Item 1. Business
Item 1. BUSINESS
Asbury Automotive Group, Inc., a Delaware corporation organized in 2002, is one of the largest automotive retailers in the United States. Our store operations are conducted by our subsidiaries.
As of December 31, 2020, we owned and operated 112 new vehicle franchises, representing 31 brands of automobiles at 91 dealership locations, 25 collision centers and one auto auction in 16 metropolitan markets within nine states. Our stores offer an extensive range of automotive products and services, including new and used vehicles; parts and service, which includes vehicle repair and maintenance services, replacement parts and collision repair services (collectively referred to as "parts and services" or "P&S"); and finance and insurance products ("F&I"), including arranging vehicle financing through third parties and aftermarket products, such as extended service contracts, guaranteed asset protection ("GAP") debt cancellation, prepaid maintenance, and credit life and disability insurance.
Park Place Acquisition
As previously announced, on December 11, 2019, the Company entered into transaction agreements with certain members of the Park Place Dealership family of entities, Park Place Mid-Cities, Ltd., a Texas limited partnership, and the identified principal (collectively, "Park Place") to acquire substantially all of the assets of, and certain real property related to, the Park Place business including the purchase of 19 franchises, two collision centers and an auto auction. On March 24, 2020, Asbury delivered notice to the sellers terminating the Transaction Agreements pursuant to the terms thereof in exchange for the payment of $10.0 million of liquidated damages. Please refer to Liquidity and Capital Resources for additional details regarding the impact on financing transactions.
As a result of the Company's efforts to attempt to mitigate the financial impact of COVID-19, along with a strong May and June 2020 performance, the Company reengaged on the Park Place Dealership group acquisition under more favorable pricing and more flexible financing terms, including limiting the purchase of luxury dealership franchises to those most aligned with the Company's core strategic business. On July 6, 2020, the Company entered into an Asset Purchase Agreement (the "Revised Asset Purchase Agreement") with Park Place to acquire substantially all of the assets of, and lease the real property related to, 12 new vehicle dealership franchises (3 Mercedes-Benz, 3 Sprinter, 2 Lexus, 1 Jaguar, 1 Land Rover, 1 Porsche, and 1 Volvo), two collision centers and an auto auction comprising the Park Place Dealership group (collectively, the "Revised Transaction") for a purchase price of $889.9 million. The Revised Transaction was completed on August 24, 2020. The purchase price was financed through a combination of cash, floor plan facilities and seller financing.
In addition to the Park Place Dealership group acquisition, during the year ended December 31, 2020, we acquired the assets of three franchises (one dealership location) in the Denver, Colorado market for a combined purchase price of $63.6 million.
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During the year ended December 31, 2020, we sold two franchises (two dealership locations) in the Atlanta, Georgia market, we sold six franchises (five dealership locations) and one collision center in the Jackson, Mississippi market, and we sold one franchise (one dealership location) in the Greenville, South Carolina market. In connection with these divestitures the Company recorded a pre-tax gain totaling $62.3 million, which is presented in our accompanying Consolidated Statements of Income as Gain on dealership divestitures, net.
Asbury Automotive
The following charts present the contribution to total revenue and gross profit by each line of business for the year ended December 31, 2020:
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Our new vehicle franchise retail network is made up of dealerships located in 16 metropolitan markets in nine states operating primarily under 11 locally-branded dealership groups. The following chart provides a detailed breakdown of our markets, brand names, and franchises as of December 31, 2020:
Dealership Group Brand Name Market Franchise
Coggin Automotive Group Fort Pierce, FL Acura, BMW, Honda, Mercedes-Benz
Jacksonville, FL Buick, Chevrolet, Ford, GMC, Honda(a), Nissan(a), Toyota
Orlando, FL Ford, Honda(a), Hyundai
Courtesy Autogroup Tampa, FL Chrysler, Dodge, Genesis, Honda, Hyundai, Infiniti, Jeep, Kia, Mercedes-Benz, Nissan, Sprinter, Toyota
Crown Automotive Company Durham, NC Honda
Fayetteville, NC Dodge, Ford
Greensboro, NC Acura, BMW, Chrysler, Dodge, Honda, Jeep, Nissan, Volvo
Charlottesville, VA BMW
Richmond, VA Acura, BMW(a), MINI
David McDavid Auto Group Austin, TX Acura
Dallas/Fort Worth, TX Acura, Ford, Honda(a), Lincoln
Hare & Bill Estes Automotive Groups Indianapolis, IN Buick, Chevrolet(b), Chrysler, Dodge, Ford, GMC, Honda, Isuzu, Jeep, Toyota
Greenville Automotive Group Greenville, SC Jaguar, Land Rover, Nissan, Porsche, Toyota, Volvo
Mike Shaw Denver, CO Subaru, Chrysler, Dodge, Jeep
Nalley Automotive Group Atlanta, GA Acura, Audi, Bentley, BMW, Chevrolet, Honda, Hyundai, Infiniti(a), Kia, Lexus(a), Nissan, Toyota(b), Volkswagen
Park Place Automotive Dallas/Fort Worth, TX Jaguar, Lexus(a), Land Rover, Mercedes-Benz(b), Porsche, Volvo, Sprinter(b)
Plaza Motor Company St. Louis, MO Audi, BMW, Infiniti, Jaguar, Land Rover, Lexus, Mercedes-Benz(a), Sprinter(a)
_____________________________
(a) This market has two of these franchises.
