What changed in this filing

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Item 1A. Risk Factors

2023-03-01 compared with 2022-03-01 · 89 added, 119 removed, 293 unchanged (42% of the section changed)

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As a result, our profitability is dependent to a great extent on various aspects of vehicle manufacturers’ operations and timely delivery of new vehicles and parts.

Certain vehicle manufacturers have suspended or slowed production of new vehicles, parts and other supplies due to significant shortages of semiconductors, parts and other key components.

Certain vehicle manufacturers have suspended or slowed production of new vehicles, parts and other supplies due to significant shortages of semiconductor chips, parts and other key components.

These production delays have negatively impacted our new vehicle and parts inventory levels, with parts shortages in turn adversely impacting our service and collision repair business.

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In addition, the abatement of the global supply chain issues relating to semiconductor chips, parts and other key components may lead to an increase in the supply of new vehicles, which could have a material adverse effect on the levels of profitability on both new and used vehicles.

We cannot predict with any certainty how long the automotive retail industry will continue to be subject to these shortages or when normalized production will resume at these manufacturers.

We cannot predict with any certainty how long the automotive retail industry will continue to be subject to these shortages or when normalized production will resume at the se manufacturers.

The novel coronavirus disease (COVID-19) global pandemic had, and may continue to have, a material impact on our business, financial condition and results of operations.

The COVID-19 global pandemic has negatively impacted the global economy, disrupted consumer spending and global supply chains, and created significant volatility and disruption of financial markets.

We expect the COVID-19 global pandemic may continue to have an adverse impact on our business, our results of operations, financial condition and liquidity.

The extent of the impact of the COVID-19 global pandemic on our business, such as our ability to execute our near-term and long-term business strategies and initiatives in the expected time frame, will depend on uncertain and unpredictable future developments, including the duration and scope of the pandemic.

Any significant reduction in consumer visits to, or spending at, our dealerships caused by COVID-19, would result in a loss of sales and profits and other material adverse effects.

Voluntary or mandatory self-quarantine or "shelter-in-place" measures may reduce customer visits to our dealerships.

We also expect consumer fears about contracting the virus to continue, which may further reduce traffic to our dealerships.

Consumer spending generally may also be negatively impacted by general macroeconomic conditions and consumer confidence, including the impacts of any recession, resulting from the COVID-19 global pandemic.

For example, the COVID-19 pandemic has at times resulted in employee furloughs and increased unemployment across the United States, thereby reducing consumer demand for our products and services, as well as the number of consumers who qualify for an extension of credit for a vehicle purchase or a lease, either on favorable terms or at all.

All of these factors, if continuing, may negatively impact sales and profitability.

Consumer spending may also be negatively impacted by general macroeconomic conditions, consumer confidence, supply chain disruptions, macroeconomic inflation and efforts to curtail inflation, which may negatively impact revenues.

Our profitability is, to a great extent, dependent on various aspects of vehicle manufacturers' operations.

As a result of significant shortages of semiconductors, parts and key components, certain vehicle manufacturers have ceased or slowed production of new vehicles.

As a result of significant shortages of semiconductor chips, parts and key components, certain vehicle manufacturers have ceased or slowed production of new vehicles.

We cannot predict with any certainty how long these production slowdowns in the automotive retail industry will persist and when normalized production will resume at these manufacturers.

This disruption in our supply network has negatively impacted, and will continue to impact, our ability to maintain a desirable mix of popular new vehicles

and parts that consumers demand at the time and in the volumes desired, all of which would adversely impact our revenues.

This disruption in our supply network has negatively impacted, and will continue to impact, our ability to maintain a desirable mix of popular new vehicles and parts that consumers demand at the time and in the volumes desired, all of which would adversely impact our revenues.

While the supply disruption has reduced our new vehicle inventory supply, it has positively impacted our gross profit per vehicle retailed.

As new vehicle inventories return to historic levels we would expect our new vehicle gross profit to return to pre-COVID levels.

In addition, the impact of the COVID-19 global pandemic on macroeconomic conditions impacted and may further impact the proper functioning of financial and capital markets, foreign currency exchange rates, commodity prices and interest rates.

The extent of the impact of the COVID-19 global pandemic on our business will depend on numerous evolving factors that we cannot accurately predict or assess.

Even after the COVID-19 global pandemic has subsided, we may continue to experience adverse impacts to our business as a result of an economic recession or depression that has occurred or may occur in the future.

The continued disruption of global financial markets as a result of the COVID-19 global pandemic could have a negative impact on our ability to access capital in the future.

As information regarding the duration and severity of the COVID-19 global pandemic continues to evolve, the extent of its impact on our business is highly uncertain and difficult to predict.

At this time, we cannot reasonably estimate the duration and severity of the COVID-19 global pandemic, or the overall impact it may have on our business.

