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Penske Automotive Group Inc (NYSE:PAG)
Q3 2020 Earnings Call
Oct 22, 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 Third Quarter 2020 Earnings Conference Call. Today's call is being recorded and will be available for replay approximately one hour after completion through November 4, 2020, 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, Jason. Good afternoon everyone, and thank you for joining us today. Our press release detailing Penske Automotive Group's third quarter 2020 financial results was issued this morning and is posted on our website along with the presentation designed to assist you in understanding the Company's results. As always, I'm available by email or phone for any follow-up questions you may have.

Joining me for today's call are Roger Penske, our Chairman; J.D. Carlson, our Chief Financial Officer; and Shelley Hulgrave, our Corporate Controller. Our discussion today may include forward-looking statements about our operations, earnings potential, outlook, future events, growth plans, liquidity, and assessment of business conditions in light of the COVID-19 pandemic. We may also discuss certain non-GAAP financial measures, such as earnings before interest, taxes, depreciation and amortization or EBITDA. We have 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. 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.

I would now like to turn the call over to Roger Penske.

Roger S. Penske -- Chair and Chief Executive Officer

Thank you, Tony. Good afternoon everyone, and thank you for joining us this afternoon. I'm pleased to report all-time record results for our business. In the quarter, earnings before taxes increased 97% to $312 million. Income from continuing operations increased to 112% to $246.5 million and related earnings per share increased to 116% to $3.07. After excluding a tax benefit from various U.S. and foreign tax legislation changes, adjusted income from continuing operations increased 99% to $231 million and related earnings per share increased to 102% to $2.87. Foreign exchange benefited earnings in the quarter by $0.05. Obviously, this outstanding performance was driven primarily by a 170% increase in Retail Automotive segment income, as new vehicle, used vehicle, finance and insurance and fixed operation margins all expanded.

Our SG&A expense declined $29 million in the quarter, and SG&A as a percentage of gross profit improved a 1,010 points to 67.3%. Our success in this year can be attributed to a reduction in travel and entertainment, advertising, vehicle maintenance, administrative costs and personnel costs. We initially furloughed approximately 15,000 employees or 54% of our workforce in March. At the end of the third quarter, approximately 3% remained on furlough, we've reduced our headcount by 14% as of today our 3,700 people to approximately 23,000 worldwide. Through the above efforts, we estimate approximately a $125 million to a $150 million in cost have been reduced across our various businesses. During the first nine months we generated $846 million in cash flow from continuing operations. Our net capex expenditures year-to-date were down $87 million when compared to the same period last year.

During the quarter, we repaid our $300 million, 3.75% senior sub-notes at maturity and we refinanced $550 million of the 5.75% senior sub-notes by issuing $550 million of new notes at 3.5% due in 2025. We use the proceeds from the new notes to redeem $550 million of 5.75% notes due 2022 on October 1st. In the interim, we utilized the proceeds from the 3.5% senior sub-note temporarily to pay down our floorplan, U.S. revolver, and mortgage revolver balances. We estimate the repayment and refinancing of our subordinated notes will reduce future interest expense by approximately $17 million annually. As of September 30th, debt to capitalization was 42.7% compared to 45.6% at December 31st. On a pro forma basis on October 1st, we have $1.95 billion of non-vehicle debt, which is down approximately $407 million from December 31st.

Let's look at the balance sheet at this point. It's in good shape. Total inventory is $3.2 billion down $1.1 billion from December last year. New vehicle inventory is down approximately $800 million, used vehicle inventory down approximately a $100 million, and our commercial truck inventory is down a $150 million. Our days' supply on new is 45, a days' supply on used is 40.

Let me now turn to the quarter, and give you the performance on Q3. In Q3, Retail Automotive segment income increased a 170% and was driven by an increase in gross profit per unit retailed, selling general and administrative expense reductions, lower interest cost due to reduction in inventory, and overall lower debt levels. Total same-store new and used unit retail declined 4.5%, retail automotive same-store revenue increased 3.6%, and same-store gross profit increased 15.3%. For the quarter same-store retail automotive variable gross profit per unit increased $935, or 29% to $4,156.

Let me move on to our Used Vehicle SuperCenters business. We operate 16 locations during the third quarter. The SuperCenters sold 18,372 units at an average selling price just under $16,000, and we had a return on sales of 4.5%. The average SuperCenters sold approximately 1,100 units and earned $1 million in the third quarter. Through improved sourcing and inventory management, grosses per unit increased $618 per unit, or 35% to $2,378. The improved sourcing as a result of using our scale in the U.K. is approximately 40% of our sales are from inventory acquired through -- internally through our online auction. While in the U.S., Buy Your Car Now purchases increased 47% and represented 14% of our total vehicles sold.

