Group 1 Automotive Inc – IPO: ‘424B4’ on 10/30/97

As of:  Thursday, 10/30/97   ·   Accession #:  950129-97-4432   ·   File #:  333-29893

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Initial Public Offering (IPO):  Prospectus   —   Rule 424(b)(4)
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 424B4       Group 1 Automotive, Inc.                             160    862K 

Document Table of Contents

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                                                           Filed Pursuant to
                                                        Rule 424(B)(4)
                                                            Reg. No. 333-29893

4,800,000 SHARES

GROUP 1 AUTOMOTIVE, INC.

COMMON STOCK
(PAR VALUE $.01 PER SHARE)
--------------------- 
  Of the 4,800,000 shares of Common Stock offered hereby, 4,428,136 shares
are being sold by the Company and 371,864 shares are being sold by the Selling  
Stockholder. See "Principal and Selling Stockholders". The Company will not     
receive any of the proceeds from the sale of the shares being sold by the       
Selling Stockholder. Each share of Common Stock includes one right to purchase  
one one-thousandth of a share of Junior Participating Preferred Stock, which    
rights become exercisable upon the occurrence of certain events. See            
"Description of Capital Stock -- Stockholder Rights Plan".                      

Prior to this offering, there has been no public market for the Common
Stock of the Company. For factors considered in determining the initial public  
offering price, see "Underwriting".                                             

     SEE "RISK FACTORS" BEGINNING ON PAGE 15 FOR CERTAIN CONSIDERATIONS RELEVANT
TO AN INVESTMENT IN THE COMMON STOCK.                                           

The Common Stock has been approved for listing, subject to notice of  
issuance, on the New York Stock Exchange under the symbol "GPI".                
--------------------- 
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. 
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. 
--------------------- 

                                                        [Enlarge/Download Table]

                                  INITIAL PUBLIC  UNDERWRITING  PROCEEDS TO  PROCEEDS TO SELLING
                                  OFFERING PRICE   DISCOUNT(1)  COMPANY(2)      STOCKHOLDER(2)  
                                  --------------  ------------  -----------  -------------------
                                                                                                
Per Share........................     $12.00          $0.84       $11.16            $11.16      
Total(3).........................   $57,600,000    $4,032,000   $49,417,997       $4,150,003    

---------------                                                                 

(1) The Company and the Selling Stockholder have agreed to indemnify the        
 Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933.                                                 

(2) Before deducting estimated expenses of $5.0 million payable by the Company. 

(3) The Company has granted the Underwriters an option for 30 days to purchase  
   up to an additional 720,000 shares at the initial public offering price per
  share, less the underwriting discount, solely to cover over-allotments. If
  such option is exercised in full, the total initial public offering price,
underwriting discount and proceeds to the Company will be $66,240,000,  
$4,636,800 and $57,453,197, respectively. See "Underwriting".           
--------------------- 

 The shares offered hereby are offered severally by the Underwriters, as
specified herein, subject to receipt and acceptance by them and subject to their
right to reject any order in whole or in part. It is expected that certificates 
for the shares will be ready for delivery in New York, New York on or about     
November 4, 1997, against payment therefor in immediately available funds.      

GOLDMAN, SACHS & CO.                                                            
MERRILL LYNCH & CO.                                   
             NATIONSBANC MONTGOMERY SECURITIES, INC.
--------------------- 
The date of this Prospectus is October 29, 1997.

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[GRAPHICS]

THIS PROSPECTUS INCLUDES STATISTICAL DATA REGARDING THE AUTOMOTIVE    
RETAILING INDUSTRY. UNLESS OTHERWISE INDICATED, SUCH DATA IS TAKEN OR DERIVED   
FROM INFORMATION PUBLISHED BY (I) THE INDUSTRY ANALYSIS DIVISION OF THE NATIONAL
AUTOMOBILE DEALERS ASSOCIATION ("NADA") IN ITS NADA DATA 1996, (II) CRAIN       
COMMUNICATIONS INC. IN ITS AUTOMOTIVE NEWS 100-YEAR ALMANAC, 1996 MARKET DATA   
BOOK AND 1997 MARKET DATA BOOK, (III) ADT AUTOMOTIVE, INC. IN ITS 1997 USED CAR 
MARKET REPORT OR (IV) THE BUREAU OF THE CENSUS IN THE U.S. DEPARTMENT OF        
COMMERCE IN ITS STATISTICAL ABSTRACT OF THE UNITED STATES 1996 FROM THE NATIONAL
DATA BOOK.                                                                      

   NO MANUFACTURER (AS DEFINED UNDER "RISK FACTORS -- MANUFACTURERS' CONTROL
OVER DEALERSHIPS" ON PAGE 15 OF THIS PROSPECTUS) HAS BEEN INVOLVED, DIRECTLY OR 
INDIRECTLY, IN THE PREPARATION OF THIS PROSPECTUS OR IN THE OFFERING BEING MADE 
HEREBY. NO MANUFACTURER HAS MADE ANY STATEMENTS OR REPRESENTATIONS IN CONNECTION
WITH THE OFFERING OR PROVIDED ANY INFORMATION OR MATERIALS THAT WERE USED IN    
CONNECTION WITH THE OFFERING, AND NO MANUFACTURER HAS ANY RESPONSIBILITY FOR THE
ACCURACY OR COMPLETENESS OF THIS PROSPECTUS. THE COMPANY HAS AGREED TO INDEMNIFY
EACH MANUFACTURER WITH WHICH IT HAS A FRANCHISE AGREEMENT AGAINST CERTAIN       
LIABILITIES THAT MAY BE INCURRED IN CONNECTION WITH THE OFFERING, INCLUDING     
LIABILITIES UNDER THE SECURITIES ACT OF 1933.                                   

   CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,     
INCLUDING OVERALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN THE     
COMMON STOCK, AND THE IMPOSITION OF A PENALTY BID, IN CONNECTION WITH THE       
OFFERING. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING".            

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PROSPECTUS SUMMARY

    Group 1 Automotive, Inc. was formed in December 1995 to acquire automobile
dealerships and related operations and has conducted no operations to date.     
Immediately prior to the closing of the offering made hereby (the "Offering"),  
Group 1 Automotive, Inc. will acquire, in separate simultaneous transactions    
(collectively, the "Acquisitions") in exchange for $5.4 million and 9,074,914   
shares of its Common Stock, par value $.01 per share ("Common Stock"), 13       
corporations (each a "Founding Company" and, collectively, the "Founding        
Companies") that own automobile dealerships and related operations that are     
currently part of four separate dealership groups (the "Founding Groups"). The  
Offering is conditioned on the consummation of the Acquisitions. Unless         
otherwise indicated, all references to "Group 1 Automotive" herein mean Group 1 
Automotive, Inc. prior to consummation of the Acquisitions, and all references  
to the "Combined Company" and the "Company" herein mean Group 1 Automotive,     
Inc., as consolidated with the Founding Groups following consummation of the    
Acquisitions. See "The Acquisitions".                                           

 The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing    
elsewhere in this Prospectus. Unless otherwise indicated, all share, per share  
and financial information set forth herein (i) have been adjusted retroactively 
to give effect to (a) the Acquisitions and (b) a 900-for-one split of the       
outstanding shares of Common Stock of Group 1 Automotive effected on December   
13, 1996, and (ii) assume no exercise of the Underwriters' over-allotment       
option. See "Underwriting". Investors should carefully consider the information 
set forth in "Risk Factors".                                                    

THE COMBINED COMPANY

Group 1 Automotive was founded to become a leading operator and       
consolidator in the highly fragmented automotive retailing industry. Upon       
consummation of the Acquisitions, the Combined Company will own 30 automobile   
dealership franchises ("dealerships") and five collision service centers located
in Texas and Oklahoma that sell new and used cars and light trucks, provide     
maintenance and repair services, sell replacement parts and provide related     
financing, insurance and service contracts. The Combined Company will represent 
21 American and Asian brands including Acura, Chevrolet, Chrysler, Dodge, Eagle,
GMC, Honda, Isuzu, Jeep, Kia, Lexus, Lincoln, Mazda, Mercury, Mitsubishi,       
Nissan, Oldsmobile, Plymouth, Pontiac, Suzuki and Toyota. The Combined Company's
dealerships will include the second largest Toyota dealership in the United     
States as measured by 1996 new retail unit sales and one of the largest         
dealership groups in Oklahoma. The Founding Groups sold an aggregate of 38,000  
new and used retail units in 1996, which represented .11% of the number of new  
and used retail units sold by franchised dealers in the United States in 1996.  

The principals of the Founding Groups have over 90 years of combined  
experience in the automotive retailing industry with family ownership dating    
back as far as 1917. In addition, the principals of the Founding Groups have    
been recognized as leaders in the automotive retailing industry, serving at     
various times in leadership positions in state and national industry            
organizations. The Founding Groups' dealerships have also received numerous     
awards based on various performance measures. The principals of the Founding    
Groups will continue to manage their businesses and play a significant role in  
the Combined Company's operating and acquisition strategies.                    

Group 1 Automotive believes that the Combined Company's structural,   
managerial and operational strengths will include (i) brand and geographic      
diversity; (ii) the ability to capitalize on regional economies of scale; (iii) 
cost savings derived from nationally centralized financing and administrative   
functions; (iv) the experience of the Combined Company's senior management in   
successfully consolidating and operating in highly fragmented industries; (v)   
the reputations, experience and performance of the Founding Groups' management  
and principals as leaders in the automotive retailing industry; (vi) the        
established customer base and local name recognition of the Founding Groups'    
dealerships; (vii) the Founding Groups' proven ability to source high quality   
used vehicles cost-effectively through trade-ins and off-lease programs; and    
(viii) access to equity incentives to attract and retain high quality personnel.
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     The Combined Company will pursue a growth strategy led by a management team
with extensive experience in consolidation and the management of growth         
companies. B.B. Hollingsworth, Jr., Chairman of the Board, President and Chief  
Executive Officer of the Combined Company, has experience not only in the       
automotive retailing industry, but also in consolidating a major national       
industry, having served in various senior management capacities, including      
President, of Service Corporation International during its early growth period  
as the world's leading consolidator of the funeral industry. In addition, John  
T. Turner, Senior Vice President -- Corporate Development, has been actively    
involved in the acquisition efforts of Service Corporation International,       
serving under Mr. Hollingsworth as Senior Vice President -- Corporate           
Development and serving more recently as Managing Director -- Corporate         
Development, Europe. See "Management".                                          

     The U.S. automotive retailing industry is estimated to have annual sales in
excess of $600 billion, with the 100 largest dealer groups generating less than 
10% of total sales revenue and controlling approximately 5% of the 22,000       
existing franchised dealership locations (representing approximately 53,000     
dealerships). It is estimated that sales by franchised automobile dealers       
account for one-fifth of the nation's total retail sales of all products and    
merchandise. Group 1 Automotive believes that the enormous size and the         
fragmentation of the industry, together with increasing capital costs of        
operating automobile dealerships, lack of a viable exit strategy (especially for
larger dealerships) and the aging of dealership owners provide an attractive    
environment for the Combined Company's consolidation opportunities. In addition,
many successful and entrepreneurial "megadealers" have expressed interest in    
expanding their operations, but have been restrained by a lack of capital. Group
1 Automotive believes that the Combined Company will provide an attractive      
opportunity for these megadealers due to the Combined Company's formation by a  
consolidation of similar megadealers, its access to the public capital markets, 
and its position as a vehicle for growth.                                       

BUSINESS STRATEGY                                                               

Group 1 Automotive plans to achieve its goal of becoming a leading    
consolidator, while maintaining its high operating standards in the automotive  
retailing industry, by (i) enhancing growth through acquisitions and (ii)       
implementing an operating strategy that focuses on decentralized dealership     
operations, nationally centralized administrative functions, the expansion of   
higher margin businesses, a commitment to customer service and the              
implementation of new technology initiatives. By complementing the Founding     
Group's industry leaders, management talent and proven operating capabilities   
with a corporate management team which is experienced in achieving and managing 
long-term growth in a consolidation environment, Group 1 Automotive believes    
that the Combined Company will be in a strong position to execute this strategy.

GROWTH THROUGH ACQUISITIONS                                           

 Group 1 Automotive intends to implement an aggressive, yet disciplined,
acquisition program by pursuing (i) large, profitable and well managed          
"platform" acquisitions in large metropolitan and high-growth suburban          
geographic markets that the Founding Groups do not currently serve and (ii)     
smaller "add-on" acquisitions that will allow the Combined Company to increase  
brand diversity, capitalize on regional economies of scale and offer a greater  
breadth of products and services in each of the markets in which it operates. In
this regard, Group 1 Automotive has negotiated and executed an arrangement      
letter with Chase Securities Inc. and Comerica Bank for a $125 million credit   
facility (the "Credit Facility"), of which a portion will be used, in           
combination with the Combined Company's common stock, for acquisitions. See     
"Management's Discussion and Analysis of Financial Condition and Results of     
Operations -- Combined Founding Groups' Commitments -- Credit Facility".        

    ENTERING NEW GEOGRAPHIC MARKETS. Group 1 Automotive intends to expand into
geographic markets it does not currently serve by acquiring large, profitable   
and well established megadealers ("platforms") that, like the Founding Groups,  
are leaders in their regional markets. The Combined Company will target new     
platform megadealers having superior operational and financial management       
personnel which the Combined Company will seek to retain. Group 1 Automotive    
believes that the                                                               
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retention of existing high quality management will enable acquired megadealers  
to continue to operate effectively with management personnel who understand the 
local market, while allowing the Combined Company to source future acquisitions 
more effectively and expand its operations without having to employ and train   
untested new personnel. Moreover, Group 1 Automotive believes that the Combined 
Company will be well positioned to pursue larger, well established acquisition  
candidates as a result of its depth of management, the Combined Company's       
capital structure and the reputation of the principals of the Founding Groups as
leaders in the automotive retailing industry.                                   

EXPANDING WITHIN EXISTING MARKETS. Group 1 Automotive plans to acquire
additional dealerships in each of the markets in which it operates ("add-ons"), 
including acquisitions that increase the brands, products or services offered in
that market. Group 1 Automotive believes that these acquisitions will facilitate
the Combined Company's operating efficiencies and cost savings on a regional    
level in areas such as facility and personnel utilization, vendor consolidation 
and advertising. Group 1 Automotive has recently entered into definitive        
agreements to acquire, subject to manufacturer approval and a due diligence     
investigation, two dealership locations consisting of Acura, Buick, Dodge, Ford,
Mercedes-Benz, Nissan and Volvo dealerships in Texas for aggregate payments of  
$9.0 million in cash. These two acquisitions, if consummated, would also require
the Combined Company to incur approximately $13.0 million of floorplan          
indebtedness in connection with the purchase of vehicle inventories of the      
dealerships.                                                                    

MANUFACTURERS' LIMITATIONS ON ACQUISITIONS. The Combined Company's    
acquisition program may be limited to some extent by the Manufacturers (as      
defined herein). Under the limitations currently imposed by the Manufacturers,  
the Combined Company could acquire no more than five additional Toyota          
dealerships, two additional Lexus dealerships, four additional Honda            
dealerships, one additional Acura dealership, approximately 400 additional Ford 
and Lincoln Mercury dealerships and 10 additional GM dealership locations       
(within the next two years, subject to being increased). The Combined Company,  
upon consummation of the Acquisitions, will own two Toyota, one Lexus, three    
Honda, two Acura, one Lincoln and one Mercury franchise and three GM dealership 
locations. The other Manufacturers, which have no such limitations, accounted   
for the following approximate number of dealerships in the United States, as of 
December 31, 1996: Chrysler Corporation, 13,000 (at 4,600 locations); Nissan,   
1,200; Mitsubishi, 500; Isuzu, 500; Suzuki, 300; and Kia, 200. However, not all 
of these existing dealership locations and franchises may be eligible for       
acquisition. In addition, all of the Manufacturers, whether or not they have    
numerical limitations on the number of dealerships that may be acquired, will   
require the Combined Company to obtain the consent of the applicable            
Manufacturer prior to the acquisition of any dealership franchises of such      
Manufacturer, and may withhold such consents based on other considerations, such
as the failure of existing dealerships to comply with their franchise agreements
or to meet required CSI scores, or the ownership by the Combined Company of     
dealerships of competing Manufacturers. Also, as a condition to granting its    
consent to the transfer of the three Honda and two Acura dealerships to be      
acquired by Group 1 Automotive pursuant to the Acquisitions, American Honda has 
imposed additional restrictions on the Combined Company, including a requirement
that more than 50% of the outstanding Common Stock of the Combined Company be   
owned at all times by persons approved by American Honda, restrictions on       
transfers of the shares of Common Stock acquired by the stockholders of the     
Founding Companies pursuant to the Acquisitions, and the requirement that       
American Honda approve the ownership by any stockholder of 5% or more of the    
Common Stock of the Combined Company (other than certain institutional          
investors, which may own up to 10%), as well as any future public offering of   
Common Stock of the Combined Company. All of the foregoing could have the effect
of limiting the Combined Company's ability to implement its acquisition program.
In addition, American Honda's policy on public ownership of Honda and Acura     
dealerships requires that individuals or entities that acquire, own or control  
more than 5% of the Common Stock of the Combined Company must provide American  
Honda with copies of all filings made to the Securities and Exchange Commission,
all comparable filings made to state agencies and annual audited financial      
statements. See "Risk Factors -- Manufacturers' Control over Dealerships", "Risk
Factors -- Restrictions Imposed by Agreement with American Honda Motor Co.,     
Inc.", "Risk Factors -- Risks Relating to Failure to Meet Manufacturer CSI      
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Scores" and "Risk Factors -- Dependence on Acquisitions for Growth;             
Manufacturers' Restrictions on Acquisitions".                                   

   Of the approximately 15 million new vehicles sold in the United States in
1996, approximately 31.3% were manufactured by General Motors Corporation       
("GM"), 25.4% were manufactured by Ford Motor Company, 16.2% were manufactured  
by Chrysler Corporation, 7.7% were manufactured by Toyota Motor Corp., 5.6% were
manufactured by Honda Motor Co., Ltd, 5.0% were manufactured by Nissan Motor    
Co., Ltd and 8.8% were manufactured by other manufacturers.                     

OPERATING STRATEGY                                                    

    Group 1 Automotive intends to implement an operating strategy that focuses
on decentralized dealership operations, nationally centralized administrative   
functions, expansion of higher margin businesses, commitment to customer service
and new technology initiatives.                                                 

Group 1 Automotive has formed an operations committee comprised of the
chief operating officers of the Founding Groups and the general managers of the 
dealerships in order to identify and share best practices. Group 1 Automotive   
intends to incorporate the key officers and management of the Combined Company's
future acquisitions into this operations committee. Group 1 Automotive believes 
that this operations committee will promote the widespread application of the   
Combined Company's broad strategic initiatives, facilitate the integration of   
the Founding Groups and future acquisitions and improve operating efficiency and
overall customer satisfaction.                                                  

DECENTRALIZED DEALERSHIP OPERATIONS. Group 1 Automotive believes that 
decentralizing the Combined Company's dealership operations on a regional, or   
platform, basis will enable it to provide superior customer service and a       
focused, market-specific responsiveness to sales, service, marketing and        
inventory control. Local presence and an in-depth knowledge of customers' needs 
and preferences are important in generating internally-driven market share      
growth. By coordinating certain operations on a platform basis, Group 1         
Automotive believes that the Combined Company will achieve cost savings in such 
areas as vendor consolidation, facility and personnel utilization and           
advertising. Group 1 Automotive intends to create incentives for the Combined   
Company's entrepreneurial management teams and sales forces at the regional     
level through the use of stock options and/or cash bonus programs.              

NATIONALLY CENTRALIZED ADMINISTRATIVE FUNCTIONS. The consolidation of 
purchasing power on a centralized basis in the area of financing should result  
in significant cost savings. For example, in connection with the Offering, all  
of the Combined Company's floorplan financing will benefit from interest rate   
reductions. Rate reductions have already become effective with respect to       
approximately 75% of the Founding Groups' floorplan debt. The current reductions
range between 25 and 225 basis points. Additionally, the Combined Company's     
Credit Facility, once closed, will result in further rate reductions. Subsequent
to the Offering, the Combined Company intends to refinance approximately $50    
million in floorplan financing with the Credit Facility. The impact of these    
changes is expected to reduce the Combined Company's annual interest expense by 
more than $1.0 million. Furthermore, Group 1 Automotive expects that significant
cost savings can be achieved through the consolidation of administrative        
functions such as risk management, employee benefits and employee training. For 
example, Group 1 Automotive has negotiated insurance coverage that is expected  
to result in annual cost savings to the Combined Company of approximately 25 to 
30 percent.                                                                     

EXPAND HIGHER MARGIN ACTIVITIES. The Combined Company will focus on   
expanding higher margin businesses such as used vehicle retail sales, service   
and parts and finance and insurance. While each of the Combined Company's       
platforms will be able to operate independently in a manner consistent with its 
specific market's characteristics, each platform will pursue an integrated      
strategy to grow each of these higher margin businesses to enhance profitability
and stimulate internal growth. With a competitive advantage in sourcing, the    
ability to provide manufacturer-backed extended service contracts, and          
attractive lease financing, new vehicle franchises are especially well          
positioned to capitalize on industry growth in used vehicle sales. In addition, 
each of the Combined Company's dealerships will offer an integrated service and 
parts department, which will provide an important source of recurring higher    
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margin revenues. The Combined Company also will have the opportunity on each new
or used vehicle sold to generate incremental revenues from the sale of extended 
service contracts, credit insurance policies and finance and lease contracts.   
Each of these business areas will be a focus of internal growth.                

FOUNDING GROUPS                                                                 

     The Combined Company will be formed by a consolidation of the businesses of
the following previously separate dealership groups:                            

HOWARD GROUP. This group is one of the largest dealership groups in   
Oklahoma, consisting of Acura, Chevrolet, Chrysler, Dodge, Eagle, GMC, Honda,   
Isuzu, Jeep, Mazda, Plymouth, Pontiac and Toyota dealerships located in Oklahoma
City (the "Howard Group"). Additionally, the Howard Group has entered into an   
agreement to purchase a Chevrolet dealership in Tulsa, Oklahoma for the         
assumption of all of its liabilities, which are currently approximately $2.5    
million. See "The Acquisitions". Robert E. Howard II, the principal owner, has  
been involved in the automotive retailing industry for over 28 years. In 1996,  
the Howard Group sold 8,181 new vehicles. From 1994 to 1996, the Howard Group's 
revenues increased by $54.7 million, or 24.1%, to $282.0 million from $227.3    
million. During this period, gross profit increased $9.3 million, or 32.9%, to  
$37.6 million from $28.3 million.                                               

   MCCALL GROUP. This group consists of the second largest Toyota dealership
in the United States, as ranked by 1996 new retail unit sales, and a Lexus      
dealership, both located in Houston, Texas (the "McCall Group"). Sterling B.    
McCall, Jr., the principal owner, has been involved in the automotive retailing 
industry for more than 27 years, having been granted the first stand-alone      
exclusive Toyota dealership in Houston. In 1996, the McCall Group sold 6,458 new
vehicles. From 1994 to 1996, the McCall Group's revenues increased by $111.2    
million, or 62.7%, to $288.5 million from $177.3 million. During this period,   
gross profit increased $14.3 million, or 57.9%, to $39.0 million from $24.7     
million.                                                                        

    SMITH GROUP. This group consists of an Acura dealership in Houston, Texas,
Honda, GMC, Oldsmobile, Mitsubishi, Lincoln, Mercury and Kia dealerships in     
Beaumont, Texas, a Nissan dealership in Richardson, Texas (a suburb of Dallas)  
and two Nissan dealerships, one Mitsubishi dealership and one Suzuki dealership 
in the Austin, Texas area (the "Smith Group"). The Smith family has been in the 
automotive retailing business since 1917. In 1996, the Smith Group sold 5,983   
new vehicles. From 1994 to 1996, the Smith Group's revenues increased by $1.2   
million, or 0.6%, to $218.3 million from $217.1 million. During this period,    
gross profit increased $1.9 million, or 7.0%, to $29.1 million from $27.2       
million.                                                                        

   KINGWOOD GROUP. This group consists of one Honda and one Isuzu dealership
in Kingwood, Texas, a suburb of Houston (the "Kingwood Group"). The Honda       
dealership was established in 1989 and the Isuzu dealership was established in  
1996. Mr. Hollingsworth, and John H. Duncan, a director of the Combined Company,
own interests in these dealerships. In 1996, the Kingwood Group sold 756 new    
vehicles. From 1994 to 1996, the Kingwood Group's revenues increased by $4.9    
million, or 15.8%, to $35.9 million from $31.0 million. During this period,     
gross profit increased $1.5 million, or 39.5%, to $5.3 million from $3.8        
million.                                                                        
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CONSIDERATION PAID IN THE ACQUISITIONS

The following table sets forth the consideration being paid for each  
Founding Group:                                                                 

                                                                [Download Table]

                                              CONSIDERATION                   
                                        -------------------------             
                                         COMMON                               
                                          STOCK           CASH      VALUE(1)  
                                        ---------      ----------  -----------
                                                                              
Howard Group........................... 3,570,302(2)   $2,300,000  $30,148,356
McCall Group........................... 2,318,826              --   18,086,843
Smith Group............................ 2,725,933              --   22,824,106
Kingwood Group.........................   459,853      $3,100,000    6,686,853
                                        ---------      ----------  -----------
          Total........................ 9,074,914      $5,400,000  $77,746,158
                                        =========      ==========  ===========

---------------                                                                 

(1) The value of the shares of Common Stock issued in connection with the       
Acquisitions (other than the Common Stock to be sold by the Selling     
    Stockholder) was discounted by 35% from the initial public offering price of
  $12.00 to give effect to the two year lock-up that each stockholder of the
 Founding Companies entered into in connection with the Acquisitions. This
    discount was based on an independent valuation study as to the impact of the
restrictions on the value of the Common Stock.                          

(2) Includes 592,303 shares of Common Stock issued to Mr. Howard in the         
Acquisitions and placed in escrow pursuant to the terms described below.

    Bob Howard Automotive-East, Inc. ("Bob Howard East"), a corporation wholly
owned by Mr. Howard, has entered into an agreement to purchase a Chevrolet      
dealership in Tulsa, Oklahoma (the "Tulsa Dealership") for approximately $2.5   
million. This purchase price was funded by a $2.5 million loan, bearing interest
at the prime rate plus 100 basis points, from Mr. Howard to Bob Howard East. GM 
has denied its approval of Bob Howard East's acquisition of the Tulsa Dealership
due to the Howard Group's failure to meet GM's required CSI score levels. The   
Combined Company, through Howard Pontiac-GMC, Inc. ("Bob Howard Automall"), one 
of the Founding Companies, has entered into an agreement to purchase Bob Howard 
East for the assumption of all Bob Howard East's liabilities, which consist of  
the $2.5 million loan from Mr. Howard to Bob Howard East. These acquisitions    
will be consummated immediately upon GM's approval of such acquisitions.        

When the Founding Groups allocated the shares of Common Stock to be   
received by each Founding Group in the Acquisitions, it was anticipated that the
acquisition of the Tulsa Dealership would be consummated prior to consummation  
of the Acquisitions. Mr. Howard was to receive 592,303 shares of Common Stock in
the Acquisitions as consideration for the Tulsa Dealership. These shares will be
held in escrow pending the acquisition of the Tulsa Dealership.                 

    Upon consummation of Bob Howard East's acquisition of the Tulsa Dealership
and the Combined Company's acquisition of Bob Howard East, the escrowed shares  
will be released to Mr. Howard. In this event, the consideration to be paid to  
Mr. Howard for the Tulsa Dealership will be (i) the 592,303 shares of Common    
Stock (having a value of approximately $4.6 million, which will be profit to Mr.
Howard, based on the initial offering price of $12.00 per share discounted by   
35%) and (ii) the assumption of Bob Howard East's $2.5 million liability to Mr. 
Howard. This consideration will be paid to Mr. Howard by the Combined Company   
(through Bob Howard Automall).                                                  

     If these two acquisitions are not consummated with GM's approval within two
years of the Offering: (i) the Combined Company will not acquire the Tulsa      
Dealership, (ii) Bob Howard East's $2.5 million liability to Mr. Howard will not
be assumed by the Combined Company, (iii) Bob Howard East will retain the right 
to acquire the Tulsa Dealership and (iv) rather than being distributed solely to
Mr. Howard, the escrowed shares will be distributed pro rata to the stockholders
of the Founding Companies. This pro rata distribution will be allocated as      
follows: the McCall Group, 161,913 shares; the Smith Group, 190,340 shares; the 
Howard Group, 207,940 shares; and the Kingwood Group, 32,110 shares. If the     
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Combined Company does not acquire the Tulsa Dealership and the escrowed shares  
are distributed pro rata, the Combined Company will recognize additional        
goodwill of approximately $3.0 million.                                         

The escrowed shares will remain outstanding regardless of whether the 
acquisition of the Tulsa Dealership is consummated, and the Combined Company    
will receive no additional consideration or assets if such shares are           
distributed pro rata as described above. If the Combined Company's acquisition  
of the Tulsa Dealership is not consummated, the fair value of the Howard Group's
contribution to the Combined Company will decrease and the fair value of the    
Smith Group's, McCall Group's and Kingwood Group's contributions to the Combined
Company will remain the same. The treatment of the escrowed shares and the terms
and conditions upon which such shares are to be released were the subject of    
arms-length negotiations among the Founding Groups. The Board of Directors of   
Group 1 Automotive believes that the potential pro rata distribution of the     
escrowed shares to the stockholders of the Founding Companies is a fair         
reallocation of the fixed number of shares of Common Stock to be issued to the  
Founding Groups in the Acquisitions, based upon the increased relative          
contribution of the McCall, Smith and Kingwood Groups and the decreased relative
contribution of the Howard Group.                                               

 See "Risk Factors -- Risks Relating to Failure to Meet Manufacturer CSI
Scores".                                                                        

     The consideration to be paid by Group 1 Automotive for each of the Founding
Companies was determined by negotiations among the principals of the Founding   
Companies as to the relative value of each of the Founding Companies. As such,  
no one individual determined the consideration to be paid in connection with the
Acquisitions. Group 1 Automotive and the Founding Companies did not use an      
independent third party to determine the relative values of each of the Founding
Companies but agreed among themselves on the values attributable to each of the 
Founding Companies based on an evaluation of each of the Founding Companies'    
operating results and prospects for growth. At the time of the execution of the 
Stock Purchase Agreements in connection with the Acquisitions, Messrs.          
Hollingsworth, Howard, McCall and Smith were, in addition to stockholders of    
certain of the Founding Companies, directors of Group 1 Automotive. In addition,
at the time of execution of such Stock Purchase Agreement, Mr. Hollingsworth,   
was the sole stockholder of Group 1 Automotive. As a result, Messrs.            
Hollingsworth, Howard, McCall and Smith might be considered to have a conflict  
of interest with respect to the Acquisitions. The only steps taken to resolve   
any such conflicts was ratification of all of the Stock Purchase Agreements by  
all members of the Board of Directors of Group 1 Automotive.                    

CONSIDERATION RECEIVED BY RELATED PARTIES 

    In connection with the Acquisitions, the following directors, officers and
stockholders owning more than 5% of the Common Stock together with their spouses
and affiliates will receive shares of Common Stock as follows: Mr.              
Hollingsworth -- 196,368 shares of Common Stock (excluding the 350,000 shares of
Common Stock that Mr. Hollingsworth currently owns); Mr. Howard -- 2,956,955    
shares of Common Stock; Mr. McCall -- 1,461,031 shares of Common Stock; Mr.     
Smith -- 679,181 shares of Common Stock; Mr. Duncan -- 196,368 shares of Common 
Stock; Mr. Whalen -- 774,040 shares of Common Stock. In addition, Mr. Howard    
will receive $2.3 million in cash in the Acquisitions.                          

   The following directors, officers and 5% stockholders together with their
affiliates have guaranteed, as of June 30, 1997, aggregate indebtedness of      
certain of the Founding Companies as follows: Mr. Hollingsworth -- $2.7 million;
Mr. Howard -- $37.8 million; Mr. McCall -- $30.6 million; Mr. Smith -- $5.2     
million; Mr. Duncan -- $2.7 million. In connection with the Acquisitions, the   
Combined Company will take all commercially reasonable efforts to obtain the    
release of guarantees by certain of the Founding Company stockholders of certain
secured debt of the Founding Companies.                                         

     Directors, officers and 5% stockholders, or affiliates of such persons, who
have incurred indebtedness that is secured by guarantees of certain Founding    
Companies and the amounts of such indebtedness, as of June 30, 1997, are as     
follows: Mr. Howard, approximately $7.8 million; Mr. McCall and affiliates,     
approximately $8.0 million; and Mr. Smith and affiliates, approximately $4.6    
million. With the exception of the Round Rock guarantee described below, all    
applicable lenders have agreed to release                                       
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such guarantees upon consummation of the Offering. One of the Founding Companies
(Round Rock Nissan) will continue to guarantee approximately $2.4 million of    
indebtedness of SKLR Round Rock, L.C., a limited liability company in which Mr. 
Smith owns a 22% interest. If such guarantee is not released within 90 days of  
consummation of the Acquisitions, the Combined Company will have the option to  
acquire certain property securing such indebtedness. See "Certain               
Transactions -- Loans".                                                         

In connection with the Acquisitions, all related party receivables and
payables are being settled. Such transactions will result in a net payment of   
$19,720, as of June 30, 1997, by the McCall Group to Mr. McCall. Additionally,  
as part of the Acquisitions, certain of the Founding Companies will distribute  
pre-acquisition S corporation accumulated adjustment accounts to their          
stockholders. Such distributions will result in the payment of approximately    
$97,104 to Mr. Hollingsworth, $3.4 million to Mr. Howard, $337,500 to Mr. Smith 
and $97,104 to Mr. Duncan.                                                      

 Certain of the properties leased by the Founding Companies are owned by
officers, directors or 5% stockholders of the Combined Company or their         
affiliates. As part of the Acquisitions, the Founding Companies will replace    
each of these related party leases (with the exception of one related party     
lease described in "Certain Transactions -- Leases") with a standard lease      
agreement. The rent on each of these properties will initially be the same as   
the rent on the properties prior to consummation of the Acquisitions subject to 
adjustment every five years based on the Consumer Price Index. For a detailed   
description of these leases, see "Certain Transactions -- Leases".              

Messrs. McCall and Whalen own 18% and 11%, respectively, of Dealer    
Solutions, L.L.C. ("DSL"), which will provide management information systems,   
software and related services to certain dealerships of the Combined Company and
receives certain fees in connection therewith. For a detailed description of the
agreement between DSL and the Combined Company, see "Certain                    
Transactions -- Other".                                                         

    Upon the completion of the Offering, options to purchase 325,000 shares of
Common Stock at the initial public offering price will be granted to officers   
and directors of the Combined Company as compensation for future services to be 
rendered to the Combined Company as follows: Mr. Hollingsworth -- 100,000; Mr.  
Turner -- 125,000; Mr. Thompson -- 80,000; Mr. Duncan -- 10,000 and Mr. Bidwell 
-- 10,000.                                                                      

   Group 1 Automotive was incorporated in Delaware in December 1995, and its
principal executive offices are located at 950 Echo Lane, Suite 350, Houston,   
Texas. Its telephone number is (713) 467-6268.                                  
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THE OFFERING (1)

                                                        [Enlarge/Download Table]
                                                                                                   
Common Stock offered by the Combined Company.......... 4,428,136 shares                            
Common Stock offered by the Selling Stockholder....... 371,864 shares                              
     Total............................................ 4,800,000 shares                            
Common Stock to be outstanding after the                                                           
  Offering(2)......................................... 13,953,050 shares                           
Proposed NYSE Symbol.................................. GPI                                         
Use of Proceeds....................................... The estimated net proceeds to the Combined  
                                                       Company of the Offering will be $45.1       
                                                       million, of which approximately $5.4 million
                                                       will be used to pay the cash portion of the 
                                                       Acquisitions and approximately $35.5 million
                                                       will be used to repay outstanding           
                                                       indebtedness. The balance will be used for  
                                                       working capital and general corporate       
                                                       purposes, including potential acquisitions. 
                                                       See "Certain Transactions" and "Use of      
                                                       Proceeds".                                  

---------------                                                                 

(1) Assumes that the Underwriters' over-allotment option is not exercised.      

(2) Includes 9,074,914 shares of Common Stock to be issued in connection with   
    the Acquisitions. Excludes 565,000 shares of Common Stock subject to options
    granted under Group 1 Automotive's 1996 Stock Incentive Plan, 661,700 shares
   of Common Stock subject to options to be granted under Group 1 Automotive's
1996 Stock Incentive Plan prior to completion of the Offering and an    
 additional 773,300 shares of Common Stock reserved for issuance under the
 1996 Stock Incentive Plan. See "Management -- 1996 Stock Incentive Plan".
  Also excludes 200,000 shares of Common Stock which may be issued under the
 1998 Employee Stock Purchase Plan. See "Management -- 1998 Employee Stock
Purchase Plan".                                                         

RISK FACTORS

    See "Risk Factors" beginning on page 15 for a description of certain risks
relevant to an investment in the Common Stock.                                  
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SUMMARY FINANCIAL DATA

  Group 1 Automotive will acquire the Founding Groups immediately prior to
the consummation of the Offering. For financial statement purposes, however, the
Howard Group has been identified as the accounting acquiror. The following      
summary financial data presents, for the year ended December 31, 1996, and as of
and for the six months ended June 30, 1997, certain historical and pro forma    
data for the Founding Groups. See "Selected Financial Data" and the Pro Forma   
Financial Statements and the notes thereto included elsewhere in this           
Prospectus.                                                                     

                                                        [Enlarge/Download Table]

                                             FOR THE YEAR ENDED DECEMBER 31, 1996          
                                   --------------------------------------------------------
                                    HOWARD     MCCALL     SMITH     KINGWOOD   PRO FORMA(1)
                                   --------   --------   --------   --------   ------------
                                   (DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
                                                                                           
INCOME STATEMENT DATA(2):                                                                  
Revenues                                                                                   
  New vehicle sales............... $164,979   $166,382   $124,174   $13,784      $469,318  
  Used vehicle sales..............   88,477     90,895     60,579    18,075       258,027  
  Parts & service sales...........   21,173     24,454     28,631     2,925        77,184  
  Other dealership revenues,                                                               
     net..........................    7,387      6,811      4,895     1,165        21,117  
                                   --------   --------   --------   -------      --------  
     Total revenues...............  282,016    288,542    218,279    35,949       825,646  
Cost of sales.....................  244,396    249,560    189,169    30,640       712,772  
                                   --------   --------   --------   -------      --------  
     Gross profit.................   37,620     38,982     29,110     5,309       112,874  
Goodwill amortization.............       37         --         67        --           854  
Selling, general and                                                                       
  administrative expenses.........   30,731     35,072     23,644     3,997        93,510  
                                   --------   --------   --------   -------      --------  
     Income from operations.......    6,852      3,910      5,399     1,312        18,510  
Other income and expense                                                                   
  Interest expense, net...........   (1,194)    (2,748)    (1,710)     (439)       (3,247) 
  Other income (expense), net.....      (69)       (45)       223        67           175  
                                   --------   --------   --------   -------      --------  
     Income before taxes..........    5,589      1,117      3,912       940        15,438  
Provision for income taxes........      382        178        678        41         6,435  
                                   --------   --------   --------   -------      --------  
     Net income................... $  5,207   $    939   $  3,234   $   899      $  9,003  
                                   ========   ========   ========   =======      ========  
Earnings per share................                                               $   0.63  
Weighted average shares                                                                    
  outstanding.....................                                                 14,382  
OTHER DATA:                                                                                
Gross margin......................    13.3%      13.5%      13.3%     14.8%         13.7%  
Operating margin..................     2.4%       1.4%       2.5%      3.6%          2.2%  
Pre-tax margin....................     2.0%       0.4%       1.8%      2.6%          1.9%  

Retail new vehicles sold..........    8,181      6,458      5,983       756        21,378  
Retail used vehicles sold.........    7,779      4,496      3,844     1,101        17,220  

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                                                        [Enlarge/Download Table]

                                      FOR THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)   
                                   --------------------------------------------------------
                                    HOWARD     MCCALL     SMITH     KINGWOOD   PRO FORMA(1)
                                   --------   --------   --------   --------   ------------
                                   (DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
                                                                                           
INCOME STATEMENT DATA(2):                                                                  
Revenues                                                                                   
  New vehicle sales............... $ 84,922   $ 81,609   $ 75,203   $10,095      $251,830  
  Used vehicle sales..............   54,354     49,796     35,153     9,264       148,567  
  Parts & service sales...........   10,763     12,305     14,082     1,251        38,400  
  Other dealership revenues,                                                               
     net..........................    4,006      3,243      3,021       634        11,546  
                                   --------   --------   --------   -------      --------  
     Total revenues...............  154,045    146,953    127,459    21,244       450,343  
Cost of sales.....................  134,130    127,276    109,914    18,275       389,093  
                                   --------   --------   --------   -------      --------  
     Gross profit.................   19,915     19,677     17,545     2,969        61,250  
Goodwill amortization.............       20         --         28         4           399  
Selling, general and                                                                       
  administrative expenses.........   16,433     17,546     13,818     2,416        50,865  
                                   --------   --------   --------   -------      --------  
     Income from operations.......    3,462      2,131      3,699       549         9,986  
Other income and expense                                                                   
  Interest expense, net...........     (808)      (504)      (941)      (93)         (949) 
  Other income (expense), net.....       34        (34)       (19)       --           (18) 
                                   --------   --------   --------   -------      --------  
     Income before taxes..........    2,688      1,593      2,739       456         9,019  
Provision for income taxes........      166        637        531        21         3,720  
                                   --------   --------   --------   -------      --------  
     Net income................... $  2,522   $    956   $  2,208   $   435      $  5,299  
                                   ========   ========   ========   =======      ========  
Earnings per share................                                               $   0.37  
Weighted average shares...........                                                 14,382  
OTHER DATA:                                                                                
Gross margin......................    12.9%      13.4%      13.8%     14.0%         13.6%  
Operating margin..................     2.2%       1.5%       2.9%      2.6%          2.2%  
Pre-tax margin....................     1.7%       1.1%       2.1%      2.1%          2.0%  
Retail new vehicles sold..........    4,093      3,037      3,972       523        11,625  
Retail used vehicles sold.........    4,312      2,149      2,181       561         9,203  

                                                        [Enlarge/Download Table]

                                                                    AS OF JUNE 30, 1997       
                                                             ---------------------------------
                                                                                 PRO FORMA    
                                                             PRO FORMA(3)    AS ADJUSTED(4)(5)
                                                             ------------    -----------------
                                                                                              
BALANCE SHEET DATA:                                                                           
Working capital (deficit)...................................   $   (551)         $ 48,034     
Inventories.................................................    107,260           107,260     
Total assets................................................    210,422           210,410     
Total debt..................................................    107,026            71,484     
Stockholders' equity........................................     47,490            91,906     

---------------                                                                 

(1) Pro forma information gives effect to (i) the Acquisitions on an historical 
basis, (ii) the consummation of the Offering and (iii) certain pro forma
   adjustments to the historical financial statements. See Pro Forma Financial
   Statements and the notes thereto beginning on page F-3 for a description of
the pro forma adjustments.                                              

(2) The individual Founding Groups' Income Statement Data do not total to the   
    Pro Forma total since such individual Founding Groups' Income Statement Data
represent historical information before Pro Forma entries.              

(3) Gives effect to the Acquisitions on an historical basis and certain pro     
   forma adjustments. See Pro Forma Financial Statements and the notes thereto
beginning on page F-3 for a description of the pro forma adjustments.   

(4) Assumes that the Underwriters' over-allotment option is not exercised. See  
"Underwriting".                                                         

(5) Gives effect to the sale of the shares offered by the Combined Company      
hereby and the application of the net proceeds therefrom. See "Use of   
Proceeds".                                                              
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SUMMARY INDIVIDUAL FOUNDING GROUP FINANCIAL DATA

     The following table presents certain summary financial data for each of the
Founding Groups.                                                                

                                                        [Enlarge/Download Table]

                                                                    SIX MONTHS ENDED  
                                      YEAR ENDED DECEMBER 31,           JUNE 30,      
                                   ------------------------------  -------------------
                                     1994     1995(1)    1996(1)     1996     1997(1) 
                                   --------   --------   --------  --------   --------
                                           (IN THOUSANDS)              (UNAUDITED)    
                                                                                      
HOWARD GROUP:                                                                         
  Revenues........................ $227,259   $254,003   $282,016  $140,650   $154,045
  Gross profit....................   28,267     32,230     37,620    18,996     19,915
  Selling, general and                                                                
     administrative expenses......   24,253     26,166     30,768    15,032     16,453
  Income from operations..........    4,014      6,064      6,852     3,964      3,462
MCCALL GROUP:                                                                         
  Revenues........................ $177,320   $218,888   $288,542  $137,216   $146,953
  Gross profit....................   24,747     30,157     38,982    18,939     19,677
  Selling, general and                                                                
     administrative expenses......   22,477     27,752     35,072    16,959     17,546
  Income from operations..........    2,270      2,405      3,910     1,980      2,131
SMITH GROUP:                                                                          
  Revenues........................ $217,077   $221,258   $218,279  $108,173   $127,459
  Gross profit....................   27,157     28,593     29,110    14,343     17,545
  Selling, general and                                                                
     administrative expenses......   21,727     22,824     23,711    11,575     13,846
  Income from operations..........    5,430      5,769      5,399     2,768      3,699
KINGWOOD GROUP:                                                                       
  Revenues........................ $ 31,036   $ 34,459   $ 35,949  $ 17,912   $ 21,244
  Gross profit....................    3,837      4,589      5,309     2,691      2,969
  Selling, general and                                                                
     administrative expenses......    3,277      3,569      3,997     1,963      2,420
  Income from operations..........      560      1,020      1,312       728        549

---------------                                                                 

(1) Group 1 Automotive anticipates, for the Combined Company, increases in      
revenues and decreases in cost of sales and selling, general and        
 administrative expenses. The owners of the Founding Groups currently have
agreements in place which decrease the fees and commissions paid to the 
    dealerships for sales of certain finance and insurance products and increase
the cost of certain aftermarket products. Upon completion of the        
 Acquisitions, such agreements will be terminated and the dealerships will
  recognize an immediate increase in revenues and decrease in cost of sales.
Additionally, certain employees and owners of the Founding Groups have  
agreed to reductions in compensation that will result in a decrease in  
selling, general and administrative expenses upon completion of the     
Acquisitions. The items above are not reflected in the financial data   
  presented and would have resulted in an increase in income from operations
   of the combined Founding Groups of approximately $4.3 million in 1995, $5.0
million in 1996 and $2.1 million for the six months ended June 30, 1997.
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    RISK FACTORS

    Prospective purchasers should carefully consider the following factors, as
well as the other information and financial data contained in this Prospectus,  
before purchasing the shares of Common Stock offered hereby.                    

ABSENCE OF COMBINED OPERATING HISTORY                                           

    Group 1 Automotive, which was incorporated in December 1995, has conducted
no operations to date other than in connection with the Acquisitions and the    
Offering. The Founding Groups have been operated and managed as separate        
independent entities to date, and the Combined Company's future operating       
results will depend in part on its ability to integrate the operations of these 
businesses and manage the combined enterprise. The management group that will   
lead the Combined Company has been assembled only recently, and there can be no 
assurance that the management group will be able to effectively and profitably  
integrate the Founding Groups and any future acquisitions, or to effectively    
manage the combined entity. The inability of the Combined Company to do so could
have a material adverse effect on the Combined Company's business, financial    
condition and results of operations.                                            

MANUFACTURERS' CONTROL OVER DEALERSHIPS                                         

Each of the Founding Groups' dealerships sells automobiles pursuant to
franchise agreements with automobile manufacturers or authorized distributors of
the manufacturers. The term "Manufacturers" as used herein means Ford Motor     
Company ("Ford Motor"), General Motors Corporation ("GM"), Toyota Motor Corp.   
and its United States affiliate, Toyota Motor Sales, U.S.A., Inc. (collectively,
"Toyota Motor"), Honda Motor Co., Ltd. ("Honda Motor") and its United States    
affiliate, American Honda Motor Co., Inc. ("American Honda"), Nissan Motor Co., 
Ltd. ("Nissan Motor") and its United States affiliate, Nissan Motor North       
America, Inc., ("Nissan North America"), Chrysler Corporation, Mitsubishi Motor 
Sales of America, Inc., ("Mitsubishi Motor"), American Isuzu Motors, Inc.       
("American Isuzu"), American Suzuki Motor Corporation and Kia Motors America,   
Inc., but does not include Mazda Motor of America, Inc. since the sole Mazda    
franchise owned by the Howard Group, which operated at an immaterial loss for   
the year ended December 31, 1996 and the six months ended June 30, 1997, is in  
the process of being sold. Through the terms and conditions of these franchise  
agreements, Manufacturers will exert considerable influence over the operations 
of the Combined Company's dealerships. Each of the franchise agreements includes
provisions for the termination or non-renewal of the manufacturer-dealer        
relationship for a variety of causes including any unapproved change of         
ownership or management and other material breaches of the franchise agreement. 
Prior approval of the relevant manufacturers is required with respect to        
acquisitions of automobile dealerships, and a manufacturer may deny the Combined
Company's application to make an acquisition or seek to impose further          
restrictions on the Combined Company as a condition to granting approval of an  
acquisition. See "-- Dependence on Acquisitions for Growth; Manufacturers'      
Restrictions on Acquisitions" and "-- Restrictions Imposed by Agreement with    
American Honda Motor Co., Inc.". Certain state laws, however, limit the ability 
of automobile manufacturers to reject proposed transfers of dealerships,        
notwithstanding the terms of any dealer or franchise agreement. See             
"Business -- Franchise Agreements". The loss of one or more of the Combined     
Company's franchise agreements could have a material adverse effect on the      
Combined Company's business, financial condition and results of operations.     

As a condition to granting their consent to the Acquisitions, American
Honda, GM, Toyota Motor, Nissan North America, American Isuzu, Ford Motor and   
Mitsubishi will impose restrictions on the Combined Company. These restrictions 
include restrictions on (i) the acquisition of more than a specified percentage 
of the Common Stock (5% in the case of American Honda; 20% in the case of GM,   
Toyota Motor, Nissan North America and American Isuzu, and 50% in the case of   
Ford Motor and Mitsubishi Motor) by any one person who in the opinion of the    
Manufacturer is unqualified to own a dealership of such Manufacturer or has     
interests incompatible with the Manufacturer, (ii) certain material changes in  
the Combined Company or extraordinary corporate transactions such as a merger or
sale of a material amount of assets; (iii) the removal of a dealership general  
manager without the consent of the                                              

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Manufacturer; (iv) the use of dealership facilities to sell or service new      
vehicles of other Manufacturers; (v) in the case of GM, the advertising or      
marketing of non-GM operations with GM operations; (vi) in the case of Ford     
Motor, mandatory binding arbitration of any dispute between the Combined Company
and Ford Motor concerning Ford Motors franchise agreements; (vii) in the case of
Nissan Motor, the decrease in Mr. Smith's ownership of Common Stock to below    
169,750 shares at any time during the five-year period following the Combined   
Company's execution of the new Nissan Motor franchise agreement; (viii) in the  
case of GM and Mitsubishi, any change in control of the Combined Company's Board
of Directors; and (ix) in the case of Ford Motor, any change in the Combined    
Company's Board of Directors or management. These restrictions are in addition  
to the restrictions discussed under "-- Dependence on Acquisitions for Growth;  
Manufacturers' Restrictions on Acquisitions" and "-- Restrictions Imposed by    
Agreement With American Honda Motor Co. Inc.". If the Combined Company is unable
to comply with these restrictions, the Manufacturer may require the Combined    
Company to (i) sell the assets of the dealerships to the Manufacturer or to a   
third party acceptable to the Manufacturer, and/or (ii) terminate the dealership
agreements with the Manufacturer.                                               

 Certain of the Manufacturers require the Combined Company to appoint an
employee of the Combined Company (typically designated as the "Executive        
Manager") to act as the primary contact between the Combined Company and the    
applicable Manufacturer. Such individual typically is required to have          
operational control of all of the applicable Manufacturer's dealerships and to  
have full authority to resolve issues raised by the applicable Manufacturer in  
connection with the operation of the dealership. The Combined Company is not    
allowed to change the Executive Manager without the consent of the applicable   
Manufacturer. The agreements with the Manufacturers also generally provide for  
periodic reporting and notice provisions as a means of determining whether the  
Combined Company is in compliance with the restrictions contained in those      
agreements. A Manufacturer, upon its determination of a violation of the        
restrictions, will notify the Combined Company of the violation and the Combined
Company will generally have a period to cure the violation. If the Combined     
Company disputes the Manufacturer's claim of a violation or is unwilling or     
unable to cure the violation, the Manufacturer may enforce the remedies         
specified in the agreement through judicial or regulatory proceedings or in     
certain instances through arbitration.                                          

DEPENDENCE ON ACQUISITIONS FOR GROWTH; MANUFACTURERS' RESTRICTIONS ON           
ACQUISITIONS                                                                    

Growth in the Combined Company's revenues and earnings will depend    
significantly on the Combined Company's ability to acquire and consolidate      
profitable dealerships. There can be no assurance that the Combined Company will
be able to identify, acquire or profitably manage and integrate additional      
dealerships, if any, into the Combined Company, or that it will be able to do so
without substantial costs, delays or other operational or financial problems. In
addition, increased competition for acquisition candidates may develop, which   
could result in fewer acquisition opportunities available to the Combined       
Company and/or higher acquisition prices. Further, acquisitions involve a number
of special risks, including possible adverse effects on the Combined Company's  
operating results, diversion of resources and management's attention, inability 
to retain key acquired personnel, risks associated with unanticipated events or 
liabilities and amortization of acquired intangible assets, some or all of which
could have a material adverse effect on the Combined Company's business,        
financial condition and results of operations. Finally, the ability of the      
Combined Company to grow through acquisitions could be significantly affected by
the price of the Common Stock since the Combined Company intends to grow        
substantially through the issuance of its Common Stock in acquisitions. Any     
substantial decline in the price of the Common Stock could, therefore, have a   
material adverse effect on the Combined Company's growth strategy.              

The Combined Company will be required to obtain the consent of the    
applicable Manufacturer prior to the acquisition of any dealership franchises.  
Obtaining the consent of the Manufacturers for acquisitions of dealerships could
take a significant amount of time. Obtaining the approvals of the Manufacturers 
for the Acquisitions has taken almost one year. Although Group 1 Automotive     
believes that subsequent acquisitions by the Combined Company will take         
significantly less time since Group 1                                           

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Automotive has current completed applications and/or agreements with all        
Manufacturers, there can be no assurance that future approvals will not involve 
delays. The Manufacturers have not advised Group 1 Automotive that approvals for
subsequent acquisitions will take significantly less time, and, if the Combined 
Company experiences delays in obtaining, or fails to obtain, approvals of the   
Manufacturers for acquisitions of dealerships, the Combined Company's growth    
strategy could be materially adversely affected. In determining whether to      
approve an acquisition, the Manufacturers may consider many factors, including  
the moral character, business experience, financial condition, ownership        
structure and CSI scores of the Combined Company. In addition, Manufacturers may
limit the number of such Manufacturers' dealerships that may be owned by the    
Combined Company or the number that may be owned in a particular geographic     
area.                                                                           

    Toyota Motor currently limits the number of dealerships which may be owned
by any one group to seven Toyota and three Lexus dealerships nationally and     
restricts the number of dealerships that may be owned to (i) the greater of one 
dealership, or 20% of the Toyota dealer count in a "Metro" market (multiple     
Toyota dealership markets as defined by Toyota Motor), (ii) the lesser of five  
dealerships or 5% of the Toyota dealerships in any Toyota region (currently 12  
geographic regions), and (iii) two Lexus dealerships in any one of the four     
Lexus geographic areas. Toyota Motor further requires that at least nine months 
elapse between acquisitions of Toyota or Lexus dealerships. Similarly, it is    
currently the policy of American Honda to restrict any company from holding more
than seven Honda or more than three Acura franchises nationally and to restrict 
the number of franchises to (i) one Honda dealership in a "Metro" market (a     
metropolitan market represented by two or more Honda dealers) with two to 10    
Honda dealership points, (ii) two Honda dealerships in a Metro market with 11 to
20 Honda dealership points, (iii) three Honda dealerships in a Metro market with
21 or more Honda dealership points, (iv) no more than 4% of the Honda           
dealerships in any one of the 10 Honda geographic zones, (v) one Acura          
dealership in a Metro market (a metropolitan market with two or more Acura      
dealership points), and (vi) two Acura dealerships in any one of the six Acura  
geographic zones. Toyota Motor and American Honda also prohibit ownership of    
contiguous dealerships and the dualing of a franchise with any other brand      
without their consent. Because the Combined Company intends to pursue "platform"
acquisitions in large metropolitan markets that the Founding Groups do not      
currently serve, as well as "add-on" acquisitions that will increase brand      
diversity, the Combined Company's acquisition program will not be dependent on  
its ability to acquire multiple dealerships of any one Manufacturer in any given
Metro market. Therefore, Group 1 Automotive does not believe that the foregoing 
restrictions on ownership of contiguous dealers impose significant limitations  
on its acquisition program.                                                     

     Ford Motor currently limits the number of dealerships to the greater of (a)
15 Ford and 15 Lincoln Mercury dealerships, or (b) the number of dealerships    
with total retail sales of new vehicles in the immediately preceding calendar   
year that would equal not more than 5% of total Ford and Lincoln Mercury        
vehicles sold at retail in the United States during that year, which number for 
each of Ford and Lincoln Mercury dealerships treated separately may not exceed  
(a) one Ford dealership in those market areas as defined by Ford Motor from time
to time by Ford Motor for its dealership network having two or less authorized  
Ford dealerships in them, or (b) 33 1/3% of the dealerships in any market area, 
as defined from time to time by Ford Motor for its dealership network, having   
more than three authorized Ford dealerships in them (estimated by the Company to
be approximately 400 dealerships assuming that each Ford and Lincoln Mercury    
dealership in the United States had the same revenues). GM has limited the      
number of GM dealerships that the Combined Company may acquire during the next  
two years to 10 additional GM dealership locations (any one dealership, however,
may include a number of different GM franchises, such as a combination of GMC,  
Pontiac and Buick franchises). In addition, GM limits the maximum number of GM  
dealerships that the Combined Company may acquire to 50% of the GM dealerships, 
by franchise line, in a GM-defined geographic market area (currently            
approximately 10,000 dealerships). However, Group 1 Automotive's current        
agreement with GM does not include Saturn dealerships and the Combined Company's
future acquisition of a Saturn dealership will be subject to GM approval on a   
case-by-case basis. The Founding Groups currently own two Toyota, one Lexus,    
three Honda, two Acura, one Lincoln and one Mercury franchise and three GM      
dealership locations.                                                           

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RESTRICTIONS IMPOSED BY AGREEMENT WITH AMERICAN HONDA MOTOR CO., INC.           

     On October 15, 1997, American Honda filed a complaint under the Texas Motor
Vehicle Commission Code objecting to the proposed transfer of the two Honda and 
one Acura dealerships located in Texas to be acquired by Group 1 Automotive     
pursuant to the Acquisitions, and seeking, among other things, a statutory stay 
of the proposed transfers pending a full and final hearing on the matter. On    
October 21, 1997, Group 1 Automotive entered into an agreement with American    
Honda (the "Honda Agreement"), on the basis of which American Honda and Group 1 
Automotive have filed a joint motion to dismiss the complaint and American Honda
has consented to the transfers pursuant to the Acquisitions. Pursuant to the    
Honda Agreement, Group 1 Automotive has agreed to abide by the terms of American
Honda's dealer agreements and to be bound by the terms of American Honda's      
policy on public ownership of Honda and Acura dealerships, including the        
numerical limitations on dealerships, the restrictions on ownership of          
contiguous dealerships and other restrictions, in each case, as described above 
under "-- Manufacturers' Control Over Dealerships" and "-- Dependence on        
Acquisitions for Growth; Manufacturers' Restrictions on Acquisitions". Pursuant 
to such restrictions, the Combined Company is prohibited from owning more than  
seven Honda or more than three Acura franchises nationally, and may not own more
than (i) one Honda dealership in a Metro market with two to 10 Honda dealership 
points; (ii) two Honda dealerships in a Metro market with 11 to 20 Honda        
dealership points; (iii) three Honda dealerships in a Metro market with 21 or   
more Honda dealership points; (iv) 4% of the Honda dealerships in any one of the
10 Honda geographic zones; (v) one Acura dealership in a Metro market with two  
or more Acura dealership points, or (vi) two Acura dealerships in any one of the
six Acura geographic zones. In addition, the Combined Company has agreed that   
neither it nor any of its affiliates will acquire any interest in a Honda or    
Acura dealership (other than those currently owned by the Founding Groups)      
without American Honda's prior written approval, which shall be at American     
Honda's sole discretion.                                                        

    The Honda Agreement also requires that 50% of the outstanding Common Stock
of the Combined Company be owned at all times by persons approved by American   
Honda. Because the Combined Company intends to finance future acquisitions by   
issuing shares of Common Stock as full or partial consideration for acquired    
dealerships, such restriction could have the effect of limiting the Combined    
Company's ability to implement its acquisition program. The Honda Agreement also
requires American Honda's approval prior to any future public offering of Common
Stock of the Combined Company, and provides that American Honda shall have the  
right to approve the acquisition of more than 5% of the Common Stock of the     
Combined Company by any individual or entity, and any subsequent acquisition of 
more than 10%, if such acquisition is reasonably deemed to be detrimental to the
interests of American Honda. The Honda Agreement provides that any such         
acquisition may be reasonably deemed to be detrimental to the interests of      
American Honda if the acquiring entity (a) competes with American Honda or its  
parent, subsidiaries or affiliates in the manufacturing, marketing or selling of
automobile products or services, or owns a substantial economic interest in an  
entity that so competes (not including any dealership that sells products of a  
competing manufacturer); (b) has criminal affiliations or a criminal record; (c)
has inadequate experience in the automotive sales and service business; (d) has 
an unacceptable credit rating; (e) has unacceptable CSI scores; or (f) has had  
prior unsatisfactory relationships with American Honda. An institutional        
investor may acquire up to 10% of the Common Stock of the Combined Company      
without the consent of American Honda, unless such institutional investor (a) is
owned or controlled by or has a substantial economic interest in an entity that 
competes with American Honda; (b) has criminal affiliations or a criminal       
record; or (c) has acquired, or has a reasonable likelihood of acquiring a      
controlling interest in the Combined Company. The Combined Company will be      
required to notify American Honda with respect to any such acquisition or       
proposed acquisition, and if American Honda does not approve of such            
acquisition, the Combined Company will be required to use its best efforts to   
prevent such acquisition or, if such acquisition has already occurred, to       
reacquire the shares so transferred. The inability of the Combined Company to   
prevent such acquisition or to reacquire the shares will be deemed to be a      
material breach of the Honda Agreement. In addition, pursuant to the Honda      
Agreement, each stockholder of the Founding Companies has agreed not to sell,   
transfer or in any manner encumber any of the shares of Common Stock of the     
Combined Company acquired by them pursuant to the Acquisitions, or enter into   
any agreement or other arrangement                                              

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providing for the voting of such shares of Common Stock, without the prior      
written approval of American Honda. In the event of any transfer of shares of   
Common Stock in violation of such restriction, the Combined Company will be     
required to inform American Honda, and if American Honda does not approve such  
transfer, the inability of the Combined Company either to reacquire the shares  
or arrange for the retransfer of such shares to a person approved by American   
Honda will be deemed to be a material breach of the Honda Agreement. The Honda  
Agreement also provides that, in the event a controlling interest in the        
Combined Company or any subsidiary of the Combined Company that owns any Honda  
and Acura dealerships is acquired or threatened to be acquired by an entity not 
approved by American Honda, American Honda will be entitled to claim material   
breach of the Honda Agreement and exercise its rights upon the occurrence       
thereof. In addition, American Honda's policy on public ownership of Honda and  
Acura dealerships requires that individuals or entities that acquire, own or    
control more than 5% of the Common Stock of the Combined Company must provide   
American Honda with copies of all filings made to the Securities and Exchange   
Commission, all comparable filings made to state agencies and annual audited    
financial statements.                                                           

The Honda Agreement provides that any material breach by the Combined 
Company will entitle American Honda to require the Combined Company to sell to  
American Honda or its designated assignee all of the assets of the Honda and    
Acura dealerships then owned or controlled by the Combined Company at their then
current "fair market value". Upon any such sale, the applicable Honda and Acura 
dealership agreements will be terminated. Any dispute as to whether a material  
breach of the Honda Agreement has occurred, or as to the fair market value of   
the Honda and Acura dealership assets, will be resolved by binding, unappealable
and unreviewable arbitration. There can be no assurance as to the amount or     
value of the consideration that the Combined Company would receive if American  
Honda were to require such a sale and termination of the Honda and Acura        
dealerships, and any such sale and termination could have a material adverse    
effect on the Combined Company's financial position and results of operations.  
The pro forma revenues and income before income taxes of the Combined Company   
for the six months ended June 30, 1997 were approximately $450.3 million and    
$9.0 million, respectively, of which Honda and Acura dealerships accounted for  
approximately $63.0 million and $1.3 million, respectively. The pro forma       
revenues and income before income taxes of the Combined Company for the year    
ended December 31, 1996 were approximately $825.6 million and $15.4 million,    
respectively, of which such Honda and Acura dealerships accounted for           
approximately $123.3 million and $3.3 million. See Note 2 to the Pro Forma      
Financial Information included elsewhere in this Prospectus.                    

