Group 1 Automotive Inc GPI

We See Group 1 With a Long Growth Runway 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 below 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. Work schedule accommodations for service technicians and air-conditioned service shops to improve employee retention for this highly lucrative segment helps fight the cyclicality of selling vehicles. The Val-U-Line strategy 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 and branding US stores under the Group 1 name will enable much better SG&A leverage and increase used-vehicle sales over time.