HOUSTON, March 19, 2018 /PRNewswire/ -- Group 1
Automotive, Inc. (NYSE: GPI), ("Group 1" or the "Company"), an
international, Fortune 500 automotive retailer, today announced
that first quarter earnings will be negatively affected by weak
market conditions, including pressure on used car margins, as well
as costs associated with a series of long-term, strategic
investments designed to further strengthen the used vehicle, parts,
and service components of its business. The strategic
investments include: (1) the introduction of Val-U-Line, a
proprietary brand for high mileage pre-owned vehicles; and (2)
enhancements to aftersales and retention programs for critical
dealership employees.
According to Group 1's chief executive officer Earl Hesterberg, "Based on a strategic review of
our operations, we have reaffirmed that our used vehicle and
aftersales segments are the key elements of our business model,
which need to be strengthened to compete more effectively in the
auto retail environment as it continues to evolve in the future.
The recent peak in the new vehicle market in both the U.S. and U.K.
and the flood of nearly-new and off-lease used vehicles into these
markets are applying significant pressure to our margins, which
require that we seek additional used car and service volume to
compensate. To set us on that path, we have made the conscious
decision to make some significant upfront investments to support
our long-term strategies."
To support these targeted growth areas, the Company is taking a
series of actions, including expansion of used vehicle sales within
its existing facility footprint and a variety of investments in
dealership employees and technology.
In the first quarter, as a part of its used vehicle initiatives,
Group 1 launched Val-U-Line, a proprietary brand for older model,
higher mileage pre-owned vehicles. Val-U-Line targets a growing
customer demand and enables the Company to retail lower cost units
that would have otherwise been sent to the auction. With an all-new
internal online buying center, an upgraded internal auction
capability, and a new transportation infrastructure, Group 1
expects the Val-U-Line brand to capitalize on the Company's scale,
provide incremental volume and grow to represent 10 percent of the
Company's used car business. As part of this initiative, the
Company has significantly enhanced the used vehicle compensation
structure and opportunities for its sales associates. While there
will be increased costs associated with these changes, the Company
expects to benefit from increased productivity and retention over
time. To support the launch and integration of Val-U-Line, the
Company has added a used car director and functional support team
at the corporate level.
Group 1 U.S. president Daryl
Kenningham commented, "We believe that we have significant
upside to our used vehicle sales volume by better leveraging our
existing dealership locations. We have become preoccupied with
marketing service loan and off-lease vehicles and have neglected
the higher mileage spectrum of the used vehicle market. As we
deploy the Val-U-Line brand within our U.S. operations, we will
evaluate the strength and success of this model for strategic
replication in our U.K. market where similar opportunities may
exist."
In regards to the aftersales and employee retention initiatives,
Hesterberg commented, "One of the major challenges and obstacles to
improving our dealership performance is the difficulty in hiring
and retaining a high percentage of our key dealership customer
facing service advisors and skilled technicians. Therefore, we have
taken some aggressive steps in work scheduling for many of these
critical professionals, which will incur some significant
incremental near-term cost, but should allow us to meaningfully
increase sales volumes and customer satisfaction in the
long-term."
To support additional parts and service growth, the Company has
also enhanced service personnel compensation. This includes
an increase to the fixed component of service advisor pay, the
creation of a well-defined path for career advancement, and the
roll out of a new, flexible work schedule featuring substantially
more days off over the course of a year to attract and retain
talented service advisors and technicians. Additional actions
include the finalization of an in-house Service Advisor University
dedicated to training the Company's more than 800 U.S. customer
service personnel.
Hesterberg added, "While these actions are putting near-term
pressure on our financial results, we believe they are necessary to
better position the Company for future growth, as well as prepare
us for the potential ongoing evolution in the automotive retailing
space. In addition to the cost of the previously announced
employee bonus of $500 that will add
$2.9 million to first quarter 2018
costs, we estimate the total cost of these strategic initiatives
will add approximately $3 million to
our costs in each of the first and second quarters of 2018. When
coupled with a recent tightening in market conditions in both the
U.S. and U.K., which includes pressure on used vehicle margins in
the U.S. that have declined approximately $200 per unit in the first two months, the
combined effect is expected to negatively impact our first quarter
earnings."
The Company will further detail these investments and
initiatives during the upcoming Bank of America Merrill Lynch 2018
Auto Summit in late March, as well as the first quarter 2018
earnings results teleconference on April 26,
2018.
About Group 1 Automotive, Inc.
Group 1 owns
and operates 180 automotive dealerships,
238 franchises, and 48 collision
centers in the United States, the United
Kingdom and Brazil that offer 32 brands of
automobiles. Through its dealerships, the Company sells new and
used cars and light trucks; arranges related vehicle financing;
sells service contracts; provides automotive maintenance and repair
services; and sells vehicle parts.
Investors please visit www.group1corp.com,
www.group1auto.com,
www.group1collision.com,
www.facebook.com/group1auto, and
www.twitter.com/group1auto, where Group 1 discloses
additional information about the Company, its business, and its
results of operations.
FORWARD-LOOKING STATEMENTS
This press
release contains "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995, which are
statements related to future, not past, events and are based on our
current expectations and assumptions regarding our business, the
economy and other future conditions. In this context, the
forward-looking statements often include statements regarding our
strategic investments, goals, plans, projections and guidance
regarding our financial position, results of operations, business
strategy, and often contain words such as "expects," "anticipates,"
"intends," "plans," "believes," "seeks," "should," "foresee," "may"
or "will" and similar expressions. While management believes that
these forward-looking statements are reasonable as and when made,
there can be no assurance that future developments affecting us
will be those that we anticipate. Any such forward-looking
statements are not assurances of future performance and involve
risks and uncertainties that may cause actual results to differ
materially from those set forth in the statements. These risks and
uncertainties include, among other things, (a) general economic and
business conditions, (b) the level of manufacturer incentives, (c)
the future regulatory environment, (d) our ability to obtain an
inventory of desirable new and used vehicles, (e) our relationship
with our automobile manufacturers and the willingness of
manufacturers to approve future acquisitions, (f) our cost of
financing and the availability of credit for consumers, (g) our
ability to complete acquisitions and dispositions and the risks
associated therewith, (h) foreign exchange controls and currency
fluctuations, and (i) our ability to retain key personnel. For
additional information regarding known material factors that could
cause our actual results to differ from our projected results,
please see our filings with the SEC, including our Annual Report on
Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on
Form 8-K. Readers are cautioned not to place undue reliance on
forward-looking statements, which speak only as of the date hereof.
We undertake no obligation to publicly update or revise any
forward-looking statements after the date they are made, whether as
a result of new information, future events or otherwise.
Investor contacts:
Sheila
Roth
Manager, Investor Relations
Group 1 Automotive, Inc.
713-647-5741 | sroth@group1auto.com
Media contacts:
Pete
DeLongchamps
Senior V.P. Manufacturer Relations, Financial Services and Public
Affairs
Group 1 Automotive, Inc.
713-647-5770 | pdelongchamps@group1auto.com
or
Clint Woods
Pierpont Communications, Inc.
713-627-2223 | cwoods@piercom.com
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SOURCE Group 1 Automotive, Inc.