Group 1 Automotive (GPI) 8-K Results of Operations and Financial Condition

 NEWS RELEASE 950 Echo Lane, Suite 100 Houston, TX 77024

AT GROUP 1:	President and CEO	Earl J. Hesterberg	(713) 647-5700
	Senior Vice President and CFO	John C. Rickel	(713) 647-5700
	Manager, Investor Relations	Kim Paper Canning	(713) 647-5700
AT Fleishman-Hillard:	Investors/Media	Russell A. Johnson	(713) 513-9515

FOR IMMEDIATE RELEASE
TUESDAY, AUG. 1, 2006

GROUP 1 AUTOMOTIVE REPORTS 38 PERCENT SECOND-QUARTER EARNINGS INCREASE

Acquires California Toyota Dealership; Sells Chevrolet Dealership

HOUSTON, Aug. 1, 2006 — Group 1 Automotive, Inc. (NYSE: GPI),a Fortune 500 automotive retailer, today reported that second-quarter net income increased 37.5 percent to $24.9 million, on revenues of $1.6 billion. Diluted earnings per share grew 33.3 percent to $1.00. This compares with net income of $18.1 million, or $0.75 per diluted share, in the second quarter of 2005.

Second-quarter gross margin improved 40 basis points to 15.6 percent, primarily attributable to an 80 basis-point increase in total used vehicle margin and a 30 basis-point increase in new vehicle margin. Used vehicle gross profit rose 6.6 percent reflecting an increase of 3.9 percent in used retail revenues, and new vehicle gross profit increased 2.6 percent on 1.2 percent lower revenues. Parts and service revenues increased 1 percent, as a 4 percent increase in customer-pay business was offset by lower warranty business. Finance and insurance revenues declined 2.3 percent reflecting lower new vehicle unit sales and an increased use of subsidized financing incentives by the manufacturers.

Group 1 also achieved a 500 basis-point reduction in total selling, general and administrative expenses to 75.1 percent of gross profit, primarily attributable to gross profit improvements and its continued focus on increasing operating efficiencies.

Included in the second-quarter results, the company recognized a $5.9 million pretax business interruption insurance credit stemming from the losses incurred at its New Orleans dealerships that was partially offset by a previously announced $4.5 million pretax cash payment to settle the lease termination dispute related to its Dodge store in New Orleans as a result of the damage it sustained in Hurricane Katrina.

Operating margin improved 80 basis points from the prior year to 3.6 percent, and pretax margin improved 70 basis points to 2.5 percent.

“We are delighted with our margin improvements, both on a consolidated and same store basis,” said Earl J. Hesterberg, Group 1’s president and chief executive officer. “Our team has continued to implement our operating efficiency improvement initiatives, resulting in another solid performance this quarter.”

On a same-store basis, used vehicle retail revenues increased 4.7 percent on 2.2 percent higher unit sales, while new vehicle revenues declined 2.5 percent on 2.2 percent lower unit sales. The new vehicle sales decline was more than explained by weakness in domestic brands that was consistent with the overall performance of these

Group 1 Automotive, Inc.

brands. Parts and service revenues rose 2.6 percent and finance and insurance revenues fell 2.4 percent. Gross margin improved 60 basis points to 15.8 percent.

Total floorplan interest expense expanded 29.4 percent to $13.0 million, reflecting a continued upward trend in interest rates. Partially offsetting the higher rates was a $75.9 million decrease in weighted average floorplan borrowings. Other interest expense also declined $0.7 million, or 15.1 percent, reflecting a decrease of $50.7 million in borrowings outstanding in the period. As a result of the issuance of 2.25% convertible notes, the long-term debt-to-equity ratio increased to 40 percent.

Share Repurchase

In connection with a $287.5 million convertible debt offering that was completed during the second quarter, Group 1 repurchased 933,800 shares of its common stock at an average price of $53.54, completing its board-authorized $50 million share repurchase program. In addition, the company also repurchased 51,000 shares of its common stock at an average price of $58.00 under a separate board authorization to fund the share delivery requirements under its existing employee stock purchase plan.