Even after the COVID-19 global pandemic has subsided, we may continue to experience adverse impacts to our business as a result of increased unemployment and any economic recession or depression that has occurred or may occur in the future.

Any of these events could amplify the other risks and uncertainties described below and could materially adversely affect our business, financial condition, results of operations and/or stock price.

For more information on the impact of the COVID-19 global pandemic on our business, financial condition and results of operations, see " Impact of COVID-19 on our Business" contained in this report.

These adverse impacts could include the negative impact it has on global and regional economies and economic activity;

financial and capital markets, foreign currency exchange rates, inflation, commodity prices and interest rates;

changes in consumer behavior and household debt levels, as well as its short and longer-term impact on the levels of consumer confidence.

Property loss or other uninsured liabilities could have a material adverse impact on our results of operations.

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In certain instances, our insurance may not fully cover a loss depending on the applicable deductible or the magnitude and nature of the claim.

Additionally, changes in the cost or availability of insurance in the future could substantially increase our costs to maintain our current level of coverage or could cause us to reduce our insurance coverage and increase our self-insured risks.

Additionally, changes in the cost or availability of insurance in the future could substantially increase our costs to maintain our

current level of coverage or could cause us to reduce our insurance coverage and increase our self-insured risks.

To the extent we incur significant additional costs for insurance, suffer losses that are not covered by in-force insurance or suffer losses for which we are self-insured, our financial condition, results of operations and cash flows could be materially adversely impacted.

If we are unable to acquire and successfully integrate additional dealerships into our business, our revenue and earnings growth may be adversely affected.

If we are unable to acquire and successfully integrate additional businesses into our existing operations, and realize expected benefits and synergies from such acquisitions, our revenue and earnings growth may be adversely affected.

We believe that the automotive retailing industry is a mature industry whose sales are significantly impacted by the prevailing economic climate, both nationally and in local markets.

Accordingly, we believe that our future growth depends in part on our ability to manage expansion, control costs in our operations and acquire and effectively integrate acquired dealerships into our organization.

Specifically, with the consummation of the LHM acquisition, we have experienced significantly more sales, and have more assets and employees than we did prior to the transaction.

The integration process will require us to expend significant capital and significantly expand the scope of our operations and financial systems.

Integration also requires support or other actions by third-parties such as vendors, suppliers, and licensing agencies and the untimely or inadequate responses from such third-parties can delay or otherwise negatively impact the integration process.

When seeking to acquire other dealerships, we often compete with several other national, regional and local dealership groups, and other strategic and financial buyers, some of which may have greater financial resources than us.

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(vii) failing to achieve expected performance levels;

and (viii) impairing relationships with manufacturers and customers as a result of changes in management.

We may not adequately anticipate all the demands that our growth will impose on our personnel, procedures and structures, including our financial and reporting control systems, data processing systems, and management structure.

(viii) impairing relationships with manufacturers and customers as a result of changes in management;

(ix) failing to realize expected benefits and synergies from the transaction;

and (ix) failing to implement or improve controls, policies and information systems and related security measures in the acquired businesses.

Moreover, our failure to retain qualified management personnel at any acquired dealership may increase the risks associated with integrating the acquired dealership.

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If our operating subsidiaries are unable to generate and distribute sufficient cash to us to service our indebtedness and fund our ongoing operations, our financial condition may be materially adversely affected.

Our inability to execute a substantial portion of our strategic plan could have an adverse effect on our business, results of operations, financial condition and cash flows .

Our inability to execute a substantial portion of our business strategy, including our five-year strategic plan, could have an adverse effect on our business, results of operations, financial condition and cash flows .

Our inability to execute a substantial portion of our business strategy, including our five-year strategic plan, could adversely affect our business, results of operations, financial condition and cash flows.

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There can be no assurance that our initiatives and investments in digital channels will be successful or result in improved financial performance.

Furthermore, we may decide to alter or discontinue aspects of our strategic plan and may adopt alternative or additional strategies in response to business or competitive factors or other factors or events beyond our control.

We cannot give assurance that we will be able to execute a substantial portion of our strategic plan which could have a material adverse effect on our financial condition, results of operations, and cash flows.

We cannot give assurance that we will be able to execute a substantial portion of our strategic plan which could have a material adverse effect on our business, financial condition, results of operations, and cash flows.

Goodwill and manufacturer franchise rights comprise a significant portion of our total assets.

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Changes to the business mix or declining cash flows in a dealership increase the risk of impairment.

During the years ended December 31, 2020 and 2019, we recognized $23.0 million and $7.1 million, respectively, in pre-tax non-cash impairment charges associated with manufacturer franchise rights recorded at certain dealerships.

required to record additional impairment charges if the COVID-19 global pandemic continues.

