What changed in this filing

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Item 1. Business

2022-02-23 compared with 2021-02-24 · 181 added, 233 removed, 153 unchanged (73% of the section changed)

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is a leading operator in the automotive retail industry.

Through our dealerships, we sell new and used cars and light trucks;

Through our omni-channel platform, we sell new and used cars and light trucks;

arrange related vehicle financing;

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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 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.

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.

We operate in geographically diverse markets that extend across 17 states in the U.S.

and across 35 towns in the U.K.

As of December 31, 2021, our retail network consisted of 147 dealerships in the U.S.

and 55 dealerships in the U.K.

The following chart presents 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, 2021:

On November 12, 2021, we entered into a Share Purchase Agreement (the “Brazil Agreement”) with Original Holdings S.A.

Pursuant to the terms and conditions set forth in the Agreement, Buyer will acquire 100% of the issued and outstanding equity interests of our Brazilian operations (the “Brazil Disposal Group”) for approximately BRL 510 million in cash (the “Brazil Disposal”).

The transaction is expected to close before the end of the second quarter of 2022.

The Brazil Disposal Group met the criteria to be reported as discontinued operations.

Therefore, the related assets, liabilities and operating results of the Brazil Disposal Group are reported as discontinued operations (the “Brazil Discontinued Operations”) for all periods presented.

Effective as of the fourth quarter of 2021, we are aligned into two reportable segments:

Refer to Note 20.

Acquisitions and Dispositions within our Notes to Consolidated Financial Statements for further discussion.

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.

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.

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.

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:

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.

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.

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.

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.

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.

Segment Information within our Notes to Consolidated Financial Statements within this Form 10-K for further information on our reportable segments.

Refer to Note 4.

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.

Discontinued Operations and Other Divestitures within the Notes to Consolidated Financial Statements within this Form 10-K, for additional information regarding business dispositions.

Unless otherwise specified, disclosures in this Form 10-K reflect continuing operations only.

On November 17, 2021, we completed the acquisition of the Prime Automotive Group (“Prime”), including 27 dealerships, certain real estate and three collision centers in the Northeastern U.S.

On November 18, 2021, we completed the purchase of a 28th Prime dealership (together, with the previously identified acquisitions from Prime, collectively referred to as the “Prime Acquisition”).

The aggregate consideration for the Prime Acquisition was approximately $934.2 million.

On October 18, 2021, we completed the acquisition of Capital City Honda in Sacramento, California.

On October 4, 2021, we completed the acquisition of Classic Chrysler Dodge Jeep Ram of Denton and Classic Mazda of Denton within the greater Dallas-Fort Worth metro area of Texas.

On July 6, 2021, we completed the acquisition of Robinsons Motor Group in northeast London, U.K., with operations representing the family of brands offered by the Volkswagen Group, along with one Citroen dealership.

On March 16, 2021, we completed the acquisition of two Toyota dealerships located in Hyannis and Orleans on Cape Cod in Massachusetts.

In addition, we also disposed of four franchises and terminated two franchises.

Refer to Note 3.

Acquisitions within the Notes to Consolidated Financial Statements within this Form 10-K, for additional information regarding acquisitions.

Dealership Operations

Our new vehicle revenues include new vehicle sales and new vehicle lease transactions, sold at our dealerships or via our digital platform, AcceleRide®.

We sell retail used vehicles directly to our customers at our dealerships or via AcceleRide® 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 46 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.

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 sale of a new or used vehicle.

We offer a wide variety of third-party finance, vehicle service and insurance products in a convenient manner 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.

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Region Geographic Market

United States Texas 37.8 74

Texas 40.3 76

Oklahoma 7.3 20

Massachusetts 7.0 26

California 5.5 5

Georgia 4.6 9

Massachusetts 4.6 5

Florida 2.7 4

New Jersey 2.2 9

Louisiana 2.0 5

New Hampshire 1.9 5

New Jersey 1.9 4

South Carolina 1.9 3

New Mexico 1.5 8

Mississippi 1.0 2

Alabama 0.9 2

Mississippi 0.7 1

Maryland 0.6 2

International United Kingdom 21.2 67

Brazil 3.9 22

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.

New and Used Vehicles

New York 0.1 4

United Kingdom 19.1 75

Business Strategy

Our business strategy is built upon our commitment to maximize the return on investment for our stockholders.

We are focused on four key initiatives, as further described below, to deliver upon this commitment in 2022.

• strategic acquisitions and dispositions;

• digital initiatives to enhance the customer experience and efficiency of operations;

• parts and service growth;

• used vehicle retail growth.

Strategic Acquisitions and Dispositions

In 2021, the retail automotive industry experienced multiple merger and acquisition transactions aimed at further consolidation of the industry.

