Group 1 Automotive Inc (GPI) 2002 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Group 1 Automotive 2002 fourth quarter and year-end conference call. At this time, all participants are in a listen-only mode. Following today's presentation, instructions will be given for the question and answer session. If anyone needs assistance at any time during today's conference, please press the star, followed by a zero.

As a reminder, this conference is being recorded on Wednesday, February 19th, 2003. I would now like to turn the conference over to Mr. Russell Johnson of Fleishman Hillard. Please go ahead, sir.

Thank you, Jeff. Good morning, everyone, and welcome to the Group 1 Automotive year end conference call and fourth quarter. I would like to make a remark briefly about forward-looking statements. Except for historical information mentioned during the conference call, statements made by management of Group 1 Automotive are forward-looking statements made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks and uncertainties which may cause the company's actual results in future periods to differ materially from forecasted results. Those risks include, but are not limited to, risks associated with pricing, volume, and the conditions of markets. Those and other risks are described in the company's filings with the SEC over the last 12 months, copies of which are available from the SEC or may be obtained from the company.

Representing Group 1 this morning are Mr. B.B. Hollingsworth Jr., Chairman, President and CEO; and Mr. Scott L. Thompson, Executive Vice President, Chief Financial Officer, and Treasurer. Without further delay, I would like to turn the call over to Mr. Ben Hollingsworth. Mr. Hollingsworth, you may continue.

Thank you and good morning. Welcome to our conference call. This morning, we will discuss operating results for fourth quarter of 2002 and the full year, but first for the highlights.

We posted record net income in 2002. Fourth quarter earnings exceeded revised expectations. We achieved our fifth consecutive year of earnings per share growth. We are confirming 2003 guidance with earnings per share growth to continue. Fourth quarter revenues topped $1 billion. Fourth quarter gross margin expanded to 15.4% versus 14.7% last year. Full year net income increased 21% to $67.1 million dollars. Full year diluted earnings per share was up 8.1% to $2.80.

Although our operating results are down from fourth quarter last year, as we compare against one of the best periods in the history of the automobile industry, we continue to generate significant earnings and cash flow. We are benefiting from our diverse revenue streams despite the challenge of operating in a soft U.S. economy and a challenging used car environment. We have focused this quarter on the very successful integration of our new Los Angeles platform, on cost control, and on our underperforming operations in Atlanta, South Florida, and Dallas. From a brand standpoint, Honda and Toyota were among the strongest performers.

Our record of 20 consecutive quarters of double-digit year-over-year earnings per share growth ended but we are proud of that achievement and look forward to the opportunities of a new year.

I will now ask Scott Thompson to go over the details of our financial results as well as our brand and geographic mix - Scott.

Thank you, Ben. We have taken the opportunity this year to expand our press release disclosure to include several items we historically have covered verbally. First, we have separated used vehicle sales and cost of sales between retail and wholesale on the face of the income statement. We have also disclosed same-store sales and manufacturer floor plan assistance on the face of the income statement. Additionally, we have reclassified fees we received from customers to prepare certain documents in connection with vehicle sales known as documentary fees or doc fees. Historically, we have recorded these as F&I income and now as new and used vehicle revenue. The change will help facilitate peer review. It has no impact on net income or operating margin. It is simply a reclassification of revenues.

We have recapped our historical financial statements back to '98 and we can provide that you information for historical perspective. Contact Kim Paper (ph) in my office and she will provide that information. Starting with the operating result for the three months ended December 31, 2002, as we all New York the fourth quarter of 2001 was a unique period in automobile retailing. During that quarter, straight volumes rocketed as manufacturers stepped up after 9/11. We experienced phenomenal growth during the fourth quarter of 2001, both in same store growth of 21%.

In short, we have unbelievably tough comps this quarter, exacerbated by a challenging used vehicle market and less robust new vehicle market in October and November of 2002. Company revenues totaled 1.03 billion for the quarter. Industry wide retail units down somewhere between 10% to 14%, our same store units are down 18%. We retailed 37,000 units. We serviced over 250,000 vehicles and warranty work accounted for about 20% of our business. By geographic standpoint, we had outstanding performances in Boston, Albuquerque, New Orleans and Austin, offset by performances in Atlanta, south Florida and Dallas. Our geographic mix for the quarter is as follows. Houston, 14.2%. Oklahoma, 12.4. California, 11.4. Boston, 11. Florida, 8.9. Austin, Texas, 8.1. West Texas, 7.5. New Orleans, 6.4. Dallas, 6.1. Atlanta, 5.9. Beaumont (ph), 3.5. New Mexico, 3.4. And Denver, 1.4.