We cannot accurately predict the amount and timing of any additional impairment charge at this time;

However, we cannot accurately predict the amount and timing of any impairment charges at this time;

however, any such impairment charge could have an adverse effect on our results of operations and stockholders' equity.

See Note 10 "Goodwill and Intangible Franchise Rights" of the notes to consolidated financial statements for more information.

The loss of key personnel and limited management and personnel resources could adversely affect our business.

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If we are unable to retain our key personnel, we may be unable to successfully execute our business plans, which may have a material adverse effect on our business.

LHM Acquisition Risks

The consummation of the LHM Acquisition creates numerous risks and uncertainties which could adversely affect our business and results of operations.

With the consummation of the LHM Acquisition, we have experienced significantly more sales, and have more assets and employees than we did prior to the transaction.

The integration process will require us to expend significant capital and significantly expand the scope of our operations and financial systems.

Our management will be required to devote a significant amount of time and attention to the process of integrating the operations of our business with that of the LHM Dealerships and TCA.

There is a significant degree of difficulty and management involvement inherent in that process.

These difficulties include:

• integrating the operations of the LHM Business while carrying on the ongoing operations of our business;

• managing a significantly larger company than before consummation of the LHM Acquisition;

• the possibility of faulty assumptions underlying our expectations regarding the integration process, including,

among other things, unanticipated delays, costs or inefficiencies;

• the effects of unanticipated liabilities;

• operating a more diversified business;

• integrating two separate business cultures, which may prove to be incompatible;

• operating the TCA Business;

• attracting and retaining the necessary personnel associated with the LHM Business;

• implementing or improving controls, policies and information systems and related security measures in the LHM Business and legacy facilities;

• operating in broader national footprint including states in which we may not have previously done business.

As private companies, the LHM Dealerships and TCA were not required to obtain audits of internal control over financial reporting or otherwise have such internal control assessed, except to the extent required in connection with audits pursuant to GAAP;

however, the financial systems of the entities are being integrated into our financial systems and they are now subject to the internal control requirements of the Company.

If any of these factors limit our ability to integrate the LHM Business into our operations successfully or on a timely basis, the expectations of future results of operations, including certain run-rate synergies expected to result from the LHM Acquisition, might not be met.

As a result, we may not be able to realize the expected benefits that we seek to achieve from the LHM Acquisition, which could also affect our ability to service our debt obligations.

In addition, we may be required to spend additional time or money on integration that otherwise would be spent on the development and expansion of our business, including efforts to further expand our product portfolio.

We may be unable to realize the anticipated cost savings or operational improvements or may incur additional and/or unexpected costs in order to realize them.

There can be no assurance that we will be able to realize the anticipated cost savings or operational improvements from the LHM Acquisition in the anticipated amounts or within the anticipated timeframes or costs expectations or at all.

We anticipate $65 million of cost savings following the LHM Acquisition from reduced corporate costs due to the elimination of family management fees and reduced costs associated with certain information technology and advertising costs.

We anticipate annualized run-rate operating synergies over the medium term following the consummation of the LHM Acquisition of approximately $75 million, inclusive of approximately $10.0 million of costs we expect to incur to realize such operating synergies.

These operating synergies are expected to result primarily from the integration of the TCA Business' services across our dealership portfolio.

These operating synergies or any cost savings that we expect to realize, including reduced corporate costs due to the elimination of family management fees and certain vendor contracts, may differ materially from our estimates.

We cannot provide assurances that these anticipated operating synergies or cost savings will be achieved or that our programs and improvements will be completed as anticipated or at all.

In addition, any cost savings that we realize may be offset, in whole or in part, by reductions in revenues or through increases in other expenses.

The TCA Business is subject to a wide range of federal, state, and local laws and regulations, some of which we may not have previously been subject.

The TCA Business is, and will continue to be, subject to a wide range of federal, state, and local laws and regulations, some of which Asbury may not have been previously subject.

Such laws and regulations include but are not limited to:

• state and local licensing requirements;

• federal and state laws regulating vehicle financial products;

• federal and state consumer protection laws.

No assurance can be given that applicable statutes, regulations, and other laws will not be amended or construed differently, that new laws will not be adopted, or that any of these laws will not be enforced more aggressively.

For example, changes in the regulatory and supervisory environments could adversely affect the TCA Business in substantial and unpredictable ways.

Further, the TCA Business ’ noncompliance with applicable laws (whether as a result of changes in interpretation or enforcement, system or human errors, or otherwise) could result in the suspension or revocation of licenses or registrations necessary to operation, or the initiation of enforcement actions or private litigation.

In addition, we are required to set aside an amount of restricted cash sufficient to satisfy potential claims associated with the TCA Business.