(b) This market has three of these franchises.
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Operations
New Vehicle Sales
The following table reflects the number of franchises we owned as of December 31, 2020 and the percentage of new vehicle revenues represented by class and franchise for the year ended December 31, 2020:
Class/Franchise Number of
Franchises Owned % of New
Vehicle Revenues
Luxury
Mercedes-Benz 7 10 %
Lexus 5 9
BMW 7 6
Acura 6 4
Infiniti 4 2
Audi 2 2
Volvo 3 1
Land Rover 3 2
Jaguar 3 *
Porsche 2 1
Lincoln 1 1
Bentley 1 1
Genesis 1 *
Total Luxury 45 39 %
Import
Honda 12 16 %
Toyota 7 12
Nissan 6 5
Hyundai 3 2
Kia 2 2
Subaru 1 2
Volkswagen 1 1
Sprinter 6 1
MINI 1 *
Isuzu 1 *
Total Import 40 41 %
Domestic
Ford 5 8 %
Chevrolet 5 5
Dodge 5 4
Jeep 4 2
GMC 2 1
Chrysler 4 *
Buick 2 *
Total Domestic 27 20 %
Total Franchises 112 100 %
* Franchise accounted for less than 1% of new vehicle revenues for the year ended December 31, 2020.
Our new vehicle revenues include new vehicle sales and lease transactions arranged by our dealerships with third-party financial institutions. We believe that leasing provides a number of benefits to our other business lines, including the historical customer loyalty to the leasing dealership for repairs and maintenance services and the fact that lessors typically give the leasing dealership the first option to purchase the off-lease vehicle.
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Used Vehicle Sales
We sell used vehicles at all of our franchised dealership locations. Used vehicle sales include the sale of used vehicles to individual retail customers ("used retail") and the sale of used vehicles to other dealers at auction ("wholesale") (the terms "used retail" and "wholesale" collectively referred to as "used").
Gross profit from the sale of used vehicles depends primarily on our dealerships' ability to obtain a high quality supply of used vehicles and our use of technology to manage our inventory. Our new vehicle operations typically provide our used vehicle operations with a large supply of trade-ins and off-lease vehicles, which we believe are good sources of high quality used vehicles. We also purchase a portion of our used vehicle inventory at "open" auctions and auctions restricted to new vehicle dealers. Additionally, our used vehicle sales benefit from our ability to sell certified pre-owned vehicles from our franchised dealerships.
Parts and Service
We provide vehicle repair and maintenance services, sell replacement parts, and recondition used vehicles at all of our dealerships. In addition, we provide collision repair services at our 25 free-standing collision repair centers that we operate either on the premises of, or in close proximity to, our dealerships. Historically, parts and service revenues have been more stable than those from vehicle sales. Industry-wide, parts and service revenues have consistently increased over time primarily due to the increased cost of maintaining vehicles, the added technical complexity of vehicles, and the increasing number of vehicles on the road.