From a brand standpoint, as been mentioned, we had strong performances with Toyota and Honda. They were offset somewhat by performances by DaimlerChrysler and Ford. For the fourth quarter domestically badged manufacturers represented 47% of our sales and import badged manufacturers represented 53%. Luxury brands represented 12% of our business, up from 10% same period last year. This is primarily due to the addition of infinity, which we acquired in the Miller acquisition in the third quarter of 2002.

From a branding standpoint, Toyota left us with our largest brand representing 25.8% of our business. Ford was 24.4. Daimler-Chrysler, 12.2. GM, 10.8. Honda-Acura, 9.9. Nissan, 9.1 and the balance in an array of brands. The truck market continues to be strong. Trucks and crossover vehicles represented 58% of our unit sales and daughters were 42%. This is consistent with past quarters.

Our growth margin for the quarter increased 70 basis points to 15.4%. The increase was a result of favorable merchandising mix as vehicle sales decreased and our higher margin business, parts and service, F&I income expanded. Gross margin was also impacted by the 60-basis point improve in our retail used vehicle margin and 60-basis point improve in parts and service margin, offset by a 40-basis point decline in our new vehicle margin. 50% of the decline in the new vehicle margin is due to reduction interest rate assistance, as average interest rates have fallen this quarter.

Even as vehicle volume declined our F&I income grew 4%. This was driven by fees for arranging financing and service contracts and new product offerings. Retail units sold after considering our new reclassification of documentary fees with $844 this quarter, up from $754 the same period last year. We anticipate 850 to 875 per retail unit sold for the first quarter of 2003.

Individual product margins for the quarter, again adjusted for documentation fee reclassification are as follows. New vehicles were 7.5% this fourth quarter compared to last year, 7.9. Used, retail vehicles, retail used vehicles were 9.6 versus 9%. Parts and service, 56.3 versus 55.7. And again, gross margin 15.4 versus 14.7 last year.

The first quarter of 2003, we expect new vehicle margins to be about 7.5% and expect used vehicle retail margins to be 9.5 to 10%. Part and service margin should be approximately 56%. Income from operations for the quarter reached 28.6 million or 2.8% of revenues. The 2.8% operating margin is down from 3.3% fourth quarter of 2001. During the fourth quarter of 2002, our SG&A was heavy, at about 80% of gross profit, because we did not anticipate the reduced volume activity in October and November and Dallas, Atlanta and South Florida platforms underperformed. SG&A was 76.9% of gross profit, excluding the underperforming operations. We are comfortable with the operating margin of 3.3 to 3.2% for the first quarter of 2003. Our new vehicle inventory turn for the quarter was below plan at 79 days. Our target turn is 60 days.

At year-end and at the end of January, 2003, we had approximately 22,000 units in new vehicle inventory. Our used vehicle inventory for the turn for the quarter was 30 days, right on target as we wholesale more vehicles to mitigate the impact of accelerated depreciation in the used vehicle market. Our used vehicle inventory is in very good shape. Floor plant interest expense increased 800,000 due to increased inventory levels driven by acquisition growth, slower inventory turn and increased leverage on our inventory. This resulted in our average floor plan debt outstanding for the quarter increasing 200 million. Leveraged increased on inventory is we spent the $100 million proceeds from our October, 2001, stock offering which had temporarily been used to finance inventory. Interest rates were down for the quarter 70 basis points, mitigating the impact of the increase in debt.

For the quarter, floor plan assistance which is recorded as a reduction in cost to sales and realized only when we sell the car totaled 6.3 million. For the quarter, floor plan assistance could have eared total of 113% of company's total floor plan interest expense. Note that since we defer recognition of this incentive until the vehicle is sold, when sales slow, we realize less incentive income at a time when our inventory is building and our carrying costs are higher. The company's effective tax rate is 38%, consistent with last year. We expect the tax rate in the future will vary between 37 and 39%, depending on which state contributes the most income.

For the quarter, the company made 12.3 million or 53 cents a share on a diluted basis. EBITDA was 30.7 million. For the quarter return on average equity was 11%. Remember, the fourth quarter from a seasonality standpoint is generally weaker than the second and third quarter. Return on average equity the last 12 months is 16%.