 The Honda Agreement also provides that American Honda or its designated
assignee will have a right of first refusal with respect to any proposed        
transfer or sale by the Combined Company of a Honda or Acura dealership's assets
or capital stock. The Combined Company is required to present American Honda    
with any bona fide written agreement executed by it with respect to any such    
transfer or sale, and American Honda will have 180 days from receipt of such    
agreement and such other documents as American Honda shall request to exercise  
such right of first refusal, which will enable American Honda (or its designated
assignee) to assume the rights and obligations of the buyer thereunder. If      
American Honda determines that such proposed transfer is not bona fide or in    
good faith, American Honda shall have the option to purchase the principal      
assets of the Combined Company that utilize the Honda and Acura dealership      
business, including real estate and leasehold interests, and to cancel the Honda
Agreement and the rights granted thereunder, at a purchase price determined by  
good faith negotiations between the parties. In the event that no such agreement
on price can be reached, the purchase price will be exclusively determined in   
accordance with unappealable and unreviewable arbitration. The Combined Company 
has agreed to indemnify American Honda in respect of any liabilities incurred by
American Honda as a result of the exercise of American Honda's rights of first  
refusal or right to purchase the Honda and Acura dealerships upon a material    
breach of the Honda Agreement, including liabilities resulting from any claims  
brought by potential buyers of the Honda and Acura dealerships.                 

 If the Combined Company determines that it is unable to comply with the
restrictions imposed by the Honda Agreement, or that it will be unable to       
implement its acquisition program while subject to the provisions thereof, the  
Combined Company may decide to sell the Honda and Acura dealerships and         

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terminate the Honda Agreement. The agreement with Honda remains in effect only  
so long as the Combined Company continues to own Honda or Acura dealerships. Any
such proposed sale to a third party would be subject to American Honda's right  
of first refusal. As a result, the Combined Company could be required to wait   
for a period of up to 180 days prior to consummating any such sale. In addition,
there can be no assurance as to the value of the consideration that would be    
received by the Combined Company in connection with any such sale of the Honda  
and Acura dealerships, whether to a third party or to American Honda pursuant to
its right of first refusal, upon a material breach of the Honda Agreement or    
otherwise. As of June 30, 1997, the Combined Company had pro forma combined     
total assets of approximately $210.4 million and current assets of approximately
$152.1 million, of which approximately $20.9 million and $19.4 million,         
respectively, were attributable to Honda and Acura dealerships. The Combined    
Company had pro forma combined total liabilities of approximately $162.9 million
and current liabilities of approximately $152.7 million, of which approximately 
$18.3 million and $17.9 million, respectively, were attributable to Honda and   
Acura dealerships.                                                              

RISKS RELATING TO FAILURE TO MEET MANUFACTURER CSI SCORES                       

Many manufacturers attempt to measure customers' satisfaction with    
automobile dealerships through systems generally known as the customer          
satisfaction index ("CSI"). These manufacturers may use a dealership's CSI      
scores as a factor in evaluating applications for additional dealership         
acquisitions and participation by a dealership in incentive programs. Certain of
the Founding Groups' dealerships have had difficulty from time to time meeting  
their Manufacturers' CSI standards. The components of the various manufacturer  
CSI scores have been modified from time to time in the past, and there is no    
assurance that such components will not be further modified or replaced by      
different systems in the future. The Founding Groups' dealerships' CSI scores in
the past have not had a material adverse effect on these dealerships. However,  
the CSI scores of the Howard Group's GM dealerships are currently below GM      
levels as required under the GM publication Policies for Changes in GM          
Dealership Ownership/Management ("GM Policies"), and as a result, the           
acquisition of a Chevrolet dealership in Tulsa, Oklahoma by Bob Howard East, an 
affiliate of Mr. Howard has been denied by GM. See "The Acquisitions". Under the
GM Policies each GM dealership must maintain CSI scores that are at or above its
respective zone/branch average for the overall dealership purchase/delivery     
category and the overall dealership service visit category. Exceptions will be  
considered if (i) the score in each category is no lower than 0.2 points below  
the applicable zone/branch average or 0.12 points below national divisional 12  
month averages; and (ii) a business plan for the dealership is provided to      
improve CSI results in the categories to zone/branch average within two years;  
and/or (iii) a positive sustaining trend has been displayed in the dealership's 
CSI results in the categories. The scores for the Howard Group's GMC, Pontiac   
and Chevrolet dealerships for the purchase/delivery category for the twelve     
months ended April 1997 were 3.13, 3.09 and 3.18, respectively, while the       
respective zone average were 3.45, 3.43 and 3.44. The scores for the Howard     
Group's GMC, Pontiac and Chevrolet dealerships for the service category for the 
twelve months ended April 1997 were 2.71, 2.58 and 2.92, respectively, while the
respective zone averages were 3.09, 3.11 and 3.19. The scores for the Howard    
Group's GMC, Pontiac and Chevrolet dealerships for the purchase/delivery        
category for the three months ended June 1997 were 3.31, 3.33 and 3.18,         
respectively, while the respective zone averages were 3.47, 3.42 and 3.44. The  
scores for the Howard Group's GMC, Pontiac and Chevrolet dealerships for the    
service category for the three months ended June 1997 were 2.84, 2.66 and 3.05, 
respectively, while the respective zone averages were 3.12, 3.13 and 3.23. GM   
will not permit the Howard Group to acquire the Chevrolet dealership in Tulsa,  
Oklahoma until the CSI scores attain the required level, which could occur any  
time in the future. If, however, GM does not approve the acquisition of such    
dealership within two years after the completion of the Acquisitions the        
Combined Company will not acquire the Tulsa Dealership. See "The Acquisitions". 
If such CSI scores fail to reach required levels, the Combined Company's ability
to acquire GM dealerships could be adversely affected. Moreover, failure of the 
Combined Company's dealerships to comply with the CSI standards of GM as well as
other Manufacturers at any given time in the future could adversely affect the  
growth strategy of the Combined Company.                                        

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DEPENDENCE ON AUTOMOBILE MANUFACTURERS                                          

  The success of each of the Combined Company's dealerships will be highly
dependent upon the overall success of the line of vehicles that each dealership 
sells. New vehicles manufactured by Toyota Motor, GM, Honda Motor, Nissan Motor,
and Chrysler Corporation accounted for approximately 34%, 17%, 16%, 14% and 9%, 
respectively, of the Founding Groups' new vehicle unit sales for 1996. No other 
Manufacturer accounted for more than 3% of new vehicle retail unit sales of     
Founding Groups during 1996.                                                    

    The Combined Company's business will be affected to varying degrees by the
demand for its Manufacturers' vehicles, and by the financial condition,         
management, marketing, production and distribution capabilities of such         
Manufacturers. In addition, the timing, structure and amount of Manufacturer    
sales incentives and rebates will impact the timing and profitability of the    
Combined Company's sales transactions and such incentives and rebates change    
frequently based on decisions of the Manufacturers. Events such as labor        
disputes and other production disruptions that may adversely affect a           
Manufacturer may also adversely affect the Combined Company. Similarly, the     
delivery of vehicles from Manufacturers later than scheduled, which may occur   
particularly during periods of new product introductions, can lead to reduced   
sales during such periods. Moreover, any event that causes adverse publicity    
involving such Manufacturers may have an adverse effect on the Combined Company 
regardless of whether such event involves any of the Combined Company's         
dealerships.                                                                    

  The Combined Company will also depend on its Manufacturers to provide it
with a desirable mix of new vehicles. The most popular vehicles generally       
produce the highest profit margins and are frequently the most difficult to     
obtain from the Manufacturers. If the Combined Company is unable to obtain      
sufficient quantities of the most popular models its profitability may be       
adversely affected. In some instances, in order to obtain additional allocations
of these vehicles, the Combined Company may elect to purchase a larger number of
less desirable models than it would otherwise purchase. Sales of less desirable 
models may result in lower profit margins than sales of the more popular        
vehicles.                                                                       

     The Combined Company's franchise agreements with its Manufacturers will not
give the Combined Company the exclusive right to sell a Manufacturer's product  
within a given geographic area. Accordingly, a Manufacturer could grant another 
dealer a franchise to start a new dealership in proximity to one or more of the 
Combined Company's locations or an existing dealer could move its dealership to 
a location which would compete directly with the Combined Company, although     
certain state laws provide a mechanism for challenging such action in advance   
through administrative or legal proceedings. If the Combined Company cannot     
prevent a Manufacturer from granting a new franchise near to one of the Combined
Company's dealerships, such grant could have a material adverse effect on the   
Combined Company and its operations.                                            

RISKS RELATED TO ACQUISITION FINANCING; FUTURE CAPITAL REQUIREMENTS             

Group 1 Automotive currently intends to finance the Combined Company's
future acquisitions by issuing shares of Common Stock as full or partial        
consideration for acquired dealerships. The extent to which the Combined Company
will be able or willing to issue Common Stock for acquisitions will depend on   
the market value of the Common Stock from time to time and the willingness of   
potential acquisition candidates to accept Common Stock as part of the          
consideration for the sale of their businesses. Since the Combined Company will 
focus initially on large "platform" acquisitions, it is possible that the       
Combined Company will issue a significant number of additional shares of Common 
Stock in connection with such acquisitions in the near future. Such additional  
shares of Common Stock could be as much as, or more than, the number of         
outstanding shares of Common Stock after giving effect to the Offering. To the  
extent that the Combined Company is unable or unwilling to do so, the Combined  
Company may be required to use available cash or other sources of debt or equity
financings. Group 1 Automotive has negotiated and executed an arrangement letter
for a bank credit facility with Chase Securities, Inc and Comerica Bank. The    
Credit Facility will provide the Combined Company with a secured revolving line 
of credit of up to $125 million which may be used for general corporate         
purposes, acquisitions, capital                                                 

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expenditures, working capital and floor plan financing. Group 1 Automotive      
currently expects that the net proceeds from the Offering, other existing       
resources and the Credit Facility will be sufficient to fund the Combined       
Company's acquisition program and other cash needs for at least the next 12     
months. However, no assurance can be given that the net proceeds from the       
Offering, other existing resources and the Credit Facility will be sufficient to
fund the Combined Company's acquisition program and other cash needs, or that   
the Combined Company will be able to obtain adequate additional capital from    
other sources. See "Management's Discussion and Analysis of Financial Condition 
and Results of Operations -- Combined Founding Groups' Commitments -- Credit    
Facility".                                                                      

RELIANCE ON KEY PERSONNEL                                                       

   The Combined Company will depend to a large extent upon the abilities and
continued efforts of its executive officers and the senior management of the    
Founding Groups, including B. B. Hollingsworth, Jr., Robert E. Howard, II,      
Sterling B. McCall, Jr., Charles M. Smith, John T. Turner and Scott L. Thompson.
Furthermore, the Combined Company will likely be dependent on the senior        
management of any businesses acquired in the future. If any of these persons    
becomes unavailable to continue in such capacity, or if the Combined Company is 
unable to attract and retain other qualified employees, the Combined Company's  
business or prospects could be adversely affected. Although the Combined Company
will enter into an employment agreement with each of its executive officers,    
there can be no assurance that any individual will continue in his present      
capacity with the Combined Company for any particular period of time. The       
Combined Company currently does not have key man insurance for any of its       
officers and senior management. See "Management".                               

SUBSTANTIAL COMPETITION                                                         

 The automotive retailing industry is highly competitive with respect to
price, service, location and selection. The Combined Company will compete with  
automobile dealerships (including public franchised dealership consolidators),  
private market buyers and sellers of used vehicles, used vehicle dealerships,   
service center chains and independent service and repair shops. In the new      
vehicle area, the Combined Company will compete with other franchised dealers.  
The Combined Company will not have any cost advantage in purchasing new vehicles
from the Manufacturers, and typically will rely on advertising, merchandising,  
sales expertise, service reputation and location of its dealerships to sell new 
vehicles. In recent years, the Founding Groups have also faced competition from 
non-traditional sources such as companies that sell automobiles on the Internet,
automobile rental agencies, independent leasing companies, used-car             
"superstores" and price clubs associated with established consumer agencies such
as the American Automobile Association, some of which use non-traditional sales 
techniques such as one-price shopping. In addition, Ford Motor has announced    
that it is exploring the possibility of going into business with some of its    
dealers to create automotive superstores in selected markets. Some of these     
recent market entrants may have greater financial, marketing and personnel      
resources than the Combined Company, and/or lower overhead or sales costs. In   
the parts and service area, the Combined Company also will compete with a number
of regional or national chains which offer selected parts and services at prices
that may be lower than the Combined Company's prices. In addition, there can be 
no assurance that the Combined Company's strategy will be more effective than   
the strategies of its competitors.                                              

CYCLICALITY                                                                     

    Sales of motor vehicles, particularly new vehicles, historically have been
subject to substantial cyclical variation. Group 1 Automotive believes that the 
industry is affected by many factors, including general economic conditions,    
consumer confidence, the level of personal discretionary spending, interest     
rates and credit availability. There can be no assurance that the industry will 
not experience sustained periods of decline in vehicle sales, particularly new  
vehicle sales, in the future. Any such decline could have a material adverse    
effect on the Combined Company.                                                 

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SEASONALITY                                                                     

The automobile industry is subject to seasonal variations in revenues.
Demand for automobiles is generally lower during the winter months than in other
seasons, particularly in regions of the United States associated with harsh     
winters. Accordingly, Group 1 Automotive expects the Combined Company's revenues
and operating results generally to be lower in its first and fourth quarters    
than in its second and third quarters.                                          

IMPORTED PRODUCTS                                                               

   A significant portion of the Combined Company's new vehicle business will
involve the sale of vehicles, parts or vehicles composed of parts that are      
manufactured outside the United States. As a result, the Combined Company's     
operations will be subject to customary risks of importing merchandise,         
including fluctuations in the value of currencies, import duties, exchange      
controls, trade restrictions, work stoppages and general political and economic 
conditions in foreign countries. The United States or the countries from which  
the Combined Company's products are imported may, from time to time, impose new 
quotas, duties, tariffs or other restrictions, or adjust presently prevailing   
quotas, duties or tariffs, which could affect the Combined Company's operations 
and its ability to purchase imported vehicles and/or parts.                     

GOVERNMENTAL REGULATIONS AND ENVIRONMENTAL MATTERS                              

    The Combined Company will be subject to a wide range of federal, state and
local laws and regulations, such as local licensing requirements, consumer      
protection laws and environmental requirements governing, among other things,   
discharges to the air and water, the storage of petroleum substances and        
chemicals, the handling and disposal of wastes, and the remediation of          
contamination arising from spills and releases. The violation of these laws and 
regulations could result in civil and criminal penalties being levied against   
the Combined Company or in a cease and desist order against operations that are 
not in compliance. Future acquisitions by the Combined Company may also be      
subject to governmental regulation, including antitrust reviews. Group 1        
Automotive believes that the Founding Groups substantially comply with all      
applicable laws and regulations relating to its business, but future laws and   
regulations may be more stringent and require the Combined Company to incur     
significant additional costs. See "Business -- Governmental Regulations" and    
"Business -- Environmental Matters".                                            

ANTI-TAKEOVER EFFECTS OF STOCKHOLDER RIGHTS PLAN AND THE COMBINED COMPANY'S     
CHARTER AND BYLAWS                                                              

 Group 1 Automotive has adopted a stockholder rights plan. This plan and
certain provisions of Group 1 Automotive's Certificate of Incorporation, as     
amended ("Charter"), and Bylaws ("Bylaws") may have the effect of discouraging, 
delaying or preventing a change in control of Group 1 Automotive or unsolicited 
acquisition proposals that a stockholder might consider favorable. These include
provisions providing for a Board of Directors with staggered, three-year terms, 
permitting the removal of a director from office only for cause, allowing only  
the Board of Directors to set the number of directors, requiring super-majority 
or class voting to effect certain amendments to the Charter and Bylaws, limiting
the persons who may call special stockholders' meetings, limiting stockholder   
action by written consent and establishing advance notice requirements for      
nominations for election to the Board of Directors or for proposing matters that
can be acted upon at stockholders' meetings. The Delaware General Corporation   
Law requires super-majority voting thresholds to approve certain "business      
combinations" between interested stockholders and Group 1 Automotive which may  
render more difficult or tend to discourage attempts to acquire the Combined    
Company. In addition, Group 1 Automotive's Board of Directors has the authority 
to issue shares of preferred stock ("Preferred Stock") in one or more series and
to fix the rights and preferences of the shares of any such series without      
stockholder approval. Any series of Preferred Stock is likely to be senior to   
the Common Stock with respect to dividends, liquidation rights and, possibly,   
voting rights. The ability to issue Preferred Stock could also have the effect  
of discouraging                                                                 

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unsolicited acquisition proposals, thus affecting the market price of the Common
Stock and preventing stockholders from obtaining any premium offered by the     
potential buyer. In addition, certain of the Combined Company's dealer          
agreements will prohibit the acquisition of more than a specified percentage of 
the Common Stock (5% (10% for institutional investors) in the case of American  
Honda, 20% in the case of GM, Toyota Motor, Nissan North America and American   
Isuzu and 50% in the case of Ford Motor and Mitsubishi Motor) without the       
consent of the relevant Manufacturers. See "Management -- Executive Officers and
Directors", "Principal and Selling Stockholders" and "Description of Capital    
Stock".                                                                         

POTENTIAL EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE ON PRICE OF COMMON STOCK    

Sales of substantial amounts of Common Stock in the public market     
subsequent to the Offering could adversely affect the market price of the Common
Stock. Upon consummation of the Acquisitions and the Offering, the Combined     
Company will have 13,953,050 shares of Common Stock outstanding (14,673,050     
shares if the Underwriters' overallotment option is exercised in full). Of these
shares, the 4,800,000 shares of Common Stock offered hereby (5,520,000 shares if
the Underwriters' overallotment option is exercised in full) will be freely     
tradable without restriction or further registration under the Securities Act of
1933, as amended (the "Securities Act"), except for shares held by persons      
deemed to be "affiliates" of the Combined Company or acting as "underwriters" as
those terms are defined in the Securities Act. The remaining 9,153,050 shares of
Common Stock outstanding will be "restricted securities" within the meaning of  
Rule 144 under the Securities Act and will be eligible for resale subject to the
volume, manner of sale, holding period and other limitations of Rule 144.       
Currently, 565,000 shares of Common Stock are issuable under existing stock     
options granted to certain executive officers and employees of Group 1          
Automotive. Options exercisable for 661,700 shares of Common Stock will be      
granted to directors and employees under Group 1 Automotive's 1996 Stock        
Incentive Plan prior to completion of the Offering. An additional 773,300 shares
of Common Stock are reserved for issuance to employees and directors of the     
Combined Company under Group 1 Automotive's 1996 Stock Incentive Plan. In       
addition, 200,000 shares of Common Stock are reserved for issuance to employees 
of the Combined Company under the 1998 Employee Stock Purchase Plan. See        
"Management -- 1996 Stock Incentive Plan", "Management -- 1998 Employee Stock   
Purchase Plan", "Description of Capital Stock" and "Shares Eligible for Future  
Sale".                                                                          

   Pursuant to the Stock Purchase Agreements entered into in connection with
the Acquisitions, each of the stockholders of the Founding Companies, other than
the Selling Stockholder with respect to the shares he is selling in the         
Offering, has agreed with Group 1 Automotive not to sell or otherwise dispose of
shares of Common Stock received in the Acquisitions for a period of two years   
from the closing date of the Acquisitions. Pursuant to the Honda Agreement, each
of such stockholders has also agreed not to sell, transfer or otherwise dispose 
of such shares of Common Stock, or the voting rights associated therewith,      
without the prior written consent of American Honda. In addition, pursuant to an
Underwriting Agreement between Group 1 Automotive, the Selling Stockholder and  
the Underwriters, Group 1 Automotive, the executive officers and directors of   
Group 1 Automotive and the Selling Stockholder have agreed not to offer, sell or
otherwise dispose of any shares of Common Stock for a period of 180 days from   
the date of this Prospectus without the consent of the representatives of the   
Underwriters, other than (i) pursuant to employee stock option plans existing,  
or upon the conversion or exchange of convertible or exchangeable securities    
outstanding, on the date of this Prospectus, or (ii) in connection with and as  
consideration for acquisitions of automobile dealerships, provided that the     
proposed transferee agrees in writing for the benefit of the Underwriters to be 
bound by the foregoing provisions. See "Shares Eligible for Future Sale" and    
"Underwriting".                                                                 

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NO PRIOR PUBLIC MARKET AND DETERMINATION OF OFFERING PRICE                      

Prior to the Offering, there has been no public market for the Common 
Stock. The Common Stock has been approved for listing, subject to notice of     
issuance, on the New York Stock Exchange. However, there can be no assurance    
that an active trading market will develop subsequent to the Offering or, if    
developed, that it will be sustained. The initial public offering price of the  
Common Stock was determined through negotiations between Group 1 Automotive and 
the representatives of the Underwriters and may bear no relationship to the     
price at which the Common Stock will trade after the Offering. For information  
relating to the factors considered in determining the initial public offering   
price, see "Underwriting". Prices for the Common Stock after the Offering may be
influenced by a number of factors, including the liquidity of the market for the
Common Stock, investor perceptions of the Combined Company and the automotive   
retailing industry and general economic and other conditions. Sales of          
substantial amounts of Common Stock in the public market subsequent to the      
Offering could adversely affect the market price of the Common Stock.           

POSSIBLE VOLATILITY OF PRICE                                                    

    The market price of the Common Stock could be subject to wide fluctuations
in response to a number of factors, including quarterly variations of operating 
results, investor perceptions of the Combined Company and automotive retailing  
industry and general economic and other conditions.                             

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THE ACQUISITIONS

    Group 1 Automotive will acquire all of the issued and outstanding stock of
the Founding Companies in the Acquisitions immediately prior to the consummation
of the Offering pursuant to 13 separate stock purchase agreements (the "Stock   
Purchase Agreements"). The Founding Companies are each part of one of the four  
separate and distinct Founding Groups.                                          

  The Stock Purchase Agreements, provide that acquisition of each Founding
Company is subject to certain conditions including, among others: (i) the       
continuing accuracy on the closing date of the representations and warranties of
the applicable Founding Company, the stockholders of such Founding Company and  
Group 1 Automotive; (ii) the performance of each of the covenants by the        
applicable Founding Company, the stockholders of such Founding Company and Group
1 Automotive, including the removal of certain related party agreements; (iii)  
the expiration or termination of the applicable waiting period under the HSR Act
with respect to such acquisition (which has been satisfied); (iv) the obtainment
of all permits, approvals and consents of securities or "blue sky" commissions  
of each jurisdiction and of any other governmental agency or authority, where   
failure to obtain such permit, approval or consent would have a material adverse
effect; and (v) the entering into an Underwriting Agreement by Group 1          
Automotive and the Underwriters in connection with the Offering. The Offering is
conditioned upon, among other things, the consummation of the acquisition of    
100% of the Founding Companies.                                                 

    The Stock Purchase Agreements provide that the parties thereto will not be
liable for the breach, after consummation of the Acquisitions, of any of the    
representations, warranties or covenants contained in such agreements, except:  
confidentiality obligations, non-competition provisions applicable to certain   
stockholders, transfer restrictions on the Common Stock received in the         
Acquisitions and termination of all dealership guarantees of stockholder debt.  

As part of the Stock Purchase Agreements, certain stockholders of the 
Founding Companies have agreed to enter into the employment agreements and/or   
the lease agreements described elsewhere in this Prospectus. See                
"Management -- Executive Compensation; Employment Agreements", and "Certain     
Transactions -- Leases". In connection with their employment with the Combined  
Company, certain of such stockholders will receive options to purchase Common   
Stock. See "Management -- 1996 Stock Incentive Plan". In addition, certain      
stockholders of the Founding Companies, including Messrs. Howard, McCall, Smith 
and Hollingsworth and certain of the general managers and key employees of the  
Founding Companies, have agreed not to compete with the Combined Company for    
five years from the closing of the Acquisitions. See "Management -- Executive   
Compensation; Employment Agreements". For a discussion of the consideration to  
be received by officers, directors and 5% stockholders in connection with the   
Acquisitions, see "Summary -- Consideration Received by Related Parties".       

   The consideration to be paid by Group 1 Automotive in the Acquisitions is
approximately $5.4 million of cash and 9,074,914 shares of Common Stock. The    
Combined Company will record approximately $30.5 million of goodwill in         
connection with the Acquisitions. The consideration to be paid by Group 1       
Automotive for each of the Founding Companies was determined by negotiations    
among the principals of the Founding Companies as to the relative value of each 
of the Founding Companies. As such, no one individual determined the            
consideration to be paid in connection with the Acquisitions. Group 1 Automotive
and the Founding Companies did not use an independent third party to determine  
the relative values of each of the Founding Companies but agreed among          
themselves on the values attributable to each of the Founding Companies based on
an evaluation of each of the Founding Companies' operating results and prospects
for growth.                                                                     

     At the time of the execution of the Stock Purchase Agreements in connection
with the Acquisitions, Messrs. Hollingsworth, Howard, McCall and Smith were, in 
addition to stockholders of certain of the Founding Companies, directors of     
Group 1 Automotive. In addition, at the time of execution of such Stock Purchase
Agreement, Mr. Hollingsworth, was the sole stockholder of Group 1 Automotive. As
a result, Messrs. Hollingsworth, Howard, McCall and Smith might be considered to
have a conflict of interest with                                                

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respect to the Acquisitions. The only steps taken to resolve any such conflicts 
was ratification of all of the Stock Purchase Agreements by all members of the  
Board of Directors of Group 1 Automotive.                                       

     Bob Howard East, a corporation wholly-owned by Mr. Howard, has entered into
an agreement to purchase the Tulsa Dealership for approximately $2.5 million.   
This purchase price was funded by a $2.5 million loan, bearing interest at the  
prime rate plus 100 basis points, from Mr. Howard to Bob Howard East. GM has    
denied its approval of Bob Howard East's acquisition of the Tulsa Dealership due
to the Howard Group's failure to meet GM's required CSI score levels. The       
Combined Company, through Bob Howard Automall, one of the Founding Companies,   
has entered into an agreement to purchase Bob Howard East for the assumption of 
all Bob Howard East's liabilities, which consist of the $2.5 million loan from  
Mr. Howard. These acquisitions will be consummated immediately upon GM's        
approval of such acquisitions.                                                  

When the Founding Groups allocated the shares of Common Stock to be   
received by each Founding Group in the Acquisitions, it was anticipated that the
acquisition of the Tulsa Dealership would be consummated prior to consummation  
of the Acquisitions. Mr. Howard was to receive 592,303 shares of Common Stock in
the Acquisitions as consideration for the Tulsa Dealership. These shares will be
held in escrow pending the acquisition of the Tulsa Dealership.                 

    Upon consummation of Bob Howard East's acquisition of the Tulsa Dealership
and the Combined Company's acquisition of Bob Howard East, the escrowed shares  
will be released to Mr. Howard. In this event, the consideration to be paid to  
Mr. Howard for the Tulsa Dealership will be (i) the 592,303 shares of Common    
Stock (having a value of approximately $4.6 million, which will be profit for   
Mr. Howard, based on the initial offering price of $12.00 per share discounted  
by 35%) and (ii) the assumption of Bob Howard East's $2.5 million liability to  
Mr. Howard. This consideration will be paid to Mr. Howard by the Combined       
Company (through Bob Howard Automall).                                          

     If these two acquisitions are not consummated with GM's approval within two
years of the Offering: (i) the Combined Company will not acquire the Tulsa      
Dealership (ii) Bob Howard East's $2.5 million liability to Mr. Howard will not 
be assumed by the Combined Company, (iii) Bob Howard East will retain the right 
to acquire the Tulsa Dealership and (iv) rather than being distributed solely to
Mr. Howard, the escrowed shares will be distributed pro rata to the stockholders
of the Founding Companies. This pro rata distribution will be allocated as      
follows: the McCall Group, 161,913 shares; the Smith Group, 190,340 shares; the 
Howard Group, 207,940 shares; and the Kingwood Group, 32,110 shares. If the     
Combined Company does not acquire the Tulsa Dealership and the escrowed shares  
are distributed pro rata, the Combined Company will recognize additional        
goodwill of approximately $3.0 million.                                         

The escrowed shares will remain outstanding regardless of whether the 
acquisition of the Tulsa Dealership is consummated, and the Combined Company    
will receive no additional consideration or assets if such shares are           
distributed pro rata as described above. If the Combined Company's acquisition  
of the Tulsa Dealership is not consummated, the fair value of the Howard Group's
contribution to the Combined Company will decrease, and the fair value of the   
Smith Group's, McCall Group's and Kingwood Group's contributions to the Combined
Company will remain the same. The treatment of the escrowed shares and the terms
and conditions upon which such shares are to be released were the subject of    
arms-length negotiations among the Founding Groups. The Board of Directors of   
Group 1 Automotive believes that the potential pro rata distribution of the     
escrowed shares to the stockholders of the Founding Companies is a fair         
reallocation of the fixed number of shares of Common Stock to be issued to the  
Founding Groups in the Acquisitions, based upon the increased relative          
contribution of the McCall, Smith and Kingwood Groups and the decreased relative
contribution of the Howard Group.                                               

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The following table sets forth the consideration being paid for each  
Founding Group:                                                                 

                                                                [Download Table]

                                               CONSIDERATION                     
                                        ----------------------------             
                                        COMMON STOCK         CASH      VALUE(1)  
                                        ------------      ----------  -----------
                                                                                 
Howard Group...........................  3,570,302(2)     $2,300,000  $30,148,356
McCall Group...........................  2,318,826                --   18,086,843
Smith Group............................  2,725,933                --   22,824,106
Kingwood Group.........................    459,853        $3,100,000    6,686,853
                                         ---------        ----------  -----------
          Total........................  9,074,914        $5,400,000   77,746,158
                                         =========        ==========  ===========

---------------                                                                 

(1) The value of the shares of Common Stock issued in connection with the       
Acquisitions (other than the Common Stock to be sold by the Selling     
    Stockholder) was discounted by 35% from the initial public offering price of
  $12.00 to give effect to the two year lock-up that each stockholder of the
 Founding Companies entered into in connection with the Acquisitions. This
    discount was based on an independent valuation study as to the impact of the
restrictions on the value of the Common Stock.                          

(2) Includes 592,303 shares of Common Stock issued to Mr. Howard in the         
 Acquisitions and placed in escrow according to the terms described above.

    In connection with the Acquisitions, the following directors, officers and
stockholders owning more than 5% of the Common Stock together with their spouses
and affiliates will receive shares of Common Stock as follows: Mr.              
Hollingsworth -- 196,368 shares of Common Stock (excluding the 350,000 shares of
Common Stock that Mr. Hollingsworth currently owns); Mr. Howard -- 2,956,955    
shares of Common Stock; Mr. McCall -- 1,461,031 shares of Common Stock; Mr.     
Smith -- 679,181 shares of Common Stock; Mr. Duncan -- 196,368 shares of Common 
Stock; Mr. Whalen -- 774,040 shares of Common Stock. In addition, Mr. Howard    
will receive $2.3 million in cash in the Acquisitions. See "Principal and       
Selling Stockholders".                                                          

     In connection with Acquisitions, all related party receivables and payables
are being settled. Such transactions will result in a net payment of $19,720, as
of June 30, 1997, by the McCall Group to Mr. McCall. Additionally, as part of   
the Acquisitions, certain Founding Companies will distribute an aggregate of    
approximately $6.2 million from pre-acquisition S corporation accumulated       
adjustment accounts to their stockholders as follows: $4.5 million to the       
stockholders of the Howard Group (including approximately $3.4 million to Mr.   
Howard), $1.3 million to the stockholders of the Smith Group (including $337,500
to Mr. Smith) and $0.4 million to the stockholders of the Kingwood Group        
(including $97,104 to Mr. Hollingsworth and $97,104 to Mr. Duncan). In addition,
in connection with the Acquisitions, Mr. Howard intends to acquire certain      
nonoperating assets (recreational vehicles and properties) owned by the Howard  
Group and pay the Combined Company approximately $2.0 million. Group 1          
Automotive believes that $2.0 million approximates the fair market value of the 
assets. Group 1 Automotive believes that these assets approximate fair market   
value because the assets are being sold to Mr. Howard at a price equal to their 
net book value and the majority of such assets were acquired by the Howard Group
within the last 18 months.                                                      

  In connection with the Acquisitions, Group 1 Automotive anticipates, for
the Combined Company, increases in revenues and decreases in cost of sales      
related to certain third party products sold by the dealerships. Certain of the 
principals of the Founding Companies currently have agreements in place that    
decrease the fees and commissions paid to the dealerships for sales of certain  
finance and insurance products and increase the cost of certain aftermarket     
products. These arrangements resulted in the payment of $732,916 to Mr. McCall  
and $728,647 to Mr. Whalen during the year ended December 31, 1996 and $357,144 
to Mr. McCall and $404,020 to Mr. Whalen during the six months ended June 30,   
1997. Upon completion of the Acquisitions, such agreements will be terminated   
and the Combined Company will recognize an immediate increase in revenues and   
decrease in cost of sales related to the products sold.                         

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The following is a description of each of the Founding Groups and the 
dealerships that they each own:                                                 

                                                                [Download Table]

FOUNDING GROUP          FOUNDING COMPANY       FRANCHISE       LOCATION    
--------------          ----------------       ---------       --------    
                                                                           
Howard Group    Howard Pontiac-GMC, Inc.      Chrysler    Oklahoma City,   
                  ("Bob Howard Automall")     Eagle       Oklahoma         
                                              GMC                          
                                              Isuzu                        
                                              Jeep                         
                                              Mazda                        
                                              Plymouth                     
                                              Pontiac                      

                Bob Howard Chevrolet, Inc.    Chevrolet   Oklahoma City,   
                                                          Oklahoma         

                Bob Howard Automotive-H, Inc. Honda       Oklahoma City,   
                  ("Bob Howard Honda/Acura")  Acura       Oklahoma         

                Bob Howard Motors, Inc.       Toyota      Oklahoma City,   
                  ("Bob Howard Toyota")                   Oklahoma         

                Bob Howard Dodge, Inc.        Dodge       Oklahoma City,   
                                                          Oklahoma         

McCall Group    Southwest Toyota, Inc.        Toyota      Houston, Texas   
                  ("Sterling McCall Toyota")                               

                SMC Luxury Cars, Inc.         Lexus       Houston, Texas   
                  ("Sterling McCall Lexus")                                

Smith Group     Mike Smith Autoplaza, Inc.    GMC         Beaumont, Texas  
                                              Honda                        
                                              Kia                          
                                              Lincoln                      
                                              Mercury                      
                                              Mitsubishi                   
                                              Oldsmobile                   

                Smith, Liu & Kutz, Inc.       Mitsubishi  Austin, Texas    
                  ("Town North")              Nissan                       
                                              Suzuki                       

                Courtesy Nissan, Inc.         Nissan      Richardson, Texas

                Smith, Liu & Corbin, Inc.     Acura       Houston, Texas   
                  ("Acura Southwest")                                      

                Round Rock Nissan, Inc.       Nissan      Round Rock, Texas

Kingwood Group  Foyt Motors, Inc.             Honda       Kingwood, Texas  
                                              Isuzu                        

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USE OF PROCEEDS 

    The net proceeds to the Combined Company from the sale of 4,428,136 shares
of Common Stock offered hereby are estimated to be $45.1 million ($53.1 million 
if the Underwriters' over-allotment option is exercised in full) after deducting
the underwriting discount and estimated expenses of the Offering (excluding     
approximately $700,000 of Offering expenses previously paid by the Company). Of 
the net proceeds, approximately $5.4 million will be used to pay the cash       
portion of the purchase price for the Acquisitions. In addition, approximately  
$35.5 million will be used to repay indebtedness with maturities of less than   
one year with a weighted average interest rate of approximately 8.0%. The       
remainder of the net proceeds will be used for working capital and general      
corporate purposes.                                                             

    Group 1 Automotive intends to pursue acquisitions in the future which will
be financed with cash, Common Stock or a combination of both cash and Common    
Stock. The Combined Company has identified and has held preliminary discussions 
with numerous potential acquisition candidates. In addition, Group 1 Automotive 
has recently entered into definitive agreements to acquire, subject to          
manufacturer approval and a due diligence investigation, two dealership         
locations consisting of Acura, Buick, Dodge, Ford, Mercedes-Benz, Nissan and    
Volvo dealerships in Texas for aggregate payments to the sellers of             
approximately $9.0 million in cash. These two acquisitions, if consummated,     
would also require the Combined Company to incur approximately $13.0 million of 
floorplan indebtedness in connection with the purchase of the vehicle           
inventories of the dealerships. The agreements are subject to a number of       
significant conditions, including Manufacturer approval and completion of a due 
diligence review of the dealerships. There can be no assurance that the         
conditions will be satisfied or that the transactions will be consummated. Group
1 Automotive has negotiated and executed an arrangement letter with Chase       
Securities, Inc. and Comerica Bank for the Combined Company's $125 million      
credit facility. The Credit Facility will be used for general corporate         
purposes, acquisitions, capital expenditures, working capital and floorplan     
financing. See "Management's Discussion and Analysis of Financial Condition and 
Results of Operations -- Combined Founding Groups' Commitments -- Credit        
Facility".                                                                      

DIVIDEND POLICY 

     Group 1 Automotive intends to retain all of the Combined Company's earnings
to finance the growth and development of its business, including future         
acquisitions, and does not anticipate paying any cash dividends on its Common   
Stock for the foreseeable future. Any future change in the Combined Company's   
dividend policy will be made at the discretion of the Board of Directors of the 
Combined Company and will depend upon the Combined Company's operating results, 
financial condition, capital requirements, general business conditions and such 
other factors as the Board of Directors deems relevant. In addition, the Credit 
Facility will include restrictions on the ability of the Combined Company to pay
dividends without the consent of the lender. See "Description of Capital Stock".

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DILUTION

  The pro forma net tangible book value of the Combined Company as of June
30, 1997 was $1.63 per share of Common Stock. Pro forma net tangible book value 
per share is determined by dividing the pro forma tangible net worth of the     
Combined Company (pro forma tangible assets less pro forma total liabilities) by
the total number of outstanding shares of Common Stock. After giving effect to  
the sale by Group 1 Automotive of the 4,428,136 shares offered hereby and the   
receipt of an estimated $45.1 million of net proceeds from the Offering (based  
on the initial public offering price of $12.00 per share and net of the         
underwriting discounts and estimated expenses of the Offering, excluding        
approximately $700,000 of Offering expenses previously paid by the Company), pro
forma net tangible book value of the Combined Company at June 30, 1997 would    
have been $4.30 per share. This represents an immediate increase in pro forma   
net tangible book value of $2.67 per share to existing stockholders and an      
immediate dilution of $7.70 per share to the new investors purchasing Common    
Stock in the Offering. (If all outstanding stock options were exercised, pro    
forma tangible net book value would be further diluted by $.13 per share to     
$4.17 per share.) The following table illustrates the per share dilution:       

                                                                [Download Table]
                                                                              
Initial public offering price per share.....................            $12.00
  Pro forma net tangible book value per share before giving                   
     effect to the Offering and the related expenses........  $ 1.63          
  Increase in pro forma net tangible book value per share                     
     attributable to the Offering...........................    2.67          
Pro forma net tangible book value per share after giving                      
  effect to the Offering....................................              4.30
                                                                        ------
Dilution per share to new investors.........................            $ 7.70
                                                                        ======

   The following table sets forth, on a pro forma basis as of June 30, 1997,
the number of shares of Common Stock purchased from Group 1 Automotive, the     
total consideration paid to Group 1 Automotive and the average price per share  
paid by existing stockholders and new investors purchasing shares in the        
Offering (before deducting underwriting discounts and commissions and estimated 
offering expenses)                                                              

                                                                [Download Table]

                              SHARES PURCHASED      TOTAL CONSIDERATION     AVERAGE 
                            ---------------------  ----------------------  PRICE PER
                              NUMBER      PERCENT    AMOUNT       PERCENT    SHARE  
                            ----------    -------  -----------    -------  ---------
                                                                                    
Existing stockholders......  9,524,914      68.3%  $15,563,092      22.7%   $ 1.63  
New investors..............  4,428,136      31.7    53,137,632      77.3     12.00  
                            ----------     -----   -----------     -----            
          Total............ 13,953,050     100.0%  $68,700,724     100.0%           
                            ==========     =====   ===========     =====            

    The foregoing computations assume no exercise of outstanding stock options
granted under Group 1 Automotive's 1996 Stock Incentive Plan. Options to        
purchase 1,226,700 shares of Common Stock will have been granted under the 1996 
Stock Incentive Plan as of the completion of the Offering, of which 661,700 will
be exercisable at the initial public offering price per share and 565,000 will  
be exercisable at $2.90 per share. In addition, 773,300 additional shares of    
Common Stock are reserved for future issuance under the 1996 Stock Incentive    
Plan and 200,000 additional shares of Common Stock are reserved for future      
issuance under the 1998 Employee Stock Purchase Plan. See "Management -- 1996   
Stock Incentive Plan" and "Management -- 1998 Employee Stock Purchase Plan".    

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CAPITALIZATION

The following table sets forth, as of June 30, 1997, the historical   
capitalization of the Howard Group (the accounting acquiror), the pro forma     
capitalization of the Combined Company and the pro forma as adjusted            
capitalization of the Combined Company which gives effect to the issuance and   
sale by Group 1 Automotive of the 4,428,136 shares of Common Stock offered      
hereby (at the initial public offering price of $12.00 per share after deducting
the underwriting discount and estimated expenses of the Offering, excluding     
approximately $700,000 of Offering expenses previously paid by the Company) and 
the application of a portion of the estimated net proceeds therefrom to pay     
existing indebtedness. See "Use of Proceeds". This table should be read in      
conjunction with "Management's Discussion and Analysis of Financial Condition   
and Results of Operations" and the unaudited Pro Forma Financial Statements of  
the Combined Company and the related notes thereto included elsewhere in this   
Prospectus.                                                                     

                                                        [Enlarge/Download Table]

                                                                      AS OF JUNE 30, 1997           
                                                           -----------------------------------------
                                                                                          PRO FORMA 
                                                           HISTORICAL(1)    PRO FORMA    AS ADJUSTED
                                                           -------------    ---------    -----------
                                                                        (IN THOUSANDS)              
                                                                                                    
Short-term debt (including current portion of long-term                                             
  debt)..................................................      $37,838      $ 98,806      $ 63,264  
Long-term debt...........................................          154         8,220         8,220  
                                                               -------      --------      --------  
          Total debt.....................................       37,992       107,026        71,484  
Stockholders' equity:                                                                               
  Preferred Stock, par value $.01 per share, 1,000,000                                              
     shares authorized; no shares issued and                                                        
     outstanding.........................................           --            --            --  
  Common Stock, par value $.01 per share, 50,000,000                                                
     shares authorized; 9,524,914 shares issued and                                                 
     outstanding, pro forma; 13,953,050 shares issued and                                           
     outstanding, pro forma as adjusted(2)...............          492            95           140  
  Additional paid-in capital.............................        6,623        51,389        95,761  
  Treasury stock, at cost................................         (809)           --            --  
  Retained earnings (deficit)............................        4,521        (3,994)       (3,994) 
                                                               -------      --------      --------  
          Total stockholders' equity.....................       10,827        47,490        91,906  
                                                               -------      --------      --------  
          Total capitalization...........................      $48,819      $154,516      $163,390  
                                                               =======      ========      ========  

---------------                                                                 

(1) Reflects the historical capitalization of the Howard Group, the accounting  
   acquiror. Does not give effect to the distribution of $4.5 million from the
S Corporation accumulated adjustment account which is to be made in     
connection with the Acquisitions.                                       

(2) Excludes (i) an aggregate of 565,000 shares of Common Stock subject to      
  options granted pursuant to Group 1 Automotive's 1996 Stock Incentive Plan
   and (ii) 661,700 shares of Common Stock subject to options to be granted to
    certain employees and directors of Group 1 Automotive prior to completion of
the Offering under Group 1 Automotive's 1996 Stock Incentive Plan. See  
"Management -- 1996 Stock Incentive Plan".                              

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SELECTED FINANCIAL DATA 

  Group 1 Automotive will acquire the Founding Groups immediately prior to
the consummation of the Offering. For financial statement presentation purposes,
however, the Howard Group has been identified as the accounting acquiror. The   
following selected historical financial data of the Howard Group as of December 
31, 1995 and 1996 and for each of the three years in the period ended December  
31, 1996, have been derived from the audited financial statements of the Howard 
Group included elsewhere in this Prospectus. The following selected historical  
financial data for the Howard Group as of December 31, 1992, 1993 and 1994 and  
for each of the two years in the period ended December 31, 1993 and as of and   
for the six months ended June 30, 1996 and June 30, 1997, have been derived from
the unaudited financial statements of the Howard Group, which have been prepared
on the same basis as the audited financial statements and, in the opinion of the
Howard Group, reflect all adjustments, consisting only of normal recurring      
adjustments, necessary for a fair presentation of such data. See the Pro Forma  
Financial Statements and the notes thereto included elsewhere in this           
Prospectus.                                                                     

                                                        [Enlarge/Download Table]

                                                YEAR ENDED DECEMBER 31,                         SIX MONTHS ENDED JUNE 30,    
                            ---------------------------------------------------------------   ------------------------------ 
                                                                                     PRO                              PRO    
                                                                                    FORMA                            FORMA   
                              1992       1993       1994       1995       1996     1996(1)      1996       1997     1997(1)  
                            --------   --------   --------   --------   --------   --------   --------   --------   -------- 
                                                         (IN THOUSANDS, EXCEPT PER SHARE DATA)                               
                                                                                                                             
INCOME STATEMENT DATA:                                                                                                       
  Revenues................  $127,936   $167,252   $227,259   $254,003   $282,016   $825,646   $140,650   $154,045   $450,343 
  Cost of sales...........   110,303    146,943    198,992    221,773    244,396    712,772    121,654    134,130    389,093 
                            --------   --------   --------   --------   --------   --------   --------   --------   -------- 
    Gross profit..........    17,633     20,309     28,267     32,230     37,620    112,874     18,996     19,915     61,250 
  Goodwill amortization...        --         --         21         27         37        854         15         20        399 
  Selling, general and                                                                                                       
    administrative                                                                                                           
    expenses..............    13,931     16,610     24,232     26,139     30,731     93,510     15,017     16,433     50,865 
                            --------   --------   --------   --------   --------   --------   --------   --------   -------- 
    Income from                                                                                                              
      operations..........     3,702      3,699      4,014      6,064      6,852     18,510      3,964      3,462      9,986 
  Other income and expense                                                                                                   
    Interest expense,                                                                                                        
      net.................      (847)      (729)    (1,102)    (1,604)    (1,194)    (3,247)      (680)      (808)      (949)
    Other income                                                                                                             
      (expense), net......         6        (28)         9        (81)       (69)       175        (28)        34        (18)
                            --------   --------   --------   --------   --------   --------   --------   --------   -------- 
    Income before income                                                                                                     
      taxes...............     2,861      2,942      2,921      4,379      5,589     15,438      3,256      2,688      9,019 
  Provision for income                                                                                                       
    taxes.................       553        367        768        744        382      6,435        307        166      3,720 
                            --------   --------   --------   --------   --------   --------   --------   --------   -------- 
    Net income............  $  2,308   $  2,575   $  2,153   $  3,635   $  5,207   $  9,003   $  2,949   $  2,522   $  5,299 
                            ========   ========   ========   ========   ========   ========   ========   ========   ======== 
  Earnings per share......                                                         $    .63                         $    .37 
  Weighted average shares                                                                                                    
    outstanding...........                                                           14,382                           14,382 

                                                        [Enlarge/Download Table]

                                                                                                       AS OF JUNE 30, 1997     
                                                                AS OF DECEMBER 31,                 ----------------------------
                                                 ------------------------------------------------    PRO        PRO FORMA AS   
                                                   1992      1993      1994      1995      1996    FORMA(2)   ADJUSTED(2)(3)(4)
                                                 --------   -------   -------   -------   -------  --------   -----------------
                                                                                 (IN THOUSANDS)                                
                                                                                                                               
BALANCE SHEET DATA:                                                                                                            
Working capital................................. $  2,600   $ 2,435   $ 2,356   $ 4,708   $ 6,436  $   (551)      $ 48,034     
Inventories.....................................   24,101    23,180    34,699    39,573    47,674   107,260        107,260     
Total assets....................................   32,938    32,955    51,124    61,641    72,874   210,422        210,410     
Total debt, including current portion...........   23,355    21,199    31,601    37,320    42,887   107,026         71,484     
Stockholders' equity............................    3,779     3,637     5,346     8,620    12,210    47,490         91,906     

---------------                                                                 

(1) Gives effect to (i) the Acquisitions on an historical basis (ii) the        
   consummation of the Offering and (iii) certain pro forma adjustments to the
   historical financial statements. See Pro Forma Financial Statements and the
notes thereto beginning on page F-3 for a description of the pro forma  
adjustments.                                                            

(2) Gives effect to the Acquisitions on an historical basis and certain pro     
   forma adjustments. See Pro Forma Financial Statements and the notes thereto
beginning on page F-3 for a description of the pro forma adjustments.   

(3) Assumes that the Underwriters' over-allotment option is not exercised. See  
"Underwriting".                                                         

(4) Gives effect to the sale of the shares offered by Group 1 Automotive hereby 
 and the application of the net proceeds therefrom. See "Use of Proceeds".

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OTHER FINANCIAL DATA

  Group 1 Automotive will acquire the Founding Groups immediately prior to
the consummation of the Offering. For financial statement purposes, however, the
Howard Group has been identified as the accounting acquiror. The following      
summary financial data presents, for the year ended December 31, 1996, and for  
the six months ended June 30, 1997, certain historical and pro forma data for   
the Founding Groups. See "Selected Financial Data" and the Pro Forma Financial  
Statements and the notes thereto included elsewhere in this Prospectus.         

                                                        [Enlarge/Download Table]

                                                  FOR THE YEAR ENDED DECEMBER 31, 1996            
                                      ------------------------------------------------------------
                                       HOWARD      MCCALL      SMITH      KINGWOOD    PRO FORMA(1)
                                      --------    --------    --------    --------    ------------
                                        (DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)  
                                                                                                  

INCOME STATEMENT DATA(2):                                                                         
Revenues                                                                                          
  New vehicle sales.................. $164,979    $166,382    $124,174    $13,784       $469,318  
  Used vehicle sales.................   88,477      90,895      60,579     18,075        258,027  
  Parts & service sales..............   21,173      24,454      28,631      2,925         77,184  
  Other dealership revenues, net.....    7,387       6,811       4,895      1,165         21,117  
                                      --------    --------    --------    -------       --------  
     Total revenues..................  282,016     288,542     218,279     35,949        825,646  
Cost of sales........................  244,396     249,560     189,169     30,640        712,772  
                                      --------    --------    --------    -------       --------  
     Gross profit....................   37,620      38,982      29,110      5,309        112,874  
Goodwill amortization................       37          --          67         --            854  
Selling, general and administrative                                                               
  expenses...........................   30,731      35,072      23,644      3,997         93,510  
                                      --------    --------    --------    -------       --------  
     Income from operations..........    6,852       3,910       5,399      1,312         18,510  
Other income and expense                                                                          
  Interest expense, net..............   (1,194)     (2,748)     (1,710)      (439)        (3,247) 
  Other Income (expense), net........      (69)        (45)        223         67            175  
                                      --------    --------    --------    -------       --------  
     Income before taxes.............    5,589       1,117       3,912        940         15,438  
Provision for income taxes...........      382         178         678         41          6,435  
                                      --------    --------    --------    -------       --------  
     Net income...................... $  5,207    $    939    $  3,234    $   899       $  9,003  
                                      ========    ========    ========    =======       ========  
Earnings per share...................                                                   $   0.63  
Weighted average shares                                                                           
  outstanding........................                                                     14,382  
OTHER DATA:                                                                                       
Gross margin.........................    13.3%       13.5%       13.3%      14.8%          13.7%  
Operating margin.....................     2.4%        1.4%        2.5%       3.6%           2.2%  
Pre-tax margin.......................     2.0%        0.4%        1.8%       2.6%           1.9%  
New vehicles sold....................    8,181       6,458       5,983        756         21,378  
Retail used vehicles sold............    7,779       4,496       3,844      1,101         17,220  

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                                                        [Enlarge/Download Table]

                                           FOR THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)    
                                       ----------------------------------------------------------
                                                                                          PRO    
                                        HOWARD      MCCALL       SMITH     KINGWOOD     FORMA(1) 
                                       ---------   ---------   ---------   ---------   ----------
                                        (DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA) 
                                                                                                 
INCOME STATEMENT DATA(2):                                                                        
Revenues                                                                                         
  New vehicle sales...................  $ 84,922    $ 81,609    $ 75,203    $10,095     $251,830 
  Used vehicle sales..................    54,354      49,796      35,153      9,264      148,567 
  Parts & service sales...............    10,763      12,305      14,082      1,251       38,400 
  Other dealership revenues, net......     4,006       3,243       3,021        634       11,546 
                                        --------    --------    --------    -------     -------- 
     Total revenues...................   154,045     146,953     127,459     21,244      450,343 
Cost of sales.........................   134,130     127,276     109,914     18,275      389,093 
                                        --------    --------    --------    -------     -------- 
     Gross profit.....................    19,915      19,677      17,545      2,969       61,250 
Goodwill amortization.................        20          --          28          4          399 
Selling, general and administrative                                                              
  expenses............................    16,433      17,546      13,818      2,416       50,865 
                                        --------    --------    --------    -------     -------- 
     Income from operations...........     3,462       2,131       3,699        549        9,986 
Other income and expense                                                                         
  Interest expense, net...............      (808)       (504)       (941)       (93)        (949)
  Other Income (expense), net.........        34         (34)        (19)        --          (18)
                                        --------    --------    --------    -------     -------- 
     Income before taxes..............     2,688       1,593       2,739        456        9,019 
Provision for income taxes............       166         637         531         21        3,720 
                                        --------    --------    --------    -------     -------- 
     Net income.......................  $  2,522    $    956    $  2,208    $   435     $  5,299 
                                        ========    ========    ========    =======     ======== 
Earnings per share....................                                                  $   0.37 
Weighted average shares...............                                                    14,382 
OTHER DATA:                                                                                      
Gross margin..........................     12.9%       13.4%       13.8%      14.0%        13.6% 
Operating margin......................      2.2%        1.5%        2.9%       2.6%         2.2% 
Pre-tax margin........................      1.7%        1.1%        2.1%       2.1%         2.0% 

New vehicles sold.....................     4,093       3,037       3,972        523       11,625 
Retail used vehicles sold.............     4,312       2,149       2,181        561        9,203 

---------------                                                                 

(1) Pro forma information gives effect to (i) the Acquisitions on an historical 
 basis, (ii) the consummation of the Offering, and (iii) certain pro forma
   adjustments to the historical financial statements. See Pro Forma Financial
   Statements and the notes thereto beginning on page F-3 for a description of
the pro forma adjustments.                                              

(2) The individual Founding Groups' Income Statement Data do not total to the   
    Pro Forma total since such individual Founding Groups' Income Statement Data
represent historical information before Pro Forma entries.              

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF 
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 

  The following discussion should be read in conjunction with the Founding
Groups' Financial Statements and related notes thereto and "Selected Financial  
Data" appearing elsewhere in this Prospectus.                                   

OVERVIEW                                                                        

Group 1 Automotive was founded to become a leading operator and       
consolidator in the highly fragmented automotive industry. Immediately prior to 
the closing of the Offering, Group 1 Automotive will acquire the Founding       
Companies. The Combined Company will own 30 automobile dealerships located in   
Texas and Oklahoma representing 21 American and Asian brands including Acura,   
Chevrolet, Chrysler, Dodge, Eagle, GMC, Honda, Isuzu, Jeep, Kia, Lexus, Lincoln,
Mazda, Mercury, Mitsubishi, Nissan, Oldsmobile, Plymouth, Pontiac, Suzuki and   
Toyota. Additionally, the Combined Company will provide maintenance and repair  
services at its 30 dealerships and five collision service centers. The Combined 
Company will utilize approximately 500 service bays in providing these services.
The Founding Groups are experiencing significant momentum in their financial    
results. From 1994 to 1996, the Founding Groups' pro forma revenues increased by
$172.5 million, or 26.4%, to $825.6 million from $653.1 million. During this    
period, pro forma gross profit increased $27.5 million, or 32.2%, to $112.9     
million from $85.4 million, to 13.7% from 13.1% of revenues. Group 1 Automotive 
expects that a significant portion of the Combined Company's future growth will 
be derived from acquisitions of additional dealerships.                         

Group 1 Automotive plans to achieve its goal of becoming a leading    
consolidator, while maintaining its high operating standards in the automotive  
retailing industry, by (i) emphasizing growth through acquisitions and (ii)     
implementing an operating strategy that focuses on decentralized dealership     
operations, nationally centralized administrative functions, the expansion of   
higher margin businesses, a commitment to customer service and the              
implementation of new technology initiatives. By complementing the Founding     
Groups' industry leaders, management talent and proven operating capabilities   
with the Combined Company's corporate management team which is experienced in   
achieving and managing long-term growth in a consolidation environment, Group 1 
Automotive believes that the Combined Company is in a strong position to execute
this strategy.                                                                  

    The Combined Company will have diverse sources of revenues, including: new
car sales, new truck sales, used car sales, used truck sales, manufacturer      
remarketed vehicle sales, parts sales, service sales, collision repair services,
finance fees, insurance commissions, extended service contract sales,           
documentary fees and after-market product sales. Sales revenues include sales to
retail customers, other dealers and wholesalers. Other dealership revenue       
includes revenue from the sale of financing, insurance and extended service     
contracts, net of a provision for anticipated chargebacks and documentary fees  
charged to customers.                                                           

 The Combined Company's gross profit will vary as the Combined Company's
merchandise mix (the mix between new vehicle sales, used vehicle sales, parts   
and service sales, collision repair services and other dealership revenues)     
changes. The gross margin realized by the Founding Groups on the sale of its    
products and services generally varies between approximately 6.5% and 60.0%,    
with new vehicle sales generally resulting in the lowest gross margin and parts 
and service sales generally resulting in the highest gross margin. Revenues from
other dealership revenues contribute a disproportionate share of gross,         
operating and pre-tax margins. When the Combined Company's new vehicle sales    
increase or decrease at a rate greater than the Combined Company's other revenue
sources, the Combined Company's gross margin will respond inversely. Factors    
such as seasonality, weather, cyclicality and manufacturers' advertising and    
incentives may impact the Combined Company's merchandise mix and, therefore     
influence the Combined Company's gross margin.                                  

Selling, general and administrative expenses consist primarily of     
compensation for sales, administrative, finance and general management          
personnel, rent, marketing, insurance and utilities. Interest expense consists  
of interest charges on interest-bearing debt, including floorplan inventory     
financing, net                                                                  

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of interest credits received from certain manufacturers and interest income     
earned. The Founding Groups have been managed throughout the periods presented  
as independent private companies and their results of operations reflect        
different tax structures (S Corporations and C Corporations) which have         
influenced, among other things, their historical levels of owners' compensation.
These owners and certain key employees have agreed to certain reductions in     
their compensation and benefits in connection with the organization of the      
Combined Company.                                                               

     Group 1 Automotive, which has conducted no operations to date other than in
connection with the Acquisition and the Offering, intends to integrate certain  
functions over a period of time and install practices that have been successful 
at other franchises and in other retail segments ("best practices"). This       
integration and installation of best practices may present opportunities to     
increase revenues and reduce costs but may also necessitate additional costs and
expenditures for corporate administration, including expenses necessary to      
implement the Combined Company's acquisition strategy. These various costs and  
possible cost-savings and revenue enhancements may make historical operating    
results not comparable to, or indicative of, future performance.                

PRO FORMA COMBINED FOUNDING GROUPS' DATA                                        

  The pro forma combined Founding Groups' data for 1994, 1995 and 1996 and
the six months ended June 30, 1996, and June 30, 1997, do not purport to present
the combined Founding Groups in accordance with generally accepted accounting   
principles, but represent a summation of certain data of the individual Founding
Groups on an historical basis including the effects of the pro forma            
adjustments. This data will not be comparable to and may not be indicative of   
the Combined Company's post-combination results of operations because (i) the   
Founding Groups were not under common control of management and had different   
tax structures (S Corporations and C Corporations) during the periods presented 
and (ii) the Combined Company will use the purchase method to establish a new   
basis of accounting to record the Acquisitions.                                 