The automotive parts and service industry tends to be highly fragmented, with franchised dealerships and independent repair shops competing for this business. We believe, however, that the increased use of advanced technology in vehicles is making it difficult for independent repair shops to compete effectively with franchised dealerships as they may not be able to make the investment necessary to perform major or technical repairs. In an effort to maintain the necessary knowledge to service vehicles and further develop our technician staff, we focus on our internal and manufacturer specific training and development programs for new and existing technicians. We believe our parts and service business is also well-positioned to benefit from the service work potentially generated through the sale of extended service contracts to customers who purchase new and used vehicles from us, as historically these customers tend to have their vehicles serviced at the location where they purchased the extended service contract. In addition, our franchised dealerships benefit from manufacturer policies requiring that warranty and recall related repairs be performed at a franchised dealership. We believe our collision repair centers provide us with an attractive opportunity to grow our business due to the high margins provided by collision repair services and the fact we are able to source original equipment manufacturer parts from our franchised dealerships.
Finance and Insurance
We offer a wide variety of automotive F&I products to our customers. We arrange third-party financing for the sale or lease of vehicles to our customers in exchange for a fee paid to us by the third-party financial institution. We do not directly finance our customers' vehicle purchases or leases, therefore our exposure to losses in connection with those third-party financing arrangements is limited generally to the fees we receive. The fees we receive are subject to chargeback, or repayment, to the finance company if a customer defaults or prepays the retail installment contract typically during some limited time period at the beginning of the contract term. We have negotiated agreements with certain lenders pursuant to which we receive additional fees upon reaching a certain volume of business.
We offer our customers a variety of vehicle protection products in connection with the purchase of vehicles. These products are underwritten and administered by independent third-parties. Under our arrangements with the providers of these products, we primarily sell the products on a straight commission basis. We are subject to chargebacks for insurance contracts as a result of early termination, default, or prepayment of the contract. In addition, we participate in future profits associated with the performance of the third-party held underlying portfolio for certain products pursuant to retrospective commission arrangements. The following is a brief description of some of the vehicle protection products we offer to our customers:
• Extended service contracts – covers certain repair work after the expiration of the manufacturer warranty;
• GAP debt cancellation – covers the customer after a total loss for the difference between the value of the vehicle and the outstanding loan or lease obligation after insurance proceeds;
• Prepaid maintenance – covers certain routine maintenance work, such as oil changes, cleaning and adjusting of brakes, multi-point vehicle inspections, and tire rotations; and
• Credit life and disability – covers the remaining amounts due on an auto loan or a lease in the event of death or disability.
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Business Strategy
We seek to create long-term value for our stockholders by striving to drive operational excellence and deploy capital to its highest risk adjusted returns. To achieve these objectives, we employ the strategies described below.
Provide an exceptional customer experience in our stores and through our omni-channel strategy
We are focused on providing a high level of customer service and have designed our dealerships' services to meet the needs of an increasingly sophisticated and demanding automotive consumer. We endeavor to establish relationships that we believe will result in both repeat business and additional business through customer referrals. Furthermore, we provide our dealership managers with appropriate incentives to employ efficient selling approaches, engage in extensive follow-up to develop long-term relationships with customers, and extensively train our sales staff to meet customer needs.
As part of our omni-channel strategy, we implemented Clicklane TM , a communications technology ecosystem, which offers our customers an easy, convenient and seamless approach to purchase new and used vehicles completely online. Our Clicklane platform provides our customers the ability to (i) select a new or used vehicle for lease or purchase, (ii) arrange for and obtain financing from a variety of lenders, (iii) obtain an offer on their trade-in vehicle, (iv) obtain an exact pay-off amount on any existing loan on a trade-in vehicle, (v) select and purchase finance and insurance products designed for the customer’s vehicle and then (vi) complete the vehicle purchase and financing or lease by signing the transaction documents and scheduling in-store pickup or home delivery with each step performed entirely online. As of February 19, 2021, we have implemented Clicklane across approximately one-third of our stores and expect to complete the rollout across all of our stores by the end of the first quarter of 2021. Although we developed our Clicklane platform together with a third-party vendor, certain technology elements of the platform were developed solely by us and are subject to trade secret protection. In addition, our other omni-channel tools offer our customers the ability to arrange vehicle service appointments, receive service updates and pay for maintenance and repair services online. We continue to invest in and develop omni-channel initiatives designed to deliver an exceptional customer experience.
