Group 1 Automotive Cuts Earnings Guidance

Houston-based Group 1 Automotive Inc. warned that tighter consumer credit, lower dealership traffic, and the effects of two hurricanes, Gustav and Ike, cut into its third-quarter earnings, due Oct. 28.

Other dealer groups will no doubt feel the effects of the credit crisis and slower industry sales, but different groups may not have felt the same impact from the storms. Group 1, with 100 dealerships, is the nation's fourth-largest dealer group.

"It has gotten notably more difficult to finance new and used vehicle transactions, as we are experiencing higher rejection rates, higher interest rates and greater down-payment requirements to purchase a vehicle," said Earl Hesterberg, president and chief executive officer of Group 1.

"Down-payment requirements have increased, as lenders have significantly reduced their loan-to-value ratios," he said. The loan-to-value ratio is how much an auto lender is willing to lend, versus the value of the vehicle.

A lower ratio means the customer has to come up with more money, in the form of a down payment or the value of a trade-in. Hesterberg said the Houston and Beaumont, Texas markets account for more than 20 percent of Group 1's revenues and a higher percentage of its profits.

The group estimated the hurricanes and power outages cost those markets at least two weeks of sales in the quarter.

The company said on Oct. 10 it now expects third-quarter earnings in the range of 39 to 44 cents per share. The Associated Press reported that analysts polled by Thomson Reuters had expected about 67 cents per share. In the second quarter, earnings per share were 76 cents, for a total net income of $17.2 million.