Good morning, ladies and gentlemen. And welcome to Group 1 Automotives 2015 Third Quarter Financial Results Conference Call. Please be advised that this call is being recorded. I would now like to turn the conference over to Mr. Pete DeLongchamps, Group 1's Vice President of Manufacturer Relations, Financial Services and Public Affairs. Please go ahead Mr. DeLongchamps.

Thank you, Dan. And 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 we'll refer to on this call 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 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 and 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 with me today on the call Earl Hesterberg, our President and Chief Executive Officer; John Rickel, our Senior Vice President and Chief Financial Officer; and Lance Parker, our Vice President and Corporate Controller. Please note that all comparisons in the prepared remarks are to the same prior year period, unless otherwise stated. I would now like to hand the call over to Earl.

Thank you, Pete. And good morning, everyone. I am pleased to report Group 1 achieved record adjusted third quarter net income of $46 million. This equates to record third quarter EPS of $1.91 per diluted share, an increase of 21.7% over the prior year. For the quarter, total revenue increased approximately $174 million, or 6.6% to an all time quarterly record of $2.8 billion. On a constant currency basis, revenue grew 10.2% for the quarter. Turning to our business segment. Total consolidated new vehicle revenues grew 5.3% or 9.4% on a constant currency basis. As we retail 5.9% more unit at an average new vehicle selling price of $33,977. New vehicle gross margins decreased 30 basis points as conditions remain competitive in all three of our markets. During the quarter, we retailed over 47,000 new vehicles. On a same-store basis by market, new vehicle unit sales increased 4.4% in the U.S.; the UK had an outstanding quarter with new unit sales up 19.1%. And almost as impressive was Brazil with a 1.3% increase in units sold in a market where the industry was down more than 25%. Our new vehicle unit sales geographic mix was 81.3% U.S., 11.1% UK and 7.6% Brazil. Our new vehicle brand mix was led by Toyota Lexus sales which accounted for 27% of our new vehicle unit sales. Ford/Lincoln, BMW/MINI and Honda/Acura each represented over 11% of our new vehicle unit sales, and Nissan was at 8%. U.S. new vehicle inventory stood at 28,518 units at the end of the quarter which equates to 72 day supply compared to 75 day supply for the third quarter of 2014. Total consolidated used vehicle retail revenues grew 11.6% or 14.6% on a constant currency basis as we retail 12.9% more units for an average used vehicle selling…

Thank you, Earl. Good morning, everyone. Our adjusted net income for the third quarter of 2015 rose $6.3 million or 15.7% over a comparable 2014 results to $46 million. On a fully diluted per share basis, adjusted earnings increased 21.7% to $1.91. These results for 2015 exclude approximately $800,000 of net after tax adjustments related to non-cash asset impairments. The comparable results for the third quarter of 2014 excluded $13.6 million of net after tax adjustments including $17.9 million of charge related to the repurchase of all our 2.25% as well as the remainder of our 3% convertible notes, and $6.6 million of asset impairments primarily associated with the pending disposition of vacated U.S. dealership real estate and three renewed franchise in Brazil. These charges were partially offset by a net after tax gain of $8.6 million resulting from the sale of several U.S. dealerships and the associated real estate, combined with the $3.4 million favorable foreign income tax change. Starting with a summary of our quarterly consolidated results, for the quarter we generated over $2.8 billion in total revenues. This was an improvement of $174.1 million or 6.6% over the same period a year ago and reflects healthy increases in each of our business units in the U.S. and the UK. Weaker exchange rates in UK and Brazil were partial offsets. Our gross profit increased $23.7 million or 6.3% from the third quarter a year ago to $398.4 million. For the quarter, adjusted SG&A as a percent of gross profit improved 140 basis points to 72.5% and adjusted operating margin was 3.5%, an increase of 20 basis points from the same period a year ago. Floorplan interest expense decreased by over $700,000 or 7.3% from the prior year to $9.7 million explained by lower floorplan borrowings in Brazil due…

Thanks, John. Related to our corporate development efforts, as previously announced during the quarter the company acquired Mercedes Benz, Sprinter and Smart franchises in central Texas near Austin which are expected to generate approximately $100 million in annual revenues. Year-to-date the company has acquired five franchises that are expected to generate approximately $340 million in annual revenues and dispose a four franchises that generated approximately $30 million in trailing 12 months revenues. We continue to adjust our dealership portfolio to ensure we are generating appropriate return for our shareholders. This concludes our prepared remarks. I’ll now turn the call over to the operator to begin the question-and-answer session. Operator?

