Group 1 Automotive Inc (GPI) 2005 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Group 1 Automotive fourth-quarter and year-end earnings 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. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded today, Thursday, February 23, 2006.

I would now like to turn the conference over to Mr. Pete DeLongchamps, Vice President of Manufacturer Relations and Public Affairs with Group 1 Automotive. Please go ahead, sir.

Thank you, Jaime, and good morning, everyone, and welcome to the Group 1 Automotive 2005 fourth-quarter conference call.

Before we begin, I'd like to make some brief remarks about forward-looking statements and the use of non-GAAP financial measures. Except for historical information mentioned during the conference 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. Forward-looking statements involve both 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 Securities and Exchange Commission over the last 12 months. Copies of these filings are available from both the SEC and the Company.

In addition, certain non-GAAP financial measures are as defined under SEC rules may be discussed on this call. As required by applicable SEC rules, the Company has provided reconciliations of any such non-GAAP financial measures to the most directly comparable GAAP measures in this morning's press release.

I will now turn the call over to President and Chief Executive Officer of Group 1, Earl Hesterberg.

Thank you, Pete. Good morning, everyone, and welcome to the Group 1 Automotive 2005 fourth-quarter conference call.

Joining me on the call today are John Rickel, our newly appointed Chief Financial Officer, Wade Stubblefield, our Vice President and Corporate Controller, and Pete DeLongchamps, who you just heard from, who is our Vice President overseeing manufacturing and public relations. In a minute, I will turn the call over to John to present our financial results. After John has finished, I will give you an update on some of our key strategic initiatives and then open the call up for questions.

We're pleased to announce that our fourth-quarter results exceeded the high end of our expectations in achieving net income of $16.2 million, a 44.3% increase from the comparable period last year. This equates to $0.66 per diluted share, a 40.4% increase over the fourth quarter of 2004.

For the full year, we realized net income of $70.3 million, or $2.90 per diluted share, before the cumulative change in accounting principle recorded in the first quarter, a 152.9% improvement over 2004 on record revenues of $6 billion.

As we had projected in early October, the new vehicle market, especially for domestic brands, was weak in October and November. However, several factors enabled us to overcome these challenges and report better-than-anticipated fourth-quarter earnings. First, we experienced stronger-than-expected post-hurricane demand in our West Bank New Orleans dealerships. The diligent efforts of our dedicated employees allowed us to resume business operations in less than two weeks, and we've been able to capitalize on the significant vehicle replacement market of recent months. Additionally, our Houston area dealerships had a very strong fourth quarter, as the Houston market continues to strengthen as a result of the energy sector and displaced New Orleans businesses. Second, our used vehicle operations experienced significant improvements in both gross profit from retail transactions and reductions in wholesale losses. Third, we've realized a decrease in SG&A as a percent of gross profit that reflected continued scrutiny on our advertising spend as well as partial recovery under our business interruption insurance policies for losses sustained in New Orleans. Lastly, we realized a tax benefit for adjustments to deferred tax items of certain assets and liabilities.

With respect to acquisitions, during 2005, we targeted adding $300 million in estimated revenues. Due to a variety of competitive pressures and our desire to focus on integrating the $1.2 billion of revenue we acquired during 2004, we reduced our acquisition activity in 2005. We finished the year having acquired a total of seven franchises with estimated revenues of approximately $118.4 million. We again anticipate acquiring at least $300 million in annual revenues during 2006. Towards that goal, we announced last month that we had acquired Toyota and Lexus franchises in Manchester, New Hampshire. These two franchises are expected to generate approximately $127 million in annual revenue. We anticipate the balance of our acquisitions to be completed in the second half of 2006.

While we continue to grow through acquisition, we are also focused on rationalizing our overall portfolio of franchises and divesting of underperforming or noncore operations. In this regard, we sold three franchises in the fourth quarter, together generating total annual revenues of approximately $45.9 million. During the first six weeks of 2006, we've sold four additional franchises that generated total annual revenues of $35.1 million.