   The following tables sets forth certain unaudited pro forma combined data
of the Founding Groups for the periods indicated:                               

OPERATIONS DATA                                                             

                                                        [Enlarge/Download Table]

                                                       YEAR ENDED DECEMBER 31,                   
                                     ------------------------------------------------------------
                                            1994                 1995                 1996       
                                     ------------------   ------------------   ------------------
                                      AMOUNT    PERCENT    AMOUNT    PERCENT    AMOUNT    PERCENT
                                     --------   -------   --------   -------   --------   -------
                                                        (DOLLARS IN THOUSANDS)                   
                                                                                                 
Revenues:                                                                                        
 New vehicle sales.................. $391,709     60.0%   $422,348     57.9%   $469,318     56.8%
 Used vehicle sales.................  184,179     28.2     222,373     30.5     258,027     31.3 
 Parts and service sales............   61,024      9.3      65,599      9.0      77,184      9.3 
 Other dealership revenues, net.....   16,228      2.5      19,033      2.6      21,117      2.6 
                                     --------   ------    --------   ------    --------   ------ 
       Total revenues...............  653,140    100.0     729,353    100.0     825,646    100.0 
Cost of sales.......................  567,729     86.9     632,100     86.7     712,772     86.3 
                                     --------   ------    --------   ------    --------   ------ 
Gross profit........................ $ 85,411     13.1%   $ 97,253     13.3%   $112,874     13.7%
                                     ========   ======    ========   ======    ========   ====== 


                                            SIX MONTHS ENDED JUNE 30,                            
                                     ---------------------------------------                     
                                            1996                 1997                            
                                     ------------------   ------------------                     
                                      AMOUNT    PERCENT    AMOUNT    PERCENT                     
                                     --------   -------   --------   -------                     
                                             (DOLLARS IN THOUSANDS)                              
                                                                                                 
Revenues:                                                                                        
 New vehicle sales.................. $227,170     56.2%   $251,830     55.9%                     
 Used vehicle sales.................  129,602     32.0     148,567     33.0                      
 Parts and service sales............   36,667      9.1      38,400      8.5                      
 Other dealership revenues, net.....   10,933      2.7      11,546      2.6                      
                                     --------   ------    --------   ------                      
       Total revenues...............  404,372    100.0     450,343    100.0                      
Cost of sales.......................  348,486     86.2     389,093     86.4                      
                                     --------   ------    --------   ------                      
Gross profit........................ $ 55,886     13.8%   $ 61,250     13.6%                     
                                     ========   ======    ========   ======                      

NEW VEHICLE DATA                                                            

                                                        [Enlarge/Download Table]

                                         PRO FORMA COMBINED COMPANY'S NEW VEHICLE DATA     
                                      ---------------------------------------------------- 
                                                                        SIX MONTHS ENDED   
                                         YEAR ENDED DECEMBER 31,            JUNE 30,       
                                      ------------------------------   ------------------- 
                                        1994       1995       1996       1996       1997   
                                      --------   --------   --------   --------   -------- 
                                                     (DOLLARS IN THOUSANDS)                
                                                                                           
Retail unit sales...................    19,361     20,357     21,378     10,391     11,625 
Retail sales revenue................  $391,709   $422,348   $469,318   $227,170   $251,830 
Gross profit........................  $ 25,802   $ 29,252   $ 34,421   $ 16,602   $ 18,819 
Gross margin........................       6.6%       6.9%       7.3%       7.3%       7.5%
Average gross profit per retail unit                                                       
  sold..............................  $  1,333   $  1,437   $  1,610   $  1,598   $  1,619 

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USED VEHICLE DATA                                                           

                                                        [Enlarge/Download Table]

                                        PRO FORMA COMBINED COMPANY'S USED VEHICLE DATA    
                                     ---------------------------------------------------- 
                                                                       SIX MONTHS ENDED   
                                        YEAR ENDED DECEMBER 31,            JUNE 30,       
                                     ------------------------------   ------------------- 
                                       1994       1995       1996       1996       1997   
                                     --------   --------   --------   --------   -------- 
                                                    (DOLLARS IN THOUSANDS)                
                                                                                          
Retail unit sales...................   13,147     15,358     17,220      8,705      9,203 
Retail sales revenue(1)............. $147,914   $185,665   $219,183   $110,091   $120,854 
Gross profit........................ $ 14,594   $ 17,560   $ 21,358   $ 11,014   $ 10,655 
Gross margin........................      9.9%       9.5%       9.7%      10.0%       8.8%
Average gross profit per retail                                                           
  unit sold......................... $  1,110   $  1,143   $  1,240   $  1,265   $  1,158 

---------------                                                                 

(1) Excludes wholesale revenues.                                                

PARTS AND SERVICE DATA                                                      

                                                        [Enlarge/Download Table]

                                     PRO FORMA COMBINED COMPANY'S PARTS AND SERVICE DATA  
                                     ---------------------------------------------------- 
                                                                       SIX MONTHS ENDED   
                                        YEAR ENDED DECEMBER 31,            JUNE 30,       
                                     ------------------------------   ------------------- 
                                       1994       1995       1996       1996       1997   
                                     --------   --------   --------   --------   -------- 
                                                    (DOLLARS IN THOUSANDS)                
                                                                                          
Sales revenue....................... $ 61,024   $ 65,599   $ 77,184   $ 36,667   $ 38,400 
Gross profit........................ $ 28,787   $ 31,408   $ 35,978   $ 17,337   $ 20,230 
Gross margin........................     47.2%      47.9%      46.6%      47.3%      52.7%

SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996       

   REVENUES. Revenues increased $45.9 million, or 11.4%, from $404.4 million
for the six months ended June 30, 1996 to $450.3 million for the six months     
ended June 30, 1997. New vehicle sales increased $24.6 million, or 10.8%, from  
$227.2 million for the six months ended June 30, 1996 to $251.8 million for the 
six months ended June 30, 1997. The increase is primarily attributable to new   
franchise operations, strong customer acceptance of the Founding Groups'        
products, particularly Lexus and Nissan, and successful marketing efforts. The  
new franchise operations include a Dodge franchise acquired by the Howard Group 
in May 1996 ("Bob Howard Dodge") and a new Nissan franchise awarded to the Smith
Group during 1996. Used vehicle sales increased $19.0 million, or 14.7%, from   
$129.6 million for the six months ended June 30, 1996 to $148.6 million for the 
six months ended June 30, 1997. This increase is primarily attributable to the  
new franchise operations and successful marketing efforts. Parts and service    
sales increased $1.7 million, or 4.6%, from $36.7 million for the six months    
ended June 30, 1996 to $38.4 million for the six months ended June 30, 1997. The
increase is attributable to the new franchise operations and a growing customer 
base at the McCall Lexus franchise. Other dealership revenues increased $0.6    
million or 5.5% from $10.9 million for the six months ended June 30, 1996 to    
$11.5 million for the six months ended June 30, 1997. The increase is due       
primarily to an increase in the number of retail new and used vehicle sales.    

GROSS PROFIT. Gross profit increased $5.4 million, or 9.7% from $55.9 
million for the six months ended June 30, 1996 to $61.3 million for the six     
months ended June 30, 1997. The increase is attributable to increased sales     
offset by a reduced gross margin. The gross margin declined from 13.8% for the  
six months ended June 30, 1996 to 13.6% for the six months ended June 30, 1997. 
The reduced gross margin resulted primarily from a decline in used vehicle gross
margin, offset by an increase in new vehicle and parts and service gross        
margins.                                                                        

YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995       

   REVENUES. Revenues increased $96.2 million, or 13.2%, from $729.4 million
for the year ended December 31, 1995 to $825.6 million for the year ended       
December 31, 1996. New vehicle revenues                                         

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increased $47.0 million, or 11.1%, from $422.3 million for the year ended       
December 31, 1995 to $469.3 million for the year ended December 31, 1996. This  
increase is primarily attributable to increased sales at all but one of the     
Founding Groups with the McCall Group accounting for $40.6 million of the       
increase. New and expanded franchise operations, primarily the Howard Group's   
new Dodge franchise, successful marketing efforts and strong customer acceptance
of the Founding Groups' products, particularly Toyota, Lexus and Chevrolet,     
contributed to the increase. The Smith Group had an $8.0 million decline in new 
vehicle revenues caused by reduced unit sales at its Dallas Nissan franchise.   
Used vehicle revenues increased $35.6 million, or 16.0%, from $222.4 million for
the year ended December 31, 1995 to $258.0 million for the year ended December  
31, 1996. All of the Founding Groups' had increases in used vehicle revenues    
with the McCall Group accounting for $22.6 million of the increase. The increase
is attributable primarily to a strong used vehicle market and successful        
marketing efforts. Parts and service sales increased $11.6 million, or 17.7%,   
from $65.6 million for the year ended December 31, 1995 to $77.2 million for the
year ended December 31, 1996. The increase is primarily attributable to new and 
expanded operations at McCall Lexus, and increased vehicle sales. Other         
dealership revenues increased $2.1 million or 11.1% from $19.0 million for the  
year ended December 31, 1995 to $21.1 million for the year ended December 31,   
1996. The increase is due primarily to an increase in the number of retail new  
and used vehicle sales.                                                         

  GROSS PROFIT. Gross profit increased $15.6 million, or 16.0%, from $97.3
million for the year ended December 31, 1995 to $112.9 million for the year     
ended December 31, 1996. The increase is attributable to increased revenues and 
an increase in gross margin from 13.3% for the year ended December 31, 1995 to  
13.7% for the year ended December 31, 1996. The increase in gross margin is     
primarily due to a change in the merchandise mix as parts and service sales     
became a greater percentage of total revenues. Additionally, gross margin on new
retail vehicle sales increased from 6.9% for the year ended December 31, 1995 to
7.3% for the year ended December 31, 1996. The gross margin on used retail      
vehicle sales increased from 9.5% for the year ended December 31, 1995, to 9.7% 
for the year ended December 31, 1996. However, gross margin on parts and service
sales decreased from 47.9% for the year ended December 31, 1995 to 46.6% for the
year ended December 31, 1996.                                                   

YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994       

   REVENUES. Revenues increased $76.3 million, or 11.7%, from $653.1 million
for the year ended December 31, 1994 to $729.4 million for the year ended       
December 31, 1995. New vehicle revenues increased $30.6 million, or 7.8% from   
$391.7 million for the year ended December 31, 1994 to $422.3 million for the   
year ended December 31, 1995. The increase is the result of increased sales at  
all but one of the Founding Groups. The increase in revenue is attributable to  
new franchise operations at Bob Howard Honda/Acura which was acquired during    
1994, successful marketing efforts and strong customer acceptance of the        
Founding Groups' products. Used vehicle revenues increased $38.2 million, or    
20.7%, from $184.2 million for the year ended December 31, 1994 to $222.4       
million for the year ended December 31, 1995. The increase is primarily         
attributable to the new franchise operations and successful marketing efforts.  
Parts and service sales increased $4.6 million, or 7.5%, from $61.0 million for 
the year ended December 31, 1994 to $65.6 million for the year ended December   
31, 1995. The increase is primarily attributable to the new dealership          
operations and increased vehicle sales. Other dealership revenues increased $2.8
million or 17.3% from $16.2 million for the year ended December 31, 1994 to     
$19.0 million for the year ended December 31, 1995. The increase is due         
primarily to an increase in the number of retail new and used vehicle sales.    

  GROSS PROFIT. Gross profit increased $11.9 million, or 13.9%, from $85.4
million for the year ended December 31, 1994 to $97.3 million for the year ended
December 31, 1995. The increase is attributable to increased revenues and an    
improved gross margin. Changes in the merchandise mix and certain product gross 
margins resulted in the Founding Groups' gross margin increasing from 13.1% for 
the year ended December 31, 1994 to 13.3% for the year ended December 31, 1995. 
The gross margin on new retail vehicle sales increased from 6.6% for the year   
ended December 31, 1994 to 6.9% for the year ended December 31, 1995. The gross 
margin for used retail vehicle sales declined from 9.9% for the year            

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ended December 31, 1994 to 9.5% for the year ended December 31, 1995. Parts and 
service gross margin increased from 47.2% for the year ended December 31, 1994  
to 47.9% for the year ended December 31, 1995.                                  

COMBINED FOUNDING GROUPS' COMMITMENTS                                           

CREDIT FACILITY                                                             

   Group 1 Automotive has negotiated and executed an arrangement letter with
Chase Securities, Inc. and Comerica Bank for a $125 million Credit Facility     
which may be used by the Combined Company for acquisitions, floorplan financing,
general corporate purposes, capital expenditures and working capital. The       
arrangement letter provides for Chase Securities, Inc. to use commercially      
reasonable efforts to assemble a syndicate of financial institutions subsequent 
to the Offering. Chase Securities, Inc. and Comerica Bank have committed for    
approximately 50% of the Credit Facility. At the Combined Company's option, the 
Credit Facility may bear interest based on a designated London Interbank        
Offering Rate plus a margin ranging from 150 to 275 basis points. The Credit    
Facility matures three years from the date the loan is closed and will be       
secured by certain of the Combined Company's assets.                            

FLOORPLAN FINANCING                                                         

     As of June 30, 1997, the Founding Groups had approximately $97.5 million of
floorplan debt outstanding. Group 1 Automotive intends to repay $35.5 million of
floorplan indebtedness with the proceeds of the Offering. Currently, the        
Founding Group's floorplan financing is provided by seven sources. Upon         
consummation of the Offering, all of the Combined Company's floorplan financing 
will benefit from interest rate reductions. Rate reductions have already become 
effective with respect to approximately 75% of the Founding Groups' floorplan   
debt. The current reductions range between 25 and 225 basis points.             
Additionally, subsequent to the Offering, the Combined Company intends to       
refinance approximately $50 million in floorplan financing with the Credit      
Facility.                                                                       

LEASES                                                                      

    The Founding Groups lease various facilities and equipment under operating
lease agreements, including leases with related parties. In connection with the 
Acquisitions, Group 1 Automotive intends to replace certain of the Founding     
Groups' leases with new leases that will have terms of 30 years and will be     
cancelable at the Combined Company's option ten years from execution of the     
lease and at the end of each subsequent five year period. Such leases will      
initially have the same rent as the currently existing leases and will be       
subject to increase every five years based on a percentage of the Consumer Price
Index. See "Certain Transaction -- Leases". Future minimum lease payments for   
existing operating leases are as follows: $6.6 million in 1997, $6.5 million in 
1998, $6.0 million in 1999, $5.2 million in 2000 and $3.9 million in 2001.      

INDIVIDUAL FOUNDING GROUPS                                                      

     The selected historical financial information presented in the tables below
is derived from the respective audited financial statements of the individual   
Founding Groups included elsewhere herein. The following discussion should be   
read in conjunction with the Financial Statements of the Founding Groups and the
notes thereto appearing elsewhere in this Prospectus. The financial statements  
of the Kingwood Group have not been separately included within this Prospectus  
because the Kingwood Group does not qualify as a significant subsidiary under   
the Securities and Exchange Commission's Staff Accounting Bulletin (SAB) No. 80 
and, accordingly, are not required to be presented. The Kingwood Group's results
of operations and statement of financial position are included in the Pro Forma 
Financial Statements.                                                           

     For financial statement presentation purposes, as required by the rules and
regulations of the Securities Act, the Howard Group has been identified as the  
accounting acquiror.                                                            

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RESULTS OF OPERATIONS -- HOWARD GROUP                                           

    This group is one of the largest dealership groups in Oklahoma, consisting
of Acura, Chevrolet, Chrysler, Dodge, Eagle, GMC, Honda, Isuzu, Jeep, Mazda,    
Plymouth, Pontiac and Toyota dealerships located in Oklahoma City. Robert E.    
Howard II, the principal owner, has been involved in the automotive retailing   
industry for over 28 years. Bob Howard opened his first dealership in 1978 which
later became the foundation for the Bob Howard Automall ("Bob Howard Automall").
The Bob Howard Automall currently houses the Chrysler, Eagle, GMC, Isuzu, Jeep, 
Mazda, Plymouth and Pontiac franchises.                                         

    The following table sets forth certain selected financial data and data as
a percentage of revenues for the Howard Group for the periods indicated:        

                                                        [Enlarge/Download Table]

                                                         YEAR ENDED DECEMBER 31,                   
                                       ------------------------------------------------------------
                                              1994                 1995                 1996       
                                       ------------------   ------------------   ------------------
                                        AMOUNT    PERCENT    AMOUNT    PERCENT    AMOUNT    PERCENT
                                       --------   -------   --------   -------   --------   -------
                                                          (DOLLARS IN THOUSANDS)                   
                                                                                                   
Revenues:                                                                                          
 New vehicle sales.................... $136,831     60.2%   $151,227     59.5%   $164,979     58.5%
 Used vehicle sales...................   69,862     30.8      79,448     31.3      88,477     31.4 
 Parts and service sales..............   14,402      6.3      16,940      6.7      21,173      7.5 
 Other dealership revenue, net........    6,164      2.7       6,388      2.5       7,387      2.6 
                                       --------    -----    --------    -----    --------    ----- 
       Total revenues.................  227,259    100.0     254,003    100.0     282,016    100.0 
Cost of sales.........................  198,992     87.6     221,773     87.3     244,396     86.7 
                                       --------    -----    --------    -----    --------    ----- 
Gross profit..........................   28,267     12.4      32,230     12.7      37,620     13.3 
Selling, general and administrative                                                                
 expenses.............................   24,253     10.7      26,166     10.3      30,768     10.9 
                                       --------    -----    --------    -----    --------    ----- 
Income from operations................    4,014      1.7       6,064      2.4       6,852      2.4 
Other income and expense:                                                                          
 Interest expense, net................   (1,102)    (0.5)     (1,604)    (0.6)     (1,194)    (0.4)
 Other income (expense) net...........        9       --         (81)    (0.1)        (69)      -- 
                                       --------    -----    --------    -----    --------    ----- 
Income before income taxes............    2,921      1.2       4,379      1.7       5,589      2.0 
Provision (benefit) for income                                                                     
 taxes................................      768      0.3         744      0.3         382      0.1 
                                       --------    -----    --------    -----    --------    ----- 
Net income............................ $  2,153      0.9%   $  3,635      1.4%   $  5,207      1.9%
                                       ========    =====    ========    =====    ========    ===== 


                                              SIX MONTHS ENDED JUNE 30,                            
                                       ---------------------------------------                     
                                              1996                 1997                            
                                       ------------------   ------------------                     
                                        AMOUNT    PERCENT    AMOUNT    PERCENT                     
                                       --------   -------   --------   -------                     
                                               (DOLLARS IN THOUSANDS)                              
                                                                                                   
Revenues:                                                                                          
 New vehicle sales.................... $ 82,523     58.7%   $ 84,922     55.1%                     
 Used vehicle sales...................   44,036     31.3      54,354     35.3                      
 Parts and service sales..............   10,142      7.2      10,763      7.0                      
 Other dealership revenue, net........    3,949      2.8       4,006      2.6                      
                                       --------    -----    --------    -----                      
       Total revenues.................  140,650    100.0     154,045    100.0                      
Cost of sales.........................  121,654     86.5     134,130     87.1                      
                                       --------    -----    --------    -----                      
Gross profit..........................   18,996     13.5      19,915     12.9                      
Selling, general and administrative                                                                
 expenses.............................   15,032     10.7      16,453     10.7                      
                                       --------    -----    --------    -----                      
Income from operations................    3,964      2.8       3,462      2.2                      
Other income and expense:                                                                          
 Interest expense, net................     (680)    (0.5)       (808)    (0.5)                     
 Other income (expense) net...........      (28)      --          34       --                      
                                       --------    -----    --------    -----                      
Income before income taxes............    3,256      2.3       2,688      1.7                      
Provision (benefit) for income                                                                     
 taxes................................      307      0.2         166      0.1                      
                                       --------    -----    --------    -----                      
Net income............................ $  2,949      2.1%   $  2,522      1.6%                     
                                       ========    =====    ========    =====                      

SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996   

  REVENUES. Revenues increased $13.3 million, or 9.5%, from $140.7 million
for the six months ended June 30, 1996 to $154.0 million for the six months     
ended June 30, 1997. New vehicle sales increased $2.4 million, or 2.9%, from    
$82.5 million for the six months ended June 30, 1996 to $84.9 million for the   
six months ending June 30, 1997. The increase is primarily attributable to sales
generated by Bob Howard Dodge and the Toyota franchise which were partially     
offset by reduced sales at Bob Howard Automall. Used vehicle sales increased    
$10.4 million, or 23.6%, from $44.0 million for the six months ended June 30,   
1996 to $54.4 million for the six months ended June 30, 1997. This increase is  
attributable to sales generated by Bob Howard Dodge in addition to increased    
sales at all of the Howard Group's other franchises. Parts and service sales    
increased $0.7 million, or 6.9%, from $10.1 million for the six months ended    
June 30, 1996 to $10.8 million for the six months ended June 30, 1997. The      
increase is attributable primarily to sales generated by Bob Howard Dodge. Other
dealership revenues increased $0.1 million or 2.6% from $3.9 million for the six
months ended June 30, 1996 to $4.0 million for the six months ended June 30,    
1997. The increase is due primarily to an increase in the number of retail used 
vehicle sales while the number of retail new vehicle sales was stable.          

GROSS PROFIT. Gross profit increased $0.9 million, or 4.7%, from $19.0
million for the six months ended June 30, 1996 to $19.9 million for the six     
months ended June 30, 1997. The increase is attributable primarily to increased 
sales, offset partially by reduced vehicle gross margins at certain of the      
Howard Group's franchises. The Howard Group's gross margin declined from 13.5%  
for the six months ended June 30, 1996 to 12.9% for the six months ended June   
30, 1997 due primarily to increased competitive pressures in the marketplace.   

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SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and    
administrative expenses increased $1.5 million or 10.0% from $15.0 million for  
the six months ended June 30, 1996 to $16.5 million for the six months ended    
June 30, 1997. The increase is primarily attributable to expenses incurred by   
Bob Howard Dodge, which was acquired late in the second quarter of 1996.        
Selling, general and administrative expenses, as a percentage of total revenues,
remained constant at 10.7% for the six month periods ended June 30, 1996 and    
June 30, 1997.                                                                  

 INTEREST EXPENSE, NET. Interest expense, net, increased $0.1 million or
14.3% from $0.7 million for the six months ended June 30, 1996 to $0.8 million  
for the six months ended June 30, 1997. Interest expense increased primarily due
to interest expense incurred by Bob Howard Dodge and increased vehicle          
inventories carried at certain of the Howard Group's franchises.                

YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995           

     REVENUES. Revenues increased by $28.0 million, or 11.0% from $254.0 million
for the year ended December 31, 1995 to $282.0 million for the year ended       
December 31, 1996. New vehicle sales increased $13.8 million, or 9.1%, from     
$151.2 million for the year ended December 31, 1995 to $165.0 million for the   
year ended December 31, 1996. The increase is primarily attributable to strong  
sales at the Chevrolet franchise and the acquisition of Bob Howard Dodge, offset
by reduced sales at Bob Howard Automall. Used vehicle revenues increased $9.1   
million, or 11.5%, from $79.4 million for the year ended December 31, 1995 to   
$88.5 million for the year ended December 31, 1996. This increase is            
attributable to the acquisition of Bob Howard Dodge and the Howard Group's      
successful marketing efforts at all of the Howard Group's other franchises.     
Parts and service sales increased $4.3 million, or 25.4%, from $16.9 million for
the year ended December 31, 1995 to $21.2 million for the year ended December   
31, 1996. The increase is attributable to increased sales at each of the Howard 
Group's franchises and new sales from the acquisition of Bob Howard Dodge. Other
dealership revenues increased $1.0 million or 15.6% from $6.4 million for the   
year ended December 31, 1995 to $7.4 million for the year ended December 31,    
1996. The increase is due primarily to an increase in the number of retail new  
and used vehicle sales.                                                         

    GROSS PROFIT. Gross profit increased by $5.4 million, or 16.8%, from $32.2
million for the year ended December 31, 1995 to $37.6 million for the year ended
December 31, 1996. The increase is attributable to increased sales and          
improvement in the Howard Group's gross profit margin from 12.7% for the year   
ended December 31, 1995 to 13.3% for the year ended December 31, 1996. The gross
margin improved as revenues from parts and service and other dealership revenues
became a greater percentage of total revenues.                                  

SELLING, GENERAL AND ADMINISTRATION EXPENSES. Selling, general and    
administration expenses increased $4.6 million, or 17.6%, from $26.2 million for
the year ended December 31, 1995 to $30.8 million for the year ended December   
31, 1996. The increase is primarily attributable to costs related to the newly  
acquired Bob Howard Dodge and variable incentive pay to employees which is      
related to the increase in revenues. As a percentage of total revenues, selling,
general and administrative expenses increased from 10.3% for the year ended     
December 31, 1995 to 10.9% for the year ended December 31, 1996.                

  INTEREST EXPENSE, NET. Interest expense, net, decreased $0.4 million, or
25.0%, from $1.6 million for the year ended December 31, 1995 to $1.2 million   
for the year ended December 31, 1996. The decrease is attributable to an        
approximately 50 basis point decrease in the average floorplan interest rate and
increased manufacturer assistance, partially offset by interest expense incurred
by the newly acquired Bob Howard Dodge.                                         

YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994           

REVENUES. Revenues increased by $26.7 million, or 11.7%, from $227.3  
million for the year ended December 31, 1994 to $254.0 million for the year     
ended December 31, 1995. New vehicle sales increased $14.4 million, or 10.5%,   
from $136.8 million for the year ended December 31, 1994 to                     

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$151.2 million for the year ended December 31, 1995. The increase is primarily  
attributable to strong sales growth of the Chevrolet franchise due to strong    
customer acceptance of Chevrolet products and successful marketing efforts, and 
the inclusion of a full year of revenues for the Honda and Acura franchises     
acquired during 1994. Used vehicle sales increased $9.5 million, or 13.6%, from 
$69.9 million for the year ended December 31, 1994 to $79.4 million for the year
ended December 31, 1995. This increase is primarily attributable to successful  
marketing efforts and the inclusion of a full year of revenues for the Honda and
Acura franchises acquired during 1994. Parts and service sales increased $2.5   
million or 17.4% from $14.4 million for the year ended December 31, 1994 to     
$16.9 million for the year ended December 31, 1995. The overall increase is     
primarily attributable to continued steady growth driven by increased vehicle   
sales. Other dealership revenues increased $0.2 million or 3.2% from $6.2       
million for the year ended December 31, 1994 to $6.4 million for the year ended 
December 31, 1995. The increase is due primarily to an increase in the number of
retail new and used vehicle sales.                                              

    GROSS PROFIT. Gross profit increased by $3.9 million, or 13.8%, from $28.3
million for the year ended December 31, 1994 to $32.2 million for the year ended
December 31, 1995. The increase is primarily attributable to increased sales.   
Additionally, the gross margin improved from 12.4% for the year ended December  
31, 1994 to 12.7% for the year ended December 31, 1995 due primarily to parts   
and service revenues becoming a greater percentage of total revenues.           

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and    
administrative expenses increased $1.9 million, or 7.8%, from $24.3 million for 
the year ended December 31, 1994 to $26.2 million for the year ended December   
31, 1995. The increase is primarily attributable to variable incentive pay to   
employees which is related directly to the increase in revenues. Selling,       
general and administrative expenses declined as a percentage of revenues from   
10.7% for the year ended December 31, 1994 to 10.3% for the year ended December 
31, 1995.                                                                       

  INTEREST EXPENSE, NET. Interest expense, net, increased $0.5 million, or
45.5%, from $1.1 million for the year ended December 31, 1994 to $1.6 million   
for the year ended December 31, 1995. The increase is primarily attributable to 
an approximately 170 basis point increase in the average floorplan interest rate
and an increase in inventory to support growing retail sales.                   

LIQUIDITY AND CAPITAL RESOURCES -- HOWARD GROUP                                 

  The Howard Group's principal sources of liquidity are cash on hand, cash
from operations and floor plan financing.                                       

 The following table sets forth historical selected information from the
Howard Group statements of cash flows:                                          

                                                        [Enlarge/Download Table]

                                                                        SIX MONTHS ENDED  
                                         YEAR ENDED DECEMBER 31,            JUNE 30,      
                                       ----------------------------    ------------------ 
                                        1994       1995      1996       1996       1997   
                                       -------    ------    -------    -------    ------- 
                                                         (IN THOUSANDS)   (UNAUDITED)     
                                                                                          
Net cash provided by operating                                                            
  activities.......................... $ 4,204    $7,197    $ 7,332    $ 1,884    $ 2,406 
Net cash used in investing                                                                
  activities..........................  (3,032)   (1,303)    (4,615)    (4,335)       (89)
Net cash used in financing                                                                
  activities..........................    (157)     (520)    (1,558)    (2,112)    (4,059)
                                       -------    ------    -------    -------    ------- 
Net increase (decrease) in cash and                                                       
  cash equivalents.................... $ 1,015    $5,374    $ 1,159    $(4,563)   $(1,742)
                                       =======    ======    =======    =======    ======= 

CASH FLOWS                                                                  

Total cash and cash equivalents at June 30, 1997, were $9.9 million.  

For the three year period ended December 31, 1996, the Howard Group   
generated $18.7 million in net cash from operating activities, primarily from   
net income plus depreciation and amortization. Net cash flow from operating     
activities remained stable for the years ended December 31, 1995 and December   
31, 1996.                                                                       

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    Net cash from operating activities increased from $1.9 million for the six
months ended June 30, 1996 to $2.4 million for the six months ended June 30,    
1997, primarily due to change in inventories, floor plan financing and accounts 
payable and accrued liabilities.                                                

 The change in net cash used in investing activities was attributable to
purchases of property and equipment and the purchases of the Honda and Acura    
franchises in 1994 and the Dodge franchise in 1996.                             

The change in net cash used in financing activities was primarily     
attributable to dividends paid in excess of cash received from contributions and
stock issuances.                                                                

FLOORPLAN FINANCING                                                         

The Howard Group currently obtains floorplan financing for its vehicle
inventory primarily through General Motors Acceptance Corporation ("GMAC"). As  
of June 30, 1997, the Howard Group had approximately $37.8 million of floorplan 
financing outstanding. The debt bears interest at a rate of prime minus 75 basis
points. Interest expense on floorplan notes payable, before manufacturer        
interest assistance, totaled approximately $2.4 million, $3.4 million and $3.1  
million for the year ended December 31, 1994, 1995 and 1996. Manufacturer       
interest assistance, which is recorded as a reduction to interest expense,      
totaled approximately $1.4 million, $1.9 million and $2.0 million for the years 
ended December 31, 1994, 1995 and 1996.                                         

LEASES                                                                      

     The Howard Group leases various real estate, facilities and equipment under
operating lease agreements, including leases with related parties. In connection
with the Acquisitions, the Howard Group intends to replace certain existing     
leases with leases that have terms of 30 years and will be cancellable at the   
Combined Company's option ten years from execution of the lease and at the end  
of each subsequent five year period. Such leases initially will have the same   
rent as the existing leases and will be subject to increases every five years   
based on a percentage of the Consumer Price Index. See "Certain                 
Transactions -- Leases". Future minimum lease payments of existing operating    
leases are as follows: $2.9 million in 1997, $2.9 million in 1998, $2.5 million 
in 1999, $2.2 million in 2000 and $1.7 million in 2001.                         

OTHER                                                                       

 The Howard Group had working capital of $6.4 million as of December 31,
1996. Historically, the Howard Group has funded its operations with internally  
generated cash flow and borrowings from lenders. While there can be no          
assurance, based on current facts and circumstances, management believes it has 
adequate cash flows and financing alternatives to fund its current operations.  

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RESULTS OF OPERATIONS -- MCCALL GROUP                                           

   This group consists of the second largest Toyota dealership in the United
States, as ranked by 1996 new unit sales, and a Lexus dealership, both located  
in Houston, Texas. Sterling B. McCall, Jr., the principal owner, has been       
involved in the automotive retailing industry for more than 27 years.           

    The following table sets forth certain selected financial data and data as
a percentage of revenues for the McCall Group for the periods indicated:        

                                                        [Enlarge/Download Table]

                                                     YEAR ENDED DECEMBER 31,                     
                                  -------------------------------------------------------------- 
                                         1994                  1995                  1996        
                                  ------------------    ------------------    ------------------ 
                                   AMOUNT    PERCENT     AMOUNT    PERCENT     AMOUNT    PERCENT 
                                  --------   -------    --------   -------    --------   ------- 
                                                      (DOLLARS IN THOUSANDS)                     
                                                                                                 
Revenues:                                                                                        
 New vehicle sales............... $105,402      59.5%   $125,810      57.5%   $166,382      57.6%
 Used vehicle sales..............   49,872      28.1      68,332      31.2      90,895      31.5 
 Parts and service sales.........   17,939      10.1      19,432       8.9      24,454       8.5 
 Other dealership revenue, net...    4,107       2.3       5,314       2.4       6,811       2.4 
                                  --------    ------    --------    ------    --------    ------ 
   Total revenues................  177,320     100.0     218,888     100.0     288,542     100.0 
Cost of sales....................  152,573      86.0     188,731      86.2     249,560      86.5 
                                  --------    ------    --------    ------    --------    ------ 
Gross profit.....................   24,747      14.0      30,157      13.8      38,982      13.5 
Selling, general and                                                                             
 administrative expenses.........   22,477      12.7      27,752      12.7      35,072      12.1 
                                  --------    ------    --------    ------    --------    ------ 
Income from operations...........    2,270       1.3       2,405       1.1       3,910       1.4 
Other expense:                                                                                   
 Interest expense, net...........   (2,463)     (1.4)     (3,215)     (1.5)     (2,748)     (1.0)
 Other expense, net..............       (6)       --         (44)       --         (45)       -- 
                                  --------    ------    --------    ------    --------    ------ 
Income (loss) before income                                                                      
 taxes...........................     (199)     (0.1)       (854)     (0.4)      1,117       0.4 
Provision for income taxes.......      232       0.1         283       0.1         178       0.1 
                                  --------    ------    --------    ------    --------    ------ 
Net income (loss)................ $   (431)     (0.2)%    (1,137)     (0.5)%  $    939       0.3%
                                  ========    ======    ========    ======    ========    ====== 


                                        SIX MONTHS ENDED JUNE 30,                                
                                  -------------------------------------                          
                                        1996                1997                                 
                                  -----------------   -----------------                          
                                  AMOUNT    PERCENT   AMOUNT    PERCENT                          
                                  -------   -------   -------   -------                          
                                         (DOLLARS IN THOUSANDS)                                  
                                                                                                 
Revenues:                                                                                        
 New vehicle sales............... $78,633     57.3%   $81,609     55.5%                          
 Used vehicle sales.............. 44,237      32.2    49,796      33.9                           
 Parts and service sales......... 11,042       8.1    12,305       8.4                           
 Other dealership revenue, net...  3,304       2.4     3,243       2.2                           
                                  -------    -----    -------    -----                           
   Total revenues................ 137,216    100.0    146,953    100.0                           
Cost of sales.................... 118,277     86.2    127,276     86.6                           
                                  -------    -----    -------    -----                           
Gross profit..................... 18,939      13.8    19,677      13.4                           
Selling, general and                                                                             
 administrative expenses......... 16,959      12.4    17,546      11.9                           
                                  -------    -----    -------    -----                           
Income from operations...........  1,980       1.4     2,131       1.5                           
Other expense:                                                                                   
 Interest expense, net........... (1,526)     (1.1)     (504)     (0.4)                          
 Other expense, net..............    (28)       --       (34)       --                           
                                  -------    -----    -------    -----                           
Income (loss) before income                                                                      
 taxes...........................    426       0.3     1,593       1.1                           
Provision for income taxes.......     72        --       637       0.4                           
                                  -------    -----    -------    -----                           
Net income (loss)................ $  354       0.3%   $  956       0.7%                          
                                  =======    =====    =======    =====                           

SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996   

     REVENUES. Revenues increased $9.8 million, or 7.1%, from $137.2 million for
the six months ended June 30, 1996 to $147.0 million for the six months ended   
June 30, 1997. New vehicle sales increased $3.0 million, or 3.8%, from $78.6    
million for the six months ended June 30, 1996 to $81.6 million for the six     
months ending June 30, 1997. The increase is primarily attributable to          
successful marketing efforts and continued strong customer support of Lexus     
products partially offset by a decline in sales at the Toyota franchise, due to 
product availability limitations. Used vehicle sales increased $5.6 million, or 
12.7%, from $44.2 million for the six months ended June 30, 1996 to $49.8       
million for the six months ended June 30, 1997. This increase is primarily      
attributable to successful marketing efforts. Parts and service sales increased 
$1.3 million, or 11.8%, from $11.0 million for the six months ended June 30,    
1996 to $12.3 million for the six months ended June 30, 1997. The increase is   
primarily attributable to growth in vehicle sales at the Lexus franchise,       
resulting in new parts and service customers. Other dealership revenues declined
$0.1 million or 3.0% from $3.3 million for the six months ended June 30, 1996 to
$3.2 million for the six months ended June 30, 1997. The decline is due         
primarily to a slight decline in the number of retail new and used vehicle      
sales. New vehicle revenues increased despite the decline in the number of units
sold as higher cost Lexus franchise sales more than offset the reduced Toyota   
franchise sales.                                                                

GROSS PROFIT. Gross profit increased $0.8 million, or 4.2%, from $18.9
million for the six months ended June 30, 1996 to $19.7 million for the six     
months ended June 30, 1997. The increase is due to increased sales offset by a  
decline in the gross margin from 13.8% for the six months ended June 30, 1996 to
13.4% for the six months ended June 30, 1997. The decline in gross margin is    
primarily due to reduced margins on used vehicle sales at the Toyota franchise  
as new sales management reduced the inventory level, which also reduced interest
expense.                                                                        

SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and     
administrative expenses increased $0.5 million, or 2.9%, from $17.0 million for 
the six months ended June 30, 1996 to                                           

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$17.5 million for the six months ended June 30, 1997. The increase is primarily 
attributable to variable incentive pay to employees which is related directly to
the increase in the revenues. As a percentage of total revenues, selling,       
general and administrative expenses declined from 12.4% for the six months ended
June 30, 1996 to 11.9% for the six months ended June 30, 1997.                  

  INTEREST EXPENSE, NET. Interest expense, net, decreased $1.0 million, or
66.7%, from $1.5 million for the six months ended June 30, 1996 to $0.5 million 
for the six months ended June 30, 1997. The decrease is attributable to         
increased manufacturer interest assistance and reduced inventory levels.        

YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995       

REVENUES. Revenues increased by $69.6 million, or 31.8%, from $218.9  
million for the year ended December 31, 1995 to $288.5 million for the year     
ended December 31, 1996. New vehicle sales increased $40.6 million, or 32.3%,   
from $125.8 million for the year ended December 31, 1995 to $166.4 million for  
the year ended December 31, 1996. The increase is primarily attributable to     
successful marketing efforts, continued strong customer support of Toyota and   
Lexus products, the installation of a new management team at the Lexus franchise
in February 1996 and showroom expansions at both the Toyota and Lexus franchises
in 1996. Used vehicle revenues increased $22.6 million, or 33.1%, from $68.3    
million for the year ended December 31, 1995 to $90.9 million for the year ended
December 31, 1996. This increase is attributable to successful marketing        
efforts. Parts and service sales increased $5.1 million, or 26.3%, from $19.4   
million for the year ended December 31, 1995, to $24.5 million for the year     
ended December 31, 1996. The increase is primarily attributable to the addition 
of a state-of-the-art collision service center at the Lexus franchise in late   
1995 and increased vehicle sales. Other dealership revenues increased $1.5      
million or 28.3% from $5.3 million for the year ended December 31, 1995 to $6.8 
million for the year ended December 31, 1996. The increase is due primarily to  
an increase in the number of retail new and used vehicle sales.                 

    GROSS PROFIT. Gross profit increased by $8.8 million, or 29.1%, from $30.2
million for the year ended December 31, 1995 to $39.0 million for the year ended
December 31, 1996. The increase is attributable to increased sales, net of a    
minor decline in gross margin from 13.8% for the year ended December 31, 1995 to
13.5% for the year ended December 31, 1996. The slight decline in gross margin  
is primarily due to an increase in new and used vehicle revenues as a percentage
of total revenues.                                                              

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and    
administrative expenses increased $7.3 million, or 26.3%, from $27.8 million for
the year ended December 31, 1995 to $35.1 million for the year ended December   
31, 1996. The increase is primarily attributable to variable incentive pay to   
employees and increased marketing expense, both of which are related to the     
increase in revenues. As a percentage of revenues, selling, general and         
administrative expenses decreased from 12.7% for the year ended December 31,    
1995 to 12.1% for the year ended December 31, 1996 as fixed costs were spread   
over a larger pool of revenue.                                                  

  INTEREST EXPENSE, NET. Interest expense, net, decreased $0.5 million, or
15.6%, from $3.2 million for the year ended December 31, 1995 to $2.7 million   
for the year ended December 31, 1996. The decrease is attributable to an        
approximately 50 basis point decrease in the average floorplan interest rate as 
well as to improved inventory management.                                       

YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994       

   REVENUES. Revenues increased $41.6 million, or 23.5%, from $177.3 million
for the year ended December 31, 1994 to $218.9 million for the year ended       
December 31, 1995. New vehicle sales increased $20.4 million, or 19.4%, from    
$105.4 million for the year ended December 31, 1994 to $125.8 million for the   
year ended December 31, 1995. The increase is primarily attributable to         
successful marketing efforts and continued strong customer support of Toyota    
products. Used vehicle sales increased $18.4 million, or 36.9%, from $49.9      
million for the year ended December 31, 1994 to $68.3 million for the year ended
December 31, 1995. This increase is primarily attributable to successful        
marketing efforts. Parts and service sales increased $1.5 million, or 8.4%, from
$17.9 million for the year                                                      

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ended December 31, 1994 to $19.4 million for the year ended December 31, 1995.  
The increase is attributable to continued steady growth driven by increased     
vehicle sales. Other dealership revenues increased $1.2 million or 29.3% from   
$4.1 million for the year ended December 31, 1994 to $5.3 million for the year  
ended December 31, 1995. The increase is due primarily to an increase in the    
number of retail new and used vehicle sales.                                    

GROSS PROFIT. Gross profit increased $5.5 million, or 22.3% from $24.7
million for the year ended December 31, 1994 to $30.2 million for the year ended
December 31, 1995. The increase is attributable to increased sales, net of a    
minor decline in gross margin from 14.0% for the year ended December 31, 1994 to
13.8% for the year ended December 31, 1995. The slight decline in gross margin  
is primarily due to an increase in used vehicle revenues as a percentage of     
total revenues.                                                                 

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and    
administrative expenses increased $5.3 million, or 23.6%, from $22.5 million for
the year ended December 31, 1994 to $27.8 million for the year ended December   
31, 1995. The increase is primarily attributable to variable incentive pay to   
employees and increased marketing expense, both of which are related to the     
increase in revenues. Selling, general and administrative expenses, as a        
percentage of revenues, remained constant at 12.7% for the year ended December  
31, 1994 and for the year ended December 31, 1995.                              

  INTEREST EXPENSE, NET. Interest expense, net, increased $0.7 million, or
28.0%, from $2.5 million for the year ended December 31, 1994 to $3.2 million   
for the year ended December 31, 1995. The increase is attributable primarily to 
an approximately 170 basis point increase in the floorplan interest rate.       

LIQUIDITY AND CAPITAL RESOURCES -- MCCALL GROUP                                 

  The McCall Group's principal sources of liquidity are cash on hand, cash
from operations and floor plan financing.                                       

 The following table sets forth historical selected information from the
McCall Group statements of cash flows:                                          

                                                        [Enlarge/Download Table]

                                                                        SIX MONTHS ENDED  
                                           YEAR ENDED DECEMBER 31,          JUNE 30,      
                                          --------------------------   ------------------ 
                                           1994      1995     1996       1996      1997   
                                          -------   ------   -------   --------   ------- 
                                                          (IN THOUSANDS)  (UNAUDITED)     
                                                                                          
Net cash provided by (used in) operating                                                  
  activities............................. $(1,499)  $2,576   $(5,416)  $ (9,900)  $(2,592)
Net cash used in investing activities....    (159)    (252)   (1,467)    (1,339)   (1,172)
Net cash provided by (used in) financing                                                  
  activities.............................    (342)     326       348        462        98 
                                          -------   ------   -------   --------   ------- 
Net increase (decrease) in cash and cash                                                  
  equivalents............................ $(2,000)  $2,650   $(6,535)  $(10,777)  $(3,666)
                                          =======   ======   =======   ========   ======= 

CASH FLOWS                                                                  

Total cash and cash equivalents at June 30, 1997, were $10.4 million. 

 For the three years ended December 31, 1996, the McCall Group generated
$0.8 million in cash flow from net income plus depreciation and amortization.   
Net cash flow from operating activities declined from $2.6 million for the year 
ended December 31, 1995 to $(5.4) million for the year ended December 31, 1996. 
The decline is due primarily to the usage of funds by the McCall Group to pay   
down floorplan notes payable and increase inventories. These funds plus other   
working capital were primarily invested in inventory to support the McCall      
Group's significant growth.                                                     

     For the six months ended June 30, 1997, the McCall Group generated net cash
flow of $1.2 million from net income plus depreciation and amortization. Floor  
plan notes payable paydowns resulted in the net use of cash by operating        
activities.                                                                     

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 The change in net cash used in investing activities for the three years
ended December 31, 1996, was primarily attributable to purchases of property and
equipment for the Lexus franchise's new collision service center added in 1995  
and showroom expansions at both franchises during 1996.                         

The change in net cash used in investing activities for the six months
ended June 30, 1997, was primarily attributable to purchases of property and    
equipment for the Toyota franchise's used vehicle showroom expansion.           

The change in net cash related to financing activities was primarily  
attributable to changes in long term debt and cash flows provided by payments on
subscriptions receivable and issuance of common stock.                          

FLOORPLAN FINANCING                                                         

The McCall Group currently obtains floorplan financing for its vehicle
inventory primarily through Toyota Motor Credit Corporation. As of June 30,     
1997, the McCall Group had approximately $20.2 million of outstanding floorplan 
financing. The debt bears interest at rates ranging from prime minus 75 basis   
points to prime minus 100 basis points. Interest expense on floorplan notes     
payable, before manufacturer interest assistance, totaled approximately $2.4    
million, $3.1 million and $2.5 million for the years ended December 31, 1994,   
1995 and 1996, respectively. Manufacturer interest assistance, which is recorded
as a reduction to interest expense, totaled approximately $82,000, $91,000 and  
$136,000 for the years ended December 31, 1994, 1995 and 1996, respectively.    

LEASES                                                                      

     The McCall Group leases various real estate, facilities and equipment under
operating lease agreements, including leases with related parties. In connection
with the Acquisitions, the McCall Group intends to replace certain existing     
leases with leases that have terms of 30 years and will be cancellable at the   
Combined Company's option ten years from execution of the lease and at the end  
of each subsequent five year period. Such leases initially will have the same   
rent as the existing leases and will be subject to increases every five years   
based on a percentage of the Consumer Price Index. See "Certain                 
Transactions -- Leases". Future minimum lease payments for existing operating   
leases are as follows: $2.3 million in 1997, $2.2 million in 1998, $2.1 million 
in 1999, $2.0 million in 2000 and $1.4 million in 2001.                         

OTHER                                                                       

     The McCall Group is required to buy certain retail loans from a third party
lender if the loans become delinquent. These loans are due from individuals who 
have difficulty obtaining financing and may not have otherwise been able to     
secure other financing to purchase a vehicle. These loans carry an interest rate
of prime plus approximately 9% and are secured by the vehicle sold to the       
individual. As of June 30, 1997, the aggregate balance of these loans was       
approximately $10.2 million. The McCall Group had charge-offs relating to these 
loans of $200,000, $232,000, and $539,000 for the years ending December 31,     
1994, 1995 and 1996, respectively. The increase in charge-offs during 1996 and  
the additions to the reserve for guaranteed loan losses during 1996 are directly
attributable to the increase in loans guaranteed by the McCall Group from 1994  
through 1996. The McCall Group sold approximately $3.5 million, $4.5 million and
$7.5 million of full recourse loans to the lender for the years ended December  
31, 1994, 1995 and 1996, and had guaranteed loans outstanding of $7.4 million   
and $10.4 million at December 31, 1995 and 1996, respectively. Due to the       
increase in the number of loans outstanding during this three year period, the  
McCall Group experienced a larger number of charge-offs during 1996 than in     
prior years. The McCall Group's loan loss reserve has been determined based on  
historical charge-off experience, and has remained relatively flat as a         
percentage of guaranteed loans outstanding. Management has reviewed the status  
of these loans and, based on current facts and circumstances, does not believe  
the above described commitment will significantly impact the Combined Company's 
operations or liquidity.                                                        

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 The McCall Group had working capital of $2.1 million as of December 31,
1996, excluding the reserve for finance, insurance and service contract         
chargebacks and the accumulated LIFO reserve. Historically, the McCall Group has
funded its operations with internally generated cash flows and borrowings from  
lenders. While there can be no assurance, based on current facts and            
circumstances, management believes it has adequate cash flows and financing     
alternatives to fund its current operations.                                    

RESULTS OF OPERATIONS -- SMITH GROUP                                            

   This group consists of an Acura dealership in Houston, Texas, Honda, GMC,
Oldsmobile, Mitsubishi, Lincoln, Mercury and Kia dealerships in Beaumont, Texas,
a Nissan dealership in Richardson, Texas (a suburb of Dallas) and two Nissan    
dealerships, one Mitsubishi dealership and one Suzuki dealership in Austin,     
Texas. The Smith family has been in the automotive retailing business since     
1917.                                                                           

   The following table sets forth certain historical selected financial data
and data as a percentage of revenues for the Smith Group for the periods        
indicated:                                                                      

                                                        [Enlarge/Download Table]

                                                   YEAR ENDED DECEMBER 31,                     
                                -------------------------------------------------------------- 
                                       1994                  1995                  1996        
                                ------------------    ------------------    ------------------ 
                                 AMOUNT    PERCENT     AMOUNT    PERCENT     AMOUNT    PERCENT 
                                --------   -------    --------   -------    --------   ------- 
                                                    (DOLLARS IN THOUSANDS)                     
                                                                                               
Revenues:                                                                                      
 New vehicle sales............. $136,917      63.1%   $132,150      59.7%   $124,174      56.9%
 Used vehicle sales............   49,549      22.8      57,363      25.9      60,579      27.8 
 Parts and service sales.......   25,502      11.7      26,238      11.9      28,631      13.1 
 Other dealership revenue,                                                                     
   net.........................    5,109       2.4       5,507       2.5       4,895       2.2 
                                --------    ------    --------    ------    --------    ------ 
   Total revenues..............  217,077     100.0     221,258     100.0     218,279     100.0 
Cost of sales..................  189,920      87.5     192,665      87.1     189,169      86.7 
                                --------    ------    --------    ------    --------    ------ 
Gross profit...................   27,157      12.5      28,593      12.9      29,110      13.3 
Selling, general and                                                                           
 administrative expenses.......   21,727      10.0      22,824      10.3      23,711      10.8 
                                --------    ------    --------    ------    --------    ------ 
Income from operations.........    5,430       2.5       5,769       2.6       5,399       2.5 
Other income and expense:                                                                      
 Interest expense, net.........   (2,147)     (1.0)     (2,956)     (1.3)     (1,710)     (0.8)
 Other income (expense), net...      (29)       --         202       0.1         223       0.1 
                                --------    ------    --------    ------    --------    ------ 
Income before income taxes.....    3,254       1.5       3,015       1.4       3,912       1.8 
Provision for income taxes.....      455       0.2         562       0.3         678       0.3 
                                --------    ------    --------    ------    --------    ------ 
Net income..................... $  2,799       1.3%   $  2,453       1.1%   $  3,234       1.5%
                                ========    ======    ========    ======    ========    ====== 


                                       SIX MONTHS ENDED JUNE 30,                               
                                ---------------------------------------                        
                                       1996                 1997                               
                                ------------------   ------------------                        
                                 AMOUNT    PERCENT    AMOUNT    PERCENT                        
                                --------   -------   --------   -------                        
                                        (DOLLARS IN THOUSANDS)                                 
                                                                                               
Revenues:                                                                                      
 New vehicle sales............. $ 59,437     54.9%   $ 75,203     59.0%                        
 Used vehicle sales............   32,073     29.7      35,153     27.6                         
 Parts and service sales.......   14,045     13.0      14,082     11.0                         
 Other dealership revenue,                                                                     
   net.........................    2,618      2.4       3,021      2.4                         
                                --------    -----    --------    -----                         
   Total revenues..............  108,173    100.0     127,459    100.0                         
Cost of sales..................   93,830     86.7     109,914     86.2                         
                                --------    -----    --------    -----                         
Gross profit...................   14,343     13.3      17,545     13.8                         
Selling, general and                                                                           
 administrative expenses.......   11,575     10.7      13,846     10.9                         
                                --------    -----    --------    -----                         
Income from operations.........    2,768      2.6       3,699      2.9                         
Other income and expense:                                                                      
 Interest expense, net.........     (825)    (0.8)       (941)    (0.8)                        
 Other income (expense), net...       18       --         (19)      --                         
                                --------    -----    --------    -----                         
Income before income taxes.....    1,961      1.8       2,739      2.1                         
Provision for income taxes.....      322      0.3         531      0.4                         
                                --------    -----    --------    -----                         
Net income..................... $  1,639      1.5%   $  2,208      1.7%                        
                                ========    =====    ========    =====                         

SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996   

   REVENUES. Revenues increased $19.3 million, or 17.8%, from $108.2 million
for the six months ended June 30, 1996 to $127.5 million for the six months     
ended June 30, 1997. New vehicle sales increased $15.8 million, or 26.6%, from  
$59.4 million for the six months ended June 30, 1996 to $75.2 million for the   
six months ended June 30, 1997. The increase is primarily attributable to the   
addition of the new Nissan franchise during 1996 located just north of Austin,  
Texas. Additionally, sales at the Smith Group's Nissan franchises were          
positively impacted by manufacturer incentive programs. Used vehicle sales      
increased $3.1 million, or 9.7%, from $32.1 million for the six months ended    
June 30, 1996 to $35.2 million for the six months ended June 30, 1997. The      
increase is due primarily to the addition of the new Nissan franchise during    
1996, offset by declines at other franchises in the Smith Group. The declines   
were caused in large part by the strong new vehicle sales capturing many used   
vehicle customers. Parts and service sales increased $0.1 million, or 0.7%, from
$14.0 million for the six months ended June 30, 1996 to $14.1 million for the   
six months ended June 30, 1997. The increase is primarily attributable to the   
addition of the new Nissan franchise during 1996, while the other franchises    
declined slightly from year to year. Other dealership revenue increased $0.4    
million or 15.4% from $2.6 million for the six months ended June 30, 1996 to    
$3.0 million for the six months ended June 30, 1997. The increase is due        
primarily to an increase in the number of retail new and used vehicle sales.    

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 GROSS PROFIT. Gross profit increased $3.2 million, or 22.4%, from $14.3
million for the six months ended June 30, 1996 to $17.5 million for the six     
months ended June 30, 1997. The increase is attributable to increased sales and 
an increase in the gross margin from 13.3% for the six months ended June 30,    
1996 to 13.8% for the six months ended June 30, 1997. The gross margin was      
favorably impacted by manufacturer incentive programs which increased new       
vehicle gross margins.                                                          

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling general and     
administrative expenses increased $2.2 million, or 19.0%, from $11.6 million for
the six months ended June 30, 1996 to $13.8 million for the six months ended    
June 30, 1997. The increase is primarily attributable to variable incentive pay 
to employees and expenses relating to the new Nissan franchise opened in 1996.  
As a percentage of revenues, selling, general and administrative expenses       
increased slightly from 10.7% for the six months ended June 30, 1996 to 10.9%   
for the six months ended June 30, 1997.                                         

 INTEREST EXPENSE, NET. Interest expense, net, increased $0.1 million or
12.5% from $0.8 million for the six months ended June 30, 1996 to $0.9 million  
for the six months ended June 30, 1997. The increase is primarily due to the    
addition of the new Nissan franchise opened in 1996.                            

YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995       

     REVENUES. Revenues decreased $3.0 million, or 1.4%, from $221.3 million for
the year ended December 31, 1995 to $218.3 million for the year ended December  
31, 1996. New vehicle sales decreased $8.0 million, or 6.1%, from $132.2 million
for the year ended December 31, 1995 to $124.2 million for the year ended       
December 31, 1996. The decrease is primarily attributable to reduced unit sales 
at the Smith Group's Dallas Nissan franchise. The sales were impacted by changes
in the franchise's market place and consumer preferences in the region. The     
decline was partially offset by revenues generated by a new Nissan franchise    
located just north of Austin, Texas, opened in late 1996. Used vehicle sales    
increased $3.2 million, or 5.6%, from $57.4 million for the year ended December 
31, 1995 to $60.6 million for the year ended December 31, 1996. The increase is 
primarily attributable to increased focus on used vehicle sales by the Dallas   
Nissan franchise in response to changes in its new vehicle market conditions.   
Parts and service sales increased $2.4 million, or 9.2%, from $26.2 million for 
the year ended December 31, 1995 to $28.6 million for the year ended December   
31, 1996. Other dealership revenues decreased $0.6 million or 10.9% from $5.5   
million for the year ended December 31, 1995 to $4.9 million for the year ended 
December 31, 1996. The decrease is due primarily to a decline in the number of  
retail new vehicle sales, partially offset by an increase in the number of      
retail used vehicle sales.                                                      

   GROSS PROFIT. Gross profit increased by $0.5 million, or 1.8%, from $28.6
million for the year ended December 31, 1995 to $29.1 million for the year ended
December 31, 1996. Gross profit increased, despite decreased sales, due to a    
higher gross margin. The gross margin increased as higher margin parts and      
service sales increased and became a greater percentage of total revenues. Gross
margin increased from 12.9% for the year ended December 31, 1995 to 13.3% for   
the year December 31, 1996.                                                     

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and    
administrative expenses increased by $0.9 million, or 3.9%, from $22.8 million  
for the year ended December 31, 1995 to $23.7 million for the year ended        
December 31, 1996. The increase is primarily attributable to marketing expenses 
relating to the opening of the Smith Group's new Nissan franchise in Austin,    
Texas. As a percentage of total revenues, selling, general and administrative   
expenses increased from 10.3% for the year ended December 31, 1995 to 10.8% for 
the year ended December 31, 1996.                                               

     INTEREST EXPENSE, NET. Interest expense, net, decreased by $1.3 million, or
43.3%, from $3.0 million for the year ended December 31, 1995 to $1.7 million   
for the year ended December 31, 1996. The decrease is attributable to an        
approximately 50 basis point decrease in the average floorplan interest rate,   
increased floorplan assistance payments from the Manufacturers and reduced      
average floorplan levels.                                                       

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YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994       

     REVENUES. Revenues increased $4.2 million, or 1.9%, from $217.1 million for
the year ended December 31, 1994 to $221.3 million for the year ended December  
31, 1995. New vehicle sales decreased $4.7 million or 3.4% from $136.9 million  
for the year ended December 31, 1994 to $132.2 million for the year ended       
December 31, 1995. The decline is primarily due to a reduced level of customer  
support of the Smith Group's products. Used vehicle sales increased $7.9        
million, or 16.0%, from $49.5 million for the year ended December 31, 1994 to   
$57.4 million for the year ended December 31, 1995. The increase is primarily   
attributable to increased focus on used vehicle sales in response to changes in 
the Smith Group's new vehicle market conditions. Parts and service sales        
increased $0.7 million, or 2.7%, from $25.5 million for the year ended December 
31, 1994 to $26.2 million for the year ended December 31, 1995. The growth is   
primarily attributable to continued steady growth driven by overall increased   
vehicle sales. Other dealership revenues increased $0.4 million or 7.8% from    
$5.1 million for the year ended December 31, 1994 to $5.5 million for the year  
ended December 31, 1995. The increase is due primarily to an increase in the    
number of retail used vehicle sales, partially offset by a decline in the number
of retail new vehicle sales.                                                    

GROSS PROFIT. Gross profit increased $1.4 million, or 5.1%, from $27.2
million for the year ended December 31, 1994 to $28.6 million for the year ended
December 31, 1995. The increase is attributable to increased revenues and       
improved gross margin, as higher margin parts and service sales increased and   
became a greater percentage of total revenues. Gross margin increased from 12.5%
for the year ended December 31, 1994 to 12.9% for the year ended December 31,   
1995.                                                                           

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and    
administrative expenses increased $1.1 million, or 5.1% from $21.7 million for  
the year ended December 31, 1994 to $22.8 million for the year ended December   
31, 1995. As a percentage of revenues, selling, general and administrative      
expenses increased from 10.0% for the year ended December 31, 1994 to 10.3% for 
the year ended December 31, 1995.                                               

  INTEREST EXPENSE, NET. Interest expense, net, increased $0.9 million, or
42.9%, from $2.1 million for the year ended December 31, 1994 to $3.0 million   
for the year ended December 31, 1995. The increase is primarily attributable to 
an approximately 170 basis point increase in the average floorplan interest     
rate.                                                                           

LIQUIDITY AND CAPITAL RESOURCES -- SMITH GROUP                                  

 The Smith Group's principal sources of liquidity are cash on hand, cash
from operations and floor plan financing.                                       

  The following table sets forth selected information from the Smith Group
statements of cash flows:                                                       

                                                                [Download Table]

                                                                  SIX MONTHS ENDED  
                                       YEAR ENDED DECEMBER 31,        JUNE 30,      
                                       ------------------------   ----------------- 
                                        1994     1995     1996     1996      1997   
                                       ------   ------   ------   -------   ------- 
                                                      (IN THOUSANDS) (UNAUDITED)    
                                                                                    
Net cash provided by operating                                                      
  activities.......................... $1,170   $4,975   $4,534   $ 2,355   $ 2,109 
Net cash used in investing                                                          
  activities..........................   (218)    (700)    (858)     (298)     (360)
Net cash used in financing                                                          
  activities..........................   (905)  (2,081)  (2,343)   (1,382)   (1,413)
                                       ------   ------   ------   -------   ------- 
Net increase in cash and cash                                                       
  equivalents......................... $   47   $2,194   $1,333   $   675   $   336 
                                       ======   ======   ======   =======   ======= 

CASH FLOWS                                                                  

Total cash and cash equivalents at June 30, 1997, were $9.4 million.  

For the three year period ended December 31, 1996, the Smith Group    
generated $10.7 million in net cash from operating activities, primarily from   
net income plus depreciation and amortization.                                  

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    Net cash from operating activities decreased from $2.4 million for the six
months ended June 30, 1996 to $2.1 million for the six months ended June 30,    
1997, as cash generated by increased net income for the six months ended June   
30, 1997 of $0.6 million and changes in inventories and floorplan financing were
offset by changes in accounts payable and accrued liabilities and accounts      
receivable.                                                                     

The change in net cash used in investing activities was primarily     
attributable to purchases of property and equipment relating to the new Nissan  
franchise in Austin, Texas and various facility improvements and computer       
equipment purchases at the other Smith Group franchises.                        

The change in net cash used in financing activities was primarily     
attributable to net borrowings and repayments of debt and distributions to the  
stockholders.                                                                   

FLOORPLAN FINANCING                                                         

The Smith Group currently obtains floorplan financing for its vehicle 
inventory through Ford Motor Credit Company, NationsBank and Nissan Motor       
Acceptance Corporation. As of June 30, 1997, the Smith Group had approximately  
$33.5 million of floorplan indebtedness outstanding. The debt bears interest at 
rates ranging from prime to prime plus 175 basis points for new and used        
vehicles. Interest expense on floorplan notes payable, before manufacturer      
interest assistance, totaled approximately $2.2 million, $3.2 million and $2.5  
million for the years ended December 31, 1994, 1995 and 1996, respectively.     
Manufacturer interest assistance, which is recorded as a reduction to interest  
expense, totaled approximately $0.7 million, $0.8 million and $1.1 million for  
the years ended December 31, 1994, 1995 and 1996, respectively. Payments on the 
notes are due when the related vehicles are sold and are collateralized by      
substantially all new and used vehicles.                                        

LEASES                                                                      

 The Smith Group leases various facilities and equipment under operating
lease agreements, including leases with related parties. Certain of these leases
are noncancelable and expire on various dates through August 2013. These lease  
agreements are subject to renewal under essentially the same terms and          
conditions as the original leases. In connection with the Acquisitions, the     
Smith Group intends to replace certain existing leases with leases that will    
have terms of 30 years and will be cancellable at the Combined Company's option 
ten years from execution of the lease and at the end of each subsequent five    
year period. Such leases initially will have the same rent as the existing      
leases and will be subject to increases every five years based on a percentage  
of the Consumer Price Index. See "Certain Transactions -- Leases". Future       
minimum lease payments for existing operating leases are as follows: $1.4       
million in 1997, $1.4 million in 1998, $1.4 million in 1999, $1.0 million in    
2000 and $0.8 million in 2001.                                                  

OTHER                                                                       

The Smith Group had working capital of $8.1 million as of December 31,
1996, adjusted for the accumulated LIFO reserves. Historically, the Smith Group 
has funded its operations with internally generated cash flow and borrowings    
from lenders. While there can be no assurance, based on current facts and       
circumstances, management believes it has adequate cash flows and financing     
alternatives to fund its current operations.                                    

CYCLICALITY                                                                     

   The Combined Company's operations, like the automotive retailing industry
in general, can be impacted by a number of factors relating to general economic 
conditions, including consumer business cycles, consumer confidence, economic   
conditions, availability of consumer credit and interest rates. Although the    
above factors, among others, may impact the Combined Company's business, Group 1
Automotive believes the impact on the Combined Company's operations of future   
negative trends in such factors will be somewhat mitigated by its (i) strong    
parts, service and collision repair services, (ii) variable cost salary         
structure, (iii) geographic diversity, and (iv) product diversity.              

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SEASONALITY                                                                     

   The Combined Company's operations will be subject to seasonal variations,
with the second and third quarters generally contributing more operating profit 
than the first and fourth quarters. This seasonality is driven by three primary 
forces: (i) Manufacturer-related factors, primarily the historical timing of    
major manufacturer incentive programs and model changeovers, (ii)               
weather-related factors, which primarily affect parts and service and (iii)     
consumer buying patterns.                                                       

EFFECTS OF INFLATION                                                            

   Due to the relatively low levels of inflation experienced in fiscal 1994,
1995 and 1996 and the six months of 1997, inflation did not have a significant  
effect on the results of the combined Founding Groups during those periods.     

