Peter C. DeLongchamps - VP, Financial Services and Manufacturer Relations Earl J. Hesterberg - President and CEO John C. Rickel - SVP and CFO Lance A. Parker - VP, Corporate Controller.

James Albertine - Stifel, Nicolaus & Company Richard Nelson - Stephens Inc Unidentified Analyst - Goldman Sachs William Armstrong - CL King & Associates Elizabeth Suzuki - Bank of America/Merrill Lynch Unidentified Analyst - KeyBanc Paresh Jain - Morgan Stanley David Lim - Wells Fargo Patrick Archambault - Goldman Sachs.

Good morning ladies and gentlemen and welcome to Group 1 Automotives 2015 Second Quarter Financial Results Conference Call. Please be advised that this call is being recorded. I would now like to turn the call over to Pete DeLongchamps, Group 1's Vice President of Manufacturer Relations, Financial Services and Public Affairs. Please go ahead Mr.

DeLongchamps..

Thank you Amy and good morning everyone and welcome to today's call. The earnings release we issued this morning and a related slide presentation that include reconciliations related to the adjusted results we'll refer to on this call for comparison purposes have been posted to the Group 1 website.

Before we begin, I'd like to make some brief remarks about forward-looking statements and the use of non-GAAP financial measures.

Except for historical information mentioned during the conference call, statements made by management of Group 1 Automotive are forward-looking statements that are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

Forward-looking statements involve both known and unknown risks and uncertainties, which may cause the company's actual results in future periods to differ materially from forecasted results. Those risks include, but are not limited to, risks associated with pricing, volume and the conditions of markets.

Those and other risks are described in the company's filings with the Securities and Exchange Commission over the last 12 months. Copies of these filings are available with both the SEC and the company. In addition, certain non-GAAP financial measures, as defined under SEC rules, may be discussed on this call.

As required by applicable SEC rules, the company provides reconciliations of any such non-GAAP financial measures to the most directly comparable GAAP measures on its website.

Participating with me today Earl Hesterberg, our President and Chief Executive Officer; John Rickel, our Senior Vice President and Chief Financial Officer; and Lance Parker, our Vice President and Corporate Controller. Please note that all comparisons in the prepared remarks are to the same prior year period, unless otherwise stated.

I would now like to hand the call over to Earl..

Thank you, Pete and good morning everyone. Today Group 1 reported record quarterly results including best ever results for adjusted net income which is $47.9 million was up 19.9% over the prior year period.

Adjusted diluted earnings per share of $1.98, which was up 34.7% over the same period and total revenue which increased approximately $215 million or 8.6% were another all time quarterly record of over $2.7 billion.

From a local currency basis revenue was up even more at 11.7% for the quarter as both the British pound and the Brazilian Real have weakened significantly against the dollar over the past year. Turning to our business segments, although consolidated new vehicle revenues grew 4.7% as we retailed 5.4% more units.

The average new vehicle selling price decreased $257 to $34,274 with currency exchange rates more than explained the decrease. New vehicle gross profit decreased 5.8% as gross profit per unit decreased by $203 by $1,701. The decrease in new vehicle gross profit is more than explained by lower margins in the U.S. and exchange rate headwinds. In the U.S.

competitive conditions amongst volume import brands explain most of the deterioration. During the quarter we retailed nearly 45,000 new vehicles with the unit sales geographic mix of 82.4% U.S., 10.5% UK, and 7.1% Brazil. Our new vehicle brand mix was led by Toyota Lexus sales which accounted for roughly 27% of our new vehicle unit sales.

BMW Mini, Honda Acura, and Ford each represented roughly 11% of our new vehicle unit sales. Nissan was at 8.2%, Volkswagen, Audi, GM, Chrysler, and Hyundai Kia each increased their share of Group 1's new vehicle unit sales during the quarter. U.S.

new vehicle inventory started roughly 29,200 units which equates to 69 days supply compared to 77 day supply for the second quarter of 2014. The second quarter was one of the strongest used vehicles sales quarters in our history with U.S. same store sales increasing 14.2% and UK sales up 14.1%.

Some of this strong sales performance was accomplished through the expense of lower per unit margins but capitalized on our ongoing F&I performance strength. Our important U.S. certified pre-owned business was also a highlight with 23.2% growth during the quarter.