Turning to brand mix, during the fourth quarter, notable year-over-year brand sales increases included Toyota up 5.4%, Lexus up 7.3%, Honda up 13.9%, and BMW with an increase of 35.3%. Our brand mix, again based on fourth-quarter new vehicle unit sales, continues to be led by Toyota/Scion/Lexus at 31.1%, followed by Ford at 17.5% for a total exposure to these top two brands of 48.6%. Our next four largest brand exposures, in order, were DaimlerChrysler, Nissan/Infiniti, Honda/Acura, and GM, which together accounted for another 43.3% of our total new vehicle unit sales.

Looking at our new vehicle mix in summary, our luxury and import brands increased 170 and 90 basis points respectively to 19% and 46% of our total unit sales for the quarter, while domestic nameplates decreased to 34%. This 66% import luxury to 34% domestic split continues our move toward less reliance on domestic brands. This change is due to both the increased contribution from dealerships acquired over the past two years as well as the market share losses by the domestic manufacturers.

Now, a quick word about inventories -- our total new vehicle inventory at December 31 was a 56-day supply. This represents a 1-day reduction from third quarter and a 14-day reduction from the end of 2004. Imports were at 44-day supply, luxury brands at 34 days, and domestics at 84 days. We are not satisfied with our domestic supply, and this will be a major area of focus for us in 2006. Our supply of used vehicles at year-end was 28 days, still short of our 37-day target. However, this tight management of used vehicle inventories contributed to a 45% reduction in used vehicle wholesale losses versus the comparable period in 2004. This, combined with a retail margin increase of 70 basis points, drove a total used vehicle margin improvement of 130 basis points for the quarter.

I will now ask John to go over our financial results in more detail. John?

Thank You, Earl. Good morning, everyone.

Let me begin by saying how pleased I am to have joined Group 1. The quality of people at all levels of the Company is impressive. I look forward to working with our Board of Directors, Earl, our leadership team and all of our associates to implement the key initiatives underlying our strategic vision.

As Earl noted, fourth-quarter net income increased 44% from the same period a year ago to $16.2 million, or $0.66 per diluted share, on revenues of $1.4 billion. On an overall basis, gross profit for the quarter increased 2.2% from the prior year to $224.7 million, primarily due to the positive impact from improvements in our used vehicle and parts and service businesses, as well as the impact of recent acquisitions. These increases, along with a 280 basis point reduction as a percent of gross profit in our SG&A expense, contributed to a 60 basis point increase in our operating margin to 2.6% and a 50 basis point increase in our pretax margin to 1.6%.

I'd like to now discuss some of our specific same-store results, starting with new vehicles. Vehicle revenues were down 2.4% on a 3.6% decline in retail unit sales, primarily reflecting weakness in most of the domestic brands as payback for summer employee purchase programs continued.

Used vehicle retail revenues were up 1.2% and retail gross profit was up 7.1% on a 2% decline in retail unit sales. In addition, we reduced wholesale losses by 44.4%, resulting in a 15.2% increase in adjusted gross profit for retail units sold to $1,943.

Parts and service revenue increased 3.3%. However, gross profit increased only 1.9% over the prior year as a result of our gross margin declining 80 basis points to 54.2%. The gross margin change reflects faster growth in part operations.

Finance and insurance gross profit was 0.6% lower on new and used vehicle retail unit sales declines of 3%, resulting in gross profit for retail unit increasing 2.5% to $946 from 923 in the prior year. Increased revenue from the sale of extended service contracts and other insurance products contributed to most of this increase.

Same-store SG&A was 80.4% of gross profit, a 250 basis point reduction from 2004. This decrease includes a $900,000 benefit recognized in the fourth quarter from the receipt of business interruption proceeds related to covered payroll and other fixed cost in our New Orleans operations that were impacted by Hurricane Katrina during the third quarter. In addition, we continued to see decreases in our level of advertising spend as we continued to closely scrutinize our level of expenditure in this area. Rent expense for the quarter was 14.9 million, essentially flat to the fourth quarter of 2004.