Despite the significant increase in merger and acquisition activity in 2021, the industry remains fragmented to a significant degree.

We believe there will continue to be opportunity for consolidation within the industry in 2022.

Consistent with our acquisition activity completed in 2021, we intend to capitalize on growth opportunities, specifically focusing on strategic acquisitions that enhance our dealership portfolio.

We evaluate all brands and geographies to expand our portfolio, seeking to acquire dealerships that represent growing brands, in growth-positioned markets.

Acquisitions completed within our existing markets provide us a competitive advantage, allowing us to capitalize on economies of scale, providing for cost savings opportunities in key expense areas such as used vehicle sourcing, advertising, purchasing, data processing and personnel utilization.

In 2021, we completed acquisitions in both our U.S.

regions, including Prime, the largest acquisition of a single dealership group in the Company’s history.

The expected aggregate annualized revenues, estimated at the time of the acquisitions, were $2.5 billion.

For additional information regarding the acquisitions completed in 2021, refer to Note 3.

Acquisitions within our Notes to Consolidated Financial Statements.

In addition to improving our portfolio of dealerships through acquisitions, from time to time, we make decisions to dispose of certain dealerships.

In some instances, we dispose of underperforming dealerships where we no longer believe opportunity exists for improvement.

We may also dispose of certain dealerships in order to complete strategic acquisition opportunities as a result of our franchise agreement requirements.

For instance, we may dispose of a less significant dealership to allow us to acquire a more substantial dealership within the same or another geographic area based on the respective franchise agreement requirements.

The Brazil Disposal was the result of a strategic decision to exit the Brazilian geographic market, allowing for redeployment of capital to other areas of our business.

Refer to Note 4.

Discontinued Operations and Other Divestitures within our Notes to Consolidated Financial Statements for additional information regarding the Brazil Disposal.

Digital Initiatives to Enhance the Customer and Employee Experience

We provide an omni-channel experience to our customers, ensuring that we can do business with our customers where and when they want to do business.

To deliver on our omni-channel experience, in addition to our investment in physical locations, we offer our customers and employees a modern retailing software and process.

AcceleRide® Digital Platform

Our online retail platform, AcceleRide®, modernizes the customer experience, allowing a customer to buy, sell or schedule vehicle service through the digital platform.

AcceleRide® was deployed to all of our existing U.S.

dealerships in 2019 and the first quarter of 2021, respectively, with deployment to acquired dealerships typically within three months of a completed acquisition.

We expect to complete the roll out of AcceleRide® to the dealerships acquired as part of the Prime Acquisition by March 2022.

Prior to this planned rollout, Prime had no significant online retailing presence.

Our customers can easily complete a vehicle transaction entirely online, including applications for finance and selection of F&I products, or start the sales process online and complete the transaction at one of our dealerships.

Customers selling their used vehicles through AcceleRide® can receive real-time electronic payment through Zelle®.

Customers can even utilize our AcceleRide® platform in the dealerships, working with a sales representative, to complete as much or as little of the buying and selling process as they would prefer.

For instance, the customer can utilize the AcceleRide® platform to complete their finance application directly as opposed to providing the sales professional the information to enter.

During the year ended December 31, 2021 , U.S.

total online retail unit sales increased 77.2% to 19,586 units, c ompared to the same period in 2020.

Our parts and service digital efforts focus on our online customer scheduling appointment system within AcceleRide®.

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 and continue to focus on improved integration with our parts and service customers by offering preferred communication options via dealership apps, phone, text or email and online payment options.

Process Automation

We are capitalizing on technology advances in robotic process automation and artificial intelligence to improve our marketing, call center and back-office efficiency.

We continuously evaluate our processes to identify opportunities for process automation, including the use of robotics, enabling us to bring our customers’ vehicle inventory selection on a more expedited basis, process parts inventory and F&I products transactions quicker and price cars more competitively for our customers using the latest and most accurate information available.

We believe our continued focus on process automation is a key value differentiator within the industry for our stockholders.

Process automation allows for more efficient absorption of acquired dealership back-office responsibilities and improved dealership performance.

Parts and Service Growth

We remain focused on sustained growth in our higher margin parts and service operations which continue to hinge on the retention and hiring of skilled service technicians and advisors.

Many of our U.S.

service operations utilize a four-day work week for service technicians and advisors which allows 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.

We intend to transition additional service operations to a four-day work week in 2022 as we hire additional skilled service technicians to enable this change in schedule and expanded capacity.

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 vehicle 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.

Our service departments are equipped for any Electric Vehicle (“EV”) make and any model on the road today.

Used Vehicle Retail Growth

Used vehicles represent a stable consumer end market with approximately 41.0 million units sold in 2021 in the U.S.

according to the North American Automotive Dealers Association.

