The following is excerpted from the question-and-answer section of the transcript.

Question: Matthew Fassler - Goldman Sachs - Analyst: Thanks a lot, and good morning. I did not expect to be first here. Two questions--I guess three questions, if I could. First of all, Earl, if you could give us a little more color on how you think the new car margin story plays out here, and to the extent that they are taking a bit of a step back; is that a function of the unusually robust margins associated with the clunkers program?

Answer By: Earl Hesterberg - Group 1 Automotive - President & CEO

Question: Matthew Fassler - Goldman Sachs - Analyst: Got it. Second question, what is your thought process on expenses? You kind of spelled out the gross margin and some of the other metrics and sales metrics, of course, for the fourth quarter; but can you just give us some color on your expense assumptions, and whether we should be cautious about drawing conclusions from what you were able to do in Q3 with the volume that the clunkers program put through?

Answer By: Earl Hesterberg - Group 1 Automotive - President & CEO

Question: Matthew Fassler - Goldman Sachs - Analyst: Got it. Sorry about that Earl. And then finally, it sounds like you are guiding to acceleration in the fourth quarter from the pre-promotion levels. What do you think it takes to get traffic back to more traditional levels? You suggested the credit was not the barrier, perhaps it had been? So what needs to happen for the consumer here to start getting the SAAR back to its levels.

Answer By: Earl Hesterberg - Group 1 Automotive - President & CEO

Question: Matthew Fassler - Goldman Sachs - Analyst: Got it. Thank you so much.

Question: John Murphy - BAS-ML (Banc of America Securities-Merrill Lynch) - Analyst: Good morning, guys.

Answer By: Earl Hesterberg - Group 1 Automotive - President & CEO

Question: John Murphy - BAS-ML (Banc of America Securities-Merrill Lynch) - Analyst: heard from a lot of dealers is a bit of an issue. I know you guys have commented it's not too big a wait on demand, but I'm just wondering what you're seeing loan-to-value ratios in the loans that you are originating at your dealerships? Is there anything changed there, better or worse?

Answer By: Earl Hesterberg - Group 1 Automotive - President & CEO

Question: John Murphy - BAS-ML (Banc of America Securities-Merrill Lynch) - Analyst: Got it. And if we think about the fourth quarter as far as mix goes, obviously you had a much higher mix of cars in the third quarter than you traditionally would. Will the mix shift back towards trucks help offset some of the cash-for-clunker margin boosts fading away? I mean, how do you think about mix going into the fourth quarter? Is there going to be a big positive or nothing much to talk about there?

Answer By: Earl Hesterberg - Group 1 Automotive - President & CEO

Question: John Murphy - BAS-ML (Banc of America Securities-Merrill Lynch) - Analyst: Also, in the pricing environment from two perspectives. First on new. Are you seeing any new aggressive incentives or is there still relative the restraint there? And then second, on used. What are you seeing on used prices through October; and do you still see strength there on the used side?

Answer By: Earl Hesterberg - Group 1 Automotive - President & CEO

Question: John Murphy - BAS-ML (Banc of America Securities-Merrill Lynch) - Analyst: Okay. Lastly just on guidance, if we think about the fourth quarter. The way that you are thinking about the SAAR would imply a low 10 million unit SAAR for the fourth quarter, which sounds reasonable. That would equate to about a 2.4, 2.5 million unit actual number, not seasonalized or anything, but an actual 2.4 or 2.5; which is not too far off where you were in the second quarter. So if we look at the second quarter being in the ballpark of $0.40 and upper end of your guidance only implying $0.41, it doesn't seem like there was a lot of progress made at least in the way that you are thinking about the guidance right now from the second quarter to the fourth quarter. Is this just a conservative outlook, or do you really think that this is realistic? And are there any levers that you might pull potentially in addition, to what you have done already on the cost side? Is there anything else you can do?

Answer By: Earl Hesterberg - Group 1 Automotive - President & CEO

Question: John Murphy - BAS-ML (Banc of America Securities-Merrill Lynch) - Analyst: Thank you very much.

Question: Scott Stember - Sidoti & Company - Analyst: Morning. Could you flesh out the parts and service just a little bit more? What was the slight increase in customer pay that you referred to?

Answer By: Earl Hesterberg - Group 1 Automotive - President & CEO

Question: Scott Stember - Sidoti & Company - Analyst: On the collision side, could you maybe speak to the 4.8% increase?