During the fourth quarter, the Company performed its required annual review of the fair value of our goodwill and indefinite-lived intangible franchise [rate] assets. As a result of this assessment, we determined that the fair value of the intangible franchise rights associated with three of our franchise did not exceed their carrying value and impairment charges were required. As a result, we recorded a 2.6 million pretax impairment charge or $0.07 per diluted share.

Same-store floor plan interest expense increased by 2.2 million for the quarter to $9.9 million. This 28.9% increase is attributable to floor plan interest rates that were approximately 211 basis points higher, partially offset by average floor plan debt balances that were $127.5 million lower. Manufactured floor plan assistance, which we record as a reduction to new vehicle cost of sales at the time of sales -- time of sale -- totaled 8.1 million, providing 81.7% coverage of our total floor plan interest expense for the quarter. This level of coverage was down from 113.7% in the fourth quarter of 2004. Offsetting our increased floor plan interest expense is a 1.7 million decline in other interest expense for the quarter to 3.9 million. This 30.4% decline was primarily attributable to average debt balances under the Company's acquisition line of credit that were 83.3 million lower than in the prior-year period.

The Company's effective tax rate for the quarter was 30.2% as compared to 29.1% for 2004. Our 2005 rate was impacted favorably by adjustments that were made to deferred tax items, as was the rate for the fourth quarter of 2004. We expect our tax rate in 2006 to be 37%.

Now, turning to liquidity and capital structure, in December, we announced we completed a new, 950 million, five-year revolving syndicated credit arrangement with 712.5 million of it available for vehicle inventory floor payment financing and the remaining 237.5 million available for working capital, including acquisitions. We also announced separate one-year agreements with Ford Motor Credit Company and DaimlerChrysler services North America for floor plan financing. The Ford facility provides $300 million to finance new vehicle inventory manufactured by Ford and its affiliates. The DaimlerChrysler facility provides 300 million to finance new and rental vehicle inventory manufactured by DaimlerChrysler and its facilities, including Mercedes-Benz. As of December 31, we had 608.8 million of total availability under these credit facilities for floor plan financing and an additional 225.6 million for acquisitions, working capital and general corporate purposes. Our floor plan availability has increased by about 153.7 million since September 30. This reflects the capacity added as a result of the new facilities just mentioned, partially offset by a slight increase in the amount borrowed.

It is important to note, in this environment of rising interest rates, that our new revolving credit facility lowered our cost of borrowing for floor plan financing by 12.5 basis points. In addition, during December of 2005 and early January of 2006 we entered into three interest rate swaps for total notional value of 250 million, effectively fixing our rate on this portion of our floor plan borrowings at approximately 5.8%.

As of December 31, our total long-term debt to capitalization ratio was 20%, down from 23% at September 30, as we've continued to repay acquisition-related borrowings with internal cash flow. At this fairly modest level of leverage, we have significant capacity to fund additional growth.

Now, a few words about cash flow and capital expenditures -- cash from operations for the 12 months ended December 31 was $365.4 million, compared with $27.3 million in the prior year. As a reminder, we now reflect borrowings and repayments under our revolving credit facility as a financing activity, whereas previously such amounts were reflected within operating activities, essentially offsetting changes in inventory levels. Operating cash improved in 2005 as we reduced inventory and the related floor plan payable under our credit facility. In addition, we used proceeds from our new DaimlerChrysler facility to pay down borrowings under our revolving credit facility.

Acquisition-related expenditures for the 12 months ended December 31 totaled 21.1 million, while gross capital expenditures totaled 58.6 million. Of this amount, 41.7 million was for the purchase of land and the construction of new or expanded operations. After considering sale leaseback transactions, our net capital expenditures for the year totaled $23 million. We expect full-year 2006 capital expenditures to be about $80 million on a gross basis and about $35 million on a net basis, after considering sale leaseback transactions.