While we are permitted to invest such cash in low-risk money market accounts and other investments, we cannot provide any assurance that a loss in such investments would not have a material adverse effect on our ability to honor customers’ claims, which could have a material adverse effect on our business.

Risks Related to Macroeconomic and Market Conditions

The automotive retail industry is sensitive to unfavorable changes in general economic conditions and various other factors that could affect demand for our products and services, which could have a material adverse effect on our business, our ability to implement our strategy and our results of operations.

Our future performance will be impacted by general economic conditions including:

Our future performance will be impacted by general economic conditions including among other things:

changes in employment levels;

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Changes in interest rates can also significantly impact new and used vehicle sales and vehicle affordability due to the direct relationship between interest rates and monthly loan payments, a critical factor for many vehicle buyers, and the impact interest rates have on customers’ borrowing capacity and disposable income.

In an inflationary environment, depending on automotive industry and other economic conditions, we may be unable to raise prices to keep up with the rate of inflation, which would reduce our profit margins.

In an inflationary environment, depending on automotive industry

and other economic conditions, we may be unable to raise prices to keep up with the rate of inflation, which would reduce our profit margins.

We have experienced, and continue to experience, increases in the prices of labor, fuel and other costs of providing service.

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Our ability to sell new vehicles is dependent on manufacturers’ ability to design and produce, and willingness to allocate and deliver to our dealerships, a desirable mix of popular new vehicles that consumers demand.

Popular vehicles may often be difficult to obtain from manufacturers for a number of reasons, including the fact that manufacturers generally allocate their vehicles to dealerships based on sales history and capital expenditures associated with such dealerships.

For example, improvements in electric, battery-powered and hybrid gas/electric vehicles have increased consumer demand for such vehicles.

If consumer demand increases for certain types of vehicles, including electric, battery-powered and hybrid gas/electric, and our manufacturers are not able to adapt and produce such vehicles that meet consumer demands, our new and used vehicle sales volumes, parts and service revenue and our results of operations may be adversely affected.

Further, if manufacturers shift significant resources away from traditional production models to invest in clean vehicles and new technologies, we may experience an inadequate supply of historically popular vehicles and other adverse effects on our new and used vehicle sales volume, parts and service revenue and our results of operations until such time as consumer preferences for clean vehicles and other new technologies become widespread.

In addition, popular vehicles may often be difficult to obtain from manufacturers for a number of reasons, including the fact that manufacturers generally allocate their vehicles to dealerships based on sales history and capital expenditures associated with such dealerships.

Further, if a manufacturer fails to produce desirable vehicles or develops a reputation for producing undesirable vehicles or produces vehicles that do not comply with applicable laws or government regulations, and we own dealerships which sell that manufacturer’s vehicles, our revenues from those dealerships could be adversely affected as consumers shift their vehicle purchases away from that brand.

Although we seek to limit our dependence on any one vehicle manufacturer, there can be no assurance that the brand mix allocated and delivered to our dealerships by the manufacturers will be appropriate or sufficiently diverse, to protect us from a significant decline in the desirability of vehicles manufactured by a particular manufacturer or disruptions in a manufacturer's ability to produce vehicles.

For the year ended December 31, 2021, manufacturers representing 5% or more of our revenues from new vehicle sales were as follows:

For the year ended December 31, 2022, manufacturers representing 5% or more of our revenues

from new vehicle sales were as follows:

Manufacturer (Vehicle Brands):

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( Toyota and Lexus )

Stellantis N.V.

( Chrysler, Dodge, Jeep, Ram and Fiat )

American Honda Motor Co., Inc.

( Honda and Acura )

Mercedes-Benz USA, LLC ( Mercedes-Benz and Sprinter )

Ford Motor Company ( Ford and Lincoln )

Mercedes-Benz USA, LLC ( Mercedes-Benz and Sprinter )

Hyundai Motor North America ( Hyundai and Genesis )

General Motors Company ( Chevrolet, Buick and GMC)

Nissan North America, Inc.

( Nissan and Infiniti )

BMW of North America, LLC ( BMW and MINI )

Similar to automotive retailers, vehicle manufacturers may be affected by the long-term U.S.

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Vehicle manufacturers that produce vehicles outside of the U.S.

are subject to additional risks including changes in

quotas, tariffs or duties, fluctuations in foreign currency exchange rates, regulations governing imports and the costs related thereto, and foreign governmental regulations.

are subject to additional risks including changes in quotas, tariffs or duties, fluctuations in foreign currency exchange rates, regulations governing imports and the costs related thereto, and foreign governmental regulations.

