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Group 1 Automotive Reports 2007 First-Quarter Earnings

April 26, 2007

HOUSTON — Group 1 Automotive Inc. reported net income for the first quarter ended March 31, 2007, of $17.4 million, or $0.72 per diluted share. These results include charges from lease terminations on an Atlanta Ford store that the company sold in the first quarter and an additional domestic brand store that the company has targeted for disposition. Excluding these charges, net income was $19.9 million, or $0.82 per diluted share, for the first quarter. This compares with net income of $22.3 million, or $0.91 per diluted share, in the first quarter of 2006.

First-quarter total revenues increased 7.4 percent to $1.5 billion from the previous-year quarter. New vehicle revenues grew 8.4 percent on a 7.8 percent unit sales increase; parts and service revenues rose 8 percent; and finance and insurance revenues increased 5.2 percent. Used vehicle retail revenues increased 8.9 percent on a unit sales increase of 7.9 percent, while used vehicle wholesale revenues declined 7.5 percent on 1.1 percent higher unit sales.

Gross profit improved 4.4 percent to $247.2 million, while gross margin decreased 50 basis points to 16.2 percent. The decrease in gross margin was driven by 60 basis-point declines in both new vehicle and parts and service margins. New vehicle margins were impacted by continuing weakness in the company's domestic stores, with Ford F-Series sales down 25 percent from the same period a year ago and lower Chrysler margins reflecting a decrease in manufacturer dealer incentives and rebates realized. Group 1's margins were also negatively impacted by continued weakness in the California market. The decline in parts and service gross margin reflects a mix effect of more rapidly growing wholesale parts, which have a lower margin than the average parts and service business.

First-quarter selling, general and administrative expenses (SG&A) increased 9.8 percent to $198.2 million. Included in these costs are $3.8 million of pretax charges related to the lease terminations mentioned above and a $2.3 million pretax charge due to the standardization of the company's employee vacation policies that went into effect Jan. 1. Including these costs, and the lower gross margin, SG&A as a percent of gross profit increased to 80.2 percent from 76.2 percent from first quarter 2006.

Income from operations decreased 14.8 percent to $44.1 million in the first quarter. Operating margin at 2.9 percent was down 80 basis points from the same period last year.

New vehicle inventory days' supply improved to 57 days at quarter end from 63 days at Dec. 31, 2006. The improvement was primarily driven by a significant reduction in domestic inventory levels to 69 days' supply at March 31 from 99 days' supply at the end of 2006. Used vehicle inventory days' supply declined to 28 days at March 31, from 31 days at Dec. 31. As a result of these inventory reductions, weighted average floorplan borrowings declined $28.7 million, partially offsetting a 73 basis-point increase in the weighted average interest rate. Total floorplan interest expense increased 3.3 percent to $12.2 million compared with the same period a year ago. Other interest expense also increased $1.2 million, or 30.4 percent, primarily due to the 2.25 percent convertible notes issued in June 2006.

On a same-store basis, total revenues declined 1.9 percent to $1.3 billion as lower domestic new vehicle sales and planned reductions in used vehicle wholesales more than offset improvements in all other areas of the business. Gross margin declined 10 basis points to 16.5 percent as reductions in new vehicle and parts and service margins offset improvements in used vehicle margins.

"Although we continue to face challenges with our domestic brand stores, and a weaker California new vehicle market, we are making progress in the management of our key business processes," said Earl J. Hesterberg, Group 1's president and chief executive officer. "The improvements we continue to deliver in used vehicles and the reductions in domestic inventory levels this quarter will serve us well in the current business environment. The first quarter started very poorly for us with very weak January sales, but we saw steady improvement in February and March. This improvement was evident in California and some of our domestic brand dealerships as well."

During the quarter, Group 1 repurchased 75,000 shares of its common stock at an average price of $40.04 under a board authorization to fund the share delivery requirements of its existing employee stock purchase plan.

Year to date, Group 1 expanded its import and luxury offerings by acquiring BMW, Mini and Volkswagen franchises in Kansas and three BMW and three Mini franchises in the United Kingdom. These acquisitions are expected to generate an estimated $303.1 million in aggregate annual revenues toward Group 1's full-year acquisition target of $600 million. The company will focus its acquisitions on import and luxury brands outside of Texas and Oklahoma with a goal of having its import and luxury offerings account for at least 80 percent of its new vehicle unit sales by year end.

In conjunction with Group 1's strategy to dispose of its underperforming dealerships, the company divested of six franchises with trailing twelve-month revenues of $62.7 million in 2007.

Group 1 will continue to evaluate its dealership portfolio and dispose of underperforming stores. The company anticipates incurring approximately $5 million to $10 million in associated disposition charges, which includes costs associated with disposition actions previously announced in 2007. The latest disposition was the closure of a Lincoln-Mercury dealership in Atlanta on March 31.

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