As we look at expansion, we opened two locations in '19, both had successful openings and outperformed our initial expectation. The Glen Mills store in Pennsylvania forecast to retail approximate 1,800 units per year. The Bristol location in the U.K. is forecasted to retail approximately 3,000 units per year. Both stores were profitable in their third month of operation.

We have six additional sites planned with four under development, two in the planning process, which will increase our store count by 40%. We'll open up Nottingham store in the U.K. in December and Brunswick, New Jersey will open early in Q1 2021. We forecast SuperCenters will retail 80,000 vehicles in 2021 and a 100,000 vehicles in 2022.

Let me move on to our digital initiatives. We continue to grow, expand and enhance our digital footprint including the introduction of new tools and technologies. We currently have 50,000 vehicles online our digital channels, while our efforts in the U.S. represented 52% of our unit sales in the third quarter. Our multi-channel marketing approach focuses on personalization, creating connection with our customers. Further, our fully F&I process through docuPAD continues to drive higher F&I income with no physical exchange of documents.

A key component of those efforts is our preferred purchase, our digital retailing system here in the U.S. Preferred Purchase represents flexible car buying and can accommodate a customer wherever they are in their buying journey. Using our digital signing room many customers can sign documents digitally to complete the transaction 100% online.

In the U.K., our digital used vehicle pilot buy online has now facilitated over a thousand customer transactions since launching in May.

In the quarter, approximately 2% of our sales were completed by either using our Preferred Purchase tool our online buying tool in the U.K. We also are working on a new digital retailing initiative enabling by new technology that will automate the online buying process, strengthen our brand and enhance our future investment. We continue to focus on an omnichannel business model.

Turning to retail truck dealership business, we operate 25 medium and heavy duty dealerships across the U.S. and Canada. During Q3, we sold 4,480 new and used trucks compared to 2,836 in the second quarter representing a sequential improvement of 58%. For the third quarter, same-store retail unit sales declined 15.5%, which compares favorably to the North American Class 8 truck market, which declined 31% during the same period. In fact, North American Class 8 market appears to be stronger than originally we had expected.

Retail sales are expected to be 225,000, which is up from a 150,000 previously expected this year. In Q3, our revenue was almost $600 million and we had a return on sales of 4%. Our service and parts operations represented nearly 72% of the total gross profit and our fixed cost absorption was a 137% in the quarter. Right now freight -- the freight market is strong. We expect this will provide strong tailwinds to our commercial truck and truck leasing businesses, as we go forward in Q4 and 2021.

Turning to PTS, Penske Transportation Solutions in Q3, PTS generated $2.3 billion in total revenue and income of $222 million or 9.6% on sales. As a result, our equity earnings were $64.5 million up 53% compared to Q3 of last year. Full-service leasing and contract sales are up year-over-year, rental demand continues to improve after utilization rates in the rental fleet declined to the low-60s in the second quarter, our utilization is now returned to over 85%.

In logistics, all of our automotive customers have returned to operations. Grocery and retail volumes are operating at a higher than previous expected levels. We expect operation to remain strong for the foreseeable future. This is a point, additionally PTS completed a bond offering this week, securing $750 million in notes for five years at an interest rate of 1.2% all-in reflecting the quality of our company.

Turning to Australia. During the quarter, Penske Australia generated a $123 million in revenue and a return on sales of 6.8%. I'm excited about the opportunities we have in this market for future growth and profitability, especially in the mining, energy and defense sectors. The Australian government has budgeted over AUD500 billion in defence spending over the next 10 years. We have contracts to supply power systems equipment and service for offshore patrol vessels, combat vehicles, frigates and submarines. In addition, we recently signed contracts worth a $120 million to supplies power system engines to the key mining operators.

In closing, I'd like to thank our team for their significant work and effort during these unprecedented times. As I look forward to the future I remain confident about the opportunities I see across our diversified enterprise. Our disciplined approach to cost reductions of a $125 million to a $150 million will help drive expense leverage in future periods. Retail automotive remains strong and our SuperCenters business are focused on driving significant growth to new locations and our goal to reach a 100,000 units in 2022. The commercial truck business is poised to benefit from a recovering marketplace. There are many new opportunities on the horizon for our Australian businesses.

