Good morning, ladies and gentlemen, and welcome to the Group 1 Automotive Incorporated fourth quarter 2009 earnings call. Please be advised that this call is being recorded. I would now like to turn the conference call over to Mr. DeLongchamps, Vice President of Manufacture Relations and Public Affairs. Please go ahead, sir.

Thank you, Karen, and good morning, everyone, and welcome to today's call. Before we start, I would like to make some brief comments and 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 from 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 on today’s call Earl Hesterberg, our President and Chief Executive Officer; John Rickel, our Senior Vice President and Chief Financial Officer; Lance Parker, our Vice President and Corporate Controller; and myself. I would now like to hand the call over to Earl. Thank you very much.

Thanks, Pete, and good morning, everyone. Let me start with some comments on the full year. This past year was one of the most challenging in recent memory for the automotive industry. At Group 1, we saw a 20% decrease in total revenues versus the prior year, including a 25% drop in new vehicle revenues and a 15% decline in used vehicle revenues. One of the strengths of our operating model was shown through the relative stability of our high-margin parts and service business where revenues were only down 3.8%. The second strength of our model was highlighted by our ability to quickly adjust our cost base. In late 2008, we began lowering our cost base in preparation for this extremely challenging business environment. Thanks to the hard work of our field management team and effort and sacrifices made by every employee in our company, we were able to reduce cost by over $118 million. This exceeded our goal which was a $120 million target based on a 10-million unit industry. But the final industry sales number at 10.4 million, a $118 million plus cost reduction, exceeded our objectives and was the key factor to remaining solidly profitable in 2009. We believe that many of our cost reduction and efficiency improvement actions have made us a more streamlined efficient company that is ready to reap the benefit of improving volumes going forward. These actions should allow us to deliver results above historical levels as volumes return. One benefit from this recession is the opportunity to prove the strength of the automotive retailing model. This is the first recession that has affected the automotive retailing industry since the automotive retailing groups went public more than 10 years ago. And it’s given us the opportunity to prove what we have been saying…

Thank you, Earl, and good morning, everyone. For the fourth quarter of 2009, our adjusted net income from continuing operations was $10.3 million or $0.43 per diluted share, which excluded the following, a $11.6 million non-cash after-tax impairment charge primarily related to our real estate holdings that are held for sale; and a $651,000 after-tax loss on dealership disposition. On a comparable basis, adjusted net income from continuing operations increased $9.7 million from $548,000 in the fourth quarter of 2008. Our results for the fourth quarter of 2009 were positively impacted by the continued success of our cost savings initiatives. We reduced SG&A expenses by $5.6 million from the same period a year-ago. Our consolidated personnel-related expenses declined $4 million, while all other SG&A expenses declined $1.6 million. As Earl mentioned, after adjusting for the higher volumes, we exceeded our cost savings target of a $120 million for the full year. As we have discussed previously, we believe that about $30 million of these cuts are permanent. During the fourth quarter, on a consolidated basis, revenues increased $16.7 million or 1.5% to $1.15 billion, compared to the same period a year-ago, primarily reflecting increases in new and used vehicle revenues. Our gross margin remained constant at 16.5% as compared to the same period a year-ago. New vehicle margins improved 30 basis points to 6.2%, while total used vehicle margins increased 30 basis points to 7.2%, and parts and service margins improved 40 basis points to 53.8%. Our gross profit improved $3 million or 1.6% which coupled with the decrease in absolute SG&A expenses allowed us to reduce our SG&A expense as a percent of gross profit by 420 basis points from 85.4% in the fourth quarter of 2008 to 81.2% in 2009. Floorplan interest expense declined $2.7 million or 25.5%…