Invest in and attract top talent to improve backend operations and front-line service
We believe the core of our business success lies in our talent pool, so we are focused on attracting, hiring and retaining the best people. We also invest in resources to train and develop our employees. Our executive management team has extensive experience in the auto retail sector, and is able to leverage experience from all positions throughout the Company. In addition, we believe that local management of dealership operations enables our retail network to provide market specific responses to sales, customer service and inventory requirements. The general manager of each of our dealerships is responsible for the operations, personnel and financial performance of that dealership as well as other day-to-day operations.
Implement best practices and improve productivity
We have discipline-specific executives who focus on increasing the penetration of current services and expanding the breadth of our offerings to customers through the implementation of best practices and continuous training on our technology solutions throughout our dealership network. In addition, we have marketing initiatives designed to attract customers to our online channels and mobile applications.
We tie management and employee compensation at various operational levels to performance through incentive-based pay systems based on various metrics, including dealership profitability, departmental profitability, customer satisfaction and individual performance, as appropriate. In addition, a portion of management's compensation is variable-based in nature, including an annual cash bonus based on achieving certain earnings before interest, taxes, depreciation and amortization ("EBITDA") targets and a component of equity compensation tied to our financial performance in comparison to our peer group.
Centralize, streamline, and automate processes
Our Dealership Support Center ("DSC") management is responsible for our capital expenditure and operating strategy, while the implementation of our operating strategy rests with our market-based management teams and each dealership management team based on the policies and procedures established by DSC management. DSC management and our market-based management teams continuously evaluate the financial and operating results of our dealerships, as well as each dealership's geographical location, and from time to time, make decisions to evaluate new technologies and/or processes to further refine our operational processes. We also leverage our scale when implementing new technologies and processes.
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Leverage our scale and cost structure to improve our operating efficiencies
We are positioned to leverage our significant scale so that we are able to achieve competitive operating margins by centralizing and streamlining various back-office functions. We are able to improve financial controls and lower servicing costs by maintaining key store-level accounting and administrative activities in our shared service centers, and we leverage our scale to reduce costs related to purchasing certain equipment, supplies, and services through national vendor relationships. Similarly, we are able to leverage our scale to implement these best practices when integrating newly acquired dealerships allowing us to continue to improve our operating efficiencies.
Successfully integrate Park Place and maximize the benefits of this transformational Acquisition
We have a well-defined integration plan for Park Place. Park Place already performed at a high level and is operated by seasoned general managers, with an average tenure of approximately 20 years. Our integration strategy is focused on achieving cost savings at a corporate level from duplicative functions and implementing our training programs and F&I product offerings at Park Place to achieve higher F&I income per vehicle sold. Park Place utilized the same operational, human resources and accounting information technology systems as Asbury prior to the acquisition, which supported the integration process. Additionally, we have ample internal resources at Asbury to manage the integration process.
Deploy capital to highest risk adjusted returns
Our capital allocation decisions are made within the context of maintaining sufficient liquidity and a prudent capital structure. We believe our cash position and borrowing capacity, combined with our current and expected future cash generation capability, provides us with financial flexibility to enhance shareholder value through capital deployment by reinvesting in our business, acquiring dealerships as well as repurchasing shares, when prudent while targeting a net leverage ratio of less than 3.0X.
Continue to invest in our business
We continually evaluate our existing dealership network and seek to make strategic investments that will increase the capacity of our dealerships and improve the customer experience. In addition, we continue to execute on our strategy of selectively acquiring our leased properties where financing rates make it attractive to be an owner and provide us a further means to finance our business.
Evaluate opportunities to refine our dealership portfolio
We continually evaluate the financial and operating results of our dealerships, as well as each dealership's geographical location and, based on various financial and strategic rationales, may make decisions to dispose of dealerships to refine our dealership and real estate portfolio. We also evaluate dealership acquisition opportunities based on market position and geography, brand representation and availability, key personnel and other factors.
Execute our five-year strategic plan to target an increase in our annual revenue to $20 billion by 2025
We continually evaluate additional opportunities to drive revenue growth while maintaining our disciplined approach to capital allocation. In December 2020, we announced our five-year strategic plan, targeting an increase in our revenue to $20 billion by 2025. We intend to execute on this strategic plan by focusing on a variety of growth efforts including, driving same-store revenue growth, acquiring additional revenue through strategic acquisitions and adding incremental revenue through our Clicklane platform.