Turning to same-store data now. Same-store new vehicle revenues were down 15.3% as compared to being up 22.9 last year's fourth quarter. Retail used vehicle revenues were down 19.8%. Wholesale used vehicle revenues were up 5.8%. Parts and service were down 1.2%. Finance and insurance, down 12.6%. And again, fiscal (ph) revenues down 14.1% for the quarter. As I mentioned earlier, we are comping against a record quarter from last year. The 19.8% downdraft in same-store retail used vehicle revenues and the 5.8% increase in wholesale used vehicle revenues was caused by a reduction of the value proposition of used vehicles. New vehicles have been priced and net incentives very aggressively and that has impacted our used car sales.

After realizing same-store revenue increases of 10.1% in parts and service in the fourth quarter 2001, in quarter parts and service same-store revenues were down slightly. We believe the parts and service business during 2001 was significantly enhanced by the four Firestone tire recalls, not including Ford dealerships, parts and service same-store revenues increased 2.1% for the quarter and excluding all domestically badged dealerships, parts and service increased 4.6% for the quarter.

Over the long term, we generally expect to realize mid-single digit growth in this highly profitable area. For the year ending 12/31/2002, revenues grew 5.5% to 4.2 billion. We experienced growth in all revenue categories except for retail used vehicle seams which were down 2.9% for the factors I discussed earlier. Net income up 21%. Earnings per shape up to $2.91 on 12% increase in shares outstanding. EBITDA for the 12 months was 14.5 million.

Turning to capital issues, total capital expenditures were 13 million of which 8.1 was for new or expanded operations. We expect total cap ex for 2003 to be approximately 37 million, including 11.5 of recurring maintenance cap ex. We expect weighed average diluted shares for the first quarter to be 23.3 million before any repurchase activities. As of quarter end, the company had 93 million working capital. The company's long-term debt-to-cap was 16%. The lowest year-end financial leverage we have had since June of '98. As we stated previously, we would be comfortable with a long-term debt-to-cap of 40%, although I don't see us getting to this there in the next 12 months. 198 million dollar acquisition working line capital credit is totally undrawn at year end and undrawn as of today.

We estimate the pay on the cash stock mix we could purchase $2 billion to $3 billion in revenue and maintain a long-term debt-to-cap under 4 0% it is clear that we are positioned for significant growth without relying on a future capital transaction.

Now Ben will provide you additional color on the quarter and update you on management's earnings per share guidance.

Thank you, Scott. During fourth quarter, we acquired a new Toyota franchise in the Boston market area, expanding the motor group platform to 14 automobile franchises. We also purchased a new Lincoln Mercury franchises in Amarillo, Texas, bringing in the platform to 17 automobile franchises. The new Toyota and Gene Messler (ph) Lincoln Mercury dealerships began operations in December 2002 with expected annual revenues of $41 million.

For the year, the company completed 21 franchise acquisitions with annual aggregate revenues of $827 million, while disposing of five dealerships with $51.2 million of analyzed revenues as part of our previously stated acquisition strategy for 2002.

In January of this year, we complete the acquisition of Bob Howard Ford Lincoln Mercury and the divestiture of the Bob Howard Mercedes-Benz dealership in Oklahoma city, Oklahoma. In total, these transactions are expected to add net revenues of $84 million in 2003. We expect another strong new vehicle market in 2003, although perhaps lower than 2002. With our ability to adjust our cost structure, combined with successful integration of recent acquisition and expected increases in parts and service revenues, we have confidence in confirming the range of our diluted earnings per share guidance for 2003 of $3.10 to $3.30. Earnings growth is expected to emanate from a combination of acquisition and improved dealership performance as well as common stock repurchases as warranted.

In 2002, the company repurchased 983,000 shares of its common stock at an average price of $24.20. Group 1 continues to seek strategic tuck-in acquisitions to augment our current markets and platform acquisitions to enter new markets. Targeting to add dealerships with aggregate revenues of approximately $800 million. We have one of the strongest balance sheets in the industry, as Scott pointed out, which allows us to implement our growth plan without reliance on the equity market.

Now to turn quickly to our Group 1's top sellers in 2002 for the year, our top five, once again, the Ford F Series pickup trucks, number two, the Toyota Camry, number three, the Ford Explorer, number four, the Dodge Ram pickup, and number five, the Ford Expedition. Group 1 today owns 73 automotive dealerships comprised of 114 franchises, 29 different brands, and 25 collision service centers located in California, Colorado, Florida, Georgia, Louisiana, Massachusetts, New Mexico, Oklahoma, and Texas.

