Good afternoon. Welcome to the Penske Automotive Group second quarter 2022 earnings conference call. Today's call is being recorded and will be available for replay approximately one hour after completion through August 3rd, 2022 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.
Thank you, Brittany. Good afternoon, everyone, and thank you for joining us today. A press release detailing Penske Automotive Group's record second quarter 2022 financial results was issued this morning and is posted on our website, along with a presentation designed to assist you in understanding the company's results. As always, I am available by email or phone for any follow-up questions you may have. Joining me for today's call are Roger Penske, our Chair and CEO, Shelley Hulgrave, EVP & Chief Financial Officer, and Tony Facione, our Vice President and Corporate Controller. Our discussion today may include forward-looking statements about operations, earnings potential, outlook, future events, growth plans, liquidity, and assessment of business conditions. We may also discuss certain non-GAAP financial measures such as earnings before interest, taxes, depreciation, amortization, or EBITDA, and our leverage ratio.
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 are 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 and previously filed Form 10-Q for additional discussion and factors that could cause results to differ materially. I will now turn the call over to Roger Penske.
Thank you, Tony. Good afternoon, everyone, and thank you for joining us today. I'm pleased to report that our diversified business delivered an all-time record second quarter results for earnings before taxes, net income, and earnings per share compared to the second quarter last year. While revenue declined 1% to $6.9 billion, foreign exchange negatively impacted revenue by $245 million. Excluding FX, our revenue increased 2%. Earnings before taxes increased 8% to $500 million. Net income from continuing operations increased 10% to $374 million. Earnings per share increased 17% to $4.93. If you exclude FX, EBT was up 10% to $511 million.
Our net income increased by 13%, up to $383 million, and our earnings per share increased 20%, up to $5.04. Additionally, when we compare the first quarter of 2022 earnings before taxes, our net income, and earnings per share all increased sequentially. Looking at our retail automotive operations on a same-store basis, Q2 2022 versus Q1, despite the supply constraints that continue to impact new vehicle inventory and availability, demand remains strong and our pipeline of vehicles remains forward sold. Supply shortages impacted total unit sales, which declined 17% during the quarter. Our automotive revenue declined 8% and our gross profit declined 3%. However, if we exclude FX, revenue only decreased 3% and our gross profit increased 2%.
Our service and parts revenue increased 4%, and without FX, it was up 8%, and our variable profit per gross vehicle was up $841 or 16% to $5,999 from $5,158. Looking at CarShop during the second quarter, CarShop unit sales increased 7% to 20,000 units, and our revenue increased 15% to $468 million. Our same-store unit sales were flat, and our same-store revenue increased 6%. Same-store variable gross profit per unit retail was $2,145 compared to $2,714 in the second quarter last year. Vehicle acquisition prices, our reconditioning costs, along with logistics, continue to impact our profitability at CarShop.
In response to the current market conditions, we closed two satellite operations in the U.K. and are focused on improving their reconditioning efficiency, our logistics, and improving our cost structure overall. Let's turn now to the retail commercial truck dealership business. Our Premier Truck dealerships business remains very strong, and during the second quarter, our unit sales increased to 4,174 units, up from 4,146 in the second quarter last year. When looking at total revenue, we increased 23% to $769 million, and gross profit increased 32% to $136 million. Our same-store revenue increased 11%, and that included a 23% increase in our service and parts business. Service and parts represented 68% of the total gross profit and covered 133% of our fixed cost in the second quarter.
Earnings before taxes increased 32% to $52 million. The new Class 8 truck market remains strong and the backlog is 222,000 units as of June 30th. Approximately 75%-80% of new Class 8 sales are commercial trucks, and that market remains strong. In fact, our entire allocation for Class 8 product is sold out for 2022 and 2023 orders will open up sometime in the September to October time frame. Let's turn now to Penske Transportation Solutions. As you know, we own 28.9% of PTS, which provides us with equity income, cash distributions, and cash savings. PTS currently operates a fleet of over 387,000 units, an increase of 21,000 compared to the end of last year.
PTS produced a record quarter driven by strong performance from contract, commercial rental, our logistics business, and remarketing. Revenue increased 20% to $3.3 billion, and profit increased 33% to $472 million. As a result, our equity earnings increased $34 million- $137 million year-to-date. We've also received $105 million in cash distributions. Now, let me turn it over to Shelley, our Chief Financial Officer.