[Operator Instructions] And our first question comes from John Murphy of Bank of America, Merrill Lynch. Please go ahead.

Good morning. This is Liz Suzuki on for John. It looks like on a same-store basis for the consolidated company parts and service grew about 6.3% excluding foreign exchange. Were there any headwinds year-over-year in the parts and service channel that we should make a note of? Because we have been seeing some stronger results of some other dealer groups and even your U.S. operations were only up about 6.6%. So just wondering if there is potentially some stronger growth ahead in that segment.

No. I am not aware of any headwinds at all. In fact, I would say overall our repair shops are quite old in both the U.S. and the UK in particular so no I don't -- I think that's probably just a normal variation depending on, it is large degree the recall and warranty work the nature that work by month and by quarter. But I would say the parts and service business remain very, very strong.

Great, thanks. It looks like on the slides you had Texas is up 7.2% year-over-year same-store which is up more than the 4.4% growth for the overall U.S. So it seems like the numbers kind of speak for themselves and you dedicated a section of the slide to this. But could you just mention if you are seeing any negative impact at all in any of your Texas stores due to the weak energy market?

There is very slight negative impact in certain Texas market. For example we have BMW dealership in downtown Houston that services the energy company headquarters in downtown Houston, that dealership has been impacted. But eight miles away our Toyota store is red hot, selling everything we can get. Our Chevrolet dealership is up way year-over-year, and our overall Houston business was up 6% plus for the quarter. So there are few spots where you can see it. The main issue for us relative to energy impacting our sales would be our new vehicle sales in the state of Okalahoma, that’s about 8% of the company's sales. And our new vehicle sales were down 5% for the quarter there. That's probably the drag that you are looking for. But our used vehicle sales in the state of Okalahoma are up well into double digits, so it is possible there are some shift from new to use there, it would seem that the Okalahoma economy isn't as diverse as the Texas economy. It is much more impacted by this latest drop from $60 a barrel oil to $45 or whatever it drop too. But Texas for us still I would say is probably at least up to the national industry average or better in new vehicle sales.

And our next question comes from Ric Nelson of Stephens. Please go ahead.

Thanks, good morning. To ask about the acquisition environment. You have acquired $340 million revs year-to-date, $100 million in the quarter. If you could discuss the multiples that you're seeing out there.

Well, I couldn't really speak to multiple Ric because we look at on a return on investment basis but I think the jest of your question is that there is a lot of activity in terms of sellers in the market. I also think prices are probably near record levels because of the trailing couple of years of earnings as you know have been pretty strong. So I would say there is lot of activity in the buy/sell market but I would say that it's probably more towards expensive than reasonable in terms of pricing.

And the premium luxury stores you bought this quarter Mercedes we're hearing about some big tickets there in that segment.

I would say that would be true, Ric. The luxury brands in the U.S. are certainly bringing the highest prices. And it's probably the highest prices ever that will be valid observation.

And any comment on October sales and what you are seeing thus far? I know there's been a lot of rain in Texas. Do you view that as a headwind or are that an opportunity, potential flood damage, et cetera?

Well, the overall pattern of sales in October beginning the quarter was probably quite consistent with the previous quarter, but we were wiped out in terms of weekend business last weekend. Obviously, you could see that rain coming so there was a lot of media attention to it on Friday and Thursday and so it was pretty dreadful sales we came across, Texas, Okalahoma and then I guess spreading around the Gulf Coast here last day or two. But we have a lot of the quarter to go and sometimes when you miss weekend of sales you catch that up, people staying for few days and come back later. So we will have to see how that goes. People were better prepared, there was some flooding certainly in parts of Texas so you do get little parts and service kick from that, so maybe we will see that. There was quite a bit of flooding in Texas.