Finally, during the fourth quarter, we repurchased approximately 623,000 shares of our common stock for approximately 18.9 million, or an average of $30.40 per share acquired, thereby completing the previous Board of Director-authorized repurchase program. For additional detail regarding our financial condition, please refer to the schedules and additional information attached to the news release, as well as the investor presentation posted on our Web site.

With that, I will now turn it back over to Earl.

Thanks, John.

We announced several strategic initiatives on the third-quarter conference call, including the reorganization of our dealerships into a regional structure, growing our parts and service and used vehicle businesses, the implementation of a used vehicle inventory management software system, and a revamping of our IT strategy. As you just heard from the financial results John presented, these initiatives are already beginning to show some results.

I'd like to now provide you a brief update as to where we stand on certain of these initiatives. On January 1, we consolidated our 13 dealership platforms into 5 regions, each led by a regional Vice President with the 5 having a combined experience in the retail automotive industry exceeding 150 years. With this level of talent, we plan to continue empowering our operators to make appropriate decisions as close to our customers as possible. At the same time, however, we also recognize that the sixfold growth in revenues requires greater management oversight and increased efficiency through more standardized operating procedures. To further facilitate that effort, we've announced five regional chief financial officers which are aligned with the previously announced five regional vice presidents. These regional CFOs will report to John Rickel, our new corporate CFO, and will be co-located with a regional vice president whom they will support.

I previously mentioned improved performance in our used vehicle operations. One of the contributing factors to our performance has been the implementation of American Auto Exchange software. We have installed American Auto Exchange's used vehicle inventory management software in more than 45% of our stores and anticipate having it in all of our stores by the end of the first quarter. This tool enables our managers to make used vehicle inventory decisions with real-time local market information on demand for vehicle brands and models. It also allows us to leverage our size and local market presence by enabling all of our salespeople to access any used vehicle unit in their market's inventory. Finally, this software supports increased oversight of our assets and inventory, allowing us to better control our overall exposure to used vehicles.

Today, we are announcing our full-year 2006 guidance range of $3.15 to $3.45 per share. This guidance is based on estimated industry sales of 17 million units, the continued reduction in our SG&A as a percentage of gross profit, and a 50 basis points increase in interest rates. It also includes an estimated $0.10 per diluted share related to the incremental impact of the Company's adoption of the new stock compensation rules. Over the last two years, we've moved away from the issuance of stock options and toward the use of restricted stock, which is already recognized as expense. Our current-year guidance is based on 24.5 million diluted shares outstanding and excludes the impacts of any future acquisitions or dispositions.

As John mentioned, during the fourth quarter, we completed our previously authorized share repurchase program by repurchasing 623,000 or 2.5% of our outstanding shares. I'm now pleased to announce that our Board of Directors have declared a dividend of $0.13 per common share for the fourth quarter of 2005, the Company's first dividend in its eight-year history. This declaration by our Board is a testament to the strength of our consolidated balance sheet and the earnings and cash flows of the Company's dealership network, as well as evidence that we continue to look for ways to reward our shareholders while continuing to grow our business. As you all are well aware of, any future dividends or share repurchases are subject to authorization by and discretion of our Board of Directors.

Although we believe that we will continue to pay some very competitive landscape in the retail automotive industry, we are excited about the opportunities that lay ahead for Group 1. That concludes our prepared remarks.

I will now turn the call over to the operator to begin the question-and-answer session. Operator?

Thank you, sir. Ladies and gentlemen, at this time, we will begin the question-and-answer session. (OPERATOR INSTRUCTIONS). Rick Nelson, Stephens.

Thank you. Good morning and congratulations. On the personnel front, Earl, I'm wondering how much change you've experienced in transitioning the Company at the former platform president level and also at the corporate officer level. I realize John is new, but --.

