Group 1 Automotive Inc (GPI) 2004 Q2 法說會逐字稿

Good morning, ladies and gentlemen. And welcome to the Group 1 Automotive Second Quarter Earnings Conference. 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 in the conference, please press the "star" followed by the "zero." As a reminder, this conference is being recorded today, Thursday, July 29, 2004. I will now turn the conference over to Russell Johnson with Fleishman-Hillard. Please go ahead.

Thank you, Rob. Good morning, everyone and welcome to the Group 1 Automotive second quarter conference call. Before we begin, I would like to make a brief remark about forward-looking statements. Except for historical information mentioned during the call, statements made by management of Group 1 Automotive are forward-looking statements, that are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

Overlooking 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 market.

Those and other risks are described in the Company's filings with the SEC over the last 12 months. Copies of these filings are available from both the SEC and the Company. I'll now turn the call over to Mr. BB Hollingsworth Jr., Chairman, President, and Chief Executive Officer of Group 1 Automotive. Mr. Hollingsworth, please go ahead.

Thank you. Good morning and, welcome to our conference call. This morning we will discuss operating results for the second quarter, the first six months of 2004. But first, for the highlights. We announced this morning record-breaking news for the second quarter despite a challenging market. Second quarter net income was $15.7 million or, 67 cents per diluted share on revenues of $1.3 billion.

These results include an after-tax charge of $1.8 million or, 8 cents per diluted share related to the previously announced hailstorm that damaged or, destroyed about 1,000 vehicles at our Amarillo, Texas dealerships. Total revenues increased 14.6% and same-store revenues increased 3.8%. New vehicle revenues increased 17.4%. Parts and service revenues grew 12.9%. And gross profit increased 7.8% from $198.5 million.

The quarter did not reflect the market improvements we had anticipated. And we experienced margin pressures across most of our stores, but especially at our Ford and Toyota dealerships. Despite this challenging environment, certain platform, including those in New England and central Texas delivered solid performances.

In addition, our Honda, Nissan, and luxury franchises performed well, and we're pleased that our recent acquisition activity has increased our exposure to these brands. Our Atlanta platform, though still under performing, showed signs of improvement and, compared with both the first quarter and the same period last year.

I will now ask Robert Ray to go over the details of our financial results as well as the brand and geographic mix. And welcome Robert, our Senior VP and Chief Financial Officer to your first conference call.

Thank you, Ben, and good morning, everyone. I am pleased to be with you on this, my first earnings call since joining the company about 10 weeks ago. And, although I hoped to have the added pleasure of discussing more robust financial results, I am nevertheless still very excited about the company, its newly expanded management team, and the future prospects and opportunities.

With that, let me begin with our geographic and brand mix. As Ben mentioned, from a geographic standpoint, we had solid performances in New England and central Texas. In Atlanta, although the platform lost money for the quarter, we began to see signs of improvement.

So fiscally, we're encouraged by the fact that, the loss for the quarter narrowed significantly, versus that of both the prior year and the prior quarter. We are also encouraged by the fact that, the platform's growth profit for the quarter was sufficient to cover the SG&A.

Our geographic mix, based on new vehicle unit sales for the year-to-date period was as follows. New England accounted for 13% of sales; Oklahoma 12.7%; California 12.2%; Houston 12.1%; Central Texas 8.0% and New Orleans 7%. These top six areas comprised 65% of our total unit sales. Eight other areas comprised the balance of 35%, and for a breakdown of these, please see the schedule of additional information attached to the news release.

Our brand mix, again, based on new vehicle unit sales for the year-to-date period continues to be dominated by Toyota/Scion/Lexus at 27.4% and, Ford at 22% for a total exposure to these top two brands of 49.4%. Our next four largest brand exposures include Daimler-Chrysler, GM, Nissan/Infiniti, and Honda/Acura, which together comprise another 45.7%.

