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Penske Automotive Group Inc (NYSE:PAG)
Q4 2019 Earnings Call
Feb 5, 2020, 2:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon, ladies and gentlemen, welcome to the Penske Automotive Group Fourth Quarter 2019 Earnings Conference Call. Today's call is being recorded and will be available for replay approximately one hour after completion through February 12th on the Company's website under the Investors tab at www.penskeautomotive.com. I will now introduce Anthony Pordon, the Company's Executive Vice President of Investor Relations and Corporate Development. Sir, please go ahead.

Anthony R. Pordon -- Executive Vice President, Investor Relations and Corporate Development

Thank you, Paul and good afternoon everyone. And also thank you for joining us. Press release detailing Penske Automotive Group's fourth quarter 2019 financial results was issued this morning and is posted on our website along with a presentation designed to assist you in understanding our performance and our strategy. As always, I'm available by email or phone for any follow-up questions you may have. Joining me for today's call is Roger Penske our Chairman; J.D. Carlson, our Chief Financial Officer and Shelley Hulgrave our Corporate Controller.

On this call we will be discussing certain non-GAAP financial measures such as adjusted income from continuing operations, adjusted earnings per share from continuing operations and earnings before interest, taxes, depreciation and amortization or EBITDA and adjusted EBITDA. We've prominently presented the comparable GAAP measures and have reconciled the non-GAAP 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 about our operations, earnings potential and outlook on the call today. 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. I direct you to our SEC filings, including our Form 10-K for additional discussion and factors that could cause results to differ materially.

At this time, I'll now turn the call over to Roger Penske.

Roger S. Penske -- Chair of the Board and Chief Executive Officer

Thank you, Tony. Good afternoon, everyone. I'm pleased to report another strong quarter results for PAG. We reported this morning record Q4 revenues, which were up 8.1%, a 10.2% increase in earnings before taxes and an improvement in Q4 SG&A to gross profit of 70 basis points or 110 basis points when compared to adjusted 2018. A 3.9% increase in Q4 income from continuing operations to $101.6 million and related, earnings per share increase of 8.7% to $1.25. When compared to an adjusted Q4 2018 record income from continuing operations was up 7.1% and related earnings per share was up 12.6%. The shift in mix of earnings to be heavily rated for the US increased the effective tax rate in Q4 from 27.4% this year compared to 23.4% in the same period in 2018. Before discussing our results of Q4 today, I'd like to highlight some of the achievements we had in 2019.

We retailed more than 500,000 new and used units and increased our used-to-new ratio from 1.28 -- to 1.28 from 1.20. We generated over $23 billion in revenue and we earned $435.5 million in income from continuing operations and $5.28 in related, earnings per share, which includes a net $42 million headwind in the UK representing $0.51 per share. We opened two greenfield used supercenters, we generated nearly $700 million in cash flow, allowing us to increase our dividend 4 times, which currently yields 3.4%. We repurchased 4 million shares of stock for $174 million, representing approximately 5% of total shares outstanding at the beginning of the year. We have a $200 million share repurchase authorization from our Board at this time. We invested $226 million in net capex which includes $42 million in land for future development. We also acquired $1.1 billion in estimated annualized revenues. In total, we returned $305 million or 70% of our income to shareholders through share repurchase and dividends and we turned 8% to shareholders when compared to our market cap. We had 33 PAG dealerships that were named Best Dealerships To Work For out of 100 in this year's Automotive News. We had the Number 1 dealership in 2018 and we had the Number 1 dealership in 2019. Since 2010, we've grown our revenue at a 10% CAGR from $9.7 million [Phonetic] to $23.2 billion and income from continuing operations, a 16% CAGR from $119 million, today's reported earnings of $435.5 million. I think our results continue to highlight our business and our diversification strategy.