Thank you, Roger. Good afternoon, everyone. Our capital allocation strategy and record financial performance continues to leave our balance sheet in great shape. At June 30th, we had $155 million in cash and over $1.1 billion in liquidity. Year-to-date, through July 26, we spent $363 million on repurchasing 3.5 million shares and acquired 148,000 shares from employees for $17.2 million. In July 2022, our board of directors increased the authority delegated to management to repurchase our outstanding securities by an additional $250 million, bringing the company's total repurchase authority to $331 million. We also paid $74 million in dividends.
So far this year, our board of directors has authorized three increases to our dividend, growing the quarterly dividend from $0.46-$0.53 per share or up 15%. In total, we've returned $437 million to shareholders so far this year, representing 59% of our net income. We've also spent $110 million on CapEx and an additional $30 million for land acquisitions for future growth. When looking at our future capital allocation, we maintain a disciplined approach that focuses on opportunistic acquisitions and investments across our retail, automotive, and commercial truck businesses, capital expenditures to support growth and our sustainability initiatives, delivering a strong dividend to our shareholders, accretive securities repurchases, especially in light of elevated valuations of current acquisition opportunities in the retail automotive market, and reducing debt where possible.
At the end of June, our long-term debt remains below $1.5 billion, which is consistent with December 31st of last year. Our long-term debt consists of $1.04 billion of coordinated notes, which mature between 2025 and 2029, $416 million in mortgages, and AUD 30 million under our Australian credit agreement. The average interest rate on our total fixed rate debt is 3.8%, which we have secured for an average remaining term of 5.8 years. Debt to total capitalization was 26%, and our leverage sits at 0.7x.
At the end of June, total inventory is $3.1 billion, which is consistent with December 31st of last year and is up $118 million from June 2021, largely related to an increase in commercial vehicles and parts from acquisitions completed in the last 12 months. We have a 21-day supply of new vehicles with premium at 23, volume foreign at eight, and domestic at 21. New vehicle supply is at 12 days in the U.S. and 32 days in the U.K. We continue to sell into our future new vehicle pipeline to support our customers, maximize inventory turn, and minimize our inventory costs. We expect the current supply challenges, coupled with strong demand, to keep our new vehicle supply at low but manageable levels for at least the next nine-12 months. Used vehicle inventory is in good shape with a 42-day supply.
At this time, I will turn the call back over to Roger.
Thank you, Shelley. Let's turn to business development. I'm pleased to report we've completed acquisitions at new open points representing $745 million in annual revenue so far this year. Additionally, this morning, we announced we signed an agreement to acquire five Mercedes-Benz dealerships and three after-sales locations in the U.K. from the factory. The acquisition includes their flagship dealership, which is located adjacent to our existing Audi West London dealership, which is the largest Audi dealership in the U.K. The acquired dealerships and after-sales locations are expected to generate approximately $550 million in revenue for the full year of 2022. We expect to close this transaction during the third quarter, subject to customary closing conditions. Turning to sustainability.
Our sustainability initiatives are important to our strategy, and we've built a dedicated team to drive our future efforts on sustainability and decarbonization. We are committed to electrification, are working with our OEM partners to build infrastructure to support the sale and service of electric vehicles throughout their life cycle. We've already installed over 1,300 charging stations across our network. To put electrification in perspective, through June 30th, 2022, we sold 16,800 electrified vehicles in the U.S., including 1,800 pure battery units, which represent 3% of our new vehicle units. While in the U.K., we sold 4,700 units, including 2,200 pure battery units where electrification is supported by lower taxes and government incentives.
We're also focused on decarbonization through improved energy management, increasing the use of renewable energy and recycling programs at our locations to reduce greenhouse gas emissions. Moving on to our additional initiatives. Our omnichannel strategy continues to focus on customer life cycle and evolves with the changing landscape. We're using digitization and automation wherever possible to improve the customer experience and drive satisfaction to improve loyalty and our customer retention. Additionally, we're using integrated digital solutions at our dealerships that automate and streamline document processing during the sales transaction, minimize physical paper output, and ensure consistency, and more important, compliance and quality control across our organization. We continue to focus on online reputation management, where our lifetime Google star ratings for our U.S. dealership is 4.7 stars. For sales, we continue to enhance our digital retailing strategy while embracing our OEM partner initiatives.
