Penske Automotive (PAG) CORRESP Correspondence with SEC

October 26, 2005

Michael Moran, Esq.
Branch Chief
Securities and Exchange Commission
Washington, D. C. 20549

Re:	United Auto Group, Inc.
	File No. 1 – 12297
	Form 10-K for the year ended December 31, 2004

Dear Mr. Moran:

     Pursuant to your request, we have prepared the accompanying balance sheet and cash flow data of United Auto Group, Inc. The information presents (1) the historical balance sheet as of December 31, 2004, as reported and as reclassified to present floor plan payables to lenders unaffiliated with vehicle manufacturers as floor plan payables non-trade, (2) the historical balance sheet as of June 30, 2005, as reported and as reclassified to present floor plan payables to lenders unaffiliated with vehicle manufacturers as floor plan payables non-trade, (3) the historical statement of cash flows for the year ended December 31, 2004, as reported and as reclassified to present floor plan payables to lenders unaffiliated with vehicle manufacturers as floor plan payables non-trade within financing activities, (4) the historical statement of cash flows for the six months ended June 30, 2005, as reported and as reclassified to present floor plan payables to lenders unaffiliated with vehicle manufacturers as floor plan payables non-trade within financing activities. The reclassified statements of cash flows have been presented on a net change basis as provided for in paragraph 13 of SFAS No. 95 due to the fact that floor plan balances are payable on demand or within specified periods of time and the volume of floor plan transactions is high. In addition, outstanding floor plan notes payable balances are typically repaid within 60 days.

     While the Company believes it had a reasonable basis for its historical presentation, it is our intention to present the balance sheet and cash flows in our September 30, 2005 Form 10-Q and all prospective filings in the fashion outlined on the accompanying exhibits, with consistent reclassification for all prior periods. The Company does not believe retroactive restatement is required, and requests that the staff not require it to amend and restate previously filed financial statements. In addition to the views expressed in our letter of August 23, 2005, the Company considered the following factors in reaching its conclusions:

a.

From the time of United Auto Group, Inc.’s initial public offering in 1996 to the present, prevailing industry practice in the retail automotive business has been to treat all floor plan transactions as operating in nature.

b.

The operating versus financing classification of these transactions was questioned during the Staff’s review of the Company’s initial registration statement in 1996, and the Company provided an explanation of its basis for such presentation. At that time, the Staff did not object to the Company’s presentation of cash flows and the registration statement was declared effective. For reference, following is the content of the Staff’s comment and related response from our September 13, 1996 letter:

Staff Comment No. 32. Supplementally advise the staff why the floor plan notes payable activity is considered an operating activity rather than a financing activity on the statement of cash flows.

Company Response. Substantially all of the Company’s automobile inventory is financed under floor plan arrangements. Under these floor plan arrangements, the Company purchases its inventory from the Manufacturer, which purchases are financed through a finance subsidiary of the Manufacturer or another lender. Cash is not disbursed by the dealer until the automobile is sold. Paragraph 23(a) of SFAS 95 states that cash payments to acquire goods for resale, including principal payments on short and long-term notes payable to those suppliers for those goods, should be classified as an operating cash flow. This treatment is consistent with a Technical Practice Aid for auto dealerships issued by the AICPA Technical Information Services Division. In certain cases the floor plan lender is not an affiliate of the Manufacturer, but in substance the transaction is the same.

c.	The Company and its peer group have historically reported floor plan transactions consistently in accordance with prevailing industry practice in all periods prior to September 30, 2005. It is the Company’s belief that industry practice has been considered an acceptable application within the hierarchy of generally accepted accounting principles.
d.	There is no change in reported income statements.
e.	The proposed reclassification of cash flows has no effect on the Company’s compliance with any loan covenants or other contractual requirements.

     In connection with the change in prospective reporting and related reclassification of historical financial statements outlined above, the Company proposes to include language consistent with the following in the notes to its financial statements:

Cash Flow Reclassifications
Certain information in the Statement of Consolidated Cash Flows has been reclassified for all periods presented. This reclassification is related to concerns raised by the staff of the U.S. Securities and Exchange Commission. Previously, the Company reported all cash flow information relating to floor plan notes payable as operating cash flows. Cash flows relating to floor plan notes payable to a party other than the manufacturer of the particular vehicle, including all floor plan notes payable relating to pre-owned vehicles, has been reclassified from operating activities to financing activities.

