What changed in this filing

/stocks — the workspaceLOADING

Item 1A. Risk Factors

2021-02-24 compared with 2020-02-13 · 160 added, 319 removed, 52 unchanged (90% of the section changed)

The U.K.’s withdrawal from the EU may have a negative effect on some global economic conditions, financial markets and our business, which could adversely affect our U.K.

revenue and results of operations.

On June 23, 2016, British citizens voted on a referendum in favor of Brexit.

formally exited the EU on January 31, 2020, but the future terms of the U.K.’s relationship with the EU remain uncertain.

The effects of Brexit will depend on any agreements the U.K.

makes to retain access to EU markets either during a transitional period or more permanently.

Brexit could adversely affect U.K.

and European market conditions, could contribute to instability in some global financial and foreign exchange markets, including continued volatility in the value of the GBP or otherwise adversely affect trading agreements or similar cross-border cooperation arrangements (whether economic, tax, legal, regulatory or otherwise) beyond the date of Brexit.

More specifically, it could lead to:

a decrease in sales or revenues attributable to increased retail prices of new vehicles as the majority of vehicles sold in the U.K.

are imported from other countries in Europe and could be subject to additional tariffs or the impact of a weaker pound exchange rate which could cause the price of imported vehicles and parts to increase;

an increase in supply chain risk for automotive retailers and manufacturers due to the impact of changes in the U.K.’s access to free trade agreements, resulting in custom checks and tariffs, which could delay delivery of vehicles or parts;

continued volatility in the currencies in which we transact our business.

As exchange rates fluctuate, our revenue and results of operations as reported under U.S.

GAAP fluctuates.

A weakening GBP as compared to the USD negatively impacts our USD reported results of operations.

business generated approximately 20% of our total revenue for the year ended December 31, 2019;

a decrease in the level of dealership franchise protections currently provided under EU Block Exemption and contract law;

economic risk:

economy may be negatively impacted, resulting in a decrease to our revenues;

Brexit might impact the hiring and movement of employees and subject companies to local labor laws and efforts required to relocate U.K.

operations or use EU subsidiaries;

regulatory risk:

exposure to different laws and regulations might impact businesses.

For example, the loss of passporting arrangements that permit U.K.

entities to serve EU businesses and customers.

Any of these effects of Brexit and others we cannot anticipate could materially adversely affect our business, consolidated financial position, results of operations and cash flows.

Demand for and pricing of our products and services is subject to economic conditions and other factors, which have had and, in the future, could have a material adverse effect on our business and results of operations.

The following risks have had or in the future could have a material adverse effect on our business and results of operations.

Market and Industry Risks

Demand for and pricing of our products and services may be adversely impacted by economic conditions and other factors.

The automotive retail industry, and especially new vehicle unit sales, is influenced by general economic conditions, particularly consumer confidence, the level of personal discretionary spending, interest rates, exchange rates, fuel prices, technology and business model changes, supply conditions, consumer transportation preferences, unemployment rates and credit availability.

During economic downturns, retail new vehicle sales typically experience periods of decline characterized by oversupply and weakened demand.

In addition, periods of economic uncertainty, as well as volatility in consumer preference around fuel-efficient vehicles in response to volatile fuel prices, and concern about manufacturer viability, may adversely impact future consumer spending and result in a challenging business environment.

Any tightening of the credit markets and credit conditions may decrease the availability of automotive loans and leases and adversely impact our new and used vehicle sales and margins.

In addition, consumer spending can be materially and adversely impacted by periods of economic uncertainty as was experienced in the second quarter of 2020, as a result of the lockdowns imposed following the spread of the COVID-19 pandemic, or consumer concern about manufacturer viability.

Economic conditions can also have a significant impact on our borrowing rates.

The majority of our floorplan notes payable, mortgages and other debt are benchmarked to LIBOR, which can be highly volatile as a result of changing economic conditions.

Although we utilize derivative instruments to partially mitigate our exposure to interest rate fluctuations, significant increases in LIBOR or other variable interest rates could have a material adverse impact on our interest expense due to the significance of our debt and floorplan balances.

Additionally, our LIBOR-based contracts will be impacted by the expected transition away from LIBOR after 2021.

Refer to Item 7A.

Quantitative and Qualitative Disclosures About Market Risk for further discussion of the LIBOR transition and additional analysis regarding our interest rate sensitivity.

A significant portion of our vehicles purchased by customers are financed.

Tightening of the credit markets and credit conditions may decrease the availability of automotive loans and leases and adversely impact our new and used vehicle sales and margins.

In particular, if sub-prime finance companies apply higher credit standards or if there is a decline in the overall availability of credit in the sub-prime lending market, the ability of consumers to purchase vehicles could be limited, which could have a material adverse effect on our business and results of operations.

Volatile fuel prices may also continue to affect consumer preferences in connection with the purchase of our vehicles.

Rising fuel prices may make consumers less likely to purchase larger, more expensive vehicles, such as sports utility vehicles or luxury automobiles, and more likely to purchase smaller, less expensive and more fuel efficient vehicles.

Conversely, lower fuel prices could have the opposite effect.

Sudden changes in customer preferences make maintenance of an optimal mix of large and small vehicle inventory a challenge.

Further increases or sharp declines in fuel prices could have a material adverse effect on our business and results of operations.

In addition, local economic, competitive and other conditions affect the performance of our dealerships.

1 unchanged sentence

where we maintain most of our operations.

Since a large concentration of our new vehicle sales are in the state of Texas for the year ended December 31, 2019 , which is dependent upon the oil and gas industry, declines in commodity prices have had and future declines could have an adverse effect on our business and results of operations in those regions.

We are subject to a concentration of risk in the event of financial distress, merger, sale or bankruptcy, including potential liquidation of, or other adverse economic impacts on, certain major vehicle manufacturers.

The success of our dealerships is dependent on vehicle manufacturers.

We rely exclusively on the various vehicle manufacturers for our new vehicle inventory.

Changes in consumer demand towards fuel efficient vehicles and electric vehicles could adversely affect our new and used vehicle sales volumes, parts and service revenues and our results of operations.

Volatile fuel prices have affected and may continue to affect consumer preferences in connection with the purchase of our vehicles.

Rising fuel prices result in consumers less likely to purchase larger, more expensive vehicles, such as sports utility vehicles or luxury automobiles, and more likely to purchase smaller, less expensive and more fuel efficient vehicles.

Conversely, lower fuel prices could have the opposite effect.

Sudden changes in customer preferences make maintenance of an optimal mix of large and small vehicle inventory a challenge.

Further increases or sharp declines in fuel prices could have a material adverse effect on our business and results of operations.

Changes in fuel prices, government support, improvements in electric vehicles and more electric vehicle options have increased the customer demand for more fuel efficient vehicles and electric vehicles.

With a potential increase in demand by consumers for electric-powered vehicles, our manufacturers will need to adapt their product plans and production capabilities accordingly to meet these demands.

As more electric vehicles potentially enter the market, and internal combustion or diesel engine vehicle production is reduced, it may be necessary to adapt to such changes by selling and servicing these units effectively in order to meet consumer demands and support the profitability of our dealerships.

If maintenance costs of electric-powered vehicles were to substantially decrease, this could have a material adverse effect on our parts and service revenues.

If consumer demand increases for fuel efficient vehicles or electric vehicles and our manufacturers are not able to adapt and produce vehicles that meet the customer demands or we are unable to align with the manufacturers of these vehicles, such events could adversely affect our new and used vehicle sales volumes, parts and service revenue and our results of operations.

