Group 1 Automotive - Earnings Call - Q4 2024

Executive Summary

• Record quarter: revenue $5.55B and gross profit $879.2M; adjusted EPS $10.02 grew 5.5% YoY, while GAAP EPS $7.08 declined on $33.0M franchise impairments and $16.7M U.K. restructuring charges.
• U.S. operations strong: parts & service revenue hit a quarterly record ($680.2M), F&I revenue reached $225.5M; U.S. F&I PRU rose sequentially, but new-vehicle GPU remained down YoY as floorplan costs stayed elevated (net floorplan expense turned positive).
• U.K. integration depressed margins (SG&A 91.8% of GP) amid DMS conversion and workforce realignment; management targets at least 300 bps improvement in U.K. SG&A as % of GP in 2025 as integration completes and processes localize.
• Capital allocation: repurchased $32.0M in Q4 and $161.6M in 2024, with $476.1M buyback authorization remaining at 12/31/24; liquidity ~$1.2B and rent-adjusted leverage 2.79x support ongoing M&A and buybacks.
• Potential stock catalysts: visible U.K. cost take-out pacing, sustained aftersales growth (warranty tailwinds), and policy clarity on tariffs; absence of numerical guidance shifts focus to 2025 execution milestones.

What Went Well and What Went Wrong

• What Went Well

  • Record quarterly revenue ($5.55B) and gross profit ($879.2M); adjusted EPS up YoY to $10.02 despite higher financing costs.
  • Aftersales strength: “parts and service revenue growth of 12.2% was the best quarter in the last four quarters” and record P&S revenue; management: “We will continue to invest in after sales”.
  • Sequential improvement in U.S. new-vehicle PRU and F&I PRU: “new vehicle PRUs were up sequentially” and U.S. F&I PRU +3% QoQ to $2,415.

• What Went Wrong

  • U.K. margin drag during integration: U.K. SG&A as % of gross profit rose to 91.8% (from 82.2% YoY); DMS conversion “disrupted operations” in late Q4.
  • New-vehicle GPU pressure: consolidated new-vehicle PRU fell 12% YoY to $3,540; consolidated gross margin declined to 15.9% (vs 16.3% YoY).
  • Higher interest costs: floorplan interest expense increased to $32.2M (+66% YoY); net floorplan expense was $7.2M vs $0.0M YoY.

Transcript

Operator (participant)

Good morning, ladies and gentlemen. Welcome to Group 1 Automotive's fourth quarter and full year 2024 financial results conference call. Please be advised that this call is being recorded. I would now like to turn the call over to Mr. Pete DeLongchamps, Group 1's Senior Vice President, Manufacturer Relations and Financial Services. Please go ahead, Mr. DeLongchamps.

Peter DeLongchamps (SVP, Manufacturer Relations and Financial Services)

Thank you, Betsy. 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 that we will refer to on the call this morning for comparison purposes have been posted to the Group 1's 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, inventory supply, condition of markets, successful integration of acquisitions, and adverse developments in the global economy and resulting impacts on demand for new and used vehicles and related services. Those and other risks are described in the company's filings with the Securities and Exchange Commission. 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 on today's call, Daryl Kenningham, our President and Chief Executive Officer, and Daniel McHenry, Senior Vice President and Chief Financial Officer. I'd now like to hand the call over to Daryl.

Daryl Kenningham (President and CEO)

Thank you, Pete. Good morning, everyone. Our U.S. team delivered outstanding results in the fourth quarter, and our U.K. team has been hard at work integrating the operations of our growing U.K. footprint. I'll start with an update on the integration of our U.K. business and the broader U.K. market dynamics. We continue to be pleased with the acquisition of Inchcape's retail dealerships. I believe we're better positioned in the U.K. market than we've been at any point in our history. We're poised to capitalize on the additional scale, geographic diversification, and an outstanding brand portfolio. Integrating 54 stores and two corporate organizations has been a huge effort. We carried some incremental SG&A through the fourth quarter in the U.K., and we've completed many of the difficult tasks and expect others will finalize in the first quarter and throughout 2025.