Total consolidated used vehicle retail revenues grew 18.2% as we retailed 17.7% more units and the average used vehicles selling price increased $99 to $21,702. Used vehicle retail gross profit increased roughly 1% as the unit growth was largely offset by gross profit per unit decrease of $244 to $1,465.

During the quarter, we retailed over 31,000 used retail units. U.S. used vehicle inventories stood at roughly 13,800 units, which equates to a 32 day supply compared to a 36 day supply for the second quarter of 2014. Total consolidated parts and service revenue increased 7.1%, while consolidated parts and service gross profit rose 9.2%.

On a local currency basis same store parts and service gross profit grew 9.4% on 8.2% higher revenues. U.S. same-store gross profit increased 9.3% on 8% higher revenues. U.S. growth has been supported by the progress we are making in adding service technicians. Since June of 2014 we added 115 net technicians with plans to add more over the coming year.

Within finance and insurance, a combination of increased profitability per retail unit, and higher volumes drove a total gross profit increase of 16.7% on a consolidated basis. Total consolidated F&I per retail unit increased $78 to $1,381. U.S. F&I increased $93 to $1,535 per unit.

Relative to our cost performance on an overall consolidated basis adjusted selling, general, administrative expenses as a percent of gross profit improved 170 basis points to 71.4% driven by strong cost control in the U.S. and significant restructuring actions in Brazil. Regarding our geographic segment results, our U.S.

operations performed very well with total revenue increasing 11%. Oil prices continued to be a topic of concern in several of our key markets. We are pleased to report that there have not been any significant negative impact on our overall sales.

We have seen the most notable impact in our Oklahoma market where our vehicle sales are down 2.3% for the quarter. Our total Texas same store units sales improved over 7% for the quarter. And our total Houston market industry sales were up 7.1% in the second quarter. Group 1 Houston sales were up double-digits.

So we see no effects from lower oil prices in our largest markets. Our U.S. team did an excellent job of leveraging the growth in gross profit with adjusted SG&A as a percent of gross profit improving 150 basis points to an all time quarterly record of 69.8%.

Our UK operations delivered another solid quarter with total revenue growth on a local currency basis of 34.7% supported by double-digit growth across all business segments. In Brazil despite overall second quarter industry sales being down 23.2%, our team produced positive gross profit growth on a same store local currency basis.

This was due to double-digit gross profit growth and fixed operations and positive new vehicle gross profit growth on a local currency basis despite a 15.7% decrease in new unit sales. Our continued outperformance of the industry selling rate is a testament to our strong brand mix and operating team.

In a very weak macro environment our team was able to increase gross profit, cut expenses, and generate an adjusted pretax operating profit. We continue to believe that we will deliver a free tax operating profit in Brazil for the whole year of 2015.

I will now turn the call over to our CFO, John Rickel to go over our second quarter financial results in more detail. John. .

Thank you Earl and good morning everyone. Our adjusted net income for the second quarter of 2015 rose $7.9 million or 19.9% over a comparable 2014 results to $47.9 million. On a fully diluted per share basis, adjusted earnings increased 34.7% to $1.98, an all-time quarterly record.

These results for 2015 exclude $1.6 million of net after tax adjustments including the $850,000 of charges related to non-cash asset impairments, $600,000 charge for resolution of a prior period legal matter, and $600,000 of losses related to flood damage.

These adjustments were partially offset by $600,000 net after tax gain on a dealership disposition.

The comparable results for the second quarter of 2014 excluded $23.1 million of net after tax adjustments including $20.8 million charge related to the partial reduction of our 3% convertible notes, $1.1 million of asset impairments mainly attributed to the relocation of the dealership due to owned real estate, and $1 million related to hailstorms in Kansas and South Carolina.

Starting with a summary of our quarterly consolidated results, for the quarter we generated over $2.7 billion in total revenues. This was an improvement of $214.8 million or 8.6% over the same period a year ago and reflects healthy increases in each of our business units in the U.S. and the UK.

Weaker exchange rates and the impact of a slowing economy in Brazil were partial offsets. Our gross profit increased $22.4 million or 6.1% from the second quarter a year ago to $391.6 million.

For the quarter adjusted SG&A as a percent of gross profit improved 170 basis points to 71.4% and adjusted operating margin was 3.7%, an increase of 20 basis points from the same period a year ago.

Floorplan interest expense decreased roughly $300,000 or 3% from the prior year to $10 million explained by lower floorplan borrowings in Brazil due to both inventory management and the procurement of lower cost alternative financing options that are now reported under other interest expense.