Let me thank you for joining us on our call today and I'll turn it back to the operator for questions.

Questions and Answers:

Operator

[Operator Instructions] Your first question comes from the line of John Murphy from Bank of America. Your line is open.

John Murphy -- Bank of America Merrill Lynch -- Analyst

Good afternoon, Roger.

Roger S. Penske -- Chair and Chief Executive Officer

Hey, John.

John Murphy -- Bank of America Merrill Lynch -- Analyst

Couple of potential growth questions first. On the used business, as we look at this with the the SuperCenters even what you're doing in your franchise dealerships, what you got with Penske Transportation Solutions and what you're doing online, it just seems like you have a lot of the puzzle pieces that some of the other sort of pure online used vehicle retail start-ups, if you will, have. And you haven't quite knit them together at least publicly with us. Is -- what are the efforts and the opportunity there over time? I know you're growing the physical footprint by 40% but as you look at this, I mean you just got a lot of pieces and it just seems like other folks are maybe tying up in a neater bow than you are or actually going after it a little more explicitly?

Roger S. Penske -- Chair and Chief Executive Officer

Well look, let's first start. We really have a two-pronged approach, I'd have to say. Number one, let's call a bricks and mortar with our SuperCenters and obviously that we're looking at our new-to-use ratio at 1.3-to-1. And when you look at the number of units 70,000 we sold in the quarter a portion of that obviously was through our SuperCenters. And I think we'll continue that approach, John. And with the new technology and the things that we're working on we need to also pivot and have an online, pure online that we can market the brand and approach as we go forward.

But as we all know, we can't go all the way without using outside tools from the standpoint of delivering a pure online delivery, and that's something that we're focusing on. And I think that we got to look at our customization, how we personalize it in certainly creating a connection for our customer all the way through the journey. Now one of the things that we're looking at and we'll pilot probably here over the next couple of months, maybe into the first quarter would be to have a pure online model and have a test sites that we can look at. But one of the things that I'm looking at that we have a thousand locations across the country that are connected with Penske Truck Leasing or PTS.

It would be very easy to use those from the standpoint of delivery locations across the country. So I feel that a customer coming to a location to pick up his car that he bought online versus maybe have a truck show up at his front door, might be different in a better personal experience. So we're looking at that, we're going to pilot it in certain areas and then I think that we'll be able to be more open on exactly what we want to do from a functionality standpoint and the technology that we would use going forward. So I think you're right, but we're not behind. I think we're just trying to come out with the fastest car when we come out.

John Murphy -- Bank of America Merrill Lynch -- Analyst

That's incredibly helpful. And then, when we look at PTS, that bond offering of 1% was indicative of very low cost of capital for PTS as well as PAG. I'm just curious, as you have access to capital, the way that you do in PTS and PAG. Are there any plans to go out and maybe raise even more sort of incremental growth capital to drive the businesses, or through the internal organic cash generation?

Do you think that you have kind of all you can handle somewhat responsibly on growth going forward? Because it just seems like there's free capital and that I often means an entrepreneur like you can -- can really go out there and really create some pretty good growth?

Roger S. Penske -- Chair and Chief Executive Officer

Well, I guess we got to look at. If we generate net cash for the year between $400 million and $500 million, now whether we can duplicate that in 2021, I'm not sure. But on the other hand, the Fed has said interest rates are going to be low for a while. I think, I would pause right now with the COVID situation. And also, when we look at what's coming up in the election, what are the taxes going to be, what are the other things.

And there might be real opportunities for us to buy things that are adjacent to us, retail dealership, truck dealerships, and also obviously we're looking at acquisitions at PTS. So we're still going to be in the growth mode from a purchasing standpoint, or buy because we've got $1 billion in '18 and $1 billion in '19.

And I think that the cash flow is so strong at the particular time when we want to continue to pay-down our debt to keep our interest cost lower, but obviously gives us a strong balance sheet and we can pivot and make a considerable acquisition if we'd want to. So I think that being safe and secure right now from my perspective, certainly doesn't hurt us. But if something comes up that we need to move on, we can move pretty quickly.

And just the street itself, when you look at the interest in the company and I've realized that's PTS not PAG, but we own a third -- our 30% of that through PAG, gives us a strong indication of what people think about our paper and would give us flexibility. So again, as take our interest cost down my goal is to have our debt probably in a position where we go back almost to '16 or '17 and we'd be in a position to be equal to where we were then, which obviously would be positive going into '21.