Also, as Ben mentioned, we experienced strong performance from our group of luxury brands. For the year-to-date period, these luxury brands represented approximately 12% of our business based on new vehicle unit sales, up slightly from 11% -- 11.6%, excuse me, in the same period last year. As a result of our recently announced acquisitions of BMW, Mercedes, and Maybach franchises, we expect our mix of luxury brands will increase to around 14%.

For the six months ended June 30, domestic brands represented 44.5% of our new vehicle unit sales, while imports comprised 55.5%. This mix should increase to around 58% import as a result of our recent acquisitions.

Finally, trucks and crossover vehicles continue to be top sellers for both Group 1 and the industry. In fact, two of our top three selling models are trucks. Trucks and crossover vehicles represented 58% of our total new vehicle unit sales for the year-to-date period, while cars represented 42%. We realize same-store unit growth in trucks of about 6.6% as compared to 1.4% for same-store cars.

Now, turning to the operating results for the three months ended June 30, 2004. During the quarter, we retailed over 45,000 vehicle, up over 10% from the prior year period and serviced about 350,000 vehicles, up about 14%. As a result, total revenues for the quarter were $1.3 billion, an increase of almost 15% from the prior year and same-store revenues were up 3.8%.

Unfortunately, these increased volumes and revenues did not translate into increased earnings as lower growth margins and higher costs served to produce bottom line results that were less than expected for the traditionally robust second quarter.

Our total gross profit for the quarter was up 7.8% over the prior year period due primarily to acquisitions as same-store gross profit was down slightly. Gross profit is a percentage of revenues decreased by 90 basis points from 16.0% to 15.1%.

This decline in total gross margin percentage represents the cumulative effect of margin declines across most of our operations and is comprised of the following: New vehicle retail gross margin was down from 7.4 to 7.1%. This decline was due in part to an increase in the average selling price of vehicles and, more importantly, to an increase in competition in certain of our key market areas.

Used vehicle retail margins were up slightly from 11.2% to 11.4%. However, total used vehicle margins were down from 8.8 to 8.4%. This primarily reflects the fact or the impact of a significant increase or about 22% in lower margin used vehicle wholesale sales.

Parts and service growth margin was down from 55.9% to 55.1%. This 80-basis point decline was due to fact that our lower margin wholesale parts revenues grew at a faster pace than our higher margin retail parts and service revenues.

Finally, F&I margin was down about 10% from a little over $1,000 to $899 per retail unit as we experienced lower penetration rates on our used vehicle sales. In addition, our newly acquired franchises have put downward pressure on F&I margins as most of these, especially the luxury franchises, typically have initial F&I margins that are lower than ours.

Income from operations for the quarter was 34.5 million or 2.6% of revenues, down from 40.3 million or 3.5% of revenues for the same period last year. This decline largely reflects the fact that SG&A grew at a faster rate than gross profits. As a result, our SG&A to gross profit ratio increased to 80.5% for the quarter versus 76.1% in the prior year and 80% in the prior quarter.

On an absolute basis, SG&A increased by $19.7 million or 14.1%. Both of this increase, about 14.1 million, is attributable to acquisitions. In addition, about 4.6 million is attributable to higher corporate SG&A largely comprised of our previously announced after-tax charge of 1.8 million or 2.8 pre-tax due to losses incurred under the self-insured retention portion of our physical damage insurance program. Finally, about 1 million of the increase is due to higher same-store SG&A.

Floorplan interest expense decreased by $0.5 million for the quarter to 5.7 million. This increase was due in part to the expiration of an interest rate flop in July 2003, as well as a decline in weighted average interest rates of about 20 basis points from the same period last year. These benefits were partially offset by an increase in floorplan borrowings during the second quarter due primarily to acquisitions.

Also for the quarter, manufacturer floorplan assistance, which is reported as a reduction of new vehicle cost of sales and realized as vehicles are sold, totaled 8.3 million. This level of floorplan assistance covers the company's total floor plan interest expense by a factor of about 1.5 times.