Other interest expense increased $1.7 million or 13.2% to $14.2 million. This increase is primarily attributable to an increase in weighted average debt outstanding related to our issuance of $550 million, 5% bonds used to retire our two in the quarter and 3% convertible notes during the second and third quarters of 2014.

As well as a shift in Brazil inventory financing that I just mentioned. Our consolidated adjusted effective tax rate for the quarter was 36.9%. We expect our effective tax rate for the remainder of the year to be in the low 37% range as we continue to benefit from an increased mix from lower tax jurisdictions.

Now turning to the second quarter consolidated same store results. For the quarter we reported revenues of over $2.5 billion which was $104.2 million or a 4.3% increase from the comparable 2014 period. On a local currency basis which ignores the change in foreign exchange rates, total revenues increased 7.4%.

Within the 7.4% total, new vehicle revenue was up 4.6% and used vehicle retail revenues improved 14.3%. Both finance and insurance and parts and service delivered another strong quarter, growing revenues 12.6% and 8.2% respectively.

Please note that starting with the previous quarter we've modified our press release and posted investor presentation to include year-over-year percentage change metrics on both a U.S. dollar and local currency basis. My remaining same-store comments will be on a local currency basis unless otherwise noted.

New vehicle revenues increased 4.6% on a 3.3% increase in unit sales and a 1.3% increase on our average new vehicle sales price. By country, same store new unit sales increased 4.5% in the U.S., increased 11% in the UK, and decreased 15.7% in Brazil. In each case we outperformed the local market.

Our used retail revenues improved 14.3% on a 12.6% increase in unit sales as U.S. CPO unit growth of 23.2% helped drive revenues. By country, same store used retail unit sales increased 14.3% in the U.S., increased 14.1% in the UK, and decreased 19.9% in Brazil.

F&I per retail unit rose 5.4%, driven by increases in both income per contract and penetration rates for most of our major product offerings. Parts and service revenue grew 8.2% explained by increases of 17% in collision, 13.3% in warranty, 6.2% in wholesale parts, and 4.7% in customer pay.

In aggregate our same store gross profit grew 4.8% on a local currency basis. Our same store new vehicle gross profit dollars decrease 6.4% reflecting a 9.4% decrease in gross profit per unit which was partially offset by the 3.3% increase in unit sales mentioned previously.

New vehicle margin pressure was most notably seen in our volume import brands. Our used vehicle retail gross profit decreased 3% as the 12.6% increase in unit sales was more than offset by a gross profit per unit decrease of 13.9%. Our F&I gross profit grew 12.6% reflecting a 5.4% increase in DRU and 6.9% increase in total retail unit sales.

Finally same store parts and service gross profit grew 9.4% reflecting the strong revenue growth mentioned previously as well as in 80 basis point increase in margins to 54.3%. By country same store parts and service gross profit improved 9.3% in the U.S., 10.1% in the UK, and 10.7% in Brazil.

Turning now to our geographic segment starting with the U.S. market on actual basis. For the quarter total U.S. revenues grew 11% to $2.3 billion driven by increases of 19% in total used vehicles, 18.2% in F&I, 8.3% in parts and service, and 7.4% in new vehicles.

The increase in our parts and service revenues reflects growth in all areas of the business and our F&I revenue growth reflects 11% increase in retail vehicle sales volume coupled with improved profitability for retail unit which grew $93 or 6.4% to $1,535.

Total gross profit improved 8% driven by increases of 10% in parts and service and 3.5% in used retail vehicles as well as the F&I increase that I just mentioned. For the second quarter we grew gross profit by $25.4 million while adjusted SG&A expenses increased just $13.1 million.

As a result our adjusted SG&A as a percent of gross profit improved 150 basis points to a record 69.8%. Our same store gross profit floats through the U.S. was 47% which was near the top end of our targeted range of 40% to 50%. Adjusted operating margins in U.S. business segment increased 10 basis points to 4.1%.

Related to our UK segment on a local currency actual basis, for the quarter total revenue increased 34.7%. Roughly two thirds of this increase is due to the December of 2014 acquisition of three BMW MINI dealerships. Gross profit for the UK segment was up 26.1% from the prior year.

