Penske Corporation History
Detroit, Michigan 48239
Telephone: (313) 592-5000
Fax: (313) 592-5256
Sales: $4 billion (1996)
SICs: 7513 Truck Rental & Leasing Without Drivers; 7948 Racing Including Track Operations; 5511 New & Used Car Dealers
Ranked among America's 50 largest private companies, Penske Corporation is a transportation services firm with major interests in truck leasing, diesel engine manufacture, auto racing, and retail automobile sales. Founded by former Indianapolis 500 racer Roger Penske, the company has revenues approaching $5 billion. Principal owner and CEO Penske has earned a reputation for building contenders on and off the racetrack with the simple business philosophy: "Effort Equals Results." His company's stunning turnaround of ailing businesses like General Motors' Detroit Diesel and Hertz's Truck Leasing is at least as impressive as his racing team's record ten Indianapolis 500 wins and nine national IndyCar championships.
The corporation operates in three distinct groups: transportation services, retail/service automotive, and performance automotive. The $1.8 billion (revenues) transportation services group includes the nation's second largest full service truck leasing and renting business, Penske Truck Leasing Co., L.P., and the diesel engine manufacturing company Detroit Diesel Corporation. The retail automotive group includes six California car dealerships that collectively sell more than 35,000 Cadillacs, Chevrolets, Hondas, Lexuses, and Toyotas a year. The automotive performance group is built upon the highly successful Penske racing team and also runs the Michigan International Speedway and the Pennsylvania International Raceway. Penske took this division, including its Competition Tire businesses and racetracks, public as Penske Motorsports Inc. in 1996. The Penske group's 1995 acquisition of more than 850 Kmart Auto Centers added service to its roster and made it the nation's largest independent tire dealer.
Origins in Founder's Successful Racing Career
Roger Penske attended his first Indianapolis 500 race at age 14, and he bought his first car with money from a paper route. Although he was "addicted to racing," Penske was also pragmatic; after earning a degree in business administration from Pennsylvania's Lehigh University in 1959, he went to work at the Aluminum Company of America (Alcoa) as a sales representative. But the world of work did not keep him from the racetrack.
In the early 1960s, while still a sales representative for Alcoa, Roger Penske became one of the most successful race car drivers around, competing in sports car, endurance, and Formula One races on weekends. His first win came in 1959, and over the next few years the accolades poured in. In 1962 Penske was voted Sports Car Driver of the Year by Sports Illustrated, The New York Times, and The Los Angeles Times. Having won five races in 1964, he left Alcoa for a job as general manager of the McKean Chevrolet dealership in Philadelphia. Having won the NASCAR Grand National in 1965, Penske retired from racing and bought the dealership. He returned to the sport in 1966 as the owner of Team Penske. The racing organization would go on to become the most successful in history.
Diversifications Contribute to Growth in the 1960s and 1970s
In the middle and late 1960s, Roger Penske's Chevy dealership prospered such that it generated capital for acquisitions, including a pair of specialty tire distributorships, Competition Tire East and Competition Tire West, and a small truck leasing operation. The truck leasing business soon enjoyed spectacular growth as private fleet owners discovered the benefits of leasing versus buying their trucks--purchasing, fuel supply, scheduled maintenance, and repair were left in the hands of the lessor, allowing the fleet operator to focus on the distribution and routing of their products. By 1969 Penske Leasing had 33 locations in the northeastern United States. The Penske Corporation was set up that year as a holding company for Roger Penske's automotive-related enterprises.
By 1971 Roger Penske had auto dealerships in Philadelphia and Allentown, Pennsylvania, and in Detroit. His nearly legendary attention to detail set the pace at the dealerships. Sales climbed, helping to fuel expansion into other ventures.
Started as a business, Team Penske in many ways revolutionized motor sports. J. Douglas Johnson of the Indiana Business Magazine credited Roger Penske with bringing "orderliness and professionalism to auto racing." One of Penske's racing competitors conceded to Forbes, May 28, 1979, "He markets his car and sets up sponsorship programs more effectively than anyone else." Moreover, the exposure on televised broadcasts of major racing events, including the Indianapolis 500, provided enormous value when compared with the cost of a 30-second commercial spot, benefiting Penske's other businesses immeasurably.
