Dealership consolidations boost Group 1’s service business

The industry’s dealership consolidation is starting to help parts-and-service revenue at Group 1 Automotive Inc.’s domestic-brand stores, CEO Earl Hesterberg says.

Warranty work and wholesale parts sales are up at Group 1’s domestic stores in markets where other like-brand stores closed. It’s also helped to a lesser degree on customer-pay work, Hesterberg said Wednesday after announcing a third-quarter profit gain.

Despite some immediate pick up, the gains are tempered by tough competition in the parts-and-service business.

“Unfortunately, customers are very price sensitive in the aftermarket as well as in parts and service in the customer-pay area,” Hesterberg said. “So we’ve had to market very aggressively against not just other dealers but aftermarket competitors, and we’re going to have to continue to do that.”

Group 1’s domestic stores are mostly in metro areas in Texas and Oklahoma. Hesterberg later told me the consolidation effect isn’t as readily apparent in vehicle sales.

“Maybe it’s in there, but you can’t really isolate it,” he said. “You don’t see an immediate pick up. In these metro markets, there’s multiple dealers and it’s hard to tell.”

Will dealership consolidation continue to help revenue? To a point. But with no massive movement for additional dealership reduction by manufacturers, Hesterberg says he doesn’t anticipate significant upside… at least in the near term.