Group 1 Automotive Inc (GPI) 2007 Q2 法說會逐字稿

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Clearly, these market factors put pressure on vehicle margins. In addition we experienced further margin pressure in our Toyota, Honda and BMW stores overall, as normal product cycle aging and increased availability reduced margins.

On the used vehicle side we experienced the largest used vehicle sales declines in our Texas, Oklahoma and South Florida markets, all of which tend to be areas of traditional truck strength, as various manufacturers increased new truck incentive spending during the quarter.

Although market conditions were challenging in the quarter we did see significant cost adjustments which offset a large degree of the new and used vehicle gross profit pressure. We continue to reduce used vehicle wholesale volumes and further grew our F&I customer phase service business.

We are beginning to see results from the strategic operating initiatives we have been implementing in our used parts and service and finance and insurance businesses. We believe these initiatives are making the fundamental processes of the Company stronger and better able to weather these challenging times.

Now for our second quarter results. On a GAAP basis, net income decreased 2.6% to $24.2 million and EPS increased 1%, $1.01 per diluted share from second quarter 2006. We had $856,000 of charges related to exiting two domestic franchises which we exclude from our full year guidance. Excluding these costs, EPS would have been $1.03 for the quarter.

On a consolidated basis, revenues were up in all four business segments increasing a total of 7.9%. Compared with the same period a year ago gross margin declined 20 basis point to 15.4%, primarily reflecting weakness in new and used retail vehicle margins. We did see improvements in our parts and service and finance and insurance businesses.

In parts and service, we began to implement improvements provided more consistent although competitive pricing structure that helped us recognize a 200 basis point margin increase for the service portion of the business in the quarter. In F&I we are continuomg to improve our margins and performance levels by end sourcing key functions such as training and compliance, reducing our number of suppliers, and standardizing processes. Compared to the second quarter 2006, we realized an $83 improvement of $1009 per retail unit.

Our total same-store revenues were down 2.3% due to the previously mentioned branded market factors, as well as reductions in used vehicle wholesale sales. These factors offset a 2% increase in parts and service and a 7.6% increase in our F&I business.

Our overall same-store gross margin held at 15.6%. (inaudible) profit improvements in parts and service and F&I, offset by weakness in our new and used vehicle businesses. On a same-store basis SG&A expenses declined 1.1% in the second quarter reflecting declines of both personnel and advertising costs. However, as a result of the lower gross profits SG&A as a percent of gross profit increased 120 basis points to 76.5%.

Turning to brand mix. During the second quarter Toyota, Scion, and Lexus brands continued to be our top sellers, accounting for more than 36% of total new vehicle unit sales. Ford was second with 12.6% with Honda and Nissan close behind at 12.2 and 11.8%, respectively.

Rounding out the mix was Daimler Chrysler with 11.1%, BMW with 6.8% and GM with 6.3% from new vehicle unit sales.

Our import and luxury brand mix was 75% of our new vehicles unit sales in the second quarter as our domestic brand mix dropped another 50 basis points from the first quarter to 25%. This compares to our domestic brands accounting for 32% of new vehicle sales at the end of second quarter in 2006.

Consistent with our strategic initiative to further grow our import and luxury brand mix we are targeting increasing this mix to approximately 80% of our new vehicle unit sales by the end of 2007, and 85% over the next couple of years through future acquisitions and dispositions.

Speaking of acquisitions and dispositions I will now update you on our activities this year. We did not acquire any new dealerships in the second quarter. In the first quarter, we announced we purchased three import franchises in Kansas and we expanded into the United Kingdom by acquiring six import franchises. In total, these acquisitions are expected to generate an estimated $303.1 million in aggregate annual revenues for Group 1's full year acquisition target of $600 million.

In conjunction with our strategy to dispose of underperforming dealerships, the Company has disposed of four franchises in West Texas since the end of the first quarter. The four franchises had combined trailing 12-month revenues of $37.6 million. Including these the Company has divested of 10 franchises in 2007 with annual revenues of $100.3 million.