Through the dealerships and Internet sites, the company sells new and used cars and light trucks, arranges related financing, vehicle service and insurance contracts, provides maintenance and repair services and sells replacement parts.

Now we would like to entertain your questions and the floor now open.

Thank you. Ladies and gentlemen, at this time, we will begin the question and answer session. If you have a question, press the star followed by the one on your push button phone. If you would like to decline from the polling process, please press the star followed by the 2. You will hear a three-tone prompt acknowledging your selection. Your questions will be pulled in the order they are received. If you are using speaker equipment, you will need to lift the handset before press the numbers.

Our first question from Rick Nelson. Please state your company name followed by your question.

Stephens. Good morning. Thank you. What sort of EPS assumptions do you have for the first quarter as it relates to your full-year guidance?

Good morning, Rick. This is Ben. We are not actually providing guidance for the first quarter. We have given guidance for the year of $3.10 to $3.30. But you realize the seasonality for our business. We do not give guidance for the quarter.

Any comments on trends to date for the quarter? We understand February is quite soft, relative to January.

I wouldn't want to get too specific on that I think January just to give you a flavor, the first part of January started pretty good, as we had carry over from the big December push and some of the manufacturers kind of kept their books open a few days into January, for example, the Toyotathon carried over four or five days. But January over -- after that January was soft. More like we had seen in the first part of the fourth quarter last year and then the flavor overall in the business recently in February, soft starting out, but some signs of it picking up recently.

Scott, you want to add anything?

First quarter is certainly the most difficult quarter to talk about within the month, January never a very good month in the car business and most of the quarters really made in March, but I would echo Ben's comment January was also soft, but January is not the significant month in the quarter. Really, March is. I think on the seasonality, you got historical seasonality. You need to dial in the geopolitical issues out in the marketplace, coming up with the quarter split and we don't know how to do that, we hope you do.

I would generally say that I would expect the back half of the year to be a little stronger than the front half of the year. Remember, we get the new F 150 truck toward the latter part of the year and clearly, that is a significant product for Group 1 it is our number one seller. So we are very bullish on that particular product and toward the back half of the year.

Wondering if we can get more color on inventory levels, new and how you plan to reduce those. And also used vehicles, same store decline if we could get more color there and what the expectation is as we move forward.

Rick, I will start off with that pick up that, on the new car end of it, as Scott just said kind of on the quarter, while we are longer than we like to be and longer than we normally are into the spring selling season, at this point in time, we are probably positioned where you need to be. As Scott said, March is usually the breakout year for automotive retailing and so, I think from a comfort level standpoint, pretty comfortable where we are now.

On the used car market, I think I used the term challenging and environment, I don't see that changing, as long as the manufacturers continue to put aggressive incentives on new cars, which I believe they will, it is going to continue to drive the values -- drive down the values of used cars and make it very critical to keep this inventory lean, which we have done, at 30 days. I haven't seen so far any change in that used car market returning to more traditional -- kind of a more traditional value proposition.

Scott, you want to add anything to that?

I would say on the new car market, I think I told you you had 22 units for January. We are going into the better part of the selling season, but January and February turns will be slower than our target turns in the first quarter and I would assume by the end of first quarter, we would be back on our normal turns through reduced ordering of new cars. On the used car side, our used car inventory is in great shape. It is a 30-day turn, we aggressively wholesale vehicles, so as not to build a problem in inventory and we have conservative accounting for (inaudible) from a used car standpoint, I think we are in fabulous shape. I wouldn't expect trouble in that area.

Since we force the quick turn in the used cars it may have impacted, may impact us from a sales standpoint, we may at times give up some sales so as to mitigate the risk of a declining inventory. I think that is a strategy and one we are comfortable with.

What Scott is saying, we give up retail sales in exchange for wholesale sales. So we don't have the aging inventory. One of the things I will add about inventories, Detroit auto show this year, in my view, the most exciting show I have been to with new product, really across-the-board by all of our manufacturing partners, new product going to be a major driver on the new car side. You couple that with affordability issue and low interest rates. I think it bodes very well for the new car market this year and in near term future.

Thank you.

Our next question comes from Scott Stember. Please state your company name followed by your question.

Sidoti & Company. Good morning.