Thanks, John. Looking ahead now, obviously we are closely monitoring the quality issues that Toyota currently faces. Their decision to suspend the retail sales of almost two-thirds of their unit volumes which equates to approximately 20% of our new vehicle sales will be a negative for our first quarter results. And while the longer-term impact on the Toyota brand remains to be seen, we remain steadfast in our commitment to Toyota as one of our key business partners. We are working closely with them and our customers to execute the existing recall campaigns as quickly and efficiently as possible. On a positive note, the recalls and repairs resulting from Toyota’s product quality issue should result in a lift of our warranty parts and service business over the next couple of quarters. Too early to forecast what the full impact will be, but we will update you as we have more experience with repair process and customer throughput. We predict that it’s likely to take a number of months for all of our customers to schedule their repairs. Turning to 2010, for 2010, J.D. Powers currently has a SAAR estimated at 11.5 million units, which is the assumption we are using for planning purposes. Clearly this projection assumes a much stronger market later in the year. Longer-term as we move back towards more normalized sales levels, we see new vehicle gross margins at about 6.5%, retail used vehicle margins of 10% to 11%, wholesale used vehicle margins returning to about breakeven as new vehicle sales rates improve, finance and insurance profits for retail vehicle will continue to be pressured until lending becomes less constrained. So we believe modeling in the $925 to $950 per unit range is an appropriate assumption. Parts and service margin should have some upside as customers begin addressing discretionary repairs. As for our cost control, we anticipate SG&A as a percent of gross profit to improve as we benefit from the top line and leverage growing revenue again. Our capital expenditures are estimated to be less than $40 million during 2010. And finally, we will continue to monitor the market for reasonably valued attractive acquisition opportunities that will add shareholder value while reviewing our current portfolio to improve or dispose of any underperforming stores. After all the hard work these past 18 months, the company is well positioned with a leaner cost structure and more efficient processes and a stronger balance sheet that should allow us to take full advantage of any sales rebound. That concludes our prepared remarks. In a moment, we will open the call up for Q&A. I will now turn the call over to the operator to begin the question-and-answer session. Operator?

Thank you, Mr. Hesterberg. (Operator Instructions). We will take our first question from John Murphy with Bank of America Merrill Lynch. Elizabeth Lane – Bank of America/Merrill Lynch: Hi guys. This is Elizabeth Lane on for John Murphy. How are you?

Good morning, Elizabeth. Elizabeth Lane – Bank of America/Merrill Lynch: I just had a couple of quick questions. I know you can’t really give guidance on the potential impact of Toyota, but I was wondering if you’ve thought it was a reasonable assumption to say that the parts and service work might offset the near-term sales loss.

I think over the long-term that’s likely to be the case. Elizabeth Lane – Bank of America/Merrill Lynch: Okay.

It’s probably not the case in the first quarter, will remain to be seen. We have I think this week gotten back in the business of selling most of the models that were temporarily on sales hold, because we have been able to perform the repair processes on most of those in-stock units. But I would guess that we probably lost two plus weeks if not three weeks of some pretty good volume of Toyota sales, and we don’t really know how the overall Toyota traffic will rebound. And it’s a little hard to tell right now as February is always a weak month and then there is some bad weather over much of country which seems to be depressing the overall retail activity. So we can’t really say much more than that. Elizabeth Lane – Bank of America/Merrill Lynch: Okay, great. And if I can just ask one more. I was wondering how the acquisition environment is looking, and if real estate values are playing into the equation especially given the change in strategy to owning versus leasing?

Actually that’s a brilliant question, because it is the real estate values which are probably one of the big mitigating factors on acquisition activity right now. There are clearly, because of economic pressure and so forth, dealerships on the market for sale, but there doesn’t appear to be much activity which is a combination of the fact that when buyers, potential buyers such as our company look at the earnings, near-term earnings potential in an 11-million industry, it’s just not anywhere near when it is was in a 17-million unit industry, so there is a little price discrepancy there between what the sellers would like and the buyers are willing to pay. But probably even more so is the commercial real estate reality and that is, the commercial real estate market, these values are down probably on average 25% versus a couple of years ago and not all – not all sellers have come to grips with that yet. So you are right, that’s a big factor right now. So if people grips with that, we may see that acquisition activity improve later in the year, but right now there doesn’t – there seems to be a disconnect between buyer and seller evaluations. Elizabeth Lane – Bank of America/Merrill Lynch: Okay, great. Thanks very much guys.

The next question will come from Matthew Fassler with Goldman Sachs. Matthew Fassler – Goldman Sachs: Thanks a lot and good morning.

Good morning, Matt. Matthew Fassler – Goldman Sachs: Couple of questions, if I could. First of all, if you could comment on the anticipated trajectory of used margins, you are seeing auctions and I guess banks lending standard adjust already, so is that the used car margin should go back to typical seasonal trends?

I would think that margins will not be too far off. The biggest thing that will help used car margins will be more new car sales, so there is more used card trade-ins, and that’s been a damper over the last year, just the supply of trade-in to force more people to auctions, which forces up the price to a certain degree, and which reduces retail margin, because we don’t tend to have as good a margin on the auction purchase vehicles as we do on vehicles we sourced in – trade in. So if we get this steady increase in the new car SAAR, the new car market recovery, then that should give us a little better support for used vehicle margins. Matthew Fassler – Goldman Sachs: My second question guys relates to your F&I guidance. You just finished a year, your F&I per vehicle retail was about $1,000. And I believe Earl in your comments you spoke about $925 to $950, so that would actually be guiding down in essence. If you could just give a little color as to what would lead to that, if you are able to generate a $1000 in the kind of an environment that that we’ve just had, why would start coming down at this point in time?