Acquisition and Disposition Update

In July, Group 1 acquired its second Toyota/Scion dealership in the Los Angeles area. The dealership will operate under the name of Miller Toyota/Scion of Anaheim. Additionally, the company was granted a Suzuki add-point dealership in the Los Angeles area in May, further augmenting its brand mix. The two franchises are expected to generate $133.6 million in estimated annual revenues. Year to date, the company has added five franchises with $263.7 million in estimated annual revenues toward its full-year acquisition target of $500 million.

In July, the company disposed of a Kia franchise in the Sacramento area and a Chevrolet franchise in Denver, its sole Colorado dealership. These franchises generated $59.9 million in revenues during the trailing twelve-month period. Year to date, the company has disposed of 12 franchises with $194.3 million in trailing twelve-month revenues, exceeding its $190 million full-year target.

Management’s Outlook

Group 1 reaffirmed its 2006 full-year earnings guidance range of $3.40 to $3.70 per diluted share. This guidance is based on the following assumptions:

• Industry seasonally adjusted annual sales rate of 16.5 to 16.7 million vehicles.

• A 25 basis-point increase in interest rates over the remainder of the year.

• An estimated average of 24.4 million shares outstanding.

• The implementation of SFAS No. 123(R), “Share Based Payment,” that the company estimates will have a full-year negative earnings impact of $0.10 per diluted share.

This guidance excludes the impacts of any future acquisitions or dispositions.

Second-Quarter Conference Call and Presentation

Group 1’s senior management team will host a conference call to discuss these results today at 10 a.m. EDT.

The live simulcast call, and a slide presentation, may be accessed on the Internet at www.group1auto.com through the Investor Relations section. A replay will be available for 30 days.

The conference call will also be available live by dialing in 10 minutes prior to the call at: 800-240-2430 (domestic) or 303-262-2130 (international).

Group 1 Automotive, Inc.

A telephonic replay will be available through Aug. 8 by dialing: 800-405-2236 (domestic) or 303-590-3000 (international), with passcode: 11065626#.

About Group 1 Automotive, Inc.

Group 1 owns 93 automotive dealerships comprised of 134 franchises, 33 brands and 29 collision service centers in California, Florida, Georgia, Louisiana, Massachusetts, New Hampshire, New Jersey, New Mexico, New York, Oklahoma and Texas. Through its dealerships, the company sells new and used cars and light trucks; arranges related financing, vehicle service and insurance contracts; provides maintenance and repair services; and sells replacement parts.

Group 1 Automotive can be reached on the Internet at www.group1auto.com.

This press release contains “forward-looking statements,” which are statements related to future, not past, events. In this context, the forward-looking statements often include statements regarding our goals, plans, projections and guidance regarding our financial position, results of operations, market position, pending and potential future acquisitions and business strategy, and often contain words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks” or “will.” Any such forward-looking statements are not assurances of future performance and involve risks and uncertainties that may cause results to differ materially from those set forth in the statements. These risks and uncertainties include, among other things, (a) general economic conditions, (b) the level of manufacturer incentives, (c) the future regulatory environment, (d) our ability to obtain an inventory of desirable new and used vehicles, (e) our relationship with our automobile manufacturers and the willingness of manufacturers to approve future acquisitions, (f) our cost of financing and the availability of credit for consumers, (g) our ability to complete acquisitions and dispositions and the risks associated therewith, and (h) our ability to retain key personnel. These factors, as well as additional factors that could affect our forward-looking statements, are described in our Form 10-K under the headings “Business—Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” We urge you to carefully consider this information. We undertake no duty to update our forward-looking statements, including our earnings outlook.

