Penske is reporting with some numbers finally!!!

[SMART]

Penske Automotive Group (PAG) Exceeds Goal with Smart Reservations

In a press conference yesterday, smart usa President Dave Schembri said they have received more than 20,000 reservations for the Smart Vehicle that will be available at some 45 - 60 dealers beginning in January 2008 which we knew about three weeks ago but in this press conference smart usa finally stepped out with some numbers of revenue projection for the company that will see very little profit per unit which many doubtful smart enthusiasts have mentioned time after time.

Either way, it's a great little articel that popped up in my news alert that I think is great for the modern day consumer to read over and learn more about the future of the Smart Car.


In a press conference yesterday in Detroit, Smart USA President Dave Schembri said they have received more than 20,000 reservations for the Smart Vehicle that will be available at some 45 - 60 dealers beginning in January 2008. (Source: Wall Street Journal, January 11, 2007. Page D4).

Keep in mind that the reservations only require a $99 deposit. So people can still back out. But it is a heck of a lead.

If all reservations are filled, it works out to 333 to 444 Smart vehicles per dealership.

However, Penske Automotive is the distributor of Smart. So this does not mean Penske Automotive is going to own all of the stores. They own some of the stores. But a lot of the stores are owned by other dealers (including some of the large public dealers).

So you likely won't see a huge boost in gross profit dollars or percentages (and actually it might cause a slight drag in 2008).

As a reminder, Penske Automotive made about $2,993 in gross profits per new vehicle in 2006 and $2,427 per used. Also if you take the company's fleet and wholesale gross profits divided by the total retail units (because I hope wholesale is looked at as driving used vehicle sales and fleet possibly helps drive some new vehicle retail sales) you come up with $14 gross profit per retail unit.

My guess is that Smart counts as a fleet sale and so you see the $14 figure go up a bit in 2008. But you will also see total gross profits as a percentage of revenues decline a bit (all else equal).

But dollars per unit and percentages are less important than return on investment [ROI]. So if Penske is essentially collecting a "toll" on every one of the units being sold at the stores, it can make for a pretty attractive ROI.

Now I don't know what Penske Automotive will make on the sale of each Smart vehicle (through the distribution agreement). We can all try to guess ($200/$300 per unit?) But we just don't know.

And this can create problems when trying to model the impact Smart will have on the company's financial results in 2008. So let me give you some numbers to work with.

We know that management said they expect to earn between $1.40 to $1.50 per diluted share this year (2007). This guidance assumed 94.6 million shares outstanding throughout the year (a couple million more than they had in the first quarter). And this works out to $135 million to $145 million in after tax earnings in 2007.

Included in the earnings guidance, management also said they will have $0.02 to $0.04 cents a share in costs associated with the launch of the new Smart vehicles. Or, $2.0 million to almost $4.0 million in after tax expenses. They've got around a 37% tax rate. So if I put these numbers on a pre-tax basis, we're talking about $3.0 million to $6.0 million bucks in expenses associated with Smart.

I suspect the conservative nature of the Penske organization only includes direct costs with Smart. For example, Sr. Vice President Tony Pordon has been playing a key role with Smart. But he also continues to exercise his duties as head of investor relations. So do they divide his salary and include it in the Smart costs? I suspect not.

Instead the $3.0 to $6.0 million in expenses being called out by the company on the conference calls are probably set up costs (systems, administration, etc.). And also some of the "road show" marketing that the company has been doing with signing up dealers and even sending the vehicle around the country to increase awareness.

They may have more expenses when they actually go live (distributing to the 45 - 60 dealers), they may have less. We don't know.

But based on the expenses we know right now (the $3.0 to $6.0 million), what it tells me is that at 20,000 Smart unit sales, Penske needs to make $150 to $300 per vehicle to break even. And at 40,000 units (so 2x the reservations) the company needs to make $75 to $150 per Smart to break even.

To see the entire article, please visit http://transport.seekingalpha.com/article/40757

[RLove]

Still my biggest question, and amongst all the numbers in the article I don't see a clear cut answer is, will the dealers be tacking on a huge premium to what appears to be a popular car that will arrive in fairly limited numbers?

I know at their introduction, Toyota FJ Cruiser, Miata, MINI, and New Beetle, (to name a few off the top of my head) all arrived with some sort of additional dealer charge whether it was a blatant upcharge on the sticker more subtle..."you must buy this package (of worthless, grossly inflated extras) on this car."