Some of that, Matt, some of that per unit is a benefit and run-off of some previous year’s activity. So the actual new business that’s being generated and the new revenue stream is just down a bit over some of the money we have earned in previous years. Matthew Fassler – Goldman Sachs: Got it. And then my final question –

I don’t know if I articulated that properly. I will let John –

Yes, Matt, this is John Rickel. Earl described it right. I mean basically we get paid in particular on vehicle service contracts, we get a share of the back-end money as well if the contract performs better than expected, and that’s based on the pool of units in operation. And as the volumes have come down, there is kind of a less of that pool that’s out there. So it’s really kind of the volume towards [ph] in the last couple of years. Matthew Fassler – Goldman Sachs: And then my last question guys relates to geography. If you could just go into a little more detail on what you are seeing by market, and with that in mind, to what degree are the mix numbers that we see in your release kind of year-on-year, a function of performance versus just mix of business with divestitures, et cetera?

Matt, this is John Rickel. The story has kind of been pretty consistent for most of 2009. Houston continues to be a good place to sell cars, Boston has held up fairly well. California remains challenging, and the Southeast part of the US is still I think facing some headwinds. I think the mix improvements that you see here are really I think indicative of what the brands are performing in the market by-and-large with the –the geographic mix then mixed in with that. It’s really not a lot of dispositions of source. Matthew Fassler – Goldman Sachs: So specifically if we think about Florida and California, you would say that you haven’t really seen it turn the corner or would you say that’s true on a relative basis or an absolute basis just to give us some context for how those markets, which obviously have been high profile, are shaping up for you?

Matt, this is Earl. We certainly haven’t seen any measurable improvement in California. And we don’t have enough business in Florida where we would be a very good source on that. We only have two Ford dealerships in the State of Florida. So I couldn’t really give you a good input on Florida, but we certainly haven’t seen any significant uptick in the California market yet for us. Matthew Fassler – Goldman Sachs: Got it. Thank you so much.

We will move on to Rick Nelson with Stephens. Rick Nelson – Stephens: Thank you and good morning.

Good morning, Rick. Rick Nelson – Stephens: Follow up on the Toyota recall, if you could ballpark the revenue opportunity in the service area for the recall vehicles on a per vehicle basis, perhaps the parts and the labor associated with the recall?

Rick, it’s Pete DeLongchamps. What we have seen so far – and you have got two different recalls. And if you have both campaigns simultaneously, it’s about $250 of revenue on each ticket.

Rick, this is John Rickel. The other thing I would add, it’s fairly labor on both of these campaigns. There is really not a lot of part sales. Rick Nelson – Stephens: So the bulk of it is labor.

Correct. Rick Nelson – Stephens: How about the attachment rate that you are seeing to other services as these people bring their recalled cars into the dealer?

It’s too early to tell, Rick. We are just ramping up. We have – last three days we have done a 1,000 and 1,350 repairs on the steel spacer plate and we are up to about 450 a day on the floor mat recall, so we are still ramping up on that. And I don’t have any data yet that would say what the non-recall repair dollars are per ticket. Rick Nelson – Stephens: Okay. On the acquisition front, I know you hired Mark Iuppenlatz to spearhead that. If the deals were there, how much revenue would you like to acquire, how much revenue do you think your balance sheet would support?

Well, our planning projection would be we think we could handle about $150 million of revenue in terms of acquisitions this year within our current balance sheet structure. Rick Nelson – Stephens: Thank you for that and good luck.

Thanks, Rick.

And our next question will come from Derrick Wenger with Jefferies & Co. Derrick Wenger – Jefferies & Co.: Yes, thank you. A three-part question. First on the impact of the Toyota recall, what does that mean for write-down of inventories and gross margin pressure in terms of lowering prices and increasing incentives to get them sold, and in particular the used vehicles whether they are losing value, Kelley's Blue Book has said they have been losing value what impact will that have? Second question would be on the covenants, the current ratio appear to be the tightest limiter, you were at 1.34 versus the 1.15 minimum, do you envision coming close to violating any covenants? And then lastly just on the availability on the bank facility and letters of credit drawn against it?

