Group 1 prospers as crude climbs

Group 1 Automotive posted stronger than expected earnings in the first quarter as growing consumer confidence drove higher vehicles sales in March.

The Houston-based auto retailer on Thursday reported net income of $35.8 million, or a record high $1.70 per share. By comparison, the Fortune 500 company reported net income of $33.9 million, or $1.53 a share, during the same period last year.

CEO and President Earl Hesterberg attributed the sales surge to rising oil prices, which have lifted consumer confidence in energy-centric markets. Houston saw a 5 percent jump in sales last quarter, he said.

“Things are really much brighter in the oil patch now, probably the brightest they’ve been in three years,” Hesterberg said. “The sentiment and consumer confidence are definitely improving.”

Group 1 Auto, the nation’s

third-largest dealership group, sold 41,190 new vehicles in the first quarter.

That figure was 7.6 percent above the same period last year.

The average price for a new vehicle was $38,013, up 2.7 percent from the prior year.

The retailer’s top-selling car brands were Toyota/Lexus, Volkswagen/Audi, BMW/Mini, Ford/Lincoln and Honda/Acura.

Corporate tax cuts and growing business operations in the United Kingdom and Brazil also helped accelerate revenues, Hesterberg said.

Hesterberg warned, however, that new-vehicle sales appear to have peaked nationally as rising interest rates on car loans begin to curb consumers’ appetite for more expensive trucks and SUVs.

As a result, the company is looking to expand its used-car sales, he said.

Group 1 Automotive sold 36,216 used vehicles in the first quarter, up 14.7 percent from same period last year. The average price for a used vehicle sold was $20,646.

Group 1 invested $3 million to launch Val-U-Line, a branded line of older, high-mileage tradein vehicles that were typically sent to auction.

Hesterberg said he hopes to expand this segment of the company’s used car business to 10 percent, up from 4 percent, by the end of the year.

“We believe this market segment presents a major opportunity for Group 1,” Hesterberg said.

Group 1 Auto also has been aggressively expanding its international footprint to bolster its car sales, acquiring 12 franchises so far this year.

The acquisitions include a Toyota dealership in Sao Paulo, five Mercedes-Benz dealerships in London, and an Audi and Subaru dealership in El Paso. The new franchises are expected to generate an estimated $405 million in annual sales.

At the same time, Group 1 Auto is making investments within its operations to boost employee retention.

Earlier this year, the company spent $3 million to give $500 bonuses to most of its U.S. employees as a result of the federal corporate income tax cuts passed earlier this year.

The company also invested $3 million to modify employee work schedules that will expand customer service hours by 20 percent and help retain more of its sales staff.

The company so far has installed the new work schedule in 65 of its 117 dealerships, and plans to expand to most by the third quarter.

Group 1 Auto’s stock price ended the day at $64.39 per share, down 3 percent.