Group 1 Hits Record PRU in Q1
May 10, 2018
The addition of Audi and Subaru franchises in El Paso, Texas, were among the highlights of a first-quarter investor call hosted by Group 1 Automotive. Photo by Smguy101 via Wikimedia Commons
HOUSTON — Executives representing America’s third-largest dealer group had good first-quarter news to report to investors in a late-April conference call: Group 1 Automotive’s U.S. operation set a new record for F&I gross profit per retail unit (PRU) and enjoyed significant increases in F&I revenue, same-store sales, new- and used-vehicle revenue, and fixed operations revenue.
The company, which also owns dealerships in the United Kingdom and Brazil, delivered a record $2.9 billion in revenue in the first quarter for a net income of $35.8 million. That figure could have been about $3 million higher, noted President and CEO Earl Hesterberg, considering the group commenced two major initiatives in the quarter: the launch of “Val-U-Line” stores to sell older-model, higher-mileage used vehicles and a new compensation model designed to improve service personnel retention.
“These initiatives, while adding cost in the short term, are vital to strengthening the long-term growth prospects of our used-vehicle and aftersales business segments,” Hesterberg said. “These businesses are much more stable and controllable than the new-vehicle portion of our business, which is very cyclical and appears to have recently peaked in both the U.S. and U.K.”
Val-U-Line is Group 1’s answer to Sonic Automotive’s EchoPark and Penske Automotive’s CarSense chains. It represents a new opportunity to move units that might otherwise have gone to auction.
The service-retention initiative includes flexible work schedules, revised pay plans for some workers, and $500 bonuses for others. Group 1 reported a 17% increase in U.S. service-department headcount for the quarter at a retention rate of 69%. U.S. fixed ops gross profit was up 8.4% on same-store revenue growth of 4.6%.
But the real story was in the finance department. Group 1’s president of U.S. operations, Daryl Kenningham, reported a record PRU of $1,718, a 4.7% ($81 per vehicle) improvement on the year-ago quarter.
“This increase was largely driven by increased product penetration, namely, extended warranties and maintenance contracts, which benefit our business by bringing customers back into our service shops,” Kenningham said.
F&I total gross profit increased by 16%, or $15.5 million, helping to drive total U.S. revenues of $2.1 billion — a 6.1% gain from the first quarter of 2017. Other key first-quarter metrics include:
• 7% year-over-year increase in U.S. new-vehicle revenue
• 8% increase in U.S. used-vehicle revenue
• 7.7% improvement in U.S. same-store used-vehicle sales
Executives also announced the purchase of Audi El Paso and Subaru El Paso. As two of the 12 franchises Group 1 has acquired worldwide thus far this year, the West Texas stores are projected to add $65 million to the group’s annual revenues.
Near the close of the call, Senior Vice President Peter DeLongchamps was asked by an analyst whether $1,600 per unit remains the company's F&I benchmark in the wake of the record quarter. He took the opportunity to recognize the personnel that comprises the group’s worldwide finance operation for their contributions to the company’s fiscal health.
“I’d like to thank all F&I teams in all three countries [who] are doing a terrific job this past quarter. And at the end of the day, we keep working on the underperforming stores, and it’s paid dividends, and we’re doing a much better job of selling products,” DeLongchamps said. “And I think the mid-$1,600 PVR is probably a good modeling number moving forward. We got rising interest rates and, with our stated plan to increase the used-car business, I think that’s a good number for you to continue modeling towards.”