Let me now turn to the details of the fourth quarter. Our retail auto business represented 88% of our revenue and approximately 87% of our gross profit. The good news is total automotive units retailed were up 2% on a same-store basis. New was up 1% and same-store used was up 3%. We outperformed the market both in the US and the UK during the quarter. In the fourth quarter, our CPO sales in the US increased 12% and our CPO represented 43% of our used vehicle unit sales. Same-store gross profit per unit retailed was strong, increasing sequentially quarter-over-quarter. In Q4, our new vehicle gross profit was up $245 or 8%, used vehicle was down $25 or 2%, our financial and insurance was up $95 or 8%. Our total vehicle gross profit per vehicle retailed increased $187 to $3,519 or up 6%. Our service and parts revenue same-store increased 2.7% or 2.9% ex foreign exchange. Customer pay was up 4.2% ex FX. Audi was down 1.1% and our collision repair was up 5.2%. As we said before, business conditions remained challenging in the UK during Q4. However, we've seen improved business conditions in 2020 with an increase in order inquiry and we expect the market has some pent-up demand.

Let me move on to our used vehicle supercenter business. We operate 16 dealerships, six in the US and 10 in the UK. We expect to grow the supercenter business through a combination of e-commerce initiatives and greenfield sites. We opened two locations in 2019, one in the US and one in the UK. Both locations have had successful openings and outperformed our initial expectations and are profitable. We remain on track with the develop of four new large supercenter sites. We expect to open two of these in 2020 and another in early -- two more in early 2021. In Q4, we retailed 15,400 units, up 3.1% and generated almost $300 million in revenue. The average gross transaction price was $15,700 and the average gross per unit retailed increased 3% to $1,951 for a gross margin of 12.4%.

Looking at our retail commercial truck dealership business. In the fourth quarter, our commercial truck business retailed 3,728 new and used trucks and generated $600 million of revenue and had a return on sales of 3.5%. Service and parts represented 69% of our total gross profit and covered 120% of our fixed cost. Due to the acquisition of Warner Truck we made in July, our new and used truck sales increased 41%. However, our same-store unit sales declined 29% mainly due to the timing of deliveries and bankruptcies of two of our largest customers in the fourth quarter.

In 2019, Class 8 retail sales in North America increased 6% to 334,000 units. At the end of December, the backlog was 123,000. ACT Research is forecasting a return to more normal demand environment in 2020, which may result in a potential decline of the Class 8 truck sales of approximately 20% to 30%. However, with our recent acquisition of Warner Truck Centers last July, the strength of service and parts and a positive trade cycle of many of our OEM customers that will come up next year, we expect our business to perform well next year.

Turning to our commercial truck distribution and power system business. We are combining the two entities to operate under a single structure called Penske Australia. In Q4, we generated $120 million in revenue and $4.8 million in EBT, an increase of $1.9 million compared to Q4 last year for a return on sales of 4%.

Turning to Penske Transportation Solutions. Our 28% ownership provides PAG [Phonetic] with equity earnings, quarterly cash distribution and tax benefits generally associated with accelerated depreciation. For the three months ended December 31, 2019, PTS generated $2.3 billion in operating revenue and income of $126 million. Accordingly, we recognized $36.4 million of equity earnings. Over the past 12 months, our investment in PTS has provided cash benefits of $90 million through distribution and cash tax savings. PTS is now managing a fleet of over 320,000 vehicles. Although the Class 8 heavy duty truck market is expected to decline in 2020, the longer term nature of truck leases along with solid rental and logistics businesses is expected to drive another strong year of performance in 2020.

We continue to improve our digital and enhance our capabilities and customer tools. Today, we have over 58,000 vehicles online and ready for purchase. In the fourth quarter, over 40% of our new and used unit sales in the US originated from digital sources for the first time. We saw an increase in traffic, an 18% increase in leads and a 40% increase by customers engaging in our Google business listings. We also completed the rollout of docuPAD technology to all of our US locations, which allows us to engage customers digitally by creating and processing and securing funding of a transaction electronically while improving efficiencies, providing cost savings in our back offices.

Customer satisfaction, whether self-service tools such as ability to pay online, make appointments, and online estimating for our collision centers continue to improve the customer experience. Their success has encouraged us to pilot new technologies such as videos and digital pictures for service updates and buy your car now. We continue to enhance our proprietary online closed bid wholesale auction site in the UK with approximately 4,000 active online bidders and we've sold 21,000 vehicles through that source last year. Finally, I'm pleased to announce the initial pilot of our new digital dealership on retail sales platform in the UK we're testing with our infinity partners. It's performing very well and we continue to roll out enhancements that will result in a full digital transaction.