Other interest expense increased by 1.2 million due to an increase in the average outstanding balance of our non-floorplan related debt, reflecting our August 2003 issuance of $150 million of 8.25% senior subordinated notes.

In summary, net income for the quarter was 15.7 million or 67 cents per diluted share. This is 22% lower than the same period last year and includes the 8 cents per diluted share negative impact of the weather-related charge. Excluding this charge, net income would be 75 cents per diluted share, down 13%.

Now, for some other information of note. First, new vehicle inventory at June 30 was 78-day supply. This compares to 83 days at June 30, 2003, and 76 days at March 31, 2004. Although this current level is above our target, we are nevertheless comfortable with our position given our sales expectations over the remaining higher volume summer months.

Our used vehicle inventory at June 30 was 30 day supply. Return on average equity for the last 12 months ended June 30 was about 13% and excluding the loss associated with our first quarter bond redemption, this increases to about 14%.

We also continue to focus on return on invested capital. For the last 12 months period, return on invested capital was about 10.5%, below the 12 to 14% we had experienced historically, but still fairly strong.

For additional detail regarding the company's operating results, financial condition, individual product margins, same-store sales, and other financial metrics, please refer to the schedule of additional information attached to the news release as well as the updated investor presentation posted on our web site.

Now, turning to capital and liquidity matters. As of June 30, the Company had 139 million of working capital. This is significantly lower than our working capital level at the beginning of the year, and reflects the fact that we have releveraged our inventory to more normal levels.

In so doing, we used substantially all our excess working capital to redeem the Company's 10 7/8% senior subordinated notes to fund our year-to-date acquisition activities and for other general corporate purposes.

Also, as of June 30, the Company's long-term debt-to-cap ratio was 24%. Since June 30, we have incurred additional debt as needed to fund the recently announced acquisition in Houston and Beverly hills. As a result, our current debt to cap ratio is about 31%. Even at this moderately higher level of leverage, the company has significant capacity to fund additional growth.

On July 28, or yesterday, in response to our recent increased pace of acquisitions and in recognition of our need to fund additional acquisitions overtime, we obtained $162 million of additional commitments from certain of the lenders under our syndicated revolving credit facility. These additional commitments have served to increase the company's total commitments under its various credit facilities to $1.237 billion.

After giving affect to these additional commitments, we now have more than $300 million of total availability under these facilities. This availability will be used as needed to fund the company's floor plan, working capital, acquisition, and general corporate needs.

We are very pleased with this response from our lenders, which includes both commercial banks and the capital finance city areas of certain of our automobile manufacture partners. Their continued support provides us with the resources required to execute our operating in acquisition strategies.

And finally, total CapEx for the quarter was about 13 million, of which approximately 9.5 million was for new or expanded operations, and the balance or approximately 3.5million represented maintenance CapEx. We expect total CapEx in 2004 to be approximately 43 million, including approximately 12 million in recurring maintenance CapEx. And as you may recall our maintenance CapEx has historically served in the good proxy for our depreciation.

With that, I'll now turn it back over to Ben. And, he'll provide you with an update on our recent acquisition activity and our diluted earnings per share guidance for the balance of 2004.

Thank you, Robert. We opened our newly completed Miller Nissan store in Woodland Hills, California, during the second quarter. The Nissan franchise, which was granted and announced in September 2002, is our second Nissan dealership in the Greater Los Angeles area and is expected to generate approximately $50 million in annual revenues.

Group 1 has expanded it brand offerings in the Houston market by acquiring advantage BMW downtown and its satellite store advantage BMW Clear Lake. These dealerships will operate under our existing Houston area platform the Sterling McCall Automotive Group that also includes two Toyota dealerships, two Lexus dealership, Nissan, Honda, and Acura franchises.

In a separate transaction, we also acquired Mercedes-Benz at Beverly Hills, an award-winning dealership that offers both Mercedes-Benz and the ultra luxury Maybach brand. The dealership augments are, existing Los Angeles area platform, the Miller Automotive Group, including the Beverly Hills dealership, Miller Automotive now operates eight dealerships consisting of nine import franchises in the Los Angeles area.

