People and Process Drive Group 1’s U.S. Per-Copy Average to $1,521

HOUSTON — A focus on people and process was a major driver of the fourth-quarter performance of Group 1 Automotive’s U.S. F&I operations, which averaged $1,521 in F&I profit per retail unit (PRU) — a $103 increase from the year-ago period. Consolidation of the group’s lender base and improved availability of consumer financing were other reasons cited.

Asked to break down how that per-copy average was achieved, Peter Delongchamps, the group’s vice president of financial services, pointed to the group’s product penetrations. He noted that the performance came just two quarters after the group rolled out the National Automobile Dealers Association’s Fair Credit Compliance Policy & Program.

“So we pay close attention to vehicle service contracts. Our GAP business has improved with the increase in leasing,” Delongchamps explained during Group 1’s Feb. 5 fourth-quarter earnings call. “We work hard on maintenance, which improves retention rates for us. Road hazard tire is a product that we believe in, along with dent [protection] and sealant.

“And that’s pretty much the products we focused on,” he added. “And we’ve really worked on making sure that we penetrate those [products] at a high level in order to provide value to our consumers. So it’s been a lot of hard work, a lot of process, but it’s working for us.”

The company did not break out how much of that fourth-quarter per-copy average was made from finance reserve, but it did list out product penetration for the full year. For the U.S. market alone, penetration rates for service contracts, GAP, maintenance and the company’s sealant product were 40%, 26%, 10% and 18%, respectively. Finance penetrated at a 72% clip for the group.

For the full-year, Group 1’s U.S. F&I operations averaged $1,468 per copy. Accounting for all markets in which it operates in (United States, United Kingdom and Brazil), the group’s 150 dealerships average a record $1,324 per copy. On a same-store basis, the group averaged a record $1,352 for the year.

“In regard to the U.S. [F&I operations], we’re comfortable with where we are, and it’s a function of working on underperforming dealerships, and we have our processes in place,” Delongchamps noted. “So we’re very comfortable with the business model we have now.”

The combination of increased profitability per unit and a 12.8% increase in retail vehicle sales volume drove up total F&I gross profit 21.3% from a year ago to $746 million. F&I production accounted for 28% of the group’s 2014 total gross profit, which rose 12% from a year ago to $1.45 billion, and 4% of 2014 revenues, which rose 11.4% from a year ago to $9.94 billion.

Since 2010, revenue for Group 1’s F&I operations has risen 21.4% to $367 million.

The fourth quarter also marked the fifth consecutive quarter of double-digit revenue growth for Group 1 Automotive, which increased 11.4% from the year-ago quarter to $2.5 billion. For the U.S. market alone, four quarter revenue rose 13.1% from a year ago to $2.1 billion. For the full year, the group’s revenue in the U.S. market rose 11.2% to $8.18 billion.

The group’s total gross profit for the fourth quarter grew 13.9% to $366 million. For the U.S. market alone, fourth-quarter gross profit increased 16.4% to $317.5 million. For the full year, total gross profits grew 12% from a year ago to $1.45 billion. For the U.S. market alone, gross profit grew 11.6% to $1.25 billion.

New-vehicle sales were a major drive of those gains, accounting for 58% of the group’s revenue and 20% of gross profit. For all of 2014, the group retailed 166,896 units, about 11,000 units more than 2013. Revenues from new-vehicle sales totaled $5.74 million, while gross profit from new-vehicle sales totaled $1.79 million.

Used-vehicle revenues totaled $2.7 million in 2014 on sales of 109,873 units. Retail used-vehicle gross profit totaled $1.6 million, which was down slightly from a year ago.

“We are delighted to announce all-time record adjusted earnings for this quarter (increased 54.6% to $1.67) and the full year (increased 18.3% to $5.87),” said Earl J. Hesterberg, Group 1’s president and CEO. “For the quarter, the results reflect double-digit revenue growth, improved margins and impressive cost control. Each of our geographic markets delivered improvements, with continued strong growth in the U.S. and U.K., and the benefits of cost reductions in Brazil driving high earnings in all three countries.

“For the full year, revenue increased more than $1 billion, which, in combination with improvements in our cost and capital structure, translated into record adjusted full-year earnings.”