As always, based on business conditions, we will continue to refine and adjust as needed on a real-time basis. Our integration work included the initiation of the UK-wide restructuring plan. This plan consists of workforce realignment, strategic closing of certain facilities, systems integrations, and other efforts. Our systems integration included a conversion of the legacy Inchcape dealer management system to our existing UK DMS. The in-store portion of the conversion did disrupt our operations for a period of time while being completed. It impacted results for those acquired stores. We've installed a leadership team steeped in the UK motor trade and are extremely focused on performance. We've made a number of process changes to focus on just that. A couple of examples. In the Inchcape retail stores, technician productivity was significantly behind our legacy Group 1 stores. We modified compensation plans to focus and reward throughput.

We moved decision-making on many day-to-day activities from the corporate office to the Inchcape stores. Examples include used car acquisition, pricing, and valuation, shop equipment procurement, and technician hiring. This will allow the Inchcape retail stores to be more nimble and responsive to the marketplace, an absolute must in today's UK environment. Now, we certainly have guidelines, technology, and training in place to help them with that transition. Turning to the broader UK market, we continue to see a challenged macroeconomic backdrop. Government-imposed zero-emissions vehicle mandates have proven difficult to achieve and are expected to further challenge new vehicle sales in 2025. The overall market fell short of the 2024 mandated goal of 22% BEV mix. The market will need to see a further shift toward EVs in order to achieve 2025's target of 28%.

Currently, lower margin fleet sales in the U.K. account for a majority of EV sales. Because of our size now in the U.K., we've been able to significantly strengthen our presence with great brands like BMW, Volkswagen, Audi, Porsche, Mercedes-Benz, Toyota, Land Rover, and Ford. A close relationship with those OEM partners based on performance and commitment is critical to our growth focus and ability to overcome the broader U.K. market challenges. While we're not pleased with our U.K. results in the quarter, we are confident that the leadership, process, and integration actions that we've taken will result in improved performance in the year ahead. Now, turning to our U.S. business, we saw record new vehicle units sold and a sequential improvement in PRU. New vehicle volumes outpaced the industry, and same-store used volumes were up 5% in a quarter that is traditionally new car focused.

Our F&I business performed well in the quarter, up $109 PRU as new vehicle finance penetration improved. Used vehicle finance penetration held steady and combined with improved product penetrations that resulted in a $27 increase in UV PRU, a positive change from previous trends. Parts and service revenues reached a record for the quarter, with same-store growth of nearly 9% and customer pay same-store growth up more than 8%. We also saw a nice increase in customer counts in the quarter. We continue to view after-sales as a differentiator at Group 1. We believe it is the most underinvested area of our business, and adding human capacity is the critical leverage in performance. In 2024, we increased our technician headcount on a same-store basis by 7% in the US.

And due to our creative scheduling and productivity, we have plenty of physical capacity to continue adding technicians well into the future. We will continue to invest in after-sales. An example is our capital program to install air conditioning in nearly all of our U.S. shops, and it's on track to be completed by the end of 2025. As we've previously discussed, shops with air conditioning have much higher technician retention. Now, shifting capital allocation. Properly allocating capital will always be our highest priority. While we regularly evaluate other business adjacencies, in this environment, we believe staying focused on the new vehicle retail franchise business is the best use of our shareholders' capital. Part of that is certainly the return profile, but part of it is also being a great partner to our most important partners, the OEMs.

They need their networks more than ever, and in turn, we need them more than ever. So we don't compete with them, and we intensely focus on driving performance metrics that determine acquisition eligibility, such as sales effectiveness and customer retention. As a result, our approvability is quite strong across nearly all of our OEMs. That allows us to engage in acquisition discussions on nearly any brand with the confidence that we will be approved. The diversity of acquisitions in 2024 with brands like Lexus, Honda, Mercedes, BMW, Toyota, Porsche, Land Rover, and Audi are all examples of our ability to acquire outstanding brands in desirable markets because we perform well on the OEM eligibility metrics. And we will continue to balance acquisitions, dispositions, with repurchasing our shares.

In 2024, while we grew the company 24% due primarily to acquisitions, over the past three years, we've repurchased 25% of our stock, and we will continue to focus on balancing those capital opportunities. Lastly, a few thoughts on the evolving U.S. landscape. There's a great deal of conjecture at the moment about Washington and the impact the new administration's policies will have on retailers and OEMs. While we don't know the outcome of the impact on changes in things like EV subsidies, taxes, tariffs, or interest rates, we feel the best way to capitalize is to ensure that Group 1 stays nimble and focused on execution. We have to be ready to compete on whatever playing field exists with whatever set of variables were presented.