The retail market is a fragmented market with franchised dealers having a less than 40% market penetration.

Used vehicle gross profit depends primarily on a dealership’s ability to obtain a high-quality supply of used vehicles at reasonable prices.

We believe our franchised dealer network and approach to used vehicle sourcing provide us a competitive advantage.

We acquire a substantial majority of our used vehicle inventory directly from our customers through trade-ins, direct buys and lease returns.

based digital payments network.

To a lesser extent, our dealerships supplement their used vehicle inventory with purchases at auctions, including manufacturer-sponsored auctions available only to franchised dealers.

We employ data driven pricing strategies to ensure that our used vehicles are priced to market.

This generates more traffic to our omni-channel platform.

We review our market pricing on a constant basis and work to limit discounting from our advertised prices.

The automotive retail industry is highly competitive across all our service lines.

Consumers have an increasing number of choices when deciding where and how to (i) purchase a new or used vehicle as well as select related vehicle financing and insurance products;

(ii) purchase related parts and accessories;

and (iii) procure vehicle maintenance and repair services.

New and Used Vehicles Sales

We believe the principal competitive factors in the automotive retailing business are location, service, price, selection, online capabilities and established customer relationships.

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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.

We do not have any cost advantage in purchasing new vehicles from vehicle manufacturers, and our current 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.

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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.

Several companies are currently manufacturing EVs for sale primarily through the internet without using the traditional dealer-network.

In response, 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.

Parts and Service

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Many financial institutions now offer F&I products over the internet, which may reduce our profits from the sale of these products.

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

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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.

• inventory levels;

• working capital levels;

• the sales process;

• minimum sales performance requirements;

• customer satisfaction standards;

• marketing and branding;

• facility standards and signage;

• changes in management;

• change in control;

• monthly financial reporting.

Our dealerships’ franchise agreements are for various terms, ranging from one year to indefinite.

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, sales performance requirements, customer satisfaction standards, marketing and branding, facility standards and signage, personnel, changes in management, change in control and monthly financial reporting.

Most of our dealerships’ franchise agreements continue indefinitely and those with definite terms are renewed or superseded by a new agreement.

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.

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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.

It generally is difficult, outside of bankruptcy, for a manufacturer to terminate, or not renew, a franchise under these laws, which were designed to protect dealers.

generally does not have automotive dealership franchise laws and, as a result, our U.K.

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competition framework, but may be further amended, revoked or extended by subsequent U.K.

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.

Our dealership service departments perform vehicle repairs and service for customers under manufacturer warranties.

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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.

These laws and regulations include state 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.

Some of the more significant regulations that we are required to comply with include the EU’s General Data Protection Regulation (“GDPR”) and, the California Consumer Privacy Act (“CCPA”) and the Federal Trade Commission (“FTC”) Safeguards Rule.

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.

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).

The FTC Safeguards Rule contains procedural, technical and personnel requirements that financial institutions, including dealers, must satisfy to meet their information security obligations.

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 business activities in the U.S.

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.

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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 or expansion of projects and the issuance of injunctions limiting or preventing some or all of our operations in affected areas.

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

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.

The threat of climate change continues to attract considerable attention in the U.S., U.K.

and elsewhere globally.

As a result, numerous proposals have been made and could continue to be made at the international, national, regional and state levels of government, in locations affecting our business, 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.

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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.

and Brazil are similarly committed to the Paris Agreement, with the U.K.

is 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.

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

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.

For additional information, see Item 1A.

Risk Factors within this Form 10-K.

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;

• claims by employees, customers or other third parties for personal injury or property damage;

• weather events, such as hail, flood, tornadoes and hurricanes;

• potential fines and civil and criminal penalties resulting from alleged violations of federal and state laws or regulatory requirements.

• potential fines and civil and criminal penalties resulting from alleged violations of federal and state laws, regulatory requirements and other local laws in the jurisdictions in which we operate.

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.

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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.

We are also subject to potential premium cost fluctuations and changes in loss retention limits with the annual renewal of these programs.

For further discussion, refer to Item 1A.

Risk Factors.

Risk Factors, within this Form 10-K.

Human Capital

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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.

Our employee survey results indicate we have established the correct core values and our relationship with our employees is favorable.

As of December 31, 2021, we had 13,711 employees (full-time, part-time and temporary), of which 10,813 were employed in the U.S.

and 2,898 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.

We offer a variety of approximately 200 training courses to employees based on job categories, including a management training program and a technician training program.

The majority of our training is offered through our online training platform.

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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.

We established a DEI council that is chaired by our Chief Diversity Officer.

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.

We enhance employee engagement in DEI by offering 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.

Talent Acquisition, Talent Development, Community Building and Women in the Workplace.

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.

In addition, employees participate in on-going diversity and inclusion training programs which were developed for us.