We currently are supporting programs from BMW, MINI, Porsche, Toyota, and Lexus, Honda, Lincoln, and Nissan. Our OEM initiatives offer some advantages versus an in-house solution as they enable a buy online function from OEM sites and also integrate with our captive finance company for online credit approvals, rates, and programs, et cetera. In the U.K., we have a proprietary system that supports digital retailing for our franchise operations, including CarShop. In the second quarter, we generated 4,800 online transactions and approximately 2,400 sales, which reflected 5% of our sales in the U.K. market. On the service side, we continue to encourage online appointments and payments to improve efficiency. Online payments have increased 27% when compared to the second quarter last year, and online and BDC appointments were 515,000.
In closing, our results reflect the dedication of the people that make our business one of the best company to work for, and I want to thank all of them for the record results they produced so far this year. Also, I'd like to congratulate the 46 Penske dealerships that are being recognized by Automotive News on the list of the best 100 dealerships to work for in 2022. This is an outstanding achievement and continues to set us apart from everyone else. I continue to remain confident about the opportunities I see across our diversified enterprise. Thanks to all of you to join us today, and I'll turn it over to the operator for any of your questions. Thank you.
Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. If for any reason you would like to remove that question, please press star followed by two. Again, to ask a question, please press star one. As a reminder, if you're using a speakerphone, please remember to pick up your handset before asking your question. We will pause here briefly as questions are registered. Our first question comes from the line of John Murphy with Bank of America. Please go ahead.
Hey, John.
Good afternoon, Roger , Shelley, and Tony . Just you know, Roger, one of the big concerns I think people have is that, you know, eventually volumes are going to recover and grosses may come under a bit of pressure then, which will be a market dynamic. What you can control in a pretty significant way is your SG&A costs. I'm just curious, you know, as you know, volumes recover and inventory rebuilds, probably not gonna be, you know, until late 2023 that we figure this all out. You know, what kind of actions on SG&A do you think you can take to keep a lid on them in inflating?
If you could just maybe remind us how sales comp plans are generally structured, because that would be a big portion of a variable that could theoretically inflate as volume comes back or maybe not.
Well, John, first, let's go back and look at pre-COVID. Our SG&A was running 78% of gross. Today it's at 66%. It's up 3% from Q1 sequentially. I think that we're gonna end up somewhere in the low 70s as we tend to get back to normal to a normal business. Now, obviously, we've had some impact due to salaries and wages. There's pressure on that. We've had the opportunity to open up our people to be able to travel, which has increased some of our SG&A. Our marketing costs and advertising is down. The good news is we took 10% of our people out during the COVID, which has reduced our SG&A from that standpoint, not including, obviously, the additions we've had from our acquisitions.
Overall, I think that taxes have increased some, but I think that today we are really tight. Our turnover right now is at 17%-18%, depending on which area of the country you look at. When you talk about comp to growth, we're running at about 40% overall, and that's consistent of what it was last year. When you look at our variable compensation, it runs about 25% of growth. On the fixed side, which is parts and service, it runs about 25%. Overall, I think those are steady, they're in line, and we don't see really anything driving those higher because a big part of our business is variable. When you think about flat rate mechanics, you think about sales.
The good news in the sales side, with the reduction of our people, we've been able to get more productivity, and that's helped us drive some of this grosses from the standpoint of reducing the number of sales people, but adding, you know, adding more units per person, which has been key. We're gonna be driven here from an SG&A, probably with the supply shortages from a marketing and advertising standpoint. We're gonna keep that pretty much, you know, in hand and not grow that and expect where we need to maybe on a new acquisition in the marketplace.
We think that, as we look at the business on pre-COVID, you know, we really looked at how we would restructure the business, and we've kept those parts of our business in line, and that's given us, I think, the ability to maintain it probably anywhere from 500- 700 basis points better as we get into a more normal operation, and again, with a 10% reduction in people.
Okay. That's incredibly helpful. Just a second question. You know, and this is kind of a high class problem, and it's kinda, you know, a little bit tough to give you a hard time about this. You know, 0.7x , you know, net leverage, you know, I mean, that's pretty. You know, that's reasonably conservative relative to what a lot of your peers are running at. You know, admittedly, you did $1.3 billion in acquisitions and $275 million in buybacks year to date. You are actually deploying capital, you're pushing it.