Thanks. And finally a question for Pete on the side F&I side. This is regular phenomena because it records recorder 1515 in the U.S.

Thank you, Ric.

How much more opportunity do you see and are there risks out there that we should be thinking about F&I as we move forward?

Yes, I can't speak to specific risks and I'll stick with my consistent message, Ric, that we are very pleased with where we are and we work everyday to improve the underperforming stores and increase our product penetrations. So that's just been a lot of hard work by the team and we are delighted with the results.

And our next question comes from Bill Armstrong of CL King & Associates. Please go ahead.

Good morning, gentlemen. A couple of questions starting with Brazil. You outperformed the overall market by a mile both in the new and used. I was wondering -- you mentioned brand mix I was wondering if maybe you could drill down a little bit in talking about your out performance and what the outlook for Brazil is for the rest of the year and into the New Year?

Well, I think the overall outlook for the market is certainly still negative. I guess when your president is under threat of impeachment there is not much hope that you can have a stable political environment in the near term. And in September, three of the four big brands I believe it was Fiat, Volkswagen and General Motors were down between 45%. So overall the current automotive sales environment is about as bad as you would ever see. Those are the levels that put to all manufactures into bankruptcy in the U.S. in 2008. But our strength is that our brands Toyota, Honda, BMW, and Land Rover have moved towards local production and have some new products that are quite popular. And so they have much smaller market share but they are gaining market share in this environment that is really hammering the big brands. So that helped us stay kind of around flat in sales in a market that's down probably 25%. So we are pretty proud of our Brazilian operating team and we do have a couple brands that struggle for Jaguar and Nissan at least to make profit. But we keep making that business stronger. We keep strengthening our management team which I think is a brilliant management team. And so we are just going to continue to deliberately build a strong business so we'll some leverage when the market does eventually recover. And that's the same way we approach the UK business which we built from an original acquisition of three dealership. We slowly and deliberately built that business. And it was very powerful for us in this past quarter.

And in Brazil your used unit comps were up 15% too which was much better performance than we've seen over the last few quarters. So I was wondering if you could give us some color there you know what happened there?

Yes, I'll give you some color but I will admit to you that we don't believe that we are particularly efficient used car operators in Brazil. We had -- I would tell you we are coming off a low base that's probably the majority of it. The other part is that with four plan rates near 18%, we liquidated quite a few cars just to keep the inventory in line. Actually, we are in pretty solid position with our brands relative to sales in Brazil compared to others as I just mentioned. But the floorplan rights were the biggest challenge in Brazil right now. It's probably somewhere in the order of magnitude of 18%. So we are trying to keep the inventories lean.

So should we take that as maybe had some unusual liquidation activity and maybe we get back to maybe a more normalized trend going forward?

Yes. I think that's true. And I think we can continue to grow that business simply because we are starting from a low level. The used car business in Brazil through franchise dealers is still somewhat undeveloped. So we believe that to be a big long-term opportunity for our company. But yes I think the growth was a bit over stated last quarter.

Yes, Bill, this is John Rickel. I would add you see that really show up, we discount the gross profits pretty heavily. That's why you saw the extreme pressure on gross profits per unit was a trade off that the operating team made to clear that inventory out.

Right, I saw that. Okay. And then last question back in the U.S. parts and service margins were up very nicely. What were the drivers there?

Well, I think it's mostly our mix among our business. One of our strongest business is in Group 1 for quite sometime is our collision business. And it has been up double digit say quarter after quarter this year. And so I believe that helps our margin mix to certain degree.

Yes. That was the piece and the other thing Bill is that look like we had a little bit of improvement in our customer pay margins as well. And some of that's probably just mix among within the actual customer pay business. And then the final piece is with the strengthen new and used obviously the internal work contributed as well.

And our next question comes from James Albertine of Stifel. Please go ahead.

Great. Thanks for taking the question, and good morning, everyone. If I may ask on the used retail side another it appears a very strong quarter in the U.S., units up double-digits. Can you help us understand some of the ancillary opportunities though as you are sort of driving more customers through your used business. And we talked about internal work; I think John just referenced it in the margin question a minute ago. But I'm thinking more along the lines of attachment rates for extended service plans or the need for financing and thinking about it more holistically. How does the incremental used unit hit every vertical within the business?