New vehicle gross profit were 18.7%, as the increase of 29.2% in unit sales was partially offset by a decrease in gross profit per unit of 8.2%. Used retail vehicle gross profit increased 9.2% as a 33.8% increase in unit sales was partially offset by a decrease of 18.4% in gross profit per unit.

Parts and service gross profit improved 36.4% and F&I income increased 41.3% which is attributable to a 7.7% increase in gross profit for retail unit and a 31.2% increase in total retail units. .

I apologize to the interruption I pulled you from the main call; can I have your first and last name please? Hello this is the operator its possible your mute is on. Hello. You are now rejoining the main conference. .

Of 2014. Despite this our total gross profit increased slightly by three tenths of a percent. New vehicle gross profit increased 3.1% as the decline of 15.7% in unit sales was more than offset by an increase in gross profit per unit of 22.2%. Parts and service gross profit also increased by 10.7%.

These increases were partially offset by used vehicle and F&I gross profit decreases. Used vehicle gross profit decreased 30.6% as a 17.8% decrease in total used unit sales combined with a decrease of 15.6% in gross profit per unit.

F&I income decreased by 14.3%, as a 2.9% increase in gross profit per retail unit was more than offset by a 16.7% decrease in total unit sales. Adjusted SG&A as a percent of gross profit improved 230 basis points to 90.4% and adjusted operating margin increased 20 basis points to seven tenths of a percent.

Despite the local economic challenges our Brazil segment generated a pretax profit for the second quarter and as Earl indicated we continue to expect that we will achieve an operating profit for the full year.

Turning to our consolidated liquidity and capital structure, as of June 30, 2015 we had $24.2 million of cash on hand and another $45.8 million that was invested in our floorplan offset accounts bringing immediately available funds to a total of $70 million.

In addition we had $183.6 million available on our acquisition line that can also be used for general corporate purposes. As such our total liquidity at quarter-end was $253.6 million.

With regards to our real estate investment portfolio, as of June 30th, we own roughly $760 million of land and buildings which represents 47% of our dealership locations. To finance these holdings we’ve utilized our mortgage facility and executed borrowings under other real estate specific debt agreements.

As of June 30th, we had $56.3 million outstanding under our mortgage facility and $352 million of other real estate debt excluding capital leases. During the second quarter we repurchased approximately 208,000 shares of our outstanding stock at an average price of $81.30 for a total of $16.9 million.

This brings our year-to-date repurchases to 407,000 shares, at an average price of $81.46 for a total of $33.1 million. As of June 30th, we had $66.3 million of share repurchase authorization remaining. In the second quarter we used $4.8 million to pay dividends of $0.20 per share, an increase of $0.03 per share or 17.6% over the prior year.

For additional detail regarding our financial condition please refer to the schedules of additional information attached to the news release as well as the investor presentation posted on our website. With that I’ll now turn it back over to Earl..

Thanks John. Related to our corporate development efforts during the quarter the company disposed off three small dealerships. One Audi dealership in South Carolina and two Peugeot franchisers in Brazil.

Year-to-date the company has acquired two dealerships which are expected to generate approximately $240 million in annual revenues and dispose a Ford dealership which generated approximately $30 million in trailing 12 month revenues. We continue to adjust our dealership portfolio to ensure we are generating appropriate returns for our shareholders.

This concludes our prepared remarks. I’ll now turn the call over to the operator to begin the question-and-answer session.

Operator?.

[Operator Instructions]. Our first question comes from Jamie Albertine at Stifel..

Thanks and good morning everyone. I wanted to focus and maybe apologies in advance because I know it’s been a point that’s sort of beleaguered all week but on the margin side specifically for used and understanding that your gross profit throughput for the U.S.

business was actually quite good again in the second quarter, it was a little bit more degradation on a per unit basis then we were modeling so.

Maybe can you help us understand kind of the pushes and pull on the used business as supply is ramping, you are doing a better job of F&I attachment rates and penetration of your product side, how should we really think about modeling to the used gross margin business going forward?.

Jamie, this is Earl. I am not exactly sure how you should model it but I do think it was one of our weaker areas of performance in the quarter. I don’t think we did a good job.

We had 23 days to work on this so we spent a lot of time on it and my impression is that with the improved availability of used vehicles that we bought a little heavy and also that in some of our oil challenged markets that there may have been a little bit of shift from new to used. And I think we had too many cars for the quarter.