I'm just curious if there may be an opportunity to maybe even take on leverage and get a little bit more aggressive on buybacks or acquisitions, whether it be in new, used, or maybe even in the commercial truck side.
I think right now in the current business conditions and a lot of the uncertainties, we wanna be safe and secure. You know, and basically, you know, we've driven almost $1 billion worth of debt out since, I think the end of 2020, and we wanna continue to have that flexibility. I think, we'll see within our numbers here that with that lower, I think it was 0.7x , gives us a really a war chest to do something. Right now, we're gonna look at buyback, you know, versus acquisitions. Right now with the high prices, I think that, you know, we'll have to look at that even further quarter by quarter. You know, we continue to like our stock from the standpoint of buying it back if it's necessary.
We've seen some great opportunities on underperforming and maybe lower costs for some of these acquisitions that we're making, you know, throughout our total network around the world. Overall, if you look at acquisitions, you know, we made $1.9 billion over the last 18 months, plus the share buyback, which was about 8% of our stock. I think that it's gonna balance between that, and it's so fluid, it'd be hard for me to say which is gonna be the main focus. I think we're gonna look at all of them on a monthly basis as we look at our overall capital structure.
Look, Roger, if you were to think about sort of normal times without all the chaos that appears to be swirling at the moment, what would you think sort of net leverage, you know, could or should be? What would be the target that you and Shelley would be looking at there?
Well, I guess when things get back to normal, probably what? Two? Some are at Shelley.
Yes. I think two is accurate. I've, you know, I think certainly our target to remain below 2.5 on an adjusted basis. We certainly have a lot of runway to get us there.
We have flexed the balance sheet in the past to make acquisitions like we did with the PTS acquisition to go above three if we needed to.
That's right.
You might mention, you know, where we are from a credit rating perspective, what the expectations are from the agencies.
Yeah. You know, the conversations that we've had, if we can keep that adjusted level below 2.5-3x for, you know, remainder of the year, we can start talking about investment grade. As I mentioned, we've got a lot of room. We got a lot of runway to get there. All the things that we've mentioned, you know, the acquisitions, the share buybacks, the dividends, all of that has kept, you know, been able to finance that through cash flow from operations and keep our debt at steady levels. It certainly hasn't, you know, keeping our leverage at 0.7x, certainly hasn't hindered us from a capital allocation standpoint.
We wanna be very careful we don't stray off a road where we are. You know, obviously we're seeing the benefit of our PTS investment. Australia continues to grow, and we look at what we're doing there from the standpoint of that business. Overall, we just had our board of directors in the U.K., and the ability for them to grow is a real opportunity there as people move forward. Overall, we're gonna try to stay safe and secure, John. I think we'd like to get the investment grade. We're certainly in a position to move on into bigger acquisitions. They're gonna come to us, and then we're not gonna overstretch if possible.
Okay, great. Thank you very much. I appreciate it. Thank you.
Thanks, John.
Thank you, Mr. Murphy. Again, to ask a question, please press star followed by one on your telephone keypad. Next question comes from the line of Rajat Gupta with JPMorgan. Please go ahead.
Hi, Rajat.
Great. Hey, good afternoon, Tony, Roger, Shelley. Just had a question on PTS, the first one. A really strong trend again, you know, in the second quarter. Could you quantify like what was t he gain on sale impact was in the quarter, and excluding gain on sale, how do you see trends for the remainder of the year? Maybe if you could give us some color across the different business lines, how you see them progressing through the remainder of the year, and I will follow up. Thanks.
Yeah. Good. From a full service lease perspective, you know, our revenue was up 8%, and commercial rental was up 35%. Remember, 50% of our commercial rental business comes from our lease customers. With the growth we've had on that over the last three years, that's paying real dividends for us for now. I think vehicles on rent from a commercial renter perspective, daily have been running about 65,000, if you can believe it. We have the largest rental fleet probably in the world when you look at it, and it probably is 2-3x higher than our closest competitor when you look at the revenue coming out of that.
From the overall standpoint, our business was still up 7%-8% if you just take out the gain on sale increase over the year. Again, it's still been a very good growth business, and we think the logistics impact we've had, we were up 11% in the quarter. Our consumer rental was down, and that's the one-way rent it here, leave it there. But the good news is we're able to repurchase those trucks into our commercial rental fleet, which obviously we're getting markup and good margins on that. Probably the biggest impact we have is we only have 4,000 units to sell because we're being backlogged from the truck manufacturers with over 60,000 units on order.
