Group 1 Automotive Inc. will stay focused on growth through acquisitions, both in the U.S. and the United Kingdom, as the public dealership group prepares for a CEO changeover next year.
Daryl Kenningham, Group 1’s president of U.S. operations since 2019 until his promotion this week to president and COO, will take over as chief executive in January following the year-end retirement of CEO Earl Hesterberg, which was announced Wednesday. Kenningham told Automotive News that the dealership group will look for “quality acquisitions” with regard to locations and vehicle brands that best align with the company’s direction.
“We’re not going to just chase revenue for the sake of chasing revenue,” said Kenningham, who declined to discuss whether Houston-based Group 1 has deals in the pipeline. “We get plenty of acquisition opportunities across our desks that are either in places that we don’t feel it’s a place we want to be or brands that we feel like we can’t make successful long term. So we are looking for quality.”
Kenningham, 58, will be in position to execute on that strategy as of Jan. 1, when he assumes the CEO role. Hesterberg, 69, will leave Group 1 effective Dec. 31.
Kenningham joined Group 1 in 2011, first in the role of regional vice president before taking on additional responsibilities.
“Now is the perfect time to transition to a new generation of leadership at our company,” Hesterberg said in a statement. Group 1 did not make Hesterberg available for an interview this week.
“Daryl’s performance throughout his career has been exemplary, and he has driven our U.S. business to record levels,” Hesterberg said. “Although I will sorely miss the wonderful people at Group 1, this transition will be seamless and our Company could not be in better hands.”
Hesterberg came to Group 1 in April 2005 from a career that included time at Ford Motor Co. and Nissan Motor Co.
As CEO, Hesterberg guided the company’s international expansion, first into the United Kingdom and later into Brazil. Group 1 said it now has 204 dealerships in the U.S. and United Kingdom, after completing the sale of its Brazil operations in July. Group 1 last fall said it would exit Brazil, a country it entered in 2013 with the acquisition of UAB Motors Participacoes, but also one in which it struggled to grow against a challenging exchange rate.
At the time of the acquisition, Group 1 said the Brazil dealerships were expected to generate roughly $650 million in estimated annual revenue. At the end of 2021, Group 1 said 16 dealerships representing BMW, Honda, Land Rover and Toyota generated roughly $315.1 million in annual revenue.
Hesterberg in February told analysts that “we could never outrun [the exchange rate]. It was two-to-one when we went down there. … But the exchange rate of two-to-one is now more like five-to-one, and we’d make more profit every year in local currency, and it would translate into less dollars.”
Michael Ward, an auto analyst for The Benchmark Co., said he is glad Group 1 is no longer in Brazil, calling it “more of a distraction than a potential positive” given the challenges building the business.
Group 1’s prospects for growth in its remaining U.S. and U.K. markets are strong, Ward said. And Group 1 isn’t chasing the decisions by publicly owned peers to start standalone used-vehicle operations or financing arms — a sign that it knows its strengths, he said.
“That comes with the whole team being on the same page, and you’ve got to give Earl credit for that,” Ward said.
Kenningham told Automotive News that growth is the top priority for Group 1, following its purchase of 28 dealerships in the Northeast from Prime Automotive Group last year. But Group 1 is not looking to set up a coast-to-coast network, he said.
“We don’t have an overarching strategy that says we’re going to have a digital footprint that allows us to sell a car from a dealership in Atlanta, Ga., to a customer in Seattle, Wash. That’s not about who we are,” he said.
“You have to concentrate on selling vehicles to your local market and then keeping those customers in your dealership over the lifetime of their ownership,” he said. “And when you create a model where you ship cars outside of your market, you lose most of those revenue streams and you lose that touch point with our customer.”
Increasingly, those touch points include its digital sales platform, AcceleRide, which Group 1 launched in 2019. Hesterberg was an Automotive News All-Star in 2012 and 2020, most recently for the retailer’s development of AcceleRide.
Group 1 has said about 70 percent of customers use AcceleRide in some way during their transaction, and Kenningham said he expects that share will continue to increase. Investing in technology is a “high priority,” he said.
“It also helps our customers have a much more transparent transaction. And it helps our teams in the stores be much more productive, because customers can do things from home through AcceleRide they might have had to come to a showroom to do before,” he said. “We want to continue to try to put that in their hands.”
Analysts told Automotive News that they don’t envision Kenningham will lead the company down a materially different path.
“Earl led a transition to digital with the AcceleRide tool that seems to be going well. They should keep pressing on that and executing on that,” said David Whiston, U.S. autos equity analyst with Morningstar.
Promoting a company veteran such as Kenningham, Whiston said, brings “continuity on strategy, knowledge of the tool and how it’s being integrated into stores.”
Group 1 ranked No. 4 on Automotive News‘ most recent list of the top 150 dealership groups based in the U.S., with retail sales of 146,072 new vehicles in 2021.