FINANCIAL TABLES TO FOLLOW

Group 1 Automotive, Inc.
Consolidated Statements of Operations
(Unaudited)
(In thousands, except per share amounts)

	Three Months Ended June 30,									Six Months Ended June 30,
	2006			2005			% Change			2006			2005			% Change
REVENUES:
New vehicle retail sales	$	968,399		$	980,375			(1.2	)%	$	1,828,527		$	1,814,320			0.8	%
Used vehicle retail sales		289,760			278,787			3.9			555,680			540,332			2.8
Used vehicle wholesale sales		87,053			106,786			(18.5	)		167,746			202,980			(17.4	)
Parts and service		164,641			163,057			1.0			327,507			322,517			1.5
Finance and insurance		47,193			48,328			(2.3	)		95,151			93,911			1.3
Total revenues		1,557,046			1,577,333			(1.3	)%		2,974,611			2,974,060			0.0	%
COST OF SALES:
New vehicle retail sales		898,087			911,815			(1.5	)%		1,693,701			1,686,648			0.4	%
Used vehicle retail sales		252,632			244,053			3.5			483,512			472,222			2.4
Used vehicle wholesale sales		87,783			107,378			(18.2	)		167,497			203,454			(17.7	)
Parts and service		74,882			73,998			1.2			149,415			147,157			1.5
Total cost of sales		1,313,384			1,337,244			(1.8	)%		2,494,125			2,509,481			(0.6	)%
GROSS PROFIT		243,662			240,089			1.5	%		480,486			464,579			3.4	%
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES		182,944			192,347			(4.9	)%		363,420			374,637			(3.0	)%
DEPRECIATION AND AMORTIZATION EXPENSE		4,372			4,302			1.6	%		8,935			9,925			(10.0	)%
INCOME FROM OPERATIONS		56,346			43,440			29.7	%		108,131			80,017			35.1	%
OTHER INCOME (EXPENSE):
Floorplan interest expense		(13,033	)		(10,074	)		29.4	%		(24,878	)		(18,739	)		32.8	%
Other interest expense, net		(3,997	)		(4,706	)		(15.1	)		(7,987	)		(9,830	)		(18.8	)
Other income (expense), net		(271	)		11			(2,563.6	)		(245	)		8			(3,162.5	)
INCOME BEFORE INCOME TAXES		39,045			28,671			36.2	%		75,021			51,456			45.8	%
PROVISION FOR INCOME TAXES		14,173			10,582			33.9	%		27,838			18,967			46.8	%
INCOME BEFORE CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE		24,872			18,089			37.5	%		47,183			32,489			45.2	%
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE, NET OF TAX BENEFIT OF $10,231		—			—			—			—			(16,038	)		N/A
NET INCOME	$	24,872		$	18,089			37.5	%	$	47,183		$	16,451			186.8	%
DILUTED EARNINGS PER SHARE:
Income before cumulative effect of a change in accounting principle	$	1.00		$	0.75			33.3	%	$	1.91		$	1.36			40.4	%
Cumulative effect of a change in accounting principle		—			—			—			—			(0.67	)		—
Net income	$	1.00		$	0.75			33.3	%	$	1.91		$	0.69			176.8	%
Weighted average diluted shares outstanding		24,840			23,985			3.6	%		24,647			23,935			3.0	%

Group 1 Automotive, Inc.
Consolidated Balance Sheets
(Dollars in thousands)