You’ll note from our inventory level, 32 day supply. We don’t hold on to these things. We have a discipline that encourages our people to liquidate these things one way or another and keep our inventory in line. So we retail far too many cars at low margin during the quarter compared to what we would normally do.

But it leverages our F&I business, it gets money to the bottom-line and you can see that we have some pretty powerful throughput. So that’s something we are going to work to move up a bit. I’ve learned not to try to forecast margins because I am not very good at that. The market dictates a lot of that but I think we can do a better job there.

I wasn’t particularly impressed with our margin results. I was impressed with our volume result..

Okay, great. So, it does sound like you withstood may be a temporary sort of underperformance and you still had a great result so, we should see some perhaps some better margins in the back half.

And then if I can sneak one in on the F&I side, just give us may be your take on what we are hearing from the settlements discussions that are out there Honda and elsewhere and kind of how you see this playing out from your portfolios perspective overtime? Thanks..

Let’s let Pete comment on that. He is deeply involved in that every day. .

Jamie I appreciate the question and I’ll you Jamie based on our understanding of the program and input from a variety of different sources, we still believe that the revised program need to be neutral or quite frankly positive to our business overall. So, it is something we continue to monitor but we think from a business standpoint what we find. .

Okay, thanks and congratulations on a great result Pete in the U.S. F&I TDR pickup. .

Thank you. .

The next question is from Rick Nelson at Stephens..

Thanks, starting with Oklahoma is starting to see impact from lower oil prices, Houston had it not what you think that might be to think there is a lag potentially here?.

Rick this is Earl. We were very much braced and took by a few actions assuming that we were going to get hit pretty hard. I am now starting to think that the Houston economy has diversened [ph] up that we probably won’t see anything substantial in Houston. But to be fair Houston is very diverse, Oklahoma we felt it.

That really -- the Oklahoma economy and we are the biggest retailer in Oklahoma of autos, it’s not that diverse, it's very energy dependent. And we weren’t able to get Oklahoma State data but looking at the major OEM reports it seems that the Oklahoma market may have been down even double digits in the quarter. We were only down 2% or 3%.

So we have a pretty strong position there. There is a little headwind for us in Oklahoma. There were a couple of other small oil related markets, Belmont is quite small but we have most of the franchises there. I think we were likely down 5% or 6% there. There is big oil refineries in Belmont. [Indiscernible] isn’t necessarily directly an oil town.

I don’t think they consider to be in the Permian Basin but it appears a lot of trucks are sold and love it, they make their way into the Permian Basin. So little headwind in Loveit [ph]. So we saw a little bit of that but Houston seems to have some power beyond just the energy business.

So we believe we gain quite a bit of share in the first two quarters of the year in Houston which is our strongest market. .

I am having trouble picture growth, do you think how flooding in Houston was net positive or negative for your business in the quarter?.

I think it was a net positive Rick. Actually the data I had on the Houston market through May, the market was down and then June was really strong. So I think in June there were some flood car replacements in the Houston industry.

Now we were up double digits before June so but I think that there were some incremental flood replacement sales and I think there was also some decent service business that came from the flood. So I think it was positive. .

Thanks a lot and good luck. .

The next question is from David Tamarina [ph] with Goldman Sachs. .

Hey great, thanks for taking our questions this morning. Just want to center on your SG&A leverage for a couple of questions here in the three different regions. Obviously in the U.S. it sounds like you braced yourself in the Houston market and really setup maybe by shedding some employees.

I am not really sure what you’ve done but you underperformed or outperformed excuse me.

What we been thinking for your leverage, just wanted walk us through kind of what you’ve done and if you see that continuing through the back half of the year if you have to re hire or anyone at least in the Texas market?.

Yes, this is John Rickel. It actually really was not employment comp driven. Employment comp was actually up a little bit and we were able to more than offset that with cost reductions in other areas. We’ll continue to be very focused on advertising cost controls and then just the other cost elements and we think that is sustainable in the U.S. .

Okay and then further in Brazil you have been positive at least from the SG&A flow through. For the first few quarters you again reiterated that you should be positive for the year.

Is there anything in the back half of the year that would make it more difficult than what we’ve seen kind of the low 90s more recently for the first half of this year versus last half of 2H 2014 if you will when in the high 80s?.

No, there is really nothing in the comps and the team down there has done a great job on cost control and they continue to be very focused on it. So we would anticipate that we’ll continue to be able to keep cost in hand down there. They have done a good job of adjusting to the lower market conditions and they work at it every day. .