Adverse conditions that materially affect a vehicle manufacturer and its ability to profitably design, market, produce or distribute desirable new vehicles could in turn materially adversely affect our ability to (i) sell vehicles produced by that manufacturer, (ii) obtain or finance our new vehicle inventories, (iii) access or benefit from manufacturer financial assistance programs, (iv) collect in full or on a timely basis any amounts due therefrom, and/or (v) obtain other goods and services provided by the impacted manufacturer.

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For example, in early 2020, the outbreak of a novel coronavirus in Wuhan, China led to quarantines of a significant number of cities across the United States and other countries and widespread disruptions to travel and economic activity.

Until such time as the coronavirus is fully contained and the supply chain shortages of semiconductor chips, parts and other key components are addressed, we may continue to experience disruptions in the (i) supply of vehicle and parts inventories, (ii) ability and willingness of our customers to visit our stores to purchase products or service their vehicles and (iii) overall health of our labor force.

At this time, it is unclear what effect, if any, the outbreak and resulting disruptions may continue to have on the automotive manufacturing vehicle and parts supply chain, the health of our labor force and the ability and willingness of our customers to visit our stores to purchase products or service their vehicles.

Such disruptions could have a material adverse effect on our business, results of operations, financial condition, and cash flows.

Until such time as the coronavirus is fully contained and the supply chain shortages of semiconductor chips, parts and other key components are addressed, we may continue to experience disruptions in the supply of vehicle and parts inventories, which could have a material adverse effect on our business, results of operations, financial condition, and cash flows.

Substantial competition in automobile sales and services may have a material adverse effect on our results of operations.

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Additionally, we rely on the protection of state franchise laws in the states in which we operate and if those laws are repealed or weakened, our framework, franchise and related agreements may become more susceptible to termination, nonrenewal or renegotiation.

In recent years, certain states have permitted one or more companies, such as Tesla, to circumvent the state franchise laws of several states in the United States, thereby permitting them to sell their new electric vehicles directly to consumers without the requirements of establishing a dealer network.

These laws have historically restricted the ability of automobile manufacturers to directly enter the retail market and sell vehicles directly to consumers.

However, many states have recently passed or introduced legislation to permit direct to consumer sales of electric vehicles by certain companies, such as Tesla and Rivian, without the requirements of establishing a dealer network.

If the state franchise laws are repealed, weakened or amended to permit vehicle manufacturers to sell vehicles (whether electric or not) directly to consumers, they may be able to have a competitive advantage over the traditional dealers, which could have a material adverse effect on our sales in those states, which in turn, could have a material adverse effect on our business, financial condition, results of operations and cash flows.

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In addition, certain manufacturers use a dealership’s manufacturer-determined customer satisfaction index ("CSI") score as a factor governing participation in incentive programs.

To the extent we do not meet minimum score requirements, our future payments may be materially reduced or we may be precluded from receiving certain incentives, which could materially adversely affect our business, financial condition, results of operations and cash flows.

To the extent we do not meet minimum score requirements, our future

payments may be materially reduced or we may be precluded from receiving certain incentives, which could materially adversely affect our business, financial condition, results of operations and cash flows.

Manufacturers also typically establish facilities and minimum capital requirements for dealerships on a case-by-case basis.

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The establishment or relocation of franchises in our markets could have a material adverse effect on the business, financial condition and results of operations of our dealerships in the market in which the action is taken.

Manufacturers may also limit our ability to divest one or more of our dealerships in a timely manner or at all.

Manufacturers may also limit our ability to divest one or more of our franchise dealerships in a timely manner.

Most of our dealer agreements provide the manufacturer with a right of first refusal to purchase any of the manufacturer’s franchises we seek to sell.

Divestitures may also require manufacturer consent and failure to obtain consent would require us to find another potential buyer or wait until the buyer is able to meet the requirements of the manufacturer.

Divestitures of our franchise dealerships may also require manufacturer consent and failure to obtain consent would require us to find another potential buyer or wait until the buyer is able to meet the requirements of the manufacturer.

A delay in the sale of a dealership could have a negative impact on our business, financial condition, results of operations, and cash flows.

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).

Manufacturers may terminate or may not renew our dealer and framework agreements, or may 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 these clauses are often based upon actions by our stockholders and are generally outside of our control.

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There can be no assurances that we will be able to renew our dealer and framework agreements on a timely basis, on acceptable terms, or at all.

Our business, financial condition and results of operations may be materially adversely affected to the extent that our rights become compromised or our operations are restricted due to the terms of our dealer or framework agreements or if we lose franchises representing a significant percentage of our revenues due to termination or failure to renew such agreements.

If vehicle manufacturers reduce or discontinue sales incentive, warranty or other promotional programs, our financial condition, results of operations and cash flows may be materially adversely affected.

If vehicle manufacturers reduce or discontinue sales incentive, warranty or other promotional programs, our business, financial condition, results of operations and cash flows may be materially adversely affected.