Renowned drivers like Mark Donohue, Mario Andretti, Bobby Unser, and Tom Sneva in the 1970s; Danny Sullivan, Rick Mears, and Al Unser Sr. in the 1980s; and Emerson Fittipaldi and Paul Tracy in the 1990s helped make Team Penske the most successful organization in the history of racing, winning more than 80 IndyCar races, among them a record nine Indianapolis 500 titles by 1994 and eight IndyCar National Championships. Penske's winning image was clearly valuable to the corporation's nonracing businesses--buying a new car from auto racing's most successful team seems just a little flashier than buying it from an average dealer.
Accelerated Growth Via Acquisition and Turnaround in the 1980s
Although Penske's businesses enjoyed satisfactory growth throughout the 1970s, its expansion accelerated in the 1980s. Sales were $254 million in 1981, but by 1988 sales had topped $2 billion. The first business segment to swell was truck leasing. The unit had enjoyed excellent growth throughout the 1970s, but in 1982, Penske entered a joint venture with the ailing giant Hertz Truck Leasing. The Hertz unit had lost $40 million in 1981, and the company considered unloading it altogether. Roger Penske was invited to tour Hertz's operations, and soon he agreed to merge Penske Leasing with Hertz's truck operations. Penske trimmed 500 jobs and 30 locations from Hertz. After one year, the new Hertz-Penske Leasing made $1.2 million. Penske's initial stake in the company was 35 percent. By 1986 the share was upped to 50 percent, and Hertz-Penske acquired the heavy-duty truck leasing business of another major company, Leaseway Transportation, for $94 million. The company grew to become the second largest truck leasing company in the United States behind Ryder System, Inc., although a distant second, as Ryder's sales quadrupled those of Hertz-Penske.
In June 1988 Penske Corporation bought Hertz's half of Hertz-Penske Leasing. Two months later, in August, Penske Corporation's truck leasing operations merged with General Electric Credit Corporation's Gelco Truck Services. The resulting company was a limited partnership named Penske Truck Leasing Co., L.P., with a Penske Corporation subsidiary as the general partner, responsible for operation of the firm. Penske initially owned 69 percent of the partnership and GE purchased another three percent in January 1989. The joint venture operated 400 locations and leased a fleet of more than 65,000 vehicles, but remained second to Ryder System in market share in the early 1990s.
Penske Corporation's retail automotive group also made large acquisitions in the 1980s. In 1985 the nation's largest Toyota dealership, Longo Toyota of suburban Los Angeles, came up for sale. Founded by Dominic Longo in 1967, the dealership had been the number one Toyota dealership in the United States since 1969. After Dominic Longo died in 1985, Penske agreed to buy it.
In 1988, Longo Toyota moved into a brand new facility in El Monte, California. The new facility covered 23 acres, employed more than 360 people, and boasted 104 service bays and 54 body shop stalls. Penske's continued emphasis on service was crucial to Longo's exceptional rate of repeat and referral business. The dealership carefully targeted its market. For example, it employed special teams of salespeople who were fluent, collectively, in Mandarin and Cantonese Chinese, Japanese, Korean, Vietnamese, and Thai, as well as Spanish and English, making it easy and comfortable for L.A. residents originating from the Pacific Rim to do business at Longo. Roger Penske's son Greg serves as general manager of the dealership. In 1989 Penske started Longo Lexus; for both 1990 and 1991 this dealership was the Lexus retail sales leader in the United States.
Late 1980s Acquisition Brings Challenges, Growth
In December 1987 Penske Corporation made its biggest acquisition ever and plunged into the large-scale manufacturing sector at the same time with the purchase of 60 percent of General Motors' $900-million-in-sales Detroit Diesel Allison division. Penske was approached in late 1987 by GM's investment banking firm, Salomon Brothers, with the possibility of a deal. General Motors hoped an entrepreneurial infusion could save the troubled engine-maker. Detroit Diesel's North American market share had declined from 33 percent in 1979 to three percent, and it had lost a total of $600 million in the previous five years. Problems with labor relations, product design, performance, and consumer service were the root of the trouble. GM lost its diesel customers to Cummins and Caterpillar, and despite sinking $100 million into an upgraded plant during the 1980s the automotive giant seemed incapable of turning the unit around by itself.
Penske Corporation's experience with fleet truck purchasing and its earlier operation of Detroit Diesel Allison distributorships in the East made the company an excellent choice as a partner. Roger Penske's $300 million infusion bought him 60 percent of the company and control of operations. He quickly began streamlining the new Detroit Diesel Corporation. The operating budget was slashed by more than $70 million by cutting jobs, consolidating facilities, and cutting unnecessary computer costs.