John Murphy -- Bank of America Merrill Lynch -- Analyst

And then, just lastly. Thank you for that. Real quickly on SG&A cost. I mean, this cost reduction is very impressive. I'm just curious if you -- or do you think, how much of it do you think is truly sticky and permanent? And how much of it is a portion of variable sales comp that might come back over time?

Roger S. Penske -- Chair and Chief Executive Officer

Well, we have variable sales comp, so as grosses come down, obviously, the compensation would come down. And I think that when we look at cost reductions what we are seeing is by reducing our sales force we've been left with the best sales people and what we're getting is better productivity from a sales perspective.

And quite honestly, that's helped us not only from a growth perspective, but a quality of sale and other things. The same thing we're getting productivity from mechanics, but I see personnel being pretty solid. We have 3%, which is about 600 people still out. John, I think we'll see probably a good portion of those come back, but there'll be time back as we need them. But I think on the major issues we've got back. So I would say personnel will stay pretty much solid.

I think from an advertising perspective, I think that we will be able to continue to have that at a lower rate, as we use our digital tools and vehicle maintenance is a big area. Because based on our ability to get -- cars to the shop quicker with our more experienced people, less loaner cars, less vehicle maintenance, better quality less policy for our customers.

And then, again our T&E, when you think about travel and entertainment using the Zoom and where we're all using today to connect will reduce that significantly. I'm not sure what it was in the quarter, but I know it was several million dollars. So that should be, that should be able to give us some confidence that we can move the SG&A in an area where it is. And I think right now at 67% we looked at a model, if we took $500 to a $1,000 off the gross profit, it would move us probably into the 70%, 71% or 72%. So as we look at the model I think that we're pretty strong and where we're going to be on our cost reduction as it affects SG&A.

John Murphy -- Bank of America Merrill Lynch -- Analyst

That's very helpful. Thank you very much, Roger.

Roger S. Penske -- Chair and Chief Executive Officer

Thanks, John.

Operator

Your next question comes from the line of Stephanie Benjamin from Trust. Your line is open.

Roger S. Penske -- Chair and Chief Executive Officer

Hi, Stephanie.

Stephanie Benjamin -- SunTrust Robinson Humphrey -- Analyst

Hi, good afternoon. I wanted to touch a little bit about your commercial truck dealers, dealer business. In particular, you made a comment Roger, that expectations for units are now about 225,000 for 2020. I'm curious because I'm also seeing reports where there are some constraints in production on the OEM's front.

So maybe if you could talk a little bit about the supply and demand side of that business in the current environment?

Roger S. Penske -- Chair and Chief Executive Officer

Well, if you look at the numbers for September, the orders were 30,000. If you annualize that that will be 360,000 so there's definite demand out there. I know that Freightliner, they're back up to capacity. Some of these supply chain, however, is not kept up with the demand. So a lot of these fleets maybe that we're pausing are now coming back into the market, which is a good situation for us from the standpoint of our retail truck business.

But to me, I think there'll be some constraint on supply base, really not because of production at the OEM that's more because of supply chain, and we look forward to a good market in '21. As we're seeing, people coming in and really people who'd canceled orders at the beginning of the year, because the lower expectation they're now coming back and placing those orders back. So I think we're on the right side of the curve right now.

Stephanie Benjamin -- SunTrust Robinson Humphrey -- Analyst

Great. Thank you so much. And then switching gears, I wanted to talk a little bit about the U.K. business. May be you can speak to how that performed? And how that business progressed throughout the quarter? What you've seen thus far in October? I mean, how you feel as it positioned?

Roger S. Penske -- Chair and Chief Executive Officer

Well, let's really look at July, August and September. I think July, probably had some pent-up demand. Remember, we were closed almost for two-and-a-half months there when you look at the business. So probably some pent-up demand in July. The VXE goes down in August, because it's looking forward to the registration month that's in September.

But when you look at the market during the quarter, the market was down 3.4% and we were up 7% when you look at the brands that we represent. So we outperformed the brands and we outperformed the market. So I think it was pretty much you homogenize the three months. And we think that overall, we had a very good quarter.

Now, you won't have the same bang in the fourth quarter, because we don't have the registration month, we look at March and we look at September. But I think the overall, when we look at the future, we're getting some COVID hits in certain parts of the country, which obviously we know how to handle.