Good morning.

Just maybe comment on the acquisition pipeline and just what you guys are seeing as far as pricing, particularly since the market has been as title as it has been the last couple of quarters?

Yeah, thank you. This is Ben. Our target as I mentioned in my remarks is $800 million in revenue acquired in 2003. Pretty much the same target we guided on last year. Which we achieved. As you know, highly fragmented industry, 22,000 dealerships in the United States, if there ever were an industry where you could say there are virtually unlimited acquisitions possible pits this is the industry, largest domestic retail sector, largest portion of retail period.

And what I like to say is that in the acquisition pipeline, the -- changes almost weekly and by that, I mean circumstances a dealership group, wasn't interested in selling their dealership last month, because of circumstances is now a prime candidate and that really literally changes all the time and think it is mainly because of the size of the industry. I don't see any shortage of candidates. It is interesting, I was looking that the yesterday.

The slide show we use for presentation and conferences and road shows has not changed since our original IPO, November 1, 1997. What we said then and saying now is a pricing on platforms 7 to 9 times after tax earnings and the pricing on (inaudible), a little better returns -- 7 times earnings. We don't see that changing. Partially because we wouldn't pay over that and that is in order to achieve our return, our return hurdles. I think, again, a little flavor, the premiere brands of the -- first of all the high line brands like Lexus in major markets command a premium.

So that makes them difficult, but we are limited to how many of those we can own anyway so that is not a huge challenge. The other really strong brands, such as Toyota and Honda in major metros also tend to bring a premium. So, those are also somewhat of a challenge and on the other hand though are real plum because of the product and what's in the pipeline and how those particular districts are performed. Toyota, Honda was our strongest performers last year. I think that hopefully will give you a little flavor where we stand.

And Scott, you mentioned what acquisition credit line was, could you give that number again?

198 million.

OK. And also the stock. How much did you guys buy back in the quarter?

During the year, we bought back 900,000 shares.

983,000 shares.

At $24 a share.

OK.

And obviously that window has been closed since January 1.

OK. And you guys are still obviously at this price looking at that time pretty attractively at this point?

We still have authorization under our board - authorization -- lap board (ph) authorization, 18 million.

$18 million?

Dollars. Right.

OK. That's all I have, thanks a lot.

Thank you.

Thank you, sir. The next question from Gerald Marks. Please state your company name followed by your question.

Hi, Raymond James. Good morning.

Good morning, Jerry.

You talk so fast. The cap ex number was 35 million. What did you say for maintenance cap ex?

Cap ex number was 37 million.

37 million.

Maintenance cap ex, 11.5 ...

OK.

... included in the 37.

So the remainder is for new franchises or upgrades or ...

For new projects which would be either parts and service expansion, relocation of a facility, some other cap ex project we would have justified based on its own return on invested capital, incremental cash flow we would expect from that project.

OK. And the floor plan assistance issue, I know the industry is kind of divided in the way that they reported in terms of booking before or after. Do you have any idea how much that might have impacted own the quarter, had you booked the floor plan credit when you received the vehicle?

Yeah. If we went to the cash basis on floor plan assistance and advertising, it would have enhanced the quarter by 4 cents to 5 cents per share.

Wow, that much?

Yes it is a significant number. We book it when the car is sold.

Finally, you guys aren't giving an EPS guidance for the first quarter but sounded like you are looking for a 40 basis point improvement on gross margins and then heard Ben talk about how difficult the environment is. What is the rationale?

I think you don't have a volume issue. You should expect the margin to hold up to improve in used cars. The issue Ben is talking about is a volume issue, as more buyers go to the new car market, we normally would be in the used car market.

Turn in the comp basis for the next couple of quarters is what you are suggesting?

Right. We would -- in our guidance, we are expecting a 3 to 4% negative comp in retail used car sales. Volume wise. We had a 60 basis point improvement in our retail margin, volume issue, into the profit issue.

OK. And then -- can you give me an idea. You expect new vehicle sales to be relatively strong but down, any indication on a comp basis, 2 to 4% on a basis like 16 million?

Our guidance is 2 to 3% down.

OK.

I'm not smart enough to know about the SAR.

OK. Thanks.

Thanks.

Thank you.

Thank you sir. Our next question from Nathan Miller (ph), please state your company name followed by your question.

It is Matt Fassler and Goldman Sachs. How are you?

Great.