FORWARD-LOOKING STATEMENTS                                                      

    Certain statements contained herein are not based on historical facts, but
are forward-looking statements that are based upon numerous assumptions about   
future conditions that could prove not to be accurate. Such forward-looking     
statements include, without limitation, the statements regarding the trends in  
the industry set forth in the Prospectus Summary and under the caption          
"Management's Discussion and Analysis of Financial Condition and Results of     
Operations" regarding the Combined Company's anticipated future financial       
results and position. Although Group 1 Automotive believes that the expectations
reflected in such forward-looking statements are reasonable, it can give no     
assurance that such expectations will prove to have been correct. Important     
factors that could cause actual results to differ materially from Group 1       
Automotive's expectations are disclosed in this Prospectus, including but not   
limited to the matters described in "Risk Factors".                             

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BUSINESS

GENERAL                                                                         

COMBINED COMPANY                                                      

Group 1 Automotive was founded to become a leading operator and       
consolidator in the highly fragmented automotive retailing industry and has     
conducted no operations to date. Immediately prior to the closing of the        
Offering, Group 1 Automotive will acquire the Founding Groups. Upon consummation
of the Acquisitions, the Combined Company will own 30 automobile dealerships and
five collision service centers located in Texas and Oklahoma, and will sell new 
and used cars and light trucks, provide maintenance and repair services, sell   
replacement parts and provide related financing, insurance and extended service 
contracts. The Combined Company will represent 21 American and Asian brands     
operating two Acura, one Chevrolet, one Chrysler, one Dodge, one Eagle, two GMC,
three Honda, two Isuzu, one Jeep, one Kia, one Lexus, one Lincoln, one Mazda,   
one Mercury, two Mitsubishi, three Nissan, one Oldsmobile, one Plymouth, one    
Pontiac, one Suzuki and two Toyota dealerships. The Combined Company's          
dealerships will include the second-largest Toyota dealership in the United     
States as measured by 1996 new retail unit sales and one of the largest         
dealership groups in Oklahoma.                                                  

The principals of the Founding Groups have over 90 years of combined  
experience in the automotive retailing industry with family ownership dating    
back as far as 1917. In addition, the principals of the Founding Groups have    
been recognized as leaders in the automotive retailing industry, serving at     
various times in leadership positions in state and national industry            
organizations. The Founding Groups' dealerships have also received numerous     
awards based on various performance measures. The principals of the Founding    
Groups will continue to manage their businesses and play a significant role in  
the Combined Company's operating and acquisition strategies.                    

Group 1 Automotive believes that the Combined Company's structural,   
managerial and operational strengths will include (i) brand and geographic      
diversity; (ii) the ability to capitalize on regional economies of scale; (iii) 
cost savings derived from nationally centralized financing and administrative   
functions; (iv) the experience of the Combined Company's senior management in   
successfully consolidating and operating in highly fragmented industries; (v)   
the reputations, experience and performance of the Founding Groups' management  
and principals as leaders in the automotive retailing industry; (vi) the        
established customer base and local name recognition of the Founding Groups'    
dealerships; (vii) the Founding Groups' proven ability to source high quality   
used vehicles cost-effectively through trade-ins and off-lease programs; and    
(viii) access to equity incentives to attract and retain high quality personnel.

     The Combined Company will pursue a growth strategy led by a management team
with extensive experience in consolidation and the management of growth         
companies. B.B. Hollingsworth, Jr., Chairman of the Board, President and Chief  
Executive Officer of the Combined Company, has experience not only in the       
automotive retailing industry, but also in consolidating a major national       
industry, having served in various senior management capacities, including      
President, of Service Corporation International during its early growth period  
as the world's leading consolidator of the funeral industry. In addition, John  
T. Turner, Senior Vice President -- Corporate Development, has been actively    
involved in the acquisition efforts of Service Corporation International serving
under Mr. Hollingsworth as Senior Vice President -- Corporate Development and   
serving more recently as Managing Director -- Corporate Development, Europe. See
"Management".                                                                   

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FOUNDING GROUPS                                                       

    The following table sets forth retail unit sales for new vehicles for each
of the Founding Groups for the periods indicated:                               

                                                        [Enlarge/Download Table]

                                                YEAR ENDED DECEMBER 31,                          
                      ---------------------------------------------------------------------------
                               1994                      1995                      1996          
                      -----------------------   -----------------------   -----------------------
                      UNITS SOLD   PERCENTAGE   UNITS SOLD   PERCENTAGE   UNITS SOLD   PERCENTAGE
                      ----------   ----------   ----------   ----------   ----------   ----------
                                                                                                 
Howard Group.........    7,381        38.1%        7,782        38.2%        8,181        38.3%  
McCall Group.........    4,239        21.9         5,030        24.7         6,458        30.2   
Smith Group..........    7,023        36.3         6,815        33.5         5,983        28.0   
Kingwood Group.......      718         3.7           730         3.6           756         3.5   
                        ------       -----        ------       -----        ------       -----   
Total................   19,361       100.0%       20,357       100.0%       21,378       100.0%  
                        ======       =====        ======       =====        ======       =====   


                                  SIX MONTHS ENDED JUNE 30,                                      
                      -------------------------------------------------                          
                               1996                      1997                                    
                      -----------------------   -----------------------                          
                      UNITS SOLD   PERCENTAGE   UNITS SOLD   PERCENTAGE                          
                      ----------   ----------   ----------   ----------                          
                                                                                                 
Howard Group.........    4,148        39.9%        4,093        35.2%                            
McCall Group.........    3,072        29.6         3,037        26.1                             
Smith Group..........    2,810        27.0         3,972        34.2                             
Kingwood Group.......      361         3.5           523         4.5                             
                        ------       -----        ------       -----                             
Total................   10,391       100.0%       11,625       100.0%                            
                        ======       =====        ======       =====                             

    THE HOWARD GROUP. The Howard Group is one of the largest dealership groups
in Oklahoma, consisting of Acura, Chevrolet, Chrysler, Dodge, Eagle, GMC, Honda,
Isuzu, Jeep, Mazda, Plymouth, Pontiac and Toyota dealerships located in Oklahoma
City. Additionally, the Howard Group has entered into an agreement to purchase a
Chevrolet dealership in Tulsa, Oklahoma for the assumption of its liabilities   
which are currently approximately $2.5 million. See "The Acquisitions". Mr.     
Howard, the principal owner, has been involved in the automotive retailing      
industry for over 28 years.                                                     

MCCALL GROUP. The McCall Group consists of the second largest Toyota  
dealership in the United States, as ranked by 1996 new retail unit sales, and   
one Lexus dealership, both located in Houston, Texas. Mr. McCall, the principal 
owner, has been involved in the automotive retailing industry for more than 27  
years, having been granted the first stand-alone exclusive Toyota dealership in 
Houston, Texas.                                                                 

   SMITH GROUP. The Smith Group consists of one Acura dealership in Houston,
Texas, Honda, GMC, Oldsmobile, Mitsubishi, Lincoln, Mercury and Kia dealerships 
in Beaumont, Texas, a Nissan dealership in Richardson, Texas (a suburb of       
Dallas) and two Nissan dealerships, one Mitsubishi dealership and one Suzuki    
dealership in the Austin, Texas area. The Smith family has been in the          
automotive retailing business since 1917.                                       

KINGWOOD GROUP. The Kingwood Group consists of one Honda and one Isuzu
dealership in Kingwood, Texas, a suburb of Houston. The Honda dealership was    
established in 1989 and the Isuzu dealership was established in 1996. Mr.       
Hollingsworth and John H. Duncan, a director of the Combined Company, own       
interests in these dealerships.                                                 

ACQUISITIONS AND MANUFACTURER AWARDED DEALERSHIP                                

The Founding Groups have a history of successfully acquiring and      
integrating dealerships. Since 1994 the Founding Groups have acquired four      
dealerships and were awarded one new franchise by a Manufacturer. For the year  
ended December 31, 1996, these dealerships represented $63.8 million in total   
revenues, two of which had only part year revenues in 1996. The Howard Group    
acquired a Honda and an Acura dealership in 1994 and a Dodge dealership in 1996;
all of which are located in Oklahoma City. The Smith Group was awarded a new    
Nissan franchise in Austin, Texas in December 1996. The Kingwood Group acquired 
an Isuzu dealership in Houston, Texas in late 1996.                             

INDUSTRY OVERVIEW                                                               

With more than $600 billion in 1996 sales, automotive retailing is the
largest retail trade sector in the United States. The industry is highly        
fragmented and largely privately held with approximately 22,000 automobile      
dealership locations representing more than 53,000 franchised dealerships. In   
1996, U.S. franchised automobile dealers sold 15.1 million new vehicles and 19.2
million used vehicles for sales of approximately $328.4 billion and $171.8      
billion, respectively. It is estimated that sales by franchised automobile      
dealers account for one-fifth of the nation's total retail sales of all products
and merchandise. Since 1992, new vehicle revenues have grown at a 10.5% compound
annual rate. Over the same period,                                              

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used vehicle revenues have grown at a 14.6% compound annual rate. Slower unit   
volume growth over this time period has been offset by the rising prices        
associated with new vehicles and, on average, the higher prices paid for later  
model high quality used vehicles which now comprise a significant part of the   
used vehicle market. Automobile sales are affected by many factors, including   
rates of employment, income growth, interest rates, weather patterns and other  
national and local economic conditions, automotive innovations and general      
consumer sentiment. See "Risk Factors -- Cyclicality" and "Risk                 
Factors -- Seasonality".                                                        

 The following table sets forth new and used vehicle sales by franchised
automobile dealers in the United States for each of the five years ended        
December 31, 1996. New vehicles can only be sold at retail by franchised        
dealerships. The following table excludes sales of used vehicles by             
nonfranchised dealerships and casual sales by individuals. Nonfranchised        
dealerships and individuals had aggregate sales of $117.3 billion, $133.2       
billion, $173.8 billion, $181.3 billion and $172.4 billion, respectively, for   
each of the five years ended December 31, 1996.                                 

                                                        [Enlarge/Download Table]

                                        UNITED STATES FRANCHISED DEALERS' VEHICLE SALES 
                                        ----------------------------------------------- 
                                         1992      1993      1994      1995      1996   
                                        -------   -------   -------   -------   ------- 
                                           (UNITS IN MILLIONS; DOLLARS IN BILLIONS)     
                                                                                        
New vehicle unit sales.................    12.9      13.9      15.1      14.8      15.1 
New vehicle sales......................  $220.6    $253.0    $289.9    $302.7    $328.4 
Used vehicle unit sales................    15.1      16.3      17.8      18.5      19.2 
Used vehicle sales.....................  $ 99.5    $115.0    $138.6    $157.0    $171.8 
Total vehicle sales....................  $320.1    $368.0    $428.5    $459.7    $500.2 
Annual growth in total vehicle sales...      --%     15.0%     16.5%      7.3%      8.8%

 Manufacturers originally established franchised dealer networks for the
distribution of their vehicles as single-dealership, single-owner operations. In
return for distribution rights within specified territories, Manufacturers      
exerted significant influence over such matters as a dealer's location,         
inventory size and composition and merchandising programs, as well as the       
identity of owners and managers. This strict control contributed to the         
proliferation of small dealerships, which at their peak in the late 1940s       
numbered in excess of 46,000 dealership locations. Several manufacturers went   
out of business in the 1950s, and the number of dealership locations decreased  
to 36,000 by 1960.                                                              

  Significant industry changes took place in the 1970s when fuel shortages
forced dramatic increases in gasoline prices and foreign manufacturers increased
their penetration of the U.S. market with fuel-efficient, low-cost vehicles. As 
a result of these competitive pressures, dealers were able to negotiate         
significant changes in the traditional distribution system with manufacturers.  
Dealers began to add foreign franchises and the phenomenon of the               
multi-franchise automobile dealer, or megadealer, emerged, prompting the        
significant acquisition and consolidation activities of the 1980s. The easing of
restrictions against megadealers, competitive pressures upon undercapitalized   
dealerships and the aging of dealership owners has led to further consolidation 
of the industry. Since 1960, the number of dealership locations has declined 39%
to the current 22,000 level.                                                    

   As the industry has evolved, so has the dealership profile. Over the past
three decades, there has been a trend toward fewer, but larger, dealerships. In 
1996, each of the largest 100 dealer groups had more than $200 million in       
revenues. Although significant consolidation has taken place since its          
inception, the industry today remains highly fragmented, with the largest 100   
dealer groups generating less than 10% of total sales revenues and controlling  
approximately 5% of all franchised dealerships. Group 1 Automotive believes that
these factors, together with increasing capital requirements for operating      
automobile dealerships, lack of a viable exit strategy (especially for larger   
dealerships) and the aging of dealership owners provide an attractive           
environment for the Combined Company's consolidation opportunities.             

 As with retailers generally, automobile dealership profitability varies
widely and depends in part on the effective management of inventory, marketing, 
quality control and responsiveness to customers.                                

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Since 1991, retail automobile dealerships in the United States have earned on   
average between 12.9% and 14.1% total gross margin on sales with smaller        
dealerships generally realizing a higher gross margin than larger dealerships.  
New vehicle sales were the smallest proportionate contributors to dealers' gross
profits during this period, most recently earning an average gross margin of    
6.5% in 1996. Used vehicles provided higher gross margins than new vehicles     
during this period, with an average used vehicle gross margin of 11.0% in 1996. 
Dealerships also offer a range of other services and products, including repair 
and warranty work, replacement parts, extended service contracts, financing and 
credit insurance.                                                               

BUSINESS STRATEGY                                                               

Group 1 Automotive plans to achieve its goal of becoming a leading    
consolidator, while maintaining its high operating standards in the automotive  
retailing industry, by (i) emphasizing growth through acquisitions and (ii)     
implementing an operating strategy that focuses on decentralized dealership     
operations, nationally centralized administrative functions, the expansion of   
higher margin businesses, a commitment to customer service and the              
implementation of new technology initiatives. By complementing the Founding     
Groups' industry leaders, management talent and proven operating capabilities   
with a corporate management team which is experienced in achieving and managing 
long-term growth in a consolidation environment, Group 1 Automotive believes    
that the Combined Company will be in a strong position to execute this strategy.

GROWTH THROUGH ACQUISITIONS                                           

 Group 1 Automotive intends to implement an aggressive, yet disciplined,
acquisition program by pursuing (i) large, profitable and well managed          
"platform" acquisitions in large metropolitan and high-growth suburban          
geographic markets that the Founding Groups do not currently serve and (ii)     
smaller "add-on" acquisitions that will allow the Combined Company to increase  
brand diversity, capitalize on regional economies of scale and offer a greater  
breadth of products and services in each of the markets in which it operates. In
this regard, Group 1 Automotive has negotiated and executed an arrangement      
letter with Chase Securities Inc. and Comerica Bank for a $125 million Credit   
Facility, of which a portion will be used, in combination with the Combined     
Company's common stock, for acquisitions. See "Management's Discussion and      
Analysis of Financial Condition and Results of Operations -- Combined Founding  
Groups' Commitments -- Credit Facility".                                        

    ENTERING NEW GEOGRAPHIC MARKETS. Group 1 Automotive intends to expand into
geographic markets it does not currently serve by acquiring large, profitable   
and well established megadealers that, like the Founding Groups, are leaders in 
their regional markets. The Combined Company will target new platform           
megadealers having superior operational and financial management personnel which
the Combined Company will seek to retain. Group 1 Automotive believes that the  
retention of existing high quality management will enable acquired megadealers  
to continue to operate effectively with management personnel who understand the 
local market while allowing the Combined Company to source future acquisitions  
more effectively and expand its operations without having to employ and train   
untested new personnel. Moreover, Group 1 Automotive believes that the Combined 
Company will be well positioned to pursue larger, well established acquisition  
candidates as a result of its depth of management, the Combined Company's       
capital structure and the reputation of the principals of the Founding Groups as
leaders in the automotive retailing industry.                                   

EXPANDING WITHIN EXISTING MARKETS. Group 1 Automotive plans to acquire
additional dealerships in each of the markets in which it operates, including   
acquisitions that increase the brands, products or services offered in that     
market. Group 1 Automotive believes that these acquisitions will facilitate the 
Combined Company's operating efficiencies and cost savings on a regional level  
in areas such as facility and personnel utilization, vendor consolidation and   
advertising. Group 1 Automotive has recently entered into definitive agreements 
to acquire, subject to manufacturer approval and a due diligence investigation, 
two dealership locations consisting of Acura, Buick, Dodge, Ford, Mercedes-Benz,
Nissan and Volvo dealerships in Texas for aggregate payments of $9.0 million in 
cash. These two acquisitions, if                                                

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consummated, would also require the Combined Company to incur approximately     
$13.0 million of floorplan indebtedness in connection with the purchase of      
vehicle inventories of the dealerships.                                         

MANUFACTURERS' LIMITATIONS ON ACQUISITIONS. The Combined Company's    
acquisition program may be limited to some extent by the Manufacturers. Under   
the limitations currently imposed by the Manufacturers, the Combined Company    
could acquire no more than five additional Toyota dealerships, two additional   
Lexus dealerships, four additional Honda dealerships, one additional Acura      
dealership, approximately 400 additional Ford and Lincoln Mercury dealerships   
and 10 additional GM dealership locations (within the next two years, subject to
being increased). The Combined Company, upon consummation of the Acquisitions,  
will own, two Toyota, one Lexus, three Honda, two Acura, one Lincoln and one    
Mercury franchise and three GM dealership locations. The other Manufacturers,   
which have no such limitations, accounted for the following approximate number  
of dealerships in the United States, as of December 31, 1996: Chrysler          
Corporation, 13,000 (at 4,600 locations); Nissan, 1,200; Mitsubishi, 500; Isuzu,
500; Suzuki, 300; and Kia, 200. However, not all of these existing dealership   
locations and franchises may be eligible for acquisition. In addition, all of   
the Manufacturers, whether or not they have numerical limitations on the number 
of dealerships that may be acquired, will require the Combined Company to obtain
the consent of the applicable Manufacturer prior to the acquisition of any      
dealership franchises of such Manufacturer, and may withhold such consents based
on other considerations, such as the failure of existing dealerships to comply  
with their franchise agreements or to meet required CSI scores, or the ownership
by the Combined Company of dealerships of competing Manufacturers. Also, as a   
condition to granting its consent to the transfer of the 3 Honda and 2 Acura    
dealerships to be acquired by Group 1 Automotive pursuant to the Acquisitions,  
American Honda has imposed additional restrictions on the Combined Company,     
including a requirement that more than 50% of the outstanding Common Stock of   
the Combined Company be owned at all times by persons approved by American      
Honda, restrictions on transfers of the shares of Common Stock acquired by the  
stockholders of the Founding Companies pursuant to the Acquisitions, and the    
requirement that American Honda approve the ownership by any stockholder of 5%  
or more of the Common Stock of the Combined Company (other than certain         
institutional investors, which may own up to 10%, as well as any future public  
offering of Common Stock of the Combined Company. All of the foregoing could    
have the effect of limiting the Combined Company's ability to implement its     
acquisition program. In addition, American Honda's policy on public ownership of
Honda and Acura dealerships requires that individuals or entities that acquire, 
own or control more than 5% of the Common Stock of the Combined Company must    
provide American Honda with copies of all filings made to the Securities and    
Exchange Commission, all comparable filings made to state agencies and annual   
audited financial statements. See "Risk Factors -- Manufacturers' Control over  
Dealerships", "Risk Factors -- Restrictions Imposed by Agreement with American  
Honda Motor Co., Inc.", "Risk Factors -- Risks Relating to Failure to Meet      
Manufacturer CSI Scores" and "Risk Factors -- Dependence on Acquisitions for    
Growth; Manufacturers' Restrictions on Acquisitions".                           

   Of the approximately 15 million new vehicles sold in the United States in
1996, approximately 31.3% were manufactured by GM, 25.4% were manufactured by   
Ford Motor, 16.2% were manufactured by Chrysler Corporation, 7.7% were          
manufactured by Toyota Motor, 5.6% were manufactured by Honda Motor, 5.0% were  
manufactured by Nissan Motor and 8.8% were manufactured by other manufacturers. 

OPERATING STRATEGY                                                    

     Group 1 Automotive intends to implement an operations strategy that focuses
on decentralized dealership operations, nationally centralized administrative   
functions, expansion of higher margin businesses, commitment to customer service
and new technology initiatives.                                                 

Group 1 Automotive has formed an operations committee comprised of the
chief operating officers of the Founding Groups and the general managers of the 
dealerships in order to identify and share best practices. Group 1 Automotive   
intends to incorporate the key officers and management of the Combined Company's
future acquisitions into this operations committee. Group 1 Automotive believes 
that this operations committee will promote the widespread application of the   
Combined Company's broad                                                        

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strategic initiatives, facilitate the integration of the Founding Groups and    
future acquisitions and improve operating efficiency and overall customer       
satisfaction.                                                                   

DECENTRALIZED DEALERSHIP OPERATIONS. Group 1 Automotive believes that 
decentralizing the Combined Company's dealership operations on a regional, or   
platform, basis will enable it to provide superior customer service and a       
focused, market-specific responsiveness to sales, service, marketing and        
inventory control. Local presence and an in-depth knowledge of customers' needs 
and preferences are important in generating internally-driven market share      
growth. By coordinating certain operations on a platform basis, Group 1         
Automotive believes that the Combined Company will achieve cost savings in such 
areas as vendor consolidation, facility and personnel utilization and           
advertising. Group 1 Automotive intends to create incentives for the Combined   
Company's entrepreneurial management teams and sales forces at the regional     
level through the use of stock options and/or cash bonus programs.              

NATIONALLY CENTRALIZED ADMINISTRATIVE FUNCTIONS. The consolidation of 
purchasing power on a centralized basis in the area of financing should result  
in significant cost savings. For example, in connection with the Offering, all  
of the Combined Company's floorplan financing will benefit from interest rate   
reductions. Rate reductions have already become effective with respect to       
approximately 75% of the Founding Groups' floorplan debt. The current reductions
range between 25 and 225 basis points. Additionally, the Combined Company's     
Credit Facility, once closed, will result in further rate reductions. Subsequent
to the Offering, the Combined Company intends to refinance approximately $50    
million in floorplan financing with the Credit Facility. The impact of these    
changes is expected to reduce the Combined Company's annual interest expense by 
more than $1.0 million. Furthermore, Group 1 Automotive expects that significant
cost savings for the Combined Company can be achieved through the consolidation 
of administrative functions such as risk management, employee benefits and      
employee training. For example, Group 1 Automotive has negotiated insurance     
coverage that is expected to result in annual cost savings to the Combined      
Company of approximately 25 to 30 percent.                                      

EXPAND HIGHER MARGIN ACTIVITIES. The Combined Company will focus on   
expanding higher margin businesses such as used vehicle retail sales, service   
and parts and finance and insurance. While each of the Combined Company's       
platforms will be able to operate independently in a manner consistent with its 
specific market's characteristics, each platform will pursue an integrated      
strategy to grow each of these higher margin businesses to enhance profitability
and stimulate internal growth. With a competitive advantage in sourcing, the    
ability to provide manufacturer-backed extended service contracts, and          
attractive lease financing, new vehicle franchises are especially well          
positioned to capitalize on industry growth in used vehicle sales. In addition, 
each of the Combined Company's dealerships will offer an integrated service and 
parts department, which will provide an important source of recurring higher    
margin revenues. The Combined Company also will have the opportunity on each new
or used vehicle sold to generate incremental revenues from the sale of extended 
service contracts, credit insurance policies and finance and lease contracts.   
Each of these business areas will be a focus of internal growth.                

 COMMITMENT TO CUSTOMER SERVICE. The Combined Company will be focused on
providing a high level of customer service to meet the needs of an increasingly 
sophisticated and demanding automotive consumer. The Combined Company will      
strive to cultivate lasting relationships with its customers, which it believes 
enhances the opportunity for significant repeat and referral business. For      
example, the Founding Groups regard their service and repair activities as an   
integral part of their overall approach to customer service, providing an       
opportunity to foster ongoing relationships with the Combined Company's         
customers and deepen customer loyalty. The Combined Company's dealerships will  
continuously review their selling processes in their effort to satisfy their    
customers.                                                                      

DEALERSHIP OPERATIONS                                                           

 Each of the Founding Groups has established a management structure that
promotes and rewards entrepreneurial spirit, individual pride and responsibility
and the achievement of team goals. The general manager of each Founding Group   
dealership is ultimately responsible for the operation, personnel and financial 
performance of the dealership. The general manager is complemented with a       
management team                                                                 

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consisting of a new vehicle sales manager, used vehicle sales manager, service  
and parts managers and finance managers. Each dealership is operated as a       
distinct profit center, in which dealership general managers are given a high   
degree of autonomy. The general manager and the other members of the dealership 
management team, as long-time members of their local communities, are typically 
best able to judge how to conduct day-to-day operations based on the team's     
experience in and familiarity with its local market.                            

Each of the Founding Groups' dealerships engage in a number of        
inter-related businesses: new vehicle sales; used vehicle sales; service and    
parts operations; and finance and insurance.                                    

NEW VEHICLE SALES                                                           

The Founding Groups represent 21 American and Asian brands of economy,
family, sports and luxury cars and light trucks and sport utility vehicles. The 
following table sets forth for 1996, certain information relating to the brands 
of new vehicles sold at retail by the Founding Groups:                          

                                                        [Enlarge/Download Table]

                                      NUMBER OF NEW VEHICLES SOLD AT RETAIL                 
                                 -----------------------------------------------            
                                 HOWARD    MCCALL    SMITH    KINGWOOD                      
          MANUFACTURER           GROUP     GROUP     GROUP     GROUP      TOTAL   PERCENTAGE
          ------------           ------    ------    -----    --------    ------  ----------
                                                                                            
Toyota..........................   877     5,469                           6,346     29.7%  
Nissan..........................                     3,060                 3,060     14.3%  
Honda........................... 1,073                 723       735       2,531     11.8%  
Chevrolet....................... 1,602                                     1,602      7.5%  
GMC.............................   821                 378                 1,199      5.6%  
Lexus...........................             989                             989      4.6%  
Acura...........................   216                 620                   836      3.9%  
Pontiac.........................   699                                       699      3.3%  
Mitsubishi......................                       599                   599      2.8%  
Mazda...........................   590                                       590      2.8%  
Dodge...........................   553                                       553      2.6%  
Jeep............................   536                                       536      2.5%  
Chrysler........................   360                                       360      1.7%  
Plymouth........................   356                                       356      1.6%  
Isuzu...........................   264                            21         285      1.3%  
Kia.............................   125                 152                   277      1.3%  
Mercury.........................                       169                   169      0.8%  
Oldsmobile......................                       165                   165      0.8%  
Eagle...........................    75                                        75      0.4%  
Suzuki..........................                        69                    69      0.3%  
Lincoln.........................                        48                    48      0.2%  
Other...........................    34                                        34      0.2%  
                                 -----     -----     -----     -----      ------    -----   
          Total................. 8,181     6,458     5,983       756      21,378    100.0%  
                                 =====     =====     =====     =====      ======    =====   

The Founding Groups' new vehicle retail sales include traditional new 
vehicle retail lease transactions and lease-type transactions, both of which are
arranged by the Founding Groups. New vehicle leases generally have short terms, 
which brings the consumer back to the market sooner than if the purchase were   
debt financed. In addition, leases provide the Founding Groups with a steady    
source of late-model, off-lease vehicles for its used vehicle inventory.        
Generally, leased vehicles remain under factory warranty for the term of the    
lease, which allows the Founding Groups to provide repair service to the lessee 
throughout the lease term.                                                      

   The Founding Groups seek to provide customer-oriented service designed to
meet the needs of its customers and establish lasting relationships that will   
result in repeat and referral business. For example, the Founding Groups'       
dealerships strive to: (i) employ more efficient selling approaches; (ii)       
utilize                                                                         

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computer technology that decreases the time necessary to purchase a vehicle;    
(iii) engage in extensive follow-up after a sale in order to develop long-term  
relationships with customers; and (iv) extensively train their sales staffs to  
be able to meet the needs of the customer. The Founding Groups continually      
evaluate innovative ways to improve the buying experience for its customers and 
believes that its ability to share best practices among its dealerships gives it
an advantage over smaller dealerships.                                          

   The Founding Groups acquire substantially all their new vehicle inventory
from Manufacturers. Manufacturers allocate a limited inventory among their      
franchised dealers based primarily on sales volume and input from dealers. The  
Founding Groups finance their inventory purchases through revolving credit      
arrangements known in the industry as floorplan facilities.                     

USED VEHICLE SALES                                                          

The Founding Groups sell used vehicles at each of their franchised    
dealerships. Sales of used vehicles have become an increasingly significant     
source of profit for the Founding Groups. Consumer demand for used vehicles has 
increased as prices of new vehicles have risen and as more high quality used    
vehicles have become available. Furthermore, used vehicles typically generate   
higher gross margins than new vehicles because of their limited comparability   
and the somewhat subjective nature of their valuation. The Founding Groups      
intend to continue growing its used vehicle sales operations by maintaining a   
high quality inventory, providing competitive prices and extended service       
contracts for its used vehicles and continuing to promote used vehicle sales.   

    Profits from sales of used vehicles are dependent primarily on the ability
of the Founding Groups' dealerships to obtain a high quality supply of used     
vehicles and effectively manage that inventory. The Founding Groups' new vehicle
operations provide the Founding Groups' used vehicle operations with a large    
supply of high quality trade-ins and off-lease vehicles, which are the best     
sources of high quality used vehicles. The Founding Groups supplement their used
vehicle inventory with used vehicles purchased at auctions.                     

  Each of the Founding Groups generally maintains a 45 to 60 day supply of
used vehicles and offers to other dealers and wholesalers used vehicles that the
Founding Groups do not retail to customers. Trade-ins may be transferred among  
dealerships to provide balanced inventories of used vehicles at each of the     
Founding Groups' dealerships. Group 1 Automotive believes that the Acquisitions 
and acquisitions of additional dealerships will expand the internal market for  
transfers of used vehicles among the Combined Company's dealerships and,        
therefore, increase the ability of each of the Combined Company's dealerships to
offer the same brand of used vehicles as it sells new and to maintain a balanced
inventory of used vehicles. Group 1 Automotive intends to develop integrated    
computer inventory systems that will allow it to coordinate vehicle transfers   
between the Combined Company's dealerships, primarily on a regional basis.      

The Founding Groups have taken several steps towards building client  
confidence in their used vehicle inventory, one of which includes their         
participation in the Manufacturers' certification processes which are available 
only to new vehicle franchises. This process makes these used vehicles eligible 
for new vehicle benefits such as new vehicle finance rates and extended         
Manufacturer warranties. In addition, each of the Founding Groups' dealerships  
offer extended warranties covering the used vehicles that each of its           
dealerships sells.                                                              

Group 1 Automotive believes that franchised dealership strengths in   
offering used vehicles include: (i) access to trade-ins on new vehicle          
purchases, which are typically lower mileage and higher quality relative to     
trade-ins on used car purchases, (ii) access to late-model, low mileage         
off-lease vehicles, and (iii) the availability of Manufacturer certification and
extended Manufacturer warranties for the Founding Groups' higher quality used   
vehicles. This supply of high quality trade-ins and off-lease vehicles reduces  
the Founding Groups' dependence on auction vehicles, which are typically a      
higher cost source of used vehicles.                                            

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PARTS AND SERVICE                                                           

   The Founding Groups provide parts and service at each of their franchised
dealerships primarily for the vehicle makes sold by their dealerships. The      
Founding Groups provide their maintenance and repair services at a combined 30  
dealerships and five collision service centers, utilizing approximately 500     
service bays in providing these services. The Founding Groups perform both      
warranty and non-warranty service work.                                         

  Historically, the automotive repair industry has been highly fragmented.
However, Group 1 Automotive believes that the increased use of advanced         
technology in vehicles has made it difficult for independent repair shops to    
retain the expertise to perform major or technical repairs. Additionally,       
Manufacturers permit warranty work to be performed only at franchised           
dealerships. Hence, unlike independent service stations, or independent and     
superstore used car dealerships with service operations, the Founding Groups'   
franchised dealerships are qualified to perform work covered by Manufacturer    
warranties. Given the increasing technological complexity of motor vehicles and 
the trend toward extended manufacturer and dealer warranty periods for new      
vehicles, Group 1 Automotive believes that an increasing percentage of repair   
work will be performed at the Founding Groups' franchised dealerships, each of  
which have the sophisticated equipment and skilled personnel necessary to       
perform such repairs and offer extended service contracts.                      

     The Founding Groups attribute their profitability in parts and service to a
comprehensive management system, including the use of variable rate pricing     
structures, cultivation of strong client relationships through an emphasis on   
preventive maintenance and the efficient management of parts inventory.         

  In charging for their mechanics' labor, the Founding Groups use variable
rate structures designed to reflect the difficulty and sophistication of        
different types of repairs. The percentage mark-ups on parts are similarly      
priced based on market conditions for different parts. Group 1 Automotive       
believes that variable rate pricing helps the Founding Groups to achieve overall
gross margins in parts and service superior to those of certain competitors who 
rely on fixed labor rates and percentage markups.                               

The Founding Groups seek to retain each purchaser of a vehicle as a   
customer of the Founding Groups' service and parts departments. The Founding    
Groups' dealerships have systems in place that track their customers'           
maintenance records and notify owners of vehicles purchased at the dealerships  
when their vehicles are due for periodic services. The Founding Groups regard   
service and repair activities as an integral part of their overall approach to  
customer service, providing an opportunity to foster ongoing relationships with 
the Founding Groups' customers and deepen customer loyalty.                     

The dealerships' parts departments support their respective sales and 
service divisions. Each of the Founding Groups' dealerships sells               
factory-approved parts for vehicle makes and models sold by that dealership.    
These parts are either used in repairs made by the dealership or sold at retail 
to its customers or at wholesale to independent repair shops. Currently, each of
the Founding Groups' dealerships employs its own parts manager and independently
controls its parts inventory and sales. Dealerships that sell the same new      
vehicle makes have access to each other's computerized inventories and          
frequently obtain unstocked parts from other dealerships.                       

OTHER DEALERSHIP OPERATIONS                                                 

Other dealership revenues consist primarily of finance and insurance  
income. The Founding Groups arrange financing for their customers' vehicle      
purchases, sell vehicle service contracts and arrange selected types of credit  
insurance in connection with the financing of vehicle sales. The Founding Groups
place heavy emphasis on finance and insurance ("F&I") and offer advanced F&I    
training to their finance and insurance managers. Typically, the Founding       
Groups' dealerships forward proposed financing contracts to Manufacturers'      
captive finance companies, selected commercial banks or other financing parties.
The Founding Groups receive a finance fee from the lender for arranging the     
financing and is typically assessed a charge-back against a portion of the      
finance fee if the contract is terminated prior to its scheduled maturity for   
any reason, such as early repayment or default. As a result, companies must     

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arrange financing for a customer that is competitive (i.e., the customer is more
likely to accept the financing terms and the loan is less likely to be          
refinanced) and affordable (i.e., the loan is more likely to be repaid).        

At the time of a new vehicle sale, the Founding Groups offer extended 
service contracts to supplement the Manufacturer warranty. Additionally, the    
Founding Groups sell primary service contracts for used vehicles. Currently, the
Founding Groups primarily sell service contracts of third party vendors, for    
which they recognize a commission upon the sale of the contract. The Combined   
Company also sells its own service contracts at one location and recognizes the 
associated revenue over the life of the contract.                               

The Founding Groups also offer certain types of credit insurance to   
customers who finance their vehicle purchases through the Founding Groups. The  
Founding Groups sell credit life insurance policies to these customers, which   
policies provide for repayment of the vehicle loan if the obligor dies while the
loan is outstanding. The Founding Groups also sell accident and health insurance
policies, which provide payment of the monthly loan obligations during a period 
in which the obligor is disabled.                                               

FRANCHISE AGREEMENTS                                                            

   Each of the Founding Groups' dealerships operates pursuant to a franchise
agreement between the applicable Manufacturer and the dealership. The typical   
automotive franchise agreement specifies the locations at which the dealer has  
the right and the obligation to sell motor vehicles and related parts and       
products and to perform certain approved services in order to serve a specified 
market area. The designation of such areas and the allocation of new vehicles   
among dealerships are subject to the discretion of the Manufacturer, which      
generally does not guarantee exclusivity within a specified territory. A        
franchise agreement may impose requirements on the dealer concerning such       
matters as the showrooms, the facilities and equipment for servicing vehicles,  
the maintenance of inventories of vehicles and parts, the maintenance of minimum
net working capital and the training of personnel. Compliance with these        
requirements is closely monitored by the Manufacturer. In addition,             
Manufacturers require each dealership to submit a financial statement of        
operations on a monthly and annual basis. The franchise agreement also grants   
the dealer the non-exclusive right to use and display the Manufacturer's        
trademarks, service marks and designs in the form and manner approved by the    
Manufacturer.                                                                   

    Each franchise agreement sets forth the name of the person approved by the
Manufacturer to exercise full managerial authority over the dealership's        
operations and the names and ownership percentages of the approved owners of the
dealership and contains provisions requiring the Manufacturer's prior approval  
of changes in management or transfers of ownership of the dealership. Each of   
the Founding Groups' dealerships will be owned, directly or indirectly, by Group
1 Automotive, upon consummation of the Acquisitions, at the subsidiary level. A 
number of Manufacturers prohibit the acquisition of a substantial ownership     
interest in Group 1 Automotive or transactions that may affect management       
control of Group 1 Automotive, in each case without the approval of the         
Manufacturer. For a description of these and other restrictions and other       
material terms imposed by the Manufacturers in the franchise agreements, see    
"Risk Factors -- Manufacturers' Control Over Dealerships", "Risk Factors --     
Restrictions Imposed by Agreement with American Honda Motor Co., Inc." and "Risk
Factors -- Dependence on Acquisitions for Growth; Manufacturers' Restrictions on
Acquisitions".                                                                  

    Most franchise agreements expire after a specified period of time, ranging
from one to five years, and Group 1 Automotive expects to renew any expiring    
agreements in the ordinary course of business. The typical franchise agreement  
provides for early termination or non-renewal by the Manufacturer under certain 
circumstances such as change of management or ownership without Manufacturer    
approval, insolvency or bankruptcy of the dealership, death or incapacity of the
dealer manager, conviction of a dealer manager or owner of certain crimes,      
misrepresentation of certain information by the dealership or dealer manager or 
owner to the Manufacturer, failure to adequately operate the dealership, failure
to maintain any license, permit or authorization required for the conduct of    
business, or material breach of                                                 

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other provisions of the franchise agreement. The dealership is typically        
entitled to terminate the franchise agreement at any time without cause.        

   The automobile franchise relationship is also governed by various federal
and state laws established to protect dealerships from the general unequal      
bargaining power between the parties. The following discussion of state court   
and administrative holdings and various state laws is based on management's     
beliefs and may not be an accurate description of the state court and           
administrative holdings and various state laws. The state statutes generally    
provide that it is a violation for a manufacturer to terminate or fail to renew 
a franchise without good cause. These statutes also provide that the            
manufacturer is prohibited from unreasonably withholding approval for a proposed
change in ownership of the dealership. Acceptable grounds for disapproval       
include material reasons relating to the character, financial ability or        
business experience of the proposed transferee. Accordingly, certain provisions 
of the franchise agreements, particularly as they relate to a manufacturer's    
rights to terminate or fail to renew the franchise, have repeatedly been held   
invalid by state courts and administrative agencies.                            

   Under Texas law, despite the terms of contracts between manufacturers and
dealers, manufacturers may not unreasonably withhold approval of a transfer of a
dealership. It is unreasonable under Texas law for a manufacturer to reject a   
prospective transferee of a dealership who is of good moral character and who   
otherwise meets the manufacturer's written, reasonable and uniformly applied    
standards or qualifications relating to the prospective transferee's business   
experience and financial qualifications. In addition, under Texas and Oklahoma  
law and the laws of other states, franchised dealerships may challenge          
manufacturers' attempts to establish new franchises in the franchised dealers'  
markets, and state regulators may deny applications to establish new dealerships
for a number of reasons, including a determination that the manufacturer is     
adequately represented in the region. Texas and Oklahoma law limit the ability  
of manufacturers to terminate or fail to renew franchises. In addition, other   
laws in Texas and elsewhere limit the ability of manufacturers to withhold their
approval for the relocation of a franchise or require that disputes be          
arbitrated. In addition, a manufacturer's license to distribute vehicles in     
Texas and Oklahoma may be revoked if, among other things, the manufacturer has  
forced or attempted to force an automobile dealer to accept delivery of motor   
vehicles not ordered by that dealer. In Oklahoma, a manufacturer's license to   
operate in the state may be revoked or suspended upon a finding that a          
manufacturer has coerced or intimidated a dealer or acted dishonestly or failed 
to act in accordance with reasonable standards of fair dealing.                 

COMPETITION                                                                     

The automotive retailing industry is extremely competitive. In large  
metropolitan areas, consumers have a number of choices in deciding where to     
purchase a new or used vehicle and where to have such a vehicle serviced.       

    In the new vehicle area, the Founding Groups compete with other franchised
dealers in each of its marketing areas. The Founding Groups do not have any cost
advantage in purchasing new vehicles from the Manufacturers, and typically      
relies on advertising and merchandising, sales expertise, service reputation and
location of its dealerships to sell new vehicles. In recent years, automobile   
dealers have also faced increased competition in the sale or lease of new       
vehicles from independent leasing companies, on-line purchasing services and    
warehouse clubs. In addition, Ford Motor has announced that it is exploring the 
possibility of going into business with some of its dealers to create automotive
superstores in selected markets.                                                

In used vehicles, the Founding Groups compete with other franchised   
dealers, independent used car dealers, automobile rental agencies, private      
parties and used car "superstores" for supply and resale of used vehicles. Used 
car "superstores" have recently opened in certain markets in which the Founding 
Groups compete, including Houston, Texas. In addition, the Founding Groups      
expect that additional used car "superstores" will open in other markets in     
which the Founding Groups compete. See "-- Used Vehicle Sales".                 

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Group 1 Automotive believes that the principal competitive factors in 
vehicle sales are the marketing campaigns conducted by Manufacturers, the       
ability of dealerships to offer a wide selection of the most popular vehicles,  
the location of dealerships and the quality of customer service. Other          
competitive factors include customer preference for particular brands of        
automobiles, pricing (including Manufacturer rebates and other special offers)  
and warranties. Group 1 Automotive believes that the Founding Groups'           
dealerships are competitive in all of these areas.                              

    The Founding Groups compete against franchised dealers to perform warranty
repairs and against other automobile dealers, franchised and independent service
center chains and independent garages for non-warranty repair and routine       
maintenance business. The Founding Groups compete with other automobile dealers,
service stores and auto parts retailers in its parts operations. Group 1        
Automotive believes that the principal competitive factors in parts and service 
sales are price, the use of factory-approved replacement parts, the familiarity 
with a Manufacturer's brands and models and the quality of customer service. A  
number of regional or national chains offer selected parts and services at      
prices that may be lower than the Founding Groups' prices.                      

FACILITIES                                                                      

Set forth in the table below is certain information relating to the   
properties that the Founding Groups use in their business. Certain of the leases
described below reflect the terms of new leases to be entered into by the       
Founding Groups in connection with the Acquisitions. See "Certain               
Transactions -- Leases".                                                        

                                                        [Enlarge/Download Table]

        OCCUPANT                 LOCATION                   USE                             LEASE/OWN                  
        --------                 --------                   ---                             ---------                  
                                                                                                                       
HOWARD GROUP                                                                                                           
  Bob Howard Automall... 13300 N. Broadway        New and used car sales;  Lease; expires in 2027 and is cancelable at 
                         Extension,               service; F&I             the Combined Company's option in 2007 and at
                         Oklahoma City, Oklahoma                           the end of each subsequent five year period 
                         13220 N. Broadway        New and used car sales;  Lease; expires in 2027 and is cancelable at 
                         Extension,               service; F&I             the Combined Company's option in 2007 and at
                         Oklahoma City, Oklahoma                           the end of each subsequent five year period 
                         715 W. Memorial Road,    Storage and make ready   Lease; current term is month-to-month       
                         Oklahoma City, Oklahoma  facility                                                             
  Bob Howard             13130 N. Broadway        New and used car sales;  Lease; expires in 2027 and is cancelable at 
    Chevrolet........... Extension,               service; F&I             the Combined Company's option in 2007 and at
                         Oklahoma City, Oklahoma                           the end of each subsequent five year period 
  Bob Howard Toyota..... 13200 N. Broadway        New and used car sales;  Lease; expires in 2027 and is cancelable at 
                         Extension,               service; F&I             the Combined Company's option in 2007 and at
                         Oklahoma City, Oklahoma                           the end of each subsequent five year period 
  Bob Howard                                                                                                           
    Honda/Acura......... 14137 N. Broadway        New and used car sales;  Lease; expires in 2001                      
                         Extension,               service; F&I                                                         
                         Edmond, Oklahoma                                                                              
                         3700 S. Broadway         Collision services       Lease; expires in 1999                      
                         Extension,               center                                                               
                         Edmond, Oklahoma                                                                              
  Bob Howard Dodge...... 616 W. Memorial Road,    New and used car sales;  Lease; expires in 2001                      
                         Edmond, Oklahoma         service; collision                                                   
                                                  services center; F&I                                                 

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        OCCUPANT                 LOCATION                    USE                             LEASE/OWN                  
        --------                 --------                    ---                             ---------                  
                                                                                                                        
MCCALL GROUP                                                                                                            
                         9400 Southwest Freeway    New and used car sales;  Lease; two leases which expire in 2027 and  
Sterling McCall Toyota.. Houston, Texas            service; F&I             are cancelable at the Combined Company's    
                                                                            option in 2007 and at the end of each       
                                                                            subsequent five year period                 
                         6015 Skyline              Collision services       Lease; expires in 2027 and is cancelable at 
                         Houston, Texas            center                   the Combined Company's option in 2007 and at
                                                                            the end of each subsequent five year period 
  Sterling McCall        10422 Southwest Freeway   New and used car sales;  Lease; expires in 2027 and is cancelable at 
    Lexus............... Houston, Texas            service; F&I             the Combined Company's option in 2007 and at
                                                                            the end of each subsequent five year period 
                         10610 Wilcrest            Collision services       Lease; expires in 2027 and is cancelable at 
                         Houston, Texas            center                   the Combined Company's option in 2007 and at
                                                                            the end of each subsequent five year period 
                         10430 Southwest Freeway   New & Used Car Sales     Lease; expires in 2000 with an option to    
                         Houston, Texas                                     extend until 2005                           

SMITH GROUP                                                                                                             
  Courtesy Nissan....... 1777 North Central Expwy. New and used car sales;  Lease; expires in 2013                      
                         Richardson, Texas         service; F&I                                                         
                         421 Industrial Boulevard  Storage and make ready   Lease; expires in 1997                      
                         Richardson, Texas         facility                                                             
  Mike Smith             1515 I-10 South           New and used car sales;  Lease; expires in 2027 and is cancelable at 
    Autoplaza........... Beaumont, Texas           service; collision       the Combined Company's option in 2007 and at
                                                   services center; F&I     the end of each subsequent five year period 
  Town North............ 9150 U.S. Highway 183     New and used car sales;  Owned by dealership                         
                         Austin, Texas             service; F&I                                                         
                         9112 U.S. Highway 183     New and used car sales;  Owned by dealership                         
                         Austin, Texas             service; F&I                                                         
                         9008 United Drive         Used car sales           Lease; expires in 2001                      
                         Austin, Texas                                                                                  
                         9094 U.S. Highway 183     Storage Facility         Lease; expires in 2001                      
                         Austin, Texas                                                                                  
                         9400 United Drive         Storage Facility         Lease; expires December 31, 1997 and        
                         Austin, Texas                                      automatically renews for successive one year
                                                                            terms unless notice given by either party   
                         8908 McCann Street        Storage Facility         Lease; month to month; may be terminated by 
                         Austin, Texas                                      either party with 30 days written notice    
  Round Rock Nissan..... 3050 North IH 35          New and used car sales;  Lease; expires in 2027 and is cancelable at 
                         Austin, Texas             service; F&I             the Combined Company's option in 2007 and at
                                                                            the end of each subsequent five year period 
  Acura Southwest....... 10455 Southwest Freeway   New and used car sales;  Owned by dealership                         
                         Houston, Texas            service; F&I                                                         

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        OCCUPANT                 LOCATION              USE                             LEASE/OWN
        --------                 --------              ---                             ---------
                                                                                                
KINGWOOD GROUP                                                                                  
  Foyt Motors........... 22575 Highway 59 N  New and used car sales;  Owned by dealership       
                         Kingwood, Texas     service; F&I                                       
                         22577 Highway 59 N  New and used car sales;  Owned by dealership       
                         Kingwood, Texas     service; F&I                                       
                         401 South I.H. 45   Used car sales; F&I      Owned by dealership       
                         Conroe, Texas                                                          

GOVERNMENTAL REGULATIONS                                                        

    A number of regulations affect the Founding Groups' business of marketing,
selling, financing and servicing automobiles. The Founding Groups also are      
subject to laws and regulations relating to business corporations generally.    

    Under Texas and Oklahoma law, the Founding Groups must obtain a license in
order to establish, operate or relocate a dealership or provide certain         
automotive repair services. These laws also regulate the Founding Groups'       
conduct of business, including its advertising and sales practices. Other states
may have similar requirements.                                                  

     The Founding Groups' financing activities with its customers are subject to
federal truth in lending, consumer leasing and equal credit opportunity         
regulations as well as state and local motor vehicle finance laws, installment  
finance laws, insurance laws, usury laws and other installment sales laws. Some 
states regulate finance fees that may be paid as a result of vehicle sales.     
Penalties for violation of any of these laws or regulations may include         
revocation of certain licenses, assessment of criminal and civil fines and      
penalties, and in certain instances, create a private cause of action for       
individuals. Group 1 Automotive believes that the Founding Groups comply        
substantially with all laws and regulations affecting their business and do not 
have any material liabilities under such laws and regulations and that          
compliance with all such laws and regulations will not, individually or in the  
aggregate, have a material adverse effect on the Founding Groups' capital       
expenditures, earnings, or competitive position, and Group 1 Automotive does not
anticipate that such compliance will have a material effect on the Combined     
Company in the future.                                                          

ENVIRONMENTAL MATTERS                                                           

The Founding Groups are subject to a wide range of federal, state, and
local environmental laws and regulations, including those governing discharges  
to the air and water, the storage of petroleum substances and chemicals, the    
handling and disposal of wastes, and the remediation of contamination arising   
from spills and releases. As with automobile dealerships generally, and service 
and parts and collision repair center operations in particular, the Founding    
Groups' business involves the generation, use, handling and disposal of         
hazardous or toxic substances or wastes. Operations involving the management of 
hazardous and nonhazardous wastes are subject to requirements of the federal    
Resource Conservation and Recovery Act and comparable state statutes. Pursuant  
to these laws, federal and state environmental agencies have established        
approved methods for storage, treatment, and disposal of regulated wastes with  
which the Founding Groups must comply.                                          

The Founding Groups' business also involves the use of aboveground and
underground storage tanks. Under applicable laws and regulations, the Founding  
Groups are responsible for the proper use, maintenance and abandonment of       
regulated storage tanks owned or operated by it, and for remediation of         
subsurface soils and groundwater impacted by releases from such existing or     
abandoned aboveground or underground storage tanks. In addition to these        
regulated tanks, the Founding Groups own, operate, or have otherwise abandoned  
other underground and aboveground devices or containers (e.g., automotive lifts 
and service pits) that may not be classified as regulated tanks, but which are  
capable of releasing stored materials into the environment, thereby potentially 
obligating the Founding Groups to remediate any soils or groundwater resulting  
from such releases.                                                             

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The Founding Groups are also subject to laws and regulations governing
remediation of contamination at facilities it operates or to which it sends     
hazardous or toxic substances or wastes for treatment, recycling or disposal.   
The Comprehensive Environmental Response, Compensation and Liability Act        
("CERCLA"), also known as the "Superfund" law, imposes liability, without regard
to fault or the legality of the original conduct, on certain classes of persons 
that are considered to have contributed to the release of a "hazardous          
substance" into the environment. These persons include the owner or operator of 
the disposal site or sites where the release occurred and companies that        
disposed or arranged for the disposal of the hazardous substances released at   
such sites. Under CERCLA, these "responsible parties" may be subject to joint   
and several liability for the costs of cleaning up the hazardous substances that
have been released into the environment, for damages to natural resources and   
for the costs of certain health studies, and it is not uncommon for neighboring 
landowners and other third parties to file claims for personal injury and       
property damage allegedly caused by the release of hazardous substances.        

   Further, the Federal Water Pollution Control Act, also known as the Clean
Water Act, and comparable state statutes prohibit discharges of pollutants into 
regulated waters without authorized National Pollution Discharge Elimination    
System (NPDES) and similar state permits, require containment of potential      
discharges of oil or hazardous substances, and require preparation of spill     
contingency plans. The Combined Company expects to implement programs that      
address wastewater discharge requirements as well as containment of potential   
discharges and spill contingency planning.                                      

Environmental laws and regulations have become very complex and it has
become very difficult for businesses that routinely handle hazardous and        
non-hazardous wastes to achieve and maintain full compliance with all applicable
environmental laws. Like virtually any network of automobile dealerships and    
vehicle service facilities, from time to time the Founding Groups can be        
expected to experience incidents and encounter conditions that will not be in   
compliance with environmental laws and regulations. However, none of the        
Founding Groups have been subject to any material environmental liabilities in  
the past and Group 1 Automotive does not anticipate that any material           
environmental liabilities will be incurred in the future. Furthermore, Group 1  
Automotive is in the process of establishing an environmental management program
that is intended to reduce the risk of noncompliance with environmental laws and
regulations. Nevertheless, environmental laws and regulations and their         
interpretation and enforcement are changed frequently and Group 1 Automotive    
believes that the trend of more expansive and more strict environmental         
legislation and regulations is likely to continue. Hence, there can be no       
assurance that compliance with environmental laws or regulations or the future  
discovery of unknown environmental conditions will not require additional       
expenditures by the Combined Company, or that such expenditures would not be    
material. See "Risk Factors -- Governmental Regulations and Environmental       
Matters".                                                                       

EMPLOYEES                                                                       

     As of June 30, 1997, Group 1 Automotive and the Founding Groups, taken as a
whole, employed 1,503 people, of whom approximately 196 were employed in        
managerial positions, 533 were employed in non-managerial sales positions, 551  
were employed in non-managerial parts and service positions and 223 were        
employed in administrative support positions. Group 1 Automotive intends, upon  
completion of the Offering, to provide certain executive officers and managers  
with options to purchase Common Stock and believes this equity incentive will be
attractive to existing and prospective employees of the Combined Company. See   
"Management -- 1996 Stock Incentive Plan" and "1998 Employee Stock Purchase     
Plan".                                                                          

     Group 1 Automotive and the Founding Groups believe that their relationships
with their employees are favorable. None of the such employees is represented by
a labor union. Because of its dependence on the Manufacturers, however, the     
Combined Company may be affected by labor strikes, work slowdowns and walkouts  
at the Manufacturers' manufacturing facilities.                                 

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LEGAL PROCEEDINGS AND INSURANCE                                                 

  From time to time, the Founding Groups are named in claims involving the
manufacture of automobiles, contractual disputes and other matters arising in   
the ordinary course of the Founding Groups' business. Currently, no legal       
proceedings are pending against or involve the Founding Groups or Group 1       
Automotive that, in the opinion of management, could be expected to have a      
material adverse effect on the business, financial condition or results of      
operations of the Combined Company.                                             

Because of their vehicle inventory and nature of business, automobile 
retail dealerships generally require significant levels of insurance covering a 
broad variety of risks. The Combined Company's insurance will include an        
umbrella policy with a $50 million per occurrence limit upon consummation of the
Offering as well as insurance on its real property, comprehensive coverage for  
its vehicle inventory, general liability insurance, employee dishonesty coverage
and errors and omissions insurance in connection with its vehicle sales and     
financing activities.                                                           

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MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS                                                

    Set forth below are Group 1 Automotive's executive officers and directors,
together with their positions and ages. Upon consummation of the Acquisitions,  
each of these persons will serve the Combined Company in the capacity indicated.

                                                        [Enlarge/Download Table]

                                                                                   EXPIRATION OF  
               NAME                AGE                    POSITION                TERM AS DIRECTOR
               ----                ---                    --------                ----------------
                                                                                                  
B.B. Hollingsworth, Jr............ 55   Chairman, President and Chief Executive         2000      
                                        Officer                                                   
Robert E. Howard, II.............. 50   Director; President of Howard Group             2000      
Sterling B. McCall, Jr............ 62   Director; President of McCall Group             1998      
Charles M. Smith.................. 51   Director; President of Smith Group              1999      
John T. Turner.................... 53   Senior Vice President -- Corporate                        
                                        Development                                               
Scott L. Thompson................. 38   Senior Vice President -- Chief Financial                  
                                        Officer and Treasurer                                     
Frank R. Todaro................... 50   Vice President -- Corporate Services                      
John H. Duncan.................... 69   Director                                        1999      
Bennett E. Bidwell................ 70   Director                                        1998      

  Set forth below is a brief description of the business experience of the
directors and executive officers of Group 1 Automotive.                         

  B.B. HOLLINGSWORTH, JR. has served as President, Chief Executive Officer
and Director of Group 1 Automotive since August 1996. Prior to joining Group 1  
Automotive, Mr. Hollingsworth spent nineteen years with Service Corporation     
International ("SCI"), where he directed an acquisition program that established
SCI as the world's leading consolidator of the funeral industry. He joined SCI  
in 1967, was then named Vice President for Corporate Development, was named Vice
President and Chief Financial Officer in 1972, and was elected President and    
named Director in 1975. He served as President and Director of SCI from 1975    
until retirement in 1986. From 1986 to 1996, Mr. Hollingsworth served as a      
consultant to SCI. Mr. Hollingsworth is a shareholder and director of Foyt      
Motors, Inc., a Founding Company. He has served as a director of several public 
and private companies.                                                          

    ROBERT E. HOWARD, II. has served as a Director of Group 1 Automotive since
April 1997. Mr. Howard will also serve as President of Howard Group upon        
consummation of the Acquisitions. Mr. Howard has more than 28 years experience  
in the automotive retailing industry. From 1969 to 1977, he served in various   
management positions at franchised dealerships. Since 1978 he has been a        
shareholder and has served as Chairman of Howard Pontiac-GMC, Inc., a franchised
dealership within the Howard Automall umbrella and a Founding Company. Mr.      
Howard is also Chairman and a shareholder of the following additional Founding  
Companies: Bob Howard Chevrolet, Bob Howard Honda/Acura, Bob Howard Toyota and  
Bob Howard Dodge. He is a recipient of the 1997 Time Magazine Quality Dealer    
Award and presently serves as Chairman of the Oklahoma Motor Vehicle Commission 
and as a Director of the Oklahoma City Metropolitan Automobile Dealers          
Association.                                                                    

    STERLING B. MCCALL, JR. has served as Director of Group 1 Automotive since
August 1996. Mr. McCall will also serve as President of McCall Group upon       
consummation of the Acquisitions. Mr. McCall has over 27 years experience in the
automotive retailing industry and is Chairman of Sterling McCall Toyota and     
Sterling McCall Lexus, both Founding Companies. He has been a shareholder and   
has served as President or Chairman of Sterling McCall Toyota and Sterling      
McCall Lexus since their inception in 1969 and 1989, respectively. He is a      
former Director of the American International Automobile Dealers Association, a 
former Director and Chairman of the Houston Automobile Dealers Association and a
former Chairman of the Gulf States Toyota Dealer Council, and presently is a    
Director of the Texas Automobile                                                

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Dealers Association. Mr. McCall has won the Time Magazine Quality Dealer Award  
and the Sports Illustrated Dealer of Distinction Award.                         

 CHARLES M. SMITH has served as Director of Group 1 Automotive since its
formation in December 1995. Mr. Smith will also serve as president of Smith     
Group upon consummation of the Acquisitions. Mr. Smith has more than 28 years   
experience in the automotive retailing industry. From 1968 to 1980, he served in
various capacities in dealerships owned and operated by the Smith family. From  
1980 to 1985, he owned and operated his own automobile dealership. Since 1985 he
has served as managing partner of Smith & Liu Management Company, the management
entity for the Smith Group dealerships prior to the Acquisitions. He is Chairman
of the American International Automobile Dealers Association and is Vice        
Chairman of the Texas Automobile Dealers Association. He has won the Time       
Magazine Quality Dealer Award and the Sports Illustrated All-Star Dealer Award. 

JOHN T. TURNER has served as Group 1 Automotive's Senior Vice         
President -- Corporate Development since December 1996. Prior to joining Group 1
Automotive, Mr. Turner functioned as Managing Director -- Corporate Development,
Europe for SCI. From 1990 to 1993, Mr. Turner served as Senior Vice             
President -- Operations and Director of The Loewen Group, Inc. From 1986 to     
1990, he served as President and Director of Paragon Family Services, Inc. From 
1981 to 1986, he served as Senior Vice President -- Corporate Development for   
SCI. Mr. Turner was a partner in Arthur Young & Company from 1977 to 1981.      
Currently he is a director of COREStaff, Inc.                                   

  SCOTT L. THOMPSON has served as Senior Vice President -- Chief Financial
Officer and Treasurer of Group 1 Automotive since December 1996. From 1991 to   
1996, Mr. Thompson served as Executive Vice President, Operations and Finance   
for KSA Industries, Inc., a diversified enterprise with interests in automotive 
retailing, energy and professional sports. Among Mr. Thompson's other           
responsibilities within the KSA group of companies, he served as a Vice         
President and director of three Houston-area automobile dealerships with        
aggregate annual revenues of $180 million. Additionally, in connection with his 
position at KSA Industries, Inc. he served as a director of Adams Resources     
Energy, Inc., a public oil and gas company. He is a Certified Public Accountant,
and from 1980 to 1991 he held various positions with Arthur Andersen LLP.       

     FRANK R. TODARO has served as Vice President -- Corporate Services of Group
1 Automotive since March 1997. From 1993 to 1997, Mr. Todaro served as a self   
employed consultant providing marketing and management consulting services. From
1985 to 1993, Mr. Todaro was a Principal with Ernst & Young where he served as  
the Director of General Management Consulting and later the Director of         
Marketing. From 1972 to 1985, Mr. Todaro served in various managerial and sales 
positions with engineering consulting firms.                                    

 JOHN H. DUNCAN was elected Director of Group 1 Automotive in June 1997.
Since 1988, Mr. Duncan has been a private investor with holdings in the         
automotive, oil and gas and real estate industries. From 1958 to 1968, Mr.      
Duncan served as President of Gulf & Western Industries (now Paramount          
Communications), a company which he co-founded. Mr. Duncan currently serves as a
director, Chairman of the Executive Committee and member of the Compensation    
Committee of Enron Corporation and a director and Chairman of the Compensation  
Committee of Enron Oil Trading & Transportation. Mr. Duncan also serves on the  
Board of Trustees of Southwestern University, the Board of Trustees of the Texas
Heart Institute and the Board of Visitors of the University of Texas (M.D.      
Anderson) Cancer Foundation.                                                    

     BENNETT E. BIDWELL was elected Director of Group 1 Automotive in June 1997.
Mr. Bidwell joined Chrysler Corporation as Executive Vice President in 1983 and 
was elected to the Board of Directors in that same year. He was named Vice      
Chairman of Chrysler Corporation in 1985, Vice Chairman of Chrysler Motors      
Corporation in 1987 and President - Product and Marketing of Chrysler Motors    
Corporation in 1988. From 1988 to 1990, Mr. Bidwell served as Chairman of       
Chrysler Motors Corporation. Mr. Bidwell retired from Chrysler Corporation in   
1993. Prior to joining Chrysler, Mr. Bidwell spent 27 years with Ford Motor     
Company, and from 1981 to 1983 he was President and Chief Operating Officer of  
The Hertz Corporation. His past directorships include National Steel Corporation
(1981-1983) and McDonald &                                                      

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Company Securities, Inc. (1992-1995). Mr. Bidwell currently serves as a director
for Kerr-McGee Corporation, International Management Group, Budd Company and    
Kelly Management Group.                                                         

COMMITTEES OF THE BOARD OF DIRECTORS                                            

AUDIT COMMITTEE                                                             

The Audit Committee consists of Messrs. Duncan and Bidwell. The Audit 
Committee has responsibility for, among other things, (i) recommending the      
selection of Group 1 Automotive's independent accountants, (ii) reviewing and   
approving the scope of the independent accountants' audit activity and extent of
non-audit services, (iii) reviewing with Management and the independent         
accountants the adequacy of Group 1 Automotive's basic accounting systems and   
the effectiveness of Group 1 Automotive's internal audit plan and activities,   
(iv) reviewing with Management and the independent accountants Group 1          
Automotive's financial statements and exercising general oversight of Group 1   
Automotive's financial reporting process and (v) reviewing Group 1 Automotive's 
litigation and other legal matters that may affect Group 1 Automotive's         
financial condition and monitoring compliance with Group 1 Automotive's business
ethics and other policies.                                                      

COMPENSATION COMMITTEE                                                      

 The Compensation Committee consists of Messrs. Duncan and Bidwell. This
committee has general supervisory power over, and the power to grant awards     
under the 1996 Stock Incentive Plan. The Compensation Committee has             
responsibility for, among other things, (i) reviewing the recommendations of the
Chief Executive Officer as to appropriate compensation of Group 1 Automotive's  
principal executive officers and certain other key personnel and the Chief      
Executive Officer; (ii) examining periodically the general compensation         
structure of Group 1 Automotive and (iii) supervising the welfare and pension   
plans and compensation plans of Group 1 Automotive.                             

