Earl Hesterberg came to Group 1 Automotive Inc. as CEO in 2005 after a successful marketing and sales career at Ford Motor Co. and Nissan Motor Corp. to shake up the publicly traded consolidator of automotive dealerships. Shaken up he has.
He's dumped six underperforming domestic car dealerships, bought others (including three import franchises in the U.S. and six in the U.K. that are expected to generate $303.1 million in annual sales) and better integrated the ones the company already had. Now he's ready to buy more.
At a Houston Strategic Forum luncheon at the posh La Colombe d'Or Hotel and Restaurant Thursday, he said he's shopping for more import and luxury dealerships outside of Group 1's main market of Texas and Oklahoma, with a target of adding $600 million in sales this year. "We don't want to be dependent on one locale," he said.
In order to meet his goals, Hesterberg is going to need to do some buying: He has an earnings-per-share growth target of 15% in the next three to five years, which can't all be generated organically, especially with the domestic car business flagging. (Ford makes up 13% of his sales, versus 24% when he arrived.) Luckily for him, there's plenty to pick up as the car dealership business is a $1 trillion market that's also highly fragmented with 21,500 dealerships across the country. At Hesterberg's disposal is a $1.35 billion five-year revolving credit facility that can be used for acquisitions.
Maybe dealmaking will help his company's stock price: It was up 65% last year but is down 20% so far this year after a drop in earnings in the first quarter.
Someone at the luncheon asked him if the domestic car business was dying. "The domestic business will survive, but not as we see it today," he said. "They're not going to be as big as they once were, and they are not going to have as many brands as they once did. Things that are difficult to restructure are their footprint, their fixed costs and labor. Those things don't change overnight." —Claire Poole
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