If we have that internally in our business and also Brexit hangs out there. But it looks like at this particular time from a Brexit perspective, they're continuing to talk about it. And hopefully, they'll have some confidence in what they were. They come up from the standpoint of the negotiations and a trade deal. But a deal is in the both interest, of both sides to strike to the original question. And I think there might be a moratorium on tariffs. They're talking about -- looked like Canada -- look like Australia. The OEMs going to mitigate some of this if there is a tariff. Those are the things I think that we have to look at going forward. But at this point, it's not disrupting any of the -- any of our business. So we look for a good October, November and December.

I think that our used car business will certainly outperform what it did last year our superstores. So that should give us a positive quarter based on where we are today, what we can see through the windshield.

Stephanie Benjamin -- SunTrust Robinson Humphrey -- Analyst

Got it. And then, lastly, a high level. I'd love to hear your thoughts Roger, about kind of the state of the new vehicle market here in the U.S. A lot of conversations about production constraints as well on that side. Maybe your thoughts on when do we think the -- we think inventory levels will start to ticked back up again? And then, what that might mean for just the strength of the used market?

Roger S. Penske -- Chair and Chief Executive Officer

Well, look, let's just talk about we just saw a note come across here in the last few hours that Toyota now is up to 94%. So they're not even at a hundred percent, that's their plants here in the U.S. We see a short supply, obviously through Q4 going into 2021 on the premium luxury side where we're pretty much placed. And I think, we're going to continue to see that. The thing is to get the right mix that's the vehicles that we could sell. But there is no question, overall, trucks and SUVs are certainly to -- really hard, still hard to get, and those are the premium vehicles that we make our money on. I would say, we're going to have a supply pressure to get the vehicles we want, point number one. Then on the other hand, from a market standpoint, I think we got to think a little bit socially, what's really happening with the vehicle market and personal mobility. One of the things we get the benefit of is, we've being in Penske truck leasing and solutions. As we see what's going around with the mobility of the public of people living in different parts of the country, Portland, Seattle, San Francisco, Los Angeles -- Detroit, New York, and some of these cities we can't get enough trucks back into those cities in order for people coming out, so there's definitely -- and we can look at it day-after-day that people are moving out of the metro areas, out into the country, out into other areas, because we're seeing it from our truck demand perspective.

In fact, if you have -- wanted truck to go to Chicago from Cleveland, we probably can rent it for a $1. I mean, these are the things we're doing to try to determine what the demand is. So I think that's going to drive the personal mobility a different way, which should create some more demand in used cars and also new cars now, not high luxury cars, but I mean cars that we would use on a daily basis if you needed transportation. Because, I think combined transportation where two or three people are together works in a -- public transit, whether it's a rental car, whether it's Uber or Lyft. I think there is some softness in those businesses, which will drive more automotive sales for us both in new and used.

So, I think these are things that personal use will be help us drive a bigger part of the share of the auto business in the future. And I could be wrong, but there is definitely a flight to safety I think, because some of the issues that people are dealing with in these bigger cities. Maybe that's not a good answer, but it does gives you some insight.

Stephanie Benjamin -- SunTrust Robinson Humphrey -- Analyst

No. That's really helpful. And I think if you remind. And I think you've said this in the past. Did you give the percentage of the -- your locations that are located in suburban areas, or if you could provide something along those lines to quantify any of that?

Roger S. Penske -- Chair and Chief Executive Officer

Yeah, we haven't, but we would not have businesses that are located inside the big cities. Maybe, there's a few, but I think about San Francisco were out by the airport. We're really well placed because when you're in the truck leasing business, we need to be closer to the interstate and the highway, so we wouldn't be down in some of that -- the deep metro areas. Now we have a few that would probably a legacy locations, but we can get that for. I'll give Tony to get that for you.

Stephanie Benjamin -- SunTrust Robinson Humphrey -- Analyst

Got it. Thanks so much everybody.

Roger S. Penske -- Chair and Chief Executive Officer

Thanks.

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

Thanks. Yeah.

Operator

Your next question comes from the line of Rick Nelson from Stephens. Your line is open.

Roger S. Penske -- Chair and Chief Executive Officer

Hey, Rick.

Rick Nelson -- Stephens -- Analyst

Thanks. Good afternoon, Roger, Tony.

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

Hey, Rick.

Rick Nelson -- Stephens -- Analyst

Two questions for you here about supplies. You got into those a little bit. As they normalize where do you think the GPUs and the expense ratios would shake out? Do we go back to pre-COVID levels? How are GPUs are now potentially going to be at a higher level as we move forward?