These tuck-in acquisitions will be immediately accrued into earnings and, will further expand Group 1's offerings of luxury brands in markets with strong demand for these vehicles. With the addition of Mercedes-Benz and Maybach franchises in Beverly Hills, we are gaining a significant presence in one of the largest luxury automobile markets in the United States.

Year-to-date, Group 1 has added 19 franchises with expected annual revenues of approximately $1 billion. The brand mix of these franchises consists of 24% domestics and 76% imports, including 39% luxury brands. The aggregate consideration paid in completing these acquisitions was approximately $172 million in cash, net of cash received, and 360,693 shares of Group 1 common stock.

The cash portion of these transactions was funded with a combination of cash on hand and borrowings under the company's revolving credit facility. We have achieved our full-year acquisition target of $1 billion of expected aggregate annual revenues during the first seven months of this year.

Most of the accretive earnings impact of these acquisitions will be realized in future periods. We continue to find qualified candidates that meet our stringent criteria, and we'll continue to make acquisitions, although at a much slower pace for the second half than in the first half of the year.

Group 1 anticipates slightly improved same-store performance for the second half of the year based on this expectation, coupled with the expected positive impact of the above mentioned acquisitions, we have reaffirmed our revised 2004 earnings guidance of $2.95 to $3.15 per diluted share.

This guidance includes the 8 cent per diluted share negative impact from the Amarillo hailstorm loss, but excludes both the 17 cents per diluted share impact of the March 2004 notes redemption and any future acquisitions. Our main focus the balance of the year will be on integrating the dealerships we have acquired as well as improving our margins across the board.

Now for our Group 1's top selling models. For both the second quarter and the first half of the year, number one, once again the Ford F-series pickup truck. Number two, the Toyota Camry. Number three, the Dodge Ram Pickup. Number four, the Toyota Corolla. And number five, Honda's Accord.

Group 1 today currently owns 91 automotive dealerships comprised of 137 franchises, 31 different brands, and 31 collision service centers located in nine states operating through 15 platforms.

We are now welcome your questions.

Thank you, ladies and gentlemen. At this time, we will begin the question and answer session. If you have a question, please press the "star" followed by the "one" on the telephone keypad.

To withdraw a question, simply press the "star" followed by the "two". You will hear a three tone prompt acknowledging your selection and any question will be polled in the order they are received. If you're using speaker equipment please lift the handset before pressing the numbers.

Our first question is from Rick Nelson with Stephens. Please go ahead.

Thank you. Good morning, guys.

Good morning, Rick.

Strategy question. And I'm wondering why you have been so aggressive on the acquisition front when the base business seems to be struggling more than some of your industry peers.

Good question, Rick. Many of these acquisitions, of course, we were first started working on in the last half of last year. You can obviously see we're shifting our brand mix more to import and more to luxury lines. That is a strategic shift on our part. You see the mix of the billion dollars that we have just announced. Certainly the operating issues that we have discussed, we have been very candid about.

Their -- some of them are brand specific. Some of them are market specific. Because of our decentralized operating model and, the new platform presidents we have brought on board, we've actually, we think, strengthened ourselves through these great additions with these great brands.

So, I don't think that it's really not a deviation from our strategy. We said to start, we were going to add -- try to add $1 billion in revenues this year. We said that last year, too and were a bit short. Many of those transactions that have closed this year, we were working on in the fourth quarter of last year.

So, it's just a continuation of the process that sometimes it takes a year to complete. So, certainly now that we have these acquisitions closed, we'll focus, as I said, on integrating the acquisitions and improving our margins in our core businesses.

As you look forward, then, to '05, do you anticipate that maybe the acquisition pace might slow down? Or, how do you mix -- focus on improving existing operations with the acquisitions?