Looking at our balance sheet. At the end of the year, we had $28 million of cash. Our inventory was $4.26 billion compared to $4.04 billion last year. This increase is all related to the Warner Truck acquisition. Our supply of new vehicles was 71 days compared to 72 days last year, our used was 52 days this year compared to 57 days last year. Our floor plan was $4 billion and our non-vehicle debt was $2.4 billion which [Phonetic] 33% is at fixed rates. Our non-vehicle debt increased $144 million of which $134 million was mortgages to take advantage of low long-term interest rates. Our debt to capitalization was 46%, consistent with the end of 2018. Capital expenditures were $245 million, which included $42 million in land acquisition for future development. At the end of December, we had $700 million in liquidity.

In closing, I'm very pleased with our performance in the fourth quarter and almost recently completed year and remain optimistic about the coming year. We remain committed to our diversified model, which as you can see generates significant cash flow providing us the opportunity to make acquisition and return capital to shareholders. Our service and parts operation throughout the organization provide reoccurring revenue which generates 46% of our Company gross profit. We continue to demonstrate that PAG's business model is much more than a monthly new vehicle sales or the SAR. In total, we returned $305 million or 70% of our income to shareholders through share repurchases and dividends.

Thanks for joining us on our call today. I'd like to open it up to the operator for questions. Thank you.

Questions and Answers:

Operator

[Operator Instructions]

First question today will come from the line of Rajat Gupta with J.P. Morgan. Please go ahead.

Rajat Gupta -- J.P. Morgan -- Analyst

Hey, good afternoon. Thanks for taking my question and congrats on the quarter. Just had a question on the used supercenter plan for 2020, it looks like you plan to open two new stores. One question was, are both of those going to be in the US? And then on the supercenter side, is there any discussion around potentially approaching the market differently, perhaps in the lines of what Sonic is doing with EchoPark? And I have a follow up. Thanks.

Roger S. Penske -- Chair of the Board and Chief Executive Officer

Well, Rajat, thanks for the question. I think number one, we will be opening, we have two really points that we're in the process of completing. One will be in New Jersey and one will be in the Phoenix market. And they would be operational hopefully both of them, one for sure by the end of 2020. In the UK and Nottingham, we have a site that is probably 75% completed. We would expect that would open mid-year and we have another piece of land in Stoke, which -- that we will be working on following the completion of the Nottingham site. So to me, we'll continue to build bricks and mortar from the standpoint of the supercenters. From a Sonic perspective, they have a different model, probably higher volume, lower margin. Because when you look at our margins today, we're in the 12% to 13%, and you compare that to the traditional used car business, which I think we were at 4.7%. So, we see this as a, is the way we want to continue. On the other hand, is there an opportunity to have an electronic opportunity to do the same thing where we don't have units and dealerships for the customers to view. So that's an opportunity in the future. But I would say that we're going to be on the same track. We are, and we can see that the profitability of these stores that we've opened, at least in 2019, it probably took 60 days to 90 days and they were profitable.

Rajat Gupta -- J.P. Morgan -- Analyst

Got it. That's helpful. And on the used side in the US, I mean it looks like in the fourth quarter, the variable gross per unit was down substantially, it was roughly 9%. I mean is that just a function of the new stores ramping up as you just highlighted or is it just trying to drive more volume and sacrificing some of the GPU there?

Roger S. Penske -- Chair of the Board and Chief Executive Officer

Well, I think if you're talking about the used supercenter gross, obviously in Q4 we had the opening of the stores and we don't have mature salespeople at that point, so we would tend not to -- tend to get full margin from the customers. But I think that's the same thing you would have seen in Bristol and the UK. So I think it's a mature sales force. And again, there's pressures. I think we have a little bit higher costs of acquisition to get the right cars we want. We're probably spending a little bit more in reconditioning and that would take away from some of that gross.