Competition
The automotive retail and service industry is highly competitive with respect to price, service, location, and selection. For new vehicle sales, our dealerships compete with other franchised dealerships, primarily in their regions. Our new vehicle store competitors also have franchise agreements with the various vehicle manufacturers, and as such, generally obtain new vehicle inventory from vehicle manufacturers on the same terms as us. The franchise agreements grant the franchised dealership a non-exclusive right to sell the manufacturer's (or distributor's) brand of vehicles and offer related parts and service within a specified market area. State automotive franchise laws restrict competitors from relocating their stores or establishing new stores of a particular vehicle brand within a specified area that is served by our dealership of the same vehicle brand. Recently, certain electric vehicle manufacturers have been permitted to circumvent the state automotive franchise laws of several states in the United States thereby permitting them to sell their new vehicles directly to consumers. We rely on our advertising and merchandising, sales expertise, service reputation, strong local branding, and location of our dealerships to assist in the sale of new vehicles.
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Our used vehicle operations compete with other franchised dealerships, non-franchised automotive dealerships, regional and national vehicle rental companies, and internet-based vehicle brokers for the supply and resale of used vehicles.
We compete with other franchised dealerships to perform warranty and recall-related repairs and with other franchised dealerships and independent service centers for non-warranty repair and maintenance services. We compete with other automobile dealers, service stores, and auto parts retailers in our parts operations. We believe that we have a competitive advantage in parts and service sales due to our ability to use factory-approved replacement parts, our skilled manufacturer trained and certified technicians, our competitive prices, our familiarity with manufacturer brands and models, and the quality of our customer service.
We compete with a broad range of financial institutions in arranging financing for our customers vehicle purchases. In addition, many financial institutions are now offering F&I products through the internet, which has increased competition and may reduce our profits on certain of these items. We believe the principal competitive factors in providing financing are convenience, interest rates, and flexibility in contract length.
Seasonality
The automobile industry has historically been subject to seasonal variations. Demand for new vehicles is generally highest during the second, third, and fourth quarters of each year and, accordingly, we expect our revenues and operating results to generally be higher during these periods. In addition, we typically experience higher sales of luxury vehicles which have higher average selling prices and gross profit per vehicle retailed in the fourth quarter. Revenues and operating results may be impacted significantly from quarter to quarter by changing economic conditions, vehicle manufacturer incentive programs, or adverse weather events.
Dealer and Framework Agreements
Each of our dealerships operate pursuant to a dealer agreement between the dealership and the manufacturer (or in some cases the distributor) of each brand of new vehicles sold and/or serviced at the dealership. The dealer agreements grant the franchised dealership a non-exclusive right to sell the manufacturer's (or distributor's) brand of vehicles and offer related parts and service within a specified market area. Each dealer agreement also grants our dealerships the right to use the manufacturer's trademarks and service marks in connection with the dealerships operations and they also impose numerous operational requirements related to, among other things, the following:
• inventories of new vehicles and manufacturer replacement parts;
• maintenance of minimum net working capital requirements, and in some cases, minimum net worth requirements;
• achievement of certain sales and customer satisfaction targets;
• advertising and marketing practices;
• facilities and signs;
• products offered to customers;
• dealership management;
• personnel training;
• information systems;
• geographic market, including but not limited to requirements to meet sales and service targets within an assigned market area, geographic limitations on where the dealership may locate or advertise, and restrictions on the export of vehicles; and
• dealership monthly and annual financial reporting.
Our dealer agreements are for various terms, ranging from one year to indefinite. We expect that we will be able to renew expiring agreements in the ordinary course of business. However, typical dealer agreements give the manufacturer the right to terminate or the option of non-renewal of the dealer agreement under certain circumstances, subject to applicable state automotive dealership franchise laws, including:
• insolvency or bankruptcy of the dealership;
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• failure to adequately operate the dealership or to maintain required capitalization levels;
• impairment of the reputation or financial condition of the dealership;
• change of ownership or management of the dealership without manufacturer consent;
• certain extraordinary corporate transactions such as a merger or sale of all or substantially all of our assets without manufacturer consent;
• failure to complete facility upgrades required by the manufacturer or agreed to by the dealer;
• failure to maintain any license, permits or authorization required to conduct the dealership's business;
• conviction of a dealer/manager or owner for certain crimes; or
• material breach of other provisions of a dealer agreement.