	June 30,			December 31,
	2006			2005			% Change
	(Unaudited)
ASSETS:
CURRENT ASSETS:
Cash and cash equivalents	$	77,454		$	37,695			109.5	%
Contracts in transit and vehicle receivables, net		145,968			187,769			(22.3	)
Accounts and notes receivable, net		73,954			81,463			(7.8	)
Inventories		840,212			756,838			11.0
Deferred income taxes		17,600			18,780			(6.3	)
Prepaid expenses and other current assets		16,926			23,283			(33.7	)
Total current assets		1,172,114			1,105,828			6.1
PROPERTY AND EQUIPMENT, net		166,258			161,317			3.1
GOODWILL		386,234			372,844			3.6
INTANGIBLE FRANCHISE RIGHTS		176,892			164,210			7.7
DEFERRED INCOME TAXES		4,443			—			100.0
OTHER ASSETS		38,301			29,419			30.2
Total assets	$	1,944,242		$	1,833,618			6.1	%
LIABILITIES AND STOCKHOLDERS’ EQUITY:
CURRENT LIABILITIES:
Floorplan notes payable — credit facility	$	227,649		$	407,396			(44.1	)%
Floorplan notes payable — manufacturer affiliates		357,737			316,189			13.1
Current maturities of long-term debt		810			786			3.1
Accounts payable		113,587			124,857			(9.0	)
Accrued expenses		106,043			119,404			(10.3	)
Total current liabilities		805,826			968,632			(16.7	)
LONG-TERM DEBT, net of current maturities		433,197			158,074			174.0
DEFERRED INCOME TAXES		—			28,862			(100.0	)
OTHER LIABILITIES		27,812			25,356			9.7
Total liabilities before deferred revenues		1,266,835			1,180,924			7.4
DEFERRED REVENUES		22,895			25,901			(11.6	)
STOCKHOLDERS’ EQUITY:
Common stock		250			246			1.6
Additional paid-in capital		288,058			276,904			4.0
Retained earnings		413,678			373,162			10.9
Accumulated other comprehensive income (loss)		3,768			(706	)		(633.7	)
Deferred stock-based compensation		—			(5,413	)		(100.0	)
Treasury stock		(51,242	)		(17,400	)		194.5
Total stockholders’ equity		654,512			626,793			4.4
Total liabilities and stockholders’ equity	$	1,944,242		$	1,833,618			6.1	%
BALANCE SHEET DATA:
Working capital	$	366,288		$	137,196			167.0	%
Current ratio		1.45			1.14			27.2
Long-term debt to capitalization		40	%		20	%
Inventory days supply:(1)
New vehicle		62			56			10.7	%
Used vehicle		29			28			3.6

⁽¹⁾ Inventory days supply equals units in inventory as of the end of the period, divided by unit sales for the month then ended, times 30 days.

Group 1 Automotive, Inc.
Additional Information — Consolidated
(Unaudited)

		Three Months Ended						Six Months Ended,
		June 30,						June 30,
		2006			2005			2006			2005
NEW VEHICLE UNIT SALES GEOGRAPHIC MIX:
Region	Geographic Market
Northeast	Massachusetts		12.8	%		12.9	%		13.0	%		12.9	%
	New Hampshire		4.2			0.2			3.9			0.1
	New Jersey		2.9			2.8			2.8			2.8
	New York		2.3			2.5			2.4			2.5
			22.2			18.4			22.1			18.3
Southeast	Florida		4.5			5.9			4.9			5.9
	Georgia		3.8			4.8			3.8			4.7
	Louisiana		5.6			5.6			5.9			5.7
			13.9			16.3			14.6			16.3
South Central	Oklahoma		11.3			12.2			10.5			11.7
	Central Texas		11.0			12.2			11.2			12.1
	Southeast Texas		17.6			14.5			17.2			14.7
			39.9			38.9			38.9			38.5
West Central	Colorado		0.4			1.0			0.4			1.0
	New Mexico		2.0			3.0			2.1			2.8
	West Texas		5.7			5.6			5.8			5.7
			8.1			9.6			8.3			9.5
California	California		15.9			16.8			16.1			17.4
			100.0	%		100.0	%		100.0	%		100.0	%
NEW VEHICLE UNIT SALES BRAND MIX:
Toyota/Scion/Lexus			35.6	%		28.9	%		34.6	%		28.7	%
Ford			15.9			18.2			16.4			18.3
DaimlerChrysler			12.9			14.8			13.5			14.7
Nissan/Infiniti			9.9			10.6			10.2			11.4
Honda/Acura			10.0			9.3			9.7			9.2
GM			8.7			11.4			8.4			10.8
Other			7.0			6.8			7.2			6.9
			100.0	%		100.0	%		100.0	%		100.0	%
NEW VEHICLE UNIT OTHER MIX:
Import			51.5	%		45.4	%		50.5	%		46.2	%
Domestic			31.9			38.9			32.7			38.2
Luxury			16.6			15.7			16.8			15.6
			100.0	%		100.0	%		100.0	%		100.0	%
Car			51.2	%		45.4	%		49.4	%		45.5	%
Truck			48.8			54.6			50.6			54.5
			100.0	%		100.0	%		100.0	%		100.0	%

