Penske Automotive Group Inc (PAG) 2009 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Penske Automotive Group fourth quarter 2009 earnings conference call. The call today is being recorded and will be available for replay approximately one hour after completion through February 26, 2010. Please refer to Penske Automotive's press release dated February 4, 2010, for specific information about how to access the replay.

I would now like to introduce Tony Pordon, Senior Vice President of Penske Automotive Group. Sir, please go ahead at this time.

Thank you, Laurie, and good afternoon, everyone and welcome to our call. Press release detailing Penske Automotive's fourth quarter results was released this morning and we posted it on our website at www.penskeautomotive.com. Participating on the call today are Roger Penske, our Chairman, Bob O'Shaughnessy, the Chief Financial Officer and JD Carlson, the Controller. At the end of the call we'll also open the line up for questions, after which we will be available by phone to answer any additional questions you may have.

Before we begin, I would like to remind you that we make forward-looking statements relating to Penske Automotive on this call. Actual results may vary because of risks and uncertainties including external factors such as consumer credit conditions, interest rate fluctuations, changes in consumer spending, macroeconomic factors, or adverse conditions affecting a particular manufacturer or part supplier and other factors over which management has no control. Any such statements should be evaluated together with the information about Penske Automotive and our public filings including our annual report on Form 10-K.

During this call we will be discussing certain non-GAAP items such as adjusted income from continuing operations and adjusted earnings per share from continuing operations. There are no adjustments relating to the fourth quarter of 2009. Adjusted earnings discussed on this call exclude the items outlined in the reconciliations included in the selected data tables at the end of our press release. We believe this non-GAAP disclosure improves the comparability of our financial results from period to period and is useful in understanding our financial performance. At this time I'd like to introduce the Chairman of Penske Automotive, Roger Penske.

Thank you, Tony and good afternoon, everyone, and thanks for joining us this afternoon. Today we reported fourth quarter EPS from continuing operations of $0.21 per share which compares to an adjusted loss of $0.05 per share last year in the same quarter. Income from continuing operations attributable to PAG of $19.3 million which compares to an adjusted loss of $4.2 million last year. I think Q4 results were driven by strong performance in the UK. Our brand mix, our geographical diversification, the continuing benefit of the cost saving initiatives we implemented during 2009.

Turning to our operating results, total retail unit sales were up 58,702 units, up 10.9% compared to last year, and our total revenues increased 13.4%compared to last year including a 15.5% increase in same-store retail revenue. Excluding the effect of changes in foreign exchange rates, same-store retail revenues were up 13.7%. On a same-store basis our business generated double digit increases in new vehicle, used vehicle and F&I revenues in the quarter. The service and parts business was down 1.6% on the same-store basis due in large part in the decline of warranty repairs, our pre-delivery inspections and overall used car reconditioning. However, we did experience improvement in customer pay during the quarter.

Looking at our revenue mix in Q4, domestically we were at 62%, internationally 38%, and that compares to the same quarter in 2008 when the US was 69% and international was 31%. The big three was 4%, our volume foreign business was 29% and our premium luxury was 67%. During the quarter our gross profit was up $47 million and our overall gross margin was 16.1% consistent with last year and our retail margin was 17.2% which is also consistent with last year. At the retail level our margin remained strong. New vehicle of 8.4%, used vehicle 7.6% and service and parts at 55.9%. However, our margin on the distribution business was negatively impacted by $1.4 million or $0.02 per share for reserves for incremental incentives we established relating to our 2009 model year inventory. During the quarter, our adjusted SG&A was up $18 million due to largely to the increase in compensation relating to the increase in gross profit. However, SG&A declined as a percentage of gross profit to 83.3%.

Let's move on to the balance sheet. Our total inventory was $1.2 billion up $131 million since September, but down $277 million since the end of last year. The increase in September included were up approximately $120 million on new and $12 million on used. At the end of the quarter our word wide day supplies was 52 days on Newcomb paired to 105 at the end of 2008 and 41 days compared to 42 days . Our CapEx expenditure in 2009, our gross CapEx was $90 million on a net basis it was $88 million. We currently expect CapEx in 2010 of approximately $60 million. We're also going to evaluate real estate and sale lease back opportunities as we go through the year both domestically and internationally.