Okay. I will take the first couple of Toyota questions and I will turn it over to John for your last couple of questions. Relative to the Toyota new vehicle sales, I don’t expect any significant impact on our new vehicle margins. In fact, the non-impacted units are selling actually better than we would have expected. And Toyota is always a pretty competitive business, they actually as you know shutdown the factories for some period of time. So there is no real inventory imbalance for us as we get all of our impacted units back on frontline ready with the repair done. So I don’t see any margin impacted, strictly a volume impact on the new vehicle side. And we just checked last night with all thirteen of our dealerships and one or two mentioned that there could be a $500 to $1,000 per unit impact on some of the trade prices on Toyota-used vehicles, but the vast majority of our dealerships showed us no impact at all. And in fact said there was a shortage of good used Toyota vehicle I assume because they aren’t going through the auction until the repairs were completed. So I believe the used vehicle impact on Toyota is maybe quite a bit less than what we have been reading in the press. I was very, very pleased to hear that from our people last night.

Okay, this is John Rickel. On your other two questions, you are correct. The current ratio was at 1.34 versus 1.15, but it takes a lot to move that number. We are comfortable that we have plenty of cushion around the current ratio and don’t foresee any issues with that. On availability versus the bank lines, I will start with – you asked on letter of credit, we have got about $18 million of letters of credit outstanding. That’s against our acquisition line which is acquisition and general corporate purposes. We can have as much as $350 million drawn on that line at a point in time. However we are also governed by a borrowing base and at the end of the year, the borrowing base would have limited that borrowing to a $158.2 million. So the $18 million is part of that. On the general Ford plant line, there is plenty of capacity. We have got a $1 billion available, and there was something less than $500 drawn on that with the Ford line, the Ford silo which is specific to the new Ford units’ total capacity of 150, and we had about half of that drawn. So there is plenty of capacity on the bank lines. Derrick Wenger – Jefferies & Co.: Thank you very much.

You’re welcome.

We will move on to Matt Nemer with Wells Fargo Securities. Matt Nemer – Wells Fargo Securities: Good morning, everyone.

Good morning, Matt. Matt Nemer – Wells Fargo Securities: My first question was on the new vehicle business. You – CNW I think was out saying that retail sales were up sort of mid-single digits and you are tracking – you track below that for the quarter. I am assuming that’s your markets. But can you just help connect the dots between sort of your new vehicle sales unit volume and the market?

Well, as far as I can tell, Matt, we are competing and performing at a competitive level in all of our markets. So I assume it’s some kind of geographic mix. I doubt it’s really a brand mix. So I will think it’s more geographic mix. We’re pretty heavily weighted in Texas and Oklahoma. And while business is still on an absolute basis, it’s pretty good there. Those markets – we are late into the recession in the new vehicle market, Fusion for example, it’s down almost 30% last year. So I expect it’s geography related more than anything. But we don’t see anything that’s say typical in our performance. Matt Nemer – Wells Fargo Securities: Okay, that’s helpful. And then just following up on Rick’s question, it’s helpful to have revenue on the Toyota recalls per vehicle, what – and I guess the fact if it’s all labor would suggest that the margins should be – the gross margins should be nicely higher than your average parts and service gross margin, how do you feel about the incremental margin or the flow through of that to EBIT, should it – is there any variable SG&A related to these recalls or is the flow through relatively high?

Well, it’s hard for me to say, but there is some variable SG&A. I mean we have had to, and Toyota is supporting us with some of that too, you have probably read about the checks that they have sent to their dealers, and I don’t how long that money lasts, but clearly we are opening a lot of extended hours, paying technicians above average or above their normal pay rates to work later hours, Saturdays, even Sundays, things like that, there is loaner car expenses, car wash expenses, things like that. So we haven’t been able to quantify that yet, because we are only really ramping the last three or four days into a high number of recalls per day. So we don’t have a good feel. But there is some extra SG&A associated with running this many incremental vehicles through our operations. Matt Nemer – Wells Fargo Securities: Okay. And then as the new vehicle market improves through the year as expected by some industry folks, how do you feel about the expense dollars, the variable expense dollars coming back in your model? Are there items that you have underinvested in during the downturn that you have to kind of comeback and invest in from a P&L standpoint? What’s the variable attachment rate on expense dollars?