Well, we've experienced some change. I would say it's probably less than I expected. We had one of our previous platform presidents retire, but that was planned before we reorganized the Company. We are still working through some of our management streamlining. We have lost a couple of what would have previously been platform finance leaders, so there is some thrifting going on. We're losing some people as we lean-out the management oversight structure, but overall, I don't think there has been any noticeable negative impact on our day-to-day operations. We have a bunch of experienced automotive people who keep their eye on the ball and I think you can see that we are still able to generate some respectable results as we go through these transitions.

Maybe SG&A improvement that you experienced here in the fourth quarter -- pretty impressive. I'm wondering what the goal might be for '06.

Well, I can only say that goal is embedded in our earnings guidance, but I think we can all see that, as we look at the other companies in our sector, that over the next few years, you know, we certainly have somewhere around a 500 basis point gap versus some of the better people who do what we do. That takes time, but you know, that's -- we've got the ship moving and I expect we're going to make some more meaningful progress next year. That's a big enabler for us to get to this earnings guidance we laid out this morning.

Thank you for that. Also, the post-hurricane rebound, I'm wondering how long you expect that to continue and maybe what you're seeing here in the first quarter.

Well, I have to say that has been a pleasant surprise, and most of us have had experience before with hurricanes in Florida and so forth, and normally that last six to nine months. We're not counting on it anymore than another two or three months, but there were an awful lot of cars destroyed. I've heard various reports. I won't quote any of the numbers but I suppose this could go longer than a typical hurricane disaster because of the flooding. But I would think, by the time we get into the second quarter, we're not counting on that same type of brisk activity we've had since October/November.

Scott Stember, Sidoti & Company.

Good morning. Could you maybe talk about your performance of larger SUVs and if you are seeing the trends some of your competitors are of a shift down to car-based SUVs, and if that's having an impact on your gross margin?

We have seen a shift; we look at it more macro from car to truck and I think that the last report period we looked at, there may have been about a 3 percentage point shift from car to truck. So, that -- theoretically, that's not great, but we also have to understand that now we have these new General Motors full-sized SUVs coming into the market, which could temper that a little bit. So, I can't quote any margin impact but clearly that market shift is going on in a macro sense. Margins on cars don't tend to be as good as they are on big trucks and SUVs, unless you're talking about luxury cars. So there is that pressure in the market.

But I also have to say that, in some of the car sectors, some of our car growth is coming from strong car franchises like Honda and Toyota where we're getting a lot of unit growth as well. So, that shift exists, and we can see it in the model mix shift but not in our gross margins yet.

The other factor that I noticed in our business in the fourth quarter, that as we got in November and December, the used vehicle market for full-sized SUVs got very strong because they got down to a price where they became very attractive buys. So that actually could have been a positive factor in retail used vehicle margins, as you start to sell used full-sized SUVs to a greater degree. So there's a lot of ins and outs, Scott, and I couldn't really put my finger on anything that I would say is materially damaging our business based on that shift from trucks to cars in the markets yet.

Okay. On the parts and service side, can you talk about customer pay trends and warranty work?

We don't see any major shift between customer pay and warranty work in our stores. I will just proactively address a question that some of you might have. There was a slight decline in our overall parts and service margin, and that came from our parts part of our business being a bigger mix than it had been in the prior periods. So parts, as compared to service, you were looking at a service mix between warranty and customer pay. We didn't see any change in warranty versus customer pay, but we did see a little more parts business as a percentage of our total parts and service revenue.

Okay. Lastly, could you just talk about how many new stalls you added on that front in 2005, and where do you see that going in 2006?

Well, those numbers are a little difficult, but the number we have was in the low 90s last year that we added. The first look I had at this year was a similar number but I have to tell you that we have some other projects that we're looking at right now. It's also hard for me to sometimes determine when these projects will be finished. Sometimes, you start a project one year and finish in the next. I don't think we have codified a way of whether we identify stalls so that when we start the projects or when we finish them. But I think, roughly speaking, a little bit short of 100 last year, a little bit short of 100 planned so far this year.