CHAIRMAN'S COUNCIL                                                          

 The Chairman's Council initially consists of Messrs. Howard, McCall and
Smith. The Chairman's Council may recommend up to three individuals to be       
nominated as directors, which recommendation may be accepted at the sole        
discretion of the Board of Directors. Members of the Chairman's Council may be  
appointed or removed at any time by the Board of Directors and all members of   
the Chairman's Council shall be subject to annual election by the Board of      
Directors.                                                                      

DIRECTORS COMPENSATION                                                          

    Directors who are full-time employees of Group 1 Automotive do not receive
a retainer or fees for service on the Board of Directors or on committees of the
Board. Members of the Board of Directors who are not full-time employees of     
Group 1 Automotive receive an annual fee of $6,000 and a fee of $1,500 for      
attendance at each meeting of the Board of Directors. Directors also receive the
use of one demonstrator vehicle or the economic equivalent. In addition,        
directors of Group 1 Automotive (including directors who are not full-time      
employees of Group 1 Automotive) are eligible for grants of stock options and   
other awards pursuant to the 1996 Stock Incentive Plan. Upon consummation of the
Offering, Messrs. Duncan and Bidwell will each receive options to purchase      
10,000 shares of Common Stock at the initial public offering price.             

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EXECUTIVE COMPENSATION; EMPLOYMENT AGREEMENTS                                   

   The following table sets forth certain summary information concerning the
compensation provided by Group 1 Automotive in 1996 to its Chief Executive      
Officer. No other person serving as an executive officer during 1996 earned     
$100,000 or more in combined salary and bonus during such year.                 

SUMMARY COMPENSATION TABLE

                                                        [Enlarge/Download Table]

                                                                    ANNUAL                      
                                                              COMPENSATION(1)(2)                
                                                             ---------------------   ALL OTHER  
                NAME AND PRINCIPAL POSITION                  SALARY(3)     BONUS    COMPENSATION
                ---------------------------                  ---------    --------  ------------
                                                                                                
B.B. Hollingsworth, Jr., Chairman, President and Chief                                          
  Executive Officer.........................................  $60,000      $  --       $  --    

---------------                                                                 

(1) Amounts exclude perquisites and other personal benefits because such        
    compensation did not exceed the lesser of $50,000 or 10% of the total annual
salary and bonus reported.                                              

(2) In addition, in March 1997 Mr. Hollingsworth, Jr. was granted options to    
purchase 100,000 shares of Common Stock at $2.90 per share.             

(3) Reflects amounts that were earned by Mr. Hollingsworth during 1996. Such    
amounts have not been paid and are contingent upon the closing of the   
Acquisitions and the Offering.                                          

Group 1 Automotive anticipates that during 1997, its most highly      
compensated executive officers will be Messrs. Hollingsworth, Howard, McCall,   
Smith, Turner and Thompson. Each of these executive officers will enter into an 
employment agreement with the Combined Company, which will be effective upon    
consummation of the Acquisitions and the Offering. The employment agreements    
will provide for the following base salaries for 1997: B.B. Hollingsworth,      
Jr. -- $360,000; Robert E. Howard, II -- $300,000; Sterling B. McCall,          
Jr. -- $300,000; Charles M. Smith -- $300,000; John T. Turner -- $250,000; and  
Scott L. Thompson -- $180,000. The employment agreements will also provide that 
such officers' participation in bonus plans will be governed by the bonus and   
incentive plans adopted by the Board of Directors in which the officer is a     
participant. Currently, the Board of Directors has not adopted any bonus or     
incentive plans.                                                                

Each employment agreement is for a term of five years, and unless     
terminated or not renewed by the Combined Company or the employee, the term will
continue thereafter on a month-to-month basis terminable at any time by either  
the Combined Company or the employee, with or without cause, upon thirty days   
notice. In the event of a termination of employment by the Combined Company     
without cause or by the employee due to an uncorrected material breach of the   
employment agreement by the Combined Company, the employee is entitled to       
receive his or her base salary paid bi-weekly until the end of his contract     
term. In the event of an involuntary termination of employment following a      
merger, consolidation or dissolution of the Combined Company or a sale of all   
its assets, the employee is entitled to a lump sum payment equal to the amount  
of base pay he is entitled to under the remainder of his contract. The Combined 
Company is not obligated to pay any amounts to the employee other than his pro  
rata base salary through the date of his or her termination upon (i) voluntary  
termination of employment by the employee; (ii) termination of employment by the
Combined Company for cause (as defined); (iii) death of the employee; or (iv)   
long-term disability of the employee. During the period of employment and for a 
period of three years after termination of employment, the employees are        
generally prohibited from competing or assisting others to compete with the     
Combined Company. Mr. Howard, however, will be permitted to own and operate the 
Chevrolet dealership in Tulsa, Oklahoma, together with other related franchises,
if the Combined Company's agreement to acquire the Tulsa Chevrolet dealership is
terminated. See "The Acquisitions". In addition, during the period of employment
and for a period of five years after termination of employment, the employees   
are generally prohibited from inducing any other employee to terminate          
employment with the Combined Company.                                           

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1996 STOCK INCENTIVE PLAN                                                       

  In November 1996, the Board of Directors and the stockholders of Group 1
Automotive adopted the Combined Company's 1996 Stock Incentive Plan (the        
"Plan"). The purpose of the Plan is to provide directors, employees (key        
operating managers at the dealerships) and consultants of Group 1 Automotive and
its subsidiaries additional incentive and reward opportunities designed to      
enhance the profitable growth of the Combined Company. The Plan provides for the
granting of incentive stock options intended to qualify under Section 422 of the
Code, options that do not constitute incentive stock options and restricted     
stock awards. The Plan is administered by the Compensation Committee of the     
Board of Directors. In general, the Compensation Committee is authorized to     
select the recipients of awards and the terms and conditions of those awards.   

    The number of shares of Common Stock that may be issued under the Plan may
not exceed 2,000,000 shares (subject to adjustment to reflect stock dividends,  
stock splits, recapitalizations and similar changes in the Combined Company's   
capital structure). Shares of Common Stock which are attributable to awards     
which have expired, terminated or been canceled or forfeited are available for  
issuance or use in connection with future awards. The maximum number of shares  
of Common Stock that may be subject to awards granted under the Plan to any one 
individual during any calendar year may not exceed 500,000 (subject to          
adjustment to reflect stock dividends, stock splits, recapitalizations and      
similar changes in the Combined Company's capital structure).                   

   The price at which a share of Common Stock may be purchased upon exercise
of an option granted under the Plan will be determined by the Compensation      
Committee but (i) in the case of an incentive stock option, such purchase price 
will not be less than the fair market value of a share of Common Stock on the   
date such option is granted, and (ii) in the case of an option that does not    
constitute an incentive stock option, such purchase price will not be less than 
80% of the fair market value of a share of Common Stock on the date such option 
is granted. Shares of Common Stock that are the subject of a restricted stock   
award under the Plan will be subject to restrictions on disposition by the      
holder of such award and an obligation of such holder to forfeit and surrender  
the shares to the under certain circumstances (the "Forfeiture Restrictions").  
The Forfeiture Restrictions will be determined by the Compensation Committee in 
its sole discretion, and the Compensation Committee may provide that the        
Forfeiture Restrictions will lapse upon (a) the attainment of one or more       
performance targets established by the Compensation Committee, (b) the award    
holder's continued employment with the Combined Company or continued service as 
a consultant or director for a specified period of time, (c) the occurrence of  
any event or the satisfaction of any other condition specified by the           
Compensation Committee in its sole discretion or (d) a combination of any of the
foregoing.                                                                      

   No awards under the Plan may be granted after ten years from the date the
Plan was adopted by the Board of Directors. The Plan will remain in effect until
all awards granted under the Plan have been satisfied or expired. The Board of  
Directors in its discretion may terminate the Plan at any time with respect to  
any shares of Common Stock for which awards have not been granted. The Plan may 
be amended, other than to increase the maximum aggregate number of shares that  
may be issued under the Plan or to change the class of individuals eligible to  
receive awards under the Plan, by the Board of Directors without the consent of 
the stockholders of the Combined Company. No change in any award previously     
granted under the Plan may be made which would impair the rights of the holder  
of such award without the approval of the holder.                               

 In December 1996, Group 1 Automotive issued options to purchase 205,000
shares of Common Stock at $2.90 per share as follows: 125,000 shares to John T. 
Turner and 80,000 shares to Scott L. Thompson. Each of these options will vest  
16.7% per year after the issuance of the options. In March 1997, Group 1        
Automotive issued options to purchase an additional 360,000 shares of Common    
Stock at $2.90 per share to certain employees of the Combined Company, including
the following executive officers: B.B. Hollingsworth, Jr. -- 100,000 shares,    
John T. Turner -- 80,000 shares and Scott L. Thompson -- 80,000 shares. In      
addition, upon consummation of the Acquisitions and the Offering, the Combined  
Company will issue options to purchase 661,700 shares of Common Stock at the    
initial public                                                                  

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offering price to certain employees and directors of the Combined Company,      
including the following executive officers: Mr. Hollingsworth -- 100,000, Mr.   
Turner -- 125,000 and Mr. Thompson -- 80,000.                                   

    The following table provides certain information regarding options granted
during 1996:                                                                    

OPTION GRANTS IN LAST FISCAL YEAR                                               

                                                        [Enlarge/Download Table]

                                           INDIVIDUAL GRANTS                                                     
                       ----------------------------------------------------------                                
                                          PERCENT OF                               POTENTIAL REALIZABLE VALUE AT 
                        NUMBER OF           TOTAL                                     ASSUMED ANNUAL RATES OF    
                       SECURITIES          OPTIONS         EXERCISE                 STOCK PRICE APPRECIATION FOR 
                       UNDERLYING         GRANTED TO       OR BASE                          OPTION TERM          
                         OPTIONS          EMPLOYEES         PRICE      EXPIRATION  ------------------------------
         NAME          GRANTED (#)      IN FISCAL YEAR     ($/ SH)        DATE        5% ($)           10% ($)   
         ----          -----------      --------------     --------    ----------  -------------    -------------
                                                                                                                 
John T. Turner........     125,000(1)          61.0%        $2.90       12/13/06       1,648,000        2,295,000
Scott L. Thompson.....      80,000(1)          39.0%        $2.90       12/13/06       1,054,000        1,469,000

---------------                                                                 

(1) The options were granted in December 1996 and vest 16.7% annually.          

1998 EMPLOYEE STOCK PURCHASE PLAN                                               

   In September 1997, the Board of Directors and the stockholders of Group 1
Automotive adopted Group 1 Automotive's 1998 Employee Stock Purchase Plan (the  
"Purchase Plan"). The Purchase Plan authorizes the issuance of up to 200,000    
shares of Common Stock (subject to adjustment in the event of stock dividends,  
stock splits and certain other events) and provides that no options may be      
granted under the Purchase Plan after June 30, 2007. The Purchase Plan is       
available to all employees of the Combined Company and its participating        
subsidiaries who are employed as of January 1, 1998 or the first day of each    
successive April, July, October and January thereafter (a "Date of Grant").     
However, an employee may not be granted an option under the Purchase Plan if    
after the granting of the option such employee would be deemed to own 5% or more
of the combined voting power or value of all classes of stock of the Combined   
Company. A committee appointed by the Board of Directors (the "Committee") is   
charged with the general administration of the Purchase Plan and has the        
authority to designate any present or future subsidiary of the Combined Company 
as a participating subsidiary.                                                  

For each three-month period beginning on a Date of Grant (an "Option  
Period") during the term of the Purchase Plan, unless the Committee determines  
otherwise, each eligible employee may authorize payroll deductions to be made   
during the Option Period, which amounts are used at the end of the Option Period
to acquire shares of Common Stock at 85% of the fair market value of the Common 
Stock on the first or the last day of the Option Period, whichever is lower.    
Employees have discretion to determine the amount of their payroll deduction    
under the Purchase Plan, subject to the limit that not more than 10% of         
compensation may be deducted in any Option Period and other limitations set     
forth in Section 423 of the Code. No employee may purchase Common Stock under   
the Purchase Plan valued at more than $25,000 for each calendar year in         
accordance with the provisions of the Code. An employee may withdraw from the   
Purchase Plan, in whole but not in part, at any time prior to the last day of an
Option Period, by delivering a withdrawal notice to the Combined Company. In the
event an employee withdraws, the Combined Company will refund the entire amount 
of the payroll deductions during the Option Period, without interest.           

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CERTAIN TRANSACTIONS

  In connection with the formation of Group 1 Automotive in December 1995,
Group 1 Automotive issued 1,000 shares of Common Stock for $500 to Smith & Liu  
Management Company, a Texas general partnership which has provided management   
services to the Smith Group dealerships prior to consummation of the            
Acquisitions ("Smith & Liu"). Mr. Smith is a partner of Smith & Liu and a       
director of Group 1 Automotive. In July 1996, Group 1 Automotive acquired 1,000 
shares of Common Stock from Smith & Liu for aggregate consideration of $500 and 
issued 500 shares to Mr. Hollingsworth for an aggregate consideration of $5,000.
Subsequently, Group 1 Automotive split its outstanding common stock on a        
900-for-one basis accomplished as a stock dividend. For a description of the    
Acquisitions, see "The Acquisitions".                                           

In order to finance the expenses of Group 1 Automotive prior to the   
Acquisitions and the Offering, Smith & Liu, the Howard Group, the McCall Group, 
the Smith Group and the Kingwood Group made loans to Group 1 Automotive, as of  
October 29, 1997, of $87,960, $353,626, $592,231, $504,399 and $144,170,        
respectively. These advances all have maturities of less than one year and bear 
interest at a rate of 7% per annum. As of October 29, 1997, interest accrued on 
loans from Smith & Liu, the Howard Group, the McCall Group, the Smith Group and 
the Kingwood Group equaled $5,941, $7,928, $20,759, $14,701 and $4,759,         
respectively.                                                                   

     Certain officers, directors and stockholders, or their affiliates, of Group
1 Automotive have engaged in transactions with the Founding Companies prior to  
consummation of the Acquisitions. Except for the transactions described below,  
none of these transactions will continue after consummation of the Acquisitions.
For a discussion of these transactions for the three years ended December 31,   
1996 and for the six months ended June 30, 1997, see the Notes to the Combined  
Financial Statements of each of the Founding Groups.                            

LEASES                                                                          

 Certain of the properties leased by the Founding Companies are owned by
officers, directors or holders of 5% or more of the Common Stock of the Combined
Company or their affiliates. As part of the Acquisitions, the Founding Companies
have agreed to replace each of the existing leases with officers, directors or  
5% stockholders (the "Related Party Leases") with a standard lease agreement for
each property. However, one Related Party Lease, covering the real estate and   
facilities of the Howard collision repair center, will remain in place between  
Bob Howard Honda/Acura, as lessee, and North Broadway Real Estate, an Oklahoma  
limited liability company owned 50% by Robert E. Howard II and 50% by an        
unrelated third party. This lease provides for a five-year term ending July 1,  
1999 and a monthly rental rate of $9,000, and requires Bob Howard Honda/Acura to
pay all applicable property taxes, maintain adequate insurance and repair or    
replace the leased building if necessary.                                       

The term of each lease that is to be replaced is for 30 years and is  
cancelable at the Combined Company's option ten years from execution of the     
lease and at the end of each subsequent five year period. Additionally, the     
Combined Company has a right of first refusal to acquire the property. The lease
requires the Combined Company to be responsible for taxes, insurance and, in    
certain circumstances, maintenance. Each of the Related Party Leases and the    
rents payable thereunder are described below. Under each of the Related Party   
Leases, the rent is subject to increases every five years based on increases in 
the Consumer Price Index. Group 1 Automotive believes that the terms of the     
Related Party Leases, taken as a whole, will be no less favorable to the        
Combined Company than could be obtained from unaffiliated parties.              

    Sterling McCall Toyota leases property owned by SMC Investment, Inc. ("SMC
Investment") and used by Sterling McCall Toyota as a repair center. Mr. McCall  
and his affiliates own all of the stock of SMC Investment. The lease provides   
for a monthly rental of $7,000 per month. The property and fixtures subject to  
this lease secure indebtedness of SMC Investment. The amount of such            
indebtedness outstanding as of June 30, 1997 was approximately $0.7 million.    

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  Sterling McCall Toyota leases property that is owned by a partnership of
which Mr. McCall is a partner and that is used by Sterling McCall Toyota as a   
storage lot. The lease provides for a monthly rental of $7,000. The property and
fixtures subject to this lease secure indebtedness of Mr. McCall. The amount of 
such indebtedness outstanding as of June 30, 1997 was approximately $0.2        
million.                                                                        

     Sterling McCall Toyota leases property that is owned by two partnerships of
which Mr. McCall is a partner and that is used by Sterling McCall Toyota as an  
automobile dealership. The lease provides for a monthly rental of $70,000. The  
property and fixtures subject to this lease secure indebtedness of two          
affiliates of Mr. McCall. The amount of such indebtedness outstanding as of June
30, 1997 was approximately $4.6 million.                                        

 Sterling McCall Lexus leases property that is owned by a partnership of
which Mr. McCall is a partner and that is used by SMC Luxury Cars as an         
automobile dealership. The lease provides for a monthly rental of $70,000. The  
property and fixtures subject to this lease secure indebtedness of an affiliate 
of Mr. McCall. The amount of such indebtedness outstanding as of June 30, 1997  
was approximately $3.4 million.                                                 

    Sterling McCall Lexus leases property that is owned by Mr. McCall and that
is used by Sterling McCall Lexus as a repair center. The lease provides for a   
monthly rental of $6,500. The property subject to this lease secures            
indebtedness of Mr. McCall. The amount of such indebtedness outstanding as of   
June 30, 1997 was approximately $0.4 million.                                   

 Mike Smith Autoplaza leases property owned by a general partnership, of
which the children of Charles M. Smith are partners. The property is used by    
Mike Smith Autoplaza as an automobile dealership. The leases provide for monthly
rental payments of $46,500. The property and fixtures subject to this lease     
secure indebtedness of an affiliate of Mr. Smith. The amount of such            
indebtedness outstanding as of June 30, 1997 was approximately $2.2 million.    

     Round Rock Nissan leases property owned by SKLR Round Rock, L.L.C., a Texas
limited liability corporation in which Charles M. Smith, has an ownership       
interest. The property is used by Round Rock Nissan as an automobile dealership.
The lease provides for current monthly rental payments of $32,000. The property 
and fixtures subject to this lease secure indebtedness of an affiliate of Mr.   
Smith. The amount of such indebtedness outstanding as of June 30, 1997 was      
approximately $2.4 million.                                                     

   Bob Howard Automall leases two properties owned by Mr. Howard and used by
Bob Howard Automall as automobile dealerships. These leases relating to these   
properties provide for aggregate monthly rentals of $85,862. The property and   
fixtures subject to this lease secure indebtedness of Mr. Howard. The amount of 
such indebtedness outstanding as of June 30, 1997 was approximately $3.6        
million.                                                                        

  Bob Howard Chevrolet leases property owned by Mr. Howard and used by Bob
Howard Chevrolet as an automobile dealership. The lease relating to this        
property provides for a monthly rental of $48,500. The property and fixtures    
subject to this lease secure indebtedness of Mr. Howard. The amount of such     
indebtedness outstanding as of June 30, 1997 was approximately $3.3 million.    

     Bob Howard Honda/Acura leases property owned by North Broadway Real Estate,
L.L.C., an Oklahoma limited liability company in which Mr. Howard owns a 50%    
interest. This property is used as a collision repair center, and the lease     
relating to this property provides for a monthly rental of $9,000.              

Bob Howard Toyota leases property owned by Mr. Howard and used by Bob 
Howard Toyota as an automobile dealership. The lease relating to this property  
provides for a monthly rental of $33,500. The property and fixtures subject to  
this lease secure indebtedness of Mr. Howard. The amount of such indebtedness   
outstanding as of June 30, 1997 was $0.9 million.                               

   Certain of the property and the fixtures leased to the Founding Companies
serve as collateral for various indebtedness of the principals of the Founding  
Companies and certain affiliates of such principals, as described above. Each of
such principals have agreed to take all action necessary to secure an agreement 
from each of the lenders that, upon a default of any of such principals, such   
lenders                                                                         

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will honor the lease and will not disturb the Combined Company's right to       
possession of the applicable property under the lease. Such principals of the   
Founding Companies have also agreed to grant an option to purchase the          
applicable leased premises at a price equal to the outstanding indebtedness that
is secured by the property if the principals of the Founding Companies have not 
obtained such an agreement from the lenders within 90 days after consummation of
the Acquisitions.                                                               

LOANS                                                                           

  Certain of the Founding Groups have incurred indebtedness which has been
personally guaranteed by their stockholders or by entities controlled by their  
stockholders. Group 1 Automotive intends to repay, refinance or otherwise take  
steps to remove these personal guarantees. It is the intention of management    
that as soon as practicable after the Acquisitions and the Offering, the debt of
the Combined Company will cease to be personally guaranteed by any of its       
officers, directors or stockholders.                                            

  The following table sets forth, as of June 30, 1997, the indebtedness of
the Founding Groups which is guaranteed by stockholders of the Founding Groups: 

                                                        [Enlarge/Download Table]

           DEBTOR                                     GUARANTOR                         PRINCIPAL AMOUNT
           ------                                     ---------                         ----------------
                                                                                         (IN MILLIONS)  
                                                                                                        
Town North Nissan........... Charles Smith, W.C. Smith, Ronald Kutz, Randall Ross, Kuo             $ 3.4
                             Kang Liu, Daniel C.Y. Liu                                                  
Acura Southwest............. Charles Smith, Daniel C.Y. Liu, Ralph O'Connor                          1.4
Foyt Motors................. B.B. Hollingsworth, Jr., John Duncan, Robert Struzynski,                2.7
                             A.J. Foyt, Jr.                                                             
Round Rock Nissan........... Charles Smith, Daniel C.Y. Liu, Ronald Kutz, William                    0.4
                             Lawrence, Randall Ross, Janet Sopronyi, Thomas Park                        
Bob Howard Automall......... Robert E. Howard II                                                    15.8
Bob Howard Honda/Acura...... Robert E. Howard II                                                     5.3
Bob Howard Chevrolet........ Robert E. Howard II                                                     8.4
Bob Howard Dodge............ Robert E. Howard II                                                     5.3
Bob Howard Toyota........... Robert E. Howard II                                                     3.0
Sterling McCall Toyota...... Sterling B. McCall, Jr.                                                 0.2
Sterling McCall Toyota...... Sterling B. McCall, Jr.                                                14.1
Sterling McCall Toyota and                                                                              
  Sterling McCall Lexus..... Sterling B. McCall, Jr.                                                10.2
Sterling McCall Lexus....... Sterling B. McCall, Jr.                                                 6.1

   Certain principals of the Founding Groups, and certain affiliates of such
principals, have incurred indebtedness which is guaranteed by certain of the    
Founding Companies. With the exception of the Round Rock Nissan guarantee       
described below, all applicable lenders have agreed to release the Founding     
Companies from their guarantees of indebtedness of the principals and their     
affiliates. These releases will be effective upon the consummation of the       
Offering. Following is a list of indebtedness of principals and their affiliates
which will cease to be guaranteed by the Founding Companies upon consummation of
the Offering: Mr. Howard, approximately $7.8 million, Mr. McCall and affiliates,
approximately $8.0 million; and Mr. Smith and affiliates, approximately $2.2    
million.                                                                        

    Upon consummation of the Offering, Round Rock Nissan will continue to be a
guarantor of indebtedness incurred by SKLR Round Rock, L.C., a limited liability
company in which Charles M. Smith owns a 22% interest. No other entity          
comprising the Combined Company will be liable under Round Rock Nissan's        
guarantee. At June 30, 1997, the outstanding principal amount of this           
indebtedness was approximately $2.4 million. However, if Round Rock Nissan's    
guarantee of this indebtedness is not removed within 90 days after consummation 
of the Acquisitions, the Combined Company will have an option to acquire the    
land and fixtures securing such indebtedness (which is the property on which    
Round Rock Nissan is located) at a price equal to such indebtedness. Group 1    
Automotive currently intends to acquire such land and fixtures if the guarantee 
is not released. In connection with a proposed                                  

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refinancing of SKLR Round Rock, L.C.'s debt on such land and fixtures, a local  
real estate appraisal firm provided Group 1 Automotive with a verbal estimate of
value of $2.6 million, which exceeds SKLR Round Rock L.C.'s outstanding loan    
balance on such property by approximately $200,000. Since Group 1 Automotive    
believes that the fair market value of the property is greater than the         
outstanding indebtedness guaranteed by Round Rock Nissan, Group 1 Automotive    
expects that the Combined Company would record negative goodwill in connection  
with the acquisition.                                                           

 Upon consummation of the acquisition of Bob Howard East by the Combined
Company (through Bob Howard Automall), the Combined Company will assume a loan  
made by Mr. Howard to Bob Howard East. The amount outstanding under this loan is
approximately $2.5 million, and bears interest at the prime rate plus 100 basis 
points. If such acquisition is not consummated, this loan will not be assumed by
the Combined Company. See "The Acquisitions".                                   

OTHER                                                                           

Sterling McCall Toyota and Sterling McCall Lexus have entered into an 
agreement with Dealer Solutions, L.L.C. ("DSL") pursuant to which DSL is to     
provide management information systems software and related services to the     
dealerships. Pursuant to the agreement, the dealerships will pay a monthly      
maintenance fee of approximately $2,500 until the earlier of the time the       
dealerships' existing contract for such services with a different vendor        
terminates or March 1999, at which time the monthly maintenance fee will        
increase to approximately $12,500 per month for the remainder of the five year  
term of the agreement. After an initial five-year term, this agreement is       
subject to successive automatic one-year extensions with the same terms and fees
unless terminated by either party with thirty days notice. In addition, upon    
installation of the software system at Sterling McCall Lexus, an installation   
fee of $20,000 will be paid to DSL. No installation fee has been paid by        
Sterling McCall Toyota. Mr. McCall, his affiliates and family members own       
approximately 18% of DSL and Kevin H. Whalen (who will beneficially own more    
than 5% of the outstanding shares of Common Stock after the Acquisitions and the
Offering) owns approximately 11% of DSL. Group 1 Automotive is currently only   
committed to implement this system in Sterling McCall Toyota and Sterling McCall
Lexus. Group 1 Automotive does not currently have any formal plans to implement 
this system in its other dealerships. Group 1 Automotive believes that the      
Combined Company will acquire these systems from DSL on terms, taken as a whole,
that are no less favorable than those that could be obtained from non-affiliated
third parties.                                                                  

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PRINCIPAL AND SELLING STOCKHOLDERS

     The following table sets forth certain information regarding the beneficial
ownership of the Combined Company's Common Stock: (a) as of the date of this    
Prospectus after giving effect to the Acquisitions and (b) following the sale of
the shares of Common Stock offered hereby, by (i) each person known to          
beneficially own more than 5% of the outstanding shares of Common Stock; (ii)   
each of the Combined Company's directors; (iii) each named executive officer;   
(iv) each Selling Stockholder, and (v) all executive officers and directors as a
group. All persons listed have sole voting and dispositive power over the shares
indicated as owned by such person unless otherwise indicated.                   

                                                        [Enlarge/Download Table]

                                       SHARES OF COMMON                        SHARES OF COMMON       
                                      STOCK BENEFICIALLY                   STOCK TO BE BENEFICIALLY   
                                    OWNED BEFORE OFFERING                    OWNED AFTER OFFERING     
                                  --------------------------             -----------------------------
                                     NUMBER                   SHARES TO     NUMBER                    
    NAME OF BENEFICIAL OWNER      OF SHARES(1)    PERCENTAGE   BE SOLD   OF SHARES(1)    PERCENTAGE(2)
    ------------------------      ------------    ----------  ---------  ------------    -------------
                                                                                                      
B.B. Hollingsworth, Jr(3)(6).....    546,368          5.7%          --      546,368           3.9%    
Robert E. Howard, II(4)(6).......  2,956,955         31.0           --    2,956,955          21.2     
Sterling B. McCall, Jr(5)(6).....  1,461,031         15.3           --    1,461,031          10.5     
Charles M. Smith(6)..............    679,181          7.1           --      679,181           4.9     
John H. Duncan...................    196,368          2.1           --      196,368           1.4     
  5851 San Felipe, Suite 850                                                                          
  Houston, Texas 77056                                                                                
Bennett E. Bidwell...............         --           --           --           --            --     
  626 Yarboro Drive                                                                                   
  Bloomfield Hills, Michigan                                                                          
  48304                                                                                               
W. C. Smith......................    619,773          6.5      371,864      247,909           1.8     
  3400 South Loop West                                                                                
  Houston, Texas 77025                                                                                
SMC Investment, Inc. ............    637,475          6.7           --      637,475           4.6     
  9400 Southwest Freeway                                                                              
  Houston, Texas 77074                                                                                
Kevin H. Whalen(6)...............    774,040          8.1           --      774,040           5.5     
All directors and executive                                                                           
  officers as a group (9 persons                                                                      
  including the directors and                                                                         
  executive officers named                                                                            
  above).........................  5,839,903         60.8%          --    5,839,903          41.5%    

---------------                                                                 

(1) Does not include options to purchase stock that are not exercisable within  
60 days of the date of the Prospectus.                                  

(2) Assumes that the Underwriters' overallotment option is not exercised.       

(3) Excludes 100,000 shares of Common Stock held in trust for the benefit of Mr.
Hollingsworth's children. Mr. Hollingsworth is not the trustee of such  
trust, does not have or share voting or investment power over the Common
  Stock held by the trust and disclaims beneficial ownership of such shares.

(4) Includes 592,303 shares of Common Stock issued to Mr. Howard and placed in  
escrow according to the terms described herein. See "The Acquisitions". 

(5) Includes (i) 637,475 shares owned by SMC Investment, Inc. which is          
controlled by Mr. McCall; (ii) 250,248 shares owned by Gulf Coast Family
   Limited Partnership which is controlled by Mr. McCall; (iii) 106,041 shares
    owned by SBM-T Family Limited Partnership which is controlled by Mr. McCall;
and (iv) 30,629 shares owned by Mr. McCall's spouse.                    

(6) Have an address c/o the Combined Company's principal executive offices at   
950 Echo Lane, Suite 350, Houston, Texas 77024.                         

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DESCRIPTION OF CAPITAL STOCK

The Combined Company's authorized capital stock consists of 50,000,000
shares of Common Stock and 1,000,000 shares of Preferred Stock, par value $.01  
per share ("Preferred Stock"). After giving effect to the Acquisitions, but     
prior to consummation of the Offering, the Combined Company will have           
outstanding 9,524,914 shares of Common Stock and no shares of Preferred Stock.  
Upon completion of the Offering, the Combined Company will have outstanding     
13,953,050 shares of Common Stock (14,673,050 shares if the Underwriters'       
over-allotment option is exercised in full) and no shares of Preferred Stock.   

COMMON STOCK                                                                    

    Subject to any special voting rights of any series of Preferred Stock that
may be issued in the future, the holders of the Common Stock are entitled to one
vote for each share held on all matters voted upon by stockholders, including   
the election of directors. Holders of Common Stock are not entitled to cumulate 
their votes in elections of directors.                                          

  Subject to the rights of any then outstanding shares of Preferred Stock,
the holders of the Common Stock are entitled to such dividends as may be        
declared in the discretion of the Board of Directors out of funds legally       
available therefor. Holders of Common Stock are entitled to share ratably in the
net assets of Group 1 Automotive upon liquidation after payment or provision for
all liabilities and any preferential liquidation rights of any Preferred Stock  
then outstanding. The holders of Common Stock have no preemptive rights to      
purchase shares of stock of Group 1 Automotive. Shares of Common Stock are not  
subject to any redemption provisions and are not convertible into any other     
securities of Group 1 Automotive. All outstanding shares of Common Stock are,   
and the shares of Common Stock to be issued pursuant to the Offering will be    
upon payment therefor, fully paid and non-assessable.                           

PREFERRED STOCK                                                                 

   Preferred Stock may be issued from time to time by the Board of Directors
in one or more series. Subject to the provisions of Group 1 Automotive's Charter
and limitations prescribed by law, the Board of Directors is expressly          
authorized to adopt resolutions to issue the shares, to fix the number of shares
and to change the number of shares constituting any series and to provide for or
change the voting powers, designations, preferences and relative participating, 
optional or other special rights, qualifications, limitations or restrictions   
thereof, including dividend rights (including whether dividends are cumulative),
dividend rates, terms of redemption (including sinking fund provisions),        
redemption prices, conversion rights and liquidation preferences of the shares  
constituting any series of the Preferred Stock, in each case without any further
action or vote by the stockholders. One of the effects of undesignated Preferred
Stock may be to enable the Board of Directors to render more difficult or to    
discourage an attempt to obtain control of Group 1 Automotive by means of a     
tender offer, proxy contest, merger or otherwise, and thereby to protect the    
continuity of Group 1 Automotive's management. The issuance of shares of the    
Preferred Stock pursuant to the Board of Directors' authority described above   
may adversely affect the rights of the holders of Common Stock. For example,    
Preferred Stock issued by Group 1 Automotive may rank prior to the Common Stock 
as to dividend rights, liquidation preference or both, may have full or limited 
voting rights and may be convertible into shares of Common Stock. Accordingly,  
the issuance of shares of Preferred Stock may discourage bids for the Common    
Stock or may otherwise adversely affect the market price of the Common Stock.   

CERTAIN ANTI-TAKEOVER AND OTHER PROVISIONS OF THE CHARTER AND BYLAWS            

   In addition to Group 1 Automotive's Board of Directors to issue Preferred
Stock, the Charter and the Bylaws of Group 1 Automotive contain certain         
provisions that could have an anti-takeover effect.                             

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CLASSIFIED BOARD OF DIRECTORS AND LIMITATIONS ON REMOVAL OF DIRECTORS       

    Group 1 Automotive's Board of Directors is divided into three classes. The
directors of each class are elected for three-year terms, with the terms of the 
three classes staggered so that directors from a single class are elected at    
each annual meeting of stockholders. Stockholders may remove a director only for
cause upon the vote of holders of at least 80% of the voting power of the       
outstanding shares of Common Stock. In general, the Board of Directors, not the 
stockholders, has the right to appoint persons to fill vacancies on the Board of
Directors.                                                                      

NO WRITTEN CONSENT OF STOCKHOLDERS                                          

   The Charter provides that any action required or permitted to be taken by
the stockholders of the must be taken at a duly called annual or special meeting
of stockholders. In addition, special meetings of the stockholders may be called
only by the Board of Directors.                                                 

BUSINESS COMBINATIONS UNDER DELAWARE LAW                                    

    Group 1 Automotive is a Delaware corporation and is subject to Section 203
of the Delaware General Corporation Law. In general, Section 203 prevents an    
"interested stockholder" (defined generally as a person owning 15% or more of   
Group 1 Automotive's outstanding voting stock) from engaging in a "business     
combination" (as defined in Section 203) with Group 1 Automotive for three years
following the date that person becomes an interested stockholder unless (a)     
before that person became an interested stockholder, Group 1 Automotive's Board 
of Directors approved the transaction in which the interested stockholder became
an interested stockholder or approved the business combination; (b) upon        
completion of the transaction that resulted in the interested stockholder       
becoming an interested stockholder, the interested stockholder owns at least 85%
of the voting stock outstanding at the time the transaction commenced (excluding
stock held by directors who are also officers of Group 1 Automotive and by      
employee stock plans that do not provide employees with the right to determine  
confidentially whether shares held subject to the plan will be tendered in a    
tender or exchange offer); or (c) following the transaction in which that person
became an interested stockholder, the business combination is approved by the   
Combined Company's Board of Directors and authorized at a meeting of            
stockholders by the affirmative vote of the holders of at least two-thirds of   
the outstanding voting stock not owned by the interested stockholder. Under     
Section 203, these restrictions also do not apply to certain business           
combinations proposed by an interested stockholder following the announcement or
notification of one of certain extraordinary transactions involving Group 1     
Automotive and a person who was not an interested stockholder during the        
previous three years or who became an interested stockholder with the approval  
of a majority of Group 1 Automotive's directors, if that extraordinary          
transaction is approved or not opposed by a majority of the directors who were  
directors before any person became an interested stockholder in the previous    
three years or who were recommended for election or elected to succeed such     
directors by a majority of such directors then in office.                       

STOCKHOLDER RIGHTS PLAN                                                         

Immediately prior to completion of the Offering, Group 1 Automotive's 
Rights Plan (the "Rights Plan") will take effect. Under the Rights Plan, each   
Right entitles the registered holder under the circumstances described below to 
purchase from Group 1 Automotive one one-thousandth of a share of Junior        
Participating Preferred Stock, $.01 par value per share (the "Preferred         
Shares"), of Group 1 Automotive at a price of $65 per one one-thousandth of a   
Preferred Share (the "Purchase Price"), subject to adjustment. The description  
and terms of the Rights will be set forth in a Rights Agreement (the "Rights    
Agreement") to be entered into by Group 1 Automotive and ChaseMellon            
Shareholders Services, L.L.C., as Rights Agent (the "Rights Agent") prior to    
consummation of the Offering and this description of the Rights is qualified in 
its entirety by reference to the Rights Agreement.                              

   Until the Distribution Date (as defined below), the Rights will attach to
all Common Stock certificates representing outstanding shares and no separate   
Right Certificate will be distributed.                                          

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Accordingly, a right will be issued for each share of Common Stock issued in the
Offering. The Rights will separate from the Common Stock and a Distribution Date
will occur upon the earlier of (i) 10 business days following a public          
announcement that a person or group of affiliated or associated persons other   
than certain grandfathered stockholders (an "Acquiring Person") has acquired    
beneficial ownership of 20% or more of the outstanding Voting Shares (as defined
in the Rights Agreement) of Group 1 Automotive, or (ii) 10 business days        
following the commencement or announcement of an intention to commence a tender 
offer or exchange offer the consummation of which would result in the beneficial
ownership by a person or group of 20% or more of such outstanding Voting Shares.

 Until the Distribution Date (or earlier redemption or expiration of the
Rights) the Rights will be evidenced by the certificates representing such      
Common Stock. As soon as practicable following the Distribution Date, separate  
certificates evidencing the Rights (the "Right Certificates") will be mailed to 
holders of record of the Common Stock as of the close of business on the        
Distribution Date and such separate Right Certificates alone will thereafter    
evidence the Rights.                                                            

     The Rights are not exercisable until the Distribution Date. The Rights will
expire on the tenth anniversary date of the closing of the Offering (the "Final 
Expiration Date"), unless the Final Expiration Date is extended or the Rights   
are earlier redeemed or exchange by Group 1 Automotive as described below.      

  If a person or group were to acquire 20% or more of the Voting Shares of
Group 1 Automotive, each Right then outstanding (other than Rights beneficially 
owned by the Acquiring Person which would become null and void) would become a  
right to buy that number of shares of Common Stock (or under certain            
circumstances, the equivalent number of one one-thousandths of a Preferred      
Share) that at the time of such acquisition would have a market value of two    
times the Purchase Price of the Right.                                          

If Group 1 Automotive were acquired in a merger or other business     
combination transaction or assets constituting more than 50% of its consolidated
assets or producing more than 50% of its earning power or cash flow were sold,  
proper provision will be made so that each holder of a Right will thereafter    
have the right to receive, upon the exercise thereof at the then current        
Purchase Price of the Right, that number of shares of common stock of the       
acquiring company which at the time of such transaction would have a market     
value of two times the Purchase Price of the Right.                             

     The dividend and liquidation rights, and the non-redemption feature, of the
Preferred Shares are designed so that the value of one one-thousandth of a      
Preferred Share purchasable upon exercise of each Right will approximate the    
value of one share of Common Stock. The Preferred Shares issuable upon exercise 
of the Rights will be non-redeemable and rank junior to all other series of     
Group 1 Automotive's preferred stock. Each whole Preferred Share will be        
entitled to receive a quarterly preferential dividend in an amount per share    
equal to the greater of (i) $1.00 in cash, or (ii) in the aggregate, 1,000 times
the dividend declared on the Common Stock. In the event of liquidation, the     
holders of Preferred Shares will be entitled to receive a preferential          
liquidation payment equal to the greater of (i) $1,000 per share, or (ii) in the
aggregate, 1,000 times the payment made on the shares of Common Stock. In the   
event of any merger, consolidation or other transaction in which the shares of  
Common Stock are exchanged for or changed into other stock or securities, cash  
or other property, each whole Preferred Share will be entitled to receive 1,000 
times the amount received per share of Common Stock. Each whole Preferred Share 
shall be entitled to 1,000 votes on all matters submitted to a vote of the      
stockholders of Group 1 Automotive, and Preferred Shares shall generally vote   
together as one class with the Common Stock and any other capital stock on all  
matters submitted to a vote of stockholders of Group 1 Automotive.              

  The offer and sale of the Preferred Shares issuable upon exercise of the
Rights will be registered with the Commission and such registration will not be 
effective until the Rights become exercisable.                                  

    The number of one one-thousandths of a Preferred Share or other securities
or property issuable upon exercise of the Rights, and the Purchase Price        
payable, are subject to customary adjustments from time to time to prevent      
dilution.                                                                       

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     The number of outstanding Rights and the number of one one-thousandths of a
Preferred Share issuable upon exercise of each Right are also subject to        
adjustment in the event of a stock split of the Common Stock or a stock dividend
on the Common Stock payable in Common Stock or a subdivision, consolidation or  
combination of the Common Stock occurring, in any such case, prior to the       
Distribution Date.                                                              

 At any time after the acquisition by a person or group of affiliated or
associated persons of beneficial ownership of 20% or more of the outstanding    
Voting Shares of Group 1 Automotive and before the acquisition by a person or   
group of 50% or more of the outstanding Voting Shares of Group 1 Automotive, the
Board of Directors may, at its option, issue Common Stock in mandatory          
redemption of, and in exchange for, all or part of the then outstanding and     
exercisable Rights (other than Rights owned by such person or group which would 
become null and void) at an exchange ratio of one share of Common Stock (or one 
one-thousandth of a Preferred Share) for each two shares of Common Stock for    
which each Right is then exercisable, subject to adjustment.                    

   At any time prior to the first public announcement that a person or group
has become the beneficial owner of 20% or more of the outstanding Voting Shares,
the Board of Directors of Group 1 Automotive may redeem all but not less than   
all the then outstanding Rights at a price of $0.01 per Right (the "Redemption  
Price"). The redemption of the Rights may be made effective at such time, on    
such basis and with such conditions as the Board of Directors in its sole       
discretion may establish. Immediately upon the action of the Board of Directors 
ordering redemption of the Rights, the right to exercise the Rights will        
terminate and the only right of the holders of Rights will be to receive the    
Redemption Price.                                                               

Until a Right is exercised, the holder thereof, as such, will have no 
rights as a stockholder of Group 1 Automotive, including, without limitation,   
the right to vote or to receive dividends.                                      

     The terms of the Rights may be amended by the Board of Directors of Group 1
Automotive without the consent of the holders of the Rights, including an       
amendment to extend the Final Expiration Date, and, provided a Distribution Date
has not occurred, to extend the period during which the Rights may be redeemed, 
except that after the first public announcement that a person or group has      
become the beneficial owner of 20% or more of the outstanding Voting Shares, no 
such amendment may materially and adversely affect the interests of the holders 
of the Rights.                                                                  

The Rights have certain anti-takeover effects. The Rights will cause  
substantial dilution to a person or group that attempts to acquire Group 1      
Automotive on terms not determined by the Board of Directors to be in the best  
interests of all stockholders. The Rights will not interfere with a merger or   
other business combination approved by the Board of Directors, prior to the time
that a person or group has acquired beneficial ownership of 20% or more of the  
Common Stock, since the rights may be redeemed by Group 1 Automotive prior to   
that time.                                                                      

LIMITATION OF LIABILITY OF OFFICERS AND DIRECTORS -- INDEMNIFICATION            

 Delaware law authorizes corporations to limit or eliminate the personal
liability of officers and directors to corporations and their stockholders for  
monetary damages for breach of officers' and directors' fiduciary duty of care. 
The duty of care requires that, when acting on behalf of the corporation,       
officers and directors must exercise an informed business judgment based on all 
material information reasonably available to them. Absent the limitations       
authorized by Delaware law, officers and directors are accountable to           
corporations and their stockholders for monetary damages for conduct            
constituting gross negligence in the exercise of their duty of care. Delaware   
law enables corporations to limit available relief to equitable remedies such as
injunction or rescission. The Charter limits the liability of officers and      
directors of Group 1 Automotive to Group 1 Automotive or its stockholders to the
fullest extent permitted by Delaware law. Specifically, officers and directors  
of Group 1 Automotive will not be personally liable for monetary damages for    
breach of an officer's or director's fiduciary duty in such capacity, except for
liability (i) for any breach of the officer's or director's duty of loyalty to  
Group 1 Automotive or its stockholders, (ii) for acts or omissions not in good  
faith or which involve intentional misconduct or a knowing violation of law,    
(iii) for unlawful payments of dividends or unlawful stock repurchases or       

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redemptions as provided in Section 174 of the Delaware General Corporation Law, 
or (iv) for any transaction from which the officer and director derived an      
improper personal benefit.                                                      

The inclusion of this provision in the Charter may have the effect of 
reducing the likelihood of derivative litigation against officers and directors,
and may discourage or deter stockholders or management from bringing a lawsuit  
against officers and directors for breach of their duty of care, even though    
such an action, if successful, might otherwise have benefitted Group 1          
Automotive and its stockholders. Both Group 1 Automotive's Charter and Bylaws   
provide indemnification to Group 1 Automotive's officers and directors and      
certain other persons with respect to certain matters to the maximum extent     
allowed by Delaware law as it exists now or may hereafter be amended. These     
provisions do not alter the liability of officers and directors under federal   
securities laws and do not affect the right to sue (nor to recover monetary     
damages) under federal securities laws for violations thereof.                  

TRANSFER AGENT AND REGISTRAR                                                    

     The transfer agent and registrar of the Common Stock, as well as the rights
agent under the Rights Plan is ChaseMellon Shareholder Services, L.L.C.         

SHARES ELIGIBLE FOR FUTURE SALE 

Upon consummation of the Acquisitions and completion of the Offering, 
assuming no exercise of the Underwriters' over-allotment option, the Combined   
Company will have 13,953,050 shares of Common Stock outstanding (14,673,050     
shares if the Underwriters' over-allotment option is exercised in full). Of     
these outstanding shares of Common Stock, the 4,800,000 shares sold in the      
Offering (5,520,000 shares if the Underwriters' over-allotment option is        
exercised in full) will be freely tradeable without restriction unless acquired 
by affiliates of the Combined Company. None of the remaining 9,153,050          
outstanding shares of Common Stock have been registered under the Securities    
Act, which means that they may be resold publicly only upon registration under  
the Securities Act or in compliance with an exemption from the registration     
requirements of the Securities Act, including the exemption provided by Rule 144
thereunder.                                                                     

    In general, under Rule 144 as currently in effect, if one year has elapsed
since the later of the date of the acquisition of restricted shares of Common   
Stock from either Group 1 Automotive or any affiliate of Group 1 Automotive, the
acquiror or subsequent holder thereof may sell, within any three month period   
commencing 90 days after the date of this Prospectus, a number of shares that   
does not exceed the greater of 1% of the then outstanding shares of the Common  
Stock (139,530 shares upon completion of the Offering), or the average weekly   
trading volume of the Common Stock on the New York Stock Exchange during the    
four calendar weeks preceding the date on which notice of the proposed sale is  
sent to the Commission. Sales under Rule 144 are also subject to certain manner 
of sale provisions, notice requirements and the availability of current public  
information about the Combined Company. If two years have elapsed since the     
later of the date of the acquisition of restricted shares of Common Stock from  
Group 1 Automotive or any affiliate of Group 1 Automotive, a person who is not  
deemed to have been an affiliate of Group 1 Automotive at any time for 90 days  
preceding a sale would be entitled to sell such shares under Rule 144 without   
regard to the volume limitations, manner of sale provisions or notice           
requirements.                                                                   

   Pursuant to the Stock Purchase Agreements entered into in connection with
the Acquisitions, each of the stockholders of the Founding Companies, other than
the Selling Stockholder to the extent of the shares to be sold by him in the    
Offering, has agreed with Group 1 Automotive not to sell the shares of Common   
Stock that they receive in the Acquisitions for a period of two years after the 
date of consummation of the Acquisitions. Pursuant to the Honda Agreement, each 
of such stockholders has also agreed not to sell, transfer or otherwise dispose 
of such shares of Common Stock, or the voting rights associated therewith,      
without the prior written consent of American Honda. In addition, pursuant to an
Underwriting Agreement between Group 1 Automotive, the Selling Stockholder and  
the Underwriters, Group 1 Automotive and its officers, directors and            
stockholders who beneficially own 9,153,050 shares of                           

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Common Stock in the aggregate have agreed not to sell or otherwise dispose of   
any shares of Common Stock and certain other securities of the Combined Company 
for a period of 180 days after the date of this Prospectus without the prior    
written consent of the representatives. See "Underwriting".                     

Prior to the Offering, there has been no public market for the Common 
Stock. No prediction can be made regarding the effect, if any, that public sales
of shares of Common Stock or the availability of shares for sale will have on   
the market price of the Common Stock after the Offering. Sales of substantial   
amounts of the Common Stock in the public market following the Offering, or the 
perception that such sales may occur, could adversely affect the market price of
the Common Stock and could impair the ability of the Combined Company to raise  
capital through sales of its equity securities.                                 

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UNDERWRITING

    Subject to the terms and conditions of the Underwriting Agreement, Group 1
Automotive and the Selling Stockholder have agreed to sell to each of the       
Underwriters named below, and each of such Underwriters, for whom Goldman, Sachs
& Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated and NationsBanc       
Montgomery Securities, Inc. are acting as representatives, has severally agreed 
to purchase from Group 1 Automotive and the Selling Stockholder, the respective 
number of shares of Common Stock set forth opposite its name below:             

                                                                [Download Table]

                                                               NUMBER OF  
                                                               SHARES OF  
                        UNDERWRITER                           COMMON STOCK
                        -----------                           ------------
                                                                          
Goldman, Sachs & Co.........................................   1,226,668  
Merrill Lynch, Pierce, Fenner & Smith Incorporated..........   1,226,668  
NationsBanc Montgomery Securities, Inc......................   1,226,668  
BT Alex. Brown Incorporated.................................     160,000  
EVEREN Securities, Inc. ....................................     160,000  
Morgan Stanley & Co. Incorporated...........................     160,000  
BancAmerica Robertson Stephens..............................     160,000  
Sanford C. Bernstein & Co., Inc. ...........................      80,000  
Dain Bosworth Incorporated..................................      80,000  
Rauscher Pierce Refsnes, Inc. ..............................      80,000  
Raymond James & Associates, Inc. ...........................      80,000  
The Robinson-Humphrey Company, LLC..........................      80,000  
Sanders Morris Mundy........................................      80,000  
                                                              ----------  
          Total.............................................   4,800,000  
                                                              ==========  

Under the terms and conditions of the Underwriting Agreement, the     
Underwriters are committed to take and pay for all of the shares offered hereby,
if any are taken.                                                               

The Underwriters propose to offer the shares of Common Stock in part  
directly to the public at the initial public offering price set forth on the    
cover page of this Prospectus, and in part to certain securities dealers at such
price less a concession of $0.45 per share. The Underwriters may allow, and such
dealers may reallow, a concession not in excess of $0.10 per share to certain   
brokers and dealers. After the shares of Common Stock are released for sale to  
the public, the offering price and other selling terms may from time to time be 
varied by the representatives.                                                  

   Group 1 Automotive has granted the Underwriters an option exercisable for
30 days after the date of this Prospectus to purchase up to an aggregate of     
720,000 additional shares of Common Stock to cover over-allotments, if any. If  
the Underwriters exercise their over-allotment option, the Underwriters have    
severally agreed, subject to certain conditions, to purchase approximately the  
same percentage thereof that the number of shares to be purchased by each of    
them, as shown in the foregoing table, bears to the 4,800,000 shares of Common  
Stock offered.                                                                  

Group 1 Automotive, its officers and directors and the stockholders of
Group 1 Automotive, including the Selling Stockholder, have agreed that, during 
the period beginning from the date of this Prospectus and continuing to and     
including the date 180 days after the date of this Prospectus, they will not    
offer, sell, contract to sell or otherwise dispose of any shares of Common      
Stock, any securities of the Combined Company which are substantially similar to
the shares of Common Stock or which are convertible or exchangeable for         
securities which are substantially similar to the shares of Common Stock (other 
than (i) pursuant to employee stock option plans existing, or on the conversion 
or exchange of convertible or exchangeable securities outstanding, on the date  
of this Prospectus or (ii) in connection with and as consideration for          
acquisitions of automobile dealerships; provided that the proposed transferee   
agrees in writing for the benefit of the Underwriters to be bound by the        
foregoing provisions) without the prior                                         

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written consent of the representatives, except for the shares of Common Stock   
offered in connection with the Offering.                                        

  The representatives of the Underwriters have informed Group 1 Automotive
that they do not expect sales to accounts over which the Underwriters exercise  
discretionary authority to exceed five percent of the total number of shares of 
Common Stock offered by them.                                                   

     Prior to this Offering, there has been no public market for the shares. The
initial public offering price was negotiated among Group 1 Automotive, the      
Selling Stockholder and the representatives. Among the factors considered in    
determining the initial public offering price of the Common Stock, in addition  
to prevailing market conditions, were the Founding Groups' historical           
performance, estimates of the business potential and earnings prospects of the  
Combined Company, an assessment of the Combined Company's management and the    
consideration of the above factors in relation to market valuation of companies 
in related businesses.                                                          

The Common Stock has been approved for listing, subject to notice of  
issuance, on the New York Stock Exchange under the symbol "GPI". In order to    
meet one of the requirement for listing the Common Stock on the New York Stock  
Exchange, the Underwriters have undertaken to sell lots of 100 or more shares to
a minimum of 2,000 beneficial holders.                                          

 In connection with the Offering, the Underwriters may purchase and sell
Common Stock in the open market. These transactions may include overallotment   
and stabilizing transactions and purchases to cover syndicate short positions   
created in connection with the Offering. Stabilizing transactions consist of    
certain bids or purchases for the purpose of preventing or retarding a decline  
in the market price of the Common Stock; and syndicate short positions involve  
the sale by the Underwriters of a greater number of shares of Common Stock than 
they are required to purchase from Group 1 Automotive in the Offering. The      
Underwriters may also impose a penalty bid, whereby selling concessions allowed 
to syndicate members or other broker-dealers in respect of the Common Stock sold
in the Offering for their account may be reclaimed by the syndicate if such     
Common Stock is repurchased by the syndicate in stabilizing or covering         
transactions. These activities may stabilize, maintain or otherwise affect the  
market price of the Common Stock which may be higher than the price that might  
otherwise prevail in the open market. These transactions may be effected on the 
New York Stock Exchange, in the over-the-counter market or otherwise, and these 
activities, if commenced, may be discontinued at any time.                      

     Group 1 Automotive and the Selling Stockholder have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities under   
the Securities Act of 1933.                                                     

VALIDITY OF COMMON STOCK

   The validity of the shares of Common Stock offered hereby is being passed
upon for Group 1 Automotive and the Selling Stockholder by Vinson & Elkins      
L.L.P., Houston, Texas, and for the Underwriters by Sullivan & Cromwell, New    
York, New York. John S. Watson, the Secretary of the Combined Company, is a     
partner of Vinson & Elkins L.L.P.                                               

EXPERTS 

The audited financial statements included in this Prospectus have been
audited, the pro forma statement of operations for the year ended December 31,  
1996 has been examined and the pro forma financial statements as of and for the 
six months ended June 30, 1997 have been reviewed by Arthur Andersen LLP,       
independent public accountants, as indicated in their reports with respect      
thereto, and are included herein in reliance upon the authority of said firm as 
experts in giving said reports.                                                 

     The Common Stock issued in connection with the Acquisitions may not be sold
to the public and the holders of those shares are restricted from selling those 
shares to the public for a period of at least two years after consummation of   
the Acquisitions. The independent valuation study referred to in this Prospectus
and elsewhere in the Registration Statement was rendered to Group 1 Automotive  
to assist                                                                       

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Group 1 Automotive in determining the discount to be applied to the Common Stock
issued in connection with the Acquisitions by Willamette Management Associates, 
independent appraisers, and has been referred to herein in reliance upon the    
authority of such firm as experts in rendering said valuation study.            

AVAILABLE INFORMATION 

Group 1 Automotive has not previously been subject to the reporting   
requirements of the Securities Exchange Act of 1934, as amended. Group 1        
Automotive has filed with the Securities and Exchange Commission (the           
"Commission") a Registration Statement on Form S-1 (the "Registration           
Statement") under the Securities Act, with respect to the offer and sale of     
Common Stock pursuant to this Prospectus. This Prospectus, filed as a part of   
the Registration Statement, does not contain all of the information set forth in
the Registration Statement or the exhibits and schedules thereto in accordance  
with the rules and regulations of the Commission and reference is hereby made to
such omitted information. Statements made in this Prospectus concerning the     
contents of any contract, agreement or other document filed as an exhibit to the
Registration Statement are summaries of the terms of such contracts, agreements 
or documents and are not necessarily complete. Reference is made to each such   
exhibit for a more complete description of the matters involved and such        
statements shall be deemed qualified in their entirety by such reference. The   
Registration Statement and the exhibits and schedules thereto filed with the    
Commission may be inspected, without charge, and copies may be obtained at      
prescribed rates, at the public reference facility maintained by the Commission 
at its principal office at Judiciary Plaza, 450 Fifth Street, N.W., Washington, 
D.C. 20549 and at the regional offices of the Commission located at Seven World 
Trade Center, 13th Floor, New York, New York 10048 and Northwestern Atrium      
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. The       
Commission also maintains a Website (http://www.sec.gov) that contains reports, 
proxy and information statements and other information regarding registrants    
that file electronically with the Commission. For further information pertaining
to the Common Stock offered by this Prospectus and Group 1 Automotive, reference
is made to the Registration Statement.                                          

  Group 1 Automotive intends to furnish to its stockholders annual reports
containing audited financial statements certified by independent auditors and   
quarterly reports for the first three quarters of each fiscal year containing   
unaudited financial statements.                                                 

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INDEX OF DEFINED TERMS

The following is the first location of the defined terms used in this 
Prospectus.                                                                     

                                                                [Download Table]
                                                                   
Acquiring Person.................................................83
Acquisitions......................................................3
add-ons...........................................................5
American Honda...................................................15
American Isuzu...................................................15
Bob Howard Automall..............................................15
Bob Howard Dodge.................................................38
Bob Howard East...................................................8
Bylaws...........................................................23
CERCLA...........................................................68
Charter..........................................................23
Commission.......................................................89
Combined Company..................................................3
Committee........................................................75
Common Stock......................................................3
Credit Facility...................................................4
CSI..............................................................20
Date of Grant....................................................75
dealerships.......................................................3
DSL..............................................................10
F&I..............................................................62
Final Expiration Date............................................83
Ford Motor.......................................................15
Founding Companies................................................3
Founding Groups...................................................3
GM................................................................5
GMAC.............................................................44
Group 1 Automotive ...............................................3
Honda Motor......................................................15
Howard Group......................................................7
Kingwood Group....................................................7
Manufacturers....................................................15
McCall Group......................................................7
Mitsubishi Motor.................................................15
Nissan Motor.....................................................15
Nissan North America.............................................15
Offering..........................................................3
Option Period....................................................75
Plan.............................................................74
platforms.........................................................4
Preferred Shares.................................................82
Preferred Stock..................................................23
Purchase Plan....................................................75
Purchase Price...................................................82
Redemption Price.................................................84
Registration Statement...........................................89
Related Party Leases.............................................76
Right Certificate................................................83
Rights Agent.....................................................82
Rights Agreement.................................................82
Rights Plan......................................................82
Securities Act...................................................24
SMC Investment...................................................76
Smith Group.......................................................7
Stock Purchase Agreements........................................26
Toyota Motor.....................................................15
Tulsa Dealership..................................................8

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INDEX TO FINANCIAL PAGES

                                                                [Download Table]
                                                                  
Group 1 Automotive, Inc. -- Pro Forma Financial Information       
  Report of Independent Public Accountants..................   F-2
  Pro Forma Combined Statement of Operations December 31,         
     1996...................................................   F-3
  Pro Forma Combined Balance Sheet -- June 30, 1997.........   F-4
  Pro Forma Combined Statement of Operations -- June 30,          
     1997...................................................   F-5
  Notes to Pro Forma Financial Statements...................   F-6
Group 1 Automotive, Inc. -- Financial Statements                  
  Report of Independent Public Accountants..................  F-11
  Balance Sheets............................................  F-12
  Statements of Operations..................................  F-13
  Statements of Stockholders' Equity (Deficit)..............  F-14
  Statements of Cash Flows..................................  F-15
  Notes to Financial Statements.............................  F-16
Howard Group -- Combined Financial Statements                     
  Report of Independent Public Accountants..................  F-21
  Combined Balance Sheets...................................  F-22
  Combined Statements of Operations.........................  F-23
  Combined Statements of Stockholders' Equity...............  F-24
  Combined Statements of Cash Flows.........................  F-25
  Notes to Combined Financial Statements....................  F-26
McCall Group -- Combined Financial Statements                     
  Report of Independent Public Accountants..................  F-36
  Combined Balance Sheets...................................  F-37
  Combined Statements of Operations.........................  F-38
  Combined Statements of Stockholders' Deficit..............  F-39
  Combined Statements of Cash Flows.........................  F-40
  Notes to Combined Financial Statements....................  F-41
Smith Group -- Combined Financial Statements                      
  Report of Independent Public Accountants..................  F-54
  Combined Balance Sheets...................................  F-55
  Combined Statements of Operations.........................  F-56
  Combined Statements of Stockholders' Equity...............  F-57
  Combined Statements of Cash Flows.........................  F-58
  Notes to Combined Financial Statements....................  F-59

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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Group 1 Automotive, Inc.,                                                    

We have examined the pro forma adjustments reflecting the transactions
described in Note 2 and the application of those adjustments to the historical  
amounts in the accompanying pro forma combined statement of operations of Group 
1 Automotive, Inc. for the year ended December 31, 1996. The historical combined
statement of operations was derived from the historical financial statements of 
Group 1 Automotive, Inc., Howard Group, McCall Group and Smith Group, which were
audited by us, appearing elsewhere herein, and Kingwood Group, which was audited
by us and not separately presented herein. Such pro forma adjustments are based 
upon management's assumptions described in Notes 3, 4 and 5. Our examination was
made in accordance with standards established by the American Institute of      
Certified Public Accountants and, accordingly, included such procedures as we   
considered necessary in the circumstances.                                      

    In addition, we have reviewed the related pro forma adjustments reflecting
the transactions described in Note 2 and the application of those adjustments to
the historical amounts in the accompanying pro forma combined balance sheet of  
Group 1 Automotive, Inc. as of June 30, 1997, and the pro forma combined        
statement of operations for the six months then ended. These historical combined
financial statements were derived from the historical unaudited financial       
statements of Group 1 Automotive, Inc., Howard Group, McCall Group, and Smith   
Group which were reviewed by us, appearing elsewhere herein, and Kingwood Group,
which was reviewed by us, and not appearing elsewhere herein. Such pro forma    
adjustments are based on management's assumptions as described in Notes 3, 4 and
5. Our review was conducted in accordance with standards established by the     
American Institute of Certified Public Accountants.                             