Look, Jamie, obviously being a good used car operator is key to being a good new car operator as well. So it supports to the new car business by being able to take the trade and turned into retail. So it supports that. Clearly it helps parts and service, the attachment rate on parts and services are not the same as new but especially as we continue to grow the CPO business, CPO business does have a pretty good attachment rate. And we are running about 30% CPO mix. And then the final piece is in A - Pete's world, you really can't sell the F&I unless you sell that used retail unit. So we continue to drive a lot of volume through F&I which kind of the industry loving, leading levels that we are running, generate a lot of gross profit through F&I force.

Is it about the same level of penetration for financing that consumers are looking for in a used vehicle relative to new?

Yes. It is Jamie. And we also John mentioned CPO and then it also gives us a nice attachment rate on vehicle service contracts at level above 40%. So as John mentioned the best used car dealers have the ability to retail the new cars because they have the ability for more in trade. So it is a critical piece of the business. So we have really been spending a lot of time on.

That's extremely hot. Thank you for that data point over 40% service contract penetration. And then the last I just want not to beat a dead horse here but it seems to me just looking at the estimates not about estimates but the results on the used retail sale side there is an acceleration going on. And otherwise the concerns people are sharing in the new vehicle sale cycle don't seemed to be manifesting themselves on the used side of the business. You even said I think, Earl, double-digit growth in used sales if I heard you correctly in Oklahoma. So there is, in fact, offsets from some other pressures you're seeing on the new vehicle side. Would you agree in general with sort of that accelerate we are on a maybe earlier curve of the used retail unit acceleration call?

Yes. I believe a big part of that acceleration is increased supply. There has been -- we've been start for used cars and quite frankly we still are in many segments of the market such as little bit older cars that are still high quality maybe in a three to four year old range. So there has been a lot better supply of used cars this year and I think that's one of the factors and I also think that we are more lot proficient than we once were at in the used car business and systems and things like that and discipline I think made us better used car retailer.

Well, that's it for me for the moment. I appreciate. John, we'll follow up offline. Have a great fourth quarter and we'll talk soon.

And our next question comes from Steve McManus of Sidoti & Company. Please go ahead.

Good morning everyone. Thanks for taking my questions. So my first question you guys have really been ramping up the technician hiring so far this year. Where within the P&S segment are you focused on adding capacity? And do you guys have a ballpark internal target for headcount additions for the year and maybe in to next year?

Yes, we've been actually for a couple of years trying to ramp up our productive capacity, our man power capacity in service and we still are. We still basically had needs for technicians and service advisors across the board in every geography and every brand. I would say we made some progress this year, maybe we gotten some technical people back from the oil field in some of our markets but we still have great needs and it's still company wide effort. So I don't think anything is changed there. There is -- as I mentioned really our shops are still quite full.

Okay. And the next one just with respect to the ongoing shift towards real estate ownership versus leasing, can you talk about some of the benefits and savings you guys have been realizing as a result of the transition, is anything starting to materialize yet, any commentary there would be great.

Yes, Steve, this is John Rickel. This has been kind of ongoing strategy really since I came on board. The company in 2005 really was a 100% sale lease back so at this point we are about to have, we see certainly benefit in lower cost, sale lease back tends to run 200 to 300 basis points higher cost versus what we are able to do with our mortgage to support it. Plus it is also I think strategic force, you are controlling an important part of the business, your location, lot of these places like on Highway 59 here in Houston, you couldn't replace one of these if you ever lost them. So been able to own that underlying asset we think it is important, so it is lower cost force and also I think gives us a control over our future.

And our next question comes from David Tamberrino of Goldman Sachs. Please go ahead.

Hi, it is actually Pat here from Goldman. Good morning. Just a couple of questions or follow-ups I should say. Just on the parts and service side on your slide 13 in the deck that you provided you kind of went back in to negative territories with customer pay same-store comps and just wanted to understand why that was. Clearly other areas are doing very well like collision and warranty. But is this going back to the issue of capacity squeezing out customer pay growth or what's going on there?

