the market is strong and we are going to take advantage of it.

Thank you very much. Congratulations on a good quarter.

Thank you very much.

Our next question is from Paresh Jain with Morgan Stanley. Please go ahead.

Good afternoon, Roger, Tony.

Hi, Paresh.

Hey, I would like to get to the quarter, but first things first Roger, congratulations on being inducted into the Automotive Hall of Fame.

Well, thank you. Right. I told someone, they finally get down to the piece, right.

Very well done. Excellent. So with that, let me start with the question on acquisitions here. Since you bought ATC last year, has there been any shift in your CV acquisition strategy? I believe you mentioned on previous calls that 50% of your acquisition revenues in future may come from the CV business or what next few years. Do you feel more or less bullish about acquiring CV dealers now versus when you bought ATC last year?

We’re going to be opportunistic based on location and where we have contiguous potential markets. I think we are going to continue to grow. There is not the field of opportunities in the US as we have 18,000 franchises on the car side. But I think that when you think about our business, we acquired $200 million in the first quarter. And in Chattanooga and Knoxville, I think there are these glue on ones that we will see throughout the US and we will take advantage of, especially as we are committed to the Freightliner brand. So I haven’t changed our attitude at all and we’re definitely going to grow both sides of the business on the retail auto and the commercial vehicle side. I think that’s what I said last quarter. But to me originally ATC was $700 million and I think now we will be pushing a $1 billion when we look at annualized revenue for the year.

Understood. That’s helpful. And then following up on John’s question on acquisition, you have technological and regulatory headwinds to deal with that could pressure, I believe smaller private dealers are lot more than the well resourced public ones. And to that you add a slowing mix SAR, shouldn’t that bring valuations of private dealers down right now?

Quite honestly I think that the people who are selling, in many cases it’s a generation gap where you don’t have succession. They are looking at what is the CapEx requirements and knowing that they are public retailers or other even private groups like Buffett and that team are interested in growing. So I don’t see this is a period where if the SARs slows that we got to see the price locations go for less. I think that many of these people are assigned for tax reasons and I think that’s always going to be out there, but I have not seen any indication at least and we’re looking the pricing is coming down. I think it’s pretty steady on the upward side. Here was the last say 12 months.

Got it. Thanks for the color.

Thank you.

And next go to Brian Sponheimer with Gabelli & Co. Please go ahead.

Hey, Brian.

Hi, Roger. Congratulations on the induction and also great quarter.

Thanks.

A couple of questions here. Just one on product cadence, what are you seeing as far as acceptance of some of the lower price products that are being rolled out by some of your premium OEMs in the US? And relative I guess to where your UK dealers are with those products as they were launched a little bit earlier. Just give some ideas, your thoughts on how these products are going to help you over the next couple of years.

Well, I think that if I just think off the top of my head, there is still a question that we’ve got the Audi A3, GLA has come in nicely here, the CLA. X1 is a strong product for us in the UK and lot of these products should now come in with xDrive which I think is key in the US based on the weather patterns. The new pilot, the RAV4 -- a lot of the Toyota products were -- I am interested to see the strength of the Toyota product in some of the markets in Europe and Germanys specifically. And we can’t get enough of some of these vehicles. But overall I would say as the quality of the premium luxury guys, I look in their toolboxes, their ability to go downstream I think is pretty amazing and is definitely growing their share. We’ve seen that in the UK. And probably a perfect example is what with the Cayenne. Porsche started out as a sports car company and then they had the Cayenne, then the Panamera and now the Macan. I mean, we can sell everyone of those, we can get. So we will slow down and China has helped us fast. So I think those vehicles are very strong for us and the pipeline of new vehicles coming in, I think there is probably about 150 new models coming in over the next 24 months.

Great. That’s helpful. Just one more question, just on as vehicles become more connected from a 4G LTE standpoint, is there any threat to your parts and service business where you may not get the luck on the software we call that would have driven some incremental parts and service business?

Well, there is no question that being able to have remote diagnostics is going to be great tooling for the customer. In fact, today we get notified at the dealership at BMW if we got the life going on in one of our customer’s cars, so I think it’s a service capability now. If it’s a diagnostic piece that they can handle over the wire that probably is good for quality with the customer, but we are still going to be needed for the routine consumables that take place. And quite honestly, it could drive some additional business to us as we get more complicated with technology.

Understood. Thank you. Well done. Tremendous quarter. Thank you for taking my questions.

Yes. Thanks. Appreciate it.

And next going to David Whiston with Morningstar. Please go ahead.

Very nice.

Hi.

First on the dividends, up 16 straight quarters now, how much longer can that streak continue?

Well, I am a dividend guy, I will tell you that. So as we continue look at we, our Board of Directors looks that our cash flow each quarter and trailing 12 months and with the earnings that we have, I think our payouts in the mid 25s. So I think that we could get into the mid 30s would be probably if you say where is the roof, it could be a 30% to 35% ultimately. But at the moment we continue to look at each quarter and hopefully we can continue to grow the dividend.

Okay. And as you know, there has been a lot of publicity about AutoNation and TrueCar recently. I was just curious what’s your relationship with TrueCar and other vendors like that?