Answer By: Earl Hesterberg - Group 1 Automotive - President & CEO

Question: Scott Stember - Sidoti & Company - Analyst: Anything that you could talk about within the collision business from an industry standpoint? With miles driven up, are you hearing anything to the effect that that is driving business as well?

Answer By: Earl Hesterberg - Group 1 Automotive - President & CEO

Question: Scott Stember - Sidoti & Company - Analyst: Okay. And could you just talk about how California is doing?

Answer By: Earl Hesterberg - Group 1 Automotive - President & CEO

Question: Scott Stember - Sidoti & Company - Analyst: And last question to talk about Texas and Oklahoma and what you are seeing there?

Answer By: Earl Hesterberg - Group 1 Automotive - President & CEO

Answer By: John Rickel - Group 1 Automotive - SVP & CFO

Question: Scott Stember - Sidoti & Company - Analyst: Got you. Thanks a lot guys.

Answer By: Earl Hesterberg - Group 1 Automotive - President & CEO

Question: Rick Nelson - Stephens Inc. - Analyst: Good morning. What are your thoughts about acquisitions given your strength on the balance sheet?

Answer By: Earl Hesterberg - Group 1 Automotive - President & CEO

Question: Rick Nelson - Stephens Inc. - Analyst: Earl, would you seeking to luxury main or mid-line imports?

Answer By: Earl Hesterberg - Group 1 Automotive - President & CEO

Question: Rick Nelson - Stephens Inc. - Analyst: How about the leverage ratio? If you did step up acquisitions, how far would you be willing to push the ratio?

Answer By: John Rickel - Group 1 Automotive - SVP & CFO

Question: Rick Nelson - Stephens Inc. - Analyst: Thank you for that. And if you could comment also on October tails, maybe as it relates to the momentum in September and where you stand with inventory levels at this time, given your 60-day target? I think you mentioned you were at 29 days at the end of the quarter.

Answer By: Earl Hesterberg - Group 1 Automotive - President & CEO

Question: Rick Nelson - Stephens Inc. - Analyst: The sequential improvement we saw in service and parts, same store in the quarter. How much of that was driven by internal with the increase in units and is that improvement sustainable as we move into the fourth quarter?

Answer By: John Rickel - Group 1 Automotive - SVP & CFO

Question: Rick Nelson - Stephens Inc. - Analyst: Great. Thank you. Good luck.

Answer By: Earl Hesterberg - Group 1 Automotive - President & CEO

Question: Derrick Wenger - Jefferies High Yield Trading - Analyst: Yes. What do you have available on your bank facilities, and what are the letter of credits drawn against it? And then also your capital expenditure outlook for the fourth quarter and next year?

Answer By: John Rickel - Group 1 Automotive - SVP & CFO

Question: Derrick Wenger - Jefferies High Yield Trading - Analyst: Thank you.

Answer By: John Rickel - Group 1 Automotive - SVP & CFO

Question: Matthew Nemer - Wells Fargo Securities - Analyst: Good morning, everyone. My first question relates to Q4 guidance. I was just wondering why you think the new vehicle margins could be down sequentially given the mix shift potentially back to trucks, and I would think away from the high-volume, but low-dollar margin vehicles like Camrys and Accords?

Answer By: Earl Hesterberg - Group 1 Automotive - President & CEO

Question: Matthew Nemer - Wells Fargo Securities - Analyst: And then on the same topic. You have got your F&I per unit down sequentially. Again, it would seem like the mix shift away from the cars program back to higher ASP units and less cash financings would drive that number a little bit higher sequentially.

Answer By: John Rickel - Group 1 Automotive - SVP & CFO

Question: Matthew Nemer - Wells Fargo Securities - Analyst: Okay. And then again, on the same topic. You have wiped out the wholesale profits, is that--do you think that used vehicle prices, obviously, they have stalled out; but do you see kind of wholesale market prices actually reversing and coming back down; or do you think that the lack of supply in the market keeps them relatively steady at this new higher level?

Answer By: Earl Hesterberg - Group 1 Automotive - President & CEO

Question: Matthew Nemer - Wells Fargo Securities - Analyst: Got it. And then two more quick ones. On mid-line import inventory, is there anyway to calculate or think about what that may have caused in terms of lost sales during the quarter? You mentioned that as that inventory starts to come back in, you think it will drive an improvement in sales?

