What changed in this filing

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Item 1A. Risk Factors

2022-02-23 compared with 2021-02-24 · 131 added, 101 removed, 111 unchanged (68% of the section changed)

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Market and Industry Risks

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

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

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

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

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

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

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

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

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

Refer to Item 7A.

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

Consumer spending can be materially and adversely impacted by periods of economic uncertainty or by consumer concern about manufacturer viability.

Since the first quarter of 2020, there has been a worldwide impact from the COVID-19 pandemic.

Global trade conditions and consumer trends that originated during the pandemic continue to persist and may also have long-lasting adverse impacts on us and our industry, independently of the progress of the pandemic.

For example, pandemic-related issues have exacerbated port congestion and caused intermittent supplier shutdowns and delays.

Increased demand for personal electronics has created a shortfall of semiconductor chips, which in turn, has also adversely impacted production of new vehicles, parts and other supplies, thereby reducing new vehicle inventories, increasing new vehicle prices and limiting the availability of replacement parts.

Under these conditions, automotive dealer profits have increased sharply as new vehicle prices and margins have more than offset the effects of lower new vehicle volume.

At such time that semi-conductor chip shortages are resolved, vehicle production may increase, and new vehicle prices could decrease thereby resulting in reduced profitability at our dealerships.

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

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

Tightening of the credit markets, increases in interest rates and credit conditions may decrease the availability or increase the costs of automotive loans and leases and adversely impact our new and used vehicle sales and margins.

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

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where we maintain most of our operations.

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

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

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

Conversely, lower fuel prices could have the opposite effect.

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

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

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

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

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

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

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

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

Vehicle technology advancements are occurring at an accelerating pace.

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

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

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

Deterioration in market conditions or changes in our credit profile could adversely affect our operations and financial condition.

We rely on the positive cash flow we generate from our operations and our access to the credit and capital markets to fund our operations, growth strategy, and return of cash to our shareholders through share repurchases and dividends.

Changes in the credit and capital markets, including market disruptions, limited liquidity and interest rate fluctuations, may increase the cost of financing or restrict our access to these potential sources of future liquidity.

Our continued access to liquidity sources on favorable terms depends on multiple factors, including our operating performance and credit ratings.

Our debt securities currently are rated just below investment-grade and a downgrade of this rating likely would negatively impact our access to the debt capital markets and increase our cost of borrowing.

As a result, disruptions in the debt markets or any downgrade of our credit ratings could adversely affect our operations and financial condition and our ability to return cash to our shareholders.

We can make no assurances that our ability to obtain additional financing through the debt markets will not be adversely affected by economic conditions or that we will be able to maintain or improve our current credit ratings.

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

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

In February 2022, the U.S.

Federal Reserve announced it expects to increase interest rates in 2022.

Refer to Item 7A.

Quantitative and Qualitative Disclosures About Market Risk for additional analysis regarding our interest rate sensitivity.

We may fail to meet analyst and investor expectations, which could cause the price of our stock to decline.

Our common stock is traded publicly, and various securities analysts follow our financial results and frequently issue reports on us which include information about our historical financial results as well as their estimates of our future performance.

These estimates are based on their own opinions and are often different from management’s estimates or expectations of our business.

If our operating results are below the estimates or expectations of public market analysts and expectations of our investors, our stock price could decline.

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

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

During the year ended December 31, 2021, vehicle manufacturers were producing and delivering fewer vehicles to our dealerships due to a global semiconductor chip shortage.

The semiconductor chip shortage is impacting the automobile industry’s new vehicle production, which, in turn, has decreased our new vehicle inventory.

Our new vehicle days’ supply of inventory was approximately 12 days for the quarter ended December 31, 2021, as compared 53 days for the quarter ended December 31, 2020.

If new vehicle days’ supply of inventory continues to decline, it will impact our ability to satisfy customer demand.

It is impossible to predict with certainty the duration of the semiconductor chip shortage or when normalized production will resume at these manufacturers.

If our manufacturers’ production remains at current reduced levels or continues to decline, diminishing our ability to meet the immediate needs of our customers, the semiconductor chip shortage could have a material and adverse impact on our financial and operating results.

Additionally, many U.S.

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

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

Customers are using the internet to shop, and compare prices for new and used vehicles, automotive repair and maintenance services, finance and insurance products and other automotive products.

If we are unable to effectively use the internet to attract customers to our own online channels, such as our AcceleRide® platform, and mobile applications, and, in turn, to our stores, our business, financial condition, results of operations and cash flows could be materially adversely affected.

