Group 1 Automotive to focus on cost control and efficiency ahead of major UK expansion

US retail giant Group 1 Automotive will remain focused on improving cost control and efficiency at its UK businesses ahead of adding Inchcape’s 54 dealerships to its portfolio.

In second-quarter financial results, the business posted total revenues of $4.7 billion, a 3% increase year-on-year, achieving a quarterly all-time record in terms of US new vehicle ($2 billion), parts and service ($497.4m), and finance and insurance ($183.9m) revenues. 

Despite challenges in the US including extreme weather events and a CDK outage which cost the business $17m, Group 1 said it remains intent on improving its performance in the UK.

Group 1 bought its first BMW and MINI dealerships in 2007 in the south of England, before steadily expanding northwards into East Anglia and the Home Counties.

The business which now owns more than 70 car dealerships in the UK was forced to reduce headcount by 300 people - around 10% - in the first quarter of this year in an effort to reduce costs.

Chief executive Daryl Kenningham at the time said the business had experienced challenges in the used car market and that it recognised there was “some work ahead of us to bring our costs back in-line with recent trends”.

Earlier this month, Group 1 Automotive bought four Hertfordshire Mercedes-Benz dealerships from specialist dealer group L&L Automotive which are forecast to generate combined annual revenues of around £83m from the four sites in Bishop’s Stortford, Herford, Stevenage and Hemel Hempstead.

The latest UK deal will help grow 2024 revenues through acquisition by $1.1 billion. “Our ability to integrate these businesses into our existing portfolio allowed these transactions to be accretive from day one,” said Kenningham.

Group 1 Automotive CFO Daniel McHenry reported that UK revenues grew 2.1% year over year, driven by higher new vehicle and parts and service revenues of 8.2% and 9% respectively.

“While down from the prior year, new vehicle gross profit per unit (GPU) slightly improved sequentially. At the same time, prices declined over the same period.

“Used vehicles remain challenged however,” he said, adding that wholesale losses per unit remained flat compared to the previous quarter.

“Regarding the UK, adjusted SG&A (overhead costs of doing business) as a percentage of gross profit, we recognise we still have some challenges to overcome and will continue to focus on cost control and business process efficiency as we expand our business in the UK.”

In April, Group 1 Automotive agreed a £346m deal to acquire Inchcape's UK dealerships which will almost double its scale in the UK  and which extend its territory into Wales, the Midlands and the North West of England.

The addition of Inchcape's 54 sites which employ around 4,000 people will increase Group 1 UK's dealership portfolio to 109 outlets which, with total combined annual revenues of more than £4 billion, will mean it overtakes Marshall Motor Group to enter the top 5 of the AM100.

The company said it is continuing to focus on completing the acquisition of Inchcape's UK retail automotive business in the third quarter.

Kenningham said: “We anticipate that the 54 Inchcape dealerships will add $2.7 billion in revenue to Group 1 doubling our size in the UK. The brand and geographic mix is outstanding and gives us significant scale and reach and will improve our SG&A (overhead costs of doing business). This is a transformative acquisition for Group 1 and we look forward to welcoming nearly 4,000 new team mates to the company.

“As a new vehicle dealer, a strong relationship with our OEM partners is more critical than ever and we don't see that changing in the future. We actually see that OEM relationship growing in importance.

“We believe the Inchcape acquisition allows Group 1 another outstanding opportunity to demonstrate that and we believe that Group 1 being a great partner to our OEMs gives us significant advantages that tie us directly to our capital allocation priorities.”

“We are a pure play new vehicle dealership group. While we regularly evaluate other business adjacencies we believe in this environment, the best use of our shareholders capital is investing in new vehicle franchise dealerships and we believe that entering other business verticals not only hurts returns, but also dilutes our focus.”