Answer By: Earl Hesterberg - Group 1 Automotive - President & CEO

Question: Matthew Nemer - Wells Fargo Securities - Analyst: Then lastly, on your operating expenses. As gross profit improves over time and hopefully the SAAR level improves over time, how should we think about the semi-variable expenses coming back into the system? Is it a stair-step function? Are there certain SAAR levels, if we get to 13 or 14 where you rehire another new or used vehicle sales manager? How should that sort of flow back in over time?

Answer By: John Rickel - Group 1 Automotive - SVP & CFO

Question: Matthew Nemer - Wells Fargo Securities - Analyst: But philosophically do you feel like there has been a change in the way you will run this business over the next, say, five years? And it will be run at the store level in a much leaner fashion; or do you think as the SAAR gets back to 14, 15, that the expense ratios will be sort of similar to historic levels?

Answer By: Earl Hesterberg - Group 1 Automotive - President & CEO

Question: Matthew Nemer - Wells Fargo Securities - Analyst: Great. Thanks very much.

Question: Jordan Hymowitz - Philadelphia Financial - Analyst: Thanks for taking my question. First--couple of questions. First off, when I talk to a bunch of lenders, they increasingly say that the loan to wholesale amount they are willing to do is going down and the points they are requiring is going up. So with that in mind, why do you think--or why do you think people think that the F&I per vehicle sold is going to reverse itself? It seems like that amount will trend down as the lenders are requiring more and more payments and less and less overadvances?

Answer By: John Rickel - Group 1 Automotive - SVP & CFO

Question: Jordan Hymowitz - Philadelphia Financial - Analyst: Okay. So you would kind of concur then? Second, you didn't take in a lot of used vehicles with cash-for-clunkers because they had to be destroyed, and a lot of the used vehicles you take in normally have higher margins because you have auction costs and transportation. Would that also lead to lower used vehicle gross margins in the fourth quarter?

Answer By: Earl Hesterberg - Group 1 Automotive - President & CEO

Question: Jordan Hymowitz - Philadelphia Financial - Analyst: Okay. And next question is--and none of us are excellent at breaking the SAAR, or we'd all be in different jobs. But a lot of people are coming out and saying, like the last speaker of 14, 15 million SAAR; but it seems to me that almost 20% of the subprime financing--20% of the market which was subprime has been gone and unless (inaudible) and Triad and all these companies are coming back in business, it seems like there has been a permanent loss of about $3 million to $4 million in financing ability for cars. Plus, the rental car business is down 20% if you look at Hertz and Dollar Thrifty today. So my question is; again, no one is an exact guess, but do you really think a SAAR anymore than $13 million or $14 million in the next few years is even possible?

Answer By: Earl Hesterberg - Group 1 Automotive - President & CEO

Question: Jordan Hymowitz - Philadelphia Financial - Analyst: Okay. Okay. And you said as well that even if the SAAR picks up this month, do you know what the retail SAAR was as opposed to the overall SAAR; or estimated for September?

Answer By: Earl Hesterberg - Group 1 Automotive - President & CEO

Question: Jordan Hymowitz - Philadelphia Financial - Analyst: Thank you.

Question: Ryan Brinkman - JPMorgan Securities Inc. - Analyst: Could you please comment on the order of magnitude of the recent used vehicle price declines? Is it much different than what would be seasonally expected at this time of year?

Answer By: Earl Hesterberg - Group 1 Automotive - President & CEO

Question: Ryan Brinkman - JPMorgan Securities Inc. - Analyst: Thanks. Is there anything you can say about how demand is trending thus far in the fourth quarter?

Answer By: Earl Hesterberg - Group 1 Automotive - President & CEO

Question: Ryan Brinkman - JPMorgan Securities Inc. - Analyst: Okay, thanks a lot.

Question: Ken Rivlan - Rubicon Partners - Analyst: Good morning, guys. Just a quick question on the guidance, does that include an APB 14-1 for approximately $0.16?

Answer By: Earl Hesterberg - Group 1 Automotive - President & CEO

Question: Ken Rivlan - Rubicon Partners - Analyst: Okay. That is all I have. Thanks very much.

Answer By: Earl Hesterberg - Group 1 Automotive - President & CEO

Answer By: Earl Hesterberg - Group 1 Automotive - President & CEO