Good. Two questions. First of all on the inventory front, it sounds like you are where you want to be. When the inventory has been there a while, you need to ask questions, can you address the aging issue if there is any and how this slow down has coincided with model transition and such to give us a sense as to the quality of the inventory you have on the balance sheet on the new car side.

I will take a first pass at that, Matt. Good morning.

Good morning.

Let me be clear on the new car side, I maybe oversimplified that we weren't where we wanted to be at the end of the quarter. We were long, definitely long, 79 days. Having said that, we still stand roughly there, going in not just a few days from what we consider the strong spring selling season.

You know, we are really in pretty good shape and as Scott said, we should probably be --probably back in balance by the end of the first quarter. At this point, talking about new vehicles, which don't depreciate unless there has been a model change and we haven't had that this time of the year, great new models coming. Ford F 150 as Scott mentioned. I think as far as quality, we are in good shape on that.

Gotcha.

I don't think off risk from quality of inventory standpoint in new cars. Your risk is carrying costs when you get long.

OK.

Certainly Matt, as you well know, your risk in -- that is certainly the risk in used car, if you were long in used car that is why we keep that so lean.

Sure. The second question relates to cost structure. Just looking back across at the fourth quarter, without passing judgment on my end, give us a sense as to how you think you manage the cost structure as the business slowed and you know, whether you learned about opportunities to get the systems or cost to grow a little more nimble to adjust for the environment as it tends to move?

Well, first of all, let's go back to fourth quarter 2000.

Sure.

We had a similar slowdown. The difference going that slowdown and this slowdown was we saw that one early. We called that one early and we made some strategic decision early on as to what we expected for the quarter. We didn't really learn anything this quarter. The difference is in this quarter, we didn't expect a slow down and we got a different volume of business than we expected. And we have set advertising budgets. We had ordered cars and we had personnel in place for a certain pace of business which didn't come to fruition.

Let me just add to that. Matt, a little different flavor. When we got to -- in September of 2002, we had a pretty decent month and it really looked like a used carnival u proposition was returning to normal. What happened in October and November, sales literally fell off a cliff. No way to anticipate that, were we behind on adjusting SG&A? Absolutely. We were. And could we do it better next time? Well, hopefully, but it was such a sudden change, it really caught the industry by surprise and certainly, most automotive retailers. We'd pretty decent December really.

And just thinking about that, just taking it one step further is there anything that you think you can take away in terms of the mix of fix versus variable cost, particularly in compensation, really was compensation, sales force compensation, the issues, on the cost side, was it more cost like advertising set further ahead?

Advertising would have been the largest issue. I think we have always described when we talk about variable costs, they don't change instantaneously, takes us about a quarter to right size. I think that is what we experienced recently.

Just in terms of number of feet on the floor. Gotcha. Thanks so much.

Thanks, Matt.

Thanks, Matt.

Thank you. Next question from Nate Hudson (ph), please state your company name followed by your question.

Bank of America. Hoping you could give us more sense of how severe the weakness is in -- you mentioned Atlanta, South Florida and Dallas. How did the comps in each of the segments there compare with the overall company comps?

Those particular markets did not go well and underperformed compared to the peers. In all categories.

On the parts of service side, how severe was the underperformance there? Was it comparable to the newer (inaudible) stability there?

The major underperformance would be in new and used vehicle volumes and in SG&A as a percentage of gross. The back end of the business, we call the part and service business, held up, you know, fairly well. But the major disappointment in new and used vehicle sales in those markets and the agileness of changing the structure, overadvertised, didn't get sufficient advertising in those particular markets.

Where are you at this point in those markets? Have you seen any stablization and recovery on the demand side and do you feel that you have taken your expense down to where it needs to be at this point?

Probably answer that yes and no. Some ways yes, some no. I think -- give you a little more flavor too, some of you may know this but Atlanta and Dallas particularly, those markets, those economies have been very weak, both hit with telecommunications industry. We are particularly located in north Dallas and it has been very adverse there for all of retail. It is another reason it is good to be geographically diverse in Atlanta. Same issue on the economy, but we also have four, I think I mentioned before, we have four brand new dealerships over there. We have some relocated to great new locations. It has take longer to ramp those up than we would like.

Nonetheless, we think we are well positioned over there with very strong brands with great new facilities and great location. So you know, sometimes it doesn't come together as fast as you would like. The other instance to give you a little more flavor, in south Florida, which is underperformed for us for some time, we have created a new Florida platform and we have a new platform President promoted from within, president of a smaller platform, who is in place in Florida, has been there since the first of the year.

