The Evolving Landscape of Automotive
Retail Advertising and its Impact on the
Newspaper Industry
National Print Partners
NTMC Conference
Earl J. Hesterberg, President & CEO
Group 1 Automotive
February 9, 2011
Group 1 Automotive Overview

Fortune 500 company

Fourth largest dealership group in
the U.S.

Committed management team with
more than 100 years of automotive
retailing and OEM experience

Owned by independent shareholders
with no large controlling owner

Well positioned for growth

Geographic and brand mix positioned
for future market share
– 3 U.S. Regions / 15 States
– U.K. / England
– 101 Dealerships / 137 Franchises
– 32 Brands
Note: New Vehicle Unit Sales for quarter ending 9/30/10; Dealership, Franchise and Brand counts as of October 26, 2010
Group 1 Automotive, Inc.
2
Well-Balanced Brand Portfolio
Brand Mix
Brand Diversity
(New Vehicle Unit Sales)
(New Vehicle Unit Sales)
3rd Quarter 2010
Financial data is from continuing operations
Group 1 Automotive, Inc.
3
Stable Business Mix
17% of
Revenues
Generate
66% of
Gross
Profit
Parts & Service Gross Profit
Covers 80% - 90% of
Total Company Fixed Costs and
Parts & Service Selling
Expenses
$1,462
$229
3rd Quarter 2010
Financial data is from continuing operations
($ in millions)
Group 1 Automotive, Inc.
4
Consolidated Financial Results
3Q10
3Q09
Revenues
$1,461.8
$1,246.7
Gross Profit
$ 228.8
$ 212.0
Change
2010YTD
2009YTD
17.2%
$4,071.4
$3,375.3
7.9%
$ 660.0
$ 585.8
On an adjusted basis:
SG&A as a % of Gross Profit
Operating Margin
EBITDA
(1)
(1)
Total Interest Expense (2)
Net Income
(1)
Diluted EPS
(1)
(2)
(1)
(1)
76.6%
76.6%
3.2%
3.4%
-
78.6%
79.8%
(20) bp
3.0%
2.9%
$
53.6
$
49.6
$
4.0
$ 141.5
$ 118.3
$
15.9
$
14.8
$
1.1
$
45.5
$
46.2
$
19.3
$
16.8
14.6%
$
47.5
$
31.5
$
0.84
$
0.71
18.3%
$
2.03
$
1.36
See appendix for GAAP reconciliation.
Includes non-cash interest expense of $2.1 million incurred in 3Q10 and $1.1 million incurred in 3Q09.
($ in millions, except per share amounts)
Group 1 Automotive, Inc.
bp
5
SG&A as a % of Gross Profit
($ in millions)
SG&A by Component
Gross Profit
Total
2010
$851
2009
$759
$ Chg
$91
% Chg
12.0%
Total $'s
Personnel
Advertising
Rent & Facility
Insurance & Other
Total
2010
$396
43
87
138
$664
2009
$354
36
87
127
$603
$ Chg
$42
8
0
10
$61
% Chg
11.9%
21.4%
0.4%
8.3%
10.0%
% of Gross Profit
Personnel
Advertising
Rent & Facility
Insurance & Other
Total
2010
46.6%
5.1%
10.2%
16.2%
78.1%
2009
46.6%
4.7%
11.4%
16.7%
79.5%
+/(-)PY
-5 BP
40 BP
-118 BP
-56 BP
-139 BP
Same Store Basis
Group 1 Automotive, Inc.
September Year-to-Date
6
Group 1 Advertising Expense
2010
$52.3M
+$10M vs. 2009
$323 PNVR
+$4 PNVR
Total Ad Spend by Department
% Total
Group 1 Automotive, Inc.
New Vehicle
55.9%
Used Vehicle
32.1%
Total P&S
10.7%
G&A
1.3%
7
The Automotive Retailing Climate

Traditional media has long been the preferred way to
reach such a varied target audience—however, this is
evolving

