HOUSTON -

Earl Hesterberg quickly defended Group 1’s used-vehicle division when an analyst wondered if the company’s new-to-used vehicle sales ratio started to show a negative trend.

Hesterberg said Group 1 did a “pretty good job” of turning used vehicles during both the fourth quarter and all of 2012. Retail used sales rose 7.1 percent in the fourth quarter and 12.9 percent for the year.

“I’m looking at four companies that reported already, and they’re all really good companies in my opinion. One was up 1 percent. One was up 1.8 percent. We were up 7.1 percent, and the other was up 0.3 percent more than us,” said Hesterberg, Group 1’s president and chief executive officer.

“I’m pretty sure we’ve significantly outperformed the market for a long time in used-car sales. That’s the way we look at it,” he continued during Tuesday’s call when the company released its fourth-quarter and full-year financial report.

The Group 1 boss emphasized that he also considers the footprint where the company already operates when evaluating used-sales performance, especially in light of regulatory and market constraints that exist in specific locations such as California and Massachusetts.

Besides market region, Hesterberg also touched on what regularly happens to Group 1’s used sales as a year closes.

“I will tell you that December was not a good used-car sales month. It seldom is,” he said.

“What happens in December is there is so much emphasis from the OEMs on new-new vehicle sales to close the year. The OEMs and many dealers like Group 1 get a little carried away with new-vehicle sales at the expense of used-vehicle sales in December,” Hesterberg continued.

“I found the month of December to be a disappointing used-vehicle month, but I wasn’t surprised,” he went on to say.

Nonetheless as the industry is seeing gross profit margins on those units get pinched, the dealer group managed to squeak out a marginal annual increase in gross profit per used vehicle sold during the fourth quarter, generating $1,637 per transaction and representing a 0.3 percent uptick from 2011.

Hesterberg is looking for that trend to strengthen this year.

“I’d like to think we could get a little upside from here. I do think we’re still short of good quality used cars. We’re still 60-40 on the split between trade-ins and acquiring from the outside,” Hesterberg said. “We’ve seen the used-vehicle margins erode over the last few years I think there’s a chance to bounce those up a little bit in the year ahead and we’ll make an effort to do that.”

Chief financial officer John Rickel elaborated on Hesterberg’s points about the company’s efforts to find the best vehicles possible to turn in the used department.

“Some of this is still driven by the trade-in percents. We’re still not back to historical levels of where we’re sourcing our used vehicles from,” Rickel said as Group 1 previously retailed a higher level of trade-ins than it does currently.

“Another thing to bear in mind is the age of the fleet where we’re getting dealt from out there is significantly older so even where we are getting trades now they’re not quite at the optimal level,” Rickel continued. “I think over time as the age of the fleet starts to come back down and the sales rates pick back up there will be an opportunity.

“Lease rates are starting to come back; that’s another great source of used vehicles for us,” Rickel went on to say. “But that’s probably a little further out. You’re looking probably next year before you can see much opportunity there.”

Group 1’s Internal Enhancements

Hesterberg also highlighted some internal investments Group 1 is making to improve its performance. The moves include the consolidation of U.S. accounting effort into a single location, the process of moving all dealerships into a common CRM and F&I tool as well as launching an effort during the fourth quarter to bolster in-bound service call handling.

In regard to the CRM and F&I solution, Hesterberg said, “This should allow for significant sharing and leverage opportunities when completed,” adding that the conversion period likely will stretch through October.

He also noted that the call-handling plan resulted in live answer rates already climbing 15 to 20 percentage points higher.

“We believe these three initiatives should improve sales volume, customer satisfaction and operating efficiencies in the long term,” Hesterberg said.

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