A Per Store Comparison of United Auto and Its Peers

I know. It's all wrong. By rights we shouldn't even be here. But we are. It's like in the great stories. . . Even darkness must pass. A new day will come. And when the sun shines it will shine out the clearer. Those were the stories that stayed with you. That meant something, even if you were too small to understand why. But I think . . .I do understand. I know now. Folk in those stories had lots of chances of turning back, only they didn't. They kept going. Because they were holding on to something.

What are we holding onto?

That there's some good in this world. . . and it's worth fighting for.

Lord of the Rings: The Two Towers (IMDb database)

1Q07 Public Dealer Franchises Per Store
United Auto Group (UAG) management hosted the company's first quarter conference call last week. When they reported earnings I provided 7 key metrics. But I want to give you a few more thoughts from the conference call. Specifically how the company's results break out at its franchises in the U.S. versus internationally.

But before I can do that, I think it is important you understand the difference between a franchise (brand) and a store.

A franchise is just a franchise right granted by vehicle manufacturers (like GM (GM) or Ford (F)) for a retailer to sell a particular brand of vehicles. Examples of vehicle brands include Lincoln (a Ford brand), Jeep (a DaimlerChrysler (DCX) brand and soon just a Chrysler brand as Cerberus takes control), Infiniti (a Nissan (NSANY) brand), Pontiac (a GM brand), or Acura (Honda (HMC)). A lot of times there are separate locations (stores) for each brand. But sometimes (especially when the brand is owned by the same company) there can be multiple brands (franchises) under "one roof."

The table below illustrates the number of U.S. franchises United Auto Group had in the United States at the end of the first quarter of 2007 (March 31, 2007). It also shows you all of the other publicly traded franchised auto retailers brand (franchise) count in the U.S. To show how the number of brands can differ from the number of stores a dealer group owns, I then show each of these large public companies store count (at the end of the first quarter). Finally, I show how many brands (franchises) each dealer group has per store.

For example, Sonic Automotive (SAH) averages 1.2 brands per store. Meaning for every 10 Sonic stores you walk into, only about 2 of them are likely to have an extra brand under the same roof (i.e. a Lincoln and Mercury store).

Lithia (LAD), on the other hand averages 1.8 brands per store. So eight times out of ten when you walk into a Lithia store you are likely to see more than one brand under the roof. Actually I think they have a lot of stores that have three brands (Dodge/Chrysler/Jeep) under a single roof, which makes the average so high. But hopefully you understand what I am trying to show.

United Auto Group only provides the number of franchises so I had to put "not available" (N/A) for United Auto Group's franchises per store.

As a special note, for those of you reading this on the web, I can only encourage you to sign up for the newsletter or get a copy of it, because I am unable to upload the tables. I am working with my developers and will try to remedy this down the road.

1Q07 Public Dealer Revenue and Profit Metric Per Franchise in the U.S.
And of course there is an even more important reason I am taking you through this exercise. Because now we can start to compare United Auto Group with the other public auto retailers on more of an "apples to apples" basis.

Specifically, during the first quarter conference call, United Auto Group's Chairman Roger Penske said about $6 out of every $10 (60%) of stuff they sold or serviced (total revenues) in January, February and March (first quarter) of 2007 were from franchises (brands) located in the United States. The other $4 out of every $10 (40%) came from franchises located outside the United States (international). And most of the company's international revenues are concentrated in the United Kingdom.

If you subtract out United Auto Group's operating expenses (the cost of the product or service, management, accounting, the electric bill, etc.), Mr. Penske said that about $5.40 out of every $10 of operating income (54%) came from UAG's U.S. franchises (so GM or even Toyota branded franchises in stores located in the United States). The other $4.60 out of every $10 in operating profit (46%) came from international franchises.

Like I said, I don't know how many stores United Auto Group owns. But I just showed you that they owned 166 franchises in the United States and Puerto Rico, and they have 145 located outside the United States.

So if I take just United Auto Group's U.S. revenues and operating profits, I can show you how the company's U.S. franchises compare with the other publicly traded auto retailers by franchise.

Also, I think floor plan interest expense is an operating (not financing) expense. And while I don't know the exact break out, if I assume a similar break out in floor plan interest expense as operating income between United Auto Group's U.S. and international operations, I arrive at the operating income including floor plan interest expense per franchise figures you see below:

UAG's Revenue and Profit Per Franchise in International Markets
Also, by breaking apart United Auto Group's revenues and operating profits by franchise and geographic location, I can also provide a decent snapshot of how profitable the company's international franchises (not exactly stores) are running. The table below therefore shows you United Auto Group's revenues and profits per franchise:

Finally, I just wanted to mention one technical detail. During the first quarter Group 1 (GPI) announced they acquired six franchises in the United Kingdom (international). There were only a few weeks left in the quarter, so I think the impact to Group 1's results were pretty minuscule. But you should be aware that I counted whatever revenues and profits that were generated in the first quarter with the company's U.S. franchises.

Given such a small concentration, I suspect for competitive reasons, the Group 1 has not disclosed profit metrics about their newly acquired dealership operations in the U.K. But going forward (when the results will be a little more meaningful because it will be for a full quarter) hopefully management will provide the revenues internationally versus the U.S. so we can at least have a basic revenue per franchise comparison like we have for United Auto Group.