Group 1 Automotive 3Q16 Earnings Call Notes

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Group 1 Automotive’s (GPI) CEO Earl Hesterberg on Q3 2016 Results

There are still many dealers chasing volume

“I think it’s starting to turn but there are still many dealers including us in some places chasing volume. And the problem we have is many of our locations are in these markets where the industry is down double digits. And when you have targets that are up almost double digits, I mean it just you know it’s a disconnect. And that’s the problem when OEMs provide target is they can’t necessarily fine tune them and prescribe for some of the pockets like the oil industry or the industry isn’t behaving like it is another parts of the U.S. So it really get some disconnects on some of these targets versus reality.”

OEMs starting to back off aggressiveness with leasing

“my impression is that OEMs are starting to back off or slow down a little bit on leasing, leasing is not as big for us because of our geographic concentration in south central U.S. where about 17% leasing where as the industry is as you say closer to 30%. So it’s not the same concentration for us, because leasing is quite heavy in the northeastern U.S. and California. But with used car values likely having peak sometime in the past, my impression is the OEMs are starting to become a little more prudent about how aggressive they get in pushing higher levels of leasing.”

Oklahoma not as diversified as Texas

“Oklahoma was probably the market that surprised us the most with the 18% decrease. But I think we always recognize that the Oklahoma economy is not nearly as diverse as Houston or many parts of Texas, so it’s very heavily energy dependent. But I think there’s a general feeling of getting closer to the bottom in Texas, but I don’t think there’s any declaration that we’ve hit the bottom yet.”

UK suffering from uncertainty

“In the U K it’s still just mostly suffering from uncertainty, I don’t think markets particularly weak, but uncertainty is never good for consumer confidence, which is the main driver of auto sales. But I had certainly haven’t any input that says the U K market is especially weaker than it was in September and it was fairly reasonable in September with retail sales down only 1%.

Our inventory levels are still high, OEMs are cutting production

“I don’t think any of us are having to push back as much as we did 90 days ago, because many of the OEMs have now reacted and reduced production. It is true that we’re still very sensitive to our inventory levels and they’re still not quite where we’d like them to be. I think we like them to still be another six or eight days lower. But they are coming into line and I think you’ve probably read about many of the production cuts that the OEMs are making. So I think the entire industry understood the problem, and we’re working together to get it back in line with.”

I think we’ll get some clarity after the election

“Well I think there’s two camps, I think there’s a camp that says flat and camp it says a slight decrease. And I think there’s some factor that will gain some clarity after we get a presidential election outcome, and then we’ll see what the mood of the public is, because so much of consumer confidence are psychological and most experts would contend that the current electoral process is creating some distraction.”