Turning to our liquidity and debt, I'm pleased to report that we reduced our non-floor plan debt by $117 million during the year. As a result our debt-to-capital ratio decreased from 57% to 50% during the year. As of December 31, we had $946 million of non-vehicle debt, a decrease of $25 million since September and during the fourth quarter we paid down $10 million of our US term loan bringing our total reduction in 2009 to $60 million. Our term loan balance is currently $149 million. As of the end of the year, we had $358 million of availability under our credit agreements and in February of this year, we purchased $44.1 million principal amount of our 3.5 convertible notes for $44.4 million. In total, we have purchased $113 million of our convertible notes and have $262 million outstanding. We paid for these notes with existing working capital and borrowings under our US credit agreements. With our February repurchases, we used our remaining repurchase authorization. However, our recent board meeting approved an additional $150 million of authority to repurchase stock, debt, or convertible debt.

Looking at acquisitions during the year, we acquired four franchises and we expect they will generate on an annualized basis revenues of approximately $100 million. In total we paid $3 million of goodwill in connection with these acquisitions. In 2010, we announced the acquisition of an Audi VW business in California in January and we expect this to contribute approximately $80 million in annualized revenues. We continued to be selective on our acquisition activity and are not providing acquisition guidance for 2010.

Turning to Smart. Smart wholesale 13,772 units in 2009 including 4400 in the second half of the year. We appointed Jill Lajdziak as our new President. We recently launched new incentive programs designed to provide consumers additional choices in an effort to stimulate sales. We also launched a series of road shows and test drive programs in an effort to highlight the fortwo to customers in cities around the country. On the product side we look forward to the electric version of the Smart fortwo which will launch later this year. We currently expect to receive more than 250 of these vehicles. We also recently awarded a new Smart franchise in Puerto Rico which we expect to begin retail operations some time later this month.

Let me talk about Toyota before I finish, and address their current recall campaigns. First, our customers have been very understanding during this process. Second, I think Toyota's on the ball. They're communicating with us daily and are taking the necessary steps to restore customer confidence in the Toyota products. It's noting that there are separate recalls, the sticky accelerator pedal, the AOA repair involves placing a shim in the pedal assembly. This repair takes approximately 0.7 hours and generates warranty sales of approximately $70 per repair order. The floor mat entrapment, 90 L recall involves different steps and requires more labor and this repair takes approximately two hours and generates warranty sales of approximately $220 per repair order. We're working very closely with our customers to schedule appointments. We're offering complimentary vehicle inspections when they come in for repair. We've also assigned extra staff to the service drive and have expanded our service hours in order to accommodate the increase in customer activity. Today our technicians are fully trained on the recall repairs and many locations have dedicated technicians doing nothing other than service recall for the related traffic. To date, we've performed more than 18,500 repairs related to these programs.

In Summary, we at PAG are doing everything we can to deliver the same outstanding service that our Toyota customers are accustomed to. I'm confident that Toyota's committed to addressing these issues favorably and we will collectively work to retain loyal Toyota customers. Further, we expect Toyota to take aggressive steps to maintain its market share and we have full confidence in the Toyota brand. In closing, thanks for your attention and let's open it up for questions. Thank you very

Thank you. (Operator Instructions) We'll go to the line of Rick Nelson with Stephens. Your line is open.

Hi, good afternoon. This is actually Nathan Mendes sitting in for Rick who's traveling. Roger can you give us a little color on regional areas of strengths and weakness during the quarter? In particular parts of the country have had severe weather. How has that impacted the business and what does that look like in the current quarter?

Well, I think that I don't want to give you a weather report, but the people who live in the Northeast, we've had a tremendous snowstorm activity and in fact Washington, we were down almost for a week, but I think when you look at the business and you look really at January we had, if you'll look at an annualized SAR, we had 8.6 million vehicles would be annualized based on the January results and that is only up 100,000 units from the same period last year in January. The one thing that's changed the fleet business has doubled. It's gone from 1.1 million to 2.2 million. So I would say that we started off January actually slower than what the month of December was, margins obviously came down in December, but I feel that overall that the SAR right now, we're operating at about a 10.6 to 10.8. So to me the weather is obviously related to some of I think the impact in the Northeast and maybe down as far as Atlanta, but to me we're also trying to digest the Toyota recall to see what kind of impact that might have.