Group 1 Automotive, Inc.
Additional Information — Consolidated
(Unaudited)
(Dollars in thousands, except per unit amounts)

	Three Months Ended June 30,									Six Months Ended June 30,
	2006			2005			% Change			2006			2005			% Change
REVENUES:
New vehicle retail sales	$	968,399		$	980,375			(1.2	)%	$	1,828,527		$	1,814,320			0.8	%
Used vehicle retail sales		289,760			278,787			3.9			555,680			540,332			2.8
Used vehicle wholesale sales		87,053			106,786			(18.5	)		167,746			202,980			(17.4	)
Total used		376,813			385,573			(2.3	)		723,426			743,312			(2.7	)
Parts and service		164,641			163,057			1.0			327,507			322,517			1.5
Finance and insurance		47,193			48,328			(2.3	)		95,151			93,911			1.3
Total	$	1,557,046		$	1,577,333			(1.3	)%	$	2,974,611		$	2,974,060			0.0	%
GROSS MARGIN:
New vehicle retail sales		7.3	%		7.0	%					7.4	%		7.0	%
Used vehicle retail sales		12.8			12.5						13.0			12.6
Used vehicle wholesale sales		(0.8	)		(0.6	)					0.1			(0.2	)
Total used		9.7			8.9						10.0			9.1
Parts and service		54.5			54.6						54.4			54.4
Finance and insurance		100.0			100.0						100.0			100.0
Total		15.6	%		15.2	%					16.2	%		15.6	%
GROSS PROFIT:
New vehicle retail sales	$	70,312		$	68,560			2.6	%	$	134,826		$	127,672			5.6	%
Used vehicle retail sales		37,128			34,734			6.9			72,168			68,110			6.0
Used vehicle wholesale sales		(730	)		(592	)		(23.3	)		249			(474	)		152.5
Total used		36,398			34,142			6.6			72,417			67,636			7.1
Parts and service		89,759			89,059			0.8			178,092			175,360			1.6
Finance and insurance		47,193			48,328			(2.3	)		95,151			93,911			1.3
Total	$	243,662		$	240,089			1.5	%	$	480,486		$	464,579			3.4	%
UNITS SOLD:
Retail new vehicles sold		33,442			33,721			(0.8	)%		62,411			62,554			(0.2	)%
Retail used vehicles sold		17,549			17,441			0.6			33,812			34,683			(2.5	)
Wholesale used vehicles sold		11,757			13,240			(11.2	)		22,412			25,688			(12.8	)
Total used		29,306			30,681			(4.5	)%		56,224			60,371			(6.9	)%
GROSS PROFIT PER UNIT SOLD:
New vehicle retail sales	$	2,103		$	2,033			3.4	%	$	2,160		$	2,041			5.8	%
Used vehicle retail sales		2,116			1,992			6.2			2,134			1,964			8.7
Used vehicle wholesale sales		(62	)		(45	)		(37.8	)		11			(18	)		161.1
Total used		1,242			1,113			11.6			1,288			1,120			15.0
Finance and insurance (per retail unit)		926			945			(2.0	)		989			966			2.4
OTHER:
SG&A expenses	$	182,944		$	192,347			(4.9	)%	$	363,420		$	374,637			(3.0	)%
SG&A as % revenues		11.7	%		12.2	%					12.2	%		12.6	%
SG&A as % gross profit		75.1	%		80.1	%					75.6	%		80.6	%
Operating margin		3.6	%		2.8	%					3.6	%		2.7	%
Pretax income margin		2.5	%		1.8	%					2.5	%		1.7	%
Floorplan interest	$	(13,033	)	$	(10,074	)		29.4	%	$	(24,878	)	$	(18,739	)		32.8	%
Floorplan assistance		9,691			9,656			0.4			18,162			17,835			1.8
Net floorplan expense	$	(3,342	)	$	(418	)		699.5	%	$	(6,716	)	$	(904	)		642.9	%

Group 1 Automotive, Inc.
Additional Information — Same Store⁽¹⁾
(Unaudited)
(Dollars in thousands, except per unit amounts)

