Group 1 Auto sells record vehicles in 2018, driven by used car sales
Group 1 Automotive, the nation’s third-largest dealership group, sold a record 318,516 vehicles in 2018, up 5.4 percent from the previous year.
The Houston company on Tuesday said it sold 170,517 new and 147,999 used vehicles in the year ended Dec. 31, driving record revenue of $11.6 billion, up 4.3 percent from the prior year. While sales of new vehicles fell 1 percent, sales of used vehicles jumped 13.9 percent.
Chief Executive Earl Hesterberg said he expected that trend to continue in 2019. Group 1’s used car business would remain a focus, he said, as new car sales nationally are forecast to fall 2 percent to around 17 million units a year.
“We’ll be down a little bit as a total industry in 2019, but it’s still a very strong market,” Hesterberg said on CNBC’s “Power Lunch” show on Tuesday. “We’re still in a position to have a solid year even if it’s not quite as good as last year.”
Group 1 indeed had a good 2018, despite rising interest rates, tariffs on foreign steel and aluminum, and concerns about Brexit affecting its U.K. dealerships. The company reported income of $179.6 million, up 9.8 percent from the prior year. It posted adjusted diluted earnings per share of $8.91, up 15.3 percent from the prior year.
Despite the increases, the company ended the year on a sour note. Fourth-quarter revenue remained flat and new car sales in the Houston area fell 16 percent from the prior year, when the company benefited from a surge in replacement vehicle sales after Hurricane Harvey and a one-time corporate tax break.
Car sales in the Houston area during the fourth quarter were, however, in line with historical averages, said John Rickel, Group 1’s chief financial officer. The Houston metro area represents about 26 percent of the company’s new vehicle sales globally.
“We were up against pretty inflated numbers, which distorted our results,” he said. “HoustonBeaumont is a pretty significant chunk of our business.”
New car sales nationally are decelerating as the quality of modern vehicles and the rise of longer-term financing allow people to drive their cars longer. The average age of a car in the Houston area last year was 9 years, up from 7.3 years in 2000, according to InfoNation, a Sugar Landbased automotive research firm. On average, Americans drive their cars for 11 years.
At the same time, used car sales are accelerating as new car prices have skyrocketed in recent years, fueled by consumer preference for larger SUVs and trucks as well as new technology and safety features in modern vehicles.
The average price of a new vehicle sold by Group 1 in 2018 was $38,111, up 1.6 percent from the previous year. Used car prices headed in the other direction, as the average price of a used vehicle was down 3.4 percent to $20,634.
In response to changing consumer tastes, Group 1 last year launched Val-U-Line, a branded line of older, high-mileage tradein vehicles that were previously sent to auction but are now reconditioned and sold in dealerships. Used cars now represent about 10 percent of Group 1’s business, up from about 5 percent historically.
Group 1 in November also began selling new and used vehicles online at 28 of its dealerships nationally to compete with the rise of digital-first dealerships, such as Carvana. Customers can search for vehicles, complete a credit check, in some cases arrange financing and make a purchase offer — all on select Group 1 dealership websites — and afterwards pick up their vehicle or have it delivered.
Daryl Kenningham, Group 1’s president of U.S. operations, said the company so far has sold fewer than 500 vehicles online. Although Kenningham said there will always be buyers interested in test-driving a vehicle before purchasing, Group 1 plans to roll out its online sales platform to its 117 dealerships nationwide later this year.
“Whether they reserve restaurants or buy books online, the world is moving there and we need to be able to accommodate that,” he said. “Our goal is to do business when and how our customers want to do business with us.”
Group 1 owns and operates 182 dealerships in the U.S., U.K. and Brazil. The company has a market capitalization of $1.2 billion. Its stock rose 0.7 percent to $62.35 on Tuesday.