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

Well, I think what we really have to look at that there will be with more inventory there is no question. If you don't have the right inventory then you're going to be selling vehicles just to dispose them, because the OEMs has made you take them. And I can't -- I don't want to comment on what the OEMs posture is going to be in Q4 and into 2021. But I think, Internationally, we see good discipline, not setting targets that are unrealistic. Because I think the OEMs and I hope the dealers have longer memories that we don't need to give cars away and we can get these margins that we've been getting.

Obviously, we've been up about 800 on both new and used when we look at it across the board. So for me, I think that there'll be some deterioration. There is no question, can we be at this level, the answer probably is, no. So from an SG&A perspective, we're going to have to be sure that we maintain the cost outs that we've taken. So I think, overall, we did a test. Tony did for me, looking at a $500 and a $1,000 reduction in gross margin and I think it adds probably about 300 basis points to our SG&A if you look at it based on the current situation.

Rick Nelson -- Stephens -- Analyst

Okay. Got it. That's helpful. So you're thrown out a lot of free cash you've been after the balance sheet, reducing that you pulled a lot of cost out. Should we expect more or the same that you're going to continue to plow that free cash into reduce debt levels. I recognize, you got a new reinstated the dividend, so that all, could use up you have some of the cash but your plans there. Do you think up a while before we see acquisitions or do you think are more eminent?

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

Well, I think, really, we were certainly not at in no acquisition mode when we started 2020. But when we got to mid-March, we put our pencils down and said, at this point, let's look at liquidity. Now let's look at the marketplace and look at our balance sheet. And there is no question at that point, that we did that. And furthermore then we looked at how could we reengineer our balance sheet from the standpoint of the debt we had I think, we successfully, our finance team has been able to take that down and -- we're seeing that we'll see the benefits next year.

Now, from the standpoint of generating $300 million to $400 million to 500 million of net free cash flow, now our dividend is back, our 401(k) is back, so that will utilize some of them. I think our capex still be well controlled next year, so that will give us additional capital to utilize. But to me, we got dividends, we've got other things that we can do. Share buyback, these are all areas -- our leverage of opportunity, but we're going to continue to invest in the used car SuperCenters as you know. And I think when we look at those, we've traditionally, if you look at the quarter, they generate probably somewhere around $3 million to $3.5 million. So the return is about 25% on a $10 million to $12 million investment.

So that's certainly is an area that we're focusing on and want to execute. We cannot execute, however, at the speed of some of our other peers, we just can't, because we're building larger sites that have reconditioning, have service, because we want it to be sticky to get repeat and referral. And then we're going to invest in our digital, the pure online piece, which is going to be more technology and obviously we'll take some of our capital. But I would say this, if there is anything that's out there, that fits our model meeting key brands that we already have, markets where we have scale.

And certainly from a retail truck perspective the fact that we have this footprint today, we're very interested to grow that. So we would look at all of those as opportunities. But we're in a position to be able to go to the market even get more capital if we have to.

Rick Nelson -- Stephens -- Analyst

Great. Thanks. And finally, if I could ask you a near-term question. How October sales might be tracking?

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

I would say that October sales. It's a hard time this time in the month to say where we're going to be. I think we came off of a very hot September. We are absolutely out of vehicles right now, which -- so if you looked at our numbers, we probably would look like were down somewhat, but single-digits, obviously. Some brands might be more because we're just out of vehicles. So I think it's too soon to really tell you where that's going to be, but everybody has talked about availability. And I think I don't need to go over that again.

Rick Nelson -- Stephens -- Analyst

Presumably GPU is rock solid. Thanks, a lot. Appreciate it.

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

Yeah. Thanks, Rick. Yeah.

Operator

Your next question comes from the line of Rajat Gupta from J.P. Morgan. Your line is open.

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

Hi, Rajat.

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

Hi, good afternoon. Hi. Good afternoon, Tony, and good afternoon, Roger. Thanks for taking my questions. A just sort of a broader question on electric vehicles. How do you think the dealer channel is likely to be impacted going forward, as more of as these OEMs start to offer a one price no more other vehicle new to their websites. I mean, how do you think this could change your profitability profile on the new vehicle side?

And I'm assuming services will still be a key source of income. But just on the new vehicle sales profitability, do you see any disruption, maybe more efficiencies? GMC -- GM yesterday talked about trying to make some changes in the channel. So just curious, as to how do you see this playing out? And I have a follow-up. Thanks.