If we just looked at February by itself, we looked at that here, our team has, we think that our new vehicles will be down about 12%, views will be flat and we'll generate somewhere between 500,000 and 700,000 in gross profit taking care of the recall campaigns for Toyota. So I think that's going to balance out hopefully as we go through the quarter and obviously for us, we have a registration quarter each year in March and also in September. So we're hoping and counting on our UK operations to meet their forecast. When you look at the UK, we had a VAT change from 15 to 17, value-added tax in December going into January. We saw some increase in inflation for the month, but they expect that to come down, that was a by-product of this VAT. So we see that market stabilizing. We had a great year there and more important is that the scrappage or cash for clunkers continues to be in progress there. There's approximately 400,000 is the cap. They're at 320,000 at this point, but of that 320,000 only 5% are premium luxury and that's the market we play in. So that would be about 15,000 units, so we really hadn't gotten a big lift out of that because we're not really in the smaller vehicle business there. So I think overall when we look at the quarter, we really got to get out of this mess of weather and I think that we're seeing a SAR that started off slowly.

Okay, great. Thanks for that. And then if I could squeeze one more in. Can you comment on the sequential weakness in used gross margin? What are you seeing at auction and if you can comment for this quarter or for 2010, how should we think about 2010 playing out?

Well, I think what's happening, we had a big used car move during the year and with fewer new cars being sold over the last say 18 months, we're paying more to get used cars and that keeps us from getting maybe the margins we've had in the past because your cost of sale has gone up and I think the consumer is probably limiting what he wants to pay for used and it would move into new. I think that's going to drive some of the new business.

And at what point, with that at what point do you see a lift in margin as you start to see more trade-ins come in?

Well, I think that people, because of the tightness of used cars, we might see people selling more cars privately than what they trade. You'll have cars coming off leases which will be good. We'll be probably a number of the rental cars coming into the market where the manufacturers have in house options, but I think that depends on the new car market. Really if the new car market goes up we'll see some more used, but I think from our perspective, we have been running in the 8% to 9% on the used side which I think is pretty good.

Great. Thanks a lot. I'll get back in the queue. Good luck with the rest of the quarter.

Thank you very much Nathan.

Our next question is from the line of Matthew Nemer with Wells Fargo Securities. Please go ahead.

Hi, good afternoon Roger.

Hi, Matt.

So just to follow-up on that last question on the topic of used vehicles, some of your peers have reported weak unit sales here in the US and obviously weak margins as well, and I'm just wondering if you can kind of break out the used numbers and give us a better sense of what's happening just in the US market?

Well, I think what's happened, things have kind of flip flopped. If you looked at our numbers for the year of 2009, we were down not to the extent we were on new cars. So people because of advanced rates for on an F&I basis, the ability to finance and really the attractiveness of many of the used cars because the values were so low, there was a big jump between new and used, so they drove us to more used car business. What's happened now is the cost of sales on used has gone up. We see that more people might be deciding to make the decision to go to a new vehicle and when you look at the credits, it's pretty easy today with the incentives out there to drive people to new cars. And I think when you look at the average gross margin between 2008 in the fourth quarter and 2009, we were up a couple hundred dollars and when you look at it overall, including the UK, we were up $462. So we saw some increase in gross profit, actually dollars during the fourth quarter and I think that should sustain.

We've driven our process pretty hard on used margins and I think that you really aren't competing with the guy down the street, inner brand competition if you have good used cars. So I think CarMax has done a good job and the way they sell their cars and I think we've got to be better. When you look at the one-to-one ratio we have in the UK, we were at 0.5, 0.6 here and I think one of the things we have to do is look at our used. We also have a Sytner net in the UK where we have a wholesale auction site obviously because of the geography we can do the whole country, but we put everything that's not going to be retail, we put it on our auction site and based on retail first, if we don't retail it we put it on that site and that's available to auction every day. On top of that we've added a new element where anything that's going to be traded is coming in within the next 45 days and the particular location is not going to retail it. They put it up online so we have the opportunity internally to take those vehicles from location to location. So we're trying to maximize the used car side of the business because that's the one that's going to sustain itself through these troughs.

Okay, and then just a follow-up question on the UK. Obviously you've got the March registration month coming up and I think with some of your brands folks are in ordering cars in February for delivery in March, if I'm not mistaking. So just wondering if you've seen kind of any early action for March deliveries, in the UK, if there's any way to get a read out of that.

I guess in your terms we're building the book, right? We see the book coming together for March. Obviously, there will always be incentives by the manufacturers to try to meet certain numbers, but we certainly haven't seen anything that would be negative. One thing we have seen would be that the used car business, because we haven't had the opportunity to buy as many used from the manufacturer because of the shortage of used has some impact on our overall used total gross profit.

And then lastly, you bought back a nice piece of your convert and you still have plenty of time to go over a year, but could you just give us an update on kind of what you're thinking in terms of the rest of the convertible bond that's puttable back in 2011?