Over the past several years, I believe Group 1 has demonstrated the agility and flexibility that will allow us to win in any competitive environment. Now, I'll turn the call over to our CFO, Daniel McHenry, for an operating and financial overview.

Daniel McHenry (SVP and CFO)

Thank you, Daryl, and good morning, everyone. In the fourth quarter of 2024, Group 1 Automotive reported adjusted net income of $133.9 million. Quarterly adjusted diluted earnings per share from continuing operations of $10.02. Current quarter total revenues of $5.5 billion, an all-time quarterly record, and all-time quarterly records across multiple business lines, including new vehicle sales of $2.9 billion, parts and service revenues of $680 million, and F&I of $226 million. Fourth quarter adjusted net income and adjusted diluted earnings per share from continuing operations excluded $33 million of impairment charges, primarily attributable to franchise rights and tangible assets for four of our dealerships in the U.S. In the full quarter of 2024, we reported adjusted net income of $530.6 million.

Full-year adjusted diluted earnings per share from continuing operations of $39.21 and full-year total revenues of $19.9 billion, an all-time annual record, and all-time annual records across all of our business lines, including new vehicle sales of $10 billion, used vehicle retail sales of $6.2 billion, parts and service of $2.5 billion, and F&I of $829 million. Starting with our U.S. operations, we achieved all-time quarterly record on new vehicle revenues of $2.3 billion, with new vehicle units sold up 14% on a reported basis and over 8% from same-store. This reflects the resiliency of demand and our operational effectiveness, as well as the value received from driving volume from our new dealership acquisitions. While new vehicle GPUs moderated from the prior year, we are pleased with the sequential quarter performance, increasing $55 on a reported basis.

Used car volume in the fourth quarter grew by 7% and 5% year over year on an as-reported basis, respectively. GPUs held fairly consistent, down only $40 and $39 on a reported and a same-store basis, respectively. Pricing increased in the fourth quarter versus comparable prior year and sequential quarters. We are pleased with our ability to maintain volume levels and hold pricing. We believe this is a testament to our processes, discipline, and use of technology with the pricing of used vehicles. Our F&I revenues of $196 million were also quarterly records for the U.S. Our fourth quarter F&I GPU of $2,415 increased 3% on a sequential quarter basis and year over year, respectively. The performance by our F&I professionals has been outstanding to maintain GPU discipline. Shifting gears to after-sales. After-sales fourth quarter revenues and gross profit outperformed sequentially and year over year.

The fourth quarter saw a 6.5% increase in the number of repair orders. The only activity decline was our lower margin collision work, which was more than compensated for higher margin warranty and customer pay. The average same-store dollars per repair order was up over 7% in the fourth quarter. These gains demonstrate our ability to add after-sales capacity on a same-store basis. Our overall same-store non-technician U.S. headcount has declined 10% from 2019. However, our technician headcount is up 18% over that same period. Wrapping up the U.S., let's shift to SG&A. U.S. adjusted SG&A as a percentage of gross profit increased 27 basis points sequentially to 64.6%, demonstrating our continued focus on managing costs below pre-COVID levels. Our execution in the quarter was outstanding, and we will remain laser-focused on exploring operational efficiency gains to maintain this positioning. A final note on the U.S.

In the fourth quarter, we received $10 million in insurance proceeds relating to the CDK outage in the second quarter of 2024. This amount was recognized as other income in the statement of operations. Turning to the U.K. In terms of headline results, acquisition activity fueled an all-time quarterly record in total revenues, leading to an 85.3% year-over-year increase. We were pleased to be able to maintain gross profit on the same-store basis, thanks to improvements in after-sales year-over-year and used vehicles. Sequentially, new vehicle GPUs improved $348 on a reported basis, respectively. Same-store retail used vehicle units sold decreased 2% year-over-year. However, GPUs improved by almost 12%, leading to improved gross profit performance. Same-store wholesale losses per unit improved compared to the prior year quarter, evidencing our efforts in 2024 to better manage our used car inventory in a tough U.K. market.