Operator

The next question is from Rick Nelson with Stephens. Please go ahead.

Roger S. Penske -- Chair of the Board and Chief Executive Officer

Hey Rick.

Rick Nelson -- Stephens -- Analyst

Hey Roger, Tony. So I know you've mentioned the UK cost $0.51 year-over-year, I'd like to get your crystal ball there and do you think it's possible that you could recover that decline in 2020?

Roger S. Penske -- Chair of the Board and Chief Executive Officer

Well, I think we really -- when you look at the UK, we really got to go back and think about Brexit and what happened to us -- during really -- it's the last 18 months, but it really became, really tougher when there was no decision mid-year in the UK. So when UK exited the EU in January, at the end of January, obviously lots of things happened and they have a year now to negotiate trade agreements with EU and other countries. And if, and they, I think they have a pause maybe in six months where they could push that out. But Boris Johnson, my understanding is, wants to be sure that he completes it at the end of the year. So what we've seen at this point, a much better business condition and we think there's consumer confidence and there's no question that people have a better understanding where they are and there is no more uncertainty. As we looked at January, our inquiry rates were up, our margins were up. And I think generally people feel a lot better with consumer confidence where it is. So, there's no question that we're going to see us back, hopefully back to a strong March, which is, it's really a registration month. So that'll give you a pretty good idea.

But we also have to look at Q1 of last year still was a pretty good year for us in the UK because we really hadn't seen the impact of WLTP, with the world light vehicle testing procedures, particularly on diesel. And you've seen diesel probably drop 25 basis points or 30 basis points during the year. And that really confused the marketplace, not only on new but also on used. So I think that's pretty much, been through the process. We had RDE, which is real driving emissions. And I think that the Brexit uncertainty really started in March. So, I think when we look at Q2, Q3 and Q4, we're going to really see some benefit. And quite honestly, we've probably got FX in our favor as we go into 2020.

Rick Nelson -- Stephens -- Analyst

That sounds good and helpful. I know the used car superstore business in the UK, there were some management changes there. I'm curious what the new team, some of the changes they might be making to improve the performance?

Roger S. Penske -- Chair of the Board and Chief Executive Officer

Yes. When we bought CarShop, we had a three year earn-out and the existing management team obviously took the role at that particular point. We made the decision toward the end of Q4 to move on with our own internal team. And that team, obviously the person Nigel Hurley, who's running that today, spent almost 15 years in our BMW brand and did a terrific job, our leading brand in the UK. And he's brought over a team of people that understand the purchasing side of the business, the pricing and also with big impact and focus on parts and service. And I think stock management, we'll bring our own people in on that because as we've grown now, it's no longer one or two locations, when you look at what we are going to be 10 or 12 as we go forward and I think that will make a big difference and to me focusing on procurement, the right pricing and the right vehicles. And then one other opportunity is we have Sytner net, which is a closed bid auction that we have about 4,000 people, I mentioned it on the call. And this is a great source for vehicles now for CarShop. They'll probably buy this year 20,000 vehicles out of say 50,000 that they'll sell. So this is a great resource along with buying from customers at home, than the normal auction. So, remember when we bought this business, there was no buying of any source of purchase from Sytner, so when we couple that together, I think we're going to see a really good year for us as we enter into Q2, Q3 and Q4.

Rick Nelson -- Stephens -- Analyst

That's great. Thanks Roger and good luck.

Roger S. Penske -- Chair of the Board and Chief Executive Officer

Thanks Rick.

Operator

We have a question from Armintas with Morgan Stanley, please go ahead.

Armintas Sinkevicius -- Morgan Stanley -- Analyst

Great. Thank you for taking the question. When we look at the used truck GPUs that came down from something around 5,000 to something around 500 and effectively in order of magnitude, how should we be thinking about that on a go-forward basis given the increase in used trucks supply?

