Like its megadealer competitors, Group 1 Automotive wants to stay out in front of thinner new-car margins. With a growing conviction across the industry that new-car sales won’t increase any time soon, Group 1 took a decided step to eliminate nearly 700 U.S. jobs in U.S. in the first quarter, about 5% of its workforce.
“In the U.S., SG&A performance did not meet our expectations,” said Daryl Kenningham, president and CEO, in an earnings conference call. SG&A stands for selling, general and administrative expenses, usually expressed as a percent of gross profit.
“Consequently, in early April, we implemented cost reduction measures in our U.S. business, cutting our headcount by nearly 700 full-time employees,” he said in the April 30 call. Kenningham estimated the headcount reduction and some other cost cuts would reduce annual expenses by about $50 million.
“We want to make sure we are lean enough if the SAAR stays in this range — mid-15s, 15.6, 15.7 — so that we are able to compete effectively,” Kenningham said in the call. SAAR is seasonally adjusted annual sales rate, expressed here in millions of units sold.
In the first quarter, Houston-based Group 1 said adjusted SG&A as a percent of gross profit for its U.S. operations was 70.5%, up from 66.9% a year earlier. On a same-store basis, Group 1’s U.S. new-car units sold were down 8.7% versus a year ago, to 33,404; used units were down 7.9% to 34,584.
Group 1 said it had 143 U.S. dealerships as of the first quarter, representing about two-thirds of its new-vehicle sales. It has another 110 dealerships in the U.K., accounting for about one-third of new-car sales.
Kenningham said the job cuts hit both Group 1 corporate and dealership jobs in the U.S. “It was across the board,” he said in the call. Group 1 had 13,563 U.S. employees as of Dec. 31, according to its annual report.
Switching to digital technology enabled some of the job cuts. For instance, CFO Daniel McHenry said that in the first quarter, Group 1 had rolled out “digital deal jackets” across all of its dealerships. This eliminated a need for someone to scan “roughly 100 pieces of paper” to create a digital deal jacket out of a paper one, he said.
On May 19, McHenry was appointed president and CEO of Group 1’s U.K operations, in addition to his role as corporate CFO.
Kenningham said that in cutting head count, Group 1 was careful to retain as many service technicians as possible, while maintaining its spending on training, a mentoring program for technicians and employee-development and retention initiatives, including a project to install air-conditioning in all of its dealership service areas.
He said, “There are things we did not touch.”
