United Auto's Roger Penske On Smart Cars, New Markets, Parts and Service

| About: Penske Automotive (PAG)

United Auto Group (NYSEARCA:UAG) Chairman Roger Penske on the company's new Smart vehicle initiative:

In the first two weeks more than 7,000 people have reserved a new Smart vehicle online (and we don't even have the dealerships in place yet!) And only 7% of these customers have signed up for the less expensive Pure vehicle (expected to price under $12,000 at base). The other 93% have signed up for the more expensive models (passion expected to price under $14,000 base, and the Passion Cabrio expected to price under $17,000 for the base vehicle).

Mr. Penske said they have narrowed down their search for Smart dealers, and sent letters to the 55 dealer/operators they would like to become Smart dealers. He thinks another 5 or 6 may get added, bringing them to just over 60 Smart stores when it is all said and done (to begin 2008). About 60% to 65% of these dealers are Mercedes dealers and can be co-located. Another 35% are with other branded dealerships and will need to be stand alone stores.

With regards to new markets, particularly Russia and China. Mr. Penske said one of the company's major shareholders whom they have a relationship with (Mitsui) has made some investments in that market. And they are talking with them and trying to understand "their playbook." But they haven't made any decisions and really can't comment any further than to say they are looking and trying to understand the market.

Finally, on parts and service, Mr. Penske said they are really focused on measuring retention. And right now they are retaining something like 90% of the people that buy a new vehicle from them (although I wonder how that figure runs post warranty).

But Tony Pordon, Sr. Vice President, added that at the company's Turnersville location (10 franchises, 66 acres, 177 service bays and around $410 million in annual revenues), they are seeing something like 30% "customers not sold" coming into their repair bays. In English, this means that 3 out of every 10 people that show up for repairs at the company's Turnersville "auto mall" never bought a vehicle from one of the company's 10 new vehicle franchises at Turnersville. So it really shows they are starting to get some leverage off of all of the company's investments into service bay capacity over the last several years.