Well, we’ve had an association with TrueCar maybe a little bit different. Today I think we have probably nine locations that we have with TrueCar and primarily those are in Texas and they support USAA, but we have a little different model. We have a subscription. We actually pay a subscription to get list from that market. We don’t pay by individual lead and we don’t provide our data. So a little bit different, but we are looking at it. I think that AutoNation had a little different model with them from a data perspective. And I understand like Mike Jackson’s concern. And to me, we will continue to monitor our situation at this point, but it’s certainly not significant one way or the other to us.

Okay. And finally, I would be very interested to hear your thoughts on, is car sharing ultimately going to be big threat to the US SAR and because people won’t have private vehicle ownership anymore?

Well, I think that people like to travel when you think of the size in the US, are we going to car share across the country? I don’t know that. You look at Uber’s success, you look at some of the different products that are available, it’s very interesting, but someone has to sell those vehicles. There is some question to the manufacturers own the vehicle or will the dealerships be able to sell those and then there will be shared amongst the communities. The one thing that really we haven’t seen the impact of insurance, I think that on major cities you will probably see some impact. But guess what I think this is going to create more miles on vehicles, because if we get utilization of vehicles, guess what it’s going to do, it’s going to drive our parts and service business where we have our high margin.

Okay. Thanks so much.

Good. Thanks.

And we will go to Pat Archambault with Goldman Sachs. Please go ahead.

Great. Thanks for taking my question. I guess just a couple here. Just first on the CFPB, we have had a couple of companies weighing on this arrangement that was struck with Honda where they agree to effectively cap either the markups that they would allow their lenders and I think there is though however some flexibility for them to pay a slightly higher buy rate. So wanted to get your thoughts about, A, the impact of that, whether you think that’s a good idea, and also if you think this represents kind of a blueprint right for other things to come with other lenders.

Well, it’s hard to say the CFPB, if this is a blueprint. I wouldn’t say this because I think there is still probably negotiations going on. I think that the Honda situation probably provides a workable framework by eliminating discretion on the individual transaction by placing caps on the markup. And I would say we’ve had caps on our markup for a number of years. And we provide I think one thing and we forget as we provide an added value to consumers and the solution between Honda and CFPB allows dealers will be fairly compensated. But for me to say this is going to be a blueprint, I don’t know that. I looked up just as a data point what has been our average markup with our OEM financial institutions, our captives you would call them. And we think with the best information we could get because I know it probably be a question is probably around -- between anywhere from 0.6% to 1%, and with our traditional preferred lenders which would be our banks would probably around 1%. So I don’t see this is being a big impact one way or the other. But I think overall, NADA is discussing this with the government. We've got some of the banks and other people. I'm really staying out of it. I think that at the present time I think we need to have a fair and equable solution for both the buyer and also certainly we as retailers.

Yeah. NADA doesn’t seem to like it. So, I guess, from your perspective, it sounds like either way if you don't expect to have a very big impact on your profit outlook for F&I?

Well, you look at Penske, specifically, remember 67% of our businesses in the U.S. and the other is internationally, so we’re not really impacted by it. So at the end of the day, our finance revenue is only 40% so -- of that 60%. So we don’t -- we won’t be impacted severely and on top of that remember, a big portion of our business is leased and there's flat and smaller margin available on those types of transactions.

Right. Right. Got it. Okay. Just on the getting back to the question was brought up about gross margin in used which was down year-on-year a little bit under some pressure. I feel like we've seen that across a couple of guys this quarter? I wanted to get a sense of what you thought the outlook was there? I mean, just to tie a few things together. I think, it was also mentioned on this call that you've got more inventory availability from off lease vehicles. So is there a potential for used to kind of stabilize and improve or is kind of the rotation to sort of digital more of a long-term headwind there?

I think that you’re going to see more used car volume because we are really wiping out, what I would say, some of the smaller used car lots on the corner, because the complexity of the cars to get them ready for resale or requirements by the government. But from the used car margin standpoint, what we've done is, there's no question, the supply is higher, but we are also -- we’re selling more vehicles and to me, we need to make the new car. There is maybe some trade-off between the new car margin and the used car margin too. I guess you’ve got to look at both ends of the transaction and particular in our case and we’re trying to get to one to one. And you’ve seen some of our peers are operating their own independent used car operations. So there's definitely an interest in used car, we have seen the success of Carmack. So and you look at their margins and where they are, I think that we need to look at each one of the brands, whether its premium luxury. You'll certainly see higher margin, you will and maybe a volume foreign and that's what’s going to drive the margins down. But I'm probably less annoyed about a smaller margin drop that I would be if I didn’t get the volume. With our volume up 5% to 8%, to me that’s key because I’m getting probably more gross profit. It gives my salespeople a chance to make more money. We get utilization of our service bays at night. So when you add it all together, it’s a bottom line benefit. You can see it in our flow-through this last quarter.

Yeah. And if I can just squeeze one final one here just on that last point. The flow-through was exceptionally good. What -- how sustainable is that? I mean, at just a high level, right, it seems like -- sort of like whereas the incremental dollars of SG&A was probably like more like in the 70s in past quarters. It was like low 60s this quarter. Is that something that can be carried forward into future quarters or is it likely to more kind of edge up towards the 70s where it’s historically been?