We will continue to evaluate our dealership portfolio and dispose of underperforming stores. The Company anticipates incurring approximately $5 million to $10 million in associated disposition charges which includes costs associated with a disposition actions previously announced in 2007. Year-to-date the Company has booked $4.7 million towards this estimate.

Now a quick word about inventories. Our total new vehicle inventory at June 30th increased one day from the end of last quarter and decreased four days from the prior year period. A total 58 day supply. Import inventory was seven days higher than last year's second quarter but fell six days to 52 days' supply from the first quarter. Luxury inventory held at 41-day supply from the prior year period, reflecting a three-day increase from the first quarter.

Our domestic import reflected a 13-day increase to 82-day supply from the first quarter and an 18-day decrease from the previous year period. Compared to the first quarter our Ford and Daimler Chrysler inventories increased slightly. Our GM inventory however grew 45 days to 122 days supply due to the extremely poor sales performance in June.

Outside of our GM inventory we're satisfied with the progress we have made with our new vehicle inventory management processes. We will focus on reducing our GM inventory in the third quarter while we continue to monitor our new vehicle inventories on a whole.

Our supply of used vehicles at quarter end held steady at 29 days from the second quarter last year and increased one day from the first quarter.

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

Thank you, Earl, and good morning, everyone.

In the second quarter of 2007, our consolidated net income was $24.2 million or $1.01 per diluted share on revenues of $1.7 billion. Included in the results of the quarter are pretax charges of $856,000 for a lease settlement and NASA impairment charge associated with exiting two domestic franchises. Excluding these charges, net income for the second quarter of 2007 was $1.03 per diluted share.

For the six months ended June 30, 2007, our net income totaled 41.7 million or $1.74 per diluted share. Excluding the impact of $3.8 million in pretax charges for lease terminations recognized in the first quarter of this year as well as the $856,000 I just mentioned, diluted earnings per share was $1.87 for the first six months.

Compared with the second quarter of 2006, our total revenue increased $122.5 million or 7.9%. This increase in consolidated revenue reflects improvements in our new and used retail vehicle segments as well as our parts and service, and finance and insurance businesses.

(inaudible) from our used vehicle wholesale operations declined 4.2% in 2006 levels consistent with our strategy to improve selection and inventory management for used vehicles. Our total gross profit improved $14.3 million or 5.9% to 258 million in the second quarter of 2007 while gross margin was down 20 basis points from the same period a year ago to 15.4%.

Improvement in parts and service profitability primarily reflecting stronger service margins and growth in finance and insurance profitablity, which was up $83 per retail unit sold to $1009 per unit, was more than offset by weaker new and used retail margins. New vehicle margins at 6.7% were down 60 basis points from same period a year ago, reflecting continued weakness with domestic brands than in California.

In addition, import margins were also lower, reflecting normal product aging and wider availability of product. Used vehicle margins were down 50 basis points to 9.2%, as lower wholesale sales were more than offset by reduced retail margin on used trucks which were impacted by higher manufacturing incentives on new trucks.

Our consolidated SG&A expenses increased 7.6% to $196.8 million for the quarter which is 76.3% of gross profit compared to 71.5 -- 75.1% a year ago. However, included in SG&A for the second quarter was the $500,000 pretax charge related to the lease exit mentioned previously in a $494,000 pretax charge related to the termination of dealership management system leases, offset by a $623,000 pretax gain on disposals.

SG&A for the second quarter of 2006 include the recognition of $6.5 million in pretax hurricane-related insurance benefits and a $1.2 million pretax gain on disposals offset by a $4.5 million pretax charge for lease terminations and a $1.1 million pretax charge from employee severance. Excluding these items from both periods, our SG&A as a percent of gross profit was 76.1% for the second quarter of 2007 versus 76% in 2006. Please see the supplemental schedule included with our press release for a summary of these adjustments.