77% of new-vehicle buyers are using the Internet
during their shopping process

Approximately 95% of researchers find vehicle ratings
and reviews most important when shopping online,
followed by dealer reviews, enthusiast sites, blogs and
online videos
–
Approximately 70% of automotive Internet users view consumergenerated content while shopping for a new vehicle
Group 1 Automotive, Inc.
8
Automotive Retailing Climate Con’t

Changing purchasing behaviors in the last 10 years
have nearly doubled the use of the Internet for
consumers shopping for vehicles:
–
Consumers using the Internet to shop for new vehicles has
increased from 40% to 77% and 26% to 61% for pre-owned.

Nearly 72% of Internet users use a search engine to
find their local dealership

Group 1 has seen an emergence of new applications
for media throughout our business segments and
along the customer lifecycle continuum in recent
years, and we fully expect this trend to continue
Group 1 Automotive, Inc.
9
Reactions from the Publishing Field



“We’ve seen some of our best advertising customers migrate like
geese heading south. Think about it. Much of our classified ads for
jobs, homes and cars all have shifted to the Web. We’re scrambling to
adapt.”
- Jeff Cohen, Houston Chronicle Editor
“Rupert Murdoch, the Beaverbrook of our age, once described [print
advertisements] as the [news] industry's rivers of gold—but, as he said
last year, “Sometimes rivers dry up.”
- The Economist
“Newspapers made $34.74 billion in print advertising in 2008, while
they only accumulated $24.821 billion in 2009. The [newspapers] that
embrace the online space faster and more effectively have the best
chance for survival.”
- Ben Parr, Mashable Co-Editor
Group 1 Automotive, Inc.
10
A Business Case Study
Remember when Blockbuster was the go-to
destination for movie rentals?
According to a September 2010 Newsweek article:

By [the late 1990s] the Internet was being viewed as a potential killer of
the video industry.

Amazon had just entered the market, expanding from selling cheap
books online to cheap DVDs, and a little company called Netflix rolled
out a subscription service.

This was the beginning of the end for the traditional movie rental
concept that was once so popular.
"Imagine a Blockbuster night without Blockbuster, a time when no video
store will ever slap you with a late fee or fine you for failing to rewind.
Because in this world, there are no videos, only home computers."
- Chicago Sun-Times, June 1999
Group 1 Automotive, Inc.
11
Fall of
& Rise of
Internet activity rises with online sales of DVD’s & creation of
Netflix
1997

2000

Netflix implements flat rate subscription & allows multiple rentals

Blockbuster still owes a substantial amount of debt to former
parent Viacom
2001

Netflix goes public at over 5,500,000 shares. Reaches over 1 million
subscribers
2002

Blockbuster sustains more than $4 billion in losses since 2001
2004

In 2004 Blockbuster seeks control of its biggest rival, Hollywood
Video, but fails when Movie Gallery buys it out in 2005
2008

Netflix introduces streaming videos expanding their reach
2010

Netflix reaches over 14 million subscribers adhering to their model

With nearly $1 billion in debt, Blockbuster files for Ch. 11
Group 1 Automotive, Inc.
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Group 1’s Advertising Mix
2008/09







2010
Newspaper - 17%
Radio – 30%
TV – 20%
Outdoors – 5%
Yellow pages - 3%
Internet – 10%
Direct mail - 15%
-
Newspaper – 10%
Radio – 35%
TV – 25%
Outdoors – 5%
- Internet – 15%
- Direct mail - 10%
- Newspaper advertising increased due to lower costs resulting from
the recession
- With media costs now on the rise, 2011 ad spend is trending
toward radio, internet & direct mail
- Newspaper spend expected to continue shift toward internet
Group 1 Automotive, Inc.
13
Comments from Group 1 Operating Management
Regarding Newspaper Advertising