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.

Employees are offered opportunities to enroll in quarterly wellness programs that are fully funded by us and also include the opportunity for family member participation.

In addition, our medical plans include opportunities for lower monthly premiums for employees who receive an annual physical.

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Various other employee recognition programs are celebrated in our dealerships.

Environmental, Social and Governance (“ESG”)

Group 1 is working toward a more sustainable future by continually working to improve various aspects of our business in the ESG areas most relevant to us, our stakeholders and our industry.

With oversight from our Board of Directors, throughout 2021 we performed a thorough review of our business operations pertaining to:

hiring practices, equal pay, promotional practices, health and safety, health insurance, community impact, and environmental impact.

We have aimed to formalize certain policies and further our alignment with our core values, including exploring further initiatives where we have identified a need or opportunity.

We strive to create a culture where our employee base is diverse and inclusive, we provide equal pay and opportunities throughout the Company, and we care for our employees’ health and safety and the environment.

Environmental

Our commitment to sustainability includes reducing our impact on the environment and doing our share to contribute to a healthier planet.

One of our principal business activities is the construction and operation of new and remodeled dealership facilities.

We continue to invest in numerous initiatives to improve our environmental footprint as we strive to be good stewards of the environment, such as climate control thermostats and LED lighting to improve our energy efficiency, solar panels to increase our usage of renewable energy, and up-to-date waste management systems to improve our handling of chemicals and other byproducts from our dealerships’ operations.

We are continuously working with our OEM partners and third-party construction consultants to enhance the buying experience in our facilities and, while also doing what we can to reduce our environmental footprint.

In 2021, we established a team responsible for driving capital allocation recommendations and execution of the EV infrastructure in our dealerships.

EV chargers, lifts, shop equipment and battery storage facilities are all critical elements to address the emerging market for EVs.

We work closely with our manufacturing partners to enable access to these vehicles and play a large role in servicing them.

We are certified to repair and service EVs, including Tesla electric vehicles at select locations.

We provide EV batteries and parts.

We are committed to supporting our customers who currently own EVs and those that purchase EVs in the future.

As discussed above under “Human Capital,” we maintain a human capital strategy that supports a diverse and inclusive workforce with equal opportunity and programs for training and career advancement, strong benefits, incentives, and health, safety and wellness initiatives.

Our core values start at the top, with our Board of Directors.

Our Board of Directors has four standing committees to assist in fulfilling its responsibilities:

the Audit Committee, the Compensation & Human Resources Committee, the Governance and Corporate Responsibility Committee and the Finance/Risk Management Committee.

Our Governance and Corporate Responsibility Committee advises the Board of Directors on appropriate corporate governance guidelines and has direct oversight of our ESG policies and practices.

Other Board of Directors’ committees also play a role in ESG, having oversight responsibilities across areas such as cybersecurity, human capital management, health & safety and corporate risk management.

In addition, our management team and cross-functional subject matter experts are responsible for the implementation of our ESG strategy, initiatives and communications.

We believe the composition of our Board of Directors is critical to our success.

As our Company continues to evolve, so do the perspectives, skills and experiences that the Board of Directors seeks in its director nominees.

Since 2016, we have welcomed five new independent directors, each of whom brings extensive experience and fresh perspectives to enrich the Board of Directors’ dialogue and enhance its ability to effectively oversee our business.

One-third of our directors are women, all of whom serve as committee chairs, and two of our members are non-U.S.

Much of our Board of Directors’ oversight work is delegated to various committees, which meet regularly and report back to the full Board.

All committees have significant roles in carrying out the risk oversight function.

Each committee is comprised entirely of independent directors (except the Finance/Risk Management Committee) and oversees risks associated with its respective area of responsibility.

At the corporate level, we established a Safety and Risk Steering Committee, which reviews the effectiveness of the Company’s risk management system, including a review of policies and all profiles of financial and non-financial risks.

We track and identify new and emerging risks, and to the extent they affect or could potentially affect our business, we develop action plans with assigned sponsors to address and mitigate that risk.

We use an internal process to help identify if we have enough controls in place to properly manage each risk.

Our operating results are generally subject to seasonal variations, as well as changes in the economic environment.

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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.

Other factors unrelated to seasonality, such as changes in economic conditions, manufacturer incentive programs, supply issues, seasonal weather events and/or changes in foreign currency exchange rates may exaggerate seasonal or cause counter-seasonal fluctuations in our revenues and operating income.

The COVID-19 pandemic and current economic environment, led by a supply chain disruption slowing the production of new vehicles, have led to a deviation from historical seasonal variations.

As a result, historical seasonal variation patterns may not be an appropriate indicator of current and future trends in seasonal variations.

Internet Website and Availability of Public Filings

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

What changed 10-K

Item 1. Business