Yes. We will certainly for the second half of the year, as I've said, we will see a slow down in the acquisition pace. We may finish some of the things, we're working on now, but will be substantially slower than the first half. And, we'll probably talk about our acquisition targets and our earnings guidance for our '05 a little later in the year. We really haven't set those targets at this stage.

And, then another question on the SG&A front, your decentralized organization -- I'm wondering, how you implement cost reduction strategies in a decentralized company?

Yes, well, you do it just like you do at any other company. I might mention in analyzing our SG&A that the variable components in the dealerships that you would expect to decline as problems decline did decline. The compensation elements of SG&A in the dealerships did decline. The more difficult area meaning that they truly are variable costs.

The more difficult area and especially showed up in the second quarter probably because of the precipitous decline in June, the last month of the quarter, is advertising. And, as you certainly know, Rick, advertising buys are made in advance and when you make your advertising buys and, then the sales results don't meet the expectations, there's not much you can do about it once the buy has been made.

Our guys and our platform Presidents are very sensitive to that and very close to those markets. We talked to them continuously about that. But, it's a fine line to balance those forward spins like that.

Some of our issues as Robert mentioned in SG&A this quarter, we're actually corporate and involved the hail lawsuit in Amarillo and, in addition to that, kind of a negative swing for last year so the comparison was really about a $3.5 million swing between Q2 of '04 and '03 at corporate on our retained risk.

So, a lot of that was because of that. But again, to answer your question, we monitor that very closely. We are in discussions with our guys. They are closer to the markets. We feel like they have the best deal for calling that advertising spin and that inventory order, I might add. So, the way we control that is really through our platform Presidents.

And, final question on July sales, we've taken a big step up in incentives and I'm wondering, if that's translating to sales in the dealerships?

Well, certainly on a global basis for the industry, I think, what you're hearing is probably true as increased pace of sales in July, you know, looking pretty good so far in that.

But the issue, again, is -- it is happening in almost every quarter is the incentive being on again, off again in kind of inconsistent months because of that. So, it's made the market very difficult. But that is what the market is. July is looking pretty good, I think, for the industry. We will see, what the other two months of the quarter bring.

Thank you.

Thanks, Rick.

Our next question comes from Matt Nemer with Thomas Weisel Partners. Please go ahead.

Good morning, gentlemen.

Good morning, Matt.

First question on inventory. Just wondering, if there's anyway, you can breakdown that 78 days between domestic and import or maybe car and truck or just give us a sense of how high that could go on certain brands, if it's over 100?

Yes, well, I think we mentioned across the board that at 78 days -- let me do caution one thing on inventory. I'm not paying too much attention to it. As Robert mentioned, we're very comfortable with our inventory levels. They are at 78 days, which is over target.

We do use 30-day sales to calculate our inventory. And, we don't use actual selling day. So, I just caution you, when you look at that. But, the breakdown for the quarter, Robert, do you want to give a breakdown for the car and truck?

Sure. Matt at the quarter breakdown is cars, 64 days and truck 89 days per weighted average of 78 days.

OK. And, then the next question is on the floor plan assistance. It looks like it was up pretty substantially and, I'm just wondering what's driving -- if there's something driving that that we should know about like a change in OEM terms on floor plan assistance?

Let me also -- sorry, Matt, I want to go back quickly on the car-truck mix on days. That's also, of course, is driven by domestic versus import. Many of those the trucks in 89 days of course are primarily driven by the domestics, our domestic dealerships. So, certainly be aware of that.

OK.

We're looking at that. I think that increase in assistance and our inventories are up. Sales are up. Inventories are up. So, that really drives that.

So, there hasn't been any change in OEM terms that you're aware of?

No. You are aware that every OEM has a different way to calculate different manufacturing assistance plans.

Yes. OK. And, then the third question I had was, there's an article in automotive news about Toyota's plans to add some small town companion stores in Texas.

I am just wondering if you would be slated for any of those, and if you decided to do that, if that's a change in strategy to go into more rural markets or if there is an impact from that on the stores that you have in the metro areas?