The fourth quarter was a challenging quarter for the UK in terms of SG&A management. UK same-store adjusted SG&A as a percentage of gross profit and as reported adjusted SG&A as a percentage of gross profit worsened sequentially by 760 and 1,100 basis points, respectively. We recognize that we still have some challenges to overcome in the UK as a whole, and we will continue to focus on cost control and business process efficiencies as we execute our business integration activities. Our integration activities related to Inchcape have been ongoing and principally include efforts at workforce alignment, system conversions, and operational efficiency. We anticipate substantial completion of integration activities by the end of the first quarter. Turning to our balance sheet and liquidity. Our strong balance sheet, cash flow generation, and leverage position will continue to support a flexible capital allocation approach.

As of December 31st, our liquidity of $1.2 billion comprised of accessible cash of $323 million and $893 million available to borrow on our acquisition line. Our rent-adjusted leverage ratio as defined by our U.S. syndicated credit facility was 2.79 times at the end of December. Cash flow generation through the full year of 2024 yielded $683 million of adjusted operating cash flow and $504 million of free cash flow after backing out $179 million of CapEx. This capital was deployed in the same period through a combination of acquisitions, share repurchases, and dividends, including the acquisition of $3.9 billion in revenues through December 31st, $162 million repurchasing approximately 518,000 shares at an average price of $311.67, resulting in a 3.8% reduction in our share count since January 1st, and $25.5 million in dividends to our shareholders.

During the fourth quarter, we repurchased 80,300 shares at an average price of $398.30 for a total cost of $32 million. During the first quarter of 2025, under a Rule 10b5-1 trading plan, we repurchased 32,900 shares at an average price per common share of $419.30 for a total cost of $13.8 million. We currently have $462 million remaining on our board authorized common share repurchase plan. As of December 31st, approximately 60% of our $5 billion in floor plan and other debt was fixed, resulting in an annual EPS impact of only about $1.15 for every 100 basis point increase in the Secured Overnight Funding Rate. For additional detail regarding our financial condition, please refer to the schedules of additional information attached to the news release, as well as our investor presentation posted on our website.

I will now turn the call over to the operator to begin the question and answer session. Operator.

Operator (participant)

We will now begin the question and answer session. To ask a question, you may press star then one on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. We ask that you please limit yourself to one question and one follow-up. At this time, we will pause momentarily to assemble our roster. The first question today comes from David Whiston with Morningstar. Please go ahead.

David Whiston (Analyst)

Thanks. Good morning. I know there's a ton of uncertainty with what's going on with the Trump administration on tariffs right now, but given what happened to GM stock yesterday, I think a lot of us watching you guys would appreciate if there's any kind of indication you can give on if such and such happens on tariffs, is there any kind of cooperation with the OEM, or as you as the dealer, you're the importer, so you're going to bear the full cost of this normally. Is there any kind of arrangement being discussed even in terms of splitting the cost of any of these tariffs?

Daryl Kenningham (President and CEO)

David, this is Daryl. All the OEMs are talking about the impact, and they're all, I guess, for lack of a better word, wargaming potential outcomes and what that means to their own sourcing and production plans. At this point, we haven't had any discussions with the OEMs around what kind of an impact that might look like on pricing or our costs as retailers. They are communicating regularly that they're looking at it and making adjustments, but nothing specific yet.

David Whiston (Analyst)

Okay. On new vehicle affordability, I'm just curious, as you know, that was a big concern last year. We had a big surge in December. I think a lot of people are probably relieved with the election over, but I'm just curious, going forward in 2025, do you think the affordability problem has lessened because the election is over, or is it still a really key concern for customers, especially in the U.S.?

Daryl Kenningham (President and CEO)

I don't know if it's because of the election or not. I do know that our transaction prices held up, and our grosses we were pleased with, and our same-store sales growth we were pleased with. Our indication is the consumer is pretty healthy, and we were pleased with those. I don't see anything that would lead me to believe it'll get worse. I think, if anything, it could potentially get better if there's some stimulation on tax rates or something like that, or interest rates for that matter.

Operator (participant)

The next question comes from Rajat Gupta with JPMorgan. Please go ahead.

