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Stock market: UAG growth put on hold

United Auto Group (UAG) has bought so many dealers in the UK that it is going to have to suspend any further acquisitions.

Roger Penske, chairman and former racing driver, told investors last week (September 25) that there would have to be consolidation after the Ryland purchases. The pipeline has been shut down but only “for the balance of the year”.

In answer to questions in the US from an investor group, Penske said he was not interested in bidding for a listed company in the UK. “I don’t think that we might buy another plc. I don’t see that at all,” he said.

UAG is the second largest dealer chain in the US after the supermarket specialist AutoNation. Its turnover will be $12bn this year and a third of that will be in the UK. Penske said: “In the 2007 year, the UK will be annualizing at $4bn (£2.2bn).”

UAG has 326 dealers with only half in the US. Mexico and Germany have been the other target countries for development. The international diversification is a tactic to spread risk. Penske believes it unlikely that all economies will dip together. So far it has been a good call. Financial results just delivered show 29 consecutive quarters of record revenues.

Part of his business tactics is to expand with the growth brands. Toyota, BMW, Honda and DaimlerChrysler are the top four in that order and are responsible for 64% of sales. Ford and GM are just 15% and only half of those are US-built cars.

The surprise success has been a continued improvement in parts and service revenue, which is rising by 7-9% per year.

The maturing of UAG shows in the share price. For the first five years shares fell but climbed back to the float price in year eight and have now doubled in the last two years.

In selling the benefits of the UK to his investors, Penske revealed that UK purchases are 10-15% cheaper than in the US. He said that the High Wycombe dealer can make “£400,000-500,000 a registration month” and that Sytner BMW in Nottingham was “the number one profit earner”.

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