Consolidated floor plan interest expense declined $1.2 million or 9.4% in the second quarter of 2007, compared to 2006, as our weighted average borrowings declined $40.1 million, reflecting lower inventory levels and our weighted average interest rate declined 19 basis points. Other interest expense increased $2.8 million to $6.8 million as our weighted average borrowings of other debt increased $316.1 million as a result of the 2.25 convertible note offering completed in June 2006 as well as borrowings under our mortgage facility that we entered into in March 2007.

Partially offsetting the increased borrowings our weighted average interest rate decreased 312 basis points. Manufacturers' interest assistance for the second quarter of 2007, which we report as reduction of new vehicle cost of sales as the vehicles are sold, was 84.3% of total floor plan interest cost -- a 10 percentage point improvement from the second quarter of 2006, primarily as a result of reductions in inventory levels and interest cost.

Turning to same store results for the quarter, our revenues declined $35.2 million or 2.3% to $1.5 billion as a 2% improvement in parts and service revenues and a 7.6% increase in finance and insurance revenues were offset by declines in our new and used vehicle sales. Parts and service revenue improvements were driven by increases in customer pay and wholesale parts business, partially offset by declines in warranty-related and collision sales.

F&I revenues increased $3.5 million as we reduced the cost structure of many of our vehicle service contracts and insurance offerings. Manufacturers [have vented] financing decline and we expressed a reduction in chargebacks in both finance and service contracts segments of the business.

Same store new vehicle sales declined 1.8%, primarily reflecting continued weakness in the domestic brands, economic trends in California that continue to negatively impact our results and lower truck volumes. Results in the new vehicle segments were also negatively impacted by the boost our 2006 results received from post-Hurricane Katrina recovery efforts in the New Orleans market.

Same store used vehicle sales declined 6.8% overall, made up of a 4.3% decrease in retail sales and a 15.4% decrease in wholesale sales. Decline in used retail is primarily explained by lower sales in our domestic market, as well as the New Orleans impact described above. Partial offset was the continued growth in our certified pre-owned sales which increases as a percent of total resale units sold from 14.6% in the second quarter 2006 to 23% in the second quarter of 2007.

Wholesale revenues declined in conjunction with our initiatives to better manage used vehicle selection and inventories. Our same store gross profit declined 2.6% to $230.2 million as profit improvements in the parts and service business of 1.4%, and the finance and insurance business of 7.6%, were offset by declines in new and used vehicle gross profit.

Our gross margin held at 15.6% from the prior year as margin decreases in new vehicle, used vehicle and parts and service were fully offset by strong performance in our F&I business and a favorable increase in business mix. Same store SG&A declined 1.1% or $2 million as initiatives to maximize our buying power and market concentration drove a $2.2 million or 14% decrease in advertising expense.

Same store SG&A as a percent of gross profit was 76.5% compared to 75.3% in the prior year, primarily as a result of the decline in same store gross profit that I mentioned above.

We have completed our conversion to a sole source provider for our DMS software. I want to thank our operating team and IT department for all of their hard work and patience in accomplishing this conversion. As discussed in my comments on consolidated SG&A costs, we incurred $494,000 of exit costs in the second quarter as we ceased using legacy software.

This should be the last material charge for conversion costs for existing stores. These charges were included in our 2007 guidance.

Our same store operating margin decreased 20 basis points to 3.4% from 3.6% in 2006. Same store floor plan interest expense decreased 17.2% to $10.3 million from second quarter of 2006 as our weighted average borrowings declined $102.3 million, driven by a four-day reduction in vehicle inventory levels from same period a year ago and our weighted average interest rates declined 15 basis points on the back of our renegotiated credit facility which we put in place in February this year.

Now, turning to liquidity and capital structure. On April 27, 2007, we amended and syndicated our mortgage facility to provide up to $235 million of financing for the purchase of real estate. This facility will allow us to continue to acquire real estate land and buildings in conjunction with our dealership acquisitions, existing facility improvement, and expansion actions as well as the selective exercise of lease buyout options. As of June 30, 2007, we had $75.1 million of borrowings outstanding under the mortgage facility. During the second quarter we borrowed an additional $11.4 million for the purchase of real estate associated with our dealerships.

