GROUP 1 AUTOMOTIVE INC 10-K

Item 1. Business General Group 1 Automotive, Inc. is a leading operator in the automotive retail industry. Through our omni-channel platform, we sell new and used cars and light trucks; arrange related vehicle financing; sell service and insurance contracts; provide automotive maintenance and repair services; and sell vehicle parts. 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. (“Buyer”). 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: the U.S. and the U.K. Refer to Note 20. 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. 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. 3 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. 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. The following chart presents our diversity of new vehicle unit sales by manufacturer for the year ended December 31, 2021: 4 The following table shows our new vehicle unit sales geographic mix for the year ended December 31, 2021 and our franchise count as of December 31, 2021: New vehicle unit sales geographic mix (%) Franchises Region Geographic Market U.S. Texas 40.3 76 Oklahoma 7.3 20 Massachusetts 7.0 26 California 5.5 5 Georgia 4.6 9 Florida 2.7 4 New Jersey 2.2 9 Louisiana 2.0 5 New Hampshire 1.9 5 South Carolina 1.9 3 New Mexico 1.5 8 Kansas 1.5 3 Alabama 0.9 2 Mississippi 0.7 1 Maryland 0.6 2 Maine 0.3 11 New York 0.1 4 80.9 193 U.K. United Kingdom 19.1 75 100.0 268 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; and • 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. and U.K. 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. 5 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. and U.K. 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. 6 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. 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 immediate payment through Zelle®, a U.S. 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. Competition 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. In the new vehicle market, our dealerships compete with other franchised dealerships in their market areas, as well as auto brokers, leasing companies and internet companies that provide referrals to, or broker vehicle sales with, other dealerships or customers. We are subject to competition from dealers that sell the same brands of new vehicles that we sell and from dealers that sell other brands of new vehicles that we do not sell in a particular market. Our new vehicle dealer competitors also have franchise agreements with the various vehicle manufacturers and, as such, generally have access to new vehicles on the same terms as we do. We do not have any cost advantage in purchasing new vehicles from vehicle manufacturers, and our 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. 7 The internet has also become a significant part of the advertising and sales process in our industry. Customers are using the internet as part of the sales process to compare pricing for cars and related F&I services, which may increase competition and reduce gross profit margins for new and used cars and profits for related F&I services. Some retailers offer vehicles for sale over websites without the benefit of having a dealership franchise, although they must currently source their vehicles from a franchised dealer. Several companies are currently manufacturing 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 We believe the principal competitive factors in the parts and service business are the quality of customer service, the use of factory-approved replacement parts, familiarity with a manufacturer’s brands and models, location, price, the availability and competence of technicians, and the availability of training programs to enhance such expertise. In the parts and service market, our dealerships compete with other franchised dealers to perform warranty maintenance and repairs, conduct manufacturer recall services and sell factory replacement parts. Our dealerships also compete with other automobile dealers, franchised and independent service center chains and independent repair shops for non-warranty repair and maintenance business. In addition, our dealerships sell replacement and aftermarket parts both locally and nationally over the internet in competition with franchised and independent retail and wholesale parts outlets. A number of regional or national chains offer selected parts and services at prices that may be lower than ours. Our collision centers compete with other large, multi-location companies, as well as local, independent, collision service operations. F&I We believe the principal competitive factors in the F&I business are convenience, interest rates, product availability and affordability, product knowledge and flexibility in contract length. We face competition in arranging financing for our customers’ vehicle purchases from a broad range of financial institutions. Many financial institutions now offer F&I products over the internet, which may reduce our profits from the sale of these products. Relationships and Agreements with our Manufacturers Each of our U.S. dealerships operates under one or more franchise agreements with vehicle manufacturers (or authorized distributors). The franchise agreements grant the franchised automobile dealership a non-exclusive right to sell the manufacturer’s or distributor’s brand of vehicles and offer related parts and service within a specified market area. These franchise agreements also grant franchised dealerships the right to use the manufacturer’s or distributor’s trademarks in connection with their operations, and impose numerous operational requirements and restrictions relating to, among other things, inventory levels, working capital levels, the sales process, 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. In most cases, manufacturers have renewed the franchises upon expiration so long as the dealership is in compliance with the terms of the agreement. From time to time, certain manufacturers may assert sales and customer satisfaction performance requirements under the terms of our framework or franchise agreements. We work with these manufacturers to address any performance issues. 