Roger S. Penske -- Chair of the Board and Chief Executive Officer

Well, I think I mentioned before, at least in some conversations I've had here recently that with the 330,000 new trucks being sold, obviously, there's probably not a market growing too much, but those trucks are rather replacing which are now used trucks, which is going to put real pressure on the marketplace as they come in. And we're going to see that probably now for the next, I'd say 12 months to 14 months. So that's going to have an impact on our gross profit. However, we still have the ability of our finance and insurance products that really recap with that. And I think that at the end of the day, the availability of that is going to be, supply and demand and that's going to drive that. But to me at the end of the day, it's part of the cycle and we got to deal with it and we did that before, but still overall, our used business is a key part of the overall sales process because we have certain trades, we've got buybacks and other things that we're obligated to as we go forward.

Armintas Sinkevicius -- Morgan Stanley -- Analyst

Okay. And then profitability on the light vehicle side, both on new and used were quite strong. How much of that was maybe on the new side based on the exposure to luxury versus emphasis on profitability and some of the drivers on the used side will be helpful as well?

Roger S. Penske -- Chair of the Board and Chief Executive Officer

Well, I think when you look at new from our perspective, our margin actually went up from 7.3% to 7.5% and luxury went from 7.5% to 7.7%. So, overall, only place where we lost any margin was on domestic and it's a very small part of our business. And I think our team, I said at the beginning actually ending the third quarter that I wanted to beat same-store and I wanted to maintain the gross. And I think that we've always had strong grosses in the fourth quarter on the luxury side because it's a big lease market, probably 60% to 65%. And we are able to get our strong gross margins at that time. And I think that's one of the things that we saw during the year. Again, we had some divestitures during the year that had low gross profit, which also probably helped us in the quarter. And you look at Audi up almost 17%, Mercedes was up 13%, our BMW business was up 7%. So, and remember Porsche had been down for almost a year because of WLTP, so we had the benefit of Porsche margins during the fourth quarter because that volume picked up both domestically and internationally.

Armintas Sinkevicius -- Morgan Stanley -- Analyst

So, thinking about it going forward is sort of -- this is a run rate adjusting for seasonality going forward then?

Roger S. Penske -- Chair of the Board and Chief Executive Officer

Well, I think we got to look at Q4 and so we go into 2020 and we'll relate sequentially maybe to Q4 of '19 to Q1, I'm sure it will be down some because Q4 is always higher because it's the end of the year, certainly [Phonetic] the mix.

Armintas Sinkevicius -- Morgan Stanley -- Analyst

Appreciate it, Roger.

Roger S. Penske -- Chair of the Board and Chief Executive Officer

Yes. Great, thanks.

Operator

The next question is from John Murphy with Bank of America, please go ahead.

John Murphy -- Bank of America -- Analyst

Good afternoon, Roger. Just wanted to follow-up on the truck business, I mean, obviously, everybody is expecting there to be some pressure there on the volume side. This year, you have the fixed ops that will offset that. But will we also see opportunities avail themselves to make some really good accretive acquisitions with maybe some of the -- some of the dealers come under some distress or are more motivated to sell?

Roger S. Penske -- Chair of the Board and Chief Executive Officer

Well, when you look at our capital allocation. Obviously, we're looking for contiguous right brands on the car side and there's no question, we're limited to Freightliner through our agreement with them. But we see that as a real opportunity and we will be looking to make acquisitions. As you know, we built this business from almost nowhere [Phonetic] here few years ago and returns have been great. So I would say it's a positive, but again, this is a cycle. We're not burdened with a high capex in this business. It's mainly truck inventory and I think that the fixed cost coverage at 120% and in some cases some of our locations cover 100% of their costs, through their parts and service. And remember units and operation, when you look at Freightliner, Western Star and look at Thomas Bus, which we represent to the dealerships, they've got almost 41% of the heavy duty and medium duty truck market. So that's all parts and service, units in operation, which will help drive our fixed coverage. And that's why when you look at our overall business, 46% of all of our gross profit comes from parts and service. And in this business it's 65%. So I think it's a good, a really a good thing for us from the standpoint of support, we have some weakness in used trucks.