Rajat Gupta (Analyst)

Great. Thanks for taking the question. Just wanted to follow up on the UK comments earlier in the prepared remarks. Just given some of the headwinds with respect to the EV mandates, it looks like it is beginning to worsen more here in the fourth quarter. Just curious, what kind of expectation do you have for just new car or used car sales in the UK for 2025? And then what implications could this have for GPUs as well? And just relatedly on UK, I just asked my follow-up as well. Given the restructuring actions that you've already executed on, there's more to come here in the first quarter, it seems like you're running at an annualized level of SG&A expenses of roughly $650 million. What should we expect the new run rate to be once those restructuring actions are completed? Thanks.

Daryl Kenningham (President and CEO)

Hi, Rajat. This is Daryl. I'm going to take your question on the new vehicle demand, and Daniel will take the SG&A question. Most forecasts in the U.K. show growth in 2025, and the underlying core retail business looks pretty good. There's EVs being forced through the fleet channel right now, and that's creating margin pressure in total as a result. So that has to get resolved, and I think it will get resolved. I really do. And when you just listen to some of the, at least some of the political rhetoric in the U.K., there's much more visibility around that issue and how they should address it and what that does to their industry. And so we're optimistic that there will be some resolutions brought forward, and that should result in a healthier mix of retail and fleet sales and a more natural mix of EVs.

I don't know what that looks like yet, but we feel like there's enough commitment and discussion around it that something will happen, and I'll turn it over to Daniel for the SG&A discussion.

Daniel McHenry (SVP and CFO)

Rajat, I think, as we discussed on our last earnings call, it should have been no shock this quarter to have seen that our SG&A as a percent of gross was at a higher level. Some of that involved that we carried double cost in the quarter for some activities and some of our headcounts as we exited some of the colleagues from the business. Equally so, Inchcape had a large outsourced accounting center that we onshored, and we had some costs for the accounting center offshore and trying to employ employees in the UK to take those duties up on the 1st of January. In terms of our go-forward, this year, SG&A as a percent of gross adjusted was 83%. Our expectation is that we would take at least 300 basis points out of that going into next year.

It could get better than that as we continue to execute on our cost reduction plan for 2025, but if you use that for your base model, that would be my expectation.

Rajat Gupta (Analyst)

Great. Thanks for all the color. I'll hop back in queue.

Operator (participant)

The next question comes from Daniela Haigian with Morgan Stanley. Please go ahead.

Daniela Haigian (Analyst)

Thanks. Good morning. I just want to ask again about the trends in SG&A to gross. I know you discussed already in prepared remarks and just now about UK is higher as a result of the Inchcape integration, but we also saw a sequential increase and year-over-year increase in the US. And so in what areas are you seeing the most cost inflation, and what components do you feel there's opportunity to be more efficient?

Daniel McHenry (SVP and CFO)

Daniela, this is Daniel. There was some increase in headcount SG&A as a % of gross. Small amount. Some of it was due to margin reduction in terms of the margin on new vehicles year-on-year as a % of gross as opposed to absolute dollar.

Daniela Haigian (Analyst)

Got it. Okay. And then my second question is more so just about January trends thus far. What are you seeing new, used, and state of the consumer to kick off 2025?

Daryl Kenningham (President and CEO)

January is not finished yet, and we'll be prepared to talk about that at the end of the quarter. You've seen the industry kind of forecasts that have come out, so.

Operator (participant)

The next question comes from John Murphy with Bank of America. Please go ahead.

John Murphy (Managing Director & Analyst)

Good morning, guys. You just had a first question, Daryl, on pricing and GPUs. I mean, we saw, for the first time in a while, a sequential improvement in new GPUs. Obviously, fourth quarter has some relatively strong seasonality with luxury being a little bit stronger. But just curious, as you think forward into 2025 and maybe even beyond, obviously, there's a great debate of where these GPUs are going to settle. It seems like we're kind of reaching an asymptotic limit on the downside here. But just curious, your thoughts of how much of that benefit was typical seasonality and/or how much do you think we're kind of starting to scrape along the bottom here?