We were able to -- the platform he came from to promote from within and promote one of our general managers of long great operate to platform president there so, we have made some proactive moves in the one area of south Florida and created a new platform combining south and north Florida with one of our best platform Presidents. So we are looking forward to, you know, good performance out of that Florida platform. It will take improvements in the economy and working on the cost side of it too.

Thanks very much.

Thank you, sir. Our next question from Mike Millman (ph), please state your company name followed by your question.

Salomon Smith Barney. Thank you. Maybe following up more on the questions. Could you talk about the assumptions that you built into your cost structure, advertising structure for March what are you making about dealer and manufacturer incentives during March and then sort of unrelated. Could you talk a little bit about this leasing liability, if that is having any effect or likely to have any effect?

I will take the leasing liability question first, because it is the easiest one. The answer (inaudible) I think you are talking about the lenders' exposure on a lease for negligent trust or something, how they have an accident, gets back through to the lender. We do not lease any vehicles. We arrange leases and we arrange financing. We don't have creditors' risk. We don't have guaranteed credit risk to a customer.

I guess I didn't phrase my question well. What I really meant recognizing that was whether because the financing --whether financing is dried up so that's had some effect on a certain part of the market.

OK. We don't lease very many vehicles; only about 10% of our vehicles is leasing. We haven't seen any significant cut backs in that area. Leasing already trended down because of the residual problems in the marketplace. And then leasing is pretty unfavorable in the Texas market because of sales tax issues. We obviously have a large concentration in Texas. Like I said, leasing is only 10% of our business. We are not anticipate any issues in that area and we are not having any trouble getting people financed. And then, on advertising, on March, and kind of, what do you want to say, our strategy in the March window, that would be built dealership by dealership, platform by platform, looking at the franchises and each one of the markets, plus hard to give a global answer to that question because we do that market by market, brand by brand.

We had spring selling season, optimism for that, advertising programs in place. I had mentioned incentives too, whatever incentives are in place right now have been announced. We certainly plan for those, know what those are, but October, November last year, will witness, really no way to predict when various manufacturers are going to put those incentives in -- only predict they are going to put them in, we will continue to put them in.

OK. Thank you.

Thank you.

Thank you. Ladies and gentlemen, if you have an additional question, please press star followed by the one. As a reminder, if you are using speaker equipment, you will need to lift the handset before pressing the numbers.

Our next question from Steven Cohn (ph), please state your company name followed by your question.

Hi, it is Steve Cohn with Lowe's (ph). Two questions. One, in your guidance what is -- should we just assume if cap ex for '03 is 37 million and maintenance is 11-5, the difference will be used for acquisitions and just use the normal multiple for acquisitions next year?

The cap ex at 37, which includes 191.5 is for real estate and brick and brick and mortar. OK? The acquisition, we don't --we talk about acquisitions, we don't call that cap ex in our terminology. Cap ex, Ben said we are looking to target about 800 million in revenue acquisition, and you should use about a 12% of revenue factor to estimate what the purchase price of that might be. With a stock cash mix that should be 100% cash.

OK. And in the 3.10 to 3.33 guidance, are you assuming you close on 800 million in revenue?

In the guidance, we do not put acquisitions in the guidance. So that guidance is -- excludes acquisitions and acquisition of the 800 million should be accretive to those numbers.

Secondly, although there is never a normal year, but if you assume flat demand over a year, what would seasonality be quarter to quarter?

In round numbers ...

Round numbers.

... 20% first quarter, 30% second quarter, 30% third quarter, and 20% fourth quarter.

On an earnings basis?

Pretax basis.

Great. Thanks a lot.

Thank you sir. We have no further questions at this time. You may continue.

Thank you very much. Thank you for your questions and your time. In closing, to accomplish our visions we need to continue our dedication to the 7,400 co-workers and support of 29 manufacturing partners. We thank them for their contribution and look forward to the successes their efforts will continue to produce this year and in the future. We are indeed creating the future of automotive retailing. Thank you.

Ladies and gentlemen, this concludes the Group 1 Automotive 2002 fourth quarter and year-end conference call. If would like to listen to the reply of today's conference, please dial 303-590-3000 or 800-405-2236, and you will need to enter the access code of 520189, followed by the pound sign. Thank you for participating in today's teleconference. You may now disconnect.