Group 1 Automotive CEO cautious amid Trump tariff uncertainty

Business Journals

25-04-2025

The Houston-based automotive retailer has deferred some capital expenditures, but it's still discussing possible acquisitions.
Story Highlights Group 1 Automotive reported record Q1 revenue as tariff uncertainty hadn't hit yet.
The automotive dealership owner is cautiously approaching M&A and deferring some capital expenditures.
Group 1's inventory at the end of March was the lowest in about a year as uncertainty affected some business aspects.
President Donald Trump's trade policies will impact a variety of sectors, but the automobile industry may be particularly affected.
The Trump administration announced a 25% tariff on all imported automobiles at the end of March, which were set to go into effect on April 3 until the White House later issued a 90-day pause. The back-and-forth nature of the administration's trade policies and lack of clarity has prompted confusion among some auto retailers. For Houston-based Group 1 Automotive Inc. (NYSE: GPI), that means being more prudent in its approach.
'It's an ever-moving target,' Group 1 President and CEO Daryl Kenningham said during the company's first-quarter earnings call on April 24. 'In our view, the best way to capitalize on these changes is to ensure that Group 1 stays nimble and focuses on execution.
'We continue to see demand across all lines of service; however, we are being cautious moving forward.'
Given that the tariff announcements didn't come until the end of the first quarter and beginning of the second, they haven't affected Group 1's bottom line for Q1. In fact, the company boasted record Q1 revenue of $5.5 billion, including record quarterly revenue for its U.K. business, with $1.6 billion.
However, net income from continuing operations was $127.7 million, down 13.3% from $147.4 million compared to Q1 2024, while adjusted net income increased 3.6% to $134.7 million. Adjusted earnings exclude special items such as restructuring charges and dealership and real estate transactions.
Adjusted diluted earnings per common share increased to $10.17, up 7.1% from $9.49 a year earlier. Analysts had expected earnings of $9.67 per share and revenue of $5.44 billion.
How Group 1 is approaching M&A, capital expenditures
The tariffs may affect Group 1's approach to mergers and acquisitions — a key capital allocation and growth strategy for the company.
On the earnings call, Kenningham said the company will continue to be acquisitive, but it will be very measured in its approach. Group 1 will only engage in deals that provide significant long-term value, he said. Kenningham previously told the Houston Business Journal that 2024 was a tougher environment for dealmaking, but he had expected a better M&A market in 2025.
'I haven't seen the uncertainty drive the acquisition environment yet,' Kenningham said on April 24. 'I had some conversations with some folks yesterday, and they feel like it hasn't changed yet.'
Since 2023, Group 1 has acquired $5 billion of annual revenue, including the $439 million acquisition of London-based Inchcape Retail last year, and disposed of $1 billion of annual revenue. In the first quarter, the company acquired a business in the U.K. with one Lexus and three Toyota dealerships and disposed of a U.S. Subaru dealership and two U.K. Volkswagen dealerships.
Kenningham also noted that the company has deferred some capital expenditures and discretionary spending given the current environment. He clarified that Group 1 hasn't canceled any projects.
"We've put them off like six months just to see if the environment is still uncertain or if those are ones that we could do," Kenningham said. "We've reviewed some of our discretionary spending on things that potentially we could rein in, and we did.'
How tariffs have affected Group 1
The trade policy had some effect on Group 1's operations toward the end of the first quarter.
The company closed March with about 20,000 units of inventory, which Kenningham said is the lowest in about a year. Group 1 ended the quarter with a 29-day supply of new vehicles and 33-day supply of used vehicles — down from 44 days and 39 days at the end of 2024, respectively.
Additionally, Group 1 saw some pre-tariff accelerated buying of new vehicles at the end of March, the company wrote in its investor presentation. The auto dealer also expects an increase in demand in used vehicles sales in substitution of new vehicles.
Under the current trade agreement between the U.S., Canada and Mexico, cars and car parts produced in Canada and Mexico are not subject to the 25% tariff, according to a fact sheet issued by the White House on March 26. At some point, the Secretary of Commerce will establish a process to apply the tariff only to automobile parts manufactured in Canada and Mexico, the document said.
In 2024, 51% of the company's new vehicle sales were from cars produced in the U.S., while another 23% were manufactured in Canada or Mexico, according to Group 1's investor presentation.
'The thing that I'm watching is our inventories,' Kenningham said on the earnings call. 'They were a little tight at the end of March, and some of the (original equipment manufacturers) are being a little cautious about allocations right now, so nobody's taken any drastic steps.'
Group 1 Automotive is No. 19 on the HBJ's 2024 Largest Houston-Area Public Companies List, based on its $17.87 billion in revenue in 2023. The company reported record revenue of $19.93 billion in 2024.
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