GM's poor management of the unit throughout the 1980s and uncertainty about the immediate future had depressed the morale of Detroit Diesel workers. Roger Penske set out to convince his new employees that their company would be competitive once again. In August 1988, several months after he began running Detroit Diesel, Roger Penske invited his 3,000 Detroit Diesel employees to the Michigan International Speedway for the Marlboro 500. After watching Team Penske drivers Rick Mears win the pole position, Al Unser Sr. in the Detroit Diesel-sponsored car lead for a time, and Danny Sullivan win the race, the Detroit Diesel employees were elated. But free race tickets were not Penske's only labor relations tool. He also made a point of scheduling regular meetings with union officials and members alike, thereby fostering a spirit of unanimity among the workers.
Revitalizing Detroit Diesel's work force was a key to improving the company's fortunes. Also essential was bringing a better product to market. General Motors had invested a good deal of research and development into a new engine--the Series 60. The six-cylinder, four-stroke diesel featured integral electronic controls, improved fuel efficiency, and durability, and was relatively low-cost. The new engine was well received in the marketplace, helping Detroit Diesel turn a profit.
In September 1988 Penske Transportation bought the diesel electronic unit injector line from GM's Rochester Products Division. Penske's transportation services group also expanded Detroit Diesel's product range through an operating agreement with Perkins Engines, a British subsidiary of the Canadian machinery maker Varity, formerly Massey-Ferguson, to market Detroit Diesel engines overseas and to provide smaller diesel engines for Penske to sell in North America. The arrangement gave Detroit Diesel a wide range of diesel engines, from five horsepower to 2,000 horsepower.
Penske's leaner Detroit Diesel began to win back market share by offering its customers significant savings. Confident of the subsidiary's future, Penske upped its stake to 100 percent in 1994. By that time, Detroit Diesel's share had rebounded to more than one-fourth of the heavy-duty North American market.
The 1990s and Beyond
In 1995, Penske acquired 860 Kmart Auto Centers for $112 million and renamed them Penske Auto Center Inc. The purchase allowed Penske Corp. to surpass Discount Tire Co. and become the nation's largest independent tire dealer. Under Kmart, the operation had lost $19 million on sales of $360 million in 1994. Roger Penske Jr., CEO of the new division, expected to double the business by 1999. The acquisition helped increase corporate revenues from around $3 billion in 1994 to an estimated $4 billion in 1996.
Roger Penske took his Pennsylvania, California, and Michigan racetracks, as well as the corporation's two Competition Tire businesses, public as Penske Motorsports, Inc. in 1996. Early the following year, Penske Motorsports moved to acquire a controlling interest in the North Carolina Motor Speedway, Inc. In 1996, the spin-off earned $10.9 million on revenues of $55.2 million.
Although it is clear that Roger Penske Sr. has come a long way from his first win on a motor speedway, he likens business to racing, noting, "If you want to get ahead, you have to make things happen. If you rest on your laurels for five minutes, there's always someone ready to pass you." As the champion driver and CEO neared his 60s, he appeared to be far from ready to "rest on his laurels."
Principal Subsidiaries: Detroit Diesel Corporation; Penske Truck Leasing Co.; Diesel Technology Co.; Longo Toyota; Longo Lexus; Penske Honda; Penske Racing; Penske Cars, Ltd.
- DeLorenzo, Matt, "Roger Penske: Multi-Talented Entrepreneur Just Keeps on Growing," Automotive News, January 18, 1988.
- Finch, Peter, "Roger Penske: Running on 16 Cylinders," Business Week, June 1, 1987.
- Frame, Phil, "Penske, GM Drift Apart After 20 Years," Automotive News, June 20, 1994, pp. 3-4.
- Johnson, J. Douglas, "Driven," Indiana Business Magazine, May 1994, pp. 8-11.
- Lowell, Jon, "Roger Roars Ahead: Penske Fires Up GM's Dying Diesels; Profits Replace Problems," Ward's Auto World, November 1988.
- Moses, Sam, "His Time is Money," Sports Illustrated, November 21, 1988.
- "Penske To Acquire Kmart Auto Service," Discount Store News, October 16, 1995, pp. 7-8.
- Sedgwick, David, "Leuliete's Job at Penske: Expand World Business," Automotive News, November 11, 1996, pp. 1-2.
- Ulrich, Robert J., and David Drushal, "Penske Races to the Top," Modern Tire Dealer, July 1996, pp. 16-21.
Vroom at the Top, (film) New York: Association Films, 1976.
- Woodruff, David, "Talk about Life in the Fast Lane," Business Week, October 17, 1994, p. 155-158.
Source: International Directory of Company Histories, Vol. 19. St. James Press, 1998.