This is the only thing that would kill my purchase. I like having the newest, most sought after car out on the road, but I won't pay a huge premium for it. From the sound of this article, it's laying the groundwork for justification of just that. Not only will the Smart be popular, but with a limited supply and the ever-rising fuel prices, I can see the dealers rubbing their hands together in anticipation.

I just saw the news this morning that $80/barrel gas could be just weeks away with numerous factors that could send it up in a hurry. The right car at the right time (almost) for sure.

[SmartCard]

let's hope not.....to me if Smart is going to advertise the price as "starting under...." the dealerships better stick to it! From my personal experience with purchasing two other "hot release" cars, in the first instance with the PT Cruiser, some Chrysler dealers did indeed add markups (usually $1000 to 2000) or extra packages like undercoating, etc. However most MINI dealers did seem to stick to the MSRP in most parts of the country, and the car you got was the car you exactly ordered, no hidden "strings" attached

What I'll be curious of is how they will handle the excess of orders above the production run ....especially since I've just recently registered. I think I've seen 16,000 units somewhere - is that number accurate? And how will the number of cars be distributed amongst the dealerships? Equally? ....or will the dealers who are awarded dealerships first get higher numbers? Chrysler really mis-handled the first year's allocation of the PTC. Each dealer had their own list of orders, based on order date, and could fill them one by one based on what Chrysler would allocate them monthly. Some could get 100 month while others just 2 or 3. So even if you ordered it months before someone else, some one else would get "your car" sooner. Then to top it off, when it came to the end of the production year and you weren't going to make the cut, you had to re-order for the next model year! On the other hand with MINI, I think the allocations were more uniform (although I ordered mine during the second year), and your order would automatically roll into the next production cycle (year). It will be interesting to see how it all plays out.....

[Zacman]

To answer the question of dealers adding premiums to the sticker price, I am including a copy (exact) of the response I got from Customer Service - via the Smartusa web site. Note that I wrote to them during evening hours,,, and got the response within minutes. Go figure. Here is the response.......

Dear smart Enthusiast, Our dealership organizations will be announced during the second half of 2007. Our dealerships will provide maintenance and servicing, however specific options have not been determined. smart USA is dedicated to superb customer service. As a result of this dedication, no authorized smart USA dealer will be allowed to charge over the sticker price for a new smart fortwo. However, please keep in mind that the prices shown on our website are tentative and may be changed before the 2008 launch. The price does not include taxes, license, destination charges, and other fees that come standard whenever purchasing a new vehicle. Thank you for you interest in smart USA. You will be hearing from us soon! Jessica Ratcliff Customer Service www.smartusa.com 1.800.smartusa

[SmartCard]

That's good news!

[shack01]

Wow, I hope Zacman's info holds up when the cars really hit the dealerships. I live in Las Vegas but bought my MINI in Salt Lake at MSRP vice here with a $2500 dealer mark-up. (I really don't see the need for expensive "undercoating" here in the desert! )

On a similar note, can my deposit be transferred if the local dealer decides to gouge us early adopters? And if so, what will happen to my priority, (assuming there is some sort of organization to registration order and purchase opportunity)?

tm

[TomCat]

Originally Posted by shack01

Wow, I hope Zacman's info holds up when the cars really hit the dealerships. I live in Las Vegas but bought my MINI in Salt Lake at MSRP vice here with a $2500 dealer mark-up. (I really don't see the need for expensive "undercoating" here in the desert! )

On a similar note, can my deposit be transferred if the local dealer decides to gouge us early adopters? And if so, what will happen to my priority, (assuming there is some sort of organization to registration order and purchase opportunity)?

tm

No transfer allowed.
From the reservation email:

"Your reservation is non-transferable. Any attempt to assign or transfer your reservation will result in the cancellation of your reservation and a return of your reservation fee without interest. "

[SmartCard]

Of course whether that means non-transferable between dealers, or just the more usual non-transferable between individuals (from you to me), that's a good question!

But another troubling line from that email is:
"Although you have indicated a preferred model and color choices on this form, there is no guarantee that the smart car offered to you will match the preferences you have indicated."

Holy sh!t Batman! Maybe rtekgroup was right in the other thread!

[shack01]

Interesting. I read the non-transferable clause as being between individuals also; which is to be expected. If I show up at a dealer in Timbuktu with my reservation papers, I would imagine that he wouldn't care where my home address is. Of course, that could be way off base. I guess for now I will hope that the MSRP holds for ALL dealerships.

tm