Additionally, the growing use of social media by consumers increases the speed and extent that information and opinions can be shared, and negative posts or comments on social media about us or any of our dealerships could damage our reputation and brand names, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

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

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

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

revenue and results of operations.

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

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

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

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

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

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

Agreement’s entry into force.

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

The scope of the EU-U.K.

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

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

Accordingly, Brexit could adversely affect U.K.

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

More specifically, it could lead to:

• Exchange Rate Fluctuations:

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

• Supply Risk:

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

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

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

• Loss of Franchise Protections:

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

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

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

competition framework;

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

• Economic Risk:

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

• Fiscal Risk:

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

• Labor Risk:

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

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

operations or use EU subsidiaries;

• Data Privacy Risk:

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

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

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

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

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

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

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

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

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

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

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

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

Refer to Note 11.

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

Changes in consumer demand towards fuel efficient vehicles and EVs, and resulting shifts by manufacturers to meet demand, could adversely affect our new and used vehicle sales volumes, parts and service revenues and our results of operations.

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

Conversely, lower fuel prices could have the opposite effect.

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

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

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

With a potential increase in demand by consumers for electric-powered vehicles, and government support such as the August 2021 executive order from the Biden Administration aiming to increase electric-powered vehicle sales by 2030, manufacturers have also announced increased production focus on the manufacture of fuel efficient vehicles and EVs.

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

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

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

We are subject to risks resulting from the planned divestiture of our Brazilian operations which could result in an adverse impact to our operations, financial condition and business.

We are subject to a number of risks associated with the Brazil Disposal, including risks associated with our failure to realize the full purchase price anticipated under the Brazil Agreement as a result of amounts held in escrow for potential unforeseen indemnification obligations arising under the Brazil Agreement for breach of representations, warranties and covenants.

In addition, the purchase price is denominated in BRL, which is subject to foreign currency exchange risk.

In order to partially mitigate this risk, we entered into a foreign currency derivative for the conversion of BRL to USD in the form of a costless collar which protects us from significant downside exposure for $70.0 million of the expected purchase consideration.

Should the Brazil Disposal not be successful and we are unable to divest ourselves of the Brazilian operations, we are subject to risks, including but not limited to:

• the inability to locate another buyer on the same terms;

• risks associated with the continued operation of the Brazilian business;

• impairment of relationships with employees, manufacturers and customers;

• diversion of management time and other resources from continuing operations.

For more information relating to the Brazil Disposal, please see Item 1.

Business of this Form 10-K.

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

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Restrictions by our manufacturers, as well as covenants contained in our debt instruments, may directly or indirectly limit our ability to acquire additional dealerships.

In addition, increased competition for acquisitions may develop, which could result in fewer acquisition opportunities available to us and/or higher acquisition prices.

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

In addition, increased competition for acquisitions may develop, which could result in fewer acquisition opportunities available to us and/or higher acquisition prices and, some of our competitors may have greater financial resources than us.

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

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• incorrectly valuing acquired entities.

In particular, as a result of the consummation of the Prime Acquisition in November 2021, we now have a significantly larger business and more assets and employees than we did prior to the transaction.

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

Our management will be required to devote a substantial amount of time and attention to the process of integrating the operations of Prime into our business.

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

As a result, we may not be able to realize the expected benefits that we seek to achieve from the Prime Acquisition.

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

Vehicle manufacturers may alter their distribution models.

In December 2021, Mercedes Benz announced the transition to an agency model for distribution of vehicles in the U.K.

This transition is expected to occur beginning with 2023.

In addition to the announcement by Mercedes Benz in the U.K., certain of our other vehicle manufacturers serving the U.K.

markets recently announced plans to explore an agency model for selling new vehicles.

Under an agency model, our franchised dealerships would receive a fee for facilitating the sale of a new vehicle to a customer but would no longer record the vehicle in inventory or incur floorplan interest expense, as has been historical practice.

The agency model, as adopted by Mercedes Benz, will result in reduced revenues, as we will act as an agent of Mercedes Benz, receiving a commission for each sale and other expense fee support.

Based on our current understanding of the proposal, we do not expect a negative impact to the U.K.

region gross margin and consolidated results of operations from a change to the Mercedes Benz agency model.

Notwithstanding this fact, we cannot predict the actions of other manufacturers and whether the agency models proposed by them will have the same terms and conditions as those proposed by Mercedes Benz.

The agency model, if adopted by other manufacturers, would reduce revenues, although the other impacts to our U.K.

regions and consolidated results of operations remain uncertain until such time as the other vehicle manufacturers provide additional details regarding their specific agency model plans.