“We have been out of the newspaper for at least a couple of
years in Boston”
- Boston Market Director
“Long Island uses print. They feel it works well because of all
the people taking the train into the city.”
- NY/NJ Market Director
“Reduced readership has reduced ROI except in the Gulfport
market where cost is low. The paper has many pictures and
little print – maybe that is why it works so well.”
- Gulf Coast Market Director
“Circulation numbers are packed, thus over-stating readership.”
- Western Region, VP
Group 1 Automotive, Inc.
14
Comments from Group 1 Operating Management
Regarding Newspaper Advertising



“Newspaper is used for pre-owned display ads in classifieds.
Customers then go to our website for details and can then see
our total inventory.”
- Gulf Coast Market Director
“Value is better when we get web links on the newspaper web
version – link takes you to our website. The Sacramento Bee
does a good job with this.”
- Western Region, VP
“In Houston, we have used the Chronicle for pre-owned using
liners which still gets a decent ROI for some stores, but not most
stores. Newspaper just doesn’t work like it once did .”
- Houston Market Director
Group 1 Automotive, Inc.
15
Add Social Media to the Equation



The emergence of social media (Facebook, Twitter, etc.) has created a
grass-roots approach to marketing
Group 1 recently launched a Twitter feed
Currently, 70% of Group 1’s dealerships utilize Facebook,
– opportunity to leverage positive reviews and engage directly with
customers
Why spend money on print advertising when more and more customers
are online?
Group 1 Automotive, Inc.
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US Social Media Users*, by Brand of Car Owned,
Oct 2010
% of respondents
Audi
Infiniti
Hummer
Saab
Suzuki
Volkswagen
Land Rover
Acura
BMW
Honda
Volvo
Mitsubishi
Mazda
Mercedes
Kia
Lexus
Porsche
Nissan
Toyota
69.6%
69.0%
68.4%
68.1%
65.2%
64.1%
63.9%
62.9%
62.5%
62.1%
62.1%
61.5%
61.3%
60.4%
59.7%
59.2%
57.8%
57.2%
57.0%
Saturn
Jaguar
Daewoo
Dodge
Jeep
Subaru
Isuzu
Geo
Pontiac
Hyundai
Ford
Chevrolet
GMC
Chrysler
Oldsmobile
Lincoln/Mercury
Cadillac
Buick
56.5%
56.3%
56.0%
55.8%
55.5%
55.5%
54.7%
54.4%
52.8%
52.7%
52.1%
51.5%
51.3%
49.1%
46.2%
43.8%
43.0%
38.2%
Note: read chart as saying that 68.1 of adult internet users who own a
Saab use social media; *adult internet users who have used Facebook,
Twitter or Myspace in the past month
Source: The Media Audit, *2010 National Report, *provided to eMarketer,
Jan 12, 2011
Group 1 Automotive, Inc.
17
Online Directories

Retailers benefiting from peer reviews/online
recommendations
“I bought my Nissan Maxima [to Sterling McCall] a few
years ago and had the best car buying experience a girl
could ask for. Since that time, I have taken my car here for all services,
up to and including oil changes. The service advisors are great. I have
nothing but good things to say about this dealership. If I were to buy
another Nissan, I would go back here in a heartbeat!”
–
–
These recommendations are more influential than print
Online reviews and directories have never been more
influential on the automotive retailing industry
Group 1 Automotive, Inc.
18
Consumer Internet Usage – Car Shopping
Group 1 Automotive, Inc.
19
Other Forms of Internet Usage

According to CNW Marketing Research, of those who used the Internet
primarily to make their car purchasing decisions, they also use the
Internet for the following activities:
Use of Internet Among New-Used Car Buyers 2009
Other, 4.2%
Shopping, 29.5%
Email, 39.9%
Hobbies, 8.2%
News, 18.2%
Group 1 Automotive, Inc.
20
Internet Displacement of Traditional Media

