Group 1 Automotive Inc.GPI

Morningstar Rating

Stock Research and Analysis

by David Whiston, CPA, CFE

After installing a new CEO and CFO in 2005, Group 1 Automotive briefly slowed down acquisition spending in order to better develop its strategy and improve operations at its existing stores. The firm's operating margin has been below most of its peers', Read more

Bulls Say

Auto dealerships are stable, profitable businesses with a diversified stream of earnings coming from parts, service, and used cars.

Parts and service revenue should continue to be lucrative over time because most manufacturers require warranty work to be done at the dealership and large dealers can more easily afford the technology and training needed to service increasingly more complex vehicles. Parts and service provide a large portion of gross profit, despite being a small part of overall revenue.

If successful, European expansion could prove to be a good future source of revenue growth. Read more

Bears Say

Because publicly traded dealers command greater share in some markets, manufacturers may refuse to approve transfers of franchise rights at some dealerships, limiting acquisition-based growth.

As category killer CarMax KMX grows, it has the potential to take away some of the highly profitable used-car business and associated service work.

The company has had goodwill impairment problems, and overpaying for acquisitions could pressure results in the future.

Although U.S. light-vehicle sales are unlikely to keep declining, there is no telling how long the current downturn will last. Read more

Strategy

Group 1's focus includes improving same-store revenues and reducing costs; this should be aided by the recently completed conversion to one dealer management system. The company also owns more of the Read more

Management

Earl Hesterberg was named president and CEO in April 2005, replacing retiring company founder B.B. Hollingsworth Jr. Hesterberg has more than 30 years of auto industry experience, including stints as an executive at various dealerships and in dealer Read more

Profile

Group 1 owns and operates 98 automotive dealerships, 132 franchises, and 24 collision service centers in the United States and United Kingdom, offering 31 brands of automobiles Read more

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