Vehicle technology advancements and changes in consumer vehicle ownership preferences could adversely affect our new and used vehicle sales volumes, parts and service revenues and our results of operations.

Vehicle technology advancements are occurring at an accelerating pace.

This includes driver assist functionality, autonomous vehicle development, rideshare and vehicle co-ownership business models.

Many in the automotive industry believe that in the near future vehicles will be available to the automotive consumer at low usage costs, which may entice many vehicle owners, particularly in larger, highly populated areas, to abandon individual car ownership in favor of multiple co-ownership ride-sharing opportunities.

An increased popularity in the ride-sharing subscription business model could adversely affect our new and used vehicle sales volumes, parts and service revenue and results of operations.

We are subject to risks associated with our dependence on manufacturer business relationships and agreements.

The success of our dealerships is dependent on vehicle manufacturers whom we rely exclusively on for our new vehicle inventory.

Our ability to sell new vehicles is dependent on a vehicle manufacturer’s ability to produce and allocate to our dealerships an attractive, high quality and desirable product mix at the right time in order to satisfy customer demand.

3 unchanged sentences

Our dealerships perform warranty and service contract work for vehicles under manufacturer product warranties and service contracts and we bill the manufacturer directly as opposed to invoicing the customer.

In addition, we rely on manufacturers to varying extents for OEM replacement parts, training, product brochures and point of sale materials, and other items for our dealerships.

Manufacturers generally offer various financing programs and incentives for our new and used vehicle customers.

In addition, we rely on manufacturers for various financing programs, OEM replacement parts, training, up-to-date product design, development of advertising materials and programs and other items necessary for the success of our dealerships.

Vehicle manufacturers may be adversely impacted by economic downturns or recessions, significant declines in the sales of their new vehicles, increases in interest rates, adverse fluctuations in currency exchange rates, declines in their credit ratings, reductions in access to capital or credit, labor strikes or similar disruptions (including within their major suppliers), supply shortages, rising raw material costs, rising employee benefit costs, adverse publicity that may reduce consumer demand for their products, including due to bankruptcy, product defects, litigation, ability to keep up with technology and business model changes, poor product mix or unappealing vehicle design, governmental laws and regulations, natural disasters or other adverse events.

In particular, all our OEMs are investing material amounts to develop electric and autonomous vehicles.

These investments could cause financial strain on our OEMs or fail to deliver attractive vehicles for customers which could lead to adverse impacts on our business.

The OEMs are also impacted by the COVID-19 pandemic’s impact on the economy, factory production, parts shortages, including semiconductor chips, and other disruptions.

These and other risks could materially adversely affect the financial condition of any manufacturer and impact its ability to profitably design, market, produce or distribute new vehicles, which in turn could have a material adverse effect on our business, results of operations and financial condition.

A decline of available financing in the lending market may have a material and adverse affect on our vehicle sales, financial condition and results of operations.

A significant portion of our vehicles purchased by our customers are financed.

Sub-prime lenders have historically provided financing to those consumers who, for various reasons, do not have access to traditional financing, including those buyers who have a poor credit history or lack the down payment necessary to purchase a vehicle.

In the event lenders tighten their credit standards or there is a decline in the availability of credit in the lending market, the ability of these consumers to purchase vehicles could be limited, which could have a material adverse effect on our business, financial condition and results of operations.

We are dependent on our relationships with manufacturers and if we are unable to enter into new franchise agreements in connection with dealership acquisitions or maintain or renew our existing franchise agreements on favorable terms, our operations may be significantly impaired.

Additionally, many U.S.

manufacturers of vehicles, parts and supplies are dependent on imported products and raw materials in their production.

Any significant increase in existing tariffs on such goods and raw materials, or implementation of new tariffs, could adversely affect our profits on the vehicles we sell.

If we are unable to enter into new franchise agreements with manufacturers in connection with dealership acquisitions or maintain or renew our existing franchise agreements on favorable terms, our operations may be significantly impaired.

We are dependent on our relationships with manufacturers, which exercise a great degree of influence over our operations through the franchise agreements.

For example, delays in obtaining, or failing to obtain, manufacturer approvals and franchise agreements for dealership acquisitions could adversely affect our acquisition program.

In determining whether to approve an acquisition, manufacturers may consider many factors, including the moral character and business experience of the dealership principals, the financial condition, and ownership structure, as well as Customer Satisfaction Index scores, sales efficiency, and other performance measures of our other dealerships.

Manufacturers may use these performance indicators, as well as sales performance numbers, as conditions for certain payments and as factors in evaluating applications for additional acquisitions.

In unusual cases where performance indicators, such as the ones described above, are not met to the satisfaction of the manufacturer, certain manufacturers may either limit our ability to acquire additional dealerships or require the disposal of existing dealerships or both.

From time to time, we have not met all of the manufacturers’ requirements to make acquisitions and have received requests to dispose of certain of our dealerships.

In the event one or more of our manufacturers sought to prohibit future acquisitions, or imposed requirements to dispose of one or more of our dealerships, our acquisition and growth strategy could be adversely affected.

A manufacturer may also limit the number of its dealerships that we may own or the number that we may own in a particular geographic area.

In addition, each of our franchise agreements may be terminated or not renewed by the manufacturer for a variety of reasons, including any unapproved changes of ownership or management, sales and customer satisfaction performance deficiencies and other material breaches of the franchise agreements.

Our franchise agreements may be terminated or not renewed by the manufacturer for a variety of reasons, including any unapproved changes of ownership or management, sales and customer satisfaction performance deficiencies and other material breaches of the franchise agreements.

Manufacturers may also have a right of first refusal if we seek to sell dealerships.

We cannot guarantee all of our franchise agreements will be renewed or that the terms of the renewals will be as favorable to us as our current agreements.

In addition, we cannot guarantee that our manufacturers will not attempt to terminate our franchise agreements if they perceive that performance deficiencies exist.

Additionally, we cannot guarantee that the terms of any renewals will be as favorable to us as our current agreements.

If such an instance occurs, although we are generally protected by automotive dealership franchise laws requiring “good cause” be shown for such termination, we cannot guarantee that the termination of the franchise will not be successful.

Actions taken by manufacturers to exploit their bargaining position in negotiating the terms of renewals of franchise agreements could also have a material adverse effect on our results of operations.

Further, the terms of certain of our real estate-related indebtedness require the repayment of all amounts outstanding in the event that the associated franchise is terminated.

Our results of operations may be materially and adversely affected to the extent that our franchise rights become compromised or our operations restricted due to the terms of our franchise agreements or if we lose substantial franchises.

Our franchise agreements do not give us the exclusive right to sell a manufacturer’s product within a given geographic area.

A manufacturer may also limit the number of its dealerships that we may own or the number that we may own in a particular geographic area.

Delays in obtaining, or failing to obtain, manufacturer approvals and franchise agreements for dealership acquisitions could adversely affect our acquisition program.

From time to time, we have not met all of the manufacturers’ requirements to make acquisitions and have received requests to dispose of certain of our dealerships.

Moreover, our franchise agreements do not give us the exclusive right to sell a manufacturer’s product within a given geographic area.

Subject to state laws in the U.S.

2 unchanged sentences

Furthermore, if current manufacturers or future manufacturers are not required to conduct their business in accordance with state franchise laws and thereby circumvent the current dealer-network to sell directly to the customer, our results of operations may be materially and adversely affected.

Our inability to acquire new dealerships and successfully integrate those dealerships into our business could adversely affect the growth of our revenues and earnings.