We get those, and as soon as we get them, we either add them into our rental fleet, get an older unit out, which will reduce our maintenance costs. You know, we're pushing hard on the OEMs, but we still see that gonna be probably through 2023 into 2024 before we get back to a normal supply chain capability for us on heavy trucks.
Got it. The gain on sale in 2Q, how much was that and how much was that year-over-year?
Well, it was $140 million, and it was up $95 million. From the standpoint of PAG, we get $27 million of that, would accrue to our profitability for the quarter. Tony?
Correct. Our ownership percentage of 28.9% times the $95 million is $27 million that it would have increased on a year-over-year basis in the second quarter.
Got it. Maybe you know, just to follow up on like the SG&A question, you know, there are gonna be a number of you know, electric vehicles hitting the market, you know, next 12-18 months. Maybe if you could give a sense of, you know, how those models coming in changes you know, just the headcount structure of the store, you know, the composition, you know, payroll you know, just productivity. Just given those units are gonna require a little bit more of an education experience and maybe a little bit more of handholding relative to the ICE engine customer. Maybe any thoughts on that, you know, how you see that progressing and changing you know, just the look and feel of the dealership? Thanks.
Well, I think that's a good point. You know, we see the training that's necessary. We see the tools and also the facility changes we have to make to be able to handle a BEV vehicle because of the electrification. At least initially it's gonna be all under a warranty, but as we go out into the longer life of a vehicle, electric vehicle, those will come back into the shop. I feel that will be a benefit. We have to train our people based on OEM requirements. We talked about the number of electrification points we have from the standpoint of already, and that's to meet many of the OEM's requirements for fast charging. We'll continue to add to that as we go forward.
From a training perspective, this is always accomplished arm in arm with the OEM.
Got it. Great. Thanks for the color, and I'll jump back in queue.
All right. Thanks, Rajat.
Thank you, Mr. Gupta. Our next question comes from the line of Daniel Imbro with Stephens, Inc. Please go ahead.
Hey, good afternoon, y'all.
Hey, Daniel.
Congrats on the quarter.
Thanks, Daniel. Yeah.
Roger, I wanna start on the demand side of the equation. Can you just maybe provide an update on however you measure it, you know, the amount of inventory pre-sold or, you know, how much visibility you have basically into the back half of the year on the demand side? Maybe can you touch on auto and commercial truck and how that differs?
Well, let's look at auto here in the U.S. You know, right now we get allocations, and they're giving it now maybe 30-60 days, and they might give you an allocation of 300 cars, and within a week they pull it back. Again, it's really a variable. We're selling into that allocation on a day-to-day basis.
Typically, as we look at our inventory at 12 days, everything that's coming in is going back out. In fact, when I look at, I think we're running at 95% of allocation we're turning, and that's how we're driving obviously the inventory, you know, from a look at some of the high price cars, Corvette, and some of the fancier luxury cars, we probably have six months to a year. On the other hand, if we go to the U.K., where people typically spec their car and build it, we have 35,000 forward sold orders in the U.K. today representing about $130 million when you look at it from a standpoint. We have a 30% flow-through on that roughly as we look at it going forward. You know, quite positive.
From the truck side, again, we're sold out through 2022 on the heavy-duty truck side, and we're, as I said earlier, I think we're gonna be starting to have allocations September, October into 2023. We can even see that from the standpoint of what's available across our leasing business.
Yeah. That's helpful. Maybe on the used on the auto side, I wanted to touch on CarShop. I think the slide that said same-store units were flat, but obviously overall retail same-store was still, I think, down 11%. How is that segment able to outperform somewhat materially? Can you know, accelerate that growth or use some of those learnings back across the rest of the dealership chain?
Well, I would say today, you know, CarShop both in the U.S. and the U.K. has a huge focus because where we normally buy within this, say, GBP 12,000-14,000 or 15,000-pound vehicle in the U.K., we just can't buy them. In the U.S., we've had to move up from a $20,000-cost car to a $30,000. We tried to back up and look at these $8,000 to $10,000 to $12,000 dollar vehicles, but to me, they're really wholesale. We've just told our people the customer experience, the guest experience buying those cars along, we've seen our CSI go way up on those types of vehicles. We've really had to pull back because we just don't have the ability to buy the cars that we want because of the lower new car volume.