Yes, April is when that's puttable and we have $262 million out. I think you really have to look at where we are. I think we'll use our working capital generation over the next 12 to 13 months, we'll have at the end of the quarter we'll have $250 million credit line availability and then there are a number of alternatives in the financial markets which we can look at, exchange convert, a new convert and/or straight subdebt. So we've got a number of things and with our Board today has given us the authority to repurchase back another $150 million we can use for a number of actions and we aren't expecting any equity at all in the next 12 to 13 months to handle this puttable product.

Okay, great. Good luck this quarter. Thanks Roger.

We have a question from the line of John Murphy with Banc of America.

Good afternoon Roger.

Hi, John.

When we look at the acquisitions that you made in 2009 and the Audi VW that you made recently, it looks like we're really not paying much at all for their acquisitions. I was just wondering how these acquisitions are coming to fruition? It doesn't seem like you're out there hunting real aggressively based on your comments, but these great acquisitions seem to be coming at you for very little cost. Are there going to be more of those and are you just a better fisherman out there looking for this stuff or are there relationships that are helping you out with this? Just trying to understand that.

Well let me say this. I think one of the things that we have in place both internationally and domestically is we have brand managers and these brand managers obviously have their heads in these markets where we have scale. So we're always looking for opportunities and I think the relationships we have with the OEMs, we're on a list obviously when these things come about.

Traditionally, there's been a number of us maybe looking at the same particular acquisitions, but today, we have a criteria based on what is the CapEx requirement, is it a glue on, can we consolidate offices and maybe it's a troubled situation. If it is we seem to be able to get into those quicker and are able to commit to the OEM that we can close and many of those have been products that we've been able to execute on over the last 12 months. So both internationally and domestically, so we're going to be careful on our acquisitions. I think there's a disconnect maybe today on the buyer and the seller and no question that we're going to see maybe lower prices. There's no question that many of the multiples, I think Mike Jackson said it that people are considering what they did in the past. Well of course we're going to look at forward earnings and the current situations on any multiples and I think we're going to be very prudent as I said we're not going to announce a maximum acquisition stream that we'll try to generate this year.

Okay, and then next on parts and service, revenues on a same-store basis down 1.6%, but very strong gross margins 55.9%. What's driving that? You'd imagine negative leverage, but it's actually positive leverage. What's driving that great gross margin and is there the potential as we step forward for parts and service revenue to potentially improve from the 1.6% decline or is warranty really going to be a tail for a while here?

Let me say this. With fewer new vehicles coming into the market it's going to drive -- because typically we have a 24 to 36 month standard warranty and without those vehicles coming in the market we're going to see an impact across many of the brands. Now BMW, we have a service capability there that the customer buys when he buys the vehicle. So we have that customer coming back because of the sales process. I think -- I don't think, I know that the quality of the vehicles that we're servicing today is much much better. We saw this start to deteriorate from an overall basis. It used to be 50/50. I'd say today that warranty is 32% to 33% of our overall business so we'll see some deterioration there.

On the other hand if people are not trading their cars, at least they're adding higher mileage and with that, I think there's -- we'll see more service and that certainly, we need to go out and get these customers and with the complexity of the vehicles, we're going to see these customers come back for service, but we're getting into more Quick Lubes. Honda was a big proponent of that. Toyota we're doing that, even on the high lines where we're attracting for tires. We have rapid repair which I think is key and these are the dents, this is the wheel repairs that typically went to a third party and all of those are counter measures that we're using, but to me, I think that we're maintaining the margin. Actually we get a higher margin on the customer labor than we do on warranty because warranty is negotiated at some 10% to 15% lower than your standard door rate. So we'll continue hopefully to see this margin go up. One of the benefits we have when you look at our billion one, billion two, billion three and service sales almost 10% of that comes from our body shops and that's a continuing stream of business.

And lastly just on Smart, it sounds like the strategies maybe to expand a little bit geographically into Puerto Rico, but are there any other initiatives there to offset the weakness in volume or do you see volume coming back? What's the plan for Smart?

Well let me just position. We've got 40,000 customers driving Smart Cars today and that happened in roughly 18 months. We had a reservation system, I think the reservation system obviously we've utilized a majority of those, interested customers have put deposits down, reservation $99. And what's happened, we've been deliverers for now probably a year and a half and when you look at the numbers, we were strong through last year July into August. We had a big month on cash for clunkers, but then they basically -- fuel prices went down and this car initially was probably a car that people wanted a second or third car where in Europe or in France, in Italy, it's utilized as a standard driving car that you would use, but we've seen this whole segment when you think about the VW beetle which has been in the market for I don't know how long went from 26,000 to 14,000, you had Scion off almost 50%, Yaris off 40%. So I think we're in the same neighborhood, but what we've done is the counter measures that I think I've talked about.