Substantial competition in automotive sales and services could adversely impact our sales and our margins.

The automotive retail industry is highly competitive.

Within our markets we are subject to competition from franchised automotive dealerships and other businesses as it relates to new and used vehicles, parts and service as well as acquisitions.

We also face competition in arranging financing for our customers’ vehicle purchases from a broad range of financial institutions.

Additionally, we do not have any cost advantage in purchasing new vehicles from vehicle manufacturers, and our franchise agreements do not grant us the exclusive right to sell a manufacturer’s product within a given geographic area.

Increased competition can adversely impact our sales volumes and margins as well as our ability to acquire dealerships.

Please see Item 1.

Business — Competition for further discussion of competition in our industry.

The U.K.’s withdrawal from the EU may have a negative effect on some global economic conditions, financial markets and our business, which could adversely affect our U.K.

revenue and results of operations.

On June 23, 2016, British citizens voted on a referendum in favor of Brexit.

formally exited the EU on January 31, 2020, however the future terms of the U.K.’s relationship with the EU remain uncertain.

Such uncertainty was diminished on December 24, 2020, as the U.K.

and the EU reached agreement in principle on the terms of the EU-U.K.

Trade and Cooperation Agreement (the “EU-U.K.

Agreement”), which became provisionally applicable on January 1, 2021 and applies through the earlier of (1) February 28, 2021 or some other date decided by the Partnership Council (comprising representatives of the EU and the U.K.) or (2) the EU-U.K.

Agreement’s entry into force.

Agreement covers economic and security co-operation, has a single overarching governance framework, and includes trade in goods and in services, digital trade, intellectual property, public procurement, aviation and road transport, energy, fisheries, social security co-ordination, law enforcement and judicial co-operation in criminal matters, thematic co-operation, participation in EU programs, institutional arrangements, dispute settlement and safeguards.

The scope of the EU-U.K.

Agreement is narrower than the pre-Brexit trade framework, and the effects of Brexit will depend in part on any further agreements the U.K.

makes to retain access to EU markets or to compensate elsewhere with agreements with other global markets.

Accordingly, Brexit could adversely affect U.K.

More specifically, it could lead to:

• Exchange Rate Fluctuations:

a decrease in sales or revenues attributable to increased retail prices of new vehicles imported from other countries in Europe and due to a weaker pound exchange rate and volatility in the currencies in which we transact our business;

• Supply Risk:

potential increase in supply chain risk for automotive retailers and manufacturers due to the U.K.

no longer being party to the EU’s free trade agreements, however, the U.K.

is able to enter into new free trade agreements with the countries;

• Loss of Franchise Protections:

potential future loss of franchise protection laws as provided under EU Block Exemption.

Agreement envisages cooperation and coordination between the respective competition authorities and certain block exceptions currently remain in effect under domestic U.K.

law, as amended to apply to the U.K.

competition framework;

however, these may be revoked, extended or further amended by U.K.

• Economic Risk:

economy may be negatively impacted, resulting in a decrease to our revenues;

• Fiscal Risk:

the new Rules of Origin apply to goods imported into the U.K from the EU or exported from the U.K to the EU might lead to the imposition of increased customs taxes and duties;

• Labor Risk:

the loss of free movement of employees between the U.K.

and EU may impact the hiring and movement of employees and may subject companies to local labor laws and efforts required to relocate U.K.

operations or use EU subsidiaries;

• Data Privacy Risk:

inability or increased risk in transferring personal data from the U.K.

to the EU after expiry of the six month bridging mechanism in the EU-U.K.

Agreement that enables personal data to continue to flow cross-border from the European Economic Area to the U.K.

does not receive a decision from the European Commission that permits such transfers to continue the same as pre-Brexit.

Any of these effects of Brexit, and others we cannot anticipate, could materially adversely affect our business, consolidated financial position, results of operations and cash flows.

The impairment of our goodwill and/or indefinite-lived intangibles could have a material adverse effect on our results of operations.

We assess goodwill and other indefinite-lived intangibles for impairment on an annual basis, or more frequently when events or circumstances indicate that an impairment may have occurred.

Performance issues at individual dealerships, as well as adverse retail automotive industry and economic trends, increase the risk of an impairment charge, which could have a material adverse impact on our results of operations.

During the year ended December 31, 2020, we recorded goodwill impairment charges to our Brazil region of $10.7 million.

No goodwill impairments were recorded during the year ended December 31, 2019 and 2018.

During the years ended December 31, 2020, 2019 and 2018, we recorded $20.8 million, $19.0 million and $38.7 million , respectively, of impairment of intangible franchise rights.

We may be required to record additional impairment charges if the COVID-19 pandemic continues, and we cannot accurately predict the amount and timing of any additional impairment charge at this time, however, any such impairment charge could have an adverse effect on our results of operations.

Refer to Note 11.

Intangible Franchise Rights and Goodwill within our Notes to Consolidated Financial Statements for further discussion of impairment.

Our inability to acquire and integrate successful new dealerships into our business could adversely affect the growth of our revenues and earnings.

Growth in our revenues and earnings partially depends on our ability to acquire new dealerships and successfully integrate those dealerships into our existing operations.

4 unchanged sentences

And, some of our competitors may have greater financial resources than us.

We will continue to require substantial capital in order to acquire additional automobile dealerships.

We currently intend to finance future acquisitions by using cash generated from operations, borrowings under our Acquisition Line, proceeds from debt and/or equity offerings and/or issuing shares of our common stock as partial consideration for acquired dealerships.

In the future, the cost of obtaining money from the credit markets could increase if lenders and institutional investors increase interest rates, enact tighter lending standards, refuse to refinance existing debt at maturity on terms similar to current debt or at all, and reduce or, in some cases, cease to provide funding to borrowers.

Accordingly, our ability to complete acquisitions could be adversely affected if the price of our common stock is depressed or if our access to capital is limited.

In addition, managing and integrating additional dealerships into our existing mix of dealerships may result in substantial costs, diversion of our management’s attention, delays or other operational or financial problems.

8 unchanged sentences

• incorrectly valuing acquired entities.

These risks could have a material adverse effect on our business, results of operations and financial condition.

Although we conduct what we believe to be a prudent level of investigation regarding the operating condition of the businesses we purchase, in light of the circumstances of each transaction, an unavoidable level of risk remains regarding the actual operating condition of these acquired businesses.

We are subject to substantial governmental laws and regulations, which if we are found to be in violation of, or subject to liabilities under, may adversely affect our business and results of operations.

We operate in a highly regulated industry.

A number of laws and regulations applicable to automotive companies affect our business and conduct, including, but not limited to our sales, operations, financing, insurance, advertising, and employment practices.

Other laws and regulations include franchise laws and regulations, consumer protection laws and other extensive laws and regulations applicable to new and used motor vehicle dealers.

Additionally, in every jurisdiction in which we operate, we must obtain various permits and licenses in order to conduct our businesses.

Other laws and regulations include franchise laws and regulations, consumer protection laws and other extensive laws and regulations applicable to new and used motor vehicle dealers.

Any failure to comply with these laws and regulations may result in the assessment of administrative, civil, or criminal penalties, the imposition of investigatory remedial obligations or the issuance of injunctions limiting or prohibiting our operations.

Though unsuccessful to date, manufacturers’ lobbying efforts may lead to the repeal or revision of U.S.

franchise laws.

franchise laws are repealed in the states in which we operate, manufacturers may be able to terminate our franchises without providing advance notice, an opportunity to cure or showing of good cause.