That’s fair and then just lastly on the M&A environment, have you seen multiples contracted all more recently, have they been inflating a little bit higher or how is the environment then for you?.

I haven’t seen any meaningful change in the M&A environment. I think you probably heard that there are quite a few dealerships for sale on the market in the U.S. but I think all of the asking prices are pretty stout. And so I haven’t really seen any change. There is a lot of potential deals out there if the buyer and seller get together I guess..

Do you expect any change in the asking price in a rising interest rate environment?.

Well that’s hard for me to judge on the asking price but I do -- these deals have to make sense for the buyer and I think 17 million union industry it’s a different proposition than buying in a 13 million or 14 million union industry. And higher interest rates are certainly going to temper any projected returns for the future.

So they have to be factored into that to be a good return for the buyer. So I think that there are some issues that people have to be concerned with for acquisitions looking forward..

Okay, the only reason I asked is the thought process if you had a rising interest rate environment you might be seeing a potential slow down in order sales and sellers might get a little easier to reign in their expectations?.

I guess that will remain to be seen. .

This is John Rickel, normally rising interest rates would imply that the economy is getting stronger so -- and the reigns that are being talked about we don’t anticipate that that’s going to materially curb bottle sales. We continue to look for 17 million this year and there is still plenty of room to run if you look at replacement demand.

I think the bigger issue is on things evolve -- in fact the dealers playing [ph] expense that will impact their ability to UFI. I don’t think there is a big risk that will materially slow auto sales. .

Well thanks for your thoughts. .

Our next question comes from Bill Armstrong at C.L. King & Associates. .

Good morning gentlemen. Similar to many of your peers your parts and service margins were up pretty nicely year-over-year.

Can you talk about what the drivers were there and maybe what you see going forward in terms of parts and service margin?.

Bill, this is John Rickel. Most of that growth is really driven by how we account for the internal reconditioning work. If you strip out the benefit of the 100% growth from the internal work, margins have been pretty stable.

As we continue to grow our used vehicle business we continue to expect that those parts and service margins will continue to rise a bit. But the underlying margins for customer pay collision, wholesale parts are all you know really steady. .

And it looks like warranty was kind of lead the way in terms of comps maybe not as much of some of the other public companies, what were you seeing in terms of warranty work on a particularly recall?.

There is just a steady flow of recalls and I think you have visibility to that as well. And it’s not predictable, it also gives a time lag because frequently when these recalls are announced the parts aren’t available and such.

But there is a steady flow of recall work in the shops which is generally a good thing although I would say that it does have the ability to display some customer paid business. Actually the strongest part of our business in the quarter was our collision repair business.

I had to look at that number about three times to make sure that it was accurate but we have a huge growth trend in our collision repair business based on quite a few new insurance companies doing business with us. .

I saw that, that was a very big number and then….

That’s a margin friendly business also. .

And then finally on your gross profit per new unit, you guys have a lot of mid line import brands.

We hear that obviously there is a lot of margin pressure there, maybe can you talk about what you guys are seeing in the market, is that sort of driving margin pressure and maybe also perhaps shift in customer demand towards larger vehicles that may favor the domestic brands more than the imports and then demand away from the dance?.

Yes, that’s exactly what we are seeing as well. We are heavy with Toyota and Nissan and there are more car brands then truck brands and there is a little bit more supply than demand on cars these days. So OEM is approaching, they are approaching us.

We are approaching metal, summer time everybody is trying to take share from each other and that’s a big part of the dynamic that has hammered those margins quite a bit. I don’t think anybody likes it but either sells the car you know. .

Right, okay, thank you. .

Next question comes from John Murphy, Bank of America - Merrill Lynch.

Hi, this is actually Liz Suzuki on for John. I just wanted to follow up quickly on the question about the Honda settlement with CFPB and you mentioned that you didn’t think it would have a negative impact, it might actually be a positive.

Can you disclose what your average mark up is that you are getting now because it just seems like most of the public companies are already pretty close to that 125 bits range that the Honda settlement weighed out, so I just wanted to get confirmation of that?.

Yes Liz this is John Rickel. I don’t want to get into the specific number, I’ll just reiterate what Pete said that we are comfortable that what we told from Honda, this is support of we’ve had rate gaps in place for quite some time. And this fits within the being with of how we have been operating. .