We're going back on the road. We've got the Electric vehicle which I think is going to be really a home run in this market. I've driven them, certainly we've had the test in the UK inside the M25 for almost two years they've run 125 vehicles. So we'll get our first vehicles over here and we'll place them strategically and then they will be a production item the following year. So we've got to add-on to the product line and I think that at the end of the day I'm looking, is there other vehicles that potentially we could put through this network. We've got a strong network, good dealers. So to me it's a change, going back on the road, people are test driving this vehicle, we've got a big Chicago Street event that we have coming up with the auto show. I've talked with Susan Hockfield who is the CEO of MIT. They're very interested potentially electric vehicle program, so there's lots of initiatives. This is a unique vehicle. Obviously our friends at Mercedes Benz want this vehicle because it helps them in their cafe and certainly the zero emission states here in the US. So we're fully committed and I think with Jill Lajdziak, we're just doubling our efforts. I'd have to say we had a great success coming out of the box. Now all we have to do is sustain a value here and a run rate and I think that we have the plans in place.

Great. Thank you very much.

Our next question is from the line of Christian Buss with Thomas Weisel Partners. Please go ahead.

Christian, how are you?

Good. How are you doing? Just wanted to ask about the lift in new and used car ASPs. Can you talk a little bit about the dynamics there?

You said the lift in gross profit?

In average selling prices.

Oh, I'm sorry. I think that what's really happened is advanced rates, when you look at the finance companies as we got towards the end of the year, I think credit has loosened up and we're seeing higher advance rates. And in the UK specifically, we have a number of vehicles which they actually register and where we might sell a demonstrator here as a new vehicle with a few miles on it, in the UK, they're sold as used and some times that has driven our used car margins down, but at the end of the day we've seen more of those vehicles being sold today as used and they are higher MSRP or higher sales number. That's helped that I'm sure, because we're up $2600 in the UK and we're up $1800 in the US on new vehicles.

Is that sustainable do you think?

I'd have to go back. I don't have the information with me today, but I can get Tony to follow-up with you. I think we'll see higher price really.

All right, thank you very much.

Our next question is from the line of Scott Stember with Sidoti & Company. Please go ahead.

Hi, Scott.

Hi, Roger how are you?

Good.

Could you break out what the same-store sales on for the US versus Europe?

Same-store, total sales?

Yes, total sales for the US versus UK.

Well internationally on a new unit basis, same-store was up 4.4% and international was up 31.9%. So overall we were up 10.5% and on used we were up 5.8% overall 3.6% in the US, and 9.7% internationally.

And you said the customer pay did relatively well in the quarter. What was the percentage increase?

1.6%.

Okay, and with regards to Toyota, could you talk about how some of the brands that were not impacted by the recall, how they're selling and some of the other peripheral brands like Lexus?

Well, Lexus has got a tremendous following with our customer base and I think it's really too early for me to state the impact on Lexus. I gave you a Toyota number just for February. We're looking at about 12% down year-over-year.

On the other hand when we look at the other brands, I think as we talked about earlier in the call that the retail SAR started out fairly sluggish, practically down from the month of December. So I don't think that we can look at the first six weeks of the year and think there was any big gainers or losers because of other than Toyota based on the recall. And I think you'll see Toyota will protect the share with strong incentives. I'm very impressed watched the Olympics last night, was very impressed the ads they're running to try to assure their customer that they're there to support them.

That 12% increase you referred to earlier, decrease was for Toyota?

Yes, it was. That was for February. I knew you'd be asking that question. So we just looked at where we are from the stand point, the first 18 or 19 days and kind of extrapolate that and it looks like about 12% and on used, we're flat.

Okay and just last. Ultimately when this whole process is done, the thought process is that the warranty work that you will perform will essentially offset any loss used car sales. Do you ascribe to that theory as well?

Yes, I do. I think it's too early in the first quarter to know exactly how that's going to balance out, but when you think about the number of ROs that we're going to have, I think if there's 8 million or 9 million vehicles out there that have to be touched and there's 1100 dealers, I think that there's going to be a surge in the service. One thing that I don't know is the impact because of the recall going to impact our normal customer labor. That's one thing we're going to have to take a look at. We just don't know that at this point.