In total we presently hold approximately $178.7 million of land and buildings on the balance sheet. We expect our full year 2007 capital expenditures excluding dealership acquisitions to e about $80 million. As of June 30, 2007, we had paid $124.1 million down on our floor plan lines of credit and had $332 million of availability on our acquisition line of credit for a total of $456.1 million of funds immediately available for corporate needs, including acquisitions.

Our total long-term debt to capitalization ratio was 41% at June 30, 2007, up from 38% at December 31, primarily as a result of borrowings under the mortgage facility.

For additional detail regarding our financial condition please refer to the schedules of additional information attached to the news release as well as the investor presentation posted on our website.

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

Thanks, John. Now for guidance.

We are reaffirming our 2007 full year earnings guidance range of $3.75 to $4.05 per diluted share. With respect to the revised assumptions underlying our guidance, we anticipate industry sales of 16.3 million units, flat to slightly negative same store revenue in 2007, an additional 75 basis point improvement in SG&A as a percent of gross profit from 2006 levels excluding onetime items, flat interest rates throughout the year, a tax rate of 37%, and we are forecasting approximately 23.8 million diluted shares outstanding.

(inaudible) excludes any future acquisitions as well as any dispositions, including potential one-time exit charges estimated at $5 million to $10 million.

That concludes our prepared remarks. In a moment we will open the call up for Q&A.

Joining me on the call today were John Rickel, our senior Vice President and Chief Financial Officer, Randy Callison, our Senior Vice President of Operations and Corporate Development, and Lance Parker, our Vice President and Corporate Controller.

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

(OPERATOR INSTRUCTIONS). Rick Nelson with Stephens.

Earl, can you discuss the cadence of sales during the quarter and what you are seeing in July to date?

I will give you a general idea, Rick, to the best of my ability and July is a bit forward-looking and clearly we don't have the final month data. But I think the first quarter for us, April started very very poorly as did January.

I don't know if some of that is these quarter end pushes that the manufacturers make and we make to hit certain quarterly targets. But once again in the second quarter we got off to a very, very slow start. Then both May and June were appreciably better -- not at last year's levels -- but appreciably better than April. So that that pattern actually repeated in Q2 as it did in Q1.

July, I just haven't seen anything to tell me that the business is any better or any worse. I usually get a little more intelligent after I see the manufacturers that report their month-end data. We get our final data from our stores. But I don't see anything to make me think June is appreciably different than what we have been experiencing. Excuse me -- July. July. Sorry.

Your guidance is now for a flat to slightly negative same store and your prior guidance had been for flat same store. Is that [spacing] in what you are seeing in the second quarter and have reported or is there (multiple speakers) ?

We have six months of reality and our history under our belt and they were negative. So that's just reflecting the reality.

Got it. Question on the [flow] plan. Your floor plan expense was lower and your assistance was higher and yet inventories were lower too and just trying to get at why that would be the case?

First of all, the floor plan interest was lower because we did do a better job of inventory management. So inventory levels and the underlying borrowings that went with those were down.

Now as we had indicated over the last year, the manufacturer of floor plan assistance tends to be a bit sticky on the upside. His rates come up. It sometimes takes a little while for the manufacturers to adjust and I think what you're seeing -- especially on a year-over-year basis -- is that some of the assistance that came through in the third and fourth quarter is now showing up. Ford, in particular, tends to adjust their interest once a year in October.

And then F&I per unit, you had a nice growth there in same store growth yet new and used sales declining. What was the driver there?

Underlying cost structure is a primary driver. Our increased performance in F&I. We have renegotiated the pricing of our service contracts across the country with primarily one vendor, also other F&I products that we are offering. So our cost structure has changed. Our service contract income for example, for the quarter, improved by $134 a contract, which is a big improvement.

So that increase primarily is from the renegotiation of our prices using our scale.

And do you think there's upside opportunity here for from these numbers are is that something that they (inaudible) per unit something you think should stick?