Daryl Kenningham (President and CEO)

I think we're generally. I would agree with you, John. I think if we're not at the bottom, I think we're approaching it. I don't think the fourth quarter naturally buoyed GPUs. I mean, I think it was a little bit because of the big year-end push with the luxuries, obviously. But you see day supply numbers going into the fourth quarter kind of all over the map, right? I mean, we have a few brands that were fairly heavy in stock, and then we had some that were very tight, and we were able to hold PRUs basically flatter up a little on a reported basis. So I think we're probably close to the bottom. I don't know if we're absolutely, but I think we're probably close to the bottom.

It just feels like the content the customers have, the transaction prices are much higher than they were pre-COVID, and a lot of it is due to the equipment on the vehicles, and I think we're seeing more rationalization with some of the brands on their production, which obviously helps that too.

John Murphy (Managing Director & Analyst)

Got it. That's helpful. And then just a second question on parts and service. 7% tech growth, I think, is what you guys said in 2024, which is pretty impressive to get that kind of hiring done. What are you thinking for the pipeline of hires for technicians? Because that seems like that is almost the only gating factor on growth on parts and service.

Daryl Kenningham (President and CEO)

We're not lowering our expectations, John. Our targets are the same in 2025 as they were in 2024, and they're probably more aggressive in the UK. And we feel like we have an opportunity to do that. We're trying to put some things in place. We're doing things like the air conditioning project, which we believe will lead to higher retention in those shops it does in the rest of our shops. And we've got some other things that we're working on to try to improve retention in our higher defection brands and shops and experimenting with different kinds of compensation plans and retention programs and recognition programs and mentoring programs. We don't see us stopping that. And at this point, we know we got to be creative and continue to evolve in that.

We can't just rely on what we did a year or two years ago to do that. So that's our focus, and that's what we're going to continue to do. And one key to this is keeping your shops full. Techs want to work at places where they can get work, and we keep our shops full because of the way we schedule our customers. So that's a real key as well.

Operator (participant)

The next question comes from Jeff Lick with Stephens. Please go ahead.

Good morning, guys. Thanks for taking the question. Congrats on a great quarter. I hate to beat on the U.K. thing, obviously, especially with the U.S. results being as strong as they were. I think some of us were a little surprised at some of the line items in the U.K. You'd highlighted some pretty big things in terms of the DMS changeover, the technician productivity pushing the decision-making process down to the dealerships. I was wondering if you could just elaborate more. I mean, obviously, you've hit the SG&A point, the 300 basis points for next year, but just maybe giving a little more color just in terms of magnitude of just how kind of impacted negatively things are right now and how you would see that go in the other direction and just how much opportunity is it to go the other direction in 2025?

Daryl Kenningham (President and CEO)

Well, I think there's quite a bit of opportunity. The business we bought, the brands are terrific, and they're in great geographies. The way they manage their business was different than us. We tend to put more decision-making in the stores because we feel like our general managers have to have flexibility to react to the marketplace, and that's a better way to serve customers. Inchcape was more centralized. They had a lot more of their decisions centralized, and even things like just replacing a lift or hiring a technician had to go to the corporate office for approval. If you wanted to reprice a used car, you had to have approval in writing from the corporate office. We don't think that's the proper way to manage a retail business.

We think putting guidelines and technology in place to help the operators make those decisions is the best way, and then let them make those decisions based on the customer needs at the moment. And so we've moved all of that in the half of our business that's Inchcape out to the stores. And they're not going to wake up day one and be great at it, but I can tell you just throughout the quarter, we saw improvements in those actions that resulted from those actions. And I feel like we're going to continue to see that. So I think there's a significant opportunity there. I'm as convinced today that we've got a great business there that can really develop and produce good returns for our shareholders. I certainly believe that. So it doesn't mean there's not work to do. There certainly is.

A quick follow-up for Pete, if I could. Relating the conversations that are always ongoing with the OEMs, obviously, a lot's been going on in the back half, stop sales. Inventory is normalizing, as you talk, but it's not quite there yet. The EV mandates. Just curious, Pete, how conversations with the OEMs are evolving as we get into 2025, and what are they most focused on and vice versa?

Daniel McHenry (SVP and CFO)

So I don't think you can broad brush the OEM focus, but I will tell you that when you take a look at day supply, I think that there's been a real balancing, especially with some of the higher day supply OEMs. And we're still at low numbers with Toyota and Lexus. But I think going into this year, the OEMs are bullish on this year. And to Daryl's earlier point, just focusing on the relationships we have with them and the performance so we can continue to grow. But in talking with all the OEMs, it's, I think, their outlook is very positive for this year.