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, outside of bankruptcy, for a manufacturer to terminate, or not renew, a franchise under these laws, which were designed to protect dealers. 8 The U.K. generally does not have automotive dealership franchise laws and, as a result, our U.K. dealerships operate without these types of specific protections. However, similar protections may be available as a matter of general U.K. contractual law. In addition, our U.K. dealerships are subject to U.K. antitrust rules prohibiting certain restrictions on the sale of new vehicles and spare parts and on the provision of repairs and maintenance. For example, as a matter of 2020 EU law, authorized dealers are generally able to, subject to manufacturer facility requirements, relocate or add additional facilities throughout the EU, offer multiple brands in the same facility, allow the operation of service facilities independent of new car sales facilities and ease restrictions on cross supplies (including on transfers of dealerships) between existing authorized dealers within the EU. However, certain restrictions on dealerships may be permissible, provided the conditions set out in the relevant EU Block Exemption Regulations are met. The U.K. formally exited the EU on January 31, 2020, and the EU and the U.K. reached an agreement in principle as set out in the EU-U.K. Agreement, which became provisionally applicable on January 1, 2021. The EU-U.K. Agreement commits the parties to maintaining antitrust/competition law based on the common principles underlying the respective competition frameworks, and envisages cooperation and coordination between the U.K. and EU competition authorities. Similarly, as of January 1, 2021, the relevant EU Block Exemption Regulations remain in effect under domestic U.K. law, as amended in accordance with the U.K. competition framework, but may be further amended, revoked or extended by subsequent U.K. law. Our dealership service departments perform vehicle repairs and service for customers under manufacturer warranties. We are reimbursed for the repairs and service directly from the manufacturer. Some manufacturers offer rebates to new vehicle customers that we are required, under specific program rules, to adequately document, support and typically collect. In addition, some manufacturers provide us with incentives to order and/or sell certain models and/or volumes of inventory over designated periods of time. Under the terms of our dealership franchise agreements, the respective manufacturers are able to perform warranty, incentive and rebate audits and charge us back for unsupported or non-qualifying warranty repairs, rebates or incentives. In addition to the individual dealership franchise agreements discussed above, we have entered into framework agreements in the U.S. with most major vehicle manufacturers and distributors. These agreements impose a number of restrictions on our operations, including our ability to make acquisitions and obtain financing, and on our management. These agreements also impose change of control provisions related to the ownership of our common stock. For a discussion of these restrictions and the risks related to our relationships with vehicle manufacturers, please refer to Item 1A. Risk Factors. Governmental Regulations Automotive and Other Laws and Regulations We operate in a highly regulated industry. A number of laws and regulations applicable to automotive companies affect our business and conduct, including, but not limited to our sales, operations, financing, insurance, advertising and employment practices. 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. Data Privacy 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”) 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. 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. 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. and the U.K. are subject to stringent federal, regional, state and local laws, regulations and other controls governing specific health and safety criteria to address worker protection, the release of materials into the environment or otherwise relating to environmental protection. Our operations involve the use, handling and storage of materials such as motor oil and filters, transmission fluids, antifreeze, refrigerants, paints, thinners, batteries, cleaning products, lubricants, degreasing agents, tires and fuel. We contract for recycling and/or disposal of used fluids, filters and other waste materials generated by our operations. 9 These laws, regulations and controls may impose numerous obligations upon our operations including the acquisition of permits to conduct regulated activities, the imposition of restrictions on where or how to manage or dispose of used products and wastes, the incurrence of capital expenditures to limit or prevent releases of such material, and the imposition of substantial liabilities for pollution resulting from our operations or attributable to former operations. For example, in the U.S., most of our dealerships utilize storage tanks that are subject to testing, containment, upgrading and removal regulations under the federal Resource Conservation and Recovery Act. Failure to comply with these laws, regulations and permits may result in the assessment of sanctions, including administrative, civil and criminal penalties, the imposition of investigatory remedial and corrective action obligations or increase of capital expenditures, restrictions, delays and cancellations in permitting or in the performance or expansion of projects and the issuance of injunctions limiting or preventing some or all of our operations in affected areas. Additionally, certain of these environmental laws may result in imposition of joint and several strict liability, which could cause us to become liable as a result of our conduct that was lawful at the time it occurred or the conduct of, or conditions caused by, prior operators or other third parties. For instance, an accidental release from one of our storage tanks could subject us to substantial liabilities arising from environmental cleanup and restoration costs, claims made by neighboring landowners and other third parties for personal injury and property damage and fines or penalties for related violations of environmental laws or regulations. Moreover, laws and regulations protecting the environment generally become more stringent over time, which may result in increased costs for future environmental compliance and remediation. Comparable laws and regulations have been enacted in the U.K. 