Recent data show car sales in the U.S. continue to motor
ahead, thanks to better products and an increasingly confident
In October, automakers sold 1.1 million new vehicles
domestically. That was up 7% from the prior year and marked the
highest October sales level in five years. The growth occurred
even as Hurricane Sandy cost the industry an estimated 30,000
vehicle sales on the East Coast. The annual selling rate reached
14.3 million vehicles.
Those numbers continued a strong run for the industry this
year. Not surprisingly, auto dealers such asGroup 1 Automotive (
) have seen a similar rise in business.
Group 1 sells and leases 31 brands of new and used vehicles.
It has more than 130 dealerships and other franchises in the
U.S., making it the nation's fourth-largest auto megadealer.
The company also has five dealership locations, 10 franchises
and three collision centers in the U.K. More than half its sales
come from Japanese brands.
Group 1 has seen a rapid uptick in business thanks to a number
of favorable industry trends, watchers say.
"A lot of the growth is driven by replacement demand as
consumers decide to trade in their aging cars," said Rick Nelson,
an analyst at Stephens. "We're also seeing more finance
availability. Lenders are getting more aggressive on auto loans,
and approvals are up in both the prime and subprime sectors."
In addition, he says, cars being produced today are much more
advanced than those that came out as recently as a decade
"The new product is more fuel efficient and features more
technology," Nelson said. "Consumers are picking up significantly
more miles per gallon by buying new. And used-car trade-in values
are really good, too, so that's a driver to the recovery as
Group 1's financial rebound actually began in 2010, when it
logged a 45% gain in annual earnings and a 22% increase in annual
sales after watching both metrics decline the previous two
The company continues to post strong top- and bottom-line
gains this year. Earnings during the first three quarters of 2012
have risen at least 21%, while sales have climbed at least
"The U.S. sales cycle has continued to improve steadily,"
Michael Ward, an analyst at Sterne Agee, noted in a report. "We
expect the recovery to continue over the next few years,
supported by strong underlying demographics, including a record
number of older vehicles on the road and a growing number of
Meanwhile, Group 1 has boosted its operation by spending $280
million on buyouts the past two years.
In May, it announced the acquisition of Britain's Essex Audi
Group in a deal that doubled the size of Group 1's overseas
operations. Essex brought aboard six U.K. Audi franchises.
During the third quarter, Group 1 bought a Houston Hyundai
dealership that is expected to generate $35 million in annual
revenue. On Oct. 1, it acquired an Oklahoma City-based Hyundai
dealership estimated to generate $45 million in yearly sales.
"Group 1 has been among the most aggressive of the public
dealers in the acquisition arena, adding $1.1 billion in annual
revenue over the last two years," Ward noted.
He expects more buyouts in coming months.
"The U.S. market remains highly fragmented with the 10 largest
dealers accounting for less than 10% of total industry sales,"
Ward noted. "The continuation of the industry recovery in the
U.S. should result in additional consolidation."
Strength in the U.S. car market has helped Group 1 and other
dealers, includingCarMax (
) andAutoNation (
), enjoy a months-long rally on Wall Street.
Group 1's stock price has risen by a third since late June.
Shares hit a record high of 65.99 Oct. 8, retreated for a couple
of weeks, rebounded to 64.98 on Nov. 6, and currently trade near
The stock fell back some Oct. 25, when Group 1 reported its
Profit for the quarter came in at $1.32 a share, up 31% from
the prior year and in line with views. Sales gained 26% to $1.98
billion, slightly above estimates.
Consolidated same-store sales rose 15%, also topping views.
Same-store sales for new vehicles rose 20.2%, while same-store
sales for used vehicles gained 12.8%.
Despite those lofty numbers, Group 1's shares finished the day
down 2.2% amid a decline in margins. Gross margin for the quarter
fell 110 basis points to 14.7%.
"The gross margin was pressured from a normalization of
inventory and a mix shift to the volume import brands," Nelson
Group 1 also saw the average sales price for new vehicles
decline 1.2% to $33,050 amid a shift from luxury vehicles and
trucks to midline imports.
Watchers expect margins and prices to stabilize in coming
quarters. The overall outlook on Group 1 remains strong as
Analysts polled by Thomson Reuters expect the company to post
full-year earnings of $4.73 a share, up 31% from the prior year.
They see profit rising another 13% to $5.35 in 2013.