We are uncertain if agency models will be widely adopted in the U.K.

Vehicle technology advancements are occurring at an accelerating pace.

These include driver assist functionality, autonomous vehicle development and rideshare and vehicle co-ownership business models.

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

Operational Risks

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

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

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

and Brazil beginning in mid-March 2020.

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

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

Refer to Item 1.

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

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

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

beginning in mid-March 2020.

Even as the restrictions eased during the latter part of 2020 and throughout 2021, we continued to experience disruptions from reduced capacity and departmental shutdowns as a result of COVID-19 outbreaks and quarantines impacting our employees.

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

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

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

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

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

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

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

Some of our third-party service providers have experienced security breaches.

If an unauthorized party is successful in obtaining trade secrets, PII, confidential, or otherwise protected information of our dealerships or our customers or in disrupting our operations through a cyberattack, the attack could result in loss of revenue, increase costs of doing business, negatively affect customer satisfaction and loyalty, and expose us to negative publicity.

In addition, security breaches and other security incidents could expose us to a risk of loss or exposure of this information, which could result in potential liability, investigations, regulatory fines, penalties for violation of applicable laws or regulations, costs related to remediation or the payment of ransom, and litigation including individual claims or consumer class actions, administrative, and civil or criminal investigations or actions, any of which could have a material adverse effect on our business, results of operations or financial condition.

Further, advances in computer capabilities, new discoveries in the field of cryptography, inadequate facility security or other developments may result in a compromise or breach of the technology we use to safeguard confidential, personal, or otherwise protected information.

As the breadth and complexity of the technologies we use continue to grow, including as a result of the use of mobile devices, cloud services, open-source software, social media and the increased reliance on devices connected to the internet, the potential risk of security breaches and cybersecurity attacks also increases.

Despite ongoing efforts to improve our ability to protect data from compromise, we may not be able to protect all of our data across our diverse systems.

Our efforts to improve security and protect data may result in increased capital and operating costs.

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

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

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

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

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

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

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

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

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

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

For example, during the year ended December 31, 2021, we incurred $2.8 million in disaster pay and insurance deductible expense associated with the February winter storm in Texas and Hurricane Ida.

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

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

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

We have continuing operations outside the U.S.

and discontinued operations in Brazil.

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

These risks may include the following, but are not limited to:

These risks may include, but are not limited to:

• wage inflation in emerging markets;

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

We operate in a highly regulated industry.

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

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

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

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

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.

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

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

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

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

Additionally, vehicle manufacturers in the U.S.

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

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

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

Risks Related to Accounting Matters

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

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

No goodwill impairments were recorded during the years ended December 31, 2021, 2020 and 2019.

During the year ended December 31, 2021, no impairments of intangible franchise rights were recorded.

During the years ended December 31, 2020 and 2019, we recorded $20.7 million and $19.0 million of impairment of intangible franchise rights, respectively.

We may be required to record impairment charges if market and industry conditions deteriorate to such a level whereby the fair value of our reporting units, individually, is less than the carrying value of the corresponding reporting unit.

We are subject to several market and industry risks as outlined elsewhere herein this Item 1A.

Risk Factors, which could have a material adverse impact on our cash flows.

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

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

Refer to Note 12.

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

New accounting guidance or changes in the interpretation or application of existing accounting guidance could adversely affect our financial performance.

The implementation of new SEC rules and regulations and accounting standards could require certain systems, internal process and controls and other changes that could increase our operating costs, and result in changes to our financial statements.

In 2019, for example, the implementation of accounting standards related to leases, as issued by the FASB, required us to make significant changes to our lease management and other accounting systems, and resulted in a material impact to our consolidated financial statements.

GAAP and related accounting pronouncements, implementation guidelines and interpretations with regard to a wide range of matters that are relevant to our business involve many subjective assumptions, estimates and judgments by our management.

Changes in these rules or their interpretation or in underlying management assumptions, estimates or judgments could significantly change our reported or expected financial performance.

The outcome of such changes could include litigation or regulatory actions which could adversely affect our financial condition and results of operations.

Our internal controls and procedures may fail or be circumvented.

Management has designed and implemented, and periodically reviews and updates, our internal controls, disclosure controls and procedures, and corporate governance policies and procedures.

While we have not experienced a material failure of our internal controls, any system of controls, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the system are met.

Any failure or circumvention of our controls and procedures, or failure to comply with regulations related to controls and procedures, could have a material adverse effect on our business, results of operations and financial condition.

Unresolved Staff Comments

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

What changed 10-K

Item 1A. Risk Factors