John Murphy -- Bank of America -- Analyst

Okay. And just a second question on parts and service on the light vehicle side? I mean, you put up almost, I think it was about 3% in the quarter. So it was a good quarter. But just curious how we should think about growth going forward, I mean, some other dealers have been talking about sort of mid-single-digit growth and they've had to do some backflips on getting human capital or the tax in. I'm just curious if there's an opportunity to maybe accelerate the growth there and what might be the gating factor for you?

Roger S. Penske -- Chair of the Board and Chief Executive Officer

Well look, I've seen some of the numbers coming out with the other players in the market. We're excluding exchange around 3%. And I think one of the areas that impacted us this year with two of our key BMW stores, big stores, we had two new open points, which obviously one in Austin and one in Phoenix, which had certainly an impact for us. And also BMW, which is our largest brand, reduced their maintenance plan for the customer from free maintenance from four years to three years. So obviously that had some impact on us from a parts and service. But I think that our plan really is to be single digit somewhere 4% to 5%, which I think will be normal in the market. But again, I'm not unhappy with the results. When we look at the growth out from a tech perspective, there's no question that we're all looking for the same individual. We're doing same thing on the sales side ironically. And certainly body shop, we see our technician, the age of our technicians in the body shop is growing. So we're really entering into an apprentice program to try to build that because it's a very profitable part of our business.

John Murphy -- Bank of America -- Analyst

Got it. Okay. And then just lastly on SG&A, and I apologize I missed the early part of the call, but it was a great performance in the quarter. I mean is there opportunity to take these -- take the ratio even lower below where it is right now at 79%? Would that be just a function of business mix or is there things you can do inside the new vehicle dealerships themselves?

Roger S. Penske -- Chair of the Board and Chief Executive Officer

Well, I think, one of the key things will be when you look at the UK -- remember we had -- I think we talked to you folks about a $20 million cost reduction in the UK. We'll probably see $3 million of that in Q1, there will be some increases in cost through rent and some facility increases in depreciation, but we'll see that. We also got to maintain our gross profit. I think our gross profit increased also when you look at the calculation support of that, but for us, particularly as we've looked at different areas of the business, docuPAD has allowed us to decrease some of our SG&A overhead as we do our financing across the network. And overall, when you look at -- we got more mortgages now. When you look at our business, remember, we had a lot of sale leasebacks as we returned to maybe out of that particular mode into more mortgages. That will help us from an SG&A. It probably impacts us about 500 points to 600 points today, just when you compare with the other peers we have.

Loaner cars is a big focus of ours. Also when you start looking at our loaner cars at 10% of our parts and service growth, we think there is a big opportunity there and also from the standpoint of collision repairs when we look at our -- when we look at that surrounding those cars we loan out. And we've got certainly back office efficiencies when you look at docuPAD. This is a asset that we really never knew how good it was until we started using it. We ended up with a little or no paper in the offices. We can access information from anywhere in the country with your phone. And to me that's going to be the future of the business.

John Murphy -- Bank of America -- Analyst

And maybe just to follow-up, Roger. As I recall, I think that SG&A growth in the commercial truck dealership businesses is in the mid to low 60% range. Is that correct? And as that business grows over time, it means that would sort of naturally drag down the total rate. Is that a fair statement?

Roger S. Penske -- Chair of the Board and Chief Executive Officer

Yes, 62.8%. So -- and I think I don't know exactly what it is in car sense, but I think it's probably in the 60s also in car sense. So to me that's --those would be good things when we look at it and when we start to bring all that together. So at the end of the day we can -- what Tony just said it's 67%. So, again, in 60s, when you start averaging that, that's going to give us some benefit to reduce it overall.

John Murphy -- Bank of America -- Analyst

Great. Thank you very much.

Roger S. Penske -- Chair of the Board and Chief Executive Officer

Thanks, John.

Operator

Our next question will be from Chris Armes with Buckingham Research.

[Operator Instructions]

Mr. Armes, please go ahead.

Chris Armes -- Buckingham Research -- Analyst

Hey, good afternoon, Roger. Congrats on the quarter.

Roger S. Penske -- Chair of the Board and Chief Executive Officer

Hey, Chris. Thank you.