We definitely believe there is some upside. We are very comfortable. We are in a new range now of $1000 and north and with some upside.

Thank you. Congratulations.

John Murphy with Merrill Lynch. John Murphy with Merrill Lynch, if you're using a speakerphone please lift your handset. We are unable to hear you at this time.

Our next question comes from Scott Stember with Sidoti & Co.

Could you guys maybe break out, talk a little bit more about the parts and service business? Did you give warranty decline percentages and the increased customer pay in the quarter?

I have that here. We had a very good quarter in customer pay as you know. Customer pay revenue was up 3%, offset partially by a 4.2% decrease in warranty revenue. Customer pay makes up almost 60% of our revenues in part service and collision where warranty makes up just under 19%. The customer pay revenue increase of 3% primarily is four franchises.

The largest increase is BMW. Second would be Toyota. Mercedes-Benz would be third and Honda would be fourth with very healthy increases with those franchises. On a warranty basis, two big declines that we have seen in prior quarters. Mercedes-Benz, which is the transition from three maintenance programs and improved quality. Also Nissan, Nissan was our second largest drop there.

Now these four brands, are these indicative of some of the new programs that you are putting across to try to drive sales in the customer pay business?

Yes, we believe that's true. These also are the brands we are focusing on in acquisitions, as you might note.

And on the F&I side, what about your service contract and attrition rate this year versus last year? It sounds like it's obviously going to be a bunch higher.

Penetration actually is down a little. Last year second quarter, we were at 36% and we are at 35% this quarter.

So it was all on increased content?

Absolutely.

Can you talk about Texas and Oklahoma? You guys have a fair footprint over there and, obviously, there was some really bad weather. I din't hear you guys make any comment on any negative impact. Could you give a little bit more color on that?

I hate to get into weather reports. I don't think the weather -- it's been very wet here in Houston. But it doesn't hurt our business at Houston. But I think the bigger issues in Texas and Oklahoma are the full-size truck issues that we struggle with.

Someday it will dry out here and -- but I don't think that I would depend too much on the weather. It's (inaudible) full-size truck segment declined that we got those challenges not so much in Houston but in West Texas and Oklahoma. We've really struggled a little bit.

As far as Ford goes, can you give maybe throughout the quarter give some trends that you saw with pickup trucks and regular vehicle sales?

Well the Ford business has still been challenging fo us because of that truck issue SUV business. In June Ford got more aggressive in incentives I think but I think yesterday GM did and it's hard for me to tell who the incentive later is; but Ford got stronger in the last month of the quarter. At the very end of that it, then through July and their incentives and the super duty is some benefit having fresh product that seems to be pretty well received. But overall the Ford business is -- it's still down. It's not up.

How much was it down in the quarter?

I will see if we -- I don't have that number in my head but we will see if we can put through our books here and find out for you.

And the last question that I had, just was on the domestic inventory and the number that you gave.

On your question on unit sales, Ford was down about 14% in the quarter.

Thank you.

On domestic inventories, GM came in at 122 days, Ford 71 days, Daimler Chrysler 65 days.

And what was the total? On average? Domestic?

82 days. Down from 100 days, same quarter prior year.

That's all I have, oh -- last question just on the share repurchases. Were you actively buying shares throughout the quarter? And/or did that accelerate towards the end as the share price started to decline?

We were basically active during the quarter. Obviously, once we got to the end of June we go into a blackout period. So from the end of June we were not buying anything.

Matthew Fassler with Goldman Sachs.

It's Matt Fassler and Aaron Kennedy here. A couple of questions for you. First of all, on the used side. You talked about some of the pressures emanating from the new car market that contributed to margin pressure there. At what point do you think we can start to see those year-to-year declines in the used car margins begin to abate?

I think we have got to watch our new vehicle incentives trend through the rest of the year. As Earl stated prior, the incentives on particularly new trucks have adversely affected our used car sales rates. Those incentives are still out there so we will have to watch and see what happens throughout the rest of the year.

