Group 1 CEO Kenningham views some car dealerships as overpriced

Group 1 Automotive Inc. is calling out some dealership sellers who it believes are pricing their businesses unrealistically high.

“There is a certain portion of sellers that have unrealistic expectations,” Group 1 Automotive CEO Daryl Kenningham said during the company’s first-quarter earnings call last week. “I always like to tell people, we will never win a bidding war, but we try to stick to discipline with what we will pay for a group of stores.”

Group 1, of Houston, is pursuing acquisitions as a big part of its growth strategy. It’s also using capital for share buybacks and investment in growth areas such as service and technology.

Its latest acquisition of Estero Bay Chevrolet in Estero, Fla. in the first quarter is expected to add an estimated $150 million in annual revenue.

More acquisitions are likely in the months ahead, but Group 1 is avoiding transactions in which sellers are asking exorbitant prices, Kenningham said. They’re not realistic, he added, because they don’t factor in future performance expectations.

“They’re trying to price them based on what they did make last year, or even the year before, as opposed to what they will be making moving forward,” Kenningham said.

Gross profit estimates in that scenario were “once-in-a-lifetime” results based on supply chain issues “and microchip shortages that we’ll probably never see again,” he added.

But not all dealerships on the market are overpriced, Kenningham said.

“Some sellers understand the market and where it’s heading,” he said. “We always tell people we’re engaged with on our transaction [that] we try to make offers based on what we believe the stores will make, not what they did make. That’s always our guiding light on how much to offer for a dealership group.”