Roger S. Penske -- Chair and Chief Executive Officer

I guess you'd have to say it's taken Tesla $20 billion or more to get where they are today to get to profitability. I think it's very difficult and they have a complete from top to bottom, meaning when you look at the total journey from manufacture to delivery to service and they're not using a franchise network. At this point it would be difficult with the franchise laws we have in the U.S., I think that it would be difficult to go on a full-scale. Now maybe there is leverage that you have that I don't know about, but I think the GM would utilize the dealerships that would qualify to sell certain vehicles and there might be stipulations which you have to have for electrification and other things that I might not have in order to qualify. But from our perspective, these are all low volume. And remember, all of these boutique brands that are coming out excluding maybe a Hummer, but when you think about it if you sell 10 or 15 or 20 or 25 a month, you have no parts in service, you got to have a facility and then you think about the OEM having to support that either directly, it's going to take a lot of capital. And I don't think they're going to get the return that you would expect.

So to me, I think that overall each are going to be boutique at the moment when we look at electrification and where it's going to be in 5 or 10 years, still with 300 million vehicles in the car park I think it's still going to be a long time before we see it 30% or 40% of the market. We're investing in electrification. We think that there is some very good vehicles out there, but they're typically high price. If you look at the premium luxury people primarily we're seeing maybe other than Volkswagen, we're seeing these high price large infrastructure. And again, what's the residual values on these? And if these new entrants, where are they going to have a captive finance company? Who is going to support the residual? So there's lots of questions before I think you're going to go to a separate channel.

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

Fair enough. Thanks for that. And just on the used SuperCenters. You you gave us some numbers around the economics of the stores and how they're tracking. You're in the third quarter, it looks like meaning the return profile here is around 20%, 25% for the used SuperCenters. Like one of your peers that also has a stand-alone business, they've talked about returns like above 30%, 55% or so. Just curious as to what the difference might be? Why you could replicate something like that, or are we missing something there? Just curious, as to your thoughts on that and then you...

Roger S. Penske -- Chair and Chief Executive Officer

I think...

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

Sorry.

Roger S. Penske -- Chair and Chief Executive Officer

I think what we have to do is maybe some of the peers are using existing sites that they already have and they're repositioning those. These might be previous dealerships, as some of these used car sites. We have a different path. As we say bricks and mortar we are going to have significant sites that have the ability for service. I think I mentioned it before and also reconditioning and they'll be larger. So to build them it takes at least a year, and we think two to three to four months, they're profitable and I think overall, we will continue on that path. I don't want to over-commit and then not come back with the profitability, but we've seen it.

Remember, we've got a mature and I'd say not mature, but a business that we've been running now for the last three years and growing, and it's been consistent. I think a bigger thing that we have to look at longer term is acquisition. No ones talking about acquisition now, everybody's talking about how great this business is, but with acquisition, it's going to get tougher. The only benefit there is the residuals will go up on use will help finance companies help our OEMs. And again we'd be able to still get the margin or we bumping against new car prices on some of the lower vehicles.

So to me at this particular time for me, I think 25% return certainly it would be good if we can sustain that and do it on a proper basis. I don't think that overall that we can grow at such speed at somewhere unless we have a bunch of business locations that we're not using, certainly when you look at the size that we're building in some of the locations. And you've seen CarMax has been very, very successful from the standpoint of building their network around the country. They have a few smaller stores, but in most cases these stores hold 300 to 400 to 500 vehicles and that's kind of our model, both internationally and domestically.

So again, when you look at a 100,000 vehicles that we'll sell through our SuperCenters now in 2022 and now we can grow from there. And I don't want to start forecasting three, four and five, because I want to know what's going to happen, what's going to be the new norm in transportation, etc, as we go through November and into 2021.

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

Understood. Makes sense. Thanks a lot and good luck.

Roger S. Penske -- Chair and Chief Executive Officer

All right, Rajat, thanks.

Operator

[Operator Instructions] Your next question comes from the line of David Whiston from Morningstar. Your line is open.

Roger S. Penske -- Chair and Chief Executive Officer

Hi David.

David Whiston -- Morningstar -- Analyst

Hey, Roger. Hey, Tony.

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

Hey, David.

David Whiston -- Morningstar -- Analyst

Just, I'll keep the questions first one on service. It seems like for all the dealers it haven't come back yet, or at least haven't come back to the point that it's incrementally positive year-over-year in the orders. There must be huge pent-up demand, do you agree with that? And when do you see customers coming back?