Operator (participant)

The next question comes from Brett Jordan with Jefferies. Please go ahead.

Brett Jordan (Analyst)

Hey, good morning, guys. Could you give us a little bit more color on?

Daniel McHenry (SVP and CFO)

Hi, Brett.

Brett Jordan (Analyst)

Good. Thanks. Could you give us a little bit more color on the BEV impact in the UK, I guess, as you're forcing them through the fleet channel on the unit GPUs and BEV versus ICE over there and maybe where you see that as the mandate is looking for six points higher in BEV this year?

Daryl Kenningham (President and CEO)

The margin impact is, and we can get you some detail on it, but the margin impact of sending them through the fleet channel. Those go to corporate fleets in the UK. It's not like rental car fleets. Most companies have corporate fleet programs for their employees. But they tend to be subsidized, and they tend to be lower priced and lower margin. So the incentives have been focused more on those fleet buyers because there's volume there to be able to do it. That's the issue.

Daniel McHenry (SVP and CFO)

Brett, it's Daniel here. The additional thing out there on the fleet market is you don't traditionally get any F&I income on that fleet business. In addition, there's not really traditionally a trade that you take with that fleet vehicle. So that just makes it a much more difficult trading environment than what a standard retail deal would make.

Brett Jordan (Analyst)

Okay. Great. And then on parts and service, and I guess in the U.S., I mean, how much of that are you seeing benefit from things like the Toyota Tundra engine replacement yet, or is that still to come in 2025? And I guess what's the cadence? Seems like you'd have some seasonal tailwinds here into early 2025.

Daryl Kenningham (President and CEO)

We'll see some. Yeah, we'll definitely see tailwind in 2025 on all the warranty that's there. The warranty numbers are pretty high right now. And the good thing is one-third of customers who come in on warranty end up with some customer pay on their repair order. So that high warranty trend also helps our CP business. So that's, and I think that's honestly one of the reasons we were up 8% in the quarter in customer pay. But I expect the warranty to continue through the year.

Operator (participant)

The next question comes from Michael Ward with Freedom Capital. Please go ahead.

Michael Ward (Analyst)

Thanks very much. Good morning, everyone.

Daryl Kenningham (President and CEO)

Morning, Mike.

Michael Ward (Analyst)

Just one more question on the UK there. If you take the Inchcape business and the SG&A, and it looks like it was like 96% in 4Q, is there anything structurally that prevents that business from getting down to the overall corporate average in the UK?

Daniel McHenry (SVP and CFO)

Mike, it's Daniel. I don't think there's anything structurally that prevents that from happening. If anything, my expectation would be that the Inchcape group should be slightly better than the legacy Group 1 stores. Now, the simple reason behind that is a big differentiator between the U.S. and the U.K. is the rents are structurally higher in the U.K. than they are in the U.S. The Inchcape business tends to be more in the north of England versus the Group 1 legacy business in the south. And rents in the south of England just are structurally higher than the north. So my expectation would be that it should be as good, if not better, than the legacy Group 1 businesses, as well as the brand mixes of the Inchcape stores tend to be slightly higher-end towards luxury than the legacy.

So all in all, I would say absolutely as good as, if not better, than the legacy UK business.

Michael Ward (Analyst)

Okay. So therefore, you had about $10 million of redundant SG&A costs then in 4Q with Inchcape. And that affected your overall SG&A as well as the UK portion.

Daniel McHenry (SVP and CFO)

I think that's fair, Mike.

Daryl Kenningham (President and CEO)

Yeah. Mike, one of the ways we're thinking about the UK business is we feel like in total, Group 1 had a really good fourth quarter. Really good. And on almost any broad basis that you look at it on EPS growth and performance versus expectations, we had a really, really good quarter. And that's really without the UK contributing very much. And so we feel like as we get a lot of the major integration activities behind us and start to see the benefits of those in 2025, that's only a plus for us relative to where we are today. And some of the integration activities were very disruptive. I mean, every single employee in an Inchcape store has new technology today, and we replaced all the networks. We replaced the DMS.

You basically shut the store down for five days to do that, and we did every store in late November and December. So it was a big impact, but we expect that as we get further into 2025, we'll see more and more good news out of our business there.

