Earl Hesterberg provided a blunt response to an analyst’s question on vehicle inventory during the Group 1 Automotive fourth quarter 2021 earnings conference call that took place on Feb. 10.

Hesterberg is Group 1 president and chief executive officer, and the analyst asked when Hesterberg thought the inventory shortages that have plagued the industry might return to normal.

“I have not been able to predict on this subject with any accuracy at all,” Hesterberg said. “I continue to be shocked.”

Every month, he added, seems to delay in the recovery for an additional month.

“Clearly, no one is building inventory still,” Hesterberg said.

That could result in aftershocks. Severe inventory shortages could remain during the first half of this year, Hesterberg said, adding that he did not have a prediction for the second half of the year.

“But with five months left in the first half of the year, I don't see any material recovery in the next five months,” he said during the Feb. 10 call.

The same theme that has played out in recent earnings reports from the top auto companies showed up again during Group 1’s earnings call. And the theme is that in spite of inventory shortages, the company has reported record earnings.

Expense control, he said, occurred as the company has seen a benefit from process and personnel efficiencies that have taken place during the pandemic.

One of the record-breaking aspects of the report occurred in 2021 overall. That was for adjusted net income, which was $642 million. Another record was in adjusted earnings per share, which was $35.02 in 2021. For both of those metrics, that represented year-over-year growth of more than 90%.

Hesterberg said 2021 was also a record year for external growth, with the acquisition of $2.5 billion in annualized revenues. He said that was driven by the U.S. acquisition of the Prime Automotive Group and the United Kingdom acquisition of the Robinsons Group.

“The 2021 acquisitions further diversify our footprint outside of the energy belt, and early indications from these new stores are all very positive,” Hesterberg said.

The company’s profit results were mainly a result of strong vehicle margins that Hesterberg said were able to more than offset weak new-vehicle supply. The company also saw continued strong growth in its U.S. aftersales business and strong cost control, Hesterberg said.

Consumer demand for vehicles remains strong heading into 2022, Hesterberg said during the Feb. 10 call, adding that the company continues to sell most units almost immediately after OEM delivery. That should continue throughout the first half of the year and possibly longer, he said, assuming no material change takes place in consumer demand.

The company held 3,400 U.S. new-vehicle inventory units in stock as of Dec. 31. That is a nine-day supply. Used inventory is much stronger, with 14,400 units and a 36-day supply.

“The continued recovery in our aftersales business is very impressive,” Hesterberg said, adding that the company’s U.S. market showed an 18% increase in same-store aftersales revenues compared to the prior year.

Group 1’s United Kingdom business showed similarity to its U.S. business, with strong consumer demand for vehicles in the U.K. along with severely constrained new-vehicle availability.

“We're proud to report that we generated an all-time fourth quarter and full year profit records in 2021,” Hesterberg said. “We have an order bank with most of our major U.K. brands extending well into the second half of 2022.”

In the U.K. strong margins were able to more than offset sales declines due to inventory shortages.

“We believe pent-up demand built over the past several years due to both Brexit and the pandemic will help drive strong U.K. vehicle demand into the foreseeable future,” Hesterberg said.

Sourcing shocker: Vehicles acquired from individuals doubles

Daryl Kenningham, Group 1 president of U.S. operations, discussed the company’s fourth quarter performance in more detail, reporting that same-store used-vehicle retail unit sales improved by 3% compared to the fourth quarter of 2020.

He said the company’s improved focus on sourcing last year resulted in acquiring 16% more units through trades. The company more than doubled the number of vehicles it acquired from individuals.

“As a franchise dealer, we have a distinct advantage over used-only operators due to the numerous channels of sourcing available to us including our service drives, lease returns and OEM closed auctions,” Kenningham said. “The most encouraging profit driver was once again our after sales performance.”

He elaborated on Hesterberg’s remarks about after sales, stating that the customer-pay business continues to grow following a very strong first half of the year. Same-store collision revenues increased 29% and wholesale parts revenues increased 27%.

“This allowed us to grow same-store aftersales revenue by 18% versus the fourth quarter of 2020, despite continued double-digit headwinds in warranty,” Kenningham said. “We foresee aftersales continuing to improve over the near term.”

AcceleRide helps boost professionalism

The company’s AcceleRide digital retailing platform continues to be an important tool for selling and acquiring vehicles digitally at Group 1 dealerships.

Kenningham reported that Group 1 sold almost 20,000 vehicles through AcceleRide last year. Fourth quarter sales through AcceleRide hit more than 4,700, a 36% increase over last year.

Using AcceleRide for in-person deals continued to help the company increase employee productivity and professionalism, Kenningham said.

Fifty-two percent of the company’s traditional sales in the fourth quarter used AcceleRide capabilities in showrooms. The sales team and customers can perform tasks such as digitally locating vehicles, structuring deals, and completing credit applications.

Kenningham said the company’s legacy Group 1 dealerships sold more than 20% more vehicles per salesperson in December than its newly acquired Northeast dealerships, which were not on AcceleRide at the time.

“We’ve launched AcceleRide in the new dealerships in mid-January, and we anticipate seeing an uptick in productivity over the coming months,” he said.

The company purchased nearly 5,300 used vehicles from customers through AcceleRide in the quarter, through trades or individual acquisitions. That's up 8% from the third quarter. Group 1 also digitally paid 2,500 customers through Zelle during the year for the purchase of their used vehicle.

So, the following is no shock: Kenningham foresees a continuation of Acceleride’s importance.

“The ability to provide electronic payments to customers in under an hour is a key differentiator for us,” Kenningham said. “Expect to see more advancements, efficiencies and growth with AcceleRide as 2022 unfolds.”