     The Company will also include a reconciliation of amounts reported in previous filings to the reclassified amounts in each period presented, and will address the effect of the changes to consolidated cash flows in Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Sincerely,

James R. Davidson
Executive Vice President — Finance

	December 31, 2004
	As Reported		Reclassification			Reclassified
ASSETS
Total Assets	$	3,532,801				$	3,532,801
LIABILITIES AND STOCKHOLDERS’ EQUITY
Floor plan notes payable	$	1,266,656		(337,894	)	$	928,762
Floor plan notes payable — non trade		—		337,894			337,894
Accounts payable		221,206					221,206
Accrued expenses		192,479					192,479
Current portion of long-term debt		11,367					11,367
Total current liabilities		1,691,708					1,691,708
Long-term debt		574,970					574,970
Other long-term liabilities		179,116					179,116
Liabilities of discontinued operations		11,972					11,972
Total Liabilities		2,457,766					2,457,766
Commitments and contingent liabilities
Stockholders’ Equity
Total Stockholders’ Equity		1,075,035					1,075,035
Total Liabilities and Stockholders’	$	3,532,801				$	3,532,801

	June 30, 2005
	As Reported		Reclassification			Reclassified
ASSETS
Total Assets	$	3,572,247				$	3,572,247
LIABILITIES AND STOCKHOLDERS’ EQUITY
Floor plan notes payable	$	1,168,460		(283,016	)	$	885,444
Floor plan notes payable — non trade		—		283,016			283,016
Accounts payable		254,667					254,667
Accrued expenses		206,693					206,693
Current portion of long-term debt		3,561					3,561
Total current liabilities		1,633,381					1,633,381
Long-term debt		604,576					604,576
Other long-term liabilities		182,363					182,363
Liabilities of discontinued operations		53,459					53,459
Total Liabilities		2,473,779					2,473,779
Commitments and contingent liabilities
Stockholders’ Equity
Total Stockholders’ Equity		1,098,468					1,098,468
Total Liabilities and Stockholders’	$	3,572,247				$	3,572,247

	December 31, 2004
	As Reported			Reclassification			Reclassified
Operating Activities:
Net income	$	111,687					$	111,687
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization		42,146						42,146
Amortization of unearned compensation		2,828						2,828
Gain on sale of investment		(11,469	)					(11,469	)
Deferred income taxes		21,419						21,419
Minority interests and other		3,178						3,178
Changes in operating assets and liabilities:
Accounts receivable		(25,053	)					(25,053	)
Inventories		(94,513	)					(94,513	)
Floor plan notes payable		108,661			54,708			163,369
Accounts payable and accrued expenses		79,647						79,647
Other		(50,700	)					(50,700	)
Net cash from operating activities		187,831			54,708			242,539
Investing Activities:
Net cash from investing activities		(237,747	)		—			(237,747	)
Financing Activities:
Floor plan notes payable — Non trade		—			(54,708	)		(54,708	)
Net borrowings (repayments) of long-term debt		(74,297	)					(74,297	)
Proceeds from issuance of common stock		129,371						129,371
Dividends		(18,411	)					(18,411	)
Net cash from financing activities		36,663			(54,708	)		(18,045	)
Net cash from discontinued operations		11,238			—			11,238
Net increase (decrease) in cash and cash equivalents		(2,015	)					(2,015	)
Cash and cash equivalents, beginning of year		13,076						13,076
Cash and cash equivalents, end of year	$	11,061			—		$	11,061

	June 30, 2005
	As Reported			Reclassification			Reclassified
Operating Activities:
Net income	$	56,088					$	56,088
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization		20,677						20,677
Amortization of unearned compensation		1,261						1,261
Equity Earnings		(1,251	)					(1,251	)
Minority interests		764						764
Changes in operating assets and liabilities:
Accounts receivable		(40,256	)					(40,256	)
Inventories		29,403						29,403
Floor plan notes payable		(71,714	)		48,307			(23,407	)
Accounts payable and accrued expenses		53,723						53,723
Other		6,121						6,121
Net cash from operating activities		54,816			48,307			103,123
Investing Activities:
Net cash from investing activities		(96,306	)		—			(96,306	)
Financing Activities:
Floor plan notes payable — Non trade		—			(48,307	)		(48,307	)
Net borrowings (repayments) of long-term debt		29,394						29,394
Proceeds from issuance of common stock		2,181						2,181
Dividends		(10,157	)					(10,157	)
Net cash from financing activities		21,418			(48,307	)		(26,889	)
Net cash from discontinued operations		15,949			—			15,949
Net increase (decrease) in cash and cash equivalents		(4,123	)					(4,123	)
Cash and cash equivalents, beginning of year		15,187						15,187
Cash and cash equivalents, end of year	$	11,064			—		$	11,064