We benefit from certain sales incentive, warranty, and other promotional programs of vehicle manufacturers that are intended to promote and support their respective new vehicle sales.

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Vehicle manufacturers often make many changes to their incentive programs.

Any reduction or discontinuation of manufacturers’ incentive programs for any reason, including a supply and demand imbalance, may reduce our sales volume which, in turn, could have a material adverse effect on our results of operations, cash flows, and financial condition.

Any reduction or discontinuation of manufacturers’ incentive programs for any reason, including a supply and demand imbalance, may reduce our sales volume which, in turn, could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Technological advances, including electrification of vehicles and adoption of autonomous vehicles in the long-term, could have a material adverse effect on our business.

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While most major vehicle manufacturers have announced plans to electrify some or all of their new vehicle offerings, the eventual timing of widespread availability of electric, battery powered and hybrid gas/electric vehicles and driverless vehicles is uncertain due to regulatory requirements, additional technological requirements, and uncertain consumer acceptance of these vehicles.

We expect to continue to sell electric, battery powered and hybrid gas/electric vehicles through our dealerships, however, the effect of these vehicles on the automotive retail business is uncertain and could include changes in the level of the new and used vehicle sales, the price of new and used vehicles and the levels of service required for such vehicles and the profitability of our parts and service business and the role of franchised dealers, any of which could materially adversely affect our business, financial condition, results of operations and cash flows.

service business, our finance and insurance business, including our TCA business, and the role of franchised dealers, any of which could materially adversely affect our business, financial condition, results of operations and cash flows.

Risks Related to Our Indebtedness and Financial Matters

Our outstanding indebtedness, ability to incur additional debt and the provisions in the agreements governing our debt, and certain other agreements, could have a material adverse effect on our business, financial condition, results of operations, and cash flows.

As of December 31, 2021, we had total debt of $3.61 billion and total floor plan notes payable of $564.5 million.

As of December 31, 2022, we had total debt of $3.33 billion and total floor plan notes payable, net of $51.0 million.

We have the ability to incur substantial additional debt in the future to finance, among other things, acquisitions, working capital and capital expenditures, and new and used vehicle inventory, as well as to refinance new and used vehicle inventory, subject in each case to the restrictions contained in our debt instruments and other agreements existing at the time such indebtedness is incurred.

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If market conditions cause subprime lenders to tighten credit standards, or if interest rates increase, the ability to obtain financing from subprime lenders for these consumers to purchase vehicles could become limited, resulting in a decline in our vehicle sales, which in turn, could have a material adverse effect on our financial condition and results of operations.

Many of our loans and obligations for borrowed money are priced on variable interest rates tied to the London Interbank Offering Rate, or LIBOR.

We are subject to risks that LIBOR may no longer be available as a result of the United Kingdom’s Financial Conduct Authority ceasing to require the submission of LIBOR quotes on June 30, 2023.

The potential cessation of LIBOR quotes on June 30, 2023 creates substantial risks to the banking industry, including us.

Unless alternative rates can be negotiated, our floating rate loans, funding and derivative obligations that specify the use of a LIBOR index, will no longer adjust and may become fixed rate instruments at the time LIBOR ceases to exist.

This would adversely affect our asset/liability management and could lead to more asset and liability mismatches and interest rate risk unless appropriate LIBOR alternatives are developed.

It could also cause confusion that could disrupt the capital and credit markets as a result of confusion or uncertainty.

The Federal Reserve has sponsored the Alternative Reference Rates Committee, or ARRC, which serves as a forum to coordinate and track planning as market participants currently using LIBOR consider (a) transitioning to alternative reference rates where it is deemed appropriate and (b) addressing risks in legacy contracts language given the possibility that LIBOR might stop.

On April 3, 2018, the Federal Reserve began publishing three new reference rates, including the Secured Overnight Financing Rate, or SOFR.

ARRC has recommended SOFR as the alternative to LIBOR, and published fallback interest rate consultations for public comment and a Paced TransTransition Plan to SOFR use.

The Financial Stability Board has taken an interest in LIBOR and possible replacement indices as a matter of risk management.

The International Organisation of Securities Commissions, or IOSCO, has been active in this area and is expected to call on market participants to have backup options if a reference rate, such as LIBOR, ceases publication.

The International Swap Dealers Association has published guidance on interest rate bench marks and alternatives in July and August 2018.

It cannot be predicted whether SOFR or another index or indices will become a market standard that replaces LIBOR, and if so, the effects on our customers, or our future results of operations or financial condition.

We have identified a material weakness in our internal control over financial reporting and may identify additional material weaknesses in the future or otherwise fail to maintain an effective system of internal controls, which may result in material misstatements or otherwise adversely affect the accuracy, reliability or timeliness of our financial statements.

As described under Item 9A.