Okay, that's all I have. Thank you.

Matt Nemer, Thomas Weisel Partners.

The first question is on the SG&A expense. Just to clarify, so there was a $900,000 benefit from it sounds like insurance payments. I'm wondering. Does that continue or is that basically the bulk? Did you get everything that you're expecting?

Matt, this is John Rickel. Yes, we did record a $900,000 after-tax benefit in the fourth quarter. That was for a partial settlement. There are additional amounts likely to come. We are still in negotiations with the insurance companies. Basically, what we recorded in the fourth quarter was for payroll and fixed costs. The actual loss/profit piece of the business interruption is still out there under negotiation.

Okay. How much bigger is the lost profit? I'm assuming that that is a bigger piece of it.

No, it's about the same. In total, we received kind of a cash advance from the insurance company of $5 million. What we've recorded is about half of that, the 1 .9 million.

Okay. Then, also on SG&A, you mentioned reductions in ad spending. I'm wondering if you could give us a little bit more detail on where that's coming from, what type of advertising you pulled back on and you know, if that had any impact on the sales rate or traffic.

Yes, there's two comments I will make to that. The first thing we've done, since November 1, by putting these regional vice presidents in, that's one of the first things we asked these people to look at. So, by having of larger regions, we've actually started to leverage our size. Now, clearly, you buy a lot of media locally, but on things like Internet and direct-mail, we looked much more critically at some of the things we're doing. We also knew that October and November were not going to be strong industry months, certainly for some of the brands who had payback from the summer. So in some cases, we didn't try to push water uphill in a weak market. So I would say those were the two big factors.

Okay. Then, on the wholesale losses, how much of that is just the market, the used car market, or the wholesale price equation getting a little bit stronger? How much of it is processes like American Auto Exchange?

Well, I don't know that I could apply a percentage to each factor, and yes, there were some market factors on the plus side, although they occurred more in the second half of the quarter. Actually, the first half of the quarter was very dangerous and was a negative because that's the time when these full-sized SUVs were in freefall. As you know, we have a pretty significant domestic component to our business, so there are -- a lot of full-sized SUVs tend to be traded in to domestic stores. So we actually the market I think working against us up until some point in November. But yes, there was some market benefit in the second half of the quarter. But also, I just think making this one of the top priorities for our management people and then having really now two levels of oversight onto it and some transparency to the data for the first time was the biggest factor. So I would ascribe not necessarily just to a computer system, per say, but having management focus and transparency to the data and again, these five regional vice presidents tend to be automotive car people and most all of them are very experienced, excellent used vehicle people. I would give them some credit to our performance in the quarter as well.

Okay. Then lastly, I realize the SG&A improvement is embedded in your '06 guidance, but would it be possible to give us some indication of kind of what type of improvement we might expect from gross margin, how that might split between gross margin and pure expense reduction?

No, I just don't think it would be possible to do that.

I will tell you that what we were able to address this past year in 2005 was really some low-hanging fruit. That's why you saw it in areas like advertising, which have a fairly short leadtime. Used vehicles, even though that's not necessarily an SG&A issue, that's something that you could do an impact in a fairly short amount of time.

The area that we need to drive SG&A with in 2006 would be certainly more in our personnel-related expense, sometimes called compensation. That is the area where we're focusing most of our efforts right now. But I can't give you a meaningful number, so I don't want to try.

Okay, fair enough. Great quarter. Thanks very much.

Jonathan Steinmetz, Morgan Stanley.

Thanks. Good morning, everyone. A few questions -- just a little more clarification on the SG&A side. It looks like you were down about 2.3 million year-over-year; you said 900,000 after-tax. Did you give a pretax number on the insurance recovery and am I correct in thinking that's embedded sort of as an offset to the SG&A line?

Yes, Scott, this is Wade Stubblefield. Yes, that's correct. It's about -- before tax, about 1.5 million embedded within the SG&A number.