That's all I have, thank you.

And we have a question from the line of Ravi Shankar with Morgan Stanley. Please go ahead.

Hi, Ravi.

Hi, everybody.

How are you?

Doing well, thanks. So to summarize the situation, is it fair to say that it's normal service resumed on the new vehicle side or are people still being cautious here?

Say that again, you're saying on the Toyota side?

On the Toyota side is it fair to say it's normal service resumed on the new vehicle side or are customers still being cautious about the brand?

Well I think they might be confused and there might be more customers out maybe not driving directly to their Toyota dealer, they might be going to other brands, but the residual value to a Toyota dealer. And that Toyota dealer is significant and with the attractive sales deals they have out there, I think they're going to sustain the customers. I think that's the key thing, to make it economically worthwhile to stay with Toyota. Today, all of our vehicles that we have today are ready to be sold. So there's nothing as far as an inventory lapse or we don't have vehicles to sell and I think right now we see a run rate that's a little bit less as I said 12%, but I think that's going to all will really average out over the next several weeks.

Customers are fine. We're not seeing, there might be an irate, we had a couple deals that we unwound where someone bought the vehicle, bought a vehicle and within 24 hours of hearing all of the rhetoric on TV and radio and newspaper that we came in and quite honestly, those customers, we're very happy to support them and we have taken a few vehicles back.

And the customers that you said were pretty confused about the situation. Do you think they have been going to competing brands or have they kind of just put off their purchase for a while? I'm just trying to get a sense of if there's going to be some kind of pent-up demand coming up once this thing settles down?

I would say this. The people that want to buy a car and they're driving a Toyota, I think we'll get a chance to communicate with them and have a sales process. They might though in that process where they wouldn't look at competitive brands, they might do that prior to buying, but hopefully, the residual value that we placed on the Toyota would be more than a domestic might do and you'd see that from competing brands. And certainly, from a used perspective, there's no question that we're seeing little or no impact on the recall on the used traffic.

Got it. Also on the commercial truck side, are you seeing trends in commercial truck demand that caused you to be more optimistic in 2010? It looked like equity income from PTL was a bit weak in the quarter. Is that something that's going to rebound in 2010 do you think?

Well when you think about PTL and you look at the fourth quarter, obviously we look at the trucks today and over 80% of the freight that moves is on trucks and I think that 2009 we saw the bottom of the heavy duty truck market and the US truck tonnage is beginning to improve. In fact in December, the tonnage increased a little over 6% and they're saying that freight is going to grow.

This is the ATA specs and in fact we talked about it yesterday. They're expecting it to grow 4% to 5%. One of the things that we have had during 2009 which is kind of an anomaly, typically we released a tractor for let's say $500 a week and there's $0.10 a mile, so you have a fixed variable. In the past the fleets that are leased also probably have some business with common carriers and they just cut out the common carriers. Well they've done that. On top of that they're running less miles. So we saw about $30 million less variable income from the mileage perspective during last year which obviously has some impact. As these units start to get back on the road and I think you'll see the utilization now has moved up to over 82%, that's what the carriers report to the ATA. We're also seeing that our rental utilization we've downsized our rental fleets significantly and we're starting to see that utilization getting in the mid 80s which is important.

Our one way business interesting. More transactions, this is rent it here leave it there, but of shorter duration. So I'm not sure what's driving that social behavior, but we don't see the long distance one way as we've had in the past. So utilization is better on rental. One thing in our business which is good that 75% of the revenue, 50% which would be leased and contract maintenance and 25% logistics, these are all long term contracts which is have CPIs with us. So we're very stable. The only thing we have to do is be sure we right size our fleets, but this will come back and we think there has to be 220,000 trucks sold a year to maintain a proper age of trucks while this year they sold only 124,000. So there's going to be quite an increase as we go forward.

That's great color. And finally, did you say that 2010 CapEx is going to be $60 million?

Yes. That's the gross CapEx and remember we didn't do any sale lease back. We did nothing from a stand point of any mortgages and we have properties probably if you aggregated the US and internationally, close to $100 million, it could be candidates for some type of sale lease back or mortgage, but at the present time, we're keeping that in our pocket.

Got it. Thanks very much.

Thank you. We'll turn it back to our speakers for any closing remarks.

That's all I have, thanks for joining the call. We'll see you next quarter. Thank you very much, Laurie.

Thank you. Ladies and gentlemen, that will conclude our conference call. We thank you for your participation and for using AT&T's executive teleconference service. You may disconnect at this time.