It's reducing the number of used into the market, and therefore that we're really looking at volumes being down, you know, over the next several months until this whole market changes. We're gonna use technology. We're gonna shorten up the time potentially between reconditioning because we think we've got money there that we're losing because of just logistics, getting cars into our locations to be able to recondition them properly for the customer. You know, there's quite a bit of opportunity. I think the self-sourcing is key. In the U.K., we're using more of auctions. Where here in the U.S., we've been able to move that up. We're up to about 80%-85%, which is certainly good. It's a focus for us. We're in the business. We're staying in it.
I would have to say that with all the turmoil right now, I think the best thing we're doing is it's making us better, building a stronger foundation, and we'll continue to look for ways that we can enhance our gross margin.
Great. Last one for me, just on the used commercial truck side. You mentioned new backlog still real strong. But on the used side, are you seeing any softening of demand as the freight market softens or anything changing there as we see prices begin to fall on the used truck side?
I think right now the reason we're seeing prices falling is because they're way too high. I mean, just realistically, a lot of these trucks that were being purchased at these high margins were owner-operators. With freight rates or with freight availability being down, these people just can't afford these payments, you know, on these higher-priced used, and I think that's having some impact on the overall market. You know, right now, you know, our big customers from PTG have been selling their trucks themselves. We have the opportunity as we go forward to auction some of those trucks into our inventory, and we're pricing those today on a 30-day basis, meaning that we're not giving you a price on a trade more than 30 days out, and we'll continue to adjust those accordingly.
We've seen that come down, and yet we made an acquisition, in out west in Portland and Salem, and we took on some trucks, newer trucks, when I would say two to three years old with low mileage, which obviously are at higher rates. Those seem to have some impact on some of our margins right now, but that's 100-150 trucks. As we get through those, we'll be back pretty much to level. On the other hand, when you look at PTS, at our truck leasing business, I think I mentioned it earlier that we're selling trucks that are four to five to six years old, and those margins continue to be very strong. We see very little deterioration on those at the moment. I think overall, you know, we're in pretty good shape.
Great. Thanks so much, guys. Good luck going forward.
Thanks.
Thank you, Mr. Imbro. Our next question comes from the line of David Whiston with Morningstar. Please go ahead.
Hey, David.
Hi, everyone. I want to start with a used vehicle question. Obviously, it's very expensive to buy a car for both consumers and for the retailers right now. Is that affordability issue? Are you seeing any indication that's hurting the CarShop customer more than it is at the franchise level customer?
Oh, I would say so for sure, wouldn't you, Tony?
Yes, absolutely.
You know, basically, where remember that CarShop with someone, and I'm talking about in the U.K., we're talking, say, GBP 12,000-GBP 15,000, and in the U.S., we're looking at a car being sold between $20,000- $23,000. Well, obviously, you know, the revenue per unit has gone up, you know, considerably as we look at the business, you know, right now, and that's just taking some people out of the market. Obviously, with our acquisition cost, it's squeezing our margin too at the same time. In the U.K., you know, obviously, they're looking at buying. They have 6,000 cars in inventory and turning at about, I'd say 32 or 33 days, but the margin has really been impacted because of the overall cost of sale.
Yeah, I hear you there. I guess on SG&A, going back to that earlier discussion, is there any more you can take out without reducing headcount?
Well, look, there's always more that we can take out. I mean, I think that, you know, when we think about people traveling now, you know, we want our people out. We've run this business, you know, with Zoom and some of these other things for the last 12-18 months, and our people want to get out. We want them to. We think training is important. A lot of the things we're doing with the OEMs, and that's gonna continue to grow from a standpoint. I said there's certainly wage pressures with inflation right now. You know, people are living in a different environment, so we're having additional costs there.
Certainly when you look at our company vehicles, you look at the cost of fuel costs, just, you know, I don't know how many, I forget how many loaner cars we have, but several thousand, and, you know, we're providing those to our customers. These costs will continue to go up. On the other hand, you know, we're gonna be looking for ways through, you know, certainly through, you know, our technology that we'll be able to reduce costs, time and time to customer and other things that we're doing that will reduce our overall margin, I mean, our overall cost as we do business across whether it's new, used, or our parts and service. I think we can do that. Right now, the customer on service doesn't even have to come in the shop.
