We See Group 1 Well Set Up to Continue Growing in the US and UK

Group 1's restructurings and investment in technology for used-vehicle procurement have paid off. A common operating metric in the dealer sector is selling, general, and administrative expenses as a percentage of gross profit; Group 1's ratio has improved to under 70%, including rent expense compared with 77.9% in 2007, and management expects it to remain below 70% thanks to permanently reducing nontechnican headcount 11% on a same-store basis versus 2019. The company in 2018 began transforming itself with its Val-U-Line used-vehicle strategy and scheduling accommodations for service technicians, and more recently, air-conditioned service shops, to improve employee retention and increase technician headcount. Val-U-Line comes from wanting to retail more used vehicles rather than send them off to auction, because the former is more profitable. The AcceleRide omnichannel platform should keep the firm competitive with online used-vehicle competition, such as Carvana, but is also for new vehicles, service, and buying vehicles from consumers. We think digital will enable much better SG&A leverage and increase used-vehicle sales over time.