Group 1 Automotive, Inc. (GPI)

GPI 
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Industry: Consumer Durables
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Group 1 Automotive Inc. (GPI)

Q3 2008 Earnings Call

October 28, 2008; 10:00 am ET

Executives

Earl Hesterberg - President and Chief executive Officer

Randy Callison - Senior Vice President of Operations and Corporate Development

John Rickel - Senior Vice President and Chief Financial Officer

Pete DeLongchamps - Vice President of Manufacture Relations and Public Affairs

Lance Parker - Vice President and Corporate Controller

Analysts

John Murphy - Merrill Lynch

Rick Nelson - Stevens Company

Scott Stember - Sidoti & Company

Matthew Fassler - Goldman Sachs

Richard Kwas - Wachovia

Matt Nemer - Thomas Weisel Partners

Presentation

Operator

Good morning ladies and gentlemen and thank you for standing by. Welcome to the Group 1 Automotives third quarter earnings conference call. During today’s presentation, all parties will be in a listen-only mode. Following the presentation the conference will be opened for questions. (Operator Instructions) I would now like to turn the conference over to Pete DeLongchamps, Vice President of Manufacture Relations; please go ahead, sir.

Pete DeLongchamps

Thank you [Makaela] and good morning everyone and welcome to the Group 1 Automotive 2008 third quarter conference call. Before we begin, I’d like to make some brief remarks about forward-looking statements and the use of non-GAAP financial measures.

Except for historical information mentioned during the call, statements made by management of Group 1 are forward-looking statements that are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

Forward-looking statements involve both known and unknown risks and uncertainties, which may cause the company’s actual results in future periods to differ materially from forecasted results. Those risks include but are not limited to risks associated with pricing volume and the conditions of the market. Those and other risks are described the company’s filing with the SEC over the last 12 months. Copies of these filings are available from both the SEC and the company.

In addition, certain non-GAAP financial measures as defined under the SEC rules may be discussed on this call. As required by applicable SEC rules, the company provides reconciliations of any such non-GAAP measures to the most directly comparable GAAP measures on its website.

I’d now like to turn the call over to our president and CEO, Mr. Earl Hesterberg; Earl.

Earl Hesterberg

Thank you Pete and good morning everyone. In a moment, I’ll turn the call over to our CFO, John Rickel, who will provide Group 1’s detailed financial results. After he has finish, I will address guidance and then open up the call for questions.

Before I turn the call over to John, let me begin by telling you what we observed during the quarter. The third quarter started off looking like a continuation of the second quarter, with the challenging but manageable overall selling environment; then came September. First, hurricane Gustav made its way towards the New Orleans area, leading to mass evacuations that resulted in more than a one week loss of business, including the typically busy Labor Day weekend.

Then on September 13, hurricane Ike descended on the Houston metropolitan area. Evacuations began on the tenth, with most businesses in preparation for the storm. Even though our team was able to get all nine of the Houston area stores up and running by September 17 and the five Beaumont stores back in business a couple of a days later, the public was not out shopping for vehicles again until late in the month due to power outages, gasoline shortages and traffic issues.

The Houston and Beaumont stores account for approximately 20% of Group 1’s revenues and an even larger percentage of our profits. We estimate that the two weeks worth of business we lost as a result of this storm’s effects negatively impacted our earnings by approximately $0.15 per diluted share for the quarter.

I want to take this opportunity to thank our people for the outstanding job they did in getting us back in business so quickly. The level of dedication showed continues to demonstrate the quality of our most important asset, our employees.

In addition, to the impact of the two hurricanes and the already challenged automotive selling environment, the conditions worsened when the country became focused on the financial crisis that began unfolding in mid September. The uncertainty this has created has significantly reduced consumer confidence and negatively impacted customer traffic in our dealership showrooms. In addition, we have also seen lenders further tighten credit standards.

The majority of customers we are seeing, we are still able to get loans placed; however, we are seeing some level of lender turn downs, higher down payment requirements for most customers due to reduced loan-to-value ratios and increased interest rates that are leading some customers to reject the financing offered.

One of the positive things that occurred over the last few weeks is that gas prices have fallen to under $3 a gallon. This along with increased manufacturing incentives has helped improve sales of new and used trucks and SUVs. A major shift in car versus truck sales that we have been observing is beginning to stabilize.

For the third quarter, 56% of our new vehicle unit sales were cars. This is up slightly from last year’s 55%, but is down from 62% in the second quarter. It appears that the recent economic crisis will impact virtually all of the United States; however, so far in October, we are seeing business return to near pre-storm levels in Houston, but we do not anticipate a large replacement spike like we saw following hurricane Katrina, a significantly fewer vehicles appear to have been destroyed in this storm.

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