Group 1 dealers still feel effects of oil slump

Auto dealers across the Houston region continue to feel the sting of the oil bust, which has dampened newvehicle sales and challenged the city’s largest dealership operator despite recent signs of improvement.

Retail auto sales in the metro area have fallen sharply this year, and industry giant Group 1 Automotive on Friday reported a lower first-quarter profit. The company cited steep sales declines in energycentric markets in Texas and Oklahoma, where many of its dealerships are located.

In March, retail sales in the nine-county region totaled 16,860 vehicles, down 21 percent from the same month last year, according to data from the TexAuto Facts Report, published by Sugar Land-based InfoNation. Truck and SUV market share, long a bright spot, declined for the first time in five months.

First-quarter passenger vehicle sales dropped substantially. The regional total fell 36 percent year-overyear.

“We took a hit with the oil industry,” said Steve McDowell, owner of InfoNation. “The question is, are we going to level out?”

Despite overall declines, suburban dealers again outperformed others in the region. Market share for those

dealers reached 25 percent in March, the 18th consecutive monthly increase.

Group 1, a Houstonbased Fortune 500 auto retailer, reported earnings of $33.9 million in the three months that ended March 31. By comparison, it posted a $34.3 million profit during the same period last year.

Quarterly revenue decreased 3.4 percent to $2.5 billion, while newvehicle sales fell 6.1 percent.

Group 1 owns and operates 159 automotive dealerships, 210 franchises and 45 collision centers in the U.S., the United Kingdom and Brazil. The company’s U.S. operations account for about 80 percent of its revenue, which decreased 5.5 percent to $2 billion in the first quarter.

President and CEO Earl Hesterberg said during a conference call with analysts that the company’s strong performance abroad was “not enough to offset extreme weakness in vehicle sales” in markets affected by the oil bust. He noted that new-vehicle sales in Houston, the company’s largest market, declined 13 percent during the quarter.

“We outperformed the local market, but we still need to make further adjustments to our business,” he said.

In a research note, Consumer Edge Research analyst Jamie Albertine noted that Group 1’s results could “come as a surprise” to those who expected a better performance amid the oil market’s relative improvements.

The energy sector rebounded to some degree in recent months after crude prices rose above $50 a barrel. In a research note, CFRA Research analyst Efraim Levy predicted the company’s performance in oilcentric markets will improve at some point this year.

Hesterberg told analysts he expects sales to rise if energy companies continue to ramp up drilling and hiring. But for now, he said, the market remains challenged.