Notwithstanding the terms of any dealer agreement, the states in which we operate have automotive dealership franchise laws that provide that it is unlawful for a manufacturer to terminate or not renew a franchise unless "good cause" exists.
In addition to requirements under dealer agreements, we are subject to provisions contained in supplemental agreements, framework agreements, dealer addenda and manufacturers' policies, collectively referred to as "framework agreements." Framework agreements impose requirements on us in addition to those described above. Such agreements also define other standards and limitations, including:
• company-wide performance criteria;
• capitalization requirements;
• limitations on changes in our ownership or management;
• limitations on the number of a particular manufacturer's franchises owned by us;
• restrictions or prohibitions on our ability to pledge the stock of certain of our subsidiaries; and
• conditions for consent to proposed acquisitions, including sales and customer satisfaction criteria, as well as limitations on the total local, regional, and national market share percentage that would be represented by a particular manufacturer's franchises owned by us after giving effect to a proposed acquisition.
Some dealer agreements and framework agreements grant the manufacturer the right to terminate or not renew our dealer and framework agreements, or to compel us to divest our dealerships, for a number of reasons, including default under the agreement, any unapproved change of control (which specific changes vary from manufacturer to manufacturer, but which include material changes in the composition of our Board of Directors during a specified time period, the acquisition of 5% or more of our voting stock by another vehicle manufacturer or distributor, the acquisition of 20% or more of our voting stock by third parties, and the acquisition of an ownership interest sufficient to direct or influence management and policies), or certain other unapproved events (including certain extraordinary corporate transactions such as a merger or sale of all or substantially all of our assets). Triggers of the clauses are often based upon actions by our stockholders and are generally outside of our control. Some of our dealer agreements and framework agreements also give the manufacturer a right of first refusal if we propose to sell any dealership representing the manufacturer's brands to a third-party. These agreements may also attempt to limit the protections available under applicable state laws and require us to resolve disputes through binding arbitration. For additional information, please refer to the risk factor captioned "We are dependent upon our relationships with the manufacturers of vehicles that we sell and are subject to restrictions imposed by, and significant influence from, these vehicle manufacturers. Any of these restrictions or any changes or deterioration of these relationships could have a material adverse effect on our business, financial condition, results of operations, and cash flows."
Our framework agreements with certain manufacturers contain provisions that, among other things, attempt to limit the protections available to dealers under these laws. If these laws are repealed in the states in which we operate, manufacturers may be able to terminate our franchises without providing us with advance notice, an opportunity to cure or a showing of good cause. Without the protection of these laws, it may also be more difficult for us to renew our dealer agreements upon expiration.
Changes in laws that provide manufacturers the ability to terminate our dealer agreements could materially adversely affect our business, financial condition and results of operations. Furthermore, if a manufacturer seeks protection from creditors in bankruptcy, courts have held that the federal bankruptcy laws may supersede these laws, resulting in either the termination,
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non-renewal or rejection of franchises by such manufacturers, which, in turn, could materially adversely affect our business, financial condition, and results of operations. For additional information, please refer to the risk factor captioned "If state laws that protect automotive retailers are repealed, weakened, or superseded by our framework agreements with manufacturers, our dealerships will be more susceptible to termination, non-renewal or renegotiation of their dealer agreements which could have a materially adverse effect on our business, financial condition, and results of operations."
Regulations
We operate in a highly regulated industry. In every state in which we operate, we must obtain one or more licenses issued by state regulatory authorities in order to operate our business. In addition, we are subject to numerous complex federal, state, and local laws regulating the conduct of our business, including those relating to our sales, operations, finance and insurance, marketing, and employment practices. These laws and regulations include state franchise laws and regulations, product standards and recalls, consumer protection laws, privacy and data security laws, anti-money laundering laws, and other extensive laws and regulations applicable to new and used motor vehicle dealers. These laws also include federal and state wage and hour, anti-discrimination, and other laws governing employment practices.
Industry Regulations
The Federal Trade Commission has regulatory authority over automotive dealers pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Gramm-Leach-Bliley Act, and other legislation, and has implemented enforcement initiatives relating to the marketing practices of automotive dealers. Our operations are also subject to the National Traffic and Motor Vehicle Safety Act, Federal Motor Vehicle Safety Standards and other product standards promulgated by the United States Department of Transportation, and the rules and regulations of various state motor vehicle regulatory agencies.