Without the protection of U.S.

franchise laws, it also may be more difficult for us to renew our franchise agreements upon expiration.

Furthermore, some states have initiated consumer “bill of rights” statutes which involve increases in our costs associated with the sale of vehicles, or decreases in some of our profit centers.

In the U.S., 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, installment finance laws, insurance laws, usury laws and other installment sales laws and regulations.

Some states in the U.S.

regulate finance fees and charges that may be paid as a result of vehicle sales.

Claims arising out of actual or alleged violations of law may be asserted against us or our dealerships by individuals or governmental entities and may expose us to significant damages or other penalties, including revocation or suspension of our licenses to conduct dealership operations and fines.

In the U.K., our finance operations are regulated by the Financial Conduct Authority (“FCA”), which is an independent watchdog that sets out a system for regulating financial services in order to protect and improve the U.K.’s economy, and regulates financial services of our dealerships.

In July 2010, the Dodd-Frank Act was signed into law and established the CFPB with broad regulatory powers in the U.S.

Although automotive dealers are generally excluded from the CFPB’s regulatory authority, we are required to comply with regulations applicable to privacy notices, and the CFPB continues to regulate automotive financing activities through its regulation of automotive finance companies and other financial institutions that service the automotive industry.

The CFPB has issued regulatory guidance instructing financial institutions to monitor dealer loans for potential discrimination resulting from the system used to compensate dealers for assisting in the customer financing transaction.

The CFPB has instructed lenders that, if discrimination is found, the lender would be required to change dealer compensation practices.

If this initiative substantially restricts our ability to generate revenue from arranging financing for our customers for the purchase of vehicles, the result could have an adverse effect on our business and results of operations.

In addition, the Dodd-Frank Act established federal oversight and regulation of derivative markets and entities, such as us, that participate in those markets.

The Dodd-Frank Act requires the Commodity Futures Trading Commission (“CFTC”) and the SEC to promulgate rules and regulations implementing the Dodd-Frank Act.

Pursuant to the Dodd-Frank Act, the CFTC has designated certain interest rate swaps and credit default swaps for mandatory clearing and exchange trading.

Although we believe that we qualify for the end-user exceptions to the mandatory clearing and margin requirements with respect to our swaps entered to hedge our commercial risks, the Dodd-Frank Act and any new regulations could significantly increase the cost of derivative contracts, materially alter the terms of derivative contracts, or reduce our ability to monetize or restructure our existing derivative contracts.

If we reduce our use of derivatives as a result of the Dodd-Frank Act and regulations, our results of operations may become more volatile and our cash flows may be less predictable, which could adversely affect our ability to plan for and fund capital expenditures.

Any of these consequences could have a material adverse effect on our financial condition, results of operations and cash available for distributions to our shareholders.

The EU’s General Data Protection Regulation (“GDPR”), which became effective in May 2018, applies to all organizations storing or processing the data of EU citizens, regardless of the organization’s location.

The GDPR was designed to align data privacy laws across Europe, protect all EU citizens’ data by restricting third parties use of such data without such individual’s permission, and change the way organizations approach the protection of data and preserve citizens’ privacy.

It provides for strict rules and requirements for EU and non-EU organizations, including requirements to report data breaches within 72 hours and to conduct impact assessments to identify vulnerabilities.

Moreover, the GDPR applies a tiered penalty approach, which provides for heavy fines.

If an organization seriously infringes the GDPR, the organization can be fined up to 4% of annual global turnover or 20 million euros, whichever is greater.

Similar to the GDPR, the California Consumer Privacy Act of 2018 (“CCPA”), which became effective January 1, 2020, grants California residents with several new rights relating to their personal information.

The CCPA applies to businesses that conduct business in California and satisfies one of three financial conditions, including a business that has a gross revenue greater than $25 million.

The CCPA sets forth several data protection obligations for applicable businesses, including, but not limited to the obligations to inform a consumer, at or before collection, of the purpose and intended use of the collection;

and to delete a consumer’s personal information upon request.

As for penalties and fines, the CCPA establishes a private right of action for serious data breaches, which allows consumers the right to seek damages.

The CCPA also allows the California Attorney General to bring actions against non-compliant businesses with fines of $2,500 per violation or, if intentional, up to $7,500 per violation.

Any future failure by us to comply with the GDPR and/or CCPA could have a material adverse effect on our business, results of operations or financial condition.

Possible penalties for violation of any of these laws or regulations include revocation or suspension of our licenses and/or civil or criminal fines and penalties.

In addition, many laws may give customers a private cause of action.

Violation of these laws, the cost of compliance with these laws, or changes in these laws could have a material adverse effect on our business and results of operations.

See further discussion of tariffs, import product restrictions, and foreign trade risks that may impair our ability to sell foreign vehicles profitably under the risk factor “ We are subject to tariff and trade risks that may impair our ability to sell foreign vehicles profitably .”

See additional discussion of Brexit and its related regulatory risks under the risk factor “ The U.K.’s withdrawal from the EU may have a negative effect on some global economic conditions, financial markets and our business, which could adversely affect our U.K.

revenue and results of operations.

Our operations are subject to environmental laws and regulations that may expose us to significant costs and liabilities.

Our operations involve the use, handling and storage of materials such as motor oil and filters, transmission fluids, antifreeze, refrigerants, paints, thinners, batteries, cleaning products, lubricants, degreasing agents, tires, and fuel.

We contract for recycling and/or disposal of used fluids, filters and other waste materials generated by our operations.

These business activities are subject to stringent federal, regional, state and local laws, regulations and other controls governing the release of materials into the environment or otherwise relating to environmental protection.

These laws, regulations and controls may impose numerous obligations upon our operations including the acquisition of permits to conduct regulated activities, the imposition of restrictions on where or how to manage or dispose of used products and wastes, the incurrence of capital expenditures to limit or prevent releases of such material, and the imposition of substantial liabilities for pollution resulting from our operations or attributable to former operations.

For example, in the U.S., most of our dealerships utilize storage tanks that are subject to testing, containment, upgrading, and removal regulations under the federal Resource Conservation and Recovery Act.

Comparable regulations have been or may be enacted in the U.K.

Failure to comply with these laws, regulations, and permits may result in the assessment of sanctions, including administrative, civil, and criminal penalties, the imposition of investigatory remedial and corrective action obligations or increase of capital expenditures, restrictions, delays and cancellations in permitting or in the performance of projects and the issuance of injunctions limiting or preventing some or all of our operations in affected areas.

In some situations, we could be exposed to liability as a result of our conduct that was lawful at the time it occurred or the conduct of, or conditions caused by, prior operators or other third parties.

Moreover, laws and regulations protecting the environment generally become more stringent over time, which may result in increased costs for future environmental compliance and remediation.

Additionally, vehicle manufacturers in the U.S.

are subject to regulations adopted in 2012 by the U.S.

EPA and the National Highway Traffic Safety Administration (“NHTSA”) that establish GHG emissions and corporate average fuel economy (“CAFE”) standards applicable to light-duty vehicles for model years 2017 through 2021.

Vehicle GHG emission standards have previously also been promulgated by California, and followed by several other states, under a waiver, but in September 2019 EPA revoked this waiver in a rulemaking with NHTSA that found state regulation of vehicle GHG emissions to be preempted and litigation is ongoing.

Furthermore, under the Obama Administration, CAFE standards were set to reach 46 miles per gallon by 2025.

However, the Trump Administration has sought to reduce these standards.

The final rules are expected sometime in early 2020.