	Three Months Ended June 30,									Six Months Ended June 30,
	2006			2005			% Change			2006			2005			% Change
REVENUES:
New vehicle retail sales	$	928,882		$	952,251			(2.5	)%	$	1,757,133		$	1,767,155			(0.6	)%
Used vehicle retail sales		281,681			268,993			4.7			540,231			522,624			3.4
Used vehicle wholesale sales		83,101			101,747			(18.3	)		160,630			194,953			(17.6	)
Total used		364,782			370,740			(1.6	)		700,861			717,577			(2.3	)
Parts and service		160,982			156,979			2.6			320,642			312,206			2.7
Finance and insurance		45,653			46,782			(2.4	)		92,439			91,238			1.3
Total	$	1,500,299		$	1,526,752			(1.7	)%	$	2,871,075		$	2,888,176			(0.6	)%
GROSS MARGIN:
New vehicle retail sales		7.3	%		7.0	%					7.4	%		7.1	%
Used vehicle retail sales		12.9			12.5						13.1			12.6
Used vehicle wholesale sales		(0.9	)		(0.4	)					0.1			(0.1	)
Total used		9.8			8.9						10.1			9.1
Parts and service		54.4			54.7						54.2			54.4
Finance and insurance		100.0			100.0						100.0			100.0
Total		15.8	%		15.2	%					16.3	%		15.6	%
GROSS PROFIT:
New vehicle retail sales	$	67,553		$	67,082			0.7	%	$	129,830		$	125,232			3.7	%
Used vehicle retail sales		36,345			33,552			8.3			70,647			65,758			7.4
Used vehicle wholesale sales		(775	)		(448	)		(73.0	)		185			(227	)		181.5
Total used		35,570			33,104			7.4			70,832			65,531			8.1
Parts and service		87,535			85,806			2.0			173,932			169,851			2.4
Finance and insurance		45,653			46,782			(2.4	)		92,439			91,238			1.3
Total	$	236,311		$	232,774			1.5	%	$	467,033		$	451,852			3.4	%
UNITS SOLD:
Retail new vehicles sold		32,001			32,709			(2.2	)%		59,901			60,801			(1.5	)%
Retail used vehicles sold		17,141			16,777			2.2			33,068			33,468			(1.2	)
Wholesale used vehicles sold		11,128			12,524			(11.1	)		21,377			24,492			(12.7	)
Total used		28,269			29,301			(3.5	)%		54,445			57,960			(6.1	)%
GROSS PROFIT PER UNIT SOLD:
New vehicle retail sales	$	2,111		$	2,051			2.9	%	$	2,167		$	2,060			5.2	%
Used vehicle retail sales		2,120			2,000			6.0			2,136			1,965			8.7
Used vehicle wholesale sales		(70	)		(36	)		(94.4	)		9			(9	)		200.0
Total used		1,258			1,130			11.3			1,301			1,131			15.0
Finance and insurance (per retail unit)		929			945			(1.7	)		994			968			2.7
OTHER:
SG&A expenses	$	180,853		$	184,844			(2.2	)%	$	356,712		$	361,142			(1.2	)%
SG&A as % revenues		12.1	%		12.1	%					12.4	%		12.5	%
SG&A as % gross profit		76.5	%		79.4	%					76.4	%		79.9	%
Operating margin		3.4	%		2.9	%					3.5	%		2.8	%
Floorplan interest	$	(12,595	)	$	(9,580	)		31.5	%	$	(24,090	)	$	(17,875	)		34.8	%
Floorplan assistance		9,347			9,304			0.5			17,564			17,259			1.8
Net floorplan expense	$	(3,248	)	$	(276	)		1,076.8	%	$	(6,526	)	$	(616	)		959.4	%

⁽¹⁾ Same store amounts include the results for the identical months in each period presented in the comparison, commencing with the first month we owned the dealership and, in the case of dispositions, ending with the last month we owned it. Same store results also include the activities of the corporate office, but exclude the results of our two New Orleans dealerships that were closed as a result of Hurricane Katrina in August of 2005.