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. Environmental Protection Agency (“EPA”), together with the National Highway Traffic Safety Administration (“NHTSA”), implemented GHG emissions limits on vehicles manufactured for operation in the U.S. On January 20, 2021, President Joe Biden issued an executive order recommitting the United States to participation in the Paris Agreement, which is a United Nations-sponsored, non-binding agreement for nations to limit their GHG emissions through individually-determined reduction goals every five years after 2020. The U.K. 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. Vehicle manufacturers in the U.S. are also subject to regulations by the EPA and the NHTSA that establish corporate average fuel economy (“CAFE”) standards applicable to light-duty vehicles. California and other states have indicated they would pursue more stringent CAFE and GHG standards than required by current EPA and NHTSA standards. Comparable laws and regulations have been enacted in the U.K. 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 EVs 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; • weather events, such as hail, flood, tornadoes and hurricanes; and • potential fines and civil and criminal penalties resulting from alleged violations of federal and state laws, 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. Under self-insurance programs, we retain various levels of risk associated with aggregate loss limits and per claim deductibles. In certain cases, we insure costs in excess of our retained risk under various contracts with third-party insurance carriers. Although we believe our insurance coverage is adequate, we cannot assure that we will not be exposed to uninsured losses that could have a material adverse effect on our business, results of operations and financial condition. We are also subject to potential premium cost fluctuations and changes in loss retention limits with the annual renewal of these programs. For further discussion, refer to Item 1A. Risk Factors, within this Form 10-K. Human Capital The key to our success is the talent of our people. Our core values — Integrity, Transparency, Professionalism, Teamwork and Respect — define our culture and help us attract and retain talented employees. Our employee 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. 10 Training and Recognition 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. In addition to job specific courses, we also offer leadership training and diversity training. Employees have opportunities for various certification levels based on training completed and tenure. The certification levels include an employee rewards program. Diversity, Equity and Inclusion (“DEI”) 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 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: 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 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 member participation. In addition, our medical plans include opportunities for lower monthly premiums for employees who receive an annual physical. Executive management participates in quarterly employee videos where the results of each quarter are shared with employees. Various other employee recognition programs are celebrated in our dealerships. 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. Social 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. 11 Governance 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. citizens. 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. Seasonality Our operating results are generally subject to seasonal variations, as well as changes in the economic environment. In the U.S., we generally experience higher volumes of vehicle sales and service in the second and third calendar quarters of each year. In addition, in some regions of the U.S., vehicle purchases decline during the winter months due to inclement weather. In the U.K., the first and third quarters tend to be stronger, driven by the vehicle license plate change months of March and September. 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 Our internet address is www.group1auto.com . We make the following information available free of charge on our website: • Annual Report on Form 10-K; • Quarterly Reports on Form 10-Q; • Current Reports on Form 8-K; • Amendments to the reports filed or furnished electronically with the SEC pursuant to Section 13(a) or 15(d) of the Exchange Act; • Our Corporate Governance Guidelines; • The charters for our Audit, Compensation and Human Resources, Finance/Risk Management and Governance & Corporate Responsibility Committees; • Our Code of Conduct for Directors, Officers and Employees (“Code of Conduct”); and • Our Code of Ethics for our Chief Executive Officer, Chief Financial Officer and Controller (“Code of Ethics”). 12 Within the time period required by the SEC and the NYSE, as applicable, we will post on our website any modifications to the Code of Conduct and Code of Ethics and any waivers applicable to senior officers as defined in the Code of Conduct or Code of Ethics, as applicable, as required by the Sarbanes-Oxley Act of 2002. We make our filings with the SEC available on our website as soon as reasonably practicable after we electronically file such material with, or furnish such material to, the SEC. The SEC also maintains a website at http://sec.gov that contains reports, proxy and information statements, and other information regarding our company that we file and furnish electronically with the SEC.