Michael Ward (Analyst)

That's what it sounds like. Second question on page 13 of your slide deck, Pete, you're not going to look at the F&I side to it. It looks like you've had steady improvements in a lot of the different take rates. If I look at that, it seems to me that back about six months ago or so, there were some concerns that maybe F&I was going to normalize a little bit. Seems to me that you're at another high level, and if anything, if some of the captive finance comes back a little bit, we might see that drift a little bit higher in 2025. Is that a fair assumption?

Daniel McHenry (SVP and CFO)

I think the real opportunity, Mike, is we get lower rates is to improve the used car penetrations because those are kind of bottomed out at 63% off a traditional number of 68. We've actually seen captive financing help the new vehicle finance pen up to 75%-76%. So we think that there's some opportunity there this coming year. And then we just executed on our product offerings. We've talked about it for years. We've continued to have the same products offered. And our team's just done a great job of maintaining good product penetrations and increasing a couple of the products that we have. So we're pleased with our F&I performance this year.

Operator (participant)

The next question comes from Ron Jewsikow with Guggenheim Securities. Please go ahead.

Ronald Jewsikow (Analyst)

Yeah. Good morning, and thanks for taking my question. Maybe just starting off on parts and service because the print was very strong this quarter. Is there anything we should be aware of surrounding kind of the 7% increase in revenue per repair order? I guess does warranty work or does the current scope of warranty work carry a higher revenue per RO, or is that just a sign of kind of customer willingness to pay and your ability to pass through kind of tech cost and general inflation?

Daryl Kenningham (President and CEO)

I think some of it may be the latter. When you combine it, though, about half of our benefit in parts and service this quarter was because of higher customer counts in our stores. We were pleased to see that. On the specific dollar increases, the average mileage continues to go up across our service drives. And so as that continues, we will see higher dollar ROs just because older vehicles need more repairs. And so I believe that's what's driving it. We're not taking necessarily any meaningful pricing. That's largely behind us. And I don't think it's the environment to do it anyway.

Ronald Jewsikow (Analyst)

Okay. And I know it's very early innings on tariffs, and it seems like it's probably a tough situation to comment on. But to the extent we do see Mexican import duties levied, could that actually be supportive for your pricing? Because I think if we just look at some of your tightest supplied OEM brands and your partners, they build a large portion of their vehicles actually in the U.S.

Daryl Kenningham (President and CEO)

Yeah. No, there's some truth to that. Absolutely. Yeah.

Ronald Jewsikow (Analyst)

Okay. That's helpful. I'll hop back in the queue. Thanks for taking my questions.

Daryl Kenningham (President and CEO)

Thank you.

Operator (participant)

The next question comes from Glenn Chin with Seaport Research Partners. Please go ahead.

Glenn Chin (Analyst)

Great. Thank you for squeezing me in. Just a follow-on question related to after-sales. Daryl, you mentioned targets for 2025 are unchanged from 2024. Can you just remind us what those targets were for last year?

Daryl Kenningham (President and CEO)

I think what I was specifically referring to, Glen, was that this past year, we grew our tech count by about 300 technicians in the U.S. We're not lowering our expectations in the future on that. We don't have any, we don't feel like physical limitations in terms of our stall count will limit us either because a third of our stores in the U.S. have more technicians than they do stalls in the dealership. Just the physical open number of stalls is not what we look at in terms of what's our future run rate look like on being able to hire technicians. We intend to keep hiring at the same rate we have been in the past. That's what I was referring to. I don't know if that answers your question or not.

Glenn Chin (Analyst)

It does. Thank you. And then just looking at inventory levels, it looks like 67 days of used in the U.K. Does that need to come down?

Daniel McHenry (SVP and CFO)

Glenn, it's Daniel. December is traditionally a fairly weak month, I would say, for used vehicle sales in the U.K. January is the opposite to that. January tends to be a very buoyant month for used vehicle sales in the U.K. And effectively, what we've done is we've looked at our inventory levels at the end of December and effectively divided it by the number of vehicles that we sold in December. So that's artificially high for December.

Operator (participant)

Seeing no further questions in the queue, this does conclude our question and answer session and concludes our conference call. Thank you for attending today's presentation. You may now disconnect.