Yes, Pat. This is John Rickel. That's on a U.S. dollar basis. If you look at it on a constant currency, we actually grew customer pay so what you are really seeing there is the impact of FX.

Yes. And I do think that we just have natural flow of customers into the shops and with some of the recall activity in various by brand sometime I would say it is possible that we are displacing some customer pay business. For example, couples of the brands to get the highest recall activity at this moment are Honda and Chrysler. We are not very big with Chrysler and Honda is maybe 11% of our business. So but there was airbag recalls. And we tend to prioritize those and it is possible on some of these recalls that some customer pay business gets displaced. We try not to do that but by brand it is somewhat situational.

Pat, let me just say the number. On a constant currency basis we grew customer pay 3.7% in total parts and service on a constant currency basis consolidated same-store was up 6.6% so it is really just the currency that's getting into it.

Got it. That is helpful. Just to follow-up on that in terms of the Takata recall how much of the way through are we on that one?

Well, I don't have hard data to give you definitive answer but I don't think we are anywhere near halfway that's for sure.

Got it. And then one other one from me. VW can you just give us an over-view of what the impact has been there on your U.S. business just given the headlines that have been announced since diesel gate? Is this something that is impacting the brand in a general way or is it only some of these diesel cars that are being affected what are you seeing on the ground?

Well, we've spent a material amount of time on it but it is not a material amount of business. We've seven dealerships; I would say three of them are quite small. And I would say that it's clearly the top public relation items in the industry these days. And we have about 120 new cars in our inventory on stop sale and may be 60 used cars across the company on stop sale. But the Volkswagen factory people have been really magnificent in supporting these types of costs. They have been much more aggressive in retailing their remaining 80% of their inventory that's not on stop sale which I guess is primarily petrol engine. So it hasn't been big deal I think in September, our Volkswagen sales were still up 6%. I think we are projecting this month probably down about 10% maybe little more. So it is not pleasant but the number of cars impacting Group 1 is just immaterial.

Okay. Appreciate the color. Thanks a lot.

Hey, Pat. Let me correct one number that I gave you. The customer pay on a consolidated local currency basis is 3% not 3.7% but still upgrade.

And our next question comes from Michael Montani of Evercore ISI. Please go ahead.

Hey, guys. Good morning. Wanted to ask first on the retail used unit side 10% comp in the U.S. quite strong. Can you give any incremental color there on how CPOs grown year-over-year and then obviously how the non CPO business is tracking?

Well, it is strange how consistent our CPO mix has been for many years kind of from 27% to 33%. And so it is kind of growing in concert with our overall double digit increase. We normally figure it is about a third of our business and it stays pretty close to that. Actually one of the bigger issues on those car these days is takes a while to get them through the shop and yet we are worried about displacing warranty and customer pay business. But it is very much stable part of that business and seems to grow about the same rate. And many of these off lease cars that are coming from the OEM about two or three years old which make some perfect CPO car. So that part of the business is still quite strong.

Okay, great, thanks. And then just to follow-up on gross profit. One of your competitors cited some incremental pressure on the luxury side and that could continue into the fourth quarter. I guess what I wanted to understand and to be clear with your outlook for the fourth quarter, are you thinking of more normal seasonality trends where GPU could increase quarter over the quarter, and could you give incremental color in terms of domestic versus import versus luxury GPU trend?

No. I can't remember when there wasn't this margin pressure. And it seems to be quite across the board now in brands. My recollection is that sometimes in the fourth quarter it gets a little overall margin left because December is a big luxury brand sales month. End of the year tends to be very strong with a lot of leases expiring for Mercedes and Lexus and BMW and such. So with December end particular generally has a strong luxury mix. And so depending I guess on what the luxury margins are I am still going to believe that even under pressure they are higher than the volume brands. So there may be a little statistical lift in the fourth quarter but I don't think there is anything that's changing in terms of the competitive nature of the market for luxury brands, Japanese brands or domestic brands.