California had indicated that it would retain more stringent levels under its clean air act (“CAA”) waiver authority should the Trump Administration finalize a rulemaking on reducing those standards and thus, if California is successful in its litigation over its CAA waiver status, there could be uncertainty amongst vehicle manufacturers if multiple standards were placed into effect, which could have an indirect adverse effect on automotive retail dealers, such as ourselves.

Comparable laws and regulations have been enacted in the U.K.

The adoption of any laws or regulations requiring significant increases in fuel economy requirements or new restrictions on emissions of vehicle GHG emissions could adversely affect prices of and demand for the vehicles we sell.

At the international level, there is an agreement, the United Nations-sponsored “Paris Agreement,” for nations to limit their GHG emissions through non-binding, individually-determined reduction goals every five years after 2020.

Although the U.S.

has announced its withdrawal from the agreement, effective November 4, 2020, the U.K.

and Brazil remain parties.

Future treaties or international standards may result in more stringent requirements in party states, which could include the U.S., U.K.

and Brazil, and may delay or otherwise adversely affect the ability of vehicle manufacturers to manufacture and timely deliver vehicles to operators in the automotive retail industry.

If we lose key personnel or are unable to attract additional qualified personnel, our business could be adversely affected because we rely on the industry knowledge and relationships of our key personnel.

We believe our success depends to a significant extent upon the efforts and abilities of our executive officers and senior management.

The unexpected or unanticipated loss of the services of one or more members of our senior management team could have an adverse effect on our business and impair the efficiency and productivity of our operations.

We do not have key man insurance for any of our executive officers or key personnel.

In addition, the market for qualified employees in the industry and in the regions in which we operate, particularly for general managers and sales and service personnel, is highly competitive and may subject us to increased labor costs during periods of low unemployment.

We do not have employment agreements with our dealership general managers and other key dealership personnel.

Accordingly, the inability to retain key employees or the failure to attract qualified personnel could have an adverse effect on our business and may impact the ability of our dealerships to conduct their operations in accordance with our standards.

Substantial competition in automotive sales and services may materially and adversely affect our results of operations due to our need to lower prices to sustain sales.

The automotive retail industry is highly competitive.

Depending on the geographic market, we compete with:

franchised automotive dealerships in our markets that sell the same or similar makes of new and used vehicles that we offer, occasionally at lower prices than we do;

other national or regional affiliated groups of franchised dealerships and/or of used vehicle dealerships;

private market buyers and sellers of used vehicles;

internet-based vehicle brokers that sell vehicles obtained from franchised dealers directly to consumers;

auto parts retailers;

local, regional and national collision centers;

service center chain stores;

independent service and repair shops.

We do not have a cost advantage in purchasing new vehicles from vehicle manufacturers and typically rely on advertising, merchandising, sales expertise, service reputation, product demand and dealership location in order to sell new vehicles.

Our franchise agreements do not grant us the exclusive right to sell a manufacturer’s product within a given geographic area.

If competing dealerships expand their market share or are awarded additional franchises by manufacturers it could have a material and adverse effect on our business and results of operations.

In addition to competition for vehicle sales, our dealerships compete with franchised dealerships to perform warranty maintenance and repair services and with other automotive dealers, franchised and independent service center chains and independent garages for non-warranty repair and routine maintenance business.

Our parts operations compete with other automotive dealers, service stores and auto parts retailers.

We believe the principal competitive factors in the parts and service business are the quality of customer service, the use of factory-approved replacement parts, familiarity with a manufacturer’s brands and models, convenience, access to and use of technology required for certain repairs and services, location, price, the competence of technicians and the availability of training programs to enhance such expertise.

A number of regional or national chains offer selected parts and services at prices that may be lower than our dealerships’ prices.

We also compete with a broad range of financial institutions in arranging financing for our customers’ vehicle purchases.

The internet has also become a significant part of the advertising and sales process in our industry.

Customers are using the internet as part of the sales process to compare pricing for cars and related F&I services, which may reduce gross profit margins for new and used cars and profits for related F&I services.

Some retailers offer vehicles for sale over internet websites without the benefit of having a dealership franchise, although they must currently source their vehicles from a franchised dealer.

One or more companies are currently manufacturing electric vehicles for sale solely through the internet without using the traditional dealer-network, and circumventing the state franchise laws of several states in the U.S.

If more states where we do business eliminate or lessen their laws prohibiting retail sales by non-dealer companies, and if those companies are successful in selling their vehicles without the requirements of establishing a dealer-network, they may be able to have a competitive advantage over the traditional dealers, which could adversely affect our sales in those states.

If internet new vehicle sales are allowed to be conducted without the involvement of franchised dealers, or if dealerships are able to effectively use the internet to sell outside of their markets, our business could be materially adversely affected.

Our business would also be materially adversely affected to the extent that internet companies acquire dealerships or align themselves with our competitors’ dealerships.

Please see “Item 1.

Business — Competition” for further discussion of competition in our industry.

A cybersecurity breach, including a breach of personally identifiable information (“PII”) about our customers or employees, could negatively affect operations and result in high costs.

There has been a substantial increase in attempts by third parties with bad intentions to steal data from numerous businesses world-wide, including our dealerships, by highly sophisticated means.

If a third party is successful in obtaining such confidential information of our dealerships or our customers or disrupting our operations through high-tech security breaches and hacking methods, we could have substantial liability in connection with such security breaches.

While we attempt to implement state of the art technological defenses to thwart such activities, there is no guarantee that we will be able to keep up with the ever evolving sophisticated methods of breaching security systems and continue to combat such attempts to breach our own data systems.

Failure to do so could ultimately have a material adverse effect on our business operations.

The protection of customer, employee, and our data is critical to our business.

Customers have a high expectation that we will adequately protect their PII from cyber-attack or other security breaches.

A significant breach of customer, employee, or our data could attract a substantial amount of media attention, damage our customer relationships and reputation, and result in lost sales, fines, or lawsuits.

In the ordinary course of business, we and our business affiliates receive significant PII about our customers in order to complete the sale or service of a vehicle and related products.

We also receive PII from our employees.

Numerous state and federal regulations in the U.S., as well as payment card industry and other vendor standards, govern the collection and maintenance of PII from consumers and other individuals.

Operational Risks

The global outbreak of the COVID-19 pandemic, which has disrupted all of our dealership operations, has, and could continue to have a material adverse affect on our business, results of operations and cash flows.

The global outbreak of the COVID-19 pandemic had a material adverse impact on our business, including all of our markets in the U.S., U.K.

Extraordinary and wide-ranging actions taken by governmental authorities to reduce the spread of the virus, including mandates for many individuals to substantially restrict daily activities and for many businesses to curtail or cease normal operations, significantly reduced the operating capacity of all of our dealerships in the U.S., U.K.

and Brazil beginning in mid-March 2020.

As the restrictions eased during the latter part of 2020, we continued to experience disruptions from reduced capacity and departmental shutdowns as a result of COVID-19 outbreaks and quarantines impacting our employees.

Depending on future developments, the COVID-19 pandemic may continue to disrupt our operations and adversely affect our financial condition and results of operations.

Refer to Item 1.

Business for further discussion of the impact of the COVID-19 pandemic on each of our regions and our response to date.

A cybersecurity breach, including loss of confidential information or a breach of personally identifiable information (“PII”) about our customers or employees, could negatively affect operations and result in high costs.

In the ordinary course of business, we receive significant PII about our customers and our employees.

A security incident to obtain such information could be caused by malicious insiders and third parties using sophisticated, targeted methods to circumvent firewalls, encryption and other security defenses, including hacking, fraud, trickery, or other forms of deception.

