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Group 1 to Implement NADA Fair Lending Plan

February 20, 2014

HOUSTON — During the company’s quarterly investor call earlier this month, Group 1 Automotive’s chief executive confirmed the operation’s intention to implement the National Automobile Dealers Association (NADA)’s new fair lending program.

“We also remain optimistic about the finance and insurance business,” said Earl Hesterberg. “We have endorsed the process improvements recommended by the NADA in response to concerns raised by the [Consumer Financial Protection Bureau] and intend to begin implementing these changes across our U.S. operations in the next several months.

“As such, we are comfortable assuming our 2013 results in F&I are sustainable going forward.”

At its annual convention and expo in late January, the NADA unveiled a new program that calls on dealers to document variations in rate markdowns on retail finance contracts. The program was developed in response to the CFPB’s recent scrutiny of rate participation.

So far, AutoNation officials have confirmed the group is testing the program at a few of the company’s 228 stores, while Penske officials said the group is studying the NADA’s plan. Officials with Asbury Automotive said the group currently employs a fixed cap program on rate markdowns, but they said the group does not document rate discounts as proposed under the NADA’s plan. 

In the fourth quarter, Group 1’s F&I revenue grew 16.4 percent to $78.9 million. On a same-store basis, gross profit per retail unit (PRU) rose 7.4%, or $96, to $1,388 per unit.

For the full year, F&I revenue grew 19.8% to $311 million on 19.1% more retail unit sales. On a same-store basis, F&I PRU grew to a record $1,345. Company officials attributed the company’s F&I performance to increases in both penetration rates and income per contract for most of its major product offerings.

As for its U.S. operations, fourth-quarter F&I revenue grew 11% from one year ago to $72 million, while average PRU grew 9%, or $117, to $1,418. The increase in profitability, along with higher unit retail volumes, expanded parts and service margins of 40 basis points, drove a 4% gross profit increase for the company.

“As we stated last quarter, the U.S. market continues to be highly competitive,” Hesterberg noted. “The overall condition for car buyers remains positive, with low interest rates, improving appointment levels and attractive products. Coupling that with an aging carpark with a supporting demand, we anticipate new-vehicle industry sales will increase approximately 5% from 2013 levels to about 16.3 million units.”

Group 1’s U.S. revenues increased 3.6% in the fourth quarter vs. one year ago to $1.9 billion. The growth was driven by a 6% increase used-vehicle unit sales, a 5.9% increase in parts and service revenue and the 11% increase in F&I revenues. New-vehicle revenues grew 0.9%, or $9.7 million, from a year ago, as a slight decline in retail volumes was more than offset by a 1.5% improvement in average retail sales prices.

For the full year, the international Fortune 500 retailer retailed 155,900 new vehicles, with its U.S. operations retailing 30,836 units. Looking at used, the dealer group retailed 98,800 units, with its U.S. operations retailing 20,115 units. Those totals drove a 19.3% revenue increase, with the group positing revenues of $8.9 billion for the year. 

Hesterberg also reported that the group acquired a total of 38 franchises that are expected to generate $1.3 billion in annual revenues. He also reported that group disposed of seven franchises that generated $318.9 million in annual revenues.

“We began 2014 with the acquisition of two franchises in Southern California in January with annualized revenues of $135 million,” the Hesterberg said. “We completed several multi-year projects in the [United States] that have allowed us to consolidate our transaction accounting and commonize key operation computer system across our U.S. dealerships.

“These projects provide a strong foundation to support further expansion of our business.”

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