Our financing activities with customers are subject to federal truth-in-lending, consumer leasing, and equal credit opportunity laws and regulations, as well as state and local motor vehicle finance laws, leasing laws, installment finance laws, usury laws, and other installment state and leasing laws and regulations. Some U.S. states regulate fees and charges that may be collected as a result of vehicle sales and service. Claims arising out of actual or alleged violations of law may be asserted against us or our stores by individuals or governmental entities and may expose us to significant damages, fines or other penalties, including revocation or suspension of our license to conduct store operations. Our financing activities, as well as our sale of finance and insurance products, may also be impacted indirectly by laws and regulations that govern automotive finance companies and other financial institutions, including regulations adopted by the Consumer Financial Protection Bureau (the "CFPB").
For additional information, please refer to the risk factor captioned "Our operations are subject to extensive governmental laws and regulations. If we are found to be in purported violation of or subject to liabilities under any of these laws or regulations, or if new laws or regulations are enacted that adversely affect our operations, our business, our reputation, financial condition, results of operations, and prospects could suffer."
Environmental, Health and Safety Laws and Regulations
We are subject to a wide range of environmental laws and regulations, including those governing discharges into water, air emissions, storage of petroleum substances and chemicals, handling and disposal of solid and hazardous wastes, remediation of various types of contamination, and otherwise relating to health, safety and protection of the environment. For example and without creating an exhaustive list: as with automobile dealerships generally, and service and parts and collision repair center operations in particular, our business involves the generation, use, handling, and disposal of hazardous or toxic substances and wastes and the use of above ground and underground storage tanks (ASTs and USTs). Operations involving the management of wastes and the use of ASTs and USTs are subject to requirements of the Resource Conservation and Recovery Act, analogous state statutes, and their implementing regulations. Pursuant to these laws, federal and state environmental agencies have established approved methods for handling, storing, treating, transporting, and disposing of regulated substances and wastes with which we must comply. We also are subject to laws and regulations governing responses to any releases of contamination at or from our facilities or at facilities that receive our hazardous wastes for treatment or disposal. The Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") and similar state statutes, can impose strict and joint and several liability for cleanup costs on those that are considered to have contributed to the release of a "hazardous substance." We also are subject to the Clean Water Act, analogous state statutes, and their implementing regulations which, among other things, prohibit discharges of pollutants into regulated waters without permits, require containment of potential discharges of oil or hazardous substances, and require preparation of spill contingency plans.
In response to the COVID-19 global pandemic, various federal agencies issued mandates and recommendations intended to minimize the spread of infectious disease; similar mandates and recommendations have been issued by several state and local governments where we conduct business. Currently, we are not aware of any non-compliance with these or any other
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environmental requirements applicable to our operations, nor are we aware of any material remedial liabilities to which we are subject.
We have incurred, and will continue to incur, costs and capital expenditures to comply with these laws and regulations. We believe that our operations currently are being conducted in substantial compliance with all applicable regulations. From time to time, we may experience incidents and encounter conditions that are not in compliance with regulations. We may occasionally receive notices from governmental agencies regarding potential violations of these laws or regulations. In such cases, we will work with the agencies to address any issues and to implement appropriate corrective action when necessary. However, none of our dealerships have been subject to any material liabilities in the past, nor do we know of any fact or condition that would result in any material liabilities being incurred in the future.
Human Capital
Mission and Vision
At Asbury, our North Star and our mission is to be the most guest-centric automotive retailer. Our success depends on our employees and their commitment to delivering a consistent and exceptional guest experience. Our employees work at locations in Colorado, Florida, Georgia, Indiana, Missouri, North Carolina, South Carolina, Texas and Virginia. We believe that our employees help to set us apart from our competitors, and, therefore, we understand they are our greatest asset. As a result, a critical part of our business strategy is investing in supporting and developing our employees so that they are trained and incentivized to provide best-in-class service to our guests.
As of December 31, 2020, we employed approximately 7,600 full-time and 300 part-time employees, none of whom were covered by collective bargaining agreements. We believe we have good relations with our employees.