   The objective of this pro forma financial information is to show what the
significant effects on the historical information might have been had the       
transaction occurred at an earlier date. However, the pro forma combined        
financial statements are not necessarily indicative of the results of operations
or related effects on financial position that would have been attained had the  
above-mentioned transaction actually occurred earlier.                          

 In our opinion, management's assumptions provide a reasonable basis for
presenting the significant effects directly attributable to the above-mentioned 
transaction described in Note 2, the related pro forma adjustments give         
appropriate effect to those assumptions, and the pro forma column reflects the  
proper application of those adjustments to the historical financial statement   
amounts in the pro forma combined statement of operations for the year ended    
December 31, 1996.                                                              

    A review is substantially less in scope than an examination, the objective
of which is the expression of an opinion on management's assumptions, the pro   
forma adjustments and the application of those adjustments to historical        
financial information. Accordingly, we do not express such an opinion on the pro
forma adjustments or the application of such adjustments to the pro forma       
combined balance sheet as of June 30, 1997, and the pro forma combined statement
of operations for the six months then ended. Based on our review, however,      
nothing came to our attention that caused us to believe that management's       
assumptions do not provide a reasonable basis for presenting the significant    
effects directly attributable to the above mentioned transaction described in   
Note 2, that the related pro forma adjustments do not give appropriate effect to
those assumptions, or that the pro forma and as adjusted columns do not reflect 
the proper application of those adjustments to the historical financial         
statement amounts in the pro forma combined balance sheet as of June 30, 1997,  
and the pro forma combined statement of operations for the six months then      
ended.                                                                          

Arthur Andersen LLP                                                             
Houston, Texas                                                                  
October 29, 1997                                                                

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GROUP 1 AUTOMOTIVE, INC. AND FOUNDING GROUPS

PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996

                                                        [Enlarge/Download Table]


                                              GROUP 1       HOWARD         MCCALL         SMITH        KINGWOOD        TOTAL     
                                              --------   ------------   ------------   ------------   -----------   ------------ 
                                                                                                                                 
REVENUES:                                                                                                                        
New vehicle sales............................ $    --    $164,978,710   $166,381,686   $124,173,950   $13,783,723   $469,318,069 
Used vehicle sales...........................      --      88,477,330     90,895,516     60,579,545    18,074,591    258,026,982 
Parts & service sales........................      --      21,173,371     24,454,187     28,630,577     2,925,513     77,183,648 
Other dealership revenues, net...............      --       7,386,747      6,810,908      4,895,329     1,165,553     20,258,537 
                                              --------   ------------   ------------   ------------   -----------   ------------ 
    Total revenues...........................      --     282,016,158    288,542,297    218,279,401    35,949,380    824,787,236 
COST OF SALES................................      --     244,396,047    249,560,060    189,169,263    30,640,004    713,765,374 
                                              --------   ------------   ------------   ------------   -----------   ------------ 
    Gross Profit.............................      --      37,620,111     38,982,237     29,110,138     5,309,376    111,021,862 
GOODWILL AMORTIZATION........................      --          36,982             --         67,015            --        103,997 
SELLING, GENERAL AND ADMINISTRATIVE                                                                                              
  EXPENSES...................................  95,008      30,731,251     35,072,460     23,643,889     3,997,111     93,539,719 
                                              --------   ------------   ------------   ------------   -----------   ------------ 
    Income (loss) from operations............ (95,008)      6,851,878      3,909,777      5,399,234     1,312,265     17,378,146 
OTHER INCOME AND EXPENSE                                                                                                         
Interest expense, net........................      --      (1,193,810)    (2,747,719)    (1,710,157)     (439,164)    (6,090,850)
Other Income (expense), net..................      --         (69,328)       (45,094)       222,470        66,957        175,005 
                                              --------   ------------   ------------   ------------   -----------   ------------ 
    INCOME (LOSS) BEFORE INCOME TAXES........ (95,008)      5,588,740      1,116,964      3,911,547       940,058     11,462,301 
PROVISION FOR INCOME TAXES...................                 381,752        177,772        677,751        41,015      1,278,290 
                                              --------   ------------   ------------   ------------   -----------   ------------ 
    NET INCOME (LOSS)........................ $(95,008)  $  5,206,988   $    939,192   $  3,233,796   $   899,043   $ 10,184,011 
                                              ========   ============   ============   ============   ===========   ============ 
                                                                                                              Earnings Per Share 
                                                                                             Weighted average shares outstanding 


                                               PRO FORMA                     % OF                                                
                                              ADJUSTMENTS    PRO FORMA     REVENUES                                              
                                              -----------   ------------   --------                                              
                                                                                                                                 
REVENUES:                                                                                                                        
New vehicle sales............................ $       --    $469,318,069      56.8%                                              
Used vehicle sales...........................         --     258,026,982      31.3%                                              
Parts & service sales........................         --      77,183,648       9.3%                                              
Other dealership revenues, net...............   (858,864)     21,117,401       2.6%                                              
                                              -----------   ------------    ------                                               
    Total revenues...........................   (858,864)    825,646,100     100.0%                                              
COST OF SALES................................   (992,988)    712,772,386      86.3%                                              
                                              -----------   ------------    ------                                               
    Gross Profit............................. (1,851,852)    112,873,714      13.7%                                              
GOODWILL AMORTIZATION........................    749,359         853,356       0.1%                                              
SELLING, GENERAL AND ADMINISTRATIVE                                                                                              
  EXPENSES...................................    (29,487)     93,510,232      11.4%                                              
                                              -----------   ------------    ------                                               
    Income (loss) from operations............ (1,131,980)     18,510,126       2.2%                                              
OTHER INCOME AND EXPENSE                                                                                                         
Interest expense, net........................ (2,843,397)     (3,247,453)     (0.4)%                                             
Other Income (expense), net..................         --         175,005       0.1%                                              
                                              -----------   ------------    ------                                               
    INCOME (LOSS) BEFORE INCOME TAXES........ (3,975,377)     15,437,678       1.9%                                              
PROVISION FOR INCOME TAXES...................  5,156,668       6,434,958       0.8%                                              
                                              -----------   ------------    ------                                               
    NET INCOME (LOSS)........................ $1,181,291    $  9,002,720       1.1%                                              
                                              ===========   ============    ======                                               
                                                            $        .63                                                         
                                                            ============                                                         
                                                              14,381,508                                                         
                                                            ============                                                         

The accompanying notes are an integral part of these
pro forma combined financial statements 

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GROUP 1 AUTOMOTIVE, INC. AND FOUNDING GROUPS

PRO FORMA COMBINED BALANCE SHEET
JUNE 30, 1997 
(UNAUDITED) 

                                                        [Enlarge/Download Table]


                                     GROUP 1       HOWARD        MCCALL         SMITH       KINGWOOD       TOTAL     
                                    ----------   -----------   -----------   -----------   -----------  ------------ 
                                                                                                                     
CURRENT ASSETS:                                                                                                      
 Cash and cash equivalents......... $   10,344   $ 9,936,653   $10,427,402   $ 9,405,257   $ 1,936,862  $ 31,716,518 
 Accounts receivable, net..........         --     6,200,606     2,689,166     4,876,051       613,847    14,379,670 
 Due from affiliates...............         --            --     1,062,854            --            --     1,062,854 
 Inventories.......................         --    45,202,216    15,025,873    33,099,771     5,806,901    99,134,761 
 Notes receivable, net.............         --            --       340,523            --       482,683       823,206 
 Prepaid expenses..................         --       889,780       151,675       641,495       171,133     1,854,083 
 Deferred income tax benefit.......         --            --     1,735,044       182,081        35,967     1,953,092 
                                    ----------   -----------   -----------   -----------   -----------  ------------ 
       Total current assets........     10,344    62,229,255    31,432,537    48,204,655     9,047,393   150,924,184 
PROPERTY AND EQUIPMENT, net........     52,480     3,820,115     3,924,236     9,935,715     4,299,315    22,031,861 
NOTES RECEIVABLE...................         --       513,585            --            --       891,578     1,405,163 
DEFERRED INCOME TAX BENEFIT........         --            --       104,882            --            --       104,882 
GOODWILL, net......................         --     1,436,473            --     2,281,636       330,004     4,048,113 
OTHER ASSETS.......................  2,783,868       731,069     1,887,640       550,452        48,369     6,001,398 
                                    ----------   -----------   -----------   -----------   -----------  ------------ 
       Total assets................ $2,846,692   $68,730,497   $37,349,295   $60,972,458   $14,616,659  $184,515,601 
                                    ==========   ===========   ===========   ===========   ===========  ============ 
CURRENT LIABILITIES:                                                                                                 
 Floor plan notes payable.......... $       --   $37,816,102   $20,216,458   $33,522,252   $ 5,945,717  $ 97,500,529 
 Current maturities of long-term                                                                                     
   debt............................         --        21,659        78,736     1,034,180       171,288     1,305,863 
 Due to affiliates.................  1,067,384            --     1,082,574            --            --     2,149,958 
 Deferred income taxes.............         --       401,972            --            --            --       401,972 
 Accounts payable and accrued                                                                                        
   expenses........................  3,466,325    18,864,797    15,732,890     9,272,030     1,340,850    48,676,892 
                                    ----------   -----------   -----------   -----------   -----------  ------------ 
       Total current liabilities...  4,533,709    57,104,530    37,110,658    43,828,462     7,457,855   150,035,214 
LONG-TERM DEBT, net of current                                                                                       
 maturities........................         --       153,661       576,330     4,493,037     2,996,756     8,219,784 
LONG-TERM DEFERRED INCOME TAXES....         --        58,604            --       197,611         8,288       264,503 
OTHER LONG-TERM LIABILITIES........         --       586,724       412,124            --       594,641     1,593,489 
COMMITMENTS AND CONTINGENCIES......         --            --            --            --            --            -- 
STOCKHOLDERS' EQUITY (DEFICIT):                                                                                      
 Common stock......................      4,500       491,500        71,278         3,090         2,756       573,124 
 Additional paid-in capital........      4,995     6,622,802     3,222,043     6,369,228       919,325    17,138,393 
 Treasury stock, at cost...........          0      (808,798)           --      (395,297)           --    (1,204,095)
 Retained earnings (deficit)....... (1,696,512)    4,521,474    (4,043,138)    6,476,327     2,637,038     7,895,189 
                                    ----------   -----------   -----------   -----------   -----------  ------------ 
       Total stockholders' equity                                                                                    
         (deficit)................. (1,687,017)   10,826,978      (749,817)   12,453,348     3,559,119    24,402,611 
                                    ----------   -----------   -----------   -----------   -----------  ------------ 
       Total liabilities and                                                                                         
         stockholders' equity...... $2,846,692   $68,730,497   $37,349,295   $60,972,458   $14,616,659  $184,515,601 
                                    ==========   ===========   ===========   ===========   ===========  ============ 


                                                                      POST                                           
                                     PRO FORMA                       MERGER           AS                             
                                    ADJUSTMENTS     PRO FORMA     ADJUSTMENTS      ADJUSTED                          
                                    -----------    ------------   ------------   ------------                        
                                                                                                                     
CURRENT ASSETS:                                                                                                      
 Cash and cash equivalents......... $ (3,909,261)  $ 27,807,257   $  4,157,000   $ 31,964,257                        
 Accounts receivable, net..........           --     14,379,670             --     14,379,670                        
 Due from affiliates...............   (1,062,854)            --             --             --                        
 Inventories.......................    8,124,770    107,259,531             --    107,259,531                        
 Notes receivable, net.............           --        823,206             --        823,206                        
 Prepaid expenses..................           --      1,854,083             --      1,854,083                        
 Deferred income tax benefit.......   (1,953,092)            --             --             --                        
                                    ------------   ------------   ------------   ------------                        
       Total current assets........    1,199,563    152,123,747      4,157,000    156,280,747                        
PROPERTY AND EQUIPMENT, net........   (2,000,000)    20,031,861             --     20,031,861                        
NOTES RECEIVABLE...................           --      1,405,163             --      1,405,163                        
DEFERRED INCOME TAX BENEFIT........     (104,882)            --             --             --                        
GOODWILL, net......................   27,878,608     31,926,721             --     31,926,721                        
OTHER ASSETS.......................   (1,067,383)     4,934,015     (4,168,868)       765,147                        
                                    ------------   ------------   ------------   ------------                        
       Total assets................ $ 25,905,906   $210,421,507   $    (11,868)  $210,409,639                        
                                    ============   ============   ============   ============                        
CURRENT LIABILITIES:                                                                                                 
 Floor plan notes payable.......... $         --   $ 97,500,529   $ 35,542,460   $ 61,958,069                        
 Current maturities of long-term                                                                                     
   debt............................           --      1,305,863             --      1,305,863                        
 Due to affiliates.................   (3,300,042)     5,450,000      5,450,000             --                        
 Deferred income taxes.............      377,975         23,997             --         23,997                        
 Accounts payable and accrued                                                                                        
   expenses........................      282,540     48,394,352      3,435,868     44,958,484                        
                                    ------------   ------------   ------------   ------------                        
       Total current liabilities...   (2,639,527)   152,674,741     44,428,328    108,246,413                        
LONG-TERM DEBT, net of current                                                                                       
 maturities........................           --      8,219,784             --      8,219,784                        
LONG-TERM DEFERRED INCOME TAXES....     (179,177)       443,680             --        443,680                        
OTHER LONG-TERM LIABILITIES........           --      1,593,489             --      1,593,489                        
COMMITMENTS AND CONTINGENCIES......           --             --             --             --                        
STOCKHOLDERS' EQUITY (DEFICIT):                                                                                      
 Common stock......................      477,874         95,250        (44,281)       139,531                        
 Additional paid-in capital........  (34,250,513)    51,388,906    (44,372,179)    95,761,085                        
 Treasury stock, at cost...........   (1,204,095)            --                                                      
 Retained earnings (deficit).......   11,889,532     (3,994,343)            --     (3,994,343)                       
                                    ------------   ------------   ------------   ------------                        
       Total stockholders' equity                                                                                    
         (deficit).................  (23,087,202)    47,489,813    (44,416,460)    91,906,273                        
                                    ------------   ------------   ------------   ------------                        
       Total liabilities and                                                                                         
         stockholders' equity...... $(25,905,906)  $210,421,507   $     11,868   $210,409,639                        
                                    ============   ============   ============   ============                        

The accompanying notes are an integral part of these
pro forma combined financial statements 

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GROUP 1 AUTOMOTIVE, INC. AND FOUNDING GROUPS

PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED) 

                                                        [Enlarge/Download Table]


                                       GROUP 1        HOWARD         MCCALL         SMITH        KINGWOOD        TOTAL     
                                     -----------   ------------   ------------   ------------   -----------   ------------ 
                                                                                                                           
REVENUES:                                                                                                                  
New vehicle sales................... $        --   $ 84,922,460   $ 81,608,967   $ 75,203,290   $10,094,813   $251,829,530 
Used vehicle sales..................          --     54,353,896     49,796,182     35,153,070     9,264,009    148,567,157 
Parts & service sales...............          --     10,762,746     12,304,906     14,081,839     1,250,878     38,400,369 
Other dealership revenues, net......          --      4,006,206      3,242,694      3,020,378       634,250     10,903,528 
                                     -----------   ------------   ------------   ------------   -----------   ------------ 
    Total revenues..................          --    154,045,308    146,952,749    127,458,577    21,243,950    449,700,584 
COST OF SALES.......................          --    134,130,539    127,275,652    109,913,986    18,275,231    389,595,408 
                                     -----------   ------------   ------------   ------------   -----------   ------------ 
    Gross Profit....................          --     19,914,769     19,677,097     17,544,591     2,968,719     60,105,176 
GOODWILL AMORTIZATION...............          --         20,360             --         28,008         4,176         52,544 
SELLING, GENERAL AND ADMINISTRATIVE                                                                                        
  EXPENSES..........................   1,572,250     16,432,893     17,545,957     13,817,849     2,415,797     51,784,746 
                                     -----------   ------------   ------------   ------------   -----------   ------------ 
    Income (loss) from operations...  (1,572,250)     3,461,516      2,131,140      3,698,734       548,746      8,267,886 
OTHER INCOME AND EXPENSE                                                                                                   
Interest expense, net...............     (25,155)      (807,954)      (503,525)      (940,371)      (93,016)    (2,370,021)
Other income (expense), net.........         396         34,079        (34,029)       (19,035)           --        (18,589)
                                     -----------   ------------   ------------   ------------   -----------   ------------ 
    INCOME (LOSS) BEFORE INCOME                                                                                            
      TAXES.........................  (1,597,009)     2,687,641      1,593,586      2,739,328       455,730      5,879,276 
PROVISION (BENEFIT) FOR INCOME                                                                                             
  TAXES.............................          --        165,617        637,435        531,563        20,508      1,355,123 
                                     -----------   ------------   ------------   ------------   -----------   ------------ 
    NET INCOME (LOSS)............... $(1,597,009)  $  2,522,024   $    956,151   $  2,207,765   $   435,222   $  4,524,153 
                                     ===========   ============   ============   ============   ===========   ============ 
                                                                                                        Earnings Per Share 
                                                                                       Weighted average shares outstanding 


                                      PRO FORMA                     % OF                                                   
                                     ADJUSTMENTS    PRO FORMA     REVENUES                                                 
                                     -----------   ------------   --------                                                 
                                                                                                                           
REVENUES:                                                                                                                  
New vehicle sales................... $       --    $251,829,530     55.9%                                                  
Used vehicle sales..................         --     148,567,157     33.0%                                                  
Parts & service sales...............         --      38,400,369      8.5%                                                  
Other dealership revenues, net......   (642,019)     11,545,547      2.6%                                                  
                                     -----------   ------------    -----                                                   
    Total revenues..................   (642,019)    450,342,603    100.0%                                                  
COST OF SALES.......................   (502,636)    389,092,772     86.4%                                                  
                                     -----------   ------------    -----                                                   
    Gross Profit.................... (1,144,655)     61,249,831     13.6%                                                  
GOODWILL AMORTIZATION...............    346,540         399,084      0.1%                                                  
SELLING, GENERAL AND ADMINISTRATIVE                                                                                        
  EXPENSES..........................   (919,737)     50,865,009     11.3%                                                  
                                     -----------   ------------    -----                                                   
    Income (loss) from operations... (1,717,852)      9,985,738      2.2%                                                  
OTHER INCOME AND EXPENSE                                                                                                   
Interest expense, net............... (1,421,698)       (948,323)     0.2%                                                  
Other income (expense), net.........         --         (18,589)     0.0                                                   
                                     -----------   ------------    -----                                                   
    INCOME (LOSS) BEFORE INCOME                                                                                            
      TAXES......................... (3,139,550)      9,018,826      2.0%                                                  
PROVISION (BENEFIT) FOR INCOME                                                                                             
  TAXES.............................  2,364,953       3,720,076      0.8%                                                  
                                     -----------   ------------    -----                                                   
    NET INCOME (LOSS)............... $ (774,597)   $  5,298,750      1.2%                                                  
                                     ===========   ============    =====                                                   
                                                   $       0.37                                                            
                                                   ============                                                            
                                                     14,381,508                                                            
                                                   ============                                                            

The accompanying notes are an integral part of these
pro forma combined financial statements 

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GROUP 1 AUTOMOTIVE, INC. AND FOUNDING GROUPS

NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS

1. GROUP 1 AUTOMOTIVE, INC.                                                     

Group 1 Automotive, Inc. has conducted no operations to date and will 
acquire the Founding Groups immediately prior to the closing of the Offering.   

2. BASIS OF PRESENTATION                                                        

     The pro forma combined financial statements give effect to the acquisitions
by Group 1 Automotive, Inc. (Group 1), of substantially all of the net assets of
(a) Howard Group (Howard), (b) McCall Group (McCall), (c) Smith Group (Smith)   
and (d) Kingwood Group (Kingwood), (together, the Founding Groups) and the      
initial public offering of 4,428,136 shares of the common stock of Group 1.     
Group 1 and the Founding Groups are hereinafter referred to as the Company.     
These acquisitions (the Acquisitions) will occur immediately prior to the       
closing of Group 1's public offering (the Offering) and will be accounted for   
using the purchase method of accounting. Howard, one of the Founding Groups, has
been identified as the acquiror for financial statement presentation purposes in
accordance with SAB No. 97 as it will hold the single largest voting interest   
subsequent to the Acquisitions. The pro forma combined financial statements also
give effect to the issuance of Common Stock, which will be issued by Group 1 to 
the sellers of the Founding Groups immediately prior to the Offering. These     
statements are based on the historical financial statements of the Founding     
Groups included elsewhere in this Prospectus (except Kingwood, which has been   
excluded as it is not a significant subsidiary under SAB No. 80) and the        
estimates and assumptions set forth below.                                      

 The pro forma combined balance sheet gives effect to these transactions
(the Acquisitions and the Offering) as if they had occurred on June 30, 1997.   
The pro forma combined statements of operations for the year ended December 31, 
1996 and the six months ended June 30, 1997 give effect to these transactions as
if they had occurred at the beginning of the periods (January 1, 1996 and       
January 1, 1997, respectively).                                                 

Included in the pro forma combined balance sheet and statement of     
operations are amounts related to Honda and Acura dealerships (See "Risk        
Factors -- Restrictions Imposed by Agreement with American Honda Motor Co.,     
Inc."). These dealerships represent, as of June 30, 1997, current assets of     
approximately $19.4 million, total assets of approximately $20.9 million,       
current liabilities of approximately $17.9 million and total liabilities of     
approximately $18.3 million. Additionally, these dealerships contributed        
revenues of approximately $63.0 million and $123.3 million and income before    
income taxes of approximately $1.3 million and $3.3 million for the six months  
ended June 30, 1997 and the year ended December 31, 1996, respectively.         

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GROUP 1 AUTOMOTIVE, INC. AND FOUNDING GROUPS

NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED) 

3. CONSIDERATION PAID TO FOUNDING GROUPS                                        

     The following table sets forth for each Founding Group the consideration to
be paid its common stockholders in shares of Common Stock.                      

                                                                [Download Table]

                                          SHARES       FAIR VALUE(1)
                                         ---------     -------------
                                                                    
Howard Group...........................  3,570,302(2)  $ 27,848,356 
McCall Group...........................  2,318,826       18,086,843 
Smith Group............................  2,725,933       22,824,106 
Kingwood Group.........................    459,853        3,586,853 
                                         ---------     ------------ 
          Total........................  9,074,914     $ 72,346,158 
                                         =========     ============ 

---------------                                                                 

(1) Excludes $2.3 million and $3.1 million in cash consideration to be paid to  
Howard and Kingwood Groups, respectively.                               

(2) Includes 592,303 shares of Common Stock issued to an owner of the Howard    
Group which will be held in escrow and distributed pro rata to the      
    stockholders of the Founding Groups if the Combined Company's acquisition of
   the Chevrolet dealership in Tulsa, Oklahoma is not consummated with General
    Motors' approval within two years of the Offering. The pro rata distribution
 will be allocated among the Founding Groups as follows: the McCall Group,
  161,913 shares; the Smith Group, 190,340 shares; the Howard Group, 207,940
shares; and the Kingwood Group, 32,110 shares.                          

   Since the Howard Group is the accounting acquiror for financial statement
presentation purposes, the pro forma combined financial statements do not give  
effect to the value of the 592,303 shares of stock which are held in escrow and 
may be issued to a stockholder of the Howard Group upon the Combined Company's  
acquisition of the Chevrolet dealership in Tulsa, Oklahoma. However, the shares 
held in escrow have been included in determining the weighted average shares    
outstanding for the year ended December 31, 1996 and the six months ended June  
30, 1997 since those shares will continue to be outstanding even if the Combined
Company is unable to acquire the Chevrolet dealership. In the event that the    
acquisition is not completed, the shares which are held in escrow will be       
distributed pro rata to the stockholders of the Founding Groups and will be     
treated as contingent consideration in accordance with APB 16 "Business         
Combinations". Based on the allocation of these shares to the stockholders, the 
Company would recognize additional goodwill of approximately $3.0 million in    
conjunction with the acquisitions.                                              

 The holders of approximately 8,703,050 shares of Common Stock issued in
payment of the Acquisitions have agreed not to offer, sell or otherwise dispose 
of any of those shares for a period of two years after the Offering and do not  
have registration rights. The fair value of these shares reflects this          
restriction. The remaining 371,864 shares of Common Stock issued in payment of  
the Acquisitions will be sold by a shareholder at the date of the offering, and 
accordingly, the value of those shares has not been adjusted from the Offering  
price.                                                                          

  Based upon management's preliminary analysis, it is anticipated that the
historical carrying value of the Founding Groups' assets and liabilities will   
approximate fair value. The amount of goodwill subsequent to the Acquisitions is
$31.9 million, with $30.5 million attributable to the acquisitions, and $1.4    
million attributable to the existing goodwill of the Howard Group, the          
accounting acquiror. The Company will use an estimated life of 40 years for the 
amortization of goodwill. Management of Group 1 has not identified any other    
material tangible or identifiable intangible assets of the Founding Groups to   
which a portion of the purchase price could reasonably be allocated.            

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GROUP 1 AUTOMOTIVE, INC. AND FOUNDING GROUPS

NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED) 

4. PRO FORMA COMBINED STATEMENT OF OPERATIONS ADJUSTMENTS FOR THE YEAR ENDED    
DECEMBER 31, 1996 AND THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED):     

     The following tables set forth the components of the pro forma statement of
operations adjustments:                                                         

                                                        [Enlarge/Download Table]

                                                                DECEMBER 31, 1996                                      
                            ------------------------------------------------------------------------------------------ 
                                (A)         (B)          (C)          (D)           (E)          (F)          TOTAL    
                            -----------   --------   -----------   ----------   -----------   ----------   ----------- 
                                                                                                                       
Other dealership revenues,                                                                                             
  net...................... $  (858,864)  $          $             $            $             $            $  (858,864)
Cost of sales..............    (992,988)                                                                      (992,988)
Goodwill amortization......                749,359                                                             749,359 
Selling, general and                                                                                                   
  administrative                                                                                                       
  expenses.................                           (3,179,487)   3,150,000                                  (29,487)
Interest expense, net......                                                      (2,843,397)                (2,843,397)
Provision for income                                                                                                   
  taxes....................                                                                    5,156,668     5,156,668 
                            -----------   --------   -----------   ----------   -----------   ----------   ----------- 
                            $(1,851,852)  $749,359   $(3,179,487)  $3,150,000   $(2,843,397)  $5,156,668   $ 1,181,291 
                            ===========   ========   ===========   ==========   ===========   ==========   =========== 

                                                        [Enlarge/Download Table]

                                                                  JUNE 30, 1997                                        
                                                                   (UNAUDITED)                                         
                            ------------------------------------------------------------------------------------------ 
                                (A)         (B)          (C)          (D)           (E)          (F)          TOTAL    
                            -----------   --------   -----------   ----------   -----------   ----------   ----------- 
                                                                                                                       
Other dealership revenues,                                                                                             
  net...................... $  (642,019)  $          $             $            $             $            $  (642,019)
Cost of sales..............    (502,636)                                                                      (502,636)
Goodwill amortization......                346,540                                                             346,540 
Selling, general and                                                                                                   
  administrative                                                                                                       
  expenses.................                             (919,737)                                             (919,737)
Interest expense, net......                                                      (1,421,698)                (1,421,698)
Provision for income                                                                                                   
  taxes....................                                                                    2,364,953     2,364,953 
                            -----------   --------   -----------   ----------   -----------   ----------   ----------- 
                            $(1,144,655)  $346,540   $  (919,737)  $       --   $(1,421,698)  $2,364,953   $  (774,597)
                            ===========   ========   ===========   ==========   ===========   ==========   =========== 

     (a) Records increases in revenues and decreases in cost of sales related to
certain third party products sold by the dealerships. The owners of one of the  
Founding Groups currently have agreements in place which decrease the fees and  
commissions paid to the dealerships for sales of certain finance and insurance  
products and increase the cost of certain aftermarket products. The amounts     
withheld are paid directly to the owners of the Founding Groups. Upon completion
of the Offering, such agreements will be terminated and the dealerships will    
recognize an immediate increase in revenues and decreases in cost of sales      
related to the products sold. The adjustments were determined based on the      
actual cash payments to the owners during the period.                           

   (b) Records the pro forma goodwill amortization expense over an estimated
useful life of 40 years.                                                        

(c) Adjusts compensation expense and management fees to the level that
certain management employees and owners of the Founding Groups will             
contractually receive subsequent to the closing of the Acquisitions.            

(d) Records incremental corporate overhead costs related to personnel 
costs, rents, professional service fees and directors and officers liability    
insurance premiums that are supported by employment agreements, lease           
agreements, professional service firm fee quotes and a premium notification.    
Does not include other costs such as additional personnel, employee benefits and
office expenses.                                                                

   (e) Records the pro forma decrease in interest expense resulting from the
repayment of floorplan obligations with proceeds from the offering in the amount
of $35.5 million with a weighted average interest rate of 8.0%.                 

  (f) Records the incremental provision for federal and state income taxes
relating to the compensation differential, S corporation income and other pro   
forma adjustments.                                                              

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GROUP AUTOMOTIVE, INC. AND FOUNDING GROUPS

NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED) 

5. UNAUDITED PRO FORMA COMBINED BALANCE SHEET ADJUSTMENTS:                      

 The following tables set forth the components of the pro forma and post
merger adjustments as of June 30, 1997:                                         

Pro Forma Adjustments                                                       

                                                        [Enlarge/Download Table]


                                      (A)           (B)           (C)            (D)            (E)           (F)     
                                  -----------   -----------   ------------   ------------   -----------   ----------- 
                                                                                                                      
ASSETS:                                                                                                               
Cash and cash equivalents........ $(6,157,000)  $             $              $              $             $   (19,720)
Due from affiliates..............                                                                          (1,062,854)
Inventories......................                                3,704,416      4,420,354                             
Deferred income tax benefit......                   753,150                                                           
Property and equipment, net......                                                                                     
Deferred income tax benefit......                                                               205,625               
Goodwill, net....................                                8,537,502     16,118,997     3,222,109               
Other assets.....................                                                                                     
LIABILITIES AND STOCKHOLDERS                                                                                          
 EQUITY:                                                                                                              
Due to affiliates................                (2,300,000)                                 (3,149,999)    1,082,574 
Deferred income taxes............                               (1,014,160)    (1,702,691)                            
Accounts Payable and accrued                                                                                          
 expenses........................     800,000                                                  (250,001)              
Long-term deferred income                                                                                             
 taxes...........................                  (101,100)                                                          
Common stock.....................                   455,796        (24,169)        48,090        (1,843)              
Additional paid-in capital.......                  (318,353)   (16,427,619)   (14,841,612)   (2,662,929)              
Treasury stock, at cost..........                  (808,798)      (395,297)                                           
Retained earnings (deficit)......   5,357,000     2,319,305      5,619,327     (4,043,138)    2,637,038               
                                  -----------   -----------   ------------   ------------   -----------   ----------- 
                                  $        --   $        --   $         --   $         --   $        --   $        -- 
                                  ===========   ===========   ============   ============   ===========   =========== 


                                                               PRO FORMA                                              
                                      (G)           (H)       ADJUSTMENTS                                             
                                  -----------   -----------   ------------                                            
                                                                                                                      
ASSETS:                                                                                                               
Cash and cash equivalents........ $ 2,000,000   $   267,459   $ (3,909,261)                                           
Due from affiliates..............                               (1,062,854)                                           
Inventories......................                                8,124,770                                            
Deferred income tax benefit......                (2,706,242)    (1,953,092)                                           
Property and equipment, net......  (2,000,000)                  (2,000,000)                                           
Deferred income tax benefit......                  (310,507)      (104,882)                                           
Goodwill, net....................                               27,878,608                                            
Other assets.....................                (1,067,383)    (1,067,383)                                           
LIABILITIES AND STOCKHOLDERS                                                                                          
 EQUITY:                                                                                                              
Due to affiliates................                 1,067,383     (3,300,042)                                           
Deferred income taxes............                 3,094,826        377,975                                            
Accounts Payable and accrued                                                                                          
 expenses........................                  (267,459)       282,540                                            
Long-term deferred income                                                                                             
 taxes...........................                   (78,077)      (179,177)                                           
Common stock.....................                                  477,874                                            
Additional paid-in capital.......                              (34,250,513)                                           
Treasury stock, at cost..........                               (1,204,095)                                           
Retained earnings (deficit)......                               11,889,532                                            
                                  -----------   -----------   ------------                                            
                                  $        --   $        --   $         --                                            
                                  ===========   ===========   ============                                            

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GROUP AUTOMOTIVE, INC. AND FOUNDING GROUPS

NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED) 

(a) Records distribution of three Founding Groups' S-Corporation      
Accumulated Adjustment Accounts.                                                

   (b) Records the acquisition of the Howard Group (the accounting acquiror)
in exchange for the common stock of Group 1 and the accrued cash portion of the 
purchase price to be paid from the offering proceeds, the conversion of the     
S-Corporations of the Howard Group to C-Corporations upon completion of the     
Acquisitions and the recognition of certain deferred tax assets of Group 1 which
were previously reserved due to uncertainty of realization.                     

  (c)(d)(e) Records the acquisition of the Founding Groups in exchange for
the common stock of Group 1 and the accrued cash portion of the purchase price  
to be paid from the offering proceeds. The following table sets forth the       
goodwill recorded after the adjustment of the basis of certain assets and       
liabilities upon allocation of the purchase price (including amounts            
attributable to deferred tax assets and liabilities, and the adjustment of      
inventory to fair value).                                                       

                                                        [Enlarge/Download Table]

                                                                               KINGWOOD 
                                                   SMITH GROUP  MCCALL GROUP    GROUP   
                                                   -----------  ------------  ----------
                                                                                        
Estimated total consideration:                                                          
Cash.............................................  $        --   $        --  $3,100,000
Note Payable.....................................           --            --     300,000
Common Stock.....................................   22,824,106    18,086,843   3,586,853
                                                   -----------   -----------  ----------
          Total..................................   22,824,106    18,086,843   6,986,853
Less: Fair value of tangible net tangible assets                                        
  acquired.......................................   14,286,604     1,967,846   3,764,744
                                                   -----------   -----------  ----------
Excess of purchase price over net tangible assets                                       
  acquired.......................................  $ 8,537,502   $16,118,997  $3,222,109
                                                   ===========   ===========  ==========

(f) Records the settlement of certain related party payables and      
receivables by owners of the Founding Groups.                                   

     (g) Records the sale of certain nonoperating assets to one of the owners of
a Founding Group at a price that approximates market.                           

     (h) Records the reclassification of deferred tax assets and liabilities for
financial reporting purposes and the elimination of intercompany advances from  
the Founding Groups to Group 1 upon acquisition.                                

Post Merger Adjustments                                                     

                                                        [Enlarge/Download Table]

                                      (I)            (J)           (K)           TOTAL     
                                  ------------   -----------   ------------   ------------ 
                                                                                           
Cash and cash equivalents........ $ 45,149,460   $(5,450,000)  $(35,542,460)  $  4,157,000 
Other assets.....................   (4,168,868)                                 (4,168,868)
Floor plan notes payable.........                                35,542,460     35,542,460 
Due to affiliates................                  5,450,000                     5,450,000 
Accounts payable and accrued                                                               
  expenses.......................    3,435,868                                   3,435,868 
Common stock.....................      (44,281)                                    (44,281)
Additional paid-in capital.......  (44,372,179)                                (44,372,179)
                                  ------------   -----------   ------------   ------------ 
                                  $         --   $        --   $         --   $         -- 
                                  ============   ===========   ============   ============ 

   (i) Records the proceeds from the issuance of 4,428,136 shares of Group 1
Automotive, Inc. common stock net of estimated offering costs (based on an      
assumed initial public offering price of $12 per share). Offering costs consist 
primarily of underwriting discounts and commissions, accounting fees, legal fees
and printing expenses.                                                          

(j) Records the settlement of the accrued cash portion of the purchase
price.                                                                          

   (k) Records the repayment of floorplan obligations with proceeds from the
offering.                                                                       

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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Group 1 Automotive, Inc.:                                                    

     We have audited the accompanying balance sheets of Group 1 Automotive, Inc.
(a Delaware corporation) (the Company) as of December 31, 1995 and 1996 and the 
related statements of operations, stockholders' equity (deficit) and cash flows 
for the period from Inception (December 21, 1995) to December 31, 1995, and for 
the year ended December 31, 1996. These financial statements are the            
responsibility of the Company's management. Our responsibility is to express an 
opinion on these financial statements based on our audits.                      

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain 
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting 
the amounts and disclosures in the financial statements. An audit also includes 
assessing the accounting principles used and significant estimates made by      
management, as well as evaluating the overall financial statement presentation. 
We believe that our audits provide a reasonable basis for our opinion.          

    In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Company as of December  
31, 1995 and 1996, and the results of its operations and cash flows for the     
period from Inception to December 31, 1995 and for the year ended December 31,  
1996 in conformity with generally accepted accounting principles.               

ARTHUR ANDERSEN LLP                                                             
Houston, Texas                                                                  
October 29, 1997                                                                

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GROUP 1 AUTOMOTIVE, INC.

BALANCE SHEETS

ASSETS

                                                        [Enlarge/Download Table]

                                                             DECEMBER 31,                     
                                                     ----------------------------   JUNE 30,  
                                                         1995            1996         1997    
                                                     ------------    ------------  ---------- 
                                                                                   (UNAUDITED)
                                                                                              
CURRENT ASSETS:                                                                               
  Cash and cash equivalents.........................   $    500        $  7,769    $   10,344 
                                                       --------        --------    ---------- 
          Total current assets......................        500           7,769        10,344 
PROPERTY AND EQUIPMENT, net.........................         --           1,716        52,480 
OTHER ASSETS........................................         --         774,198     2,783,868 
                                                       --------        --------    ---------- 
          Total assets..............................   $    500        $783,683    $2,846,692 
                                                       ========        ========    ========== 

                        LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                        

CURRENT LIABILITIES:                                                                          
  Advances from Founding Groups.....................   $     --        $150,987    $1,067,384 
  Accounts payable and accrued expenses.............         --         722,704     3,466,325 
                                                       --------        --------    ---------- 
          Total current liabilities.................         --         873,691     4,533,709 
STOCKHOLDERS' EQUITY (DEFICIT):                                                               
  Common stock, $.01 par value, 2,000,000 shares                                              
     authorized in 1995 and 1996, 50,000,000 shares                                           
     authorized in 1997, 1,000, 450,000 and 450,000                                           
     shares issued and outstanding, respectively....         10           4,500         4,500 
  Additional paid-in capital........................        490           4,995         4,995 
  Retained deficit..................................         --         (99,503)   (1,696,512)
                                                       --------        --------    ---------- 
          Total stockholders' equity (deficit)......        500         (90,008)   (1,687,017)
                                                       --------        --------    ---------- 
          Total liabilities and stockholders' equity                                          
            (deficit)...............................   $    500        $783,683    $2,846,692 
                                                       ========        ========    ========== 

The accompanying notes are an integral part of these financial statements.

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GROUP 1 AUTOMOTIVE, INC.

STATEMENTS OF OPERATIONS

                                                        [Enlarge/Download Table]

                                       INCEPTION                                              
                                     (DECEMBER 21,                                            
                                     1995) THROUGH   YEAR ENDED    SIX MONTHS ENDED JUNE 30,  
                                     DECEMBER 31,   DECEMBER 31,  --------------------------- 
                                         1995           1996          1996           1997     
                                     -------------  ------------  ------------    ----------- 
                                                                          (UNAUDITED)         
                                                                                              
REVENUES:                                                                                     
  Sales.............................    $     --      $     --      $     --      $        -- 
  Other dealership revenues, net....          --            --            --               -- 
                                        --------      --------      --------      ----------- 
          Total revenues............          --            --            --               -- 
COST OF SALES.......................          --            --            --               -- 
                                        --------      --------      --------      ----------- 
          Gross Profit..............          --            --            --               -- 
SELLING, GENERAL AND ADMINISTRATIVE                                                           
  EXPENSES..........................          --        95,008            --        1,572,250 
                                        --------      --------      --------      ----------- 
          Operating loss............          --       (95,008)           --       (1,572,250)
OTHER INCOME (EXPENSE)                                                                        
          Interest Expense, Net.....          --            --            --          (24,759)
                                        --------      --------      --------      ----------- 
LOSS BEFORE INCOME TAXES............          --       (95,008)           --       (1,597,009)
PROVISION FOR INCOME TAXES..........          --            --            --               -- 
                                        --------      --------      --------      ----------- 
NET LOSS............................    $     --      $(95,008)     $     --      $(1,597,009)
                                        ========      ========      ========      =========== 

The accompanying notes are an integral part of these financial statements.

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GROUP 1 AUTOMOTIVE, INC.

STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

                                                        [Enlarge/Download Table]

                                                                                         TOTAL    
                                          COMMON STOCK     ADDITIONAL                STOCKHOLDERS'
                                        ----------------    PAID-IN                     EQUITY    
                                        SHARES    AMOUNT    CAPITAL      DEFICIT       (DEFICIT)  
                                        -------   ------   ----------  -----------   -------------
                                                                                                  
BALANCE, Inception (December 21,                                                                  
  1995)................................      --   $   --     $   --    $        --    $        -- 
     Stock issuance for cash...........   1,000       10        490             --            500 
                                        -------   ------     ------    -----------    ----------- 
BALANCE, December 31, 1995.............   1,000       10        490             --            500 
     Purchase and cancellation of                                                                 
       treasury stock for cash.........  (1,000)     (10)      (490)            --           (500)
     Stock issuance for cash...........     500        5      4,995             --          5,000 
     Stock split (900-1), (Note 3)..... 449,500    4,495         --         (4,495)            -- 
     Net loss..........................      --       --         --        (95,008)       (95,008)
                                        -------   ------     ------    -----------    ----------- 
BALANCE, December 31, 1996............. 450,000    4,500      4,995        (99,503)       (90,008)
     Net loss (unaudited)..............      --       --         --     (1,597,009)    (1,597,009)
                                        -------   ------     ------    -----------    ----------- 
BALANCE, June 30, 1997 (unaudited)..... 450,000   $4,500     $4,995    $(1,696,512)   $(1,687,017)
                                        =======   ======     ======    ===========    =========== 

The accompanying notes are an integral part of these financial statements.

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GROUP 1 AUTOMOTIVE, INC.

STATEMENTS OF CASH FLOWS

                                                        [Enlarge/Download Table]

                                              INCEPTION                                            
                                            (DECEMBER 21,                                          
                                                1995)                                              
                                               THROUGH      YEAR ENDED   SIX MONTHS ENDED JUNE 30, 
                                            DECEMBER 31,   DECEMBER 31,  ------------------------- 
                                                1995           1996        1996          1997      
                                            -------------  ------------  ---------   ------------- 
                                                                                (UNAUDITED)        
                                                                                                   
CASH FLOWS FROM OPERATING ACTIVITIES:                                                              
  Net loss................................      $ --        $ (95,008)     $    --     $(1,597,009)
  Adjustments to reconcile net loss to net                                                         
     cash used in operating activities --                                                          
     Depreciation and Amortization........        --               --           --           4,554 
     Changes in operating assets and                                                               
       liabilities --                                                                              
     Increase in --                                                                                
       Other noncurrent assets............        --         (774,198)      (2,617)     (2,009,670)
       Accounts payable and accrued                                                                
          expenses........................        --          722,704        2,617       2,743,621 
                                                ----        ---------      -------     ----------- 
     Net cash used in operating                                                                    
       activities.........................        --         (146,502)          --        (858,504)
                                                ----        ---------      -------     ----------- 
CASH FLOWS FROM INVESTING ACTIVITIES:                                                              
  Additions of property and equipment.....        --           (1,716)          --         (55,318)
                                                ----        ---------      -------     ----------- 
     Net cash used in investing                                                                    
       activities.........................        --           (1,716)          --         (55,318)
                                                ----        ---------      -------     ----------- 
CASH FLOWS FROM FINANCING ACTIVITIES:                                                              
  Advances from Founding Groups...........        --          150,987           --         916,397 
  Purchase of common stock................        --             (500)          --              -- 
  Proceeds from issuance of common                                                                 
     stock................................       500            5,000           --              -- 
                                                ----        ---------      -------     ----------- 
     Net cash provided by financing                                                                
       activities.........................       500          155,487           --         916,397 
                                                ----        ---------      -------     ----------- 
NET INCREASE IN CASH AND CASH                                                                      
  EQUIVALENTS.............................       500            7,269           --           2,575 
CASH AND CASH EQUIVALENTS, beginning of                                                            
  period..................................        --              500          500           7,769 
                                                ----        ---------      -------     ----------- 
CASH AND CASH EQUIVALENTS, end of                                                                  
  period..................................      $500        $   7,769      $   500     $    10,344 
                                                ====        =========      =======     =========== 

The accompanying notes are an integral part of these financial statements.

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GROUP 1 AUTOMOTIVE, INC.

NOTES TO FINANCIAL STATEMENTS 
(All discussions and disclosures with a reference date subsequent to May 9, 1997
are unaudited.) 
1. BUSINESS AND ORGANIZATION:                                                   

    Group 1 Automotive, Inc. (Group 1 or the Company), was founded on December
21, 1995 to become a leading operator and consolidator in the automotive        
retailing industry. Group 1 intends to acquire 30 automobile dealerships and    
related businesses which are currently owned by four dealership groups located  
in Texas and Oklahoma (the Founding Groups) (the Acquisitions), complete an     
initial public offering (the Offering) of its common stock and, subsequent to   
the Offering, continue to acquire, through merger or purchase, similar companies
to expand its national and regional operations.                                 

  Group 1's primary assets at December 31, 1996 and June 30, 1997 are cash
and deferred offering costs. Group 1 has not conducted any operations, and all  
activities to date have related to the Acquisitions. There is no assurance that 
the Acquisitions discussed below will be completed and that Group 1 will be able
to generate future operating revenues. Funding for the deferred offering costs  
has been provided by the Founding Groups. Group 1 is dependent upon the Offering
to fund the amounts due to the Founding Groups and future operations. In the    
event that the Offering is not completed, Group 1 will pursue alternative       
sources of funding in order to meet its current obligations.                    

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES                                   

Major Suppliers and Franchise Agreements                                    

   The Founding Groups purchase substantially all of their new vehicles from
various manufacturers at the prevailing prices charged by the manufacturers to  
all franchised dealers. Group 1's sales volume subsequent to the Acquisitions   
could be adversely impacted by the manufacturers' inability to supply the       
dealerships with an adequate supply of popular models or as a result of an      
unfavorable allocation of vehicles by the manufacturers.                        

    The dealer franchise agreements contain provisions which may limit changes
in dealership management and ownership, place certain restrictions on the       
dealerships (such as minimum net worth requirements) and which also provide for 
termination of the franchise agreement by the manufacturers in certain          
instances. Subsequent to the Acquisitions, Group 1's ability to acquire         
additional franchises from a particular manufacturer may be limited due to      
certain restrictions imposed by manufacturers, the Company's ability to enter   
into significant acquisitions may be restricted and the acquisition of the      
Company's stock by third parties may be limited by the terms of the franchise   
agreement. See "Risk Factors -- Manufacturers Control Over Dealerships" and     
"Business -- Franchise Agreements" for further discussion.                      

Property and Equipment                                                      

Property and equipment are recorded at cost and depreciated using the 
straight-line method over the estimated useful lives of the assets.             

Other Assets                                                                

The Company has capitalized all costs incurred in connection with the 
Offering as a component of other assets in the accompanying financial           
statements. Upon completion of the Offering, all such costs will be offset      
against additional paid-in capital. Deferred offering costs capitalized in other
assets totaled approximately $767,000 and $2,777,000 as of December 31, 1996 and
June 30, 1997, respectively.                                                    

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GROUP 1 AUTOMOTIVE, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Income Taxes                                                                

    The Company follows the liability method of accounting for income taxes in
accordance with Statement of Financial Accounting Standards (SFAS) No. 109.     
Under this method, deferred income taxes are recorded based upon differences    
between the financial reporting and tax bases of assets and liabilities and are 
measured using the enacted tax rates and laws that will be in effect when the   
underlying assets are received or liabilities are settled.                      

Use of Estimates                                                            

The preparation of financial statements in conformity with generally  
accepted accounting principles requires management to make estimates and        
assumptions in determining the reported amounts of assets and liabilities and   
disclosure of contingent assets and liabilities at the date of the financial    
statements and the reported amounts of revenues and expenses during the         
reporting period. Actual results could differ from those estimates.             

3. NEW ACCOUNTING PRONOUNCEMENTS                                                

 During June 1996 the Financial Accounting Standards Board (FASB) issued
statement of Financial Accounting Standards (SFAS) No. 125 "Accounting for      
Transfers and Servicing of Financial Assets and Extinguishment of Liabilities." 
During February 1997 the FASB issued SFAS No. 128 and 129 "Earnings per Share"  
and "Disclosure of Information about Capital Structure," respectively, and in   
June 1997 issued SFAS No. 130 and 131 "Reporting Comprehensive Income" and      
"Disclosures about Segments of an Enterprise and Related Information,"          
respectively. The major provisions of these statements and their impact on the  
Company are discussed below.                                                    

    SFAS No. 125 established criteria for recognition of a sale in conjunction
with the transfer of financial assets, under which sales may only be recognized 
when the transferor has surrendered control of the assets. This statement is not
currently anticipated to have any impact on the Company as the Company does not 
currently enter into transactions which fall under the scope of this statement. 

SFAS No. 128 requires the presentation of basic earnings per share and
diluted earnings per share in financial statements of public enterprises rather 
than primary and fully diluted earnings per share as previously required. Under 
the provisions of this statement, basic earnings per share will be computed     
based on weighted average shares outstanding and will exclude dilutive          
securities such as options, warrants, etc. Diluted earnings per share will be   
computed including the impacts of all potentially dilutive securities. The      
Company will adopt this statement in December 1997, but does not anticipate that
the statement will have an impact on the Company as the Company does not have a 
significant number of potentially dilutive securities outstanding.              

 SFAS No. 129 will require additional disclosure of information about an
entity's capital structure, including information about dividend and liquidation
preferences, voting rights, contracts to issue additional shares, conversion and
exercise prices, etc. The Company will adopt this statement in December 1997.   

SFAS No. 130 requires the presentation of comprehensive income in an  
entity's financial statements. Comprehensive income represents all changes in   
equity of an entity during the reporting period, including net income and       
charges directly to equity which are excluded from net income. This statement is
not anticipated to have any impact on the Company as the Company currently does 
not enter into any transactions which result in charges (or credits) directly to
equity (such as additional minimum pension liability changes, currency          
translation adjustments, unrealized gains and losses on available for sale      
securities, etc.).                                                              

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GROUP 1 AUTOMOTIVE, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

SFAS No. 131 will be adopted by the Company during 1998, SFAS No. 131 
provides revised disclosure guidelines for segments of an enterprise based on a 
management approach to defining operating segments. The Company currently       
operates in only one industry segment and analyzes operations on a Company-wide 
basis, therefore the statement is not expected to impact the Company.           

Interim Financial Information                                               

     As is normal and customary, the interim financial statements as of June 30,
1997, and for the six months ended June 30, 1996 and 1997, are unaudited, and   
certain information normally included in financial statements prepared in       
accordance with generally accepted accounting principles has not been included  
herein. In the opinion of management, all adjustments necessary to fairly       
present the financial position, results of operations and cash flows with       
respect to the interim financial statements, have been properly included. Due to
seasonality and other factors, the results of operations for the interim periods
are not necessarily indicative of the results that will be realized for the     
entire fiscal year.                                                             

Statements of Cash Flows                                                    

 For purposes of the statements of cash flows, cash and cash equivalents
include all highly liquid debt instruments purchased with an original maturity  
of three months or less.                                                        

3. CAPITAL STOCK AND STOCK OPTIONS                                              

     Group 1 effected a 900-for-one-stock split on December 13, 1996. The effect
of the common stock split has been accounted for as a stock dividend in the     
accompanying financial statements. On February 5, 1997 the Board of Directors   
increased the authorized number of shares of common stock from 2,000,000 to     
50,000,000, and authorized the issuance of up to 1,000,000 shares of preferred  
stock.                                                                          

  The Company has approved the 1996 Stock Incentive Plan (the Plan), which
provides for the granting or awarding of stock options, stock appreciation      
rights and restricted stock to nonemployee directors, officers and other key    
employees (including officers of the Founding Groups) and independent           
contractors. The number of shares authorized and reserved for issuance under the
Plan is 2,000,000 shares. In general, the terms of the option awards (including 
vesting schedules) will be established by the Compensation Committee of the     
Company's Board of Directors. As of December 31, 1996, the Company has granted  
options to employees covering an aggregate of 205,000 shares of common stock.   
During March 1997, the Company granted additional options to employees to       
purchase an aggregate of 360,000 shares of common stock under the Plan. All     
outstanding options are exercisable over a period not to exceed 10 years and    
vest over a six year period. The exercise price of the options under the Plan is
at least 100 percent of the estimated fair market value of the stock at the time
the option is granted.                                                          

    In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based   
Compensation," which, if fully adopted, requires the Company to record          
stock-based compensation at fair value. The Company has adopted the disclosure  
requirements of SFAS No. 123 and has elected to record employee compensation    
expense in accordance with Accounting Principles Board (APB) Opinion No. 25.    
Accordingly, compensation expense is recorded for stock options based on the    
excess of the fair market value of the common stock on the date the options were
granted over the aggregate exercise price of the options. As the exercise price 
of options granted under the Plan has been equal to or greater than the market  
price of the Company's stock on the date of grant, no compensation expense      
related to the Plan has been recorded.                                          

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GROUP 1 AUTOMOTIVE, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Had compensation expense for the Plan been determined consistent with SFAS No.  
123, the impact on the Company's net loss would have been as follows for the    
year ended December 31, 1996:                                                   

                                                                [Download Table]
                                                                      
Net loss as reported........................................  $ 95,008
Pro forma net loss..........................................  $102,640

 At December 31, 1996 and June 30, 1997, no options were exercisable and
1,795,000 and 1,435,000 options, respectively, were available for future grant  
under the Plan. The exercise prices of options outstanding under the Plan at    
December 31, 1996 and June 30, 1997, were $2.90. The weighted average           
contractual life of options outstanding at December 31, 1996 and June 30, 1997, 
was 10 years. The weighted average fair value of options granted during the year
ended December 31, 1996 and the six month period ended June 30, 1997, was $2.90.
The fair value of each option grant is estimated on the date of grant using the 
minimum value method with the following weighted average assumptions: a weighted
average risk-free interest rate of 5.0 percent; no expected dividend yields; and
expected lives of four years.                                                   

4. INCOME TAXES                                                                 

     The following tables set forth the components of the Company's deferred tax
assets as of December 31, 1996 along with a reconciliation of income tax for the
year ended December 31, 1996. The Company has recorded a valuation allowance    
against its deferred tax assets as in management's opinion it is more likely    
than not that such amounts may not be realized in future periods.               

                                                                [Download Table]

                                                                1996   
                                                              -------- 
                                                                       
Benefit at the statutory rate...............................  $(32,303)
Increase (decrease) resulting from State income tax, net of            
  benefit for federal.......................................    (2,822)
  Valuation allowance.......................................    35,125 
                                                              -------- 
                                                              $     -- 
                                                              ======== 
Net operating loss carryforward.............................    35,125 
Valuation allowance.........................................   (35,125)
                                                              -------- 
  Net deferred tax assets...................................  $     -- 
                                                              ======== 

5. PROPOSED ACQUISITIONS BY GROUP 1                                             

    Group 1 has signed definitive agreements to acquire four dealership groups
(the Founding Groups) consisting of 30 automobile dealerships and related       
businesses. The Founding Groups are as follows:                                 

Howard Group -- Consisting of Howard Pontiac-GMC, Inc., Bob Howard    
        Chevrolet, Inc., Bob Howard Automotive-H, Inc.
                 (Honda/Acura), Bob Howard Motors, Inc. (Toyota) and Bob
Howard Dodge, Inc.                    

     McCall Group -- Consisting of SMC Luxury Cars, Inc. (d.b.a. Sterling McCall
                   Lexus) and Southwest Toyota, Inc. (d.b.a. Sterling McCall
Toyota).                              

 Smith Group -- Consisting of Mike Smith Autoplaza, Inc., Smith, Liu and
                   Kutz, Inc. (Town North), Courtesy Nissan, Inc., Smith Liu &
                    Corbin, Inc. (d.b.a. Acura Southwest) and Round Rock Nissan,
Inc.                                    

Kingwood Group -- Consisting of Foyt Motors, Inc.                     

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GROUP 1 AUTOMOTIVE, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

 The aggregate consideration that will be paid by Group 1 to acquire the
Founding Groups is approximately $5.4 million in cash and 9,074,914 shares of   
Group 1 common stock (based on an initial public offering price of $12 per      
share).                                                                         

    The following table sets forth the consideration to be paid to each of the
Founding Groups.                                                                

                                                                [Download Table]

                                                          SHARES          CASH   
                                                         ---------     ----------
                                                                                 
Howard Group............................................ 3,570,302(1)  $2,300,000
McCall Group............................................ 2,318,826             --
Smith Group............................................. 2,725,933             --
Kingwood Group..........................................   459,853      3,100,000
                                                         ---------     ----------
          Total......................................... 9,074,914     $5,400,000
                                                         =========     ==========

---------------                                                                 

(1) Includes 592,303 shares of Common Stock issued to an owner of the Howard    
Group which will be held in escrow and distributed pro rata to the      
    stockholders of the Founding Groups if the Combined Company's acquisition of
   the Chevrolet dealership in Tulsa, Oklahoma is not consummated with General
    Motors' approval within two years of the Offering. The pro rata distribution
 will be allocated among the Founding Groups as follows: the McCall Group,
  161,913 shares; the Smith Group, 190,340 shares; the Howard Group, 207,940
    shares; and the Kingwood Group, 32,110 shares. Since the Howard Group is the
  accounting acquiror for financial statement presentation purposes, the pro
  forma combined financial statements do not give effect to the value of the
592,303 shares of stock which are held in escrow and may be issued to a 
  stockholder of the Howard Group upon the Combined Company's acquisition of
the Chevrolet dealership in Tulsa, Oklahoma. However, the shares held in
escrow have been included in determining the weighted average shares    
 outstanding for the year ended December 31, 1996 and the six months ended
    June 30, 1997 since those shares will continue to be outstanding even if the
    Combined Company is unable to acquire the Chevrolet dealership. In the event
  that the acquisition is not completed, the shares which are held in escrow
   will be distributed pro rata to the stockholders of the Founding Groups and
will be treated as contingent consideration in accordance with APB 16   
"Business Combinations". Based on the allocation of those shares to the 
stockholders, the Company would recognize additional goodwill of        
approximately $3.0 million in conjunction with the acquisitions.        

    In conjunction with the Acquisitions and the Offering, the Founding Groups
have advanced funds to the Company for operations and offering costs. As of     
December 31, 1996, these advances totaled $150,987 and accrued interest at a    
rate of 7% per annum. As of October 14, 1997, these advances totaled $1,682,386.

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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Howard Group:                                                                

   We have audited the accompanying combined balance sheets of the companies
identified in Note 1 (the Companies) as of December 31, 1995 and 1996, and the  
related combined statements of operations, stockholders' equity and cash flows  
for each of the three years in the period ended December 31, 1996. These        
financial statements are the responsibility of the Companies' management. Our   
responsibility is to express an opinion on these financial statements based on  
our audits.                                                                     

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain 
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting 
the amounts and disclosures in the financial statements. An audit also includes 
assessing the accounting principles used and significant estimates made by      
management, as well as evaluating the overall financial statement presentation. 
We believe that our audits provide a reasonable basis for our opinion.          

    In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Companies as of December
31, 1995 and 1996, and the results of their operations and their cash flows for 
each of the three years in the period ended December 31, 1996, in conformity    
with generally accepted accounting principles.                                  

ARTHUR ANDERSEN LLP                                                             
Houston, Texas                                                                  
May 9, 1997                                                                     

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HOWARD GROUP

COMBINED BALANCE SHEETS 

ASSETS

                                                        [Enlarge/Download Table]

                                                                                 PRO FORMA  
                                      DECEMBER 31,  DECEMBER 31,   JUNE 30,      JUNE 30,   
                                          1995          1996         1997          1997     
                                      ------------  ------------  -----------   ----------- 
                                                                  (UNAUDITED)   (UNAUDITED) 
                                                                                            
CURRENT ASSETS:                                                                             
  Cash and cash equivalents.........  $10,519,771   $11,679,050   $ 9,936,653   $ 5,436,653 
  Accounts receivable, net..........    6,301,692     5,898,736     6,200,606     6,200,606 
  Inventories.......................   39,572,596    47,674,462    45,202,216    45,202,216 
  Prepaid expenses..................      359,668       858,886       889,780       889,780 
                                      -----------   -----------   -----------   ----------- 
          Total current assets......   56,753,727    66,111,134    62,229,255    57,729,255 
                                      -----------   -----------   -----------   ----------- 
PROPERTY AND EQUIPMENT, net.........    2,810,966     4,128,880     3,820,115     3,820,115 
NOTES RECEIVABLE....................      374,826       417,675       513,585       513,585 
GOODWILL, NET.......................      989,845     1,456,833     1,436,473     1,436,473 
OTHER ASSETS........................      711,753       759,714       731,069       731,069 
                                      -----------   -----------   -----------   ----------- 
          Total assets..............  $61,641,117   $72,874,236   $68,730,497   $64,230,497 
                                      ===========   ===========   ===========   =========== 

LIABILITIES AND STOCKHOLDERS' EQUITY                                                        

CURRENT LIABILITIES:                                                                        
  Floor plan notes payable..........  $37,035,648   $42,543,902   $37,816,102   $37,816,102 
  Current maturities of long-term                                                           
     debt...........................       99,743        33,685        21,659        21,659 
  Deferred income taxes.............      690,998       357,172       401,972       401,972 
  Accounts payable and accrued                                                              
     expenses.......................   14,219,262    16,740,525    18,864,797    18,864,797 
                                      -----------   -----------   -----------   ----------- 
          Total current                                                                     
            liabilities.............   52,045,651    59,675,284    57,104,530    57,104,530 
                                      -----------   -----------   -----------   ----------- 
LONG-TERM DEBT, net of current                                                              
  maturities........................      184,199       309,779       153,661       153,661 
LONG-TERM DEFERRED INCOME TAXES.....       40,409        58,604        58,604        58,604 
OTHER LONG-TERM LIABILITIES.........      750,571       620,896       586,724       586,724 
COMMITMENTS AND CONTINGENCIES                                                               
STOCKHOLDERS' EQUITY:                                                                       
  Common stock......................      490,500       491,500       491,500       491,500 
  Additional paid-in capital........    5,123,802     6,622,802     6,622,802     6,622,802 
  Retained earnings.................    3,814,783     5,904,169     4,521,474        21,474 
  Treasury stock, at cost...........     (808,798)     (808,798)     (808,798)     (808,798)
                                      -----------   -----------   -----------   ----------- 
          Total stockholders'                                                               
            equity..................    8,620,287    12,209,673    10,826,978     6,326,978 
                                      -----------   -----------   -----------   ----------- 
          Total liabilities and                                                             
            stockholders' equity....  $61,641,117   $72,874,236   $68,730,497   $64,230,497 
                                      ===========   ===========   ===========   =========== 

The accompanying notes are an integral part of these combined financial 
statements. 