Okay, great. Thanks. .

The next question comes from Arena Hodowkoski [ph] at KeyBanc. .

Good morning everyone. .

Hey Arena. .

Just to follow up a little bit on the new vehicle gross profit per unit pressures.

It sounds like you are pulling out industry headwinds not so much company specific headwinds?.

Well I would think it’s both actually. I mentioned a moment ago that we are very heavy in the Japanese brand mix and they tend to be more car driven brands than truck brands. And there is an imbalance of supply and demand on cars in the market right now.

There are so much of vans and trucks so there is a lot of pressure to move those cars and both the OEMS and the dealers are pushing hard and taking lower margins to do that. .

Would you expect that to change as we go forward, would you expect the OEMS to adjust the mix in their production to meet the market demand?.

I think they will overtime to the degree possible. I don’t know how quickly they can do that. I know that brands that don’t have SUVs like Volkswagen and the Koreans maybe they have new products plans that are in the truck and at least the crossover in SUV end of the business.

And so overtime I think there will be some balance there because they are trying to manage their profitability. As well pushing cars with heavy marketing emphasis isn’t good for their profit either. So, I am sure they’ll try to adjust that to a degree possible probably not in the near term though. .

Not in the near term.

Thank you and then on the F&I you did mention that part of the increase was due to income per contract, what do you mean by that, is that your finance reserve?.

Yes..

SO your finance reserve is increasing, what are the drivers of that increase, is it higher selling prices or higher loans amount or you actually maybe increasing your spread a little bit?.

Arena, this is John. It is primarily the dollars per contract is the pricing on new vehicles used to go up. The average amount financed would creep up along with that. .

Alright, thank you very much guys. Congratulations on a good quarter. .

Thank you. .

The next question is from Paresh Jain at Morgan Stanley..

Good morning everyone and thank you for the slides, they are really helpful. I wanted to go back to slide 15 and look beyond 2Q. It seems like the new and used GPU ex F&I have consistently declined since 2011 but more than offset by a 50% or so jump in new F&I and then 25% jump in used F&I.

And again this is not specific to Group 1 its pretty much industry wide.

So what in your opinion explains this continuous decline in GPU despite SAAB being really strong over the years and do you see them recover from these levels at all or just have F&I offset it going forward?.

Well I think the factor in addition to the solid recovering is that that makes the auto manufacture stronger, it makes the dealer network stronger, and there is a big fight for market share. So I think it’s a competitive dynamic.

I also think as you get into some over supply situations where supply gets out of balance with demand which is more in these car areas at the moment but that’s another factor that helps drive these margins down.

But I think this is one of the most competitive industries in the world and I think you are saying a lot of healthy powerful companies both at the manufacture level and at the retail level are fighting this competition. .

This is John Rickel, some of this is the fact that with F&I as lucrative as it is you really don’t want to miss that opportunity for the sale because if you don’t sell the newer of the used unit you don’t get the shot at that F&I. So that certainly plays into it.

As Earl indicated, we think that there are probably some opportunities on used vehicle margins. There are some things that we are working on internally but on new vehicle its competitive and for the time being we anticipate it is going to stay competitive. .

Understood thanks.

And on UK, a really strong performance there ex currency but GPU there saw a sharp decline as well so perhaps as your SG&A grows, does the cost structure then need any adjustment, is there any room for that or was this just a one off issue in 2Q?.

No, there actually is a more simplistic explanation for the UK and again it relates to the balance of supply and demand. As the Euro has weakened against the dollar it’s also weakened against the British pound.

So auto manufacturers who manufacture in Euro and sell in pounds have a nice windfall and so most of your major auto manufacturers do manufacture vehicles on the continent of Europe.

They can't ship as many to China as they once did so there is some oversupply and some increased shipments of vehicles into the UK these days which are making things just a little bit stickier on the margin side. But that said the demand has stayed very strong and steady in the UK and there is also increasing units in operation.

So again we have to ingest our business model in the UK like we have in the U.S. by working the cost structure, working our parts and service growth, working the used car business and the finance business. So it’s a dynamic market and we adjust these things as we see them happening. And that’s kind of the same thing we try to do in the U.S.

as we tried this margin pressure on vehicles. .

This is John Rickel, the other item that’s impacting lease on a consolidated basis is obviously we bought three Elms BMW stores in the fourth quarter last year and we are still integrating those in. It takes a little longer to take cost out in the UK when you are doing acquisition because of the labor laws.