Roger S. Penske -- Chair and Chief Executive Officer

Well, I think we've got to look at miles driven. My understanding from the data that I'm looking at at some place is up in the north -- northern, western part of the country where miles are down, some of that's the fires etc. But again that's going to have some impact on it. We know for sure that our parts and service business is down. If you look at the aggregate of all the pieces, customer pay warranty and get ready in body shop. Body shops are off for us about 20%. And I think until we fill that work in process we'll see that continue to be a drag on our business and the impact of fires in California we know had impact. But again, the number of people we have work -- people are working at home, obviously will be a different social change for us when we look at miles driven, but for us what we've been able to do is take the level of service and take cost out and get more productivity. And I think that's going to be key, as we go forward, not knowing exactly what miles driven will be, but I guess we'll get more data on that over the next few months.

Our warranty was flat and our customer pay was down about 2% for the quarter.

David Whiston -- Morningstar -- Analyst

Okay, thank you. And then there's been some public comments recently about a concern on a impact of a no-deal Brexit. I think it was Mercedes in particular that raised an alarm recently. Is there any kind of EPS estimate you could get for 2021? Should there be a no-deal Brexit?

Roger S. Penske -- Chair and Chief Executive Officer

I don't have any data now. I'd get Tony to maybe get with you and try to come up with some of that. I think we're going to look if there is tariffs. I think that the opportunity obviously is the OEM, is the customer. We as dealers is going to take a part of that. But remember in the U.K., 68% of our business is used cars where 2-to-1 so when it comes new-to-used or used-to-new so we're talking about 32% of our business that could be impacted. So just touched that away. So I think we got somewhat of a cushion when we look at that. And there might be I -- situation where the OEMs even mitigate that increase and maybe the customer is going to take part of that too. Remember, we're premium luxury and we've had higher cost because of Gasoline, Guzzler and other taxes that they've been able to swallow without any real issue at this point.

David Whiston -- Morningstar -- Analyst

Okay. And the question on a new -- New Vehicle segments so that's kind of developing now is just premium, all electric pickup trucks. We have the Hummer unveiled this week as, you know, which in my opinion looked great, but there's also Rivian, Bollinger and Tesla in this space. I mean, you're really in touch with the premium luxury customer? Do you think there's a lot of demand for this vehicle segment if they're very expensive, just love to hear your thoughts on that segment and on the Hummer itself.

Roger S. Penske -- Chair and Chief Executive Officer

Well these won't be everyday drivers for sure, will they? So these are I call them boutique vehicles. And look, we make a lot of money on those in the premium luxury. You know that from the standpoint of Lamborghini and Porsche and Ferrari etc. I think that there's a certain niche for this. Remember when Lincoln had a truck that didn't go off so well, but obviously it wasn't electric. I think that it's going to be difficult to sell those ultimately once they go on without some incentives. And again then what's the residual value is going to be a lot of our premium customers buy cars and they lease them. Now, I don't know what the lease rates will be on some of these, but again, what's the distribution channel going to look like? Is it going to be separate? Are we going to handle those are dealers? I don't know there was a question earlier today on that, that's up in the air. But I think they're all boutique brands they're smaller volume and they really won't make a big difference on our bottom line one way or the other. I think, the OEMs obviously will be big stickers on those and they'll make good profits on them, but I don't think that, that will pay the dividend for them.

David Whiston -- Morningstar -- Analyst

And I should have checked this before the call, sorry. But do you have a GMC franchise?

Roger S. Penske -- Chair and Chief Executive Officer

Yes, we do.

David Whiston -- Morningstar -- Analyst

Okay, thank you guys.

Roger S. Penske -- Chair and Chief Executive Officer

All right, thank you.

Operator

There are no further questions at this time. I turn the call back to Mr. Penske for closing remarks.

Roger S. Penske -- Chair and Chief Executive Officer

Jason, thanks for the support. And everybody, we've come through Q2 on into Q3 with great success and we expect to carry it on through the rest of the year. So look forward to talking to you at the next quarter. Thank you.

Operator

[Operator Closing Remarks]

Duration: 49 minutes

Call participants:

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

Roger S. Penske -- Chair and Chief Executive Officer

John Murphy -- Bank of America Merrill Lynch -- Analyst

Stephanie Benjamin -- SunTrust Robinson Humphrey -- Analyst

Rick Nelson -- Stephens -- Analyst

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

David Whiston -- Morningstar -- Analyst

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