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HOWARD GROUP

COMBINED STATEMENTS OF OPERATIONS 

                                                        [Enlarge/Download Table]

                                                                              FOR THE SIX MONTHS ENDED   
                                         YEAR ENDED DECEMBER 31,                      JUNE 30,           
                                ------------------------------------------   --------------------------- 
                                    1994           1995           1996           1996           1997     
                                ------------   ------------   ------------   ------------   ------------ 
                                                                                     (UNAUDITED)         
                                                                                                         
REVENUES:                                                                                                
  New vehicle sales............ $136,831,043   $151,226,737   $164,978,710   $ 82,522,708   $ 84,922,460 
  Used vehicle sales...........   69,861,948     79,447,701     88,477,330     44,036,067     54,353,896 
  Parts and service sales......   14,402,326     16,940,622     21,173,371     10,141,875     10,762,746 
  Other dealership revenues,                                                                             
     net.......................    6,163,506      6,388,131      7,386,747      3,949,257      4,006,206 
                                ------------   ------------   ------------   ------------   ------------ 
          Total revenues.......  227,258,823    254,003,191    282,016,158    140,649,907    154,045,308 
COST OF SALES:                                                                                           
  New vehicle cost of sales....  128,795,822    141,952,762    154,682,896     77,336,926     80,403,283 
  Used vehicle cost of sales...   63,263,368     71,553,967     78,911,645     39,096,474     49,186,187 
  Parts and service cost of                                                                              
     sales.....................    6,932,727      8,266,771     10,801,506      5,220,454      4,541,069 
                                ------------   ------------   ------------   ------------   ------------ 
          Total cost of                                                                                  
            sales..............  198,991,917    221,773,500    244,396,047    121,653,854    134,130,539 
                                ------------   ------------   ------------   ------------   ------------ 
          Gross profit.........   28,266,906     32,229,691     37,620,111     18,996,053     19,914,769 
SELLING, GENERAL AND                                                                                     
  ADMINISTRATIVE EXPENSES......   24,253,223     26,165,535     30,768,233     15,032,054     16,453,253 
                                ------------   ------------   ------------   ------------   ------------ 
          Income from                                                                                    
            operations.........    4,013,683      6,064,156      6,851,878      3,963,999      3,461,516 
OTHER INCOME AND EXPENSE:                                                                                
  Interest expense, net........   (1,101,487)    (1,604,204)    (1,193,810)      (679,842)      (807,954)
  Other income (expense), net..        8,942        (80,446)       (69,328)       (28,411)        34,079 
                                ------------   ------------   ------------   ------------   ------------ 
INCOME BEFORE INCOME TAXES.....    2,921,138      4,379,506      5,588,740      3,255,746      2,687,641 
PROVISION FOR INCOME TAXES.....      767,850        744,316        381,752        306,492        165,617 
                                ------------   ------------   ------------   ------------   ------------ 
NET INCOME..................... $  2,153,288   $  3,635,190   $  5,206,988   $  2,949,254   $  2,522,024 
                                ============   ============   ============   ============   ============ 
S-Corporation pro forma income                                                                           
  taxes (unaudited)............      388,920        989,968      1,831,389        982,783        898,689 
                                ------------   ------------   ------------   ------------   ------------ 
Pro forma net income                                                                                     
  (unaudited).................. $  1,764,368   $  2,645,222   $  3,375,599   $  1,966,471   $  1,623,335 
                                ============   ============   ============   ============   ============ 

The accompanying notes are an integral part of these combined financial 
statements. 

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HOWARD GROUP

COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY 

                                                        [Enlarge/Download Table]

                                      ADDITIONAL                                        
                             COMMON    PAID-IN     RETAINED     TREASURY                
                             STOCK     CAPITAL     EARNINGS       STOCK        TOTAL    
                            --------  ----------  -----------   ---------   ----------- 
                                                                                        
BALANCE, December 31,                                                                   
  1993..................... $490,000  $2,399,302  $ 1,556,192   $(808,798)  $ 3,636,696 
  Net income...............       --          --    2,153,288          --     2,153,288 
  Issuance of common                                                                    
     stock.................      500     999,500           --          --     1,000,000 
  Dividends................       --          --   (1,443,706)         --    (1,443,706)
                            --------  ----------  -----------   ---------   ----------- 
BALANCE, December 31,                                                                   
  1994.....................  490,500   3,398,802    2,265,774    (808,798)    5,346,278 
  Net income...............       --          --    3,635,190          --     3,635,190 
  Capital contribution.....       --   1,725,000           --          --     1,725,000 
  Dividends................       --          --   (2,086,181)         --    (2,086,181)
                            --------  ----------  -----------   ---------   ----------- 
BALANCE, December 31,                                                                   
  1995.....................  490,500   5,123,802    3,814,783    (808,798)    8,620,287 
  Net income...............       --          --    5,206,988          --     5,206,988 
  Issuance of common                                                                    
     stock.................    1,000   1,499,000           --          --     1,500,000 
  Dividends................       --          --   (3,117,602)         --    (3,117,602)
                            --------  ----------  -----------   ---------   ----------- 
BALANCE, December 31,                                                                   
  1996.....................  491,500   6,622,802    5,904,169    (808,798)   12,209,673 
  Net income (unaudited)...       --          --    2,522,024          --     2,522,024 
  Dividends (unaudited)....       --          --   (3,904,719)         --    (3,904,719)
                            --------  ----------  -----------   ---------   ----------- 
BALANCE, June 30, 1997                                                                  
  (unaudited).............. $491,500  $6,622,802  $ 4,521,474   $(808,798)  $10,826,978 
                            ========  ==========  ===========   =========   =========== 

The accompanying notes are an integral part of these combined financial 
statements. 

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HOWARD GROUP

COMBINED STATEMENTS OF CASH FLOWS 

                                                        [Enlarge/Download Table]

                                                                                 FOR THE SIX MONTHS ENDED  
                                           FOR THE YEAR ENDED DECEMBER 31,               JUNE 30,          
                                       ---------------------------------------   ------------------------- 
                                          1994          1995          1996          1996          1997     
                                       -----------   -----------   -----------   -----------   ----------- 
                                                                                        (UNAUDITED)        
                                                                                                           
CASH FLOWS FROM OPERATING                                                                                  
  ACTIVITIES:                                                                                              
  Net income.........................  $ 2,153,288   $ 3,635,190   $ 5,206,988   $ 2,949,254   $ 2,522,024 
                                       -----------   -----------   -----------   -----------   ----------- 
  Adjustments to reconcile net income                                                                      
     to net cash provided by (used                                                                         
     in) operating activities --                                                                           
     Depreciation and amortization...      429,915       538,493       740,811       344,642       340,043 
     Deferred income taxes...........       39,207       190,787      (315,631)     (178,774)       44,800 
     Provision for doubtful                                                                                
       accounts......................      113,112        84,833       108,068        46,509        41,952 
     Loss (gain) on sale of assets...      (56,503)       15,313        18,350         8,991       (17,628)
     Changes in assets and                                                                                 
       liabilities --                                                                                      
       Accounts receivable...........   (3,393,986)      197,696       294,888     1,451,630      (343,822)
       Inventories...................   (8,492,539)   (4,873,611)   (6,106,872)   (1,762,205)    2,472,246 
       Prepaid expenses and other                                                                          
          assets.....................      (58,113)      196,943      (514,167)      539,069        (2,249)
       Floor plan notes payable......    9,451,846     3,876,738     5,508,254       106,005    (4,727,800)
       Accounts payable and accrued                                                                        
          expenses...................    4,017,618     3,334,511     2,391,588    (1,620,990)    2,076,626 
                                       -----------   -----------   -----------   -----------   ----------- 
          Total adjustments..........    2,050,557     3,561,703     2,125,289    (1,065,123)     (115,832)
                                       -----------   -----------   -----------   -----------   ----------- 
          Net cash provided by (used                                                                       
            in) operating                                                                                  
            activities...............    4,203,845     7,196,893     7,332,277     1,884,131     2,406,192 
                                       -----------   -----------   -----------   -----------   ----------- 
CASH FLOWS FROM INVESTING ACTIVITIES:                                                                      
  Increase in notes receivable.......           --      (374,826)     (235,054)     (220,848)      (95,910)
  Collections on notes receivable....           --            --       192,205       206,643            -- 
  Purchases of property and                                                                                
     equipment.......................   (1,197,283)     (928,017)   (1,977,075)   (1,726,306)     (272,500)
  Proceeds from sale of property and                                                                       
     equipment.......................           --            --            --            --       278,736 
  Acquisition of Business............   (1,834,426)           --    (2,594,994)   (2,594,994)           -- 
                                       -----------   -----------   -----------   -----------   ----------- 
          Net cash used in investing                                                                       
            activities...............   (3,031,709)   (1,302,843)   (4,614,918)   (4,335,505)      (89,674)
                                       -----------   -----------   -----------   -----------   ----------- 
CASH FLOWS FROM FINANCING ACTIVITIES:                                                                      
  Principal payments of long-term                                                                          
     debt............................     (225,313)     (171,910)     (152,807)      (76,404)     (168,144)
  Borrowings of long-term debt.......      512,204        13,111       212,329        92,925            -- 
  Issuance of common stock...........    1,000,000            --     1,500,000            --            -- 
  Contribution from stockholders.....           --     1,725,000            --            --            -- 
  Dividends..........................   (1,443,706)   (2,086,181)   (3,117,602)   (2,128,403)   (3,890,771)
                                       -----------   -----------   -----------   -----------   ----------- 
          Net cash used in financing                                                                       
            activities...............     (156,815)     (519,980)   (1,558,080)   (2,111,882)   (4,058,915)
                                       -----------   -----------   -----------   -----------   ----------- 
NET INCREASE (DECREASE) IN CASH AND                                                                        
  CASH EQUIVALENTS...................    1,015,321     5,374,070     1,159,279    (4,563,256)   (1,742,397)
CASH AND CASH EQUIVALENTS, beginning                                                                       
  of period..........................    4,130,380     5,145,701    10,519,771    10,519,771    11,679,050 
                                       -----------   -----------   -----------   -----------   ----------- 
CASH AND CASH EQUIVALENTS, end of                                                                          
  period.............................  $ 5,145,701   $10,519,771   $11,679,050   $ 5,956,515   $ 9,936,653 
                                       ===========   ===========   ===========   ===========   =========== 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW                                                                      
  INFORMATION:                                                                                             
  Cash paid for --                                                                                         
     Interest........................  $ 2,295,200   $ 3,427,813   $ 3,117,601   $ 1,775,231   $ 2,006,376 
     Taxes...........................      715,000       475,000       924,456       514,379        10,991 

The accompanying notes are an integral part of these combined financial 
statements. 

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NOTES TO COMBINED FINANCIAL STATEMENTS
(All discussions and disclosures with a reference date subsequent to May 9, 1997
are unaudited.) 

1. BUSINESS AND ORGANIZATION:                                                   

     Howard Group (the Companies) is primarily engaged in the retail sale of new
and used automobiles and the sale of the related finance, insurance and service 
contracts thereon. In addition, the Companies sell automotive parts, provide    
vehicle servicing and sell wholesale used vehicles.                             

The following companies are included within the combined group:       

Howard Pontiac -- GMC, Inc. (Automall)                      

   Automall consists of several franchises which conduct business at
 contiguous locations in Oklahoma City, Oklahoma. The franchises
     operated in this location include Pontiac, GMC, Mazda, Isuzu, Jeep,
Eagle, Chrysler and Plymouth.                                 

Bob Howard Chevrolet, Inc. (BHC)                            

   BHC is a Chevrolet dealership located in Oklahoma City, Oklahoma.

Bob Howard Automotive -- H, Inc. (BHH)                      

         BHH consists of two franchises, Honda and Acura, which conduct business
at contiguous locations in Oklahoma City, Oklahoma.           

Bob Howard Motors, Inc. (BHT)                               

BHT is a Toyota dealership located in Oklahoma City, Oklahoma.

Bob Howard Dodge, Inc. (BHD)                                

BHD is a Dodge dealership located in Oklahoma City, Oklahoma. 

The Companies and their stockholders intend to enter into a definitive
agreement with Group 1 Automotive, Inc. (Group 1), pursuant to which all        
outstanding shares of the Companies' common stock will be exchanged for cash and
shares of Group 1's common stock concurrent with the consummation of the initial
public offering of the common stock of Group 1.                                 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:                                  

Basis of Presentation                                                       

    The accompanying combined financial statements include the accounts of the
companies listed above. The Companies have been presented on a combined basis   
due to their related operations, common ownership and common management control.
All significant intercompany balances and transactions have been eliminated in  
combination.                                                                    

Major Suppliers and Franchise Agreements                                    

The Companies purchase substantially all of their new vehicles at the 
prevailing prices charged by the manufacturers to all franchised dealers. The   
Companies' sales volume could be adversely impacted by the manufacturers'       
inability to supply the dealership with an adequate supply of popular models or 
as a result of an unfavorable allocation of vehicles by the manufacturer.       

    The dealer franchise agreements contain provisions which may limit changes
in dealership management and ownership, place certain restrictions on the       
dealerships (such as minimum working capital requirements), and which also      
provide for termination of the franchise agreement by the manufacturers in      
certain instances. Under certain state law, these restrictive provisions have   
been repeatedly found invalid                                                   

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both by state courts and administrative agencies. See "Risk                     
Factors -- Manufacturers' Control Over Dealerships" and "Business -- Franchise  
Agreements" for further discussion.                                             

Revenue Recognition                                                         

   Revenue from vehicle sales, parts sales and vehicle service is recognized
upon delivery to the customer.                                                  

Finance, Insurance and Service Contract Income Recognition                  

    The Companies arrange financing for customers through various institutions
and receive financing fees equal to the difference between the loan rates       
charged to customers over the predetermined financing rates set by the financing
institution. In addition, the Companies receive commissions from the sale of    
credit life and disability insurance and extended service contracts to          
customers.                                                                      

The Companies may be charged back (chargebacks) for unearned financing
fees, insurance or service contract commissions in the event of early           
termination of the contracts by customers. The revenues from financing fees and 
commissions are recorded at the time of the sale of the vehicles. The reserves  
for future chargebacks are based on historical operating results and the        
termination provisions of the applicable contracts. Finance, insurance and      
service contract income, net of estimated chargebacks, are included in other    
dealership revenue in the accompanying combined financial statements.           

Cash and Cash Equivalents                                                   

  Cash and cash equivalents include highly liquid investments that have an
original maturity of three months or less at the date of purchase and contracts 
in transit. Contracts in transit represent contracts on vehicles sold, for which
the proceeds are in transit from financing institutions.                        

Inventories                                                                 

New, used and demonstrator vehicles are stated at the lower of cost or
market, determined on a specific-unit basis.                                    

Parts and accessories are stated at the lower of cost (determined on a
first-in, first-out basis) or market.                                           

Property and Equipment                                                      

Property and equipment are recorded at cost and depreciated using the 
straight-line method over the estimated useful lives of the assets. Leasehold   
improvements are capitalized and amortized over the lesser of the life of the   
lease or the estimated useful life of the asset.                                

  Expenditures for major additions or improvements which extend the useful
lives of assets are capitalized. Minor replacements, maintenance and repairs    
which do not improve or extend the life of such assets are charged to operations
as incurred. Disposals are removed at cost less accumulated depreciation, and   
any resulting gain or loss is reflected in current operations.                  

Goodwill                                                                    

Goodwill represents the excess of the purchase price of dealerships   
acquired (BHH, BHD and Automall) over the fair value of assets acquired at the  
date of acquisition. Goodwill is being amortized on a straight-line basis over  
40 years. Amortization expense charged to operations totaled approximately      
$21,000, $27,000 and $36,000 for the years ended December 31, 1994, 1995 and    
1996, respectively.                                                             

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Accumulated amortization totaled approximately $93,000 and $129,000 as of       
December 31, 1995 and 1996, respectively.                                       

Income Taxes                                                                

     The Companies follow the liability method of accounting for income taxes in
accordance with Statement of Financial Accounting Standards (SFAS) No. 109.     
Under this method, deferred income taxes are recorded based upon differences    
between the financial reporting and tax bases of assets and liabilities and are 
measured using the enacted tax rates and laws that will be in effect when the   
underlying assets are realized or liabilities are settled. A valuation allowance
reduces deferred tax assets when it is more likely than not that some or all of 
the deferred tax assets will not be realized.                                   

   Certain of the Companies have elected S Corporation status, as defined by
the Internal Revenue Code, whereby the Companies are not subject to taxation for
federal purposes. Under S Corporation status, the stockholders report their     
share of these Companies' taxable earnings or losses in their personal tax      
returns.                                                                        

Environmental Liabilities and Expenditures                                  

Accruals for environmental matters, if any, are recorded in operating 
expenses when it is probable that a liability has been incurred and the amount  
of the liability can be reasonably estimated. Accrued liabilities are exclusive 
of claims against third parties and are not discounted.                         

In general, costs related to environmental remediation are charged to 
expense. Environmental costs are capitalized if the costs increase the value of 
the property and/or mitigate or prevent contamination from future operations.   

Interest Expense                                                            

Automobile manufacturers periodically provide floorplan interest      
assistance, or subsidies, which reduce the Companies' cost of financing. The    
accompanying combined financial statements reflect interest expense net of      
floorplan assistance.                                                           

Fair Value of Financial Instruments                                         

    The Companies' financial instruments consist primarily of floor plan notes
payable and long-term debt. The carrying amount of these financial instruments  
approximates fair value due either to length of maturity or existence of        
variable interest rates that approximate market rates.                          

Advertising                                                                 

     The Company expenses production and other costs of advertising as incurred.
Advertising expense for the years ended December 31, 1994, 1995 and 1996 totaled
$3,511,447, $3,422,453 and $3,245,451, respectively.                            

Concentration of Credit Risk                                                

Financial instruments which potentially subject the Companies to a    
concentration of credit risk consist principally of cash, cash equivalents,     
contracts in transit and accounts receivable. The Company maintains cash        
balances at financial institutions which may at times be in excess of federally 
insured levels. The Companies grant credit to local companies in various        
businesses. The Companies perform ongoing credit evaluations of their customers 
and generally do not require collateral. The Companies maintain an allowance for
doubtful accounts at a level which management believes is sufficient to cover   

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potential credit losses. The Companies have not incurred significant losses     
related to these financial instruments to date.                                 

Use of Estimates                                                            

The preparation of financial statements in conformity with generally  
accepted accounting principles requires management to make estimates and        
assumptions in determining the reported amounts of assets and liabilities and   
disclosure of contingent assets and liabilities at the date of the financial    
statements and the reported amounts of revenues and expenses during the         
reporting period. The significant estimates made by management in the           
accompanying financial statements relate to reserves for future chargebacks on  
finance, insurance and service contract income. Actual results could differ from
those estimates.                                                                

Interim Financial Information                                               

     As is normal and customary, the interim financial statements as of June 30,
1997, and for the six months ended June 30, 1996 and 1997, are unaudited, and   
certain information normally included in financial statements prepared in       
accordance with generally accepted accounting principles has not been included  
herein. In the opinion of management, all adjustments necessary to fairly       
present the financial position, results of operations and cash flows with       
respect to the interim financial statements, have been properly included. Due to
seasonality and other factors, the results of operations for the interim periods
are not necessarily indicative of the results that will be realized for the     
entire fiscal year.                                                             

Statements of Cash Flows                                                    

 For purposes of the statements of cash flows, cash and cash equivalents
include contracts in transit which are typically collected within one month.    
Additionally, the net change in floor plan financing of inventory, which is a   
customary financing technique in the industry, is reflected as an operating     
activity in the statements of cash flows.                                       

New Accounting Pronouncement                                                

    Effective January 1, 1996, the Companies adopted SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." SFAS No. 121 requires that long-lived assets be reviewed for impairment    
whenever events or changes in circumstances indicate that the carrying amount of
the asset in question may not be recoverable. If an evaluation is required, the 
estimated future undiscounted cash flows associated with the asset would be     
compared to the asset's carrying amount to determine if a write-down to market  
value or discounted cash flow value is necessary. Adoption of this standard did 
not have a material effect on the financial position or results of operations of
the Companies.                                                                  

 During June 1996 and June 1997 the Financial Accounting Standards Board
(FASB) issued statement of Financial Accounting Standards (SFAS) No. 125        
"Accounting for Transfers and Servicing of Financial Assets and Extinguishment  
of Liabilities" and SFAS No. 130 "Reporting Comprehensive Income, respectively."
The major provisions of these statements and their impact on the Company are    
discussed below.                                                                

    SFAS No. 125 established criteria for recognition of a sale in conjunction
with the transfer of financial assets, under which sales may only be recognized 
when the transferor has surrendered control of the assets. This statement is not
currently anticipated to have any impact on the Company as the Company does not 
currently enter into transactions which fall under the scope of this statement. 

SFAS No. 130 requires the presentation of comprehensive income in an  
entity's financial statements. Comprehensive income represents all changes in   
equity of an entity during the reporting period, including net income and       
charges directly to equity which are excluded from net income. This statement is
not                                                                             

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anticipated to have any impact on the Company as the Company currently does not 
enter into any transactions which result in charges (or credits) directly to    
equity (such as additional minimum pension liability changes, currency          
translation adjustments, unrealized gains and losses on available for sale      
securities, etc.).                                                              

3. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:                                    

Accounts receivable consist of the following:                         

                                                                [Download Table]

                                                                 DECEMBER 31,       
                                                           ------------------------ 
                                                              1995          1996    
                                                           ----------    ---------- 
                                                                                    
Amounts due from manufacturers............................ $4,051,091    $3,075,483 
Parts and service receivables.............................    873,874       652,222 
Warranty receivables......................................    250,971       499,470 
Due from finance companies................................    781,383     1,002,153 
Other.....................................................    404,471       777,329 
                                                           ----------    ---------- 
                                                            6,361,790     6,006,657 
Less -- Allowance for doubtful accounts...................    (60,098)     (107,921)
                                                           ----------    ---------- 
                                                           $6,301,692    $5,898,736 
                                                           ==========    ========== 

    Activity in the Companies' allowance for doubtful accounts consists of the
following:                                                                      

                                                                [Download Table]

                                                          DECEMBER 31,            
                                                --------------------------------- 
                                                  1994         1995        1996   
                                                ---------    --------    -------- 
                                                                                  
Balance, beginning of year..................... $   6,900    $     --    $ 60,098 
Additions charged to expense...................   113,112      84,833     108,068 
Deductions for uncollectible receivables                                          
  written off..................................  (120,012)    (24,735)    (60,245)
                                                ---------    --------    -------- 
                                                $      --    $ 60,098    $107,921 
                                                =========    ========    ======== 

Inventories consist of the following:                                 

                                                                [Download Table]

                                                             DECEMBER 31,         
                                                    ------------------------------
                                                       1995               1996    
                                                    -----------        -----------
                                                                                  
New vehicles....................................... $30,680,418        $36,973,347
Used vehicles......................................   7,440,761          8,612,757
Parts, accessories and other.......................   1,451,417          2,088,358
                                                    -----------        -----------
                                                    $39,572,596        $47,674,462
                                                    ===========        ===========

Accounts payable and accrued expenses consist of the following:       

                                                                [Download Table]

                                                              DECEMBER 31,         
                                                     ------------------------------
                                                        1995               1996    
                                                     -----------        -----------
                                                                                   
Accounts payable, trade............................  $ 6,416,124        $ 6,135,880
Reserve for finance, insurance and service contract                                
  chargebacks......................................    5,661,473          5,782,600
Other accrued expenses.............................    2,141,665          4,822,045
                                                     -----------        -----------
                                                     $14,219,262        $16,740,525
                                                     ===========        ===========

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4. PROPERTY AND EQUIPMENT:                                                      

Property and equipment consist of the following:                      

                                                        [Enlarge/Download Table]

                                         ESTIMATED             DECEMBER 31,          
                                        USEFUL LIVES  ------------------------------ 
                                          IN YEARS       1995               1996     
                                        ------------  -----------        ----------- 
                                                                                     
Buildings..............................    20         $    28,675        $    32,058 
Leasehold improvements.................     7             861,361          1,086,129 
Machinery and equipment................  3 to 7         2,165,606          2,460,465 
Furniture and fixtures.................  5 to 7         1,161,304          1,387,095 
Company vehicles.......................     5             829,192          2,146,377 
                                                      -----------        ----------- 
          Total........................                 5,046,138          7,112,124 
Less -- Accumulated depreciation.......                (2,235,172)        (2,983,244)
                                                      -----------        ----------- 
          Property and equipment,                                                    
            net........................               $ 2,810,966        $ 4,128,880 
                                                      ===========        =========== 

5. FLOOR PLAN NOTES PAYABLE:                                                    

Floor plan notes payable reflect amounts payable for the purchase of  
specific vehicle inventory and consist of the following:                        

                                                                [Download Table]

                                                               DECEMBER 31,       
                                                        --------------------------
                                                           1995           1996    
                                                        -----------    -----------
                                                                                  
New vehicles........................................... $33,056,624    $38,677,985
Used vehicles..........................................   3,979,024      3,865,917
                                                        -----------    -----------
          Total floor plan notes payable............... $37,035,648    $42,543,902
                                                        ===========    ===========

    Floorplan notes payable are due to one floor plan lender, bearing interest
at a rate of prime less 0.5%. As of December 31, 1995 and 1996, the weighted    
average interest rate, on floorplan notes payable outstanding was 8.25% and     
7.75%. Interest expense on floorplan notes payable, before manufacturer interest
assistance, totaled approximately $2,408,000, $3,410,000 and $3,112,000 for the 
years ended December 31, 1994, 1995 and 1996, respectively. Manufacturer        
interest assistance, which is recorded as a reduction to interest expense in the
accompanying financial statements, totaled approximately $1,350,000, $1,867,000 
and $1,974,000 for the years ended December 31, 1994, 1995 and 1996,            
respectively. The flooring arrangements permit the Companies to borrow up to    
$58,380,000, dependent upon new and used vehicle sales and inventory levels. As 
of December 31, 1996, total available borrowings under floor plan agreements    
were approximately $15,836,000. Payments on the notes are due when the related  
vehicles are sold and are collateralized by substantially all of the inventories
of the Companies.                                                               

6. STOCKHOLDERS' EQUITY:                                                        

Capital stock consists of the following:                              

                                                                [Download Table]

                                        AUTHORIZED  ISSUED   OUTSTANDING  PAR VALUE
                                        ----------  -------  -----------  ---------
                                                                                   
Common Stock --                                                                    
  Automall.............................  1,000,000  460,000    114,500     $ 1.00  
  BHC..................................      2,000    1,000      1,000      25.00  
  BHH..................................      5,000      500        500       1.00  
  BHT..................................     25,000    5,000      5,000       1.00  
  BHD..................................     50,000    1,000      1,000       1.00  

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   Treasury stock consists of 345,500 shares of the common stock of Automall
at a cost of approximately $809,000 at December 31, 1995 and 1996.              

7. RELATED-PARTY TRANSACTIONS:                                                  

Operating Leases With Stockholder                                           

     The principal stockholder of the Companies leases the dealerships' premises
under operating leases. Additional information regarding the terms of these     
leases is contained in Note 8, "Operating Leases."                              

  The principal stockholder of the Companies has certain loans outstanding
which are secured by assets of the dealerships. See Note 10, "Commitments and   
Contingencies," for a detail of loans secured by the assets of the dealerships. 

Stockholder Loan Guarantees                                                 

  The Companies have provided guarantees and/or pledged assets as security
for certain outstanding loan obligations of various related parties. See Note 10
"Commitments and Contingencies," for discussion of guarantee and security       
arrangements provided on behalf of related parties.                             

Company Indebtedness Guaranteed by Stockholder                              

The principal stockholder of the Companies has provided a personal    
guarantee relating to the repayment of floorplan obligations incurred by the    
Companies. As of December 31, 1996 and June 30, 1997, floorplan obligations     
guaranteed by the principal stockholder totaled approximately $42.5 million and 
$37.8 million, respectively.                                                    

Advances to Group 1                                                         

    The Companies have consummated a loan with Group 1 in order to finance the
expenses of Group 1 prior to the acquisition. The balance of this loan at       
December 31, 1996 and June 30, 1997 was approximately $0 and $164,000,          
respectively, bearing interest at a rate of 7.0% per annum.                     

8. OPERATING LEASES:                                                            

    The Companies lease various facilities and equipment under operating lease
agreements, including leases with related parties. These leases are             
noncancelable and expire on various dates through 2002. The lease agreements are
subject to renewal under essentially the same terms and conditions as the       
original leases.                                                                

Future minimum lease payments for operating leases are as follows:    

                                                                [Download Table]

YEAR ENDING                               RELATED       THIRD                 
DECEMBER 31,                              PARTIES      PARTIES        TOTAL   
------------                             ----------   ----------   -----------
                                                                              
   1997................................  $2,127,296   $  742,740   $ 2,870,036
   1998................................   2,122,296      742,740     2,865,036
   1999................................   1,728,796      742,740     2,471,536
   2000................................   1,432,296      742,740     2,175,036
   2001................................   1,432,296      308,055     1,740,351
   Thereafter..........................   1,030,296           --     1,030,296
                                         ----------   ----------   -----------
             Total.....................  $9,873,276   $3,279,015   $13,152,291
                                         ==========   ==========   ===========

   Total rent expense under all operating leases, including operating leases
with related parties, was approximately $2,074,000, $2,159,000 and $2,331,000   
for the years ended December 31, 1994, 1995                                     

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and 1996, respectively. Rental expense on related-party leases, which is        
included in the above amounts, totaled approximately $1,847,000, $1,942,000 and 
$1,960,000 for the years ended December 31, 1994, 1995 and 1996, respectively.  

9. INCOME TAXES:                                                                

    The S Corporations will terminate S Corporation status concurrent with the
effective date of the Offering.                                                 

Federal and state income taxes are as follows:                        

                                                                [Download Table]

                                                          DECEMBER 31,            
                                                --------------------------------- 
                                                  1994        1995        1996    
                                                --------    --------    --------- 
                                                                                  
Federal --                                                                        
  Current...................................... $614,059    $476,615    $ 586,642 
  Deferred.....................................   33,010     160,631     (261,857)
State --                                                                          
  Current......................................  114,584      76,914      110,741 
  Deferred.....................................    6,197      30,156      (53,774)
                                                --------    --------    --------- 
                                                $767,850    $744,316    $ 381,752 
                                                ========    ========    ========= 

Actual income tax expense differs from income tax expense computed by 
applying the U.S. federal statutory corporate tax rate of 34 percent to income  
before income taxes as follows:                                                 

                                                                [Download Table]

                                                         DECEMBER 31,              
                                            -------------------------------------- 
                                              1994          1995          1996     
                                            ---------    ----------    ----------- 
                                                                                   
Provision at the statutory rate............ $ 993,187    $1,489,032    $ 1,900,172 
Increase (decrease) resulting from --                                              
  Income of S Corporation..................  (391,102)     (877,106)    (1,584,686)
  State income tax, net of benefit for                                             
     federal deduction.....................    79,715        70,666         37,598 
  Other....................................    86,050        61,724         28,668 
                                            ---------    ----------    ----------- 
                                            $ 767,850    $  744,316    $   381,752 
                                            =========    ==========    =========== 

 Deferred income tax provisions result from temporary differences in the
recognition of income and expenses for financial reporting purposes and for tax 
purposes. The tax effects of these temporary differences representing deferred  
tax (assets) and liabilities result principally from the following:             

                                                                [Download Table]

                                                               DECEMBER 31,        
                                                        -------------------------- 
                                                           1995           1996     
                                                        -----------    ----------- 
                                                                                   
Inventory valuation.................................... $ 2,381,631    $ 2,637,029 
Reserves and accruals not deductible until paid........  (1,645,669)    (2,175,732)
Depreciation...........................................      40,411         58,604 
Other..................................................     (44,966)      (104,125)
                                                        -----------    ----------- 
                                                        $   731,407    $   415,776 
                                                        ===========    =========== 

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     The net deferred tax assets and liabilities are comprised of the following:

                                                                [Download Table]

                                                               DECEMBER 31,        
                                                        -------------------------- 
                                                           1995           1996     
                                                        -----------    ----------- 
                                                                                   
Deferred tax assets --                                                             
  Current.............................................. $(1,569,170)   $(2,144,789)
Deferred tax liabilities --                                                        
  Current..............................................   2,260,168      2,501,961 
  Long-term............................................      40,409         58,604 
                                                        -----------    ----------- 
          Total........................................   2,300,577      2,560,565 
                                                        -----------    ----------- 
          Net deferred income tax liabilities.......... $   731,407    $   415,776 
                                                        ===========    =========== 

10. COMMITMENTS AND CONTINGENCIES:                                              

Litigation                                                                  

The Companies are defendants in several lawsuits arising from normal  
business activities. Management has reviewed pending litigation with legal      
counsel and believes that the ultimate liability, if any, resulting from such   
actions will not have a material adverse effect on the Companies' financial     
position or results of operations.                                              

Insurance                                                                   

The Companies carry a standard range of insurance coverage, including 
general and business auto liability, commercial property, workers' compensation 
and excess liability coverage. The Companies have not incurred significant      
claims or losses on any of their insurance policies.                            

Stockholder Loans Guaranteed by the Companies                               

The principal stockholder of the Companies has various loans totaling 
$8,128,000 and $7,766,120 outstanding with a financial institution as of        
December 31, 1996 and June 30, 1997. The loans are guaranteed by Automall, BHC  
and BHT and are secured by all of the real estate, buildings and improvements at
the dealerships. The notes mature on various dates through 2004 and bear        
interest at prime less .5% (8.25% at December 31, 1996).                        

11. RETIREMENT PLAN:                                                            

Effective April 1, 1996, the Companies established a 401(k) salary    
deferral/savings plan for the benefit of all employees. Employees electing to   
participate in the plan may contribute up to 15% of annual compensation, limited
to the maximum amount that can be deducted for income tax purposes each year.   

The Companies, at their discretion, have the option to match each     
employee's contribution up to a maximum of 6% of annual compensation each plan  
year. The Companies elected to make contributions totaling $178,000 for the year
ended December 31, 1996.                                                        

12. PROPOSED ACQUISITION BY GROUP 1:                                            

    The stockholders of the Companies intend to enter into definitive purchase
agreements with Group 1 providing for the purchase of the Companies by Group 1. 
In conjunction with the acquisition of the Companies by Group 1, all existing   
operating leases with related parties will be restructured under new lease      
agreements and the principal stockholder of the Companies will either obtain    
releases for the Companies from the stockholder loan guarantees discussed above 
or will obtain alternative financing in order to obtain release from the        
stockholder loan guarantees.                                                    

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HOWARD GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) 

13. PRO FORMA BALANCE SHEET -- JUNE 30, 1997 (UNAUDITED)                        

   In conjunction with the proposed Acquisition by Group 1, the Howard Group
will make distributions from the S-Corporation accumulated adjustment accounts  
to certain shareholders totaling $4,500,000. The pro forma balance sheet as of  
June 30, 1997 gives effect to these distributions as of June 30, 1997.          

14. SUBSEQUENT EVENTS (UNAUDITED)                                               

    During 1997, an affiliate of the Howard Group entered into an agreement to
acquire, subject to manufacturer approval, a Chevrolet dealership in Tulsa,     
Oklahoma. The Howard Group has not received approval from the manufacturer, and 
in June 1997, entered into a management contract with the owner of the Chevrolet
dealership. Group 1 expects to enter into an agreement to acquire the Chevrolet 
dealership from the affiliate of the Howard Group for the assumption of the     
dealership's liabilities.                                                       

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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

TO MCCALL GROUP:                                                                

   We have audited the accompanying combined balance sheets of the companies
identified in Note 1 (the Companies) as of December 31, 1995 and 1996, and the  
related combined statements of operations, stockholders' deficit and cash flows 
for each of the three years in the period ended December 31, 1996. These        
financial statements are the responsibility of the Companies' management. Our   
responsibility is to express an opinion on these financial statements based on  
our audits.                                                                     

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain 
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting 
the amounts and disclosures in the financial statements. An audit also includes 
assessing the accounting principles used and significant estimates made by      
management, as well as evaluating the overall financial statement presentation. 
We believe that our audits provide a reasonable basis for our opinion.          

    In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Companies as of December
31, 1995 and 1996, and the results of their operations and their cash flows for 
each of the three years in the period ended December 31, 1996, in conformity    
with generally accepted accounting principles.                                  

ARTHUR ANDERSEN LLP                                                             
Houston, Texas                                                                  
May 9, 1997                                                                     

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MCCALL GROUP

COMBINED BALANCE SHEETS 

ASSETS

                                                        [Enlarge/Download Table]

                                                 DECEMBER 31,  DECEMBER 31,    JUNE 30,   
                                                     1995          1996          1997     
                                                 ------------  -------------  ----------- 
                                                                              (UNAUDITED) 
                                                                                          
CURRENT ASSETS:                                                                           
  Cash and cash equivalents..................... $20,628,784    $14,093,483   $10,427,402 
  Accounts receivable, net......................   3,535,825      4,407,835     2,689,166 
  Due from affiliates...........................   3,769,789      1,397,454     1,062,854 
  Inventories...................................  22,490,889     23,720,965    15,025,873 
  Notes receivable, net.........................     226,113        237,547       340,523 
  Prepaid expenses..............................     123,976        294,044       151,675 
  Deferred income tax benefit...................   1,972,348      1,769,529     1,735,044 
                                                 -----------    -----------   ----------- 
          Total current assets..................  52,747,724     45,920,857    31,432,537 
                                                 -----------    -----------   ----------- 
PROPERTY AND EQUIPMENT, net.....................   2,492,651      3,147,017     3,924,236 
LONG-TERM DEFERRED INCOME TAX BENEFIT...........          --        104,882       104,882 
OTHER ASSETS....................................     425,661      1,300,432     1,887,640 
                                                 -----------    -----------   ----------- 
          Total assets.......................... $55,666,036    $50,473,188   $37,349,295 
                                                 ===========    ===========   =========== 

LIABILITIES AND STOCKHOLDERS' DEFICIT                                                     

CURRENT LIABILITIES:                                                                      
  Floor plan notes payable...................... $35,940,161    $32,219,713   $20,216,458 
  Current maturities of long-term debt..........      28,553        146,303        78,736 
  Due to affiliates.............................     849,404        798,413     1,082,574 
  Accounts payable and accrued expenses.........  18,832,580     18,176,922    15,732,890 
                                                 -----------    -----------   ----------- 
          Total current liabilities.............  55,650,698     51,341,351    37,110,658 
                                                 -----------    -----------   ----------- 
LONG-TERM DEBT, net of current maturities.......     180,655        410,805       576,330 
LONG-TERM DEFERRED INCOME TAXES.................     112,250             --            -- 
OTHER LONG-TERM LIABILITIES.....................     150,000        427,000       412,124 
COMMITMENTS AND CONTINGENCIES                                                             
STOCKHOLDERS' DEFICIT:                                                                    
  Common stock..................................     125,800         71,278        71,278 
  Additional paid-in capital....................   2,930,419      3,222,043     3,222,043 
  Retained deficit..............................  (3,483,786)    (4,999,289)   (4,043,138)
                                                 -----------    -----------   ----------- 
          Total stockholders' deficit...........    (427,567)    (1,705,968)     (749,817)
                                                 -----------    -----------   ----------- 
          Total liabilities and stockholders'                                             
            deficit............................. $55,666,036    $50,473,188   $37,349,295 
                                                 ===========    ===========   =========== 

The accompanying notes are an integral part of these combined financial 
statements. 

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MCCALL GROUP

COMBINED STATEMENTS OF OPERATIONS 

                                                        [Enlarge/Download Table]

                                                                                  SIX MONTHS ENDED       
                                         YEAR ENDED DECEMBER 31,                      JUNE 30,           
                                ------------------------------------------   --------------------------- 
                                    1994           1995           1996           1996           1997     
                                ------------   ------------   ------------   ------------   ------------ 
                                                                                     (UNAUDITED)         
                                                                                                         
REVENUES:                                                                                                
  New vehicle sales............ $105,402,077   $125,809,681   $166,381,686   $ 78,632,836   $ 81,608,967 
  Used vehicle sales...........   49,871,793     68,332,375     90,895,516     44,236,716     49,796,182 
  Parts and service sales......   17,938,636     19,431,385     24,454,187     11,041,837     12,304,906 
  Other dealership revenues,                                                                             
     net.......................    4,107,658      5,314,141      6,810,908      3,304,178      3,242,694 
                                ------------   ------------   ------------   ------------   ------------ 
          Total revenues.......  177,320,164    218,887,582    288,542,297    137,215,567    146,952,749 
COST OF SALES:                                                                                           
  New vehicle cost of sales....   96,897,653    115,503,816    152,190,268     71,693,688     74,597,041 
  Used vehicle cost of sales...   46,511,037     64,157,498     84,806,452     41,238,717     47,659,535 
  Parts and service cost of                                                                              
     sales.....................    9,164,705      9,069,093     12,563,340      5,344,403      5,019,076 
                                ------------   ------------   ------------   ------------   ------------ 
          Total cost of                                                                                  
            sales..............  152,573,395    188,730,407    249,560,060    118,276,808    127,275,652 
                                ------------   ------------   ------------   ------------   ------------ 
          Gross profit.........   24,746,769     30,157,175     38,982,237     18,938,759     19,677,097 
SELLING, GENERAL AND                                                                                     
  ADMINISTRATIVE EXPENSES......   22,476,554     27,751,831     35,072,460     16,958,684     17,545,957 
                                ------------   ------------   ------------   ------------   ------------ 
          Income from                                                                                    
            operations.........    2,270,215      2,405,344      3,909,777      1,980,075      2,131,140 
OTHER INCOME AND EXPENSE:                                                                                
  Interest expense, net........   (2,462,618)    (3,215,245)    (2,747,719)    (1,526,344)      (503,525)
  Other expense, net...........       (6,511)       (43,735)       (45,094)       (27,635)       (34,029)
                                ------------   ------------   ------------   ------------   ------------ 
INCOME (LOSS) BEFORE INCOME                                                                              
  TAXES........................     (198,914)      (853,636)     1,116,964        426,096      1,593,586 
PROVISION FOR INCOME TAXES.....      232,173        282,887        177,772         71,584        637,435 
                                ------------   ------------   ------------   ------------   ------------ 
NET INCOME (LOSS).............. $   (431,087)  $ (1,136,523)  $    939,192   $    354,512   $    956,151 
                                ============   ============   ============   ============   ============ 

The accompanying notes are an integral part of these combined financial 
statements. 

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MCCALL GROUP

COMBINED STATEMENTS OF STOCKHOLDERS' DEFICIT

                                                        [Enlarge/Download Table]

                                                      ADDITIONAL                                           
                                            COMMON     PAID-IN    SUBSCRIPTIONS   RETAINED                 
                                            STOCK      CAPITAL     RECEIVABLE      DEFICIT        TOTAL    
                                           --------   ----------  -------------  -----------   ----------- 
                                                                                                           
BALANCE, December 31, 1993................ $ 94,600   $1,961,619    $      --    $(1,916,176)  $   140,043 
  Net loss................................       --           --           --       (431,087)     (431,087)
  Issuance of common stock................   31,200      968,800     (850,000)            --       150,000 
  Payments on subscriptions receivable....       --           --       11,317             --        11,317 
                                           --------   ----------    ---------    -----------   ----------- 
BALANCE, December 31, 1994................  125,800    2,930,419     (838,683)    (2,347,263)     (129,727)
  Net loss................................       --           --           --     (1,136,523)   (1,136,523)
  Payments on subscriptions receivable....       --           --      270,272             --       270,272 
  Settlement of subscriptions                                                                              
     receivable...........................       --           --      568,411             --       568,411 
                                           --------   ----------    ---------    -----------   ----------- 
BALANCE, December 31, 1995................  125,800    2,930,419           --     (3,483,786)     (427,567)
  Net income..............................       --           --           --        939,192       939,192 
  Dividend to parent under tax sharing                                                                     
     agreement............................       --           --           --       (323,590)     (323,590)
  Purchase and retirement of treasury                                                                      
     stock................................  (57,898)          --           --     (2,131,105)   (2,189,003)
  Stock issued to employees...............    3,376      291,624           --             --       295,000 
                                           --------   ----------    ---------    -----------   ----------- 
BALANCE, December 31, 1996................   71,278    3,222,043           --     (4,999,289)   (1,705,968)
  Net income (unaudited)..................       --           --           --        956,151       956,151 
                                           --------   ----------    ---------    -----------   ----------- 
BALANCE, June 30, 1997 (unaudited)........ $ 71,278   $3,222,043    $      --    $(4,043,138)  $  (749,817)
                                           ========   ==========    =========    ===========   =========== 

The accompanying notes are an integral part of these combined financial 
statements. 

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MCCALL GROUP

COMBINED STATEMENTS OF CASH FLOWS 

                                                        [Enlarge/Download Table]

                                                                                                              FOR THE            
                                                                                                          SIX MONTHS ENDED       
                                                                 YEAR ENDED DECEMBER 31,                      JUNE 30,           
                                                        -----------------------------------------   ---------------------------- 
                                                           1994           1995           1996           1996            1997     
                                                        -----------    -----------    -----------   ------------    ------------ 
                                                                                                            (UNAUDITED)          
                                                                                                                                 
CASH FLOWS FROM OPERATING ACTIVITIES:                                                                                            
  Net income (loss)...................................  $  (431,087)   $(1,136,523)   $   939,192   $    354,512    $    956,151 
  Adjustments to reconcile net income (loss) to net                                                                              
    cash provided by (used in) operating activities --                                                                           
    Depreciation and amortization.....................      387,093        439,402        598,278        281,292         248,615 
    Deferred income taxes.............................     (154,493)      (514,187)       (14,313)        (2,197)         34,485 
    Provision for loan losses and doubtful accounts...      226,530        208,972        357,860        165,313         139,035 
    Loss (gain) on sale of assets.....................      129,930        (23,259)        32,632         15,343              -- 
    Non-cash compensation.............................           --             --        295,000             --              -- 
    Tax carryforward benefited........................           --             --       (323,590)       (93,762)             -- 
    Changes in assets and liabilities --                                                                                         
      Accounts receivable.............................   (2,770,395)     2,651,367     (1,059,288)      (135,702)      1,523,669 
      Inventories.....................................   (2,172,325)    (3,085,245)    (1,230,076)       576,694       8,695,092 
      Due from affiliates, net........................    1,515,356     (1,565,588)       132,341       (786,325)        618,761 
      Prepaid expenses................................      274,449        (25,720)      (170,068)        13,899         142,369 
      Other assets....................................       30,262         (9,546)      (874,771)      (163,081)       (487,208)
      Floor plan notes payable........................   (1,113,893)    (2,058,861)    (3,720,448)    (9,909,815)    (12,003,255)
      Accounts payable and accrued expenses...........    2,579,781      7,695,141       (655,658)      (493,298)     (2,444,459)
      Other long term liabilities.....................           --             --        277,000        277,000         (14,876)
                                                        -----------    -----------    -----------   ------------    ------------ 
        Total adjustments.............................   (1,067,705)     3,712,476     (6,355,101)   (10,254,639)     (3,547,772)
                                                        -----------    -----------    -----------   ------------    ------------ 
        Net cash provided by (used in) operating                                                                                 
          activities..................................   (1,498,792)     2,575,953     (5,415,909)    (9,900,127)     (2,591,621)
                                                        -----------    -----------    -----------   ------------    ------------ 
CASH FLOWS FROM INVESTING ACTIVITIES:                                                                                            
  Increase in notes receivable........................   (1,390,560)      (909,260)    (1,151,783)      (837,412)     (1,071,200)
  Collections on notes receivable.....................    1,578,453      1,271,071        969,767        242,442         968,224 
  Purchases of property and equipment.................     (346,920)      (613,890)    (1,285,276)      (744,300)     (1,069,442)
                                                        -----------    -----------    -----------   ------------    ------------ 
        Net cash used in investing activities.........     (159,027)      (252,079)    (1,467,292)    (1,339,270)     (1,172,418)
                                                        -----------    -----------    -----------   ------------    ------------ 
CASH FLOWS FROM FINANCING ACTIVITIES:                                                                                            
  Principal payments of long-term debt................     (503,368)       (54,555)      (164,694)       (50,093)        (29,111)
  Borrowings of long-term debt........................           --        110,168        512,594        512,594         127,069 
  Payments on subscriptions receivable................       11,317        270,272             --             --              -- 
  Issuance of common stock............................      150,000             --             --             --              -- 
                                                        -----------    -----------    -----------   ------------    ------------ 
        Net cash provided by (used in) financing                                                                                 
          activities..................................     (342,051)       325,885        347,900        462,501          97,958 
                                                        -----------    -----------    -----------   ------------    ------------ 
NET INCREASE (DECREASE) IN CASH AND CASH                                                                                         
  EQUIVALENTS.........................................   (1,999,870)     2,649,759     (6,535,301)   (10,776,896)     (3,666,081)
CASH AND CASH EQUIVALENTS, beginning of period........   19,978,895     17,979,025     20,628,784     20,628,784      14,093,483 
                                                        -----------    -----------    -----------   ------------    ------------ 
CASH AND CASH EQUIVALENTS, end of period..............  $17,979,025    $20,628,784    $14,093,483   $  9,851,888      10,427,402 
                                                        ===========    ===========    ===========   ============    ============ 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:                                                                                
  Cash paid for --                                                                                                               
    Interest..........................................  $ 2,523,650    $ 3,253,486    $ 2,808,993   $  1,560,561    $  1,490,835 
    Taxes.............................................           --        227,090        818,962        286,388         168,200 
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND                                                                                
  FINANCING ACTIVITIES:                                                                                                          
  Receivables from stockholder forgiven in conjunction                                                                           
    with purchase of treasury stock...................           --             --      2,189,003             --              -- 
  Settlement of subscriptions receivable from                                                                                    
    stockholder in lieu of bonus......................           --        568,411             --             --              -- 
  Note received upon issuance of common stock.........      850,000             --             --             --              -- 

The accompanying notes are an integral part of these combined financial 
statements. 

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MCCALL GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS
(All discussions and disclosures with a reference date subsequent to May 9, 1997
are unaudited.) 

1. BUSINESS AND ORGANIZATION:                                                   

     McCall Group (the Companies) is primarily engaged in the retail sale of new
and used automobiles and the sale of the related finance, insurance and service 
contracts thereon. In addition, the Companies sell automotive parts, provide    
vehicle servicing and sell wholesale used vehicles.                             

The following companies are included within the combined group:       

  Southwest Toyota, Inc. (d.b.a. Sterling McCall Toyota) (SMT) -- SMT is a
Toyota dealership located in Houston, Texas.                                    

SMC Luxury Cars, Inc. (d.b.a. Sterling McCall Lexus) (SML) -- SML is a
Lexus dealership located in Houston, Texas.                                     

The Companies and their stockholders intend to enter into a definitive
agreement with Group 1 Automotive, Inc. (Group 1), pursuant to which all        
outstanding shares of the Companies' common stock will be exchanged for cash and
shares of Group 1's common stock concurrent with the consummation of the initial
public offering of the common stock of Group 1.                                 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:                                  

Basis of Presentation                                                       

    The accompanying combined financial statements include the accounts of SMT
and SML. The Companies have been presented on a combined basis due to their     
related operations, common ownership and common management control. All         
significant intercompany balances and transactions have been eliminated in      
combination. SMC Investments, Inc. (SMC) owns 100% of the issued and outstanding
stock of SML and approximately 51% of the stock of SMT. SMC is a separate       
holding company which does not operate in the automobile retailing industry and 
has not been included in the accompanying combined financial statements as it   
will not be acquired by Group 1.                                                

Major Suppliers and Franchise Agreements                                    

    The Companies purchase substantially all of their new vehicles from Toyota
Motor Corp. at the prevailing prices charged by the manufacturers to all        
franchised dealers. The Companies' sales volume could be adversely impacted by  
the manufacturers' inability to supply the dealership with an adequate supply of
popular models or as a result of an unfavorable allocation of vehicles by the   
manufacturer.                                                                   

    The dealer franchise agreements contain provisions which may limit changes
in dealership management and ownership, place certain restrictions on the       
dealerships (such as minimum net worth requirements) and which also provide for 
termination of the franchise agreement by the manufacturers in certain          
instances. Under certain state law, these restrictive provisions have been      
repeatedly found invalid both by state courts and administrative agencies. See  
"Risk Factors -- Manufacturers' Control Over Dealerships" and                   
"Business -- Franchise Agreements" for further discussion.                      

Revenue Recognition                                                         

   Revenue from vehicle sales, parts sales and vehicle service is recognized
upon delivery to the customer.                                                  

Fleet Sales                                                                 

  SMT periodically supplies vehicles to various rental car companies as an
accommodation to the manufacturer and to better utilize dealership capacity.    
These transactions generate nominal gross profit,                               

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MCCALL GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) 

and in management's opinion, do not represent sales in the normal course of     
business. Accordingly, sales of approximately $8.5 million, $7.7 million and    
$10.8 million and cost of sales of approximately $8.1 million, $7.5 million and 
$10.7 million have been excluded from the accompanying statements of operations 
for the years ended December 31, 1994, 1995 and 1996 as management believes     
excluding such amounts represents a more appropriate basis of presentation. The 
net profit on these wholesale fleet transactions is recorded as other dealership
revenues in the accompanying statements of operations.                          

Finance, Insurance and Service Contract Income Recognition                  

    The Companies arrange financing for customers through various institutions
and receive financing fees equal to the difference between the loan rates       
charged to customers over the predetermined financing rates set by the financing
institution. In addition, the Companies receive commissions from the sale of    
credit life and disability insurance and extended service contracts to          
customers.                                                                      

The Companies may be charged back (chargebacks) for unearned financing
fees, insurance or service contract commissions in the event of early           
termination of the contracts by customers. The revenues from financing fees and 
commissions are recorded at the time of the sale of the vehicles. The reserves  
for future chargebacks are based on historical operating results and the        
termination provisions of the applicable contracts. Finance, insurance and      
service contract income, net of estimated chargebacks, are included in other    
dealership revenue in the accompanying combined financial statements.           

Cash and Cash Equivalents                                                   

  Cash and cash equivalents include highly liquid investments that have an
original maturity of three months or less at the date of purchase and contracts 
in transit. Contracts in transit represent contracts on vehicles sold, for which
the proceeds are in transit from financing institutions.                        

Inventories                                                                 

New and demonstrator vehicles are stated at cost, determined on the   
last-in, first-out (LIFO) basis, which is not in excess of market.              

Used vehicles are stated at lower of cost or market, determined on a  
specific unit basis.                                                            

Parts and accessories are stated at the lower of cost (determined on a
first-in, first-out basis) or market.                                           

Property and Equipment                                                      

Property and equipment are recorded at cost and depreciated using the 
straight-line method over the estimated useful lives of the assets. Leasehold   
improvements are capitalized and amortized over the lesser of the life of the   
lease or the estimated life of the asset.                                       

  Expenditures for major additions or improvements which extend the useful
lives of assets are capitalized. Minor replacements, maintenance and repairs    
which do not improve or extend the life of such assets are charged to operations
as incurred. Disposals are removed at cost less accumulated depreciation, and   
any resulting gain or loss is reflected in current operations.                  

Income Taxes                                                                

     The Companies follow the liability method of accounting for income taxes in
accordance with Statement of Financial Accounting Standards (SFAS) No. 109.     
Under this method, deferred income                                              

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MCCALL GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) 

taxes are recorded based upon differences between the financial reporting and   
tax bases of assets and liabilities and are measured using the enacted tax rates
and laws that will be in effect when the underlying assets are realized or      
liabilities are settled. SML is a member of a consolidated group for tax        
reporting purposes. In accordance with SFAS No. 109, SML reports current and    
deferred tax expense using the separate return method, resulting in tax expense 
being recorded as if SML filed a separate company return for tax purposes. Under
this method, SML does not recognize benefits for net operating losses (NOL's) as
such amounts will not be refunded to SML by the consolidated group. These NOL   
carryforwards are offset against the provision for taxes in subsequent          
profitable years and treated as dividends to the parent when benefited. SMT is a
separate tax paying entity and is not a member of a consolidated group.         

Environmental Liabilities and Expenditures                                  

Accruals for environmental matters, if any, are recorded as operating 
expenses when it is probable that a liability has been incurred and the amount  
of the liability can be reasonably estimated. Accrued liabilities are exclusive 
of claims against third parties and are not discounted.                         

In general, costs related to environmental remediation are charged to 
expense. Environmental costs are capitalized if the costs increase the value of 
the property and/or mitigate or prevent contamination from future operations.   

Interest Expense                                                            

Automobile manufacturers periodically provide floorplan interest      
assistance, or subsidies, which reduce the Companies' cost of financing. The    
accompanying financial statements reflect interest expense net of floor plan    
assistance.                                                                     

Fair Value of Financial Instruments                                         

    The Companies' financial instruments consist primarily of floor plan notes
payable, notes receivable and long-term debt. The carrying amount of these      
financial instruments approximates fair value due either to length of maturity  
or existence of variable interest rates that approximate market rates.          

Advertising                                                                 

     The Company expenses production and other costs of advertising as incurred.
Advertising expense for the years ended December 31, 1994, 1995 and 1996 totaled
$1,961,488, $2,800,699 and $4,034,050, respectively.                            

Concentration of Credit Risk                                                

Financial instruments which potentially subject the Companies to a    
concentration of credit risk consist principally of cash, cash equivalents,     
contracts in transit and accounts receivable. The Company maintains cash        
balances at financial institutions which may at times be in excess of federally 
insured levels. The Companies grant credit to local companies in various        
businesses. The Companies perform ongoing credit evaluations of their customers 
and generally do not require collateral. The Companies maintain an allowance for
doubtful accounts at a level which management believes is sufficient to cover   
potential credit losses. The Companies have not incurred significant losses     
related to these financial instruments to date.                                 

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Use of Estimates                                                            

The preparation of financial statements in conformity with generally  
accepted accounting principles requires management to make estimates and        
assumptions in determining the reported amounts of assets and liabilities and   
disclosure of contingent assets and liabilities at the date of the financial    
statements and the reported amounts of revenues and expenses during the         
reporting period. The significant estimates made by management in the           
accompanying financial statements relate to reserves for future chargebacks on  
finance, insurance and service contract income and reserves for retail loan loss
guarantees (Notes 2 and 11, respectively). Actual results could differ from     
those estimates.                                                                

Interim Financial Information                                               

     As is normal and customary, the interim financial statements as of June 30,
1997, and for the six months ended June 30, 1996 and 1997, are unaudited, and   
certain information normally included in financial statements prepared in       
accordance with generally accepted accounting principles has not been included  
herein. In the opinion of management, all adjustments necessary to fairly       
present the financial position, results of operations and cash flows with       
respect to the interim financial statements, have been properly included. Due to
seasonality and other factors, the results of operations for the interim periods
are not necessarily indicative of the results that will be realized for the     
entire fiscal year.                                                             

Statements of Cash Flows                                                    

 For purposes of the statements of cash flows, cash and cash equivalents
include contracts in transit which are typically collected within one month or  
less. Additionally, the net change in floor plan financing of inventory, which  
is a customary financing technique in the industry, is reflected as an operating
activity in the statements of cash flows.                                       

New Accounting Pronouncement                                                

    Effective January 1, 1996, the Companies adopted SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." SFAS No. 121 requires that long-lived assets be reviewed for impairment    
whenever events or changes in circumstances indicate that the carrying amount of
the asset in question may not be recoverable. If an evaluation is required, the 
estimated future undiscounted cash flows associated with the asset would be     
compared to the asset's carrying amount to determine if a write-down to market  
value or discounted cash flow value is necessary. Adoption of this standard did 
not have a material effect on the financial position or results of operations of
the Companies.                                                                  

 During June 1996 and June 1997 the Financial Accounting Standards Board
(FASB) issued statement of Financial Accounting Standards (SFAS) No. 125        
"Accounting for Transfers and Servicing of Financial Assets and Extinguishment  
of Liabilities" and SFAS No. 130 "Reporting Comprehensive Income." The major    
provisions of these statements and their impact on the Company are discussed    
below.                                                                          

    SFAS No. 125 established criteria for recognition of a sale in conjunction
with the transfer of financial assets, under which sales may only be recognized 
when the transferor has surrendered control of the assets. This statement is not
currently anticipated to have any impact on the Company as the Company does not 
currently enter into transactions which fall under the scope of this statement. 

SFAS No. 130 requires the presentation of comprehensive income in an  
entity's financial statements. Comprehensive income represents all changes in   
equity of an entity during the reporting period, including net income and       
charges directly to equity which are excluded from net income. This statement is
not anticipated to have any impact on the Company as the Company currently does 
not enter into any                                                              

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transactions which result in charges (or credits) directly to equity (such as   
additional minimum pension liability changes, currency translation adjustments, 
unrealized gains and losses on available for sale securities, etc.).            

3. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:                                    

Accounts receivable consist of the following:                         

                                                                [Download Table]

                                                                 DECEMBER 31,       
                                                           ------------------------ 
                                                              1995          1996    
                                                           ----------    ---------- 
                                                                                    
Amounts due from manufacturers............................ $1,067,573    $1,192,275 
Parts and service receivables.............................    541,635       870,209 
Warranty receivables......................................    270,386       259,826 
Due from finance companies................................    984,521     1,204,624 
Other.....................................................    831,682     1,180,201 
                                                           ----------    ---------- 
                                                            3,695,797     4,707,135 
Less -- Allowance for doubtful accounts...................   (159,972)     (299,300)
                                                           ----------    ---------- 
                                                           $3,535,825    $4,407,835 
                                                           ==========    ========== 

    Activity in the Companies' allowance for doubtful accounts consists of the
following:                                                                      

                                                                [Download Table]

                                                           DECEMBER 31,             
                                               -------------------------------------
                                                 1994        1995          1996     
                                               --------    --------    -------------
                                                                                    
Balance, beginning of year.................... $ 33,427    $ 35,530      $159,972   
Additions charged to expense..................   35,530     159,972       187,278   
Deductions for uncollectible receivables                                            
  written off.................................  (33,427)    (35,530)      (47,950)  
                                               --------    --------      --------   
                                               $ 35,530    $159,972      $299,300   
                                               ========    ========      ========   

Inventories consist of the following:                                 

                                                                [Download Table]

                                                               DECEMBER 31,        
                                                        -------------------------- 
                                                           1995           1996     
                                                        -----------    ----------- 
                                                                                   
New vehicles........................................... $14,776,185    $13,918,424 
Used vehicles..........................................   8,258,953     11,050,657 
Parts, accessories and other...........................   1,502,030      1,566,156 
Rental vehicles........................................   2,452,290      1,674,747 
Accumulated LIFO Reserve...............................  (4,498,569)    (4,489,019)
                                                        -----------    ----------- 
                                                        $22,490,889    $23,720,965 
                                                        ===========    =========== 

   If the specific unit method of inventory were used, net income would have
increased (decreased) by approximately $111,000, $305,000 and $(9,000) for the  
years ended December 31, 1994, 1995 and 1996, respectively.                     