"Controls and Procedures" below, we have concluded that a material weakness in our internal control over financial reporting existed as of December 31, 2022 and, accordingly, internal control over financial reporting and our disclosure controls and procedures were not effective as of such date.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial statements will not be prevented or detected on a timely basis.

As a result of management’s evaluation, management identified the material weakness as a result of deficiencies in information technology general controls ("ITGCs") at LHM and TCA, businesses that we acquired in December 2021.

Management has developed its remediation plan and is in the process of implementing it.

Until the remediation plan is fully implemented, tested and deemed effective, we cannot provide assurance that our actions will adequately remediate the material weakness or that additional material weaknesses in our internal controls will not be identified in the future.

Effective internal control over financial reporting is necessary for us to provide reliable and timely financial reports and, together with adequate disclosure controls and procedures, are designed to reasonably detect and prevent fraud.

The occurrence of, or failure to remediate, this material weakness and any future material weaknesses in our internal control over financial reporting may adversely affect the accuracy and reliability and timeliness of our financial statements and have other consequences that could materially and adversely affect our business.

Risks Related to Legal and Regulatory Matters

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Many states also limit the circumstances in which an automobile manufacturer may sell vehicles directly to consumers.

Some state laws allow dealers to file protests or petitions or allow them to attempt to comply with the manufacturer’s criteria within a notice period to avoid the termination or non-renewal.

Some state laws allow dealers to file protests or petitions or allow them to attempt to comply with the

manufacturer’s criteria within a notice period to avoid the termination or non-renewal.

Our framework agreements with certain manufacturers contain provisions that, among other things, attempt to limit the protections available to dealers under these laws, and, though unsuccessful to date, manufacturers’ ongoing lobbying efforts may lead to the repeal or revision of these laws.

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For example, laws and regulations enacted that directly or indirectly affect vehicle manufacturers (through an increase in the cost of production or their ability to produce satisfactory products) or our business (through an impact on our inventory availability, cost of sales, operations or demand for the products we sell) could materially adversely impact our business, results of operations, financial condition, cash flow, and prospects.

In addition, vehicle manufacturers are subject to government-mandated fuel economy and greenhouse gas, or GHG, emission standards, which

continue to change and become more stringent over time.

In addition, vehicle manufacturers are subject to government-mandated fuel economy and greenhouse gas, or GHG, emission standards, which continue to change and become more stringent over time.

Significant increases in fuel economy requirements or new federal or state restrictions on emissions of carbon dioxide that may be imposed on vehicles and automobile fuels could adversely affect demand for vehicles, annual miles driven or the products we sell or lead to changes in automotive technology.

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Alleged or actual data security breaches can increase costs of doing business, negatively affect customer satisfaction and loyalty, expose us to negative publicity, individual claims or consumer class actions, administrative, civil or criminal investigations or actions, and infringe on proprietary information, any of which could have a material adverse effect on our business, financial condition, results of operations or cash flows.

Our operations are subject to extensive governmental laws and regulations.

Our dealership operations and facilities 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, results of operations, financial condition, cash flows, reputation and prospects could suffer.

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If any of our employees were to engage in misconduct or were to be accused of such misconduct, our business and reputation could be adversely affected.

The Consumer Financial Protection Bureau ("CFPB") does not have direct regulatory authority over automotive dealers but could implement additional, indirect regulation of automotive dealers, in particular, their sale and marketing of finance and insurance products, through its regulation of automotive finance companies and other financial institutions.

The CFPB does not have direct regulatory authority over automotive dealers but could implement additional, indirect regulation of automotive dealers, in particular, their sale and marketing of finance and insurance products, through its regulation of automotive finance companies and other financial institutions.

In addition, the CFPB possesses supervisory authority with respect to certain non-bank lenders, including automotive finance companies, participating in automotive financing.

The Federal Trade Commission ("FTC") may exercise its additional rule-making authority to expand consumer protection regulations relating to the sale, financing and leasing of motor vehicles.

we signed a consent order with the FTC to settle allegations that in certain instances our advertisements did not adequately disclose information about used vehicles with open safety recalls.

The FTC may exercise its additional rule-making authority to expand consumer protection regulations relating to the sale, financing and leasing of motor vehicles.

In May 2016, we signed a consent order with the FTC to settle allegations that in certain instances our advertisements did not adequately disclose information about used vehicles with open safety recalls.

Under the consent order, we did not agree to make any payments or admit wrong-doing, but we did agree to make certain disclosures in marketing materials and at the point of sale and comply with certain record-keeping obligations.

Our failure to comply with the consent order may result in the imposition of significant fines and/or penalties, which could have a material adverse effect on our results of operations.