Not sure, I understand the question but let me say this that I think when we look at our flow-through, for an overall company we’re going to be. Our goal is in the mid 35 and we can move it up. And then you'll have different pieces of the business and will have more.

I was just using the residual, so sorry, if I’m being confusing. But it seems like you were like mathematically close to like almost 40, right like high 30s this quarter from doing the math right? So it seems just high …

We’re at 34%, Pat.

Okay. Maybe I’ll go offline with this, Tony, with you because it seem very good. Okay. Cool. Thank you, guys.

Thank you.

And we’ll go to David Lim with Wells Fargo Securities. Please go ahead.

Hi. Good afternoon.

Hi, David.

Hi. I just wanted to touch on what Mark Fields has said when he was saying a plateauing SAAR environment. In that situation in the U.S., Roger, what can you guys do in order to garner additional growth that goes above and beyond maybe what the industry sales rate is? Would that be targeted acquisitions or is there another lever that you could pull?

Well, I guess you have to look at our overall as we talked to the investors. We’re looking at a 10%, since our goal is at 10% increase in half of that same-store. And you look historically here, we’ve been able to beat that. And I think we would continue from a company perspective, we would look at acquisitions, which are key. We grow our used car business. We’ve got lease returns, which will drive a new car business for us. And I think we’ve got to get more -- we’ve got to get penetration. I think what happens is if we’re getting a 100 leased cars back in a month, what percent are we keeping if we lose half of them than we’re probably not going to gain market share. So I think we’ve got to look specifically where we have a customer that we don't give it away to someone else and that will keep maintaining our market share because people still be buying cars and there is no question. At the end of the day as we look at the profitability of the company, it’s going to be driven by our parts and service gross, which continues to be strong because of our used car reconditioning in our CPO and then of course in our personal truck side. So, I think all of those will take -- will help us sustain some bottom line growth. But on the other hand, if the SAAR dips 10% or 15%, I think we'll all have -- there will be some impact. I don't want to say, I wouldn’t think anything different. But with the international piece going on the upside, look at Western Europe, they’re certainly not looking at a downside. They’re looking at 10% and 15% increase. We’re going to get the benefit there and you see commercial truck side, which is growing significantly with low fuel prices and people spending money where the economy, guess what? 85%, while the goods and services across this country are driven by trucks and we’re going to get the benefit of that. So at some point, people have got to understand our company. It’s not just an automotive retailer. We are a global player. We are in commercial vehicles. We are in distribution of trucks out in Australia. So, we have a heck of little different playbook:

So, I wanted to touch on the whole European aspect of your business. Obviously things are turning around; registrations are getting better and you have some JVs in Western Europe. Are you looking into a more aggressive acquisition strategy in Western Europe, where it's no longer a JV structure but it's wholly owned by Penske?

Correct, we definitely. Right now, we have a 70-30 partnership in Italy, which I think is very strong there with Mantellini family and very strong operators. And we will be adding to that group a story. Over the next 12 to 24 months, there is a tremendous amount of opportunity. And I think with people on the ground, we have people who work for us here in the U.S. with a tremendous amount of experience. They speak the language. They know the culture and that’s going to help us drive those businesses, not only in Italy but Germany. And also we’ve had some very good luck in Spain with our partnership with Caetano. And we've taken over the Barcelona market for BMW. So, we see that as a real opportunity. I will say -- I hope that we always have a small partner in these markets who understands the social side of the business. And also from a language perspective, we’re trying to build the new team of people in the company. The best global companies -- when I was on GE's Board, when you looked at GE, they are global. 55% of their employees didn't come from the U.S. So, we’ve got to think a little bit that way as we grow internationally to give these folks a chance and it’s amazing, the interest we have is we’ve been able to have capital and move into some of these markets.

So just to be sure, you would still do a JV kind of structure versus the wholly owned Penske ownership of any dealerships.

I would say today, the way we're set up in the markets that we would own. We’d like to own it probably between 70% and 80% that would be the ultimate goal. And maybe in Spain today with Caetano, 50-50, we might grow on that basis but it gives us an opportunity to take a look at that. But I wouldn’t want to mislead you thinking overnight we’re going to be a 100%, because I’m not sure that we can execute as well without partners that have the market experience.

Sure. In my final question, I just wanted to clarify a question that Rick Nelson asked a little earlier. And I just want to be sure -- you said, I think, heavy trucks were going to contribute $0.12 to $0.14. And then did I hear you correctly, where you are now estimating $0.10 to $0.12?

I guess I misunderstood him. It was $0.12 to $0.14. We thought we’d get another $0.02 out of the $200 million that we got, we've added to the business going forward.

Okay. Got you. Great. Thank you so much.

Yeah. Thanks.

And with no further questions, Mr. Penske, I’ll turn it back to you for any closing comments.

That's fine. Thanks. So, see you next quarter.

Ladies and gentlemen, that does conclude your conference. Thank you for your participation. You may now disconnect.