And our next question comes from Brett Hoselton of KeyBanc Capital Markets

Good morning, everyone. This is Irina Hodakovsky on for Brett Hoselton. How are you? I wanted to ask you guys a little bit in terms of industry dynamics on the used vehicle side, you have seen an increase in supply, are you seeing an impact on pricing in that vehicle segment the two to three year old car, or is it impacting older vehicle pricing? Is there any impact on gross profit per unit as a result of that, or is gross profit per unit simply a competitive factor?

My impression this year is that the pressure on used margin has been more competitive matter, much as it is on the new car side. They have very powerful retailing entities fighting for market share and to move units and my impression is that a factor of competition more or so then is increased supply.

Got you. And is it affecting pricing on the used vehicle side?

I would say not significantly, if you look at the Manheim Index, continuing to hold into, it doesn't appear to be an issue with pricing, it is more Irina as Earl indicated just a competitive set the job there.

On that as a follow-up on that in speaking with Tom Webb of Manheim he is a little bit surprised of how well the pricing is holding. What do you think is this just demand holding prices above where one would anticipate in this level of supply, or is it just the cars are better? These two, three year old cars are coming back with better technology than before and they are just naturally more expensive?

Well, I think the continued ability of the manufactures to increase new vehicle price is kind of creating a vacuum to the upside that helps a bit. It is possible but over time with its extended increase supply that there will be some slide down world pressure on used vehicle. But at the moment it seems that the dynamics of everything considered a holding used car prices better than I would have expected with the increased supply.

Got you. Then a question for you guys on the parts and service gross profit margins. Very strong trend here. We are actually back to pre recession levels when you had some pretty high numbers then. Even as a franchise dealers are competing for the lower margin business. Your margins are very strong and you mentioned some of the drivers behind it like free call activity and reconditioning work. But how do we think about this going forward? Is there additional upside? I think in the past your highest number you have ever hit was 56%; do we ever get back to that? How should we think about this going into 2016 and beyond?

I think the margin fluctuation you see in our business is somewhat normal based more on mix than anything. But our general margin position should be fairly consistent because there isn't a need to discount much when you are running a full capacity. And our shops are full. So in quarters where we have different warranty mix or different collision repair mix or wholesale parts mix we will have some fluctuation. But I think we are now operating in a range that's fairly consistent and predictable.

Thank you very much for that. Congratulation, solid quarter with Brazil and everything, great job.

[Operator Instructions] And our next question comes from Paresh Jain of Morgan Stanley. Please go ahead.

Good morning, everyone. A couple of questions starting with UK. You mentioned about increase supply last quarter and perhaps some of that was originally destined for China and was redirected to UK which kind of hurt your GPUs in that market. How has that supply environment trended since 2Q because GPU is still look under pressure little bit in that region?

And I think that's correct and that's proper observation. UK market is still very strong on demand and retail side. But it is continue to be over supply this year from most manufactures and that is put a bit of downward pressure on the new vehicle margins. The good news is the volume is there, the volume increases there but most brands are over supplied in the UK at the moment.

Got it. And a question for you again I wanted to go beyond the next few quarters here. We are increasingly hearing about new entrance in the Silicon Valley potentially making cars one day. And while it is too early to say if these cars would be available for consumer purchase or part of a shed fleet and even if they are available for consumer purchase would it be it sold at dealers or through independent stores we don't know all that yet. But wanted to get your thoughts on how you see that space evolving and if the new entrants do end up as fleet managers, how do you see Group 1 and other dealers fit within that ecosystem?

Well, I don't think I am real good prognosticator, there is probably a lot of people on this call, they are lot better at that than I am but what we found over the decade is that automotive retail distribution system is quite flexible. And basically retailing is a local business. And we see that time and time again. And these are big pieces of merchandize regardless of who buys them or how much in terms of electronics or inside of them, there is a technical problem that occurs and you can have the highest level of service when you are located in the market place. And I think the U.S. retail distribution system is stood the test of time and I think that in the near term it is not likely to go anywhere or see any dramatic changes, maybe a decade or two from now we will see things change but these are big pieces of merchandize weigh several thousand pounds and have quite a few moving parts and somebody is got to handle them deliver them and take them--

And in most cases the customer also has a used vehicle that they have to trade to do this part of the transaction which also has to be handled.