Yes, probably those smaller markets are -- we're really not candidates for those, those smaller stores. Certainly Lexus has done that in major markets with companion stores. That is a very attractive opportunity for us. We do have a Lexus companion store here in Houston that was under that program.

But, and, so Toyota kind of following that in rural markets probably won't have a big impact on us, although we do like - I'd say the sub top 50 markets. We're not necessarily drawn to just the top 50 markets in the United States, so a market like Albuquerque, for example, is very attractive to us.

But, probably would not be a market you would consider a rural market. So, I'd say for us that probably would have very little impact. If it were in a market and we were involved in already, we certainly would be interested in that.

OK. Great. Thank you.

Thanks, Matt.

And our next question comes from Gerry Marks with Raymond James. Please go ahead.

Good morning, Ben.

Hey, good morning, Gerry.

A couple of questions. First of all, I was curious in terms of your floor plan notes payable. It looks like it's doubled?

Yes, Robert, you explained it. So, I think Robert you mentioned it, we deleveraged that.

All right.

And, that is the main driver on that. Robert, do you want to walk him through that?

Yes, you may recall, Gerry, that in the I guess the cash that was raised last summer for the bond redemption was parked, if you will, and used to reap and pay down the floor plan notes payable.

So, if you look at the balance sheet attached to the press release the -- and compare notes payable to inventories, the ratio and the notes payable look very low compared to the inventory. And, if you didn't compare that to the same -- to June 30, it's more normalized. And, that delta increase in floor plan notes pay just simply the deleveraging of that inventory.

OK. And did I understand right that you had wholesale loss this is quarter?

Say again, Gerry.

In terms that are used?

Yes, we did have wholesale losses per unit are actually down. Wholesale sales-on the sales end, they are up.

OK. But on a per unit basis, they are down.?

Per unit, they are down, wholesale loss.

OK. That's all I had. Thanks.

Gerry, one other thing just to add quickly. I've just noticed this on the floor plan and the inventory side. Certainly you've got acquisitions that add to both of those.

OK. Thanks.

And our next question comes from Jeff Black with Lehman Brothers. Please go ahead.

Hi. Good morning.

Good morning, Jeff.

I was just concerned about the pace of acquisitions. You know, it looks like you layered on the acquisitions faster than you expected. We really haven't changed the recently revised guidance for the second half, but what does it imply about margins in the second half for new cars and used cars? Do you think you get any kind of recovery there or is this going to be a more sales driven second half for Group 1?

Well, certainly we think on same stores, as I've mentioned, we're looking for a slight improvement on same-store. Certainly some of that would include margin. These acquisitions, as you have noticed, are many of those are luxury. They are certainly are import, predominantly import.

We would look to have good margins from those stores as they add-on into Q3 and Q4. Just on the pace, a lot of times the pace of an acquisition, you don't really dictate exactly when you're going to be able to close those.

So, many of these transactions that we closed and it does appear that we front loaded, if you will this, year, we were working on them, as I said, last year. We -- a little over 300 million in acquisitions last year, which is a little below our target. So, I think this year is a little make up from last year and kind of average the two years out.

But, again, to answer your question, we looked to integrate the acquisitions in, on the second half and, then we're looking for, as we're calling it a slightly improved performance from, if you will, our existing stores or same-stores over the second half of the year.

There has been some really - very expense, very competitive marketplace, but specifically in some of our larger brands. And, we certainly hope to see that somewhat lessened in some of the key markets.

Can we turn to Atlanta for a second?

Sure.

I just wanted to get your assessment of how the traffic issue is in Atlanta now and where you think you are in terms of being able to get this business fully back on track, if you would?

Jeff, as we mentioned, we're making good progress in Atlanta. We certain --our performance in the second quarter this year was a very large improvement over second quarter last year and also the first quarter of this year.

We -- for the month of June, we actually came very close to breaking even in that platform and Robert gave you a little more flavor on covering SG&A over there. I think that a lot of our businesses really throughout, it's a people business. We now think we have the kind of the key managers in place in those stores.