So 1.5 of the 2.3 is this number. How much of the incremental was the advertising-related reduction year-over-year? Was it more than all of the difference?

Yes, offset by incremental costs in other aspects of SG&A.

Okay, makes sense.

Secondly, on the hurricane impact, it looks like Louisiana went to about 8.1% from 5.6% of the new vehicle mix. Am I correct in thinking that you still have some stores closed down there, so that actually went up that much even though there's a few less stores operating?

You are absolutely correct. We have four of our original six stores operating, you know, full-out, 100%. One of the stores, our Dodge store, Bohn Dodge, we had to terminate the lease do to facility damage and we are operating out of a very small, temporary facility that really doesn't allow us to do significant volume. Then we have another smaller Ford store. We are rebuilding the facility and it will not be open yet for at least until the second quarter. So, those are very strong results and they're coming from four stores.

So you are literally almost comping like up 100% at the type of stuff that's open?

Yes, it's big business.

Are the grosses good on this? I mean, is this a lot of like governmental fleet-type stuff going through there or construction repair? I mean, do people tend to be a little less price-sensitive here or is that --?

It's good grosses because of the imbalance in supply and demand. There are every type of business -- there's fleet, small fleet, construction, and there's insurance-replacement business for individual owners, and supply and demand on the types of vehicles that we sell there. We're very big in Toyota there and very big in Ford, a lot of Ford trucks.

Okay, makes sense.

It's a good business equation right now.

No, I can imagine.

The last question is on February sales. What are you seeing so far in February? Do you have any early read? I know you are not that GM heavy but any early read on customer receptivity to the new GM large SUVs?

Well, although we don't comment on the current quarter, generally I haven't seen anything that much different in February from January, and that data is public to all of you. Our people that work in our General Motors stores are optimistic, but as usual, the early customers for these types of vehicles want all the bells and whistles and loaded models. Some of those vehicles that match the early customers' specs are distorting to arrive this month and next month, so it will be some time before I think we could make meaningful comment on how successful these are going to be in the market. I'm sure, by the time we have this -- our first-quarter '06 quarterly conference call, I will be able to give you something more definitive, but right now, it's just more anecdotal evidence than anything else.

Okay, great. Thank you very much.

Gerry Marks, Autoretailstocks.com.

Good morning. Just to follow up on Jonathan and Matt's questions with SG&A, did I hear right? You got a $5 million check and you have 1.5 million that you've benefited from in this quarter, so you are going to have 3.5 million that accrues through in the remaining quarters of this year?

Yes, Gerry, this is John Rickel. The insurance company basically gave us a cash advance of the 5 million. What we've recorded was the 900,000 after-tax or the 1.5 million before tax. The rest of it is part of what we are negotiating through with the insurance company on lost profit and also ongoing of expenses that we still have for business interruption down there.

This is Wade Stubblefield. If I could add one thing, we recorded an offset to the fourth-quarter expense of 1.5 million related to costs incurred in the third quarter. We also had a recovery of about $600,000 of costs incurred in the fourth quarter, so obviously that nets out within the quarter for a total recognition of 2.1 million in the quarter.

Actually, Wade, maybe you can help me with this. The asset impairment charge, what bucket does that fall into? Is that SG&A as well?

No, the asset impairment charge is set out on a separate line on the income statement.

Okay. Your rental figures been flat -- a lot of people were up. I'm just curious why the rent expense was flat this year. Are you guys buying some of the real estate?

No, no, that would just be whatever terms we had on our rents. Our rents have were flat year-to-year. What has gone up slightly year-over-year is both the insurance and property taxes, which are obviously much more difficult for us to control.

Gerry, the other thing I would add to that is that our interest rates on our leases are fixed. So I don't know, maybe some of the competitors have variable rates.

Okay. You mentioned, in terms of your guidance, that you're assuming SG&A improvements. It seems a bit more aggressive in terms of some of the peers. You are also looking for kind of a more stable industry environment; some of your peers are looking for a down sales year. What gives you a little bit more optimism than it seems that some of your peers are looking for for 2006?