Then secondly you spoke about your parts and service pricing as a factor that contributed to profitability in that business. Can you go into a little more detail as to the kinds of changes that you made, you said you are more competitive at the same time your profitability in that business seems to have got a little bit better. So any color you could give us would be great there.

Our new structure with our five fixed ops director is very effective. We are very pleased with that structure. Those five people along with corporate and other field personnel have looked at all of our stores; and we found some stores that were behind times in terms of pricing services where they should be. Grid pricing for instance and your service department. Internal pricing to the used car department. We have standardized some elements of those pricings which we saw an impact of.

Just a couple of follow-ups. Can you talk about geographically the difference between your sales trends in California and your sales trends in the rest of the country? In other words, was California dramatically softer? It sounds like the issues you had were as much brand driven as they were geography driven but that color would be very interesting for us.

I expect you have heard this from some of our competitors, but in the California markets down I think somewhere they are 14%. Our sales volume is not down that much in California and I think it is because we have the right brands. We have almost an entirely import luxury brand mix out there. So we are with the right brands. That is where we're really getting hit by the margin pressure.

We have big Toyota stores, three of them. Couple of big Honda stores. And so we may only be down a couple percentage points in sales compared to double-digit for the market out there but there's an awful lot of margin pressure on new and used.

That is highly disproportionate to the rest of our business. We don't have that many stores in Florida. We have four Ford stores in Florida. So we have -- they have some struggles there but the magnitude for us is in California.

Finally John, I know you gave us a little bit of color on the tax rate? Can you tell us where you are expected to end up in the second half of the year, please?

Basically consistent with what Earl covered on guidance, we are anticipating kind of 37% at this point for full year tax rate.

And can you just recap I might have missed this one. The number came down a bit from the earlier thought process?

Yes basically I mean the big picture explanation has just been some of the benefit -- tax benefits with that non some of these disposals that we've been doing.

Matt Nemer with Thomas Weisel Partners.

My first question is related to the margin pressure that you are seeing in California. Obviously the sales are down there substantially, but how much would you attribute to the increase in midline import inventory Earl? Should we be concerned about that the change in inventory for those brands?

I think the significant part was from inventories that began to rise. I think they started to rise about last November. I do have the impression that as we move through the year that some of these midline import manufacturers have started to move some of that production to other parts of the country. Kind of mitigated a bit.

So these are pretty smart people, but in these systems -- particularly these Japanese production systems -- they don't turn on a dime so it takes them a little time to make those kinds of changes. So we might maybe see some slight improvement as we move through the year but it is still a pretty -- it's still a lot of pressure on the margins and also with some of these -- with these big brands, Toyota and Honda, a year ago in particular for Toyota there was a new Camry, a new [MJ] Cruiser.

Toyota margins were in a real sweet spot a year, 15 months ago with some of that new product. And in the case of Honda they are selling down Accord.

So there are some other factors mixed in there with those brands and that's just the reality of it and we have to work our way through it.

But I don't see getting worse here in the near-term. Our job is to battle back and get a little bit of that margin back. And I know those manufacturers are trying to help us do that.

That's helpful. Just a couple of technical questions. On the F&I improvement, had there been any -- I realize you've consolidated providers. Have there been any changes in chargeback terms? I didn't see an increase in your other liabilities but I just am wondering if that -- if the improvement there is apples to apples or if you're taking on any additional risks with your vendors?

No sir. No change in risks and no meaningful change in our charge-backs quarter to quarter.

Then on the disposals, I was curious if the gain there was related to Blue Sky or was there real estate or other assets involved? It seems like, given the performance of those stores over time, it's amazing that you are actually making some money on them.

(multiple speakers). I don't know exactly how to respond that but we do sell them at more current market value. Whatever that sales price is compared to the book basis creates a gain or loss for book purposes. Then we also have a tax basis which can create a difference in our tax rate.

The gain that you did see though was Blue Sky. Randy did generate some goodwill on those.