So we would anticipate that there is additional cost that will come out as we fully integrate the stores. .

That’s good color, thank you. .

[Operator Instructions]. Our next question comes from David Lim at Wells Fargo..

Hi, good morning. .

Good morning David. .

Good morning, SG&A to gross profit I just wanted to get a little bit more color if you guys could give some sort of description on maybe the glide for the UK and Brazil as it relates to U.S. I think in the past you mentioned that it probably can't get to the U.S.

level but wondering if you guys could provide some detail on how close can it come to the U.S.

SG&A to GPU levels?.

Yeah, that is not real easy, David I will take a little bit of a shot at it. UK, we don’t own as much of the real estate there and we also don’t have some of the higher margins brings like the F&I is not quite as lucrative. So, it is a little harder to leverage. I think we can run that into that mid 75% range.

I think they are doing a pretty good job so, there is probably a couple more points but it is not going to get sub 70 like what we are able to run in the U.S. Brazil it is still kind of too early to tell. We are obviously continuing to take out more cost but ultimately we need to get back to generating more growth down there to be able to leverage.

So, I will take a save on give me any sort of shock right now at Brazil and tell we see little more normalization in the market. .

We also would benefit David in both of those markets from more scale. Obviously we are going to be careful about adding too much scale too quickly in Brazil until things settle down.

But we were continuing to look to grow our businesses in both those markets because we have a pretty nicely established platform and infrastructure and being able to leverage some of that fixed cost will help our company in the years ahead. .

And a question for Pete, AutoNation is sort of dappling with or they have actually announced that they are going to do a private label maintenance program and obviously that is going to probably likely boost the F&I per unit, has Group 1 considered something similar to that strategy on the private label front?.

Yeah, we have looked at it several times. Pete, you want to make some comments. .

Sure, and we have looked at it and we took the position that from a penetration standpoint it is better for our consumer and our shareholder for us to utilize the factory endorsed, OEM endorsed maintenance programs.

So, we have aligned ourselves with each of the manufacturers whether it is Toyota with the Toyota care wrap [ph] or Honda to utilize the maintenance program offered by the OEM. .

Yes David just to add something to that, I think you will appreciate this, when we looked at doing it and showing free maintenance and there are some smaller companies that sell free oil changes if you will.

A lot of our customers particularly in the Japanese brands and the luxury brands, when we say we are going to provide free maintenance it is not just an oil change. And trying to keep up with these detailed maintenance schedules of the auto manufacturers and what they include at various intervals 15,000 miles, 30,000 miles.

It has become the cottage industry to keep up with those things and you want to make sure that you can afford to do all of those different maintenance items at each interval and it is different from brand to brand. And it is also hard to keep up with. .

Sure. The other -- and thanks for that. The other question I had was, trucks mix has been really favorable over the last several months and I personally thought it would be a tailwind to gross profit per unit.

I was wondering if you guys could dive on that a little bit more and also how is the [indiscernible] launch going as well as availability on the new truck?.

We actually didn’t get as much truck mix benefit as we should have in the quarter. We were up pretty strongly in RAM, in General Motors but we were down in Toyota and we are pretty big Toyota company. We just couldn’t get enough Toyota trucks, they are in very short supply at least in our markets. In Ford, we went backwards a little bit.

Again I think most of that is supplied but I think that you have also seen Ford has become more aggressive on their marketing support here in the last three weeks for the up series. So I think we will get some truck mix benefit in the second half of the year and we will do our best to translate some of that into a little better margin also.

And some of the new product should get us a little cash [ph] I would think so, that should be a positive. .

And my final question is obviously Ferrari filed their IPO papers today would you guys be interested in a Ferrari franchise going forward? Thanks. .

John wanted demo Ferrari. I have trouble fitting into some of those cars. .

That's generally, you never say never because it is a good business opportunity. We are in that business but we have stayed away from those super luxury or exotic brands, or whatever you call them. .

In general there are too many people who do like those but it is too much for the dealership. .

Thank you guys, good luck. .

Thanks. .

This concludes our question-and-answer session. Would you like to make any closing remarks. .

Thanks everyone for joining us today. We look forward to updating you on our third quarter earnings call in October. Have a good day. .

The conference is now concluded, thank you for attending today's presentation. You may now disconnect..