Chris Armes -- Buckingham Research -- Analyst

If I can just touch on auto F&I, it looks like gross profit same-store was up about 10%. Could you just bucket the components of that growth? I know you have some of those internal initiatives and just kind of what's driving that? And also can you touch on what would be -- what you think is a sustainable growth rate going forward into '20?

Roger S. Penske -- Chair of the Board and Chief Executive Officer

I missed the question. You said F&I?

Chris Armes -- Buckingham Research -- Analyst

F&I same-store gross profit.

Roger S. Penske -- Chair of the Board and Chief Executive Officer

Yes. Well, I think, one of the initiatives is certainly the commitment we've had with docuPAD because this is a digital process now with the customer and it's much more formal. We have less mistakes. And the other thing is our contracts in transit have been reduced significantly, which gets us capital to fund our core planning. And on top of that, I said, we've taken up certainly some SG&A. And we think as we roll out across the country, we'll see that even better. When you look at our F&I penetration, only 38% of it's really financed, the balance is product. And with the docuPAD, it helps us to drive that penetration much better. And I think that's key for us as we go forward. I see us continuing to grow that with the efficiencies that we have. And remember today that most of our business is done with the captives when you look at that overall, probably about 67% overall are with the captives. And we do very little sub-prime, only about 6% this year was sub-prime.

Chris Armes -- Buckingham Research -- Analyst

Good, very helpful. And then secondly, just a follow-up on what you were discussing with being opportunistic in the commercial vehicle market in a down year. Can you briefly talk to kind of how big of a runway you have to grow within the brands that you sell right now?

Roger S. Penske -- Chair of the Board and Chief Executive Officer

Well, I think that we have a ceiling of -- I think 10% of their business and that's when we acquire something. I think our runway probably has 30% to 35% still available if we take those calculations at this point. So there's plenty of room. And I think -- remember they put that on when you start, I think the goal of Freightliner is to have less owners and then have a bigger scope, so they can invest. And I think that with our track record hopefully to date that would give us that opportunity, but that's always the question when you get toward the top of that cap they've given us.

Chris Armes -- Buckingham Research -- Analyst

Great. Thank you.

Operator

We have a question from Stephanie Benjamin with SunTrust Robinson Humphrey. Please go ahead.

Roger S. Penske -- Chair of the Board and Chief Executive Officer

Hi, Stephanie.

Stephanie Benjamin -- SunTrust Robinson Humphrey -- Analyst

Hi. Good afternoon. I was hoping you could just maybe provide a little bit of an outlook for the Penske Truck services business, nice growth that we saw really last couple of years, maybe what you're looking at as you kind of move through 2020. Any color there would be helpful. Thank you.

Roger S. Penske -- Chair of the Board and Chief Executive Officer

Well, number one, we had a great year. I think, our profitability went from $448 million, I think, to $492 million from an EBT perspective, which was a great increase year-over-year. We obviously had some slowdown in Q4 in the rental business because most of these new vehicles in the SAAR of 330,000 trucks got delivered. So the requirement to utilize our trucks probably was down. We also deflated knowing that this was going to happen. We took out about 5,000 trucks in Q4 and we had some lower gain on sale of those. So that had some impact on our percentage of the profit. We were down about $1.6 million when you look at it. But overall, you've got to look at all the components. Our full service lease and maintenance contracts that we have, contract maintenance, you can see, we're up -- in the quarter we're up 12% in the quarter, on full service lease contract maintenance was up 5% and we had logistics that had a very good increase. And all of those businesses have economic escalators and typically they are three to five year contracts. So we see that really strong with the growth. We have more customers and we'll have that as we roll into 2020, which hopefully will offset any smaller reduction we might have on the rental side. But one thing we're seeing with all of this mode of transportation where everybody wants to be in the overnight delivery business or same day, we're seeing a lot of interest in mid-range and light vehicles. That would be a Class 5, Class 6 and Class 7, that would be mid-range. So we see that really as an opportunity.