Good to here. Lastly, I'm wondering if you could get us any information on the timing? What we can expect from a timing standpoint on the lawsuit that you have at one of your manufacturers?

We don't comment on litigation. And if we did, I wouldn't know the answer anyway.

Rick Kwas of Wachovia.

First question. Retail market, are you expecting second half of the year things -- sounds like you are expecting the retail market to stay where it is. Not get worse or better. Is that a fair analysis?

That's a fair assessment. That's. We don't see it much better, don't see it much worse. We are just assuming this is the level and we have some more work to do to get better sized to this level of activity.

Then Earl or John, could you speak to import margin outside the state of California?

I can speak to that. It is obviously not as extreme as California. But they are down substantially year-over-year and, basically, for the reasons I mentioned a moment ago. And that is just kind of -- there's a little higher, a little weaker market which means a few more days of supply across the country, not just in California. And some of these brands have some new products or fresher products last year than they did this year and they just kind of naturally decline a little bit as you go through a five- or six-year product lifecycle.

So we are finding those, particularly in most brands when [in] those midline Japanese imports cross the country.

Earl, is there any pocket of where things have stayed pretty sticky in terms of margins for the imports? Any particular reason that's held in better, relative to the (multiple speakers)

No, I haven't seen that. The Houston market has probably maintained our business level as well as any market in the country and even there we've seen these margin pressures, significant margin pressures, on these great brands. Suddenly the other sales grow but the margins are under pressure.

And then when you look at [F] Series sales, second half of the area the comparisons at least on a national basis are fairly easy. Realizing the F-150 is a bit of a disadvantage relative to the new product out there but also realizing that there's a new super duty out there, how do you characterize the second half of the year for F Series sales, given the comps. And do you face pretty similar comps to the national averages?

I think our comps are fairly similar to the national air which is as it relates forward. You have one very large forward store in New Orleans and then a couple across the Florida Panhandle, where there's still some kind of hurricane up and down. But I still have concerns on Ford truck sales just because these incentives keep ratcheting up.

Yesterday GM or the day before, GM elevated their incentive level. I've been somewhat puzzled as how the GM truck sales fell off so dramatically in the last couple months, because that product is fresh. And quite frankly they have been doing reasonably well up until that time.

So I'm not sure the last shoe has dropped on somebody's full-size track incentive actions. (multiple speakers) have to wait and see how that plays out.

How is Super Duty doing for you?

Super Duty is doing well. It's very well-received in the market. Our dealership teams are very excited about it but that's -- it's not the same gross profit per unit you would have received three years ago if you had a new Super Duty truck. It's just more competitive overall.

So grosses are clearly better than they were with the old Super Duty but they are not like they once were.

Finally, John or Earl, could you comment on compensation? You've made some more strides on reducing compensation or increasing productivity. How do you balance the short-term benefits of that with the longer-term ramifications of adjusted compensation and what that could bring on down the line with some potentially extra turnover?

Yes. That's one of the biggest challenges we have reached. If you look at the way we have done a reasonable job of mitigating this gross profit reduction from sales and margin pressure is we've gone pretty far toward sizing our business to this level of activity. We've done pretty well with inventory. If you take the GM blip out from June.

We got our advertising, I feel, pretty well in line but I don't think we quite have our personnel expense where it needs to be at this level of activity and that is somewhat intentional. We do need to go a little slower on the human side of this whether it's staffing levels or performance-related pay plans or asking people to do more to try to get our productivity up.

And we've got some more work to do their and it is -- intentionally we are careful, trying to be careful about our people there. Our biggest asset are also the majority of our cost but it's a lot of our intellectual capitals with our people. So that's a judgment call and we've got some more work to get done there but we want to be careful how we do it.

[Gregg Wilcox] with Wachovia Securities.

Just a few quick questions. Did you guys give CapEx in the quarter?

No. We didn't.

And I guess while you're looking that up -- .

Proportionally high because we didn't (technical difficulties) several facilities that came online and we finished up in the 30s (technical difficulties) . There was more than 30

I'm sorry. What was that number again?