Although many companies across many industries are affected by malicious efforts to obtain access to PII, the automotive dealership industry has been a particular target of identity thieves.

Moreover, there are numerous opportunities for a data security breach, including cyber-security breaches, burglary, lost or misplaced data, scams, or misappropriation of data by employees, vendors or unaffiliated third parties.

We will continue to combat and protect against cyber-attacks and other forms of security breaches.

Despite the security measures we have in place and any additional measures we may implement or adopt in the future, our facilities and systems, and those of our third-party service providers, could be vulnerable to security breaches, computer viruses, lost or misplaced data, programming errors, scams, burglary, human errors, acts of vandalism, or other events.

Alleged or actual data security breaches can increase costs of doing business, negatively affect customer satisfaction and loyalty, expose us to negative publicity, result in 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, results of operations or financial condition.

Our business is sensitive to manufacturer recalls, and the effects such recalls have on the reputation of our manufacturers.

Our business is highly dependent on consumer demand and brand preferences of our manufacturer’s products.

Manufacturer recall campaigns are a common occurrence that have accelerated in frequency and scope over the last several years.

Manufacturer recall campaigns could adversely affect our new and used vehicle sales or customer residual trade-in valuations, could cause us to temporarily remove vehicles from our inventory available for sale, could force us to incur increased costs and could expose us to litigation and adverse publicity related to the sale of recalled vehicles, which could have a material adverse effect on our business, sales and results of operations.

The impairment of our goodwill, indefinite-lived intangibles could have a material adverse effect on our results of operations.

We assess goodwill and other indefinite-lived intangibles for impairment on an annual basis, or more frequently when events or circumstances indicate that an impairment may have occurred.

See Note 1 “Business and Summary of Significant Accounting Policies” and Note 11 “Intangible Franchise Rights and Goodwill” within our Notes to Consolidated Financial Statements for further discussion of our impairment model and related assumptions.

During the years ended December 31, 2019, 2018 and 2017 , we recorded $19.0 million , $38.7 million and $19.3 million , respectively, of impairment of intangible franchise rights, which is discussed further in Note 11 “Intangible Franchise Rights and Goodwill” within our Notes to Consolidated Financial Statements.

Material increases in interest rates on our variable rate obligations or resulting from the phasing out of LIBOR could adversely impact our results of operations.

Borrowings under our credit facilities and various other notes payable bear interest based on a floating rate.

Therefore, our interest expense would increase with any rise in interest rates.

A rise in interest rates may also have the effect of depressing demand in the interest rate sensitive aspects of our business, particularly new and used vehicle sales, as many of our customers finance their vehicle purchases.

As a result, a rise in interest rates may have the effect of simultaneously increasing our costs and reducing our revenues.

In addition, on July 27, 2017, the Chief Executive of the U.K.

Financial Conduct Authority, which regulates LIBOR, announced that it intends to stop persuading or requiring banks to submit rates for the calculation of LIBOR after 2021.

This announcement, in conjunction with financial benchmark reforms more generally and changes in the interbank lending markets, have resulted in uncertainty about the future of LIBOR and certain other rates or indices which have historically been used as interest rate “benchmarks” in our borrowings, including the majority of our floorplan notes payable, mortgages and other debt.

Accordingly, the use of an alternative rate on these borrowings could result in increased interest expense, in addition to costs to amend the loan agreements and other applicable arrangements to a new reference rate.

At this time, no consensus exists as to what rate or rates may become acceptable alternatives to LIBOR and we are unable to predict the effect of any such alternatives on our business, results of operations or financial condition.

Although we have entered into derivative transactions to convert a portion of our variable-rate debt to fixed rates, which may partially mitigate the impact of fluctuations in interest rates, the interest rates on our derivatives are also benchmarked on LIBOR and could be adversely impacted by the proposed elimination of LIBOR.

Please see Part II, “Item 7A.

Quantitative and Qualitative Disclosures About Market Risk” for a discussion regarding our interest rate sensitivity.

Natural disasters and adverse weather events can disrupt our business.

Some of our dealerships are concentrated in states and regions in the U.S., U.K.

and Brazil in which actual or threatened natural disasters and severe weather events (such as hurricanes, earthquakes, snow storms, flooding, and hail storms) have in the past, and may in the future, disrupt our dealership operations.

A disruption in our operations may adversely impact our business, results of operations, financial condition and cash flows.

In addition to business interruption, the automotive retailing business is subject to substantial risk of property loss due to the significant concentration of property value at dealership locations.

Natural disasters and severe weather events have in the past and may in the future impair the value of our dealership property.

Although we have, subject to certain limitations and exclusions, substantial insurance, including business interruption insurance, we may be exposed to uninsured losses that could have a material adverse effect on our business, results of operations and financial condition.

The techniques used by cyber attackers change frequently and may be difficult to detect for long periods of time.

We have implemented security measures that are designed to detect and protect against cyberattacks.

Despite these measures and any additional measures we may implement or adopt in the future, our facilities and systems, and those of our third-party service providers, are vulnerable to security breaches, computer viruses, lost or misplaced data, programming errors, scams, burglary, human errors, acts of vandalism, or other events.

Some of our third-party service providers have experienced security breaches, although we have not been significantly impacted.

If an unauthorized party is successful in obtaining confidential information of our dealerships or our customers or disrupting our operations through a cyberattack, it can increase costs of doing business, negatively affect customer satisfaction and loyalty, expose us to negative publicity, result in individual claims or consumer class actions, administrative, and civil or criminal investigations or actions, any of which could have a material adverse effect on our business, results of operations or financial condition.

In addition, we are subject to numerous laws and regulations designed to protect information of clients, customers, employees and other third parties that we collect and maintain.

Business — Governmental Regulations for information on our risks related to compliance with such laws and regulations.

Our insurance does not fully cover all of our operational risks, and changes in the cost of insurance or the availability of insurance could materially increase our insurance costs or result in a decrease in our insurance coverage.

The operation of automobile dealerships is subject to compliance with a wide range of laws and regulations and is subject to a broad variety of risks.

While we have insurance on our real property, comprehensive coverage for our vehicle inventory, general liability insurance, workers’ compensation insurance, employee dishonesty coverage, employment practices liability insurance, pollution coverage and errors and omissions insurance in connection with vehicle sales and financing activities, we are self-insured for a portion of our potential liabilities.

The operation of automobile dealerships is subject to a broad variety of risks.

While we have insurance on our real property, comprehensive coverage for our vehicle inventory, general liability insurance, workers’ compensation insurance, employee dishonesty coverage, cybersecurity breach insurance, employment practices liability insurance, pollution coverage and errors and omissions insurance in connection with vehicle sales and financing activities, we are self-insured for a portion of our potential liabilities.

We purchase insurance policies for worker’s compensation, liability, auto physical damage, property, pollution, employee medical benefits and other risks consisting of large deductibles and/or self-insured retentions.

5 unchanged sentences

We are subject to potential premium cost fluctuations with the annual renewal of these programs.

Vehicle technology advancements and ownership model changes could adversely affect our new and used vehicle sales volumes, parts and service revenue and our results of operations.

With the advancement in the technology of semi and fully autonomous electric-powered vehicles, several new business models are in early stage development to create high mileage, self-driving and/or co-ownership vehicle opportunities.

These autonomous-electric vehicles may be manufactured by existing automotive manufacturers or other companies who do not presently manufacture hydrocarbon or alternative fuel source vehicles.