Well, Gerry, it's hard to say. We really realize the 17 million [SAR] in terms of new vehicle industry may be a little that aggressive, although we do have beliefs that sometime during this year that domestics are going to have to get aggressive into the market again, which would be part of the rationale for our industry projection. I can't really comment on the competitors, but I think it is plausible that we may be starting from a lower level of performance than some of the others. We see a lot of upside in our company and I think many of you who follow our company have pointed that out.

The other thing that makes us really bullish is we are now up to about 30-plus% of our business in Toyota, and we're growing and Honda, and we're growing in luxury brands like BMW. So you know, some of these things are really starting to kick in.

Okay, thanks.

Peter Siris, Guerilla Capital.

Good morning. I had a question about the market in general in New Orleans and sort of the Gulf area. Are you seeing other smaller dealers not opening again? In other words, is the competitive land -- after the hurricane, do you think the competitive landscape will be permanently changed?

Well, I believe the prognostications are for the population distribution to be permanently changed. There are some other dealerships I am aware of across the Gulf Coast that are operating out of something less than the facilities they occupied prior to the storm.

Every dealer I've spoken to is trying to get back in operation. We have had some discussions with manufacturers that some of those manufacturers probably don't need as many dealers in the future because of some of these forecasted population changes. But I have to tell you, thus far, I haven't seen any confirmation from any manufacturer that they plan to close any points. But that is an open subject of discussion and debate, and I think it's one that's warranted. East New Orleans is a very obvious area that is really going to be some time before it will have any chance of having the same population density and buying power that it had prior to the storm. So, that is an open issue, and there are more than a few stores that aren't back in the type of facility they had before the storm.

So, how would the manufacturer -- how would they get back to the -- it's easy to see, in a growing area, how you add stores, but in a shrinking area, how do the manufacturers subtract stores so that the market stabilizes?

Well unfortunately, I have a lot of experience in this subject -- (multiple speakers) -- but the short answer is they have to spend some money to close down stores. You know, they basically have to non-designate points based on a market study, and generally speaking, they have to buy out the incumbent dealer, which is some combination of compensating them for leases or real estate investments they made, and/or some amount of goodwill for what they've created for their brand in that area. That's an art, not a science, but it does cost money.

But with the insurance payments coming, wouldn't this be an opportune time for all that to happen because wouldn't the insurance companies pay a lot of those costs?

I really am not an expert enough to answer that, but I would like to take you with me to some manufacturer meetings when we discuss some of the future representation for parts of New Orleans. Clearly, what happens is when -- if dealerships are allowed to operate in markets where the population doesn't return, the only way those dealers can make a living is to try to poach outside their market area, which is legal of course; there's no boundaries. But that's a big issue that all brands are going to have to sort through in New Orleans and along the Gulf Coast.

We are in good shape with the stores we have. The stores we have in Harvey, Louisiana are solid; that area didn't get flooded. That's why we were able to get up and operating so quickly. But it's more the dynamic of the entire market that still needs to be sorted out by the manufacturers.

Thanks.

Thank you. At this time, Mr. Hesterberg, I'd like to turn the call back to management for additional remarks.

Okay. Well, I would just like to thank everyone for showing some much interest in our company. We have a lot of work to do. We're pleased that we've been able to show some progress in a fairly short amount of time, but we know we have a lot more work to do, and we're still optimistic about where Group 1 can go in 2006. So, thanks for spending time with us today and we will look forward to visiting with you all again and on our first-quarter, 2006 earnings conference call. Thank you.

Thank you, sir. Ladies and gentlemen, this concludes the Group 1 Automotive fourth-quarter and year-end earnings conference call. If you would like to listen to a replay of today's conference, please dial 1-800-405-2236 or internationally at 303-590-3000 with access number 11052353 followed by the pound sign. (Operator repeat numbers).

Again, thank you so much for your participation today, and you may now disconnect.