The internet has displaced over a dozen different types of media which
used to be primary means of information on vehicles.
Top 7 Internet Displacement of Other Media, 2008
Radio Advertising,
9.7%
Consumer Reports,
5.5%
Dealer brochure,
32.1%
Auto Article (any
source), 8.1%
Auto Magazine
Advertising, 8.3%
Newspaper Ad
(local), 6.1%
Group 1 Automotive, Inc.
Auto Buyers' Guide,
12.7%
21
Influx of Advertising & Slow Download Times
Group 1 Automotive, Inc.
22
Boston.com Cars
Group 1 Automotive, Inc.
23
LATimes.com Cars
Group 1 Automotive, Inc.
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AdvantageCars.com
Group 1 Automotive, Inc.
25
Our Online Marketing Approach






6.1 million customers and prospects in our
database
1.4 million clean email addresses
More than 163,000 new and used vehicles sold
in 2010
1.98 million repair orders generated in our
service departments
1.19 million parts tickets
425,000 customer selling opportunities last
year (sales ups in the CRM systems)
Group 1 Automotive, Inc.
26
Our Online Marketing Mix
New and Pre-owned Sales

Building the Database
–

Capture relevant customer data to better understand their needs,
values & expectations
Reach: Attracting consumer attention and offering value
–
Highly targeted email marketing
–
Banner ads
–
Search Engine Optimization
–
Search Engine Marketing, pay-per-click
• More than 75% of customers visit the web site prior to entering
the dealership
• Approximately 90% of internet users use search engines to find
a new car
Group 1 Automotive, Inc.
27
Email Address Capture Rate
1/1/2010 TO 1/31/2010
STORE NAME
SALES
Deals Oppts Emails
SERVICE
Pct
Overall Repair Oppts Emails
Sterling McCall Restoration
Pct
Overall
466
155
147 94.84% 98.28%
Sterling McCall Honda
122
110
105 95.45% 95.90%
970
222
199 89.64% 97.63%
Sterling McCall Hyundai
133
130
126 96.92% 96.99%
504
129
106 82.17% 95.44%
Mercedes Benz of Beaumont
20
18
17 94.44% 95.00%
244
61
52 85.25% 96.31%
Advantage BMW Clear Lake
62
53
49 92.45% 93.55%
656
264
219 82.95% 93.14%
Sterling McCall Nissan
188
184
154 83.70% 84.04%
1482
396
332 83.84% 95.68%
Advantage BMW Midtown
137
117
102 87.18% 89.05%
1770
457
369 80.74% 95.03%
Group 1 Automotive, Inc.
28
New Car E-Mail Promotion
f
Group 1 Automotive, Inc.
29
Campaign Results
Totals
Percentages

Emails Sent
20,808

Emails Delivered
18,103
87%

Showroom Visits
104
4%

Vehicles Delivered
44
2%
Group 1 Automotive, Inc.
30
What the Future Holds for us


Most dealings with customers will be driven online, however…
More than 50% of online consumers surveyed are less likely to
buy a car online because of the inability to:
–
–
–
–
–




test drive
review full car/pricing information
interact with a person
negotiate trade-in of old vehicle
apply for financing
Customers will continue to control more of their own sales and
service experience, resulting in greater consumer convenience
and improving Group 1’s targeting efficiency
Migration of marketing and advertising budgets to online venues
Tighter integration of new, viral and social media throughout the
customer lifecycle
Continued innovation in online marketing campaigns and metrics
Group 1 Automotive, Inc.
31
What the Future Holds for you

What does the newspaper community need to
do to maintain relationships with automotive
retailers?
–
–
–
–
There is still an active consumer base that looks to
newspapers as a source of information
Drive advertising focus to online venues for more direct
and targeted consumer interaction
Leverage your online assets to drive advertising
innovation online
Offer competitive pricing (when pricing dipped during
the recession the retail automotive industry increased
newspaper ad spend)
Group 1 Automotive, Inc.
32
Thank you
www.group1auto.com