You know, we got to a point where he makes his appointment online, he drops his car off, he pays online, and either we can deliver it. These are things that will take less people and will be more efficient in our shops. I think the training that we've been able to do from the standpoint of our parts and service has made a big difference. Our commitment and technology and body shops where we're doing a lot of wheel work now, which we hadn't been doing before across all the German brands were, quite honestly, they're really piling it in the U.K., but made a big difference as far as margin.
David, this is Tony. There's also other processes that we're working on to improve automation that should help reduce some of the costs as we move forward, too. You know, you can look for that to come in the future.
Yeah. Do you think that's more of a six-month story or more won't be realized for another couple of years on the automation?
Both to that.
Well, I think it's happening every day, but we're also getting costs going up. Remember, we were in the high 70s, you know, pre-COVID. You know, we're at 63% in Q1. We've opened up travel and what have you. We got some higher rents that have come in. Then we're now, we went from 63%- 66%. I said earlier in our conversation we'd be looking to settle somewhere around 70%-71%, which still is a 10% reduction in where we were before.
Yeah, absolutely.
Which is significant.
Yeah. It's been really cool to see all the improvement both on cost and also on your balance sheet with the leverage ratio going down. Just one other quick one, on Australia. I'm just curious how you were able to grow EBT 5% despite a 14% top line decline.
I think basically, it was again, as we merged the businesses, we had two businesses there before, our off-highway and on-highway. We merged those together, so we're using the single facilities, which has helped us from a cost perspective. The margins that we're getting on our truck business has made a big difference, even though the volume is down. I think that the mix is better. Fusion, of course, is where we're doing the parts and service on trucks, you know, within our own, what I would say, the after-sale network that we had available to us for the off-highway business. Again, the margins we're getting on.
When you think about right now, when we look at gensets over 1,200 kW, we've probably got 50% of the market, which is really key, and we continue to get repowers. We've got about 650 trucks running in Australia and New Zealand with our big MTU 4,000 engines, and we're doing a lot more repowers, which are giving us, you know, more margin, even though the truck business is down, meaning the commercial truck business is down, which would hurt our overall volume. Again, parts and service will be the annuity. When you think about the fixed coverage in Australia is 160%, and the fixed coverage in New Zealand is 130%. So we think we got a solid business.
When you look at the $500 billion of spend that the government is gonna have over the next 10 years, and to think about the things that we've won there from the standpoint of our contracts on power packs, on the combat vehicles, you know, the offshore patrol vessels, and we're working on the Collins-class repower submarines. All of these things are key as we go forward. Many of those don't have a sales dollar. We're getting paid on some of those just for the labor hours that we provide for the government. This might be some of the reason you see that benefit. It'll ebb and flow as we go through the rest of the year.
Okay. Thanks a lot.
All right. Great. Thanks, David.
Thank you, Mr. Winston. Our next question comes from the line of Glenn Chin with Seaport Global. Please go ahead.
Great. Thank you. Good afternoon, folks.
Hey, Glenn.
Hey, Glenn.
Roger and maybe Shelley, given your under-leveraged status and the abundance of capital you have to deploy, can you just fill us in on what you're seeing in the pipeline? Just in terms of availability, maybe what you're seeing on valuations, whether or not they've come in at all. What your preference may be, light vehicle versus commercial vehicle. I guess further to that, given that you've done some deals up north, what your preference may be U.S. versus Canada.
Sure, Glenn, I can take this one. You know, we've acquired $1.9 billion in the trailing twelve months. It's roughly 50/50 auto and truck, and we really like it there. You know, trucks are a cheaper multiple, typically about 50% of the multiple of an automotive dealership. They don't have the CPI or CI requirements that we see on the auto side. However, we've made some really great acquisitions on the auto side, at valuations that are attractive to us. You know, U.S. and Canada, both of those on the truck side are acquisitions have been along major highway routes. That's very important to us from a customer standpoint, to be able to take care of that trucker from start to finish on his run.
both Canada and the U.S., we see, you know, a 60% gross profit related to service. That's really important to us. We also have made quite a few acquisitions and we announced one this morning in the U.K. That's on the automotive side. We made one earlier with BMW and plan to make the Mercedes one here before the end of Q3. It's really a mixed bag. You know, there's no script. We're not following, you know, any particular discipline, only that we're evaluating each opportunity as they come up. I know I sound like a broken record in saying we're disciplined, but it really has proven out for us.