Got it. And John one last if I may. A question for you on the Honda solution for dealer reserve. Has there been an update on the additional fee beyond the 100 to 125 bps spread?

This is Peter DeLongchamps. There has not been and our business is remain static with Honda through this.

Is there a timeline by we can see a more structured solution?

I think that the solution is in place.

And our next question comes from David Lim of Wells Fargo. Please go ahead.

Hi, good morning, everyone. Sorry I missed the first part of the call here. But the question I wanted to ask this morning was speaking with industry personnel it appears that maybe a majority of the OEMs are anticipating either 2016 or 2017 TIV to start a flattish trajectory. Now if this is true, on that assumption what can GPI do to sustain both top and bottom line growth?

Well, I think we are still in a pretty strong growth mode in our used car and parts and service business, David. And I think that's the key. And I would probably agree even in an optimistic scenario for new vehicle sales growth next year is only going to be 1%, 2% or 3% or something like that. We are starting to get the pretty high levels. But there is also a lot of work we can do on truck mix. We are very short of trucks as we speak and I think you know the low fuel prices have really pushed the market that way towards trucks and SUVs. Our Ford truck sales were up 20% last quarter, our General Motors truck sales I think were up 16%. We have absolutely no Toyota truck. So I still think there are some mix to work. I think our used car momentum is strong. I think our parts and service momentum is strong. Our shops are full. So I think we still have a lot to work with. I think we still are in a very strong point of the business model.

So, Earl, to follow-up on that. I know that maybe capacities over at the OEMs when it comes to truck are being sort of maxed out running on multiple shifts. Does that mean maybe on the OEM side in order to fulfill consumer demand that additional capacity would need to be added?

Well, I believe F&M. I know that Ford really has not have a very long period of time up and running their --both their F series plant to maximum capacity.

True.

So I think that's still fairly new occurrence. I am not quite as up to speed on where GM is on their production. I know Toyota is launching its new Tacoma which seems to be taking away some thunder production and we could sell a lot more both of those and we are a big Toyota company as you know.

Got you.

It is somewhat surprising in such competitive market that we still at this moment don't really have enough trucks in most of our key brands.

Now on the -- can you also couch for us how flexible are these frame work agreements? I mean valuation can vary due to like dealer location and other factors but which franchises would you quote, unquote pay up for given what you know about future product introductions? And among the Detroit 3 which brands would Group 1 add to your portfolio?

Yes, David, I am not going to let him answer one of those questions.

He just gagged me.

I got you. I know it can be a little sensitive in nature. But --

I just wonder if you are starting to think about becoming a broker. I would say though in this environment there are still a wide range of brands that can be attractive to us, domestic, Japanese import and luxury. And I just think that if we are probably as wide open on brand as we've ever been. And it is just kind of depends on the return on investment and where it is located if it makes sense for us.

Got you. Got you. And then I do have a question on margins and maybe somebody already asked this. New vehicle gross margins continue to be on this glide path, even though the industry seems pretty healthy and OEM is obviously doing well. Can you sort of explain the disconnect on how the dealer groups are feeling in general about this where you're seeing gross margin compression but again industry is healthy, OEM is making money? What are some of the levers that you could pull where new vehicle gross could become better?

Well, this primarily is a function of supply and demand as it is always is. And as OEMs push for more share, they get little aggressive. But we are finally starting to really hear from some OEMs that they are starting to be concerned about it too because the first step is the dealer margins get put under pressure, the second step is the OEM start to cut their pricing with incentives.

Sure.

And I think they are probably more sensitive to that now than they might have been one cycle ago. And so we are starting to have that discussion with some of these top executives at the couple of the brand so let's hope we get a healthier balance in supply and demand on some of these model lines as we move forward.

Great, excellent. And just a comment for Pete. I know that his Baylor team went through a little bit of a hiccup with the QB but I think Jarrett Stidham is a four star quarterback so he should do fine.

Well, I suppose Mr. Trojan, it is better to have hiccup with your quarterback than your coach.

Absolutely. Maybe we'll go after Art Briles post the season.

We don't.

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Earl Hesterberg for any closing remarks.

Thank you for joining us today. We look forward to updating to you on our fourth quarter earnings call in February. Have a good day.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.