  Activity in the Companies' allowance for uncollectible notes consists of
the following:                                                                  

                                                                [Download Table]

                                                          DECEMBER 31,           
                                                 ------------------------------- 
                                                   1994       1995       1996    
                                                 --------   --------   --------- 
                                                                                 
Balance, beginning of year...................... $     --   $191,000   $ 240,000 
Additions charged to expense....................  191,000     49,000     170,580 
Deductions for uncollectible receivables                                         
  written-off...................................       --         --    (196,580)
                                                 --------   --------   --------- 
                                                 $191,000   $240,000   $ 214,000 
                                                 ========   ========   ========= 

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Accounts payable and accrued expenses consist of the following:       

                                                                [Download Table]

                                                               DECEMBER 31,       
                                                        --------------------------
                                                           1995           1996    
                                                        -----------    -----------
                                                                                  
Accounts payable, trade................................ $ 7,738,625    $ 7,452,034
Reserve for finance, insurance and service contract                               
  chargebacks..........................................   3,023,815      3,011,354
Reserve for retail loan guarantees.....................   1,471,000      1,965,000
Other accrued expenses.................................   6,599,140      5,748,534
                                                        -----------    -----------
                                                        $18,832,580    $18,176,922
                                                        ===========    ===========

4. PROPERTY AND EQUIPMENT:                                                      

Property and equipment consist of the following:                      

                                                                [Download Table]

                                            ESTIMATED           DECEMBER 31,        
                                           USEFUL LIVES  -------------------------- 
                                             IN YEARS       1995           1996     
                                           ------------  -----------    ----------- 
                                                                                    
Leasehold improvements....................      20       $ 2,054,158    $ 2,470,037 
Machinery and equipment...................      7            878,388      1,136,461 
Furniture and fixtures....................      7          2,090,443      2,622,636 
Autos and trucks..........................      5            348,875        380,626 
                                                         -----------    ----------- 
          Total...........................                 5,371,864      6,609,760 
Less -- Accumulated depreciation..........                (2,879,213)    (3,462,743)
                                                         -----------    ----------- 
          Property and equipment, net.....               $ 2,492,651    $ 3,147,017 
                                                         ===========    =========== 

5. FLOOR PLAN NOTES PAYABLE:                                                    

Floor plan notes payable reflect amounts payable for the purchase of  
specific vehicle inventory and consist of the following:                        

                                                                [Download Table]

                                                               DECEMBER 31,       
                                                        --------------------------
                                                           1995           1996    
                                                        -----------    -----------
                                                                                  
New vehicles........................................... $30,045,548    $24,398,255
Used vehicles..........................................   3,475,307      6,212,001
Rental vehicles........................................   2,419,306      1,609,457
                                                        -----------    -----------
          Total floor plan notes payable............... $35,940,161    $32,219,713
                                                        ===========    ===========

Floorplan notes payable are due to various floor plan lenders, bearing
interest at rates ranging from prime plus .5% to prime plus 1.5%. As of December
31, 1995 and 1996, the weighted average interest rate on floorplan notes payable
outstanding was 9.41 and 8.99 percent. Interest expense on floorplan notes      
payable, before manufacturer interest assistance, totaled approximately         
$2,369,000, $3,096,000 and $2,498,000 for the years ended December 31, 1994,    
1995 and 1996. Manufacturer interest assistance, which is recorded as a         
reduction to interest expense in the accompanying financial statements, totaled 
approximately $82,000, $91,000 and $136,000 for the years ended December 31,    
1994, 1995 and 1996. The flooring arrangements permit the Companies to borrow up
to $38,300,000 dependent upon new and used vehicle sales and inventory levels.  
As of December 31, 1996, total available borrowings under the floorplan         
agreements were approximately $6,080,000. Payments on the notes are due when the
related vehicles are sold and are collateralized by substantially all new and   
used vehicles.                                                                  

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6. LONG-TERM DEBT:                                                              

Long-term debt consists of the following:                             

                                                                [Download Table]

                                                                 DECEMBER 31,      
                                                             --------------------- 
                                                               1995        1996    
                                                             --------    --------- 
                                                                                   
Note payable to floorplan institution, principal payable in                        
  monthly installments of $5,000 through August 2001,                              
  interest payable monthly at lender's available financing                         
  rate plus 1.5% (9.3% at December 31, 1996)................ $     --    $ 275,000 
Other notes payable, maturing in varying amounts through                           
  April 2001, with interest ranging from 5.5% to 9.6% at                           
  December 31, 1996.........................................  209,208      282,108 
                                                             --------    --------- 
                                                              209,208      557,108 
Less -- Current portion.....................................  (28,553)    (146,303)
                                                             --------    --------- 
                                                             $180,655    $ 410,805 
                                                             ========    ========= 

    The aggregate maturities of long-term debt as of December 31, 1996, are as
follows:                                                                        

                                                                [Download Table]

YEAR ENDING                                                                   
DECEMBER 31,                                                                  
------------                                                                  
                                                                              
   1997.............................................................  $146,303
   1998.............................................................   141,666
   1999.............................................................   124,378
   2000.............................................................   103,906
   2001.............................................................    40,855
                                                                      --------
                                                                      $557,108
                                                                      ========

7. STOCKHOLDERS' EQUITY:                                                        

Capital stock consists of the following as of December 31, 1996:      

                                                                [Download Table]

                                         AUTHORIZED  ISSUED   OUTSTANDING  PAR VALUE
                                         ----------  -------  -----------  ---------
                                                                                    
Sterling McCall Toyota..................   500,000    70,278     70,278      $1.00  
Sterling McCall Lexus................... 1,000,000   100,000    100,000        .01  

Treasury Stock Transactions                                                 

 During 1996, SMT and its principal stockholder entered into a series of
treasury stock transactions in which SMT repurchased 57,898 shares of common    
stock from its principal stockholder. In conjunction with these transactions,   
SMT forgave approximately $2,189,000 of related party receivables due from      
various entities owned by the principal stockholder. As part of these           
transactions, SMT has agreed to repurchase in certain instances, up to 4,502    
additional shares of stock from its principal stockholder in exchange for a note
payable in the amount of $2 million. This repurchase provision will be cancelled
concurrently with an initial public offering of stock by the Companies. The     
shares repurchased by SMT have been constructively retired for financial        
reporting purposes.                                                             

Restricted Stock Awards                                                     

  During December 1996, the Companies granted 3,376 shares of stock to two
employees as compensation for prior services. The shares were issued as of the  
grant date and the Companies                                                    

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recorded compensation expense of $295,000 related to these shares based on the  
estimated fair market value of the shares as of the grant date. The shares      
issued are subject to various restrictions relating to transferability and      
resale, and contain a right of first refusal for repurchase by the Companies.   

8. RELATED-PARTY TRANSACTIONS:                                                  

Operating Leases                                                            

    SMT and SML lease land, facilities and equipment from limited partnerships
and other entities controlled by the majority stockholder of the Companies under
operating leases. Additional information regarding the terms of these leases is 
contained in Note 9 "Operating Leases".                                         

Stockholder Loan Guarantees                                                 

  The Companies have provided guarantees and/or pledged assets as security
for certain outstanding loan obligations of various related parties. See Note 11
"Commitments and Contingencies," for discussion of guarantee and security       
arrangements provided on behalf of related parties.                             

Company Indebtedness Guaranteed by Stockholder                              

     The principal stockholder of the Companies has provided personal guarantees
relating to the repayment of long term debt and floorplan obligations incurred  
by the Companies. As of December 31, 1996 and June 30, 1997, floorplan          
obligations guaranteed by the principal stockholder totaled approximately $32.2 
and $20.2 million, respectively, and long term debt obligations totaled         
approximately $.3 and $.2 million, respectively. In addition to the above       
guarantees, the principal stockholder has also provided a personal guarantee    
related to loan guarantees on second chance finance customers (see Note 11). As 
of December 31, 1996 and June 30, 1997, customer notes outstanding which were   
guaranteed by the Companies and the stockholder totaled approximately $10.4     
million and $10.2 million, respectively.                                        

Commissions and Management Fees                                             

The Companies sell credit life and disability insurance policies and  
extended service contracts which are underwritten by three companies owned by   
the principal stockholders of the Companies, as well as similar products        
provided by third parties. The Companies also sell various aftermarket products 
from certain companies owned by the principal stockholders of the Companies. The
principal stockholders currently have agreements in place with these entities   
which decrease the fees and commissions paid to the dealerships for the sale of 
credit life and disability insurance policies and extended service contracts,   
and increase the cost of aftermarket products. The amounts withheld under these 
agreements are paid directly to the principal stockholders. Approximately       
$675,700, $1,131,500 and $1,591,000 was withheld and paid to the stockholders   
under the agreements described above, during the years ended December 31, 1994, 
1995 and 1996, respectively.                                                    

    The Companies pay management fees plus certain allocated and out of pocket
expenses to an entity owned by the principal stockholder of the Companies for   
consultation and direct management assistance with respect to operations and    
strategic planning. Management fee expense totaled approximately $1,076,400,    
$1,255,800 and $1,443,000 for the years ended December 31, 1994, 1995 and 1996, 
respectively.                                                                   

Financing Arrangements                                                      

The dealerships arrange financing for certain second chance finance   
customers through an entity owned by the principal stockholder of the Companies.
The dealerships pay a financing fee of 2% on these                              

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finance contracts, and such contracts are non-recourse to the dealerships. Total
financing fees paid to this entity for the years ended December 31, 1994, 1995  
and 1996 were approximately $--, $95,000 and $360,000. In addition to providing 
financing for second chance finance customers, this entity also provides loan   
servicing, collection and repossession services to the Companies related to     
defaulted loans which have been repurchased by the Companies under a financing  
arrangement with a third party lender. (See Note 11).                           

The Companies have entered into a floorplan agreement with a financing
company owned by the principal stockholder which allows for a maximum of        
$1,000,000 in borrowing capacity. As of December 31, 1995 and 1996,             
approximately $709,200 and $619,100, respectively, of floorplan notes payable   
under this agreement are included in due to affiliates in the accompanying      
financial statements and disclosed in the detail of related party balances      
presented herewithin. Borrowings under the floorplan agreement bear interest at 
11.75%.                                                                         

Advances to Group 1                                                         

    The Companies have consummated a loan with Group 1 in order to finance the
expenses of Group 1 prior to the acquisition. The balance of this loan at       
December 31, 1996 and June 30, 1997 was approximately $48,000 and $403,000,     
respectively, bearing interest at a rate of 7.0% per annum.                     

Other                                                                       

  The Companies have various balances payable to the principal stockholder
and related entities owned by the principal stockholder which have resulted from
short term working capital advances to the Companies by the principal           
stockholder, as well as for amounts incurred under the financing agreement      
discussed previously. Additionally, the Companies have various balances         
receivable from the principal stockholder and related entities owned by the     
principal stockholder which have resulted from short term advances by the       
Companies. The table below sets forth the significant components of the amounts 
due to/from related parties in the accompanying combined balance sheets:        

                                                        [Enlarge/Download Table]

                                                                   DECEMBER 31,        
                                                            ---------------------------
                                                                1995           1996    
                                                            ------------   ------------
                                                                                       
Due from affiliated finance entity.........................  $  509,889     $  778,460 
Receivable from principal stockholder, other...............   3,259,900        618,994 
                                                             ----------     ---------- 
Total due from affiliates..................................  $3,769,789     $1,397,454 
                                                             ==========     ========== 
Due to affiliated floor plan company.......................  $  709,218     $  619,138 
Due to principal stockholder, other........................     140,186        179,275 
                                                             ----------     ---------- 
Total due to affiliates....................................  $  849,404     $  798,413 
                                                             ==========     ========== 

    At June 30, 1997 the aggregate of these balances resulted in a net payable
to the principal stockholder of approximately $19,700. Subsequent to June 30,   
1997, SMT executed two additional notes payable to entities owned by the        
principal stockholder. These notes payable total $495,000, bear interest at     
9 1/4%, and are due January 15, 1998.                                           

9. OPERATING LEASES:                                                            

    The Companies lease various facilities and equipment under operating lease
agreements, including leases with related parties. These leases are             
noncancelable and expire on various dates through 2006. The lease agreements are
subject to renewal under essentially the same terms and conditions as the       
original leases.                                                                

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Future minimum lease payments for operating leases are as follows:    

                                                                [Download Table]

           YEAR ENDING               RELATED        THIRD                  
           DECEMBER 31,              PARTIES       PARTIES         TOTAL   
----------------------------------  ----------    ----------    -----------
                                                                           
     1997.........................  $1,842,000    $  411,556    $ 2,253,556
     1998.........................   1,842,000       354,084      2,196,084
     1999.........................   1,842,000       234,590      2,076,590
     2000.........................   1,842,000       161,908      2,003,908
     2001.........................   1,282,000        73,982      1,355,982
     Thereafter...................     648,000            --        648,000
                                    ----------    ----------    -----------
                                    $9,298,000    $1,236,120    $10,534,120
                                    ==========    ==========    ===========

   Total rent expense under all operating leases, including operating leases
with related parties, was approximately $1,636,000, $1,906,000 and $2,030,000   
for the years ended December 31, 1994, 1995 and 1996, respectively. Rental      
expense on related-party leases, which is included in the above amounts, totaled
$1,487,000, $1,543,000 and $1,627,000 for the years ended December 31, 1994,    
1995 and 1996, respectively.                                                    

10. INCOME TAXES:                                                               

     The Companies are subject to a Texas franchise tax which is an income based
tax. Federal and state income taxes are as follows:                             

                                                                [Download Table]

                                                           DECEMBER 31,           
                                                 -------------------------------- 
                                                   1994        1995        1996   
                                                 ---------   ---------   -------- 
                                                                                  
Federal --                                                                        
  Current....................................... $ 341,971   $ 695,074   $168,053 
  Deferred......................................  (133,085)   (466,528)   (12,618)
State --                                                                          
  Current.......................................    44,695     102,000     24,032 
  Deferred......................................   (21,408)    (47,659)    (1,695)
                                                 ---------   ---------   -------- 
                                                 $ 232,173   $ 282,887   $177,772 
                                                 =========   =========   ======== 

Actual income tax expense differs from income tax expense computed by 
applying the U.S. federal statutory corporate tax rate of 34 percent to income  
before income taxes as follows:                                                 

                                                                [Download Table]

                                                           DECEMBER 31,           
                                                  ------------------------------- 
                                                    1994       1995        1996   
                                                  --------   ---------   -------- 
                                                                                  
Provision (benefit) at the statutory rate........ $(67,631)  $(290,236)  $379,768 
Increase (decrease) resulting from --                                             
  State income tax, net of benefit for federal                                    
     deduction...................................   15,369      35,865     14,742 
  SML NOL (benefited) not benefited..............  184,144     584,795   (323,590)
  Other..........................................  100,291     (47,537)   106,852 
                                                  --------   ---------   -------- 
                                                  $232,173   $ 282,887   $177,772 
                                                  ========   =========   ======== 

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 Deferred income tax provisions result from temporary differences in the
recognition of income and expenses for financial reporting purposes and for tax 
purposes. The tax effects of these temporary differences representing deferred  
tax assets and liabilities result principally from the following:               

                                                                [Download Table]

                                                                 DECEMBER 31,      
                                                           ------------------------
                                                              1995          1996   
                                                           ----------    ----------
                                                                                   
Reserves and accruals not deductible until paid........... $1,760,860    $1,779,755
Other.....................................................     99,238        94,656
                                                           ----------    ----------
                                                           $1,860,098    $1,874,411
                                                           ==========    ==========

     The net deferred tax assets and liabilities are comprised of the following:

                                                                [Download Table]

                                                                 DECEMBER 31,       
                                                           ------------------------ 
                                                              1995          1996    
                                                           ----------    ---------- 
                                                                                    
Deferred tax assets --                                                              
  Current................................................. $1,972,348    $1,773,229 
  Long-term...............................................      7,200       182,711 
                                                           ----------    ---------- 
          Total...........................................  1,979,548     1,955,940 
                                                           ----------    ---------- 
Deferred tax liabilities --                                                         
  Current.................................................         --        (6,836)
  Long-term...............................................   (119,450)      (74,693)
                                                           ----------    ---------- 
          Total...........................................   (119,450)      (81,529)
                                                           ----------    ---------- 
          Net deferred income tax assets.................. $1,860,098    $1,874,411 
                                                           ==========    ========== 

 As discussed in Note 2, SML is a member of a consolidated group for tax
reporting purposes and reports income taxes under the separate return method.   
During 1994 and 1995, SML did not record tax benefits of approximately $184,000 
and $585,000 related to net operating losses as such amounts would not be       
reimbursed by the consolidated group. During 1996, approximately $323,600 of    
these benefits were offset against the provision for taxes and accounted for as 
a dividend in the accompanying statement of stockholders' equity.               

11. COMMITMENTS AND CONTINGENCIES:                                              

Litigation                                                                  

The Companies are defendants in several lawsuits arising from normal  
business activities. Management has reviewed pending litigation with legal      
counsel and believes that the ultimate liability, if any, resulting from such   
action will not have a material adverse effect on the Companies' financial      
position or results of operations.                                              

Insurance                                                                   

The Companies carry a standard range of insurance coverage, including 
general and business auto liability, commercial property, workers' compensation 
and excess liability coverage. The Companies have not incurred significant      
claims or losses on any of their insurance policies.                            

Loan Guarantees Provided on Second Chance Financing                         

     The Companies provide second-chance financing for certain customers through
a third party lender. Under the terms of this financing contract, customers     
execute installment contracts which are guaranteed with full recourse by the    
Companies. The Companies surrender all rights to the future economic benefits   
related to the receivables; however, in the event that the customer defaults on 
the note, the                                                                   

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lender requires repayment of the principal amount of the note plus earned       
interest through the date of default, with repossession of the vehicle to be    
performed by the applicable dealership. The Companies do not have the ability to
repurchase these receivables from the lender, and may only be required to       
repurchase the receivables from the Lender in the event of default by the       
customer. During the years ended December 31, 1994, 1995 and 1996, the Companies
sold approximately $3,518,000, $4,492,000 and $7,471,000, respectively, in full 
recourse loans to the lender.                                                   

   Total customer notes outstanding guaranteed by the dealership at December
31, 1995 and 1996 and June 30, 1997 were approximately $7,413,000, $10,434,000  
and $10,190,000, respectively. The principal stockholder of the Companies has   
also provided a personal guarantee to the lender related to repayment of these  
customer notes. The Companies have provided reserves for future loan losses     
based on historical loss trends and total guarantees outstanding.               

Activity in the Companies' reserve account consists of the following: 

                                                        [Enlarge/Download Table]

                                                                   DECEMBER 31,             
                                                       ------------------------------------ 
                                                          1994         1995         1996    
                                                       ----------   ----------   ---------- 
                                                                                            
Balance, beginning of year............................ $1,436,000   $1,360,000   $1,471,000 
Additions charged to expense..........................    124,000      343,000    1,033,000 
Deductions for loans written off......................   (200,000)    (232,000)    (539,000)
                                                       ----------   ----------   ---------- 
                                                       $1,360,000   $1,471,000   $1,965,000 
                                                       ==========   ==========   ========== 

Stockholder Loan Guarantees                                                 

    The principal stockholder of the Companies has a $6,857,000 line-of-credit
outstanding with a financial institution as of December 31, 1996, which is      
guaranteed by SMT and SML and is secured by all of the real estate, buildings   
and improvements at the dealerships. The line of credit expires in January 2000;
however, the agreement contains a provision for two additional five-year renewal
periods. The line of credit bears interest at the lender's available financing  
rate plus one and one quarter percent (9.03% at December 31, 1996). As of       
December 31, 1996 and June 30, 1997, there was approximately $4.7 million and   
$4.6, respectively, outstanding on the line-of-credit.                          

 The principal stockholder of the Companies has a $1.5 million revolving
line of credit outstanding with a financial institution as of December 31, 1996,
which is guaranteed by SMT and SML. The line of credit is payable in monthly    
installments of $10,000 plus interest and bears interest at prime plus three    
percent (11.25% at December 31, 1996). As of December 31, 1996 and June 30,     
1997, there was approximately $1,400,000 and $960,000, respectively, outstanding
on the line of credit.                                                          

     The principal stockholder of the Companies has a $2 million note payable to
a financial institution at December 31, 1996, which is guaranteed by SML. The   
note matured on May 13, 1997, and accrued interest at the financial             
institution's base rate of interest (9.25% at December 31, 1996). The note was  
extended until July 12, 1997 at maturity and was repaid in July, (see below). As
of December 31, 1996 and June 30, 1997, there was approximately $1,900,000 and  
$2,000,000, respectively, outstanding on the note.                              

     The principal stockholder of the Companies also has a $480,000 note payable
to a financial institution at December 31, 1996, which is guaranteed by SML. The
note is payable in monthly installments of $6,277, including interest, through  
December 2005 and bears interest at prime plus one percent (9.25% at December   
31, 1996). As of December 31, 1996 and June 30, 1997, there was approximately   
$447,000 and $433,000, respectively, outstanding on the note.                   

  Subsequent to year end, an affiliate of the principal stockholder of the
Companies entered into a $3.4 million loan with a financial institution which is
guaranteed by SML and secured by all of the real                                

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MCCALL GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) 

estate, buildings and improvements at the dealership. The loan matures in July  
2002 (and contains three five-year renewal options) and bears interest at a     
variable rate of LIBOR plus 2.5%. At June 30, 1997 there were no amounts        
outstanding on the loan. The note was funded during July and a portion of the   
proceeds were utilized to repay the $2 million note discussed above.            

12. PROPOSED ACQUISITION BY GROUP 1:                                            

    The stockholders of the Companies intend to enter into definitive purchase
agreements with Group 1 providing for the acquisition of the Companies by Group 
1. In conjunction with the acquisition of the Companies by Group 1, all existing
operating leases with related parties will be restructured under new lease      
agreements and the principal stockholder of the Companies will obtain releases  
for the Companies from the stockholder loan guarantees discussed above.         

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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Smith Group:                                                                 

   We have audited the accompanying combined balance sheets of the companies
identified in Note 1 (the Companies) as of December 31, 1995 and 1996, and the  
related combined statements of operations, stockholders' equity and cash flows  
for each of the three years in the period ended December 31, 1996. These        
financial statements are the responsibility of the Companies' management. Our   
responsibility is to express an opinion on these financial statements based on  
our audits.                                                                     

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain 
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting 
the amounts and disclosures in the financial statements. An audit also includes 
assessing the accounting principles used and significant estimates made by      
management, as well as evaluating the overall financial statement presentation. 
We believe that our audits provide a reasonable basis for our opinion.          

    In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Companies as of December
31, 1995 and 1996, and the results of their operations and their cash flows for 
each of the three years in the period ended December 31, 1996, in conformity    
with generally accepted accounting principles.                                  

ARTHUR ANDERSEN LLP                                                             
Houston, Texas                                                                  
May 9, 1997                                                                     

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SMITH GROUP 

COMBINED BALANCE SHEETS 

ASSETS

                                                        [Enlarge/Download Table]

                                                 DECEMBER 31,  DECEMBER 31,   JUNE 30,   
                                                     1995          1996         1997     
                                                 ------------  ------------  ----------- 
                                                                             (UNAUDITED) 
                                                                                         
CURRENT ASSETS:                                                                          
  Cash and cash equivalents..................... $ 7,736,878   $ 9,069,829   $ 9,405,257 
  Accounts receivable, net......................   4,485,359     4,467,590     4,876,051 
  Due from affiliates...........................      46,007        14,580            -- 
  Inventories...................................  27,946,621    30,637,433    33,099,771 
  Prepaid expenses..............................     200,585       185,218       641,495 
  Deferred income tax benefit...................     246,543       182,081       182,081 
                                                 -----------   -----------   ----------- 
          Total current assets..................  40,661,993    44,556,731    48,204,655 
PROPERTY AND EQUIPMENT, net.....................   9,667,539     9,819,994     9,935,715 
GOODWILL, net...................................   2,387,514     2,322,307     2,281,636 
OTHER ASSETS....................................     209,951       689,453       550,452 
                                                 -----------   -----------   ----------- 
          Total assets.......................... $52,926,997   $57,388,485   $60,972,458 
                                                 ===========   ===========   =========== 

LIABILITIES AND STOCKHOLDERS' EQUITY                                                     

CURRENT LIABILITIES:                                                                     
  Floor plan notes payable...................... $27,424,232   $30,676,725   $33,522,252 
  Current maturities of long-term debt..........     775,844       949,565     1,034,180 
  Accounts payable and accrued expenses.........   8,163,483     8,509,815     9,272,030 
                                                 -----------   -----------   ----------- 
          Total current liabilities.............  36,363,559    40,136,105    43,828,462 
                                                 -----------   -----------   ----------- 
LONG-TERM DEBT, net of current maturities.......   5,607,581     5,006,474     4,493,037 
LONG-TERM DEFERRED INCOME TAXES.................     246,234       217,611       197,611 
COMMITMENTS AND CONTINGENCIES                                                            
STOCKHOLDERS' EQUITY:                                                                    
  Common stock..................................       2,090         3,090         3,090 
  Additional paid-in capital....................   5,890,228     6,369,228     6,369,228 
  Retained earnings.............................   5,212,602     6,051,274     6,476,327 
  Treasury stock, at cost.......................    (395,297)     (395,297)     (395,297)
                                                 -----------   -----------   ----------- 
          Total stockholders' equity............  10,709,623    12,028,295    12,453,348 
                                                 -----------   -----------   ----------- 
          Total liabilities and stockholders'                                            
            equity.............................. $52,926,997   $57,388,485   $60,972,458 
                                                 ===========   ===========   =========== 

The accompanying notes are an integral part of these combined financial 
statements. 

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SMITH GROUP 

COMBINED STATEMENTS OF OPERATIONS 

                                                        [Enlarge/Download Table]

                                                                              FOR THE SIX MONTHS ENDED   
                                         YEAR ENDED DECEMBER 31,                      JUNE 30,           
                                ------------------------------------------   --------------------------- 
                                    1994           1995           1996           1996           1997     
                                ------------   ------------   ------------   ------------   ------------ 
                                                                                     (UNAUDITED)         
                                                                                                         
REVENUES:                                                                                                
  New vehicle sales............ $136,916,929   $132,149,669   $124,173,950   $ 59,437,192   $ 75,203,290 
  Used vehicle sales...........   49,548,703     57,363,332     60,579,545     32,072,688     35,153,070 
  Parts and service sales......   25,501,449     26,237,774     28,630,577     14,045,021     14,081,839 
  Other dealership revenues,                                                                             
     net.......................    5,109,438      5,506,759      4,895,329      2,618,280      3,020,378 
                                ------------   ------------   ------------   ------------   ------------ 
          Total revenues.......  217,076,519    221,257,534    218,279,401    108,173,181    127,458,577 
COST OF SALES:                                                                                           
  New vehicle cost of sales....  129,474,515    124,266,917    116,236,702     55,903,767     69,291,957 
  Used vehicle cost of sales...   45,972,361     53,162,956     56,247,629     29,697,853     32,521,318 
  Parts and service cost of                                                                              
     sales.....................   14,473,261     15,234,938     16,684,932      8,228,910      8,100,711 
                                ------------   ------------   ------------   ------------   ------------ 
          Total cost of                                                                                  
            sales..............  189,920,137    192,664,811    189,169,263     93,830,530    109,913,986 
                                ------------   ------------   ------------   ------------   ------------ 
          Gross profit.........   27,156,382     28,592,723     29,110,138     14,342,651     17,544,591 
SELLING, GENERAL AND                                                                                     
  ADMINISTRATIVE EXPENSES......   21,726,879     22,823,685     23,710,904     11,575,049     13,845,857 
                                ------------   ------------   ------------   ------------   ------------ 
          Income from                                                                                    
            operations.........    5,429,503      5,769,038      5,399,234      2,767,602      3,698,734 
OTHER INCOME AND EXPENSE:                                                                                
  Interest expense, net........   (2,146,562)    (2,955,787)    (1,710,157)      (825,120)      (940,371)
  Other income (expense), net..      (28,869)       202,134        222,470         18,359        (19,035)
                                ------------   ------------   ------------   ------------   ------------ 
INCOME BEFORE INCOME                                                                                     
  TAXES........................    3,254,072      3,015,385      3,911,547      1,960,841      2,739,328 
PROVISION FOR INCOME                                                                                     
  TAXES........................      455,385        562,415        677,751        322,136        531,563 
                                ------------   ------------   ------------   ------------   ------------ 
NET INCOME..................... $  2,798,687   $  2,452,970   $  3,233,796   $  1,638,705   $  2,207,765 
                                ============   ============   ============   ============   ============ 
S-Corporation pro forma income                                                                           
  taxes (unaudited)............      797,433        598,508        828,195        432,788        523,078 
                                ------------   ------------   ------------   ------------   ------------ 
Pro forma net income                                                                                     
  (unaudited).................. $  2,001,254   $  1,854,462   $  2,405,601   $  1,205,917   $  1,684,687 
                                ============   ============   ============   ============   ============ 

The accompanying notes are an integral part of these combined financial 
statements. 

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SMITH GROUP 

COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY 

                                                        [Enlarge/Download Table]

                                          ADDITIONAL                                        
                                  COMMON   PAID-IN     RETAINED     TREASURY                
                                  STOCK    CAPITAL     EARNINGS       STOCK        TOTAL    
                                  ------  ----------  -----------   ---------   ----------- 
                                                                                            
BALANCE, December 31, 1993....... $2,090  $5,890,228  $ 3,306,098   $(395,297)  $ 8,803,119 
  Net income.....................    --           --    2,798,687          --     2,798,687 
  Dividends......................    --           --   (1,787,914)         --    (1,787,914)
                                  ------  ----------  -----------   ---------   ----------- 
BALANCE, December 31, 1994....... 2,090    5,890,228    4,316,871    (395,297)    9,813,892 
  Net income.....................    --           --    2,452,970          --     2,452,970 
  Dividends......................    --           --   (1,557,239)         --    (1,557,239)
                                  ------  ----------  -----------   ---------   ----------- 
BALANCE, December 31, 1995....... 2,090    5,890,228    5,212,602    (395,297)   10,709,623 
  Net income.....................    --           --    3,233,796          --     3,233,796 
  Issuance of common stock....... 1,000      479,000           --          --       480,000 
  Dividends......................    --           --   (2,395,124)         --    (2,395,124)
                                  ------  ----------  -----------   ---------   ----------- 
BALANCE, December 31, 1996....... 3,090    6,369,228    6,051,274    (395,297)   12,028,295 
  Net income (unaudited).........    --           --    2,207,765          --     2,207,765 
  Dividends (unaudited)..........    --           --   (1,782,712)         --    (1,782,712)
                                  ------  ----------  -----------   ---------   ----------- 
BALANCE, March 31, 1997                                                                     
  (unaudited).................... $3,090  $6,369,228  $ 6,476,327   $(395,297)  $12,453,348 
                                  ======  ==========  ===========   =========   =========== 

The accompanying notes are an integral part of these combined financial 
statements. 

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SMITH GROUP 

COMBINED STATEMENTS OF CASH FLOWS 

                                                        [Enlarge/Download Table]

                                                                                      FOR THE         
                                                                                 SIX MONTHS ENDED     
                                             YEAR ENDED DECEMBER 31,                 JUNE 30,         
                                       ------------------------------------   ----------------------- 
                                          1994         1995         1996         1996         1997    
                                       ----------   ----------   ----------   ----------   ---------- 
                                                                                     UNAUDITED        
                                                                                                      
CASH FLOWS FROM OPERATING ACTIVITIES:                                                                 
  Net income.......................... $2,798,687   $2,452,970   $3,233,796   $1,638,705   $2,207,565 
                                       ----------   ----------   ----------   ----------   ---------- 
  Adjustments to reconcile net income                                                                 
    to net cash provided by operating                                                                 
    activities --                                                                                     
    Depreciation and amortization.....    586,847      669,312      719,991      358,701      306,904 
    LIFO reserve......................    510,715       78,061       35,489           --      (68,681)
    Deferred income taxes.............     (1,258)      29,389       35,839       17,561      (20,000)
    Provision for doubtful accounts...     64,357       61,460       49,729       26,207       37,197 
    Loss (gain) on sale of assets.....     51,662      (74,258)      65,088       32,245           -- 
    Changes in assets and                                                                             
      liabilities --                                                                                  
      Accounts receivable............. (1,051,312)  (1,207,158)     (31,960)     519,041     (445,658)
      Inventories..................... (1,860,114)      (4,323)  (2,726,301)  (2,180,430)  (2,393,657)
      Due from affiliates, net........     92,489     (136,650)      31,427       36,307       14,580 
      Prepaid expenses................    (63,039)     264,974     (182,521)    (182,521)    (456,277)
      Other assets....................    159,412      (12,073)    (493,584)      50,610      158,866 
      Floor plan notes payable........  1,395,865    2,175,223    3,252,493      769,874    2,845,527 
      Accounts payable and accrued                                                                    
         expenses..................... (1,513,901)     678,372      346,332    1,268,456      (77,442)
                                       ----------   ----------   ----------   ----------   ---------- 
         Total adjustments............ (1,628,277)   2,522,329    1,299,910      716,051      (98,641)
                                       ----------   ----------   ----------   ----------   ---------- 
         Net cash provided by                                                                         
           operating activities.......  1,170,410    4,975,299    4,533,706    2,354,756    2,108,924 
                                       ----------   ----------   ----------   ----------   ---------- 
CASH FLOWS FROM INVESTING ACTIVITIES:                                                                 
  Purchases of property and                                                                           
    equipment.........................   (217,724)    (699,792)    (858,245)    (298,018)    (360,011)
                                       ----------   ----------   ----------   ----------   ---------- 
         Net cash used in investing                                                                   
           activities.................   (217,724)    (699,792)    (858,245)    (298,018)    (360,011)
                                       ----------   ----------   ----------   ----------   ---------- 
CASH FLOWS FROM FINANCING ACTIVITIES:                                                                 
  Principal payments of long-term                                                                     
    debt..............................   (945,957)    (899,623)    (961,108)    (483,792)    (428,822)
  Borrowings of long-term debt........  1,828,333      375,071      533,722           --           -- 
  Issuance of common stock............         --           --      480,000           --           -- 
  Dividends........................... (1,787,914)  (1,557,239)  (2,395,124)    (897,701)    (984,663)
                                       ----------   ----------   ----------   ----------   ---------- 
         Net cash used in financing                                                                   
           activities.................   (905,538)  (2,081,791)  (2,342,510)  (1,381,493)  (1,413,485)
                                       ----------   ----------   ----------   ----------   ---------- 
NET INCREASE IN CASH AND CASH                                                                         
  EQUIVALENTS.........................     47,148    2,193,716    1,332,951      675,245      335,428 
CASH AND CASH EQUIVALENTS,                                                                            
  beginning of period.................  5,496,014    5,543,162    7,736,878    7,736,878    9,069,829 
                                       ----------   ----------   ----------   ----------   ---------- 
CASH AND CASH EQUIVALENTS,                                                                            
  end of period....................... $5,543,162   $7,736,878   $9,069,829   $8,412,123   $9,405,257 
                                       ==========   ==========   ==========   ==========   ========== 
SUPPLEMENTAL DISCLOSURE OF                                                                            
  CASH FLOW INFORMATION:                                                                              
  Cash paid for --                                                                                    
    Interest.......................... $2,562,555   $3,743,310   $2,818,402   $1,396,303   $1,844,514 
    Taxes.............................    390,641      522,565      543,401      258,451      445,289 

The accompanying notes are an integral part of these combined financial 
statements. 

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SMITH GROUP 

NOTES TO COMBINED FINANCIAL STATEMENTS
(All discussions and disclosures with a reference date subsequent to May 9, 1997
are unaudited.) 

1. BUSINESS AND ORGANIZATION:                                                   

    Smith Group (the Companies) is primarily engaged in the retail sale of new
and used automobiles and the sale of the related finance, insurance and service 
contracts thereon. In addition, the Companies sell automotive parts, provide    
vehicle servicing and sell wholesale used vehicles.                             

The following companies are included within the combined group:       

Mike Smith Autoplaza, Inc. (MSAP)                           

        MSAP consists of several franchises which conduct business at contiguous
      locations in Beaumont, Texas. The franchises operated in this location
     include Oldsmobile, Lincoln, Mercury, GMC, Mitsubishi, Kia and Honda.

Smith, Liu & Kutz, Inc. (Town North)                        

   Town North consists of three companies operating several franchises
    which conduct business at contiguous locations in Austin, Texas. The
   franchises operated in this location include Nissan, Mitsubishi and
Suzuki.                                                         

Courtesy Nissan, Inc. (Courtesy)                            

Courtesy is a Nissan dealership located in Richardson, Texas.   

Smith, Liu & Corbin, Inc. (d.b.a. Acura Southwest) (Acura)  

Acura is an Acura dealership located in Houston, Texas.         

Round Rock Nissan, Inc. (Round Rock)                            

Round Rock is a Nissan dealership located in Round Rock, Texas. 

The Companies and their stockholders intend to enter into a definitive
agreement with Group 1 Automotive, Inc. (Group 1), pursuant to which all        
outstanding shares of the Companies' common stock will be exchanged for cash and
shares of Group 1's common stock concurrent with the consummation of the initial
public offering of the common stock of Group 1.                                 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:                                  

Basis of Presentation                                                       

    The accompanying combined financial statements include the accounts of the
Companies listed above. The Companies have been presented on a combined basis   
due to their related operations, common ownership and common management control.
All significant intercompany balances and transactions have been eliminated in  
combination.                                                                    

Major Suppliers and Franchise Agreements                                    

    The Companies purchase substantially all of their new vehicles from Nissan
Motor Co., Ltd., Honda Motor Co., Ltd., General Motors Corporation, Mitsubishi  
Motors Corp., Suzuki Motor Co., Ltd., Ford Motor Company and Kia Motor Co., Ltd.
at the prevailing prices charged by the manufacturers to all franchised dealers.
The Companies' sales volume could be adversely impacted by the manufacturers'   
inability to supply the dealership with an adequate supply of popular models or 
as a result of an unfavorable allocation of vehicles by the manufacturer.       

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SMITH GROUP 

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) 

    The dealer franchise agreements contain provisions which may limit changes
in dealership management and ownership, place certain restrictions on the       
dealerships (such as minimum net worth requirements) and which also provide for 
the termination of the franchise agreement by the manufacturers in certain      
instances. Under certain state law, these restrictive provisions have been      
repeatedly found invalid both by state courts and administrative agencies. See  
"Risk Factors -- Manufacturers' Control Over Dealerships" and                   
"Business -- Franchise Agreements" for further discussion.                      

Revenue Recognition                                                         

   Revenue from vehicle sales, parts sales and vehicle service is recognized
upon delivery to the customer.                                                  

Finance, Insurance and Service Contract Income Recognition                  

    The Companies arrange financing for customers through various institutions
and receive financing fees equal to the difference between the loan rates       
charged to customers over the predetermined financing rates set by the financing
institution. In addition, the Companies receive commissions from the sale of    
credit life and disability insurance and extended service contracts to          
customers.                                                                      

The Companies may be charged back (chargebacks) for unearned financing
fees, insurance or service contract commissions in the event of early           
termination of the contracts by customers. The revenues from financing fees and 
commissions are recorded at the time of the sale of the vehicles. The reserves  
for future chargebacks are based on historical operating results and the        
termination provisions of the applicable contracts. Finance, insurance and      
service contract income, net of estimated chargebacks, are included in other    
dealership revenue in the accompanying combined financial statements.           

Cash and Cash Equivalents                                                   

  Cash and cash equivalents include highly liquid investments that have an
original maturity of three months or less at the date of purchase and contracts 
in transit. Contracts in transit represent contracts on vehicles sold, for which
the proceeds are in transit from financing institutions.                        

Inventories                                                                 

New and demonstrator vehicles are stated at cost, determined on the   
last-in, first-out (LIFO) basis, which is not in excess of market.              

  Used vehicles are stated at the lower of cost or market, determined on a
specific-unit basis.                                                            

Parts and accessories are stated at the lower of cost (determined on a
first-in, first-out basis) or market.                                           

Property and Equipment                                                      

Property and equipment are recorded at cost and depreciated using the 
straight-line method over the estimated useful lives of the assets. Leasehold   
improvements are capitalized and amortized over the lesser of the life of the   
lease or the estimated life of the asset.                                       

  Expenditures for major additions or improvements which extend the useful
lives of assets are capitalized. Minor replacements, maintenance and repairs    
which do not improve or extend the life of such assets are charged to operations
as incurred. Disposals are removed at cost less accumulated depreciation, and   
any resulting gain or loss is reflected in current operations.                  

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SMITH GROUP 

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) 

Goodwill                                                                    

Goodwill represents the excess of the purchase price of dealerships   
acquired (Town North Nissan, Courtesy Nissan and Mike Smith Auto Plaza) over the
fair value of assets acquired at the date of acquisition. Goodwill is being     
amortized on a straight-line basis over 40 years and amortization expense       
charged to operations totaled approximately $67,000 for each of the three years 
in the period ended December 31, 1996. Accumulated amortization totaled         
approximately $889,000 and $956,000 as of December 31, 1995 and 1996,           
respectively.                                                                   

Income Taxes                                                                

     The Companies follow the liability method of accounting for income taxes in
accordance with Statement of Financial Accounting Standards (SFAS) No. 109.     
Under this method, deferred income taxes are recorded based upon differences    
between the financial reporting and tax bases of assets and liabilities and are 
measured using the enacted tax rates and laws that will be in effect when the   
underlying assets are realized or liabilities are settled.                      

   Certain of the Companies have elected S Corporation status, as defined by
the Internal Revenue Code, whereby the companies are not subject to taxation for
federal purposes. Under S Corporation status, the stockholders report their     
share of these companies' taxable earnings or losses in their personal tax      
returns.                                                                        

Environmental Liabilities and Expenditures                                  

Accruals for environmental matters, if any, are recorded as operating 
expenses when it is probable that a liability has been incurred and the amount  
of the liability can be reasonably estimated. Accrued liabilities are exclusive 
of claims against third parties and are not discounted.                         

In general, costs related to environmental remediation are charged to 
expense. Environmental costs are capitalized if the costs increase the value of 
the property and/or mitigate or prevent contamination from future operations.   

Interest Expense                                                            

Automobile manufacturers periodically provide floorplan interest      
assistance, or subsidies, which reduce the Companies' cost of financing. The    
accompanying financial statements reflect interest expense net of floor plan    
assistance.                                                                     

Fair Value of Financial Instruments                                         

    The Companies' financial instruments consist primarily of floor plan notes
payable and long-term debt. The carrying amount of these financial instruments  
approximates fair value due either to length of maturity or existence of        
variable interest rates that approximate market rates.                          

Advertising                                                                 

     The Company expenses production and other costs of advertising as incurred.
Advertising expense for the years ended December 31, 1994, 1995 and 1996 totaled
$2,241,055, $2,097,002 and $1,879,591, respectively.                            

Concentration of Credit Risk                                                

Financial instruments which potentially subject the Companies to a    
concentration of credit risk consist principally of cash, cash equivalents,     
contracts in transit and accounts receivable. The Company                       

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maintains cash balances at financial institutions which may at times be in      
excess of federally insured levels. The Companies grant credit to local         
companies in various businesses. The Companies perform ongoing credit           
evaluations of its customers and generally do not require collateral. The       
Companies maintain an allowance for doubtful accounts at a level which          
management believes is sufficient to cover potential credit losses. The         
Companies have not incurred significant losses related to these financial       
instruments to date.                                                            

Use of Estimates                                                            

The preparation of financial statements in conformity with generally  
accepted accounting principles requires management to make estimates and        
assumptions in determining the reported amounts of assets and liabilities and   
disclosure of contingent assets and liabilities at the date of the financial    
statements and the reported amounts of revenues and expenses during the         
reporting period. The significant estimates made by management in the           
accompanying financial statements relate to reserves for future chargebacks on  
finance, insurance and service contract income. Actual results could differ from
those estimates.                                                                

Interim Financial Information                                               

     As is normal and customary, the interim financial statements as of June 30,
1997, and for the six months ended June 30, 1996 and 1997, are unaudited, and   
certain information normally included in financial statements prepared in       
accordance with generally accepted accounting principles has not been included  
herein. In the opinion of management, all adjustments necessary to fairly       
present the financial position, results of operations and cash flows with       
respect to the interim financial statements, have been properly included. Due to
seasonality and other factors, the results of operations for the interim periods
are not necessarily indicative of the results that will be realized for the     
entire fiscal year.                                                             

Statements of Cash Flows                                                    

 For purposes of the statements of cash flows, cash and cash equivalents
include contracts in transit which are typically collected within one month or  
less. Additionally, the net change in floor plan financing of inventory, which  
is a customary financing technique in the industry, is reflected as an operating
activity in the statements of cash flows.                                       

New Accounting Pronouncement                                                

    Effective January 1, 1996, the Companies adopted SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." SFAS No. 121 requires that long-lived assets be reviewed for impairment    
whenever events or changes in circumstances indicate that the carrying amount of
the asset in question may not be recoverable. If an evaluation is required, the 
estimated future undiscounted cash flows associated with the asset would be     
compared to the asset's carrying amount to determine if a write-down to market  
value or discounted cash flow value is necessary. Adoption of this standard did 
not have a material effect on the financial position or results of operations of
the Companies.                                                                  

 During June 1996 and June 1997 the Financial Accounting Standards Board
(FASB) issued statement of Financial Accounting Standards (SFAS) No. 125        
"Accounting for Transfers and Servicing of Financial Assets and Extinguishment  
of Liabilities" and SFAS No. 130 "Reporting Comprehensive Income." The major    
provisions of these statements and their impact on the Company are discussed    
below.                                                                          

    SFAS No. 125 established criteria for recognition of a sale in conjunction
with the transfer of financial assets, under which sales may only be recognized 
when the transferor has surrendered control of the                              

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assets. This statement is not currently anticipated to have any impact on the   
Company as the Company does not currently enter into transactions which fall    
under the scope of this statement.                                              

SFAS No. 130 requires the presentation of comprehensive income in an  
entity's financial statements. Comprehensive income represents all changes in   
equity of an entity during the reporting period, including net income and       
charges directly to equity which are excluded from net income. This statement is
not anticipated to have any impact on the Company as the Company currently does 
not enter into any transactions which result in charges (or credits) directly to
equity (such as additional minimum pension liability changes, currency          
translation adjustments, unrealized gains and losses on available for sale      
securities, etc.).                                                              

3. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:                                    

Accounts receivable consist of the following:                         

                                                        [Enlarge/Download Table]

                                                                  DECEMBER 31,        
                                                          ----------------------------
                                                              1995            1996    
                                                          ------------    ------------
                                                                                      
Vehicle receivables......................................  $1,080,501      $1,082,909 
Amounts due from manufacturers...........................   1,224,067       1,670,776 
Parts and service receivables............................     593,526         949,874 
Warranty receivables.....................................     313,040         314,391 
Due from finance companies...............................     572,090         392,192 
Other....................................................     833,635         138,948 
                                                           ----------      ---------- 
                                                            4,616,859       4,549,090 
Less -- Allowance for doubtful accounts..................    (131,500)        (81,500)
                                                           ----------      ---------- 
                                                           $4,485,359      $4,467,590 
                                                           ==========      ========== 

    Activity in the Companies' allowance for doubtful accounts consists of the
following:                                                                      

                                                                [Download Table]

                                                            DECEMBER 31,          
                                                   ------------------------------ 
                                                     1994       1995       1996   
                                                   --------   --------   -------- 
                                                                                  
Balance, beginning of year........................ $123,800   $123,800   $131,500 
Additions charged to expense......................   64,357     61,460     49,729 
Deductions for uncollectible receivables written                                  
  off.............................................  (64,357)   (53,760)   (99,729)
                                                   --------   --------   -------- 
                                                   $123,800   $131,500   $ 81,500 
                                                   ========   ========   ======== 

Inventories consist of the following:                                 

                                                                [Download Table]

                                                                DECEMBER 31,        
                                                        ----------------------------
                                                            1995            1996    
                                                        ------------    ------------
                                                                                    
New vehicles........................................... $22,490,819     $24,302,689 
Used vehicles..........................................   5,931,163       6,936,348 
Parts, accessories and other...........................   3,193,566       3,102,812 
Accumulated LIFO reserve...............................  (3,668,927)     (3,704,416)
                                                        -----------     ----------- 
                                                        $27,946,621     $30,637,433 
                                                        ===========     =========== 

   If the specific-unit method of inventory were used, net income would have
increased by approximately $511,000, $78,000 and $35,000, for the years ended   
December 31, 1994, 1995 and 1996, respectively.                                 

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Accounts payable and accrued expenses consist of the following:       

                                                        [Enlarge/Download Table]

                                                                  DECEMBER 31,        
                                                          ----------------------------
                                                              1995            1996    
                                                          ------------    ------------
                                                                                      
Accounts payable, trade..................................  $3,342,165      $3,696,293 
Reserve for finance, insurance and service contract                                   
  chargebacks............................................   1,633,822       1,374,780 
Other accrued expenses...................................   3,187,496       3,438,742 
                                                           ----------      ---------- 
                                                           $8,163,483      $8,509,815 
                                                           ==========      ========== 

4. PROPERTY AND EQUIPMENT:                                                      

Property and equipment consist of the following:                      

                                                        [Enlarge/Download Table]

                                            ESTIMATED            DECEMBER 31,        
                                           USEFUL LIVES  ----------------------------
                                             IN YEARS        1995            1996    
                                           ------------  ------------    ------------
                                                                                     
Land......................................      --       $ 4,711,997     $ 4,789,177 
Buildings.................................      35         4,797,574       4,858,250 
Leasehold improvements....................      15         1,274,911       1,367,199 
Machinery and equipment...................       7         1,517,522       1,720,940 
Furniture and fixtures....................       7         2,300,038       2,535,075 
Autos and trucks..........................       5           213,198         321,316 
Rental vehicles...........................      --            95,294         124,023 
                                                         -----------     ----------- 
          Total...........................                14,910,534      15,715,980 
Less -- Accumulated depreciation..........                (5,242,995)     (5,895,986)
                                                         -----------     ----------- 
  Property and equipment, net.............               $ 9,667,539     $ 9,819,994 
                                                         ===========     =========== 

5. FLOOR PLAN NOTES PAYABLE:                                                    

Floorplan notes payable reflect amounts payable for the purchase of   
specific vehicle inventory and consist of the following:                        

                                                                [Download Table]

                                                                DECEMBER 31,        
                                                        ----------------------------
                                                            1995            1996    
                                                        ------------    ------------
                                                                                    
New vehicles........................................... $25,708,702     $27,712,804 
Used vehicles..........................................   1,715,530       2,963,921 
                                                        -----------     ----------- 
          Total floor plan notes payable............... $27,424,232     $30,676,725 
                                                        ===========     =========== 

Floorplan notes payable are due to various floor plan lenders, bearing
interest at rates ranging from prime (adjusted for volume with lender (8.0% at  
December 31, 1996)) to prime plus 1.75%. As of December 31, 1995 and 1996, the  
weighted average interest rate on floorplan notes payable outstanding was 8.84% 
and 8.66%, respectively. Interest expense on floorplan notes payable, before    
manufacturer interest assistance, totaled approximately $2,248,351, $3,188,220  
and $2,523,296 for the years ended December 31, 1994, 1995 and 1996.            
Manufacturer interest assistance, which is recorded as a reduction to interest  
expense in the accompanying financial statements, totaled approximately         
$731,948, $837,201 and $1,111,068 for the years ended December 31, 1994, 1995   
and 1996. The flooring arrangements permit the Companies to borrow up to        
$37,212,000 dependent upon new and used vehicle sales and inventory levels. As  
of December 31, 1996, total available borrowings under floor plan agreements    
were approximately $6,535,000. Payments on the notes are due when the related   
vehicles are sold and are collateralized by substantially all new and used      
vehicles.                                                                       

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6. LONG-TERM DEBT:                                                              

Long-term debt consists of the following:                             

                                                        [Enlarge/Download Table]

                                                                   DECEMBER 31,       
                                                             ------------------------ 
                                                                1995          1996    
                                                             ----------    ---------- 
                                                                                      
Note payable to Texas Commerce Bank (TCB), with monthly                               
  principal payments of $41,892, due through March 2004,                              
  bearing interest at 7.5%, payable monthly................  $4,143,918    $3,641,136 
Mortgage loan with TCB, with monthly principal payments of                            
  $15,000, due through May 2005, bearing interest at prime                            
  plus .25% (8.50% at December 31, 1996), payable                                     
  monthly..................................................   1,675,000     1,494,291 
Note payable to Nissan Motor Acceptance Corporation (NMAC),                           
  with monthly principal payments of $7,500, due through                              
  January 2002, bearing interest at prime plus 1.75% (10.0%                           
  at December 31, 1996), payable monthly...................          --       450,000 
Other notes payable, maturing in varying amounts through                              
  November 2000 with interest ranging from prime plus .25%                            
  to prime plus 1.5%.......................................     564,507       370,612 
                                                             ----------    ---------- 
                                                              6,383,425     5,956,039 
Less -- Current portion....................................    (775,844)     (949,565)
                                                             ----------    ---------- 
                                                             $5,607,581    $5,006,474 
                                                             ==========    ========== 

     The Note payable to TCB due March 2004 is secured by a security interest in
the outstanding and issued capital stock of Town North and Courtesy, and is also
secured by a first priority lien on the land and buildings of Town North. The   
note payable to TCB due May 2005 is secured by substantially all property,      
improvements and equipment of Acura. The note payable to NMAC is secured by     
substantially all of the assets of Round Rock, including vehicle inventory,     
machinery and equipment. Certain stockholders of the companies have also        
provided personal guarantees on the notes payable to TCB and NMAC.              

    The aggregate maturities of long-term debt as of December 31, 1996, are as
follows:                                                                        

                                                                [Download Table]

YEAR ENDING                                                                   
DECEMBER 31,                                                                  
------------                                                                  
                                                                              

   1997...........................................................  $  949,565
   1998...........................................................     839,644
   1999...........................................................     846,513
   2000...........................................................     807,428
   2001...........................................................     771,704
   Thereafter.....................................................   1,741,185
                                                                    ----------
                                                                    $5,956,039
                                                                    ==========

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7. STOCKHOLDERS' EQUITY:                                                        

Capital stock consists of the following:                              

                                                        [Enlarge/Download Table]

                                               AUTHORIZED  ISSUED  OUTSTANDING  PAR VALUE
                                               ----------  ------  -----------  ---------
                                                                                         
Common stock --                                                                          
  MSAP........................................   10,000    1,000        800       $1.00  
  Town North Nissan...........................    1,000    1,000      1,000         .01  
  Town North Suzuki...........................    1,000    1,000      1,000         .01  
  Town North Mitsubishi.......................    1,000    1,000      1,000        1.00  
  Courtesy....................................    1,000    1,000      1,000         .05  
  Acura.......................................    2,000    2,000      2,000         .01  
  Round Rock..................................    1,000    1,000      1,000        1.00  

     Treasury stock consists of 200 shares of the common stock of MSAP at a cost
of approximately $395,000 at December 31, 1995 and 1996.                        

8. RELATED-PARTY TRANSACTIONS:                                                  

Operating Leases with Stockholders                                          

MSAP and Round Rock lease land and facilities from entities owned by  
various stockholders of the Companies. Additional information regarding the     
terms of these leases is contained in Note 9 "Operating Leases".                

Stockholder Loan Guarantees                                                 

  The Companies have provided guarantees and/or pledged assets as security
far certain outstanding loan obligations of various related parties. See Note 11
"Commitments and Contingencies," for discussion of guarantee and security       
arrangements provided on behalf of related parties.                             

Company Indebtedness Guaranteed by Stockholders                             

 Stockholders of Acura, Town North and Round Rock have provided personal
guarantees related to the repayment of long-term debt obligations incurred by   
those entities (see Note 6). As of December 31, 1996 and June 30, 1997, Company 
debt guaranteed by stockholders totaled approximately $5.6 million and $5.2     
million, respectively.                                                          

Insurance Commissions and Management Fees                                   

    The Companies sell credit life and disability insurance policies which are
underwritten by an entity owned by certain stockholders of the Companies. The   
Companies paid commissions of approximately $88,300, $205,000 and $260,800 on   
such policies sold during the years ended December 31, 1994, 1995 and 1996,     
respectively.                                                                   

The Companies pay management fees to an entity owned by certain       
stockholders of the Companies for consultation and direct management assistance 
with respect to operations and strategic planning. Management fee expense       
totaled approximately $74,300, $87,700 and $75,700 for the years ended December 
31, 1994, 1995 and 1996, respectively.                                          

Other                                                                       

  Certain stockholders of the Companies, employees and family members have
invested funds through the dealerships in cash management accounts with the     
dealerships' floorplan institutions. These                                      

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funds are not available for withdrawal by the Companies, and accordingly are    
excluded from the accompanying financial statements. The amount of such funds   
totalled approximately $4,163,900 and $5,516,200 as of December 31, 1995 and    
1996.                                                                           

Advances to Group 1                                                         

    The Companies have consummated a loan with Group 1 in order to finance the
expenses of Group 1 prior to the acquisition. The balance of this loan at       
December 31, 1996 and June 30, 1997 was approximately $48,000 and $403,000,     
respectively, bearing interest at a rate of 7.0% per annum.                     

9. OPERATING LEASES:                                                            

    The Companies lease various facilities and equipment under operating lease
agreements, including leases with related parties. These leases are             
noncancelable and expire on various dates through August 2013. The lease        
agreements are subject to renewal under essentially the same terms and          
conditions as the original leases.                                              

Future minimum lease payments for operating leases are as follows:    

                                                                [Download Table]

 YEAR ENDING                                 RELATED      THIRD                
DECEMBER 31 --                               PARTIES     PARTIES       TOTAL   
--------------                              ----------  ----------  -----------
                                                                               
   1997.................................... $  918,000  $  500,681  $ 1,418,681
   1998....................................    918,000     479,876    1,397,876
   1999....................................    918,000     472,655    1,390,655
   2000....................................    499,500     453,149      952,649
   2001....................................    360,000     433,387      793,387
   Thereafter..............................  4,440,000   4,896,000    9,336,000
                                            ----------  ----------  -----------
             Total......................... $8,053,500  $7,235,748  $15,289,248
                                            ==========  ==========  ===========

   Total rent expense under all operating leases, including operating leases
with related parties, was approximately $1,059,000, $1,088,000 and $1,157,000   
for the years ended December 31, 1994, 1995 and 1996, respectively. Rental      
expense on related-party leases, which is included in the above amounts, totaled
approximately $558,000, $558,000 and $591,000 for the years ended December 31,  
1994, 1995 and 1996, respectively.                                              

10. INCOME TAXES:                                                               

    The S Corporations will terminate S Corporation status concurrent with the
effective date of the offering. The Companies are subject to a Texas franchise  
tax which is an income based tax.                                               

Federal and state income taxes are as follows:                        

                                                                [Download Table]

                                                           DECEMBER 31,          
                                                 --------------------------------
                                                   1994        1995        1996  
                                                 --------    --------    --------
                                                                                 
Federal --                                                                       
  Current....................................... $298,135    $382,865    $460,166
  Deferred......................................    6,547      36,310      29,304
State --                                                                         
  Current.......................................  158,508     150,161     181,746
  Deferred......................................   (7,805)     (6,921)      6,535
                                                 --------    --------    --------
                                                 $455,385    $562,415    $677,751
                                                 ========    ========    ========

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Actual income tax expense differs from income tax expense computed by 
applying the U.S. federal statutory corporate tax rate of 34 percent to income  
before income taxes as follows:                                                 

                                                                [Download Table]

                                                         DECEMBER 31,              
                                            -------------------------------------- 
                                               1994          1995          1996    
                                            ----------    ----------    ---------- 
                                                                                   
Provision at the statutory rate............ $1,106,384    $1,025,231    $1,329,926 
Increase (decrease) resulting from --                                              
  Income of S Corporation..................   (799,855)     (619,972)     (888,533)
  State income tax, net of benefit for                                             
     federal deduction.....................    136,750       123,800       165,900 
  Other....................................     12,106        33,356        70,458 
                                            ----------    ----------    ---------- 
                                            $  455,385    $  562,415    $  677,751 
                                            ==========    ==========    ========== 

 Deferred income tax provisions result from temporary differences in the
recognition of income and expenses for financial reporting purposes and for tax 
purposes. The tax effects of these temporary differences representing deferred  
tax assets and liabilities result principally from the following:               

                                                                [Download Table]

                                                                 DECEMBER 31,      
                                                            ---------------------- 
                                                              1995         1996    
                                                            ---------    --------- 
                                                                                   
Reserves and accruals not deductible until paid............ $ 257,693    $ 191,862 
Depreciation...............................................  (246,234)    (217,611)
Other......................................................   (11,150)      (9,781)
                                                            ---------    --------- 
                                                            $     309    $ (35,530)
                                                            =========    ========= 

     The net deferred tax assets and liabilities are comprised of the following:

                                                                [Download Table]

                                                                 DECEMBER 31,     
                                                             -------------------- 
                                                               1995        1996   
                                                             --------    -------- 
                                                                                  
Deferred tax assets --                                                            
  Current................................................... $257,693    $191,862 
  Long-term.................................................       --          -- 
                                                             --------    -------- 
          Total.............................................  257,693     191,862 
                                                             --------    -------- 
Deferred tax liabilities --                                                       
  Current...................................................   11,150       9,781 
  Long-term.................................................  246,234     217,611 
                                                             --------    -------- 
          Total.............................................  257,384     227,392 
                                                             --------    -------- 
          Net deferred income tax assets (liabilities)...... $    309    $(35,530)
                                                             ========    ======== 

11. COMMITMENTS AND CONTINGENCIES:                                              

Litigation                                                                  

The Companies are defendants in several lawsuits arising from normal  
business activities. Management has reviewed pending litigation with legal      
counsel and believes that the ultimate liability, if any, resulting from such   
actions will not have a material adverse effect on the Companies' financial     
position or results of operations.                                              

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Insurance                                                                   

The Companies carry a standard range of insurance coverage, including 
general and business auto liability, commercial property, workers' compensation 
and excess liability coverage. The Companies have not incurred significant      
claims or losses on any of their insurance policies.                            

Loan Guarantees                                                             

    As discussed in Note 8, MSAP and Round Rock lease land and facilities from
entities owned by certain stockholders of the Companies. Both MSAP and Round    
Rock serve as guarantor on mortgage loans covering the leased facilities. MSAP  
guarantees two loans which bear interest at prime and a fixed rate of 7.5% and  
mature in June 2003 and March 2004, respectively. As of December 31, 1996 and   
June 30, 1997, amounts outstanding or these loans totaled $2,384,272 and        
$2,256,064, respectively. The loan guaranteed by Round Rock bears interest at   
prime plus 1% and matures in November 2009. As of December 31, 1996 and June 30,
1997, amounts outstanding on this note totaled $2,386,258 and $2,413,136,       
respectively.                                                                   

12. PROPOSED ACQUISITION BY GROUP 1:                                            

    The stockholders of the Companies intend to enter into definitive purchase
agreements with Group 1 providing for the acquisition of the Companies by Group 
1. In conjunction with the acquisition of the Companies by Group 1, all existing
operating leases with related parties will be restructured under new lease      
agreements and the principal stockholder of the Companies will obtain releases  
for the Companies from the stockholder loan guarantees discussed above.         

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======================================================                          

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY  
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR 
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE         
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO     
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE  
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED  
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.                        
--------------------------
TABLE OF CONTENTS 

                                                                [Download Table]

                                        PAGE
                                        ----
                                            
Prospectus Summary....................     3
Risk Factors..........................    15
The Acquisitions......................    26
Use of Proceeds.......................    30
Dividend Policy.......................    30
Dilution..............................    31
Capitalization........................    32
Selected Financial Data...............    33
Management's Discussion and Analysis        
  of Financial Condition and Results        
  of Operations.......................    36
Business..............................    54
Management............................    70
Certain Transactions..................    76
Principal and Selling Stockholders....    80
Description of Capital Stock..........    81
Shares Eligible for Future Sale.......    85
Underwriting..........................    87
Validity of Common Stock..............    88
Experts...............................    88
Available Information.................    89
Index of Defined Terms................    90
Index to Financial Statements.........   F-1

    THROUGH AND INCLUDING NOVEMBER 23, 1997 (THE 25TH DAY AFTER THE DATE OF THIS
PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR 
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN   
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR           
SUBSCRIPTIONS.                                                                  

======================================================                          

======================================================                          

4,800,000 SHARES

GROUP 1 AUTOMOTIVE, INC.

COMMON STOCK

(PAR VALUE $.01 PER SHARE)
--------------------------------- 

PROSPECTUS
--------------------------------- 
GOLDMAN, SACHS & CO.

MERRILL LYNCH & CO. 

NATIONSBANC MONTGOMERY
SECURITIES, INC.

REPRESENTATIVES OF THE UNDERWRITERS 
======================================================                          

Dates Referenced Herein   and   Documents Incorporated by Reference

				Referenced-On Page
This ‘424B4’ Filing		Date		First		Last			Other Filings
		6/30/07		75					10-Q
		7/1/99		76
		1/15/98		139
		1/1/98		75
		12/31/97		66					10-K,  10-K/A
		11/23/97		160
		11/4/97		1
Filed on:		10/30/97
		10/29/97		1		101
		10/21/97		18
		10/15/97		18
		10/14/97		110					S-1/A
		7/12/97		142
		6/30/97		9		159
		5/13/97		142
		5/9/97		106		149
		3/31/97		147
		2/5/97		108
		1/1/97		96
		12/31/96		5		159
		12/13/96		3		108
		6/30/96		33		152
		4/1/96		124
		1/1/96		96		152
		12/31/95		33		157
		12/21/95		101		106
		12/31/94		33		157
		12/31/93		33		147
		12/31/92		33
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