Even with the current highway and road infrastructure challenges and the large number of existing internal combustion engines currently in service and to be in service for many years to come, which will create obstacles to the wide-spread implementation of such autonomous-electric vehicles in the immediate future, many in the automotive industry believe that it will only be a matter of time until such vehicles will be available to the automotive consumer at low usage costs.

Such industry participants believe projected low usage costs of autonomous-electric vehicles may entice many vehicle owners, particularly in larger, highly populated areas, to abandon individual car ownership in favor of multiple co-ownership ride-sharing opportunities.

If such autonomous-electric vehicles can be mass produced at a reasonable production and operating cost and sold by companies not required to conduct their business in accordance with state franchise laws and thereby circumvent the current dealer-network, and/or if the ride-sharing subscription business model becomes widely popular, such events could adversely affect industry new and used vehicle sales volumes, parts and service revenue and our results of operations.

Additionally, with a potential increase in demand by consumers for electric-powered vehicles, our manufacturers will need to adapt their product plans and production capabilities accordingly to meet these demands.

As more electric vehicles potentially enter the market, and more combustible engine vehicle production is reduced, our ability to adapt to such changes, particularly in regard to our ability to sell and service these units effectively, will be necessary to meet the consumer demands and support the profitability of our dealerships.

Furthermore, while in the short term we do not believe there will be a significant difference in maintenance costs incurred by a vehicle owner of a combustible engine versus maintenance costs of a vehicle owner of a new electric-powered vehicle, that may not be the case as technology advancements are made in the development of electric-powered vehicles.

If such maintenance costs by a consumer of an electric-powered vehicle were to substantially decrease, this could have a material adverse effect on our parts and service revenues.

If such electric vehicles can be mass produced at a reasonable production and operating cost and sold by companies not required to conduct their business in accordance with state franchise laws and thereby circumvent the current dealer-network, such events could adversely affect industry new and used vehicle sales volumes, parts and service revenue and our results of operations.

Our indebtedness and the associated covenants could materially adversely affect our ability to obtain additional financing, including for acquisitions and capital expenditures, limit our flexibility to manage our business, prevent us from fulfilling our financial obligations and restrict our use of capital.

Our indebtedness could impact us in the following ways:

our ability to obtain additional financing for acquisitions, capital expenditures, working capital or general corporate purposes may be impaired in the future;

a portion of our current cash flow from operations must be dedicated to the payment of principal and interest on our indebtedness, thereby reducing the funds available to us for our operations and other corporate purposes;

some of our borrowings are and will continue to be at variable rates of interest, which exposes us to the risk of increasing interest rates;

we may be more leveraged than some of our competitors, which may place us at a relative competitive disadvantage and make us more vulnerable to changing market conditions and regulations;

during periods of economic downturn, we may be more susceptible to a breach of our debt covenants and default on our indebtedness.

Our debt instruments contain numerous covenants that limit our discretion with respect to business matters, including mergers or acquisitions, paying dividends, repurchasing our common stock, international investments, incurring additional debt or disposing of assets.

A breach of any of these covenants could result in a default under the applicable agreement or indenture.

In addition, a default under one agreement or indenture could result in a default and acceleration of our repayment obligations under the other agreements or indentures under the cross default provisions in those agreements or indentures.

If a default or cross default were to occur, we may be required to renegotiate the terms of our indebtedness, which would likely be under less favorable terms than our current terms and cause us to incur additional fees to process.

Alternatively, we may not be able to pay our debts or borrow sufficient funds to refinance them.

As a result of this risk, we could be forced to take actions that we otherwise would not take, or not take actions that we otherwise might take, in order to comply with the covenants in these agreements and indentures.

We are subject to tariff and trade risks that may impair our ability to sell foreign vehicles profitably.

Increased tariffs, import product restrictions, and foreign trade risks may impair our ability to sell foreign vehicles profitably.

In an effort to increase the U.S.’s penetration of competitive markets throughout the world, the Trump Administration has, from-time-to-time, threatened and on occasion implemented tariffs on the import of foreign produced goods and raw materials.

The Trump Administration has been critical of the unfair trade balance that existed between the U.S.

and China and has implemented tariffs on Chinese goods and of raw materials, primarily steel.

While China imports a limited number of vehicles into the U.S., many U.S.

manufacturers of vehicles, parts and supplies are dependent on Chinese products and raw materials in their production of their products.

Implementation of tariffs on such goods and raw materials could affect the price of vehicles we sell.

On January 15, 2020, the Trump Administration entered into a trade agreement which preserved many of the tariffs that were placed on certain Chinese goods.

This agreement is considered Phase I of the agreement, and there is no definitive time frame for when Phase II will occur, what the terms will be and the impact on our business.

Regarding the EU, while the Trump Administration has indicated tariffs will be imposed on European automobiles, to date no tariffs have been imposed on vehicles and auto parts produced in the EU and imported to the U.S.

Additionally, with the recent completion of Brexit, it is reasonable to expect the U.S.

will seek to enter into a trade agreement with the U.K.

which among other things will deal with reciprocal trade agreements.

is unable to reach an agreement with the EU or the U.K.

on reciprocal trade agreements it is possible that tariffs could be imposed on many of the vehicles we will import from the U.K.

There continues to be substantial uncertainty regarding, among other factors:

(i) the ultimate outcome of the implementation and effects of trade tariffs;

(ii), definition of “foreign” vehicles - assembled outside the U.S.

assembled vehicles that contain non-U.S.

and (iii) the retaliatory response by foreign governments to such trade tariffs.

Additionally, the recent passing of Brexit and its uncertain effects with the U.S.

and Europe continues to create uncertainty in the U.K.

There is no clear indication of how (i) the China Phase I (or the contemplated Phase II), (ii) the anticipated Trump Administration’s negotiations with the EU or (iii) the effects of the Brexit decision will ultimately affect tariffs, imports and foreign trade applicable to the U.S.

economies and our business operations.

See the risk factor “ The U.K.’s withdrawal from the EU may have a negative effect on some global economic conditions, financial markets and our business, which could adversely affect our U.K.

revenue and results of operations ” for further discussion of Brexit.

Should import tariffs be implemented or increased as described above, we expect the price of many new vehicles we sell to increase and foreign trade to be depressed, which may adversely affect our new vehicle retail sales revenues and related finance, insurance and other revenues.

We are subject to risks associated with our non-U.S.

operations that could have a material adverse effect on our business, results of operations and financial condition.

We have operations outside the U.S., including the U.K and Brazil.

Natural disasters and adverse weather events can disrupt our business and may adversely impact our results of operations, financial condition and cash flows.

Some of our dealerships are concentrated in states and regions in the U.S., U.K.

and Brazil, in which actual or threatened natural disasters and severe weather events (such as hurricanes, earthquakes, snow storms, flooding and hail storms) have in the past, and may in the future, disrupt our dealership operations.

A disruption in our operations may adversely impact our business, results of operations, financial condition and cash flows.

In addition to business interruption, the automotive retailing business is subject to substantial risk of property loss due to the significant concentration of property value at dealership locations.

Natural disasters and severe weather events have in the past and may in the future impair the value of our dealership property.

For example, in 2019 Tropical Storm Imelda caused catastrophic flooding in Beaumont, Texas, resulting in $11.9 million in damages not covered by insurance.

In 2017, Hurricane Harvey caused catastrophic flooding in Houston, Texas, one of our primary markets, resulting in $14.7 million in damages not covered by insurance.

Additionally, should we suffer significant losses in a short period of time, we run the risk that our premiums and/or deductibles could increase, which could adversely affect our business.

Risks associated with our international operations could have a material adverse effect on our business, results of operations and financial condition.

We have operations outside the U.S., including the U.K.

As a result, we face political and economic risks and uncertainties with respect to our international operations.

1 unchanged sentence

• wage inflation in emerging markets;

legal uncertainties, timing delays and expenses associated with tariffs, import or export licenses, and other trade barriers;

the difficulty of enforcing agreements and collecting receivables through certain foreign legal systems;

the potential for nationalization of enterprises;

• legal uncertainties, timing delays and expenses associated with tariffs, labor matters, import or export licenses and other trade barriers;

• transparency issues in general and, more specifically, the U.S.

Foreign Corrupt Practices Act of 1974, as amended (the “FCPA”), the U.K.

Foreign Corrupt Practices Act of 1974, as amended, the U.K.

Bribery Act and other anti-corruption compliance laws and issues;

unsettled social and political conditions, in general, and possible terrorist attacks, drug cartel related violence or acts of war, civil unrest, expansion of hostilities and other political risks;

increased risk of corruption;

• inability to obtain or preserve franchise rights in the foreign countries in which we operate;

currency exchange restrictions;

exposure to currency exchange rate fluctuations.

As exchange rates fluctuate, our results of operations as reported in USDs fluctuate.

Fluctuations in such currency rates may have a material effect on our results of operations or financial position.

We may be exposed to liabilities under the FCPA and similar anti-corruption laws, and any determination that we violated such laws could have a material adverse effect on our business.

We are subject to the FCPA, Brazil’s clean company and anti-corruption act, the U.K.

anti-bribery act and similar anti-bribery and anti-corruption laws that generally prohibit companies and their personnel and intermediaries from offering, authorizing, or making improper payments to government officials for the purpose of obtaining or retaining business, securing some improper advantage in business or engaging in conduct involving money-laundering.

We do business in countries and regions where strict compliance with anti-bribery laws may not be customary.

Our personnel and intermediaries may face, directly or indirectly, corrupt demands by government officials, political parties and officials, tribal or insurgent organizations, or private entities in the countries in which we operate or may operate in, in the future.

As a result, we face the risk that an unauthorized payment or offer of payment could be made by one of our employees or intermediaries, even if such parties are not always subject to our control or are not themselves subject to the FCPA or other anti-bribery laws to which we may be subject.

Existing compliance safeguards and any future improvements may not prevent all such conduct, and it is possible that our employees and intermediaries may engage in conduct for which we might be investigated by authorities and held responsible.

Violations of the FCPA and other anti-bribery and other anti-corruption laws (either due to our acts or our inadvertence) may result in criminal and civil sanctions and could subject us to other liabilities in the U.S.

and elsewhere.

Even allegations of such violations could disrupt our business and result in a material adverse effect on our business and operations.

Our growth in emerging markets, such as Brazil, is subject to special risks that could have a material adverse effect on our operations.

In February 2013, we acquired UAB Motors Participações S.A.

(“UAB Motors”), which allowed us to enter the Brazilian market.

At the time we entered the Brazilian market, it was an emerging growth market.

Since then, Brazil experienced a significant economic downturn and has been in the midst of a recession.

Since February 2013, Brazil has also experienced significant currency fluctuations.

And, while recent data is beginning to show signs of a recovery, there is no assurance that our future growth strategies in Brazil will be successful, that Brazil’s economy will continue its recovery or that future volatility will not happen.

If the Brazil financial recovery is longer than expected or if future volatility occurs, it could have a material adverse effect on our business, results of operations and financial condition.

See also “ We are subject to risks associated with our non-U.S.

operations that could have a material adverse effect on our business, results of operations and financial condition.” Further, our growth in emerging markets by acquisition of existing dealerships, such as our acquisition of UAB Motors, is subject to additional risk as discussed in the risk factor “ Our ability to acquire new dealerships and successfully integrate those dealerships into our business could adversely affect the growth of our revenues and earnings.”

Certain restrictions relating to our management and ownership of our common stock could deter prospective acquirers from acquiring control of us and adversely affect our ability to engage in equity offerings.

As a condition to granting their consent to our previous acquisitions and our initial public offering, some of our manufacturers have imposed other restrictions on us.

These restrictions prohibit, among other things:

the removal of a non-employee director from office, except for cause;

any one person or entity, who in the opinion of the manufacturer is unqualified to own its franchised dealership or has interests incompatible with the manufacturer, from acquiring more than a specified percentage of our common stock (ranging from 20% to 50% depending on the particular manufacturer’s restrictions) and this trigger level can fall to as low as 5% if another vehicle manufacturer is the entity acquiring the ownership interest or voting rights;

certain material changes in our business or extraordinary corporate transactions, such as a merger or sale of a material amount of our assets;

the removal of a dealership general manager without the consent of the manufacturer;

a change in control of our Board of Directors or a change in management.

Our manufacturers may also impose additional similar restrictions on us in the future.

Actions by our stockholders or prospective stockholders, which would violate any of the above restrictions, are generally outside our control.

If we are unable to comply with or renegotiate these restrictions, we may be forced to terminate or sell one or more franchises, which could have a material adverse effect on our business.

These restrictions may prevent or deter prospective acquirers from acquiring control of us and, therefore, may adversely impact the value of our common stock.

These restrictions also may impede our ability to acquire dealership groups, to raise required capital or to issue our stock as consideration for future acquisitions.

• fluctuations in foreign currency translations within our financial statements driven by exchange rate volatility.

Legal, Regulatory and Compliance Risks

We are subject to automotive and other laws and regulations, which, if we are found to have violated, may adversely affect our business and results of operations.

We operate in a highly regulated industry.

A number of laws and regulations applicable to automotive companies affect our business and conduct, including, but not limited to, our sales, operations, financing, insurance, advertising and employment practices.

Other rules such as franchise laws and regulations, consumer protection laws and other extensive laws and regulations apply to new and used motor vehicle dealers.

Additionally, in every jurisdiction in which we operate, we must obtain various permits and licenses in order to conduct our businesses.

Any failure to comply with these laws and regulations may result in the assessment of administrative, civil or criminal penalties, the imposition of investigatory remedial obligations or the issuance of injunctions limiting or prohibiting our operations.

Refer to Item 1.

Business — Governmental Regulations for further discussion of automotive and other laws and regulations impacting our business.

Operational risks associated with environmental laws and regulations may expose us to significant costs and liabilities.

Our business activities in the U.S., U.K.

and Brazil are subject to stringent federal, regional, state and local laws, regulations and other controls governing specific health and safety criteria to address worker protection, the release of materials into the environment or otherwise relating to environmental protection.

These laws, regulations and controls may impose numerous obligations upon our operations including the acquisition of permits to conduct regulated activities, the imposition of restrictions on where or how to manage or dispose of used products and wastes, the occurrence of capital expenditures to limit or prevent releases of such material and the imposition of substantial liabilities for pollution resulting from our operations or attributable to former operations.

Our compliance with these regulations may expose us to significant costs and liabilities.

Additionally, vehicle manufacturers in the U.S., U.K.

and Brazil are subject to varying guidelines, laws and regulations adopted by their applicable governmental and administrative agencies, which include GHG emissions and CAFE standards in the U.S.

Such standards may affect our manufacturers’ ability to produce cost effective vehicles, which may have a material adverse effect on our sales.

Refer to Item 1.

Business — Governmental Regulations for further discussion of environmental and regulations impacting our business.

Unresolved Staff Comments

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