And during -- when you look at the last three months from the standpoint of Class 6 and Class 7 mid-range, they were up about 1.3% and the Class 5 and Class 6 were up probably about 5% and even the heavy duty was only down 13%. So, again, I see this business normalizing still with the opportunity from a retail truck perspective to be very positive for us because the mix of product that Freightliner has or Daimler has in their portfolio. And certainly, with a 41% market share, the repeat and referral should be very good.

Stephanie Benjamin -- SunTrust Robinson Humphrey -- Analyst

Got it. Thank you so much for the color.

Roger S. Penske -- Chair of the Board and Chief Executive Officer

Thanks.

Operator

We have time for one more question today and that'll come from the line of Derek Glynn with ConsumerEdge Research. Please go ahead.

Derek Glynn -- ConsumerEdge Research -- Analyst

Hey, guys. Good afternoon.

Roger S. Penske -- Chair of the Board and Chief Executive Officer

Hi, Derek.

Derek Glynn -- ConsumerEdge Research -- Analyst

Just had a follow-up on the stand-alone used. As you further scale that business, is there any need or appetite to establish your own captive financing units and similar to what CarMax has?

Roger S. Penske -- Chair of the Board and Chief Executive Officer

You can sit in the meetings with us if we've talked about this once we've talked about it 20 times and then we just don't have the scale at this point to be able to securitize the way CarMax does in the marketplace. And we think that staying with our captive providers that we have today in the banks and people we have as our premium providers for financing and leasing, that's really what we have at the moment. This might change as we get real scale on the used car side, can we carve that business out and become a -- have a finance company. But at this point, I'll be honest with you, I don't see a lot of traction on that within our board right now. A lot of the people have had experience in this area and I think CarMax has done a terrific job in setting that up. And of course their scale drives that every day. But I think it might be hard to start from scratch right now. It might not be a focus. We might want to put our capital into something else.

Derek Glynn -- ConsumerEdge Research -- Analyst

Got it. And then Roger, I just wanted to get your pulse on the auto credit environment broadly, if you've seen any changes in credit availability or any irrational behavior from lenders?

Roger S. Penske -- Chair of the Board and Chief Executive Officer

Well, as you know, we're utilizing our captive finance companies, but I've seen no weakness at the moment from the sources we use, credit really remains strong and there's really very, very competitive pricing at all levels. And to me, we've seen no reason not to extend credit, I think because of our -- at least when we look at the demographics and the credit scoring of our premium customer, we see almost 90% approval rate as we go forward. Obviously, the captives are very important. And to me, I don't see much zero financing at this point. Right now, I think, we see more rebates. And we only -- we have less five -- only 5% of our volume is 84 months. So our customer -- because the leasing in the premium side, we see that as a say maybe a 24 months to 36 months. But right now we don't see any reason for pulling back the captives. Plus we got unemployment lower. People have got their jobs. They've got income. And I think there's a very, very -- very much the residual values that they're putting on these quite honestly are very -- are very aggressive in some cases to make it very attractive to buy a vehicle today. So I don't see anything right now that I would be concerned about. At least right now, we'll maybe see something later at the end of the year.

Derek Glynn -- ConsumerEdge Research -- Analyst

Got it. Thanks guys.

Roger S. Penske -- Chair of the Board and Chief Executive Officer

Thank you.

Operator

I'll turn it back to the Company for closing comments at this time.

Roger S. Penske -- Chair of the Board and Chief Executive Officer

I just want to thank everybody for being on and thanks for the support and we'll see you after the next quarter. Thank you.

Operator

[Operator Closing Remarks]

Duration: 43 minutes

Call participants:

Anthony R. Pordon -- Executive Vice President, Investor Relations and Corporate Development

Roger S. Penske -- Chair of the Board and Chief Executive Officer

Rajat Gupta -- J.P. Morgan -- Analyst

Rick Nelson -- Stephens -- Analyst

Armintas Sinkevicius -- Morgan Stanley -- Analyst

John Murphy -- Bank of America -- Analyst

Chris Armes -- Buckingham Research -- Analyst

Stephanie Benjamin -- SunTrust Robinson Humphrey -- Analyst

Derek Glynn -- ConsumerEdge Research -- Analyst

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