Okay. Speaking of discipline, can you speak to us about what you're seeing in terms of valuations recently? Have they come in versus last year holding up?
Let me answer that one, Glenn. I would say if you're looking at a premium luxury, the German brands, BMW, Mercedes, Porsche, Audi, you're looking at probably eight or nine times trailing twelve EBT for goodwill, plus assets would be what we see. We've been able to make acquisitions for less than that, where they're smaller and maybe not in the premium luxury side. You know, Toyota and Honda are very strong. To me, there are some people who just are gonna get out of the business at this point. I think there is competition out there to buy these better points. What's happening is many of us are running into what we call framework agreements, which limit the amount of stores you can have in a particular market or with a particular brand.
On top of that, your CSI and some of the other components of customer satisfaction become a factor. That'll play into it as we go forward. Right now, the premium stuff is at a high, you know, high multiple. You know, we're all experiencing that. I don't think we're just the only one. On the other hand, as we go to Europe, and the U.K., we see that down significantly from what we're paying here.
It has to make sense from an SG&A perspective. You know, we have our area markets and the acquisitions that we made have made sense so that we're not taking on additional administrative costs, but reducing them from what we have purchased. BMW of Escondido is a great example. We already have presence in that auto mall, and it fits really nicely into our SoCal management group. As well as, you know, the BMW and Mercedes dealerships in the U.K. fold in really well to the structure that we already have there. That is one way we'll continue to reduce costs, is to make acquisitions that make sense for us from a cost standpoint too.
Okay. Okay, very good. Thank you.
Thanks, Glenn.
Thanks.
Thank you, Mr. Chin. Our next question comes from the line of Mike Ward with Benchmark. Please go ahead.
Hey, Mike.
Thank you very much. Good afternoon, everyone.
Hey, Mike.
Yeah, I'm just curious about you see some of the other dealers getting into financing and, you know, an acquisition that you just announced this half a billion dollars in revenue from with Mercedes-Benz stores in the U.K. It seems like you have a lot of growth opportunities with your additional structure. I'm just curious what you think about, you know, alternate businesses, whether it's captive financing or anything else that you're looking at.
Well, we've been calling ourselves the big D, diversified. I'm glad to see other people now are following the same route. Look, all of us have different reasons we're growing our business and our peer group. I take my hat off to them, but I've talked to our board over the last five or six years. Many times we've looked at it, but we just don't think at this time that a captive finance company, you know, really makes sense for us. Because when you look at our brand mix, 70% of it is premium. In the premium side, leasing is a big factor of that, along with certified. When you look at half, a third or fourth of our business is in the U.K..
When we look at it from the standpoint of our CarShop business, you know, we'll do 12,000-20,000 units over the next, say, 12 months in that business. We just don't have enough volume. When you look at the average length of the customer financing, it's probably 72 months, and the credit score is probably below 700. Today, with delinquencies going up on retail across all other markets, I wonder. You're gonna blow up your balance sheet, and on top of that, you're gonna have to take that and sell that into the market, securitize it.
I think today, the people that buy that are gonna say, "Is this really what we want to buy 72-month or 60-month paper from the standpoint in the car business with the inflation that we've had on used car prices?" Not that we won't ever get into it, or we think it's a bad idea. Right now, we don't think that glove fits our hand.
Okay, that makes sense. Shelley, can you talk a little bit about the cadence of expected dividends from PTL? I think it was $105 million. Is that what it was in the second quarter?
Yes. We received $105 million, so that related to our Q4 and our Q1 of 2022 earnings. It's a straight 50% dividend policy. You know, we can just follow that cadence, and we'll receive additional dividends in August and November.
August and November. Super. Thanks very much.
Thanks, Mike.
Thank you, Mr. Ward. Again, to ask a question, please press star followed by one on your telephone keypad. Currently, there are no questions waiting at this time. I would like to pass the conference back to Mr. Penske for any final comments.
Brittany, thank you. Thanks, everyone, for joining us, and we'll see you at the end of the next quarter. Have a good day. Bye-bye.
That concludes today's conference call. I hope you all enjoy the rest of your day.