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F&I Helps Offset Lower New-Vehicle Sales, Reports Group 1 Automotive

February 26, 2008

Higher sales of Group 1 Automotive’s F&I and parts and service units helped the Fortune 500 automotive retailer offset lower new-vehicle sales. Company officials reported that revenue for both units rose 4.7 percent and 9 percent, respectively.

Approximately 38 percent of revenues and 74 percent of profits came from the automotive retailer’s used vehicle, parts and service, and F&I units in 2007. This led to a 3.3 percent increase in gross profits. Overall, revenues increased 5.1 percent, to $6.39 billion, primarily due to acquisitions. On a same-store basis, revenues were down 2.5 percent.

Same-store gross margin held at 15.8 percent from the prior year, primarily reflecting an increased mix of the higher-margin parts and service business, as well as the increase in F&I gross profit.

For the fourth quarter, same-store revenues fell 1.9 percent, to $1.43 billion, reflecting declines of 2.4 percent and 3.8 percent in new vehicle and total used vehicle revenues, respectively. The used vehicle decline is primarily explained by a 14.9 percent reduction in wholesale revenues, which the company said was consistent with Group 1’ s strategy to reduce this unprofitable business.

New vehicle sales continued to be adversely impacted by weak domestic brand performance and difficult macro-economic conditions affecting both the West and Northeast market areas. Partially offsetting these declines were an 8.1 percent increase in finance and insurance (F&I) revenues and a 2.0 percent rise in parts and service revenues. Same-store gross margin was 15.4 percent, down 10 basis points from the fourth quarter 2006. The lower gross margin was due to the 170 basis-point decline in total used vehicle margin, partially offset by a 10 basis-point increase in parts and service margin and a 14.4 percent increase in F&I profit to $1,128 per retail unit.

On a consolidated basis, selling, general and administrative (SG&A) expense as a percent of gross profit improved 130 basis points, to 79.0 percent, reflecting a 1.9 percent, or $3.5 million, reduction in SG&A expense from the fourth quarter 2006.

“Business conditions in most of our market areas remained challenging during the quarter, but overall we are pleased that the initiatives we are implementing in our F&I and parts and service businesses are starting to gain traction,” said Earl J. Hesterberg, Group 1’ s president and chief executive officer. “We have more work to do, but as a result of our focus on our service and F&I operations, we are better positioned to maneuver through this softer retail vehicle environment.”

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