Group 1 Shows Car Sales up but Margins Down as Inventory Recovers

new cars

Group 1 Automotive’s latest earnings results show consumers are still buying new and used cars but are getting better deals.

The automotive retailer with 204 locations in the United States and the United Kingdom reported Wednesday (Jan. 25) that on a same-store basis, it sold 2.5% more new vehicles and 7% more used vehicles during the fourth quarter than it did a year ago, but its gross profit per retail unit was down 7.7% and 43.8%, respectively.

“We expect a gradual decline in new vehicle margins over the course of 2023 as inventory continues to recover,” Group 1 President, CEO and Director Daryl Kenningham said Wednesday during the company’s quarterly earnings call. “We do, however, expect normalized new vehicle margins to eventually settle above our pre-pandemic levels.”

On the used vehicle side, Kenningham said the decline in pricing of those vehicles has been a continuing challenge.

Industry-wide, consumers began to feel less pain when paying for a new vehicle in the fall following a years-long spike in the price of new automobiles. It was reported in October that the average price of a new vehicle had begun to dip after reaching a record level in July.

Consumers are still buying automotive parts and service as well, with Group 1 reporting a 10.5% rise in gross profit and a 0.6% lift in gross margin on a same-store, year-over-year basis.

“We foresee aftersales continuing to be a strength over the course of 2023 for Group 1,” Kenningham said during the call.

The company reported in a presentation that parts and service now accounts for 13% of its revenue and 45% of its gross profit.

It attributed the growth in this segment to the increasing complexity of vehicles — and electric vehicles in particular — which leads consumers to return to franchised dealers that have the required tools and training.

Group 1 Automotive has also benefited from its deployment of digital tools throughout its operations. The company said in the presentation that its AcceleRide digital platform delivers a higher closing rate than that seen with non-digital shoppers.

The company also offers electronic Zelle payments within an hour when purchasing used vehicles, provides seamless online payment processing and reduces its costs by having 35% of service appointments made online.

“These cost savings will be permanent as we continue to leverage technology to drive customer and employee efficiencies,” Kenningham said during the call.

For all PYMNTS retail coverage, subscribe to the daily Retail Newsletter.