We will get to the exact number but I (technical difficulties) in the 30s as I recall.

Follow-up on the California markets as California as a whole was off 14%. And Auto Nation I guess was down like 16%. Can you quantify on a new car set we have above or below the average for California?

We are significantly above the California average in new vehicle sales unit volume. We -- our drop was not anywhere near double digits in terms of new car cells. Margins were challenging.

CapEx for the quarter was $36.1 million.

Going to your same store sales for the second half of the year to piggyback Rich's question earlier, on the used car side, would you characterize that as being most likely worst than new car retail sales for the second half of the year? (multiple speakers)

There's two different markets there. There's the car market and the truck market and it's really quite different. The car end of it -- particularly fuel-efficient car used vehicles markets, bench strong and we are going to expect that to stay strong. It is the truck market that has created problems meaning full-size pickup and SUVs; and it's possible that can get worse with these if the new truck incentives escalate.

But I wouldn't expect it to get significantly better on the used truck side. Probably do well if it just stays as it is.

[Ed Yruma] with J.P. Morgan.

Most of them have already been answered but -- can you talk a little bit about some of the investments you have been making against operations like Beverly Hills? When do you expect to see those benefits and how much opportunity do you have in some of your acquired dealerships?

I will start off and I will let Randy join in here in a second. If all of our facility actions are completed on schedule -- sometimes they are -- by the end of the year I think we would add 126 additional service (inaudible) and that Mercedes -- fairly massive Mercedes service facilitate we are working on in Beverly Hills -- I don't believe that is going to finish until March next year. Maybe April. So that would not be included in that number.

But just recently we've moved into an all-new Toyota facility in Oklahoma City. An all-new BMW exclusive BMW facility in Tulsa; a Chrysler Jeep Dodge facility in Tulsa; an all-new Toyota facility in Boston; also about to move into an all-new Mercedes facility in Freehold, New Jersey. So that's why that CapEx was so high by the way in Q2.

A lot of these things got finished up or in the process of being finished that and that is kind of atypical to have that many in a quarter. But all of those bring additional service space to some degree online over where we were operating those brands previously.

That's kind of my take on it. I don't know if Randy wants to add anything.

No. That picked up the list of stores that we have just moved into and are about to move into with some more coming in the second half of the year.

Can you talk a little bit about the acquisition environment particularly in the U.K. Where do you view multiples? Are they fair? Have they used a bit? And if you'd talk a little that about your expansion opportunity abroad? Thank you.

I will take that one, too. I just spent last week in London. I believe we have been offered every high cost underperforming dealership in the United Kingdom at this point and thus far haven't taken any. So we are certainly getting to look at a lot.

But generally good will cost in the UK market are significantly lower than the U.S. I think Roger has probably mentioned that on occasion but the land can be very, very expensive and we are very wary about a long-term lease commitment so we're being very selective as we look to expand in the UK.

Our UK management team will be over here. We are actually going to meet with some investors in Boston in a couple of weeks. So if any of you are interested in that you can contact Cameron or John because we do have a great management team there.

We do not have any acquisitions imminent in th UK but we are going to continue to look and things are going very well for the three stores and six franchises we are operating there so far. It is only a couple perent of our sales so it's not a substantial impact on our company at the moment. But we are -- there are plenty of opportunities there and I expect eventually we will find one that will fit what we want to do and continue to grow that business as well.

(inaudible) with Reuters.

I was just wondering if you could give some color on July sales, particularly pickup truck sales?

That's forward-looking so there's not much we can say there.

But does it look similar to June? Any kind of --?

I would say it looks very similar, yes ma'am.

That does conclude our question-and-answer session. I would like to turn the call back to Mr. Hesterberg for their concluding remarks.

Thanks for joining us today. We are looking forward to updating you on our progress on our third quarter earnings call.

Thanks and have a nice day.

Ladies and gentlemen, I would like to thank you for attending the Group 1 Automotive second quarter earnings conference call. You may now disconnect. And we thank you for using AZT Teleconferencing.