Group 1 CEO says automakers need to cut production
The head of one of the biggest U.S. dealership groups said major automakers must cut production in order for dealers to keep healthy profit margins.
"We simply have too much," Group 1 Automotive Inc. CEO Earl Hesterberg told Reuters. "More of the manufacturers are pushing more inventory. They are making more than they really need."
Hesterberg said his company's U.S. dealers have 20 percent to 25 percent more new vehicles than they would like on sales lots.
With his comments, Hesterberg joins Mike Jackson, CEO of No. 1 retailer AutoNation Inc., in saying production cuts are needed -- especially for cars -- at a time when consumers want pickup trucks and SUVs.
Hesterberg said he plans to cut orders, particularly for luxury cars. Of the brands sold by Group 1, only the namesake brands of Toyota Motor Corp. and Honda Motor Co. are not oversupplied, he said.
The leading German luxury brands, BMW, Daimler AG's Mercedes-Benz and Volkswagen AG's Audi, are each over 90 days of supply at Group 1 stores. Hesterberg said the optimum inventory level for those brands is 45 days.
Hesterberg made his comments after Group 1 said first-quarter net income fell 4.3 percent from a year earlier to $34.3 million, while adjusted net rose 3.5 percent to a first-quarter record $37.1 million.
The adjusted figure excludes $1.7 million related to Texas hailstorms and about $800,000 related to the sale of four dealerships in Brazil.
Revenue rose 7.2 percent to a first-quarter record $2.61 billion.
“We are pleased with this quarter’s consolidated top-line revenue growth of 9.7 percent on a local currency basis, which was driven by strong performance from our U.K. team and impressive used vehicle and service growth in our U.S. operations,” Hesterberg said in a statement today.
Those good results in the U.K. overcame continued weakness in Brazil, where the Houston auto retailer was able to significantly outperform the market as a whole.
Political turmoil in the South American nation drove a 28 percent drop in the market as a whole, while Group 1 held same-store revenue flat on a local currency basis, which Hesterberg called “an amazing performance.”
The results beat Wall Street expectations and Group 1 shares rose 7 percent to $66.37.
In the U.S., Group 1's first-quarter revenues grew 4.2 percent to $2.08 billion, while gross profit increased 5.8 percent to $332.7 million.
New-vehicle retail sales dropped 2 percent to 30,801 units. On a same-store basis, new retail sales fell 3.1 percent to 29,972, in contrast to the industrywide 3.3 percent rise in light-vehicle sales in the quarter.
Group 1’s retail used-vehicle sales rose 6.7 percent overall to 26,831 and, on a same-store basis, 5.6 percent to 26,148.
In all markets, Group 1’s gross profit grew in new- and used-vehicle retail sales, parts and service and insurance. Gross profit declined for used-vehicle wholesales, and, on a same-store basis, for U.S. new-vehicle retail sales.
F&I gross profit per unit in the U.S. rose $26 to a record $1,564.
Hesterberg said the company had executed an aggressive stock buyback program, purchasing about 1.5 million shares since the end of last year.
As previously announced, the company acquired 15 franchises in the U.K. while shedding a Volkswagen and a Toyota franchise in the U.S. Even as it divested four stores in Brazil -- with three of those sales completed and one pending -- it acquired two others and began operations at an open point there.
Group 1 owns and operates 162 auto dealerships, 213 franchises and 37 collision centers in the U.S., U.K. and Brazil that offer 34 brands.
Group 1 ranks No. 3 on Automotive News’ list of the top 150 dealership groups based in the U.S., with retail new-vehicle sales of 174,614 in 2015.
Laurence Iliff and Reuters contributed to this report.