The significant damage Hurricane Harvey left in Texas gave Group 1 Automotive the opportunity to watch new and used vehicles roll over the curb at daily sales rates during the last three weeks of September that “were the highest we have ever seen,” says president and chief executive officer Earl Hesterberg.
During the dealer group’s third-quarter conference call, Hesterberg elaborated about the development saying, “we’ve never seen anything like that before, and I don’t think we will ever see anything like that again. Our Houston stores on new vehicles basically doubled what they normally do. And bear in mind, these are some pretty big stores.
“Used vehicles were not up to that degree. They were probably up, depending on the stores, 30, 40 or 50 percent, probably more like 50 percent. But that tapered off, I would say, as we moved into the second week of October, but it’s still significant,” Hesterberg went on to say.
As Group 1 mentioned as a part of its third-quarter financial statement, some of its stores in Houston and Beaumont, Texas, were closed for seven days or longer as Harvey soaked the region with some of the highest rainfall totals ever recorded. With experts suspecting that Harvey might have destroyed nearly 1 million vehicles, Hesterberg is projecting sales to remain brisk at Group 1 stores
“I would expect that to continue well beyond the fourth quarter. Now, it will probably taper off from where it is now, but I think this will last for quite some time,” he said.
While not related to Harvey, Hesterberg also pointed out that Group 1 posted “noticeable improvement” in other regional footprints, including Oklahoma, central Texas and New England.
Group 1 executives did not specifically address their used-vehicle inventory, but Daryl Kenningham, who is president of U.S. operations, touched on new-model inventory. Kenningham said that the company overall was “happy” with the amount of new units on group lots, but that the company remained “tight” in connection with three brands, “Toyota, Honda, Lexus, specifically.”
Stockpile of cash
Group 1 finished the third quarter with nearly $67 million in cash among its assets; an amount representing a 218-percent spike compared to the figure at the end of the 2016 and triggering curiosity from Wall Street observers about what the company might do.
“We think acquisitions is our first best use of cash. You have seen that we have pulled the trigger on a few recently,” said John Rickel, senior vice president and chief financial officer of Group 1 while referencing how Group 1 purchased a pair of Jaguar-Land Rover dealerships in New Mexico as well as rolling out an Audi rooftop in Fort Worth, Texas.
“That’s the first, best use. And then from there, we basically are opportunistic between share repurchases and dividends,” Rickel added.