Group 1 CEO Kenningham views some car dealerships as overpriced

Group 1 Automotive Inc. is calling out some dealership sellers who it believes are pricing their businesses unrealistically high.

"There is a certain portion of sellers that have unrealistic expectations," Group 1 Automotive CEO Daryl Kenningham said during the company's first-quarter earnings call last week. "I always like to tell people, we will never win a bidding war, but we try to stick to discipline with what we will pay for a group of stores."

Group 1, of Houston, is pursuing acquisitions as a big part of its growth strategy. It's also using capital for share buybacks and investment in growth areas such as service and technology.

Its latest acquisition of Estero Bay Chevrolet in Estero, Fla.,  in the first quarter is expected to add an estimated $150 million in annual revenue.

More acquisitions are likely in the months ahead, but Group 1 is avoiding transactions in which sellers are asking exorbitant prices, Kenningham said. They're not realistic, he added, because they don't factor in future performance expectations.

"They're trying to price them based on what they did make last year, or even the year before, as opposed to what they will be making moving forward," Kenningham said.

Gross profit estimates in that scenario were "once-in-a-lifetime" results based on supply chain issues "and microchip shortages that we'll probably never see again," he added.

But not all dealerships on the market are overpriced, Kenningham said.

"Some sellers understand the market and where it's heading," he said. "We always tell people we're engaged with on our transaction [that] we try to make offers based on what we believe the stores will make, not what they did make. That's always our guiding light on how much to offer for a dealership group."

Even as Group 1 pursues growth through acquisitions, it's selling some dealerships.

"I just see us trying to manage our portfolio aggressively," Kenningham said.

Group 1 disclosed in its first-quarter earnings that it unloaded two dealerships. In March, Key Auto Group, of Portsmouth, N.H., purchased Group 1's Boardwalk Acura in Egg Harbor Township, N.J., west of Atlantic City. The store was renamed Key Acura of Atlantic City.

Group 1 also sold Staten Island Buick-GMC in New York to Island Auto Group, of Staten Island. That group renamed the store Island Buick-GMC, according to co-owner Marcello Sciarrino.

"We own 80 percent of the market here, so it just helps us grow our market," Sciarrino said.

According to Sciarrino, the deal took seven to eight months to close.

Group 1 said those stores, plus a Jaguar new-vehicle franchise in New Mexico it resigned in March, produced a combined $50 million in annual revenue.

The franchise move was part of JLR's rethinking of the Jaguar dealership network, Kenningham said. Group 1 kept an adjoining Land Rover dealership, "which was the vast majority of the volume," he added.

Group 1 ranks No. 4 on Automotive News' list of the top 150 dealership groups based in the U.S., retailing 154,714 new vehicles in 2022 (some of which include sales outside the U.S.). Island Auto ranks No. 64 on the list, retailing 13,217 new vehicles in 2022.