Our platform President over there is feeling a lot better about Atlanta, about the people he has in place to processes as he has in place. The traffic has improved. In fact, in some of our stores, the traffic and really the sales are where they really need to be. He's actually already there on some of those stores, and the profit isn't where it needs to be.

The margins aren't where they need to be. But that's what he's working on. You know, I'm not going to make any predictions. I think we have the right people in place. We're certainly tracking in the right direction. That's what I have encouraged them to do, to continue -- just continue with the momentum we have over there.

We don't need any, huge leaps or big predictions, which I'm not going to give. We just need continued progress and we're certainly seeing that. And, one other thing, Atlanta, I have said this many times before, part of the issues in Atlanta are market specific. That market has been very soft for the last couple of years.

And, our brands in Atlanta are also Ford and Toyota, 80% of Ford and the balance Toyota, two of the brands that for this quarter that we've really struggled with. Toyota is really margins, not volume. Ford is margins and volume.

So, you have that impacting the Atlanta platform also. But, I think we are cautiously optimistic about where we are in Atlanta and, there's certainly tracking in the right direction.

And, just one more follow-up on the comp. You know, I mean you just mentioned that you expect some of the intense competition to dissipate a little bit. You know, why would that happen? Is it because inventories are finally being worked out of the system in July that leads you to think, margin might improve and comps might improve?

Yes. Caution everybody to make predictions based on one month the way incentives are on and off. Certainly July, as we've all seen probably, again globally, look to be a much improved month over June.

And, for the competition to, I'll say, normalize, this is a very competitive business all the time, but it certainly has to -- there's inventory issue. We have to work through in the OEM's that we have to work through inventory issues and oversupply issues. And that will have to happen for these market conditions to change.

OK. Great. Thank you very much.

Thanks, Jeff.

Our next question comes from John Murphy at Merrill Lynch. Please go ahead.

Good morning. You have answered most of my questions, but just a follow-up on the acquisition piece here. I understand they can be lumpy at time, but it seems that it's not just you, but other public companies out there, the pace is much faster than have been anticipated. Is there anything going on with valuations in the private market that you are making the more attractive acquisitions more attractive right now?

No, not really. We talked about kind of pricing. It's interesting if you have seen our road show presentation, we have one slide on acquisitions and kind of the pricing -- our pricing models are in there. That has not changed since the IP of seven years ago.

Certainly there are automobile dealers out there who are willing to sell the dealerships for a lot higher multiple than what's in our pricing model. But, there are plenty of others because of the size of the industry that fit into our pricing and all these acquisitions that we have announced certainly do.

So it's not a pricing issue, I don't think. You just have -- it's a trillion dollar industry with 22,000 automobile dealers and, there are a lot of opportunities for acquisitions. Some of the public participants are more active in some periods of time than others, and that comes and goes and changes.

We all have to focus on integration once we have done acquisitions and so you talk a pause and we're going to do here in the second half and slow things down and get all these great dealerships up and running on our systems. So, I don't think -- I don't see any changes in the pricing. As I said, there's always people out there that will take more money. But, there is plenty of opportunities to do good creative acquisition for us.

Thanks.

At this time we have no further questions. I would like to turn the conference back over to B.B. Hollingsworth. Please go ahead.

Thank you very much. We appreciate all of you joining us here today and your questions. We'll be available if anybody who wants to call in for follow-ups, both Robert and myself.

In closing, to accomplish our vision, we need to continue the commitment of our dedicated, now 8,400 co-workers and, the support of the 31 manufacturer partners. We thank them for their contributions and, look forward to the successes their efforts will continue to produce this year and in the future. We are indeed creating the feature of automotive retailing. Thank you and goodbye.

Ladies and gentlemen, that concludes the Group 1 Automotive second quarter earnings conference. If you would like to listen the replay of today's conference please dial 1-800-405-26 or 303-590-3000 access code 110017405. You may disconnect your line at this time.