Yes, Matt, this is John Rickel. I mean I think it’s consistent with the story that we have been talking about over the last few quarters. I mean there are clearly some things that we did that we are restoring, I mean there were some benefit cuts and pay cuts. But that’s part of – when we parsed [ph] out the $120 million, we talk about 25% of it being permanent, it should never come back, which is about $30 million or it’s about 30% that is basically completely variable that it will comeback kind of almost dollar for dollar as the volumes comeback, things like sales commissions. It’s really that 45% is semi-variable, that’s where we would put things like the pay cuts. There is also pieces of that though that are things like efficiencies where we took out a new car manager and a used car manager and the volumes will need to comeback more before we put that back. So I think it’s still around that story. As to kind of the direct fees on a variable basis, I think the numbers we have talked about before are in line with that parsing [ph], we are just taking it through and I don’t think it’s changed much. Matt Nemer – Wells Fargo Securities: So on an incremental sort of 1 million units I guess year-over-year in terms of industry unit volume, at one point, I think you were saying that you – the impact to your EPS would be $0.50, $0.60, are we still in that ballpark?

What we have said is are in the $0.60 per share basis for every million units of SAAR, all else being equal. And I think we are still comfortable with that. Matt Nemer – Wells Fargo Securities: Okay, great. Thanks so much.

You’re welcome.

Our next question will come from Scott Stember with Sidoti & Company. Scott Stember – Sidoti & Company: Good morning.

Good morning, Scott. Scott Stember – Sidoti & Company: I missed what the customer pay increase was for the quarter?

I think it was 1.8%. Scott Stember – Sidoti & Company: Okay.

Let me check. They are flipping through their books. I seem to remember 1.8% on same stores. 2.8%. I undersold us there, Scott, sorry about that. Scott Stember – Sidoti & Company: That’s fine. And within that number, can you talk about whether you are seeing some of these higher ticket services getting completed now that were pretty much anniversarying a year from when people might have been delaying some of those services.

Yes, I haven’t seen that yet. We expect to see that some point later in the year, Scott, but we have not seen that yet. Scott Stember – Sidoti & Company: Okay. And just on Toyota, on the periphery some of the other brands that could see some impact like Scion and Lexus, can you talk about how those brands have fared over the last few weeks?

Well, actually the Scion brand has kind of been at a low the last year or two. We actually expect that to get better later in the year, because they have some new product coming, but I don’t think Scion is a significant factor one way or the other in this matter. And thus far, I know one of these hybrid recall campaigns impacted one of the Lexus models the other day. But again I don’t think there has been or I would expect there to be a significant Lexus impact. Scott Stember – Sidoti & Company: Okay. And last question, some of the higher-end brands have actually performed better than one would expect in this environment like Mercedes and BMW which is big to you guys. Can you just talk about what you are seeing in there? Is it new models or just the customer base?

Well, these luxury brands had a very good close to the year in December. You normally do see that because historically a lot of leases expire in December, and Mercedes S and new E-class which I think has given a noticeable lift to Mercedes sales. But we saw good activity in Lexus, Mercedes, and BMW in December, they had very aggressive marketing support and it’s traditionally a good time of the year for luxury brands, and that was the strongest part of the market in December. Scott Stember – Sidoti & Company: All right, that’s all I have. Thank you.

Your next question will come from Charles Vetter [ph] with KeyBanc. Charles Vetter – KeyBanc: Good morning, everyone.

Good morning, Charles. Charles Vetter – KeyBanc: A couple of quick questions. You mentioned you expected about a $30 million permanent cut in SG&A expenses, I was curious what those were related to? And the second one was about asset impairment. Obviously, it’s down significantly, do you predict 2010 to have any fluctuations from 2009?

Yes Charles, this is John Rickel. On the first one, the examples of things would be permanent reductions in SG&A. Now we’ve continued to consolidate our accounting activities. We had an accounting center both in Atlanta and in Boston serving the East region. During 2009, we consolidated that and moved all of the transactional accounting basically up to Boston; it saved us several millions of dollars. Similarly we’ve been in the process of consolidating some of our payroll functions. It’s examples like that where those are kind of permanent improvements we will never go back to having the distributed accounting that we did. So those are examples to some of the things that make up the permanent process improvement. On the asset impairment for 2009, they were primarily around valuing real estate that’s held for sale, surplus dealership real estate to present market conditions, that was the main charge. And in 2008, it was primarily around franchise impairment. It’s hard to predict impairments; if you could predict them, you would be basically required to take them at the time. I guess the main risk would remain on the real estate fees. You are right that the market value depends obviously on what happens to commercial real estate. At this point, I am reasonably comfortable that we have got all the assets fairly valued, but you do have to react to the market conditions, so it is a difficult area to forecast. Charles Vetter – KeyBanc: Great, thank you.

You have no further questions at this time. I will turn the conference back over to Earl Hesterberg for any closing remarks.

Yes, thanks to everyone for joining us today. We look forward to updating you in April on our 2010 first quarter earnings results. Thank you and have a nice day.

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