Continued pressure from the CFPB, FTC, and other federal agencies could lead to significant changes in the manner that dealers are compensated for arranging customer financing and vehicle protection products, and while it is difficult to predict how any such changes might impact us, any adverse changes could have a material adverse impact on our finance and insurance business and results of operations.

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Environmental laws and regulations govern, among other things, discharges into the air and water, storage of petroleum substances and chemicals, the handling and disposal of solid and hazardous wastes, investigation and remediation of contamination.

Similar to many of our competitors, we have incurred and expect to continue to incur capital and operating expenditures and other costs to comply with such federal and state statutes.

Similar to many of our competitors, we have incurred and expect to continue to incur capital and operating expenditures and other costs to comply with such federal and state laws and regulations.

In addition, we may become subject to broad liabilities arising out of contamination at our currently and formerly owned or operated facilities, at locations to which hazardous substances were transported from such facilities, and at such locations related to entities formerly affiliated with us.

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For example, vehicle manufacturers are subject to government-mandated fuel economy and greenhouse gas emission standards, which continue to change and become more stringent over time.

Failure of a manufacturer to develop passenger vehicles and light trucks that meet these and other government standards could subject the manufacturer to substantial penalties, increase the cost of vehicles sold to us, and adversely affect our ability to market and sell vehicles to meet consumer needs and desires, which could have a material adverse effect on our business, results of operations, financial condition or cash flows.

Failure of a manufacturer

to develop passenger vehicles and light trucks that meet these and other government standards could subject the manufacturer to substantial penalties, increase the cost of vehicles sold to us, and adversely affect our ability to market and sell vehicles to meet consumer needs and desires, which could have a material adverse effect on our business, results of operations, financial condition or cash flows.

Our TCA Business is subject to a wide range of federal, state, and local laws and regulations, some of which we may not have previously been subject.

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 TCA Business, our business, results of operations, financial condition, cash flows, reputation and prospects could suffer.

The TCA Business is, and will continue to be, subject to a wide range of federal, state, and local laws and regulations, some of which Asbury may not have been previously subject.

Such laws and regulations include but are not limited to:

• state and local licensing requirements;

• federal and state laws regulating vehicle finance and insurance products;

• federal and state consumer protection laws.

For example, changes in the regulatory and supervisory environments could adversely affect the TCA Business in substantial and unpredictable ways.

Further, the TCA Business ’ noncompliance with applicable laws (whether as a result of changes in interpretation or enforcement, system or human errors, or otherwise) could result in the suspension or revocation of licenses or registrations necessary to the operation, or the initiation of enforcement actions or private litigation.

In addition, we are required to set aside an amount of restricted cash sufficient to satisfy potential claims associated with the TCA Business.

While we are permitted to invest such cash in fixed income and equity securities, and other investments, we cannot provide any assurance that a loss in such investments would not have a material adverse effect on our ability to honor customers’ claims, which could have a material adverse effect on our business.

We are subject to risks related to the provision of employee health care benefits, which could have a material adverse effect on our business, results of operations, financial condition and cash flows.

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Actual costs under these plans are subject to variability that is dependent upon participant enrollment, demographics and the actual costs of claims made.

Negative trends in any of these areas, including negative trends arising as a result of the COVID-19 pandemic, could cause us to incur additional unplanned health care costs, which could adversely impact our business, financial condition, results of operations and cash flows.

Negative trends in any of these areas could cause us to incur additional unplanned health care costs, which could adversely impact our business, financial condition, results of operations and cash flows.

In addition, if enrollment in our health care plans increases significantly, the additional costs that we will incur may be significant enough to materially affect our business, financial condition, results of operations and cash flows.

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Our inability to access necessary or desirable funding, or to enter into certain related transactions, at times and at costs deemed appropriate by us, could have a negative impact on our liquidity and our ability to conduct our operations.

Any of these developments could also reduce the ability or willingness of the financial institutions that have extended credit commitments to us, or that have entered into hedge or similar transactions with us, to fulfill their obligations to us, which also could have a material adverse effect on our liquidity and our ability to conduct our operations.

Any of these developments could also reduce the ability or willingness of the financial institutions that have extended credit commitments to

us, or that have entered into hedge or similar transactions with us, to fulfill their obligations to us, which also could have a material adverse effect on our liquidity, our ability to conduct our operations and our prospects.

We are subject to risks associated with imported product restrictions or limitations, foreign trade and currency valuations.

Our business involves the sale of vehicles, parts or vehicles composed of parts that are manufactured outside the United States.

Our business involves the sale of vehicles, parts or vehicles composed of parts that are manufactured outside of the United States.

As a result, our operations are subject to risks of doing business outside of the United States and importing merchandise, including import duties, exchange rates, trade restrictions, work stoppages, natural or man-made disasters, and general political and socio-economic conditions in other countries.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors