GROUP 1 AUTOMOTIVE INC 10-K

Item 1. Business General Group 1 Automotive, Inc. is a leading operator in the automotive retail industry. Through our dealerships, we sell new and used cars and light trucks; arrange related vehicle financing; sell service and insurance contracts; provide automotive maintenance and repair services; and sell vehicle parts. As of December 31, 2020, our retail network consisted of 117 dealerships in the U.S., 50 dealerships in the U.K. and 17 dealerships in Brazil. Our operations are primarily located in major metropolitan areas in 15 states in the U.S., 33 towns in the U.K. and three states in Brazil. The following chart presents the total revenues and gross profit contribution from our operations by new vehicle, used vehicle, parts and service and F&I for the year ended December 31, 2020: As discussed in Note 19. Segment Information within our Notes to Consolidated Financial Statements, we have three regions, which comprise our reportable segments: the U.S., U.K. and Brazil. The U.S. and Brazil segments are led by the President, U.S. and Brazilian Operations, and the U.K. segment is led by an Operations Director, each reporting directly to our Chief Executive Officer, who is the CODM. The President, U.S. and Brazilian Operations, and the U.K. Operations Director are responsible for the overall performance of their respective regions, as well as for overseeing field level management. Business Strategy Our business strategy focuses on improving the performance of our existing dealerships and enhancing our dealership portfolio through strategic acquisitions and dispositions to achieve growth, capture market share and maximize the investment return to our stockholders. We constantly evaluate opportunities to improve the overall profitability of our dealerships. We believe that as of December 31, 2020, we have sufficient financial resources to support additional acquisitions. Further, we intend to continue to critically evaluate our return on invested capital in our current dealership portfolio for disposition opportunities. For 2021, our priorities are growing our company through acquisitions, improving and growing sales penetration in our digital retailing platform, AcceleRide®, continuing to grow our parts and service gross profit through numerous initiatives, increasing our market share in the highly fragmented used vehicle business and continuing to leverage our SG&A as a percentage of gross profit. Strategic Acquisitions and Dispositions We will continue to focus on opportunities to enhance our current dealership portfolio through strategic acquisitions and improving or disposing of underperforming dealerships. We believe that substantial opportunities for growth through acquisitions remain in our industry in the U.S., U.K. and Brazil. Acquisitions capitalize on economies of scale and cost savings opportunities in our existing markets in areas such as used vehicle sourcing, advertising, purchasing, data processing and personnel utilization, thereby, increasing operating efficiency. We seek to acquire large, profitable, well-established dealerships that represent growing brands in growth markets. We evaluate all brands and geographies to expand our brand, product and service offerings in our existing markets or expand into growing geographic areas we currently do not serve. Further, we intend to continue to critically evaluate our return on invested capital in our current dealership portfolio for disposition opportunities. During 2020, our dispositions included two dealerships representing three franchises in the U.S. We recorded a net pre-tax gain totaling $3.1 million related to these dispositions. Refer to Note 3. Acquisitions and Dispositions within our Notes to Consolidated Financial Statements for further discussion. 3 Digital Initiatives to Enhance the Customer Experience Our digital initiatives focus on ensuring that we can do business with our customers where and when they want to do business. Our online retail platform, AcceleRide®, which was deployed to all of our U.S. dealerships in 2019, allows a customer to complete a vehicle transaction entirely online or start the sales process online and complete the transaction at one of our dealerships. The customer also has the ability to apply for financing and review and select F&I products as part of the online process. During 2020, AcceleRide® U.S. total retail unit sales were 11,053, up more than 100% compared to 2019. We began the roll out of AcceleRide® to our U.K. dealerships in 2020 and expect to complete this in the second quarter of 2021. In addition, our parts and service digital efforts focus on our online customer scheduling appointment system. We have seen continued growth in the percentage of appointments scheduled online over the past few years as we have continued to enhance this tool. We have also focused on improved interaction with our parts and service customers by offering preferred communication options via dealership apps, phone, text or email and online payment options. We are capitalizing on technology advances in robotic process automation and artificial intelligence to improve our marketing, call center and back office efficiency. These digital platforms were instrumental in allowing us to connect with and service our customers during the social distancing requirements as a result of the COVID-19 pandemic. Parts and Service Growth We remain focused on s ustained growth in our higher margin parts and service operations which continue to hinge on the retention and hiring of skilled service technicians and advisors. In 2019, our U.S. service operations implemented a four-day work week for service technicians and advisors which allowed us to expand our hours of operations during the week. This change has resulted in increased service technician and advisor retention, thereby expanding our service capacity without investing additional capital in facilities. Our online service appointment platform and centralized call centers have improved the customer experience. We seek to increase the retention of our customers through more convenient service hours, training of our service advisors, selling service contracts with vehicles sales and customer relationship management software that allows us to provide targeted marketing to our customers. The increasing complexity of vehicles, especially in the area of electronics and technological advancements, is making it increasingly difficult for independent repair shops to maintain the expertise and technology to work on these vehicles, and provides us the opportunity to increase our market share well into the future. Used Vehicle Retail Growth Used vehicle gross profit depends primarily on a dealership’s ability to obtain a high-quality supply of used vehicles at reasonable prices. Our new vehicle operations generally provide our used vehicle operations with a large supply of high-quality trade-ins and off-lease vehicles, which are our best source of used vehicle inventory. In October 2020, we introduced “Sell A Ride” to our AcceleRide® platform to increase our ability to purchase used vehicle inventory directly from customers with a cash offer within 30 minutes during business hours, home pickup and payment available within one hour. Our dealerships supplement their used vehicle inventory with purchases at auctions, including manufacturer-sponsored auctions available only to franchised dealers. Our data driven pricing strategies ensure that our used vehicles are priced at market to generate more traffic to our websites. We review our market pricing on a constant basis and work to limit discounting from our advertised prices. Cost Management We continue our efforts to fully leverage our scale and cost structure. As our business evolves, we will manage our costs c arefully and look for additional opportunities to improve our processes and disseminate best practices. We believe that our management structure supports rapid decision making and facilitates an efficient and effective roll-out of new processes. As part of the digital efforts discussed above, in 2020 we have improved our productivity for our sales and service departments, resulting in increases of 19% and 22% in technician and salesperson productivity rates, respectively, as compared to 2019. See COVID-19 Pandemic section below for specific cost-cutting measures and productivity efficiencies undertaken in response to the COVID-19 pandemic. Employee Training and Retention A key to the execution of our business strategy is leveraging what we believe to be one of our key strengths — the talent of our people. We are focused on the retention and training of our talented dealership employees. We believe that we have developed a distinguished management team with substantial industry expertise. With our management structure and level of executive talent, we plan to continue empowering the operators of our dealerships to make appropriate decisions to grow their respective dealership operations and to control fixed and variable costs. We believe this approach allows us to provide the best possible service to our customers and attract and retain talented employees. 4 COVID-19 Pandemic Since emerging in December 2019 , the COVID-19 pandemic has spread globally, including to all of our markets in the U.S., U.K. and Brazil, significantly impacting our operating results starting in mid-March 2020. There have been extraordinary and wide-ranging actions taken by international, federal, state and local public health and governmental authorities to contain and combat the outbreak and spread of COVID-19 across the world, including social distancing requirements for many individuals to substantially restrict daily activities and for many businesses to curtail or cease normal operations. Beginning in mid-March 2020, these measures significantly reduced the operating capacity of all of our dealerships in the U.S., U.K. and Brazil. As the restrictions eased during the latter part of 2020, we continued to experience periodic disruptions from reduced capacity and departmental shutdowns as a result of COVID-19 outbreaks and quarantines impacting our employees. Beginning in December 2020 and January 2021, vaccines deemed highly effective started rolling out to the general population in the U.S., U.K. and Brazil. The rollout of the vaccine is expected to help control the spread of the virus. However, the timeline and effectiveness of vaccinating the critical mass of the population in our markets is uncertain. The primary COVID-19 pandemic impacts on our global business and our response to date include: U.S. Virtually all of our U.S. dealerships are located in markets that operated under some form of social distancing requirements in accordance with applicable state and local orders during most of March 2020 and April 2020. As the market shutdowns began, March 2020 U.S. sales fell sharply from February 2020, with new and used retail unit sales and service repair orders falling approximately 50% for the last two weeks of March 2020 and first two weeks of April 2020 compared to the same period in 2019. In early May 2020, as social distancing requirements began to be partially lifted, our used vehicle business returned to near normal levels and our new vehicle sales pace started improving. Our new vehicle sales pace improved during the third and fourth quarters, however the recovery of new vehicle unit sales was limited as a result of low inventory levels due to reduced OEM production rates. Our used vehicle sales have also been limited due to inventory shortages as a result of fewer trade-ins. Thus far, we have been able to nearly offset the volume declines with higher gross margins in new and used vehicles and higher F&I per retail unit. Beginning in mid-April 2020, we saw recovery in our parts and service business as well and closed the fourth quarter of 2020 with parts and service revenues down 4.8% compared to the same period last year. Our online selling platform AcceleRide® and our online service scheduling platforms continue to show increased utilization rates as we remain in a social distancing environment and such higher utilization rates are expected to continue after the pandemic. U.K . U.K. vehicle sales levels were well above prior year in most of our brands through February 2020. We closed all of our U.K. dealerships from late March 2020 through May 18, 2020 for service, with the exception of emergency vehicle service repairs, and our vehicle showrooms did not reopen until June 1, 2020. Operations in the U.K. significantly improved in June 2020 and continued to improve throughout the third quarter and early fourth quarter of 2020. As vehicle sales and service operations reopened, our revenues and margins in all departments increased versus prior year levels. While new vehicle volumes have rebounded, our new vehicle inventory is still well below normal levels due to reduced OEM production rates. On October 31, 2020, the U.K. government announced a national lockdown of non-essential businesses, which included our dealership vehicle showrooms, beginning November 5, 2020 through December 2, 2020. Regional lockdowns occurred in late December and on January 4, 2021, the U.K. government announced another national lockdown of non-essential businesses beginning immediately, and are not expected to be lifted until April 2021 at the earliest. The lockdown impacts our new and used vehicle sales as our showrooms are required to close, but has a lesser impact on our service operations as they are allowed to remain open. Brazil Effective March 20, 2020, all of our dealerships were required to close. Despite restrictions being lifted and businesses reopening in Brazil during the second quarter, the recovery has been limited as the effects of the COVID-19 pandemic and significant inventory shortages are still impacting operations. We do not expect inventory to return to normal levels until late 2021. 5 Cost-Cutting Actions We have taken quick and decisive actions to reduce costs and preserve liquidity in all regions, with approximately 8,000 employees furloughed or terminated in early April 2020. As sales have improved in the U.S. and U.K., we have been able to return to work some of the furloughed employees to a point where our U.S. and U.K. headcounts are approximat ely 75% of our pre-COVID levels. In addition, other measures were implemented to significantly reduce costs in all three regions including reductions of as much as 50% in management compensation, 100% of Board of Directors’ cash compensation, over 33% reduction in advertising expense and cuts across all other cost categories. Additionally, as announced in April 2020, we suspended our dividend and canceled our share repurchase program, as well as implemented capital expenditure deferrals. By the end of the third quarter as market conditions improved, we restored many of these cost reductions. On October 6, 2020, we announced a $200 million share repurchase program and on November 18, 2020, we declared a dividend of $0.30, which was paid on December 15, 2020. As discussed in Item 7. Liquidity and Capital Resources, we have sufficient liquidity currently and do not anticipate any material liquidity constraints or issues with our ability to remain in compliance with debt covenants. The demand outlook remains uncertain and the long-term impact of the COVID-19 pandemic is difficult to predict, especially with the recently announced additional lockdown in the U.K. and rising COVID-19 cases in some of our markets. However, we expect our used vehicle and service operations to return to near pre-pandemic levels in 2021. Reduced new vehicle inventory levels in the U.S., U.K. and Brazil will likely persist throughout the first half of 2021, which will limit the recovery in new vehicle unit sales. However, we expect to continue the trend set in the third and fourth quarters of 2020 by offsetting some of the decline in volume with gross margin improvement. We are prepared to adjust our cost structure further to adapt to market conditions. While some of the cost reductions taken in the first and second quarters were reinstated in the third and fourth quarters as market conditions improved, we expect to be more cost efficient going forward as compared to pre-pandemic levels. Any potential impact of the COVID-19 pandemic will depend on future developments and new information that may emerge regarding the severity and duration of the pandemic, timing and effectiveness of the vaccines and the actions taken by authorities to contain it or address its impact, all of which are beyond our control. Dealership Operations Our operations are located in geographically diverse markets that extend domestically across 15 states in the U.S., and internationally across 33 towns in the U.K. and three states in Brazil. The three regions in which we operate represent our three reportable segments: the U.S., U.K. and Brazil. Refer to Note 19. Segment Information within our Notes to Consolidated Financial Statements for further financial information on our reportable segments. For a discussion of the risks associated with our operations in the U.S., U.K. and Brazil, please see Item 1A. Risk Factors. Through our dealerships, we sell new and used cars and light trucks; arrange related vehicle financing; sell service and other insurance contracts; provide automotive maintenance and repair services; and sell vehicle parts. Our new vehicle revenues includes new vehicle sales and new vehicle lease transactions, sold at our dealerships or via our internet sites. We sell retail used vehicles directly to our customers at our dealerships or via our internet sites and wholesale used vehicles at third party auctions. We sell replacement parts and provide both warranty and non-warranty (i.e., customer-pay) maintenance and repair services at each of our franchised dealerships, as well as provide collision repair services at the 49 collision centers that we operate. We also sell parts to wholesale customers. Customer-pay maintenance and repair services, warranty maintenance and repair services, wholesale parts sales and collision repair services accounted for 48.2%, 19.8%, 21.0% and 11.0%, respectively, of the revenues from our parts and service business in 2020. Revenues from our F&I operations consist primarily of fees for arranging financing and selling vehicle service and insurance contracts in connection with the retail purchase of a new or used vehicle. We offer a wide variety of third-party finance, vehicle service and insurance products in a convenient manner and at competitive prices. To increase transparency to our customers, we offer all of our products on menus that display pricing and other information, allowing customers to choose the products that suit their needs. 6 The following chart presents our diversity of new vehicle unit sales by manufacturer for the year ended December 31, 2020: The following table shows our new vehicle unit sales geographic mix for the year ended December 31, 2020 and our franchise count as of December 31, 2020: New vehicle unit sales geographic mix (%) Franchises Region Geographic Market United States Texas 37.8 74 Oklahoma 7.5 20 California 4.9 5 Georgia 4.7 9 Massachusetts 4.6 5 Florida 2.7 4 Louisiana 2.2 5 New Hampshire 1.9 3 New Jersey 1.9 4 South Carolina 1.8 3 New Mexico 1.3 9 Kansas 1.2 3 Mississippi 1.0 2 Alabama 0.7 2 Maryland 0.5 2 74.9 150 International United Kingdom 21.2 67 Brazil 3.9 22 100.0 239 Competition We operate in a highly competitive industry. In each of our markets, consumers have a number of choices when deciding where to purchase a new or used vehicle and how the purchase will be financed. Consumers also have options for the purchase of related parts and accessories, as well as the maintenance and repair of vehicles. 7 New and Used Vehicles We believe the principal competitive factors in the automotive retailing business are location, service, price, selection, online capabilities and established customer relationships. In the new vehicle market, our dealerships compete with other franchised dealerships in their market areas, as well as auto brokers, leasing companies and internet companies that provide referrals to, or broker vehicle sales with, other dealerships or customers. We are subject to competition from dealers that sell the same brands of new vehicles that we sell and from dealers that sell other brands of new vehicles that we do not sell in a particular market. Our new vehicle dealer competitors also have franchise agreements with the various vehicle manufacturers and, as such, generally have access to new vehicles on the same terms as we do. 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. In the used vehicle market, our dealerships compete both in their local market and nationally with other franchised dealers, large multi-location used vehicle retailers, local independent used vehicle dealers, automobile rental agencies and private parties for the supply and resale of used vehicles. 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 increase competition and reduce gross profit margins for new and used cars and profits for related F&I services. Some retailers offer vehicles for sale over websites without the benefit of having a dealership franchise, although they must currently source their vehicles from a franchised dealer. Several companies are currently manufacturing electric vehicles for sale primarily through the internet without using the traditional dealer-network. Parts and Service 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, location, price, the availability and competence of technicians, and the availability of training programs to enhance such expertise. In the parts and service market, our dealerships compete with other franchised dealers to perform warranty maintenance and repairs, conduct manufacturer recall services and sell factory replacement parts. Our dealerships also compete with other automobile dealers, franchised and independent service center chains and independent repair shops for non-warranty repair and maintenance business. In addition, our dealerships sell replacement and aftermarket parts both locally and nationally over the internet in competition with franchised and independent retail and wholesale parts outlets. A number of regional or national chains offer selected parts and services at prices that may be lower than ours. Our collision centers compete with other large, multi-location companies, as well as local, independent, collision service operations. F&I We believe the principal competitive factors in the F&I business are convenience, interest rates, product availability and affordability, product knowledge and flexibility in contract length. We face competition in arranging financing for our customers’ vehicle purchases from a broad range of financial institutions. Many financial institutions now offer F&I products over the internet, which may reduce our profits from the sale of these products. Acquisitions We compete with other national dealer groups and individual investors for acquisitions. Increased competition, especially for certain luxury and import brands, may raise the cost of acquisitions. In the future, we cannot guarantee that there will be opportunities to complete acquisitions, nor are we able to guarantee that we will be able to complete acquisitions on terms acceptable to us. Relationships and Agreements with our Manufacturers Each of our U.S. dealerships operates under one or more franchise agreements with vehicle manufacturers (or authorized distributors). The franchise agreements grant the franchised automobile dealership a non-exclusive right to sell the manufacturer’s or distributor’s brand of vehicles and offer related parts and service within a specified market area. These franchise agreements also grant franchised dealerships the right to use the manufacturer’s or distributor’s trademarks in connection with their operations, and impose numerous operational requirements and restrictions relating to, among other things: • inventory levels; • working capital levels; • the sales process; • minimum sales performance requirements; 8 • customer satisfaction standards; • marketing and branding; • facility standards and signage; • personnel; • changes in management; • change in control; and • monthly financial reporting. Our dealerships’ franchise agreements are for various terms, ranging from one year to indefinite. Each of our franchise agreements may be terminated or not renewed by the manufacturer for a variety of reasons, including unapproved changes of ownership or management and performance deficiencies in such areas as sales volume, sales effectiveness and customer satisfaction. In most cases, manufacturers have renewed the franchises upon expiration so long as the dealership is in compliance with the terms of the agreement. From time to time, certain manufacturers may assert sales and customer satisfaction performance requirements under the terms of our framework or franchise agreements. We work with these manufacturers to address any performance issues. Failure to meet such requirements could limit our ability to acquire future dealerships of such manufacturers. In general, the U.S. jurisdictions in which we operate have automotive dealership franchise laws, providing that, notwithstanding the terms of any franchise agreement, it is unlawful for a manufacturer to terminate or not renew a franchise unless “good cause” exists. It generally is difficult for a manufacturer to terminate, or not renew, a franchise under these laws, which were designed to protect dealers. Though unsuccessful to date, manufacturers’ lobbying efforts may lead to the repeal or revision of dealer laws. If dealer laws are repealed in the states in which we operate in the U.S., 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 dealer laws, it also may be more difficult for us to renew our franchise agreements upon expiration. Further, U.S. federal law, including any federal bankruptcy law, may preempt U.S. state law and allow manufacturers greater freedom to terminate or not renew franchises. The U.K. generally does not have automotive dealership franchise laws and, as a result, our U.K. dealerships operate without these types of specific protections. However, similar protections may be available as a matter of general U.K. contractual law. In addition, our U.K. dealerships are subject to U.K. antitrust rules prohibiting certain restrictions on the sale of new vehicles and spare parts and on the provision of repairs and maintenance. For example, as a matter of 2020 EU law, authorized dealers are generally able to, subject to manufacturer facility requirements, relocate or add additional facilities throughout the EU, offer multiple brands in the same facility, allow the operation of service facilities independent of new car sales facilities and ease restrictions on cross supplies (including on transfers of dealerships) between existing authorized dealers within the EU. However, certain restrictions on dealerships may be permissible, provided the conditions set out in the relevant EU Block Exemption Regulations are met. The U.K. formally exited the EU on January 31, 2020 and the EU and the U.K. reached an agreement in principle as set out in the EU-U.K. Agreement, which became provisionally applicable on January 1, 2021. The EU-U.K. Agreement commits the parties to maintaining antitrust/competition law based on the common principles underlying the respective competition frameworks, and envisages cooperation and coordination between the U.K. and EU competition authorities. Similarly, as of January 1, 2021, the relevant EU Block Exemption Regulations remain in effect under domestic U.K. law, as amended in accordance with the U.K. competition framework, but may be further amended, revoked or extended by subsequent U.K. law. The sale of vehicles in Brazil is regulated by federal law, commonly referred to in Brazil as the Ferrari Law. Such law sets forth the terms and conditions of distribution agreements executed among manufacturers and dealerships, specifically with regards to the distribution of cars, trucks, motorbikes and similar vehicles. In addition, the Ferrari Law establishes the geographical area of a dealership and termination of distribution agreements and their consequences, among other things. Any contractual provision that conflicts with the Ferrari Law is considered void in Brazil. The distribution agreements contemplate the commercialization of vehicles and components fabricated by the manufacturer, the rendering of technical assistance relating to such products and the usage by the dealerships of the manufacturer’s brand. According to the Ferrari Law, distribution agreements may be executed for either a determined or an undetermined term. In the case of a distribution agreement executed for a determined term, its initial term may not be less than 5 years. At the end of this initial 5 year term, such distribution agreement will be automatically converted into an undetermined term distribution agreement, unless any of the parties thereto expressly waives such right with 180 days prior notice. In the case of an early termination of a distribution agreement other than as a result of a persistent breach or force majeure, the Ferrari law entitles the non-breaching party to, among other things, certain termination payments. 9 Our dealership service departments perform vehicle repairs and service for customers under manufacturer warranties. We are reimbursed for the repairs and service directly from the manufacturer. Some manufacturers offer rebates to new vehicle customers that we are required, under specific program rules, to adequately document, support and typically collect. In addition, some manufacturers provide us with incentives to order and/or sell certain models and/or volumes of inventory over designated periods of time. Under the terms of our dealership franchise agreements, the respective manufacturers are able to perform warranty, incentive and rebate audits and charge us back for unsupported or non-qualifying warranty repairs, rebates or incentives. In addition to the individual dealership franchise agreements discussed above, we have entered into framework agreements in the U.S. with most major vehicle manufacturers and distributors. These agreements impose a number of restrictions on our operations, including our ability to make acquisitions and obtain financing, and on our management. These agreements also impose change of control provisions related to the ownership of our common stock. For a discussion of these restrictions and the risks related to our relationships with vehicle manufacturers, please refer to Item 1A. Risk Factors. Governmental Regulations Automotive and Other Laws and Regulations 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. On January 29, 2020, President Donald Trump signed into law the United States-Mexico-Canada Agreement (“USMCA”). The USMCA updates, modernizes and rebalances the prior existing North America Free Trade Agreement to meet certain anticipated challenges of the 21st century economy for the region and is intended to ensure that American workers, farmers, ranchers and businesses share in the benefits of the agreement. It is intended to promote fairer and more balanced trade and keep North America one of the most competitive regions in the world. It is expected that the USMCA will have an impact on the U.S. auto industry by creating incentives for new U.S. investments in the automotive sector, promote additional purchases of U.S. produced auto parts, advance automotive research and development and support high-paying U.S. jobs in the automotive sector. Additionally, it is expected that the USMCA will encourage automakers and suppliers to locate future production of new electric and autonomous vehicles in the U.S. 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. Some of the more significant regulations that we are required to comply with include the EU’s General Data Protection Regulation (“GDPR”), the California Consumer Privacy Act (“CCPA”) and the General Data Protection Law (Lei Geral de Proteção de Dados Pessoais, or “LGPD”) in Brazil. These regulations provide for various data protection requirements related to protection of customer’s personally identifiable information, notice requirements related to data breaches and 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. If an EU or non-EU organization violates the GDPR, the organization can be fined up to 4% of annual global turnover or 20 million euros, whichever is greater. In addition, our dealerships in California are required to comply with the CCPA, which became effective in January 2020. 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. Further, the LGPD in Brazil, which became effective in August 2020, includes fines for violations of up to 2% of an organization’s revenue in Brazil, for the prior fiscal year, excluding taxes, with the total fine not to exceed 50 million reals (approximately $9.3 million USD). Environmental and Occupational Health and Safety Laws and Regulations 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. 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. 10 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. and Brazil. 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 or expansion of projects and the issuance of injunctions limiting or preventing some or all of our operations in affected areas. Additionally, certain of these environmental laws may result in imposition of joint and several strict liability, which could cause us to become liable 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. For instance, an accidental release from one of our storage tanks could subject us to substantial liabilities arising from environmental cleanup and restoration costs, claims made by neighboring landowners and other third parties for personal injury and property damage and fines or penalties for related violations of environmental laws or regulations. 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. Comparable laws and regulations have been enacted in the U.K. and Brazil. The threat of climate change continues to attract considerable attention in the U.S. and in foreign countries and, as a result, numerous proposals have been made and could continue to be made at the international, national, regional and state levels of government to monitor and limit existing emissions of greenhouse gas (“GHG”) as well as to restrict or eliminate such future emissions. Gas and diesel-powered automobiles are one source of GHG emissions and in the recent past, the U.S. Environmental Protection Agency (“EPA”), together with the National Highway Traffic Safety Administration (“NHTSA”), implemented GHG emissions limits on vehicles manufactured for operation in the U.S. On January 20, 2021, President Joe Biden issued an executive order recommitting the United States to participation in the Paris Agreement, which is a United Nations-sponsored, non-binding agreement for nations to limit their GHG emissions through individually-determined reduction goals every five years after 2020. The U.K. and Brazil are similarly committed to the Paris Agreement, with the U.K. announcing in late 2020 that it plans to ban sales of new gasoline and diesel-powered vehicles after 2030. Vehicle manufacturers in the U.S. are also subject to regulations by the EPA and the NHTSA that establish corporate average fuel economy (“CAFE”) standards applicable to light-duty vehicles. California and other states have indicated they would pursue more stringent CAFE and GHG standards than required by current EPA and NHTSA standards. Comparable laws and regulations have been enacted in the U.K. and Brazil. Our OEMs require lead time to prepare new vehicle models and more stringent regulations could result in increased costs and time constraints, or result in our OEMs deciding to increase production targets of electric vehicles in anticipation of such regulations. These developments could also significantly increase our costs of operation as well as reduce our volume of business. Insurance and Bonding Our operations expose us to the risk of various liabilities, including: • claims by employees, customers or other third parties for personal injury or property damage resulting from our operations; • weather events, such as hail, flood, tornadoes and hurricanes; and • potential fines and civil and criminal penalties resulting from alleged violations of federal and state laws or regulatory requirements. The automotive retailing business is also subject to substantial risk of real and personal property loss as a result of significant concentration of real and personal property values at dealership locations. Under self-insurance programs, we retain various levels of risk associated with aggregate loss limits and per claim deductibles. In certain cases, we insure costs in excess of our retained risk under various contracts with third-party insurance carriers. Although we believe our insurance coverage is adequate, we cannot assure that we will not be exposed to uninsured losses that could have a material adverse effect on our business, results of operations and financial condition. We are also subject to potential premium cost fluctuations and change in loss retention limits with the annual renewal of these programs. For further discussion, refer to Item 1A. Risk Factors. 11 Human Capital The key to our success is the talent of our people. Our core values — Integrity, Transparency, Professionalism, Teamwork and Respect — define our culture and help us attract and retain talented employees. Our employee surveys indicate we have established the correct core values and our relationship with our employees is favorable. As of December 31, 2020, we had 12,337 employees (full-time, part-time and temporary), of which 8,710 were employed in the U.S., 2,901 in the U.K. and 726 in Brazil. Included in the total were 724 furloughed employee s, of which 253 were in the U.S. and 471 in the U.K. In Brazil, all employees are represented by a local union. Training and Recognition We offer a variety of approximately 200 training courses to employees based on job categories. The majority of our training is offered through our online training platform. In addition to job specific courses, we also offer leadership training and diversity training. Employees have opportunities for various certification levels based on training completed and tenure. The certification levels include an employee rewards program. Employee Productivity Employee productivity is measured in different ways, depending on the job category. For example, salesperson productivity is based on vehicles sold per salesperson while technician productivity is measured as gross profit per technician. For the twelve months ended December 31, 2020, our salesperson productivity increased 22% and our technician productivity increased 19% as compared to the same period in 2019. Diversity, Equity and Inclusion (“DEI”) We have a DEI council that is chaired by our President, U.S. and Brazilian Operations. The council’s mission is to foster a diverse and inclusive culture where employees of all backgrounds are respected, valued and developed. We will enhance employee engagement in the areas of diversity, equity and inclusion by offering innovative training, recruitment and career path development where a sense of belonging is apparent throughout the organization. The council has four primary areas of focus: Workforce, Workplace, Community Involvement and Women’s Initiative. The council consists of a diverse group of employees providing representation across the organization. Each area has an employee chairperson as well as an executive sponsor. In 2020, we implemented an ongoing diversity and inclusion training program led by a well-known diversity expert which was developed specifically for us. Thus far, approximately 175 senior leaders received live, interactive training and approximately 7,300 employees received web-based training through the program. Employee Engagement Employees are offered opportunities to enroll in quarterly wellness programs that are fully funded by us and also include the opportunity for family members to participate. In addition, our medical plans include opportunities for lower monthly premiums for employees who receive an annual physical. Executive management participates in quarterly employee videos where the results of each quarter are shared with employees. Various other employee recognition programs are celebrated in our dealerships. Seasonality Our operating results are generally subject to seasonal variations, as well as changes in the economic environment. In the U.S., we generally experience higher volumes of vehicle sales and service in the second and third calendar quarters of each year. In addition, in some regions of the U.S., vehicle purchases decline during the winter months due to inclement weather. In the U.K., the first and third quarters tend to be stronger, driven by the vehicle license plate change months of March and September. In Brazil, the first quarter is generally the weakest, driven by more consumer vacations and activities associated with Carnival, while the third and fourth quarters tend to be stronger. Other factors unrelated to seasonality, such as changes in economic conditions, manufacturer incentive programs, supply issues, seasonal weather events and/or changes in currency exchange rates may exaggerate seasonal or cause counter-seasonal fluctuations in our revenues and operating income. Internet Website and Availability of Public Filings Our internet address is www.group1auto.com . We make the following information available free of charge on our website: • Annual Report on Form 10-K; • Quarterly Reports on Form 10-Q; • Current Reports on Form 8-K; • Amendments to the reports filed or furnished electronically with the SEC pursuant to Section 13(a) or 15(d) of the Exchange Act; 12 • Our Corporate Governance Guidelines; • The charters for our Audit, Compensation and Human Resources, Finance/Risk Management and Governance & Corporate Responsibility Committees; • Our Code of Conduct for Directors, Officers and Employees (“Code of Conduct”); and • Our Code of Ethics for our Chief Executive Officer, Chief Financial Officer and Controller (“Code of Ethics”). Within the time period required by the SEC and the NYSE, as applicable, we will post on our website any modifications to the Code of Conduct and Code of Ethics and any waivers applicable to senior officers as defined in the Code of Conduct or Code of Ethics, as applicable, as required by the Sarbanes-Oxley Act of 2002. We make our filings with the SEC available on our website as soon as reasonably practicable after we electronically file such material with, or furnish such material to, the SEC. The SEC also maintains a website at http://sec.gov that contains reports, proxy and information statements, and other information regarding our company that we file and furnish electronically with the SEC.