Diversity, Equity and Inclusion
We strive to recruit new employees based on their diversity of thought, background and experience as well as diversity of personal characteristics to best reflect our guests and communities we serve.
With the help and guidance of an outside consulting firm, we developed a diversity and inclusion ("D&I") initiative and launched a company-wide effort in November 2020 to identify our strengths and areas of opportunity related to our D&I initiative. The goal of our D&I initiative is to create more welcoming and inclusive workplaces throughout our dealerships and offices. Based on the results of this effort, each store and support location is expected to develop action plans to drive improvements in both employee behaviors and corporate systems that support our D&I initiative.
Community Outreach
In 2020, we established the Asbury Cares program to support selected community partner organizations to focus on reducing social inequality. To ensure widespread support for our outreach program, we awarded all of our employees with an additional 40 hours of paid time off per year that can only be used to volunteer with our community partners.
Recruitment and Talent Development
When recruiting for open positions, we search for people of varying backgrounds, perspectives, and experiences in order to support a diverse and inclusive culture. We also partner with local colleges and trade schools to develop apprenticeship and internship programs. This allows us to help provide valuable training to entry-level candidates while also growing our pipeline.
Our goal is to promote employees from within to career growth opportunities whenever possible. In support of this goal, we invest resources to train and develop our employees to reach their career goals. For example, our employees have access to an online career path tool, which helps them plan their desired career path and see the required performance goals and milestones to be considered for a promotion. Our fixed operations organization encourages technicians to obtain and maintain certification status with our vehicle manufacturers, and in most cases, our dealership pays for the training. Our employees also attend vehicle manufacturer-sponsored and industry training events.
We pride ourselves on rewarding and developing talented and tenured employees. We also expect to make significant additional investments into building a training continuum for team members in every store position and preparing them for greater opportunities within our organization.
Compensation and Benefits
We offer competitive compensation and benefits to attract and retain the best people, including the following benefits for our full-time team employees:
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• Health, dental, and vision benefits;
• Discount on healthcare premium for completing biometric screening and premium-free healthcare for frontline team members in certain positions;
• Up to 4 weeks paid time off;
• 401(k) match;
• Paid pregnancy leave;
• Short term disability and long term disability insurance;
• Accident insurance, hospital indemnity, employee critical illness insurance;
• Employer paid life insurance;
• Supplemental life insurance;
• Employee Assistance Program; and
• Annual scholarship program.
We also lead the industry by offering equity awards to frontline employees because we want them to be owners of our Company and committed to our long-term success.
Health and Safety; Proactive Covid-19 Actions
The health and safety of our team members and guests is of the utmost importance. In 2020, as the Covid-19 global pandemic impacted our dealerships and business, Asbury implemented the following actions:
• Mandatory mask-wearing for team members, guests and vendors in all locations;
• Personal protective equipment such as steering wheel covers and seat covers for guest cars in for service;
• Additional hand sanitizing stations at our dealerships and offices;
• Remote work arrangements offered where appropriate;
• Guaranteed pay to commissioned team members; and
• Free health benefits for furloughed team members.
Insurance
Due to the inherent risk in the automotive retail industry, our operations expose us to a variety of liabilities. These risks generally require significant levels of insurance covering liabilities such as claims from employees, customers, or other third parties, for personal injury and property related losses occurring in the course of our operations. We may be subject to fines and civil and criminal penalties in connection with alleged violations of federal and state laws or regulatory environments. Further, the automobile retail industry is subject to substantial risk of real and personal property loss, due to the significant concentration of property values located at the various dealership locations.
Under our self-insurance programs, including property and casualty, workers’ compensation, and medical, the Company retains various levels of aggregate loss limits and per claim deductibles. In addition, the Company maintains separate insurance policies to address potential cyber and directors and officers exposures. We are self-insured for certain employee medical claims and maintain stop-loss insurance for individual claims.
Provisions for retained losses and deductibles are made by charges to expense based upon periodic evaluations of the estimated ultimate liabilities on reported and unreported claims. The insurance companies that underwrite our insurance require we secure certain of our obligations for deductible reimbursements with collateral. Our collateral requirements are set by the insurance companies and, to date, have been satisfied by posting surety bonds, letters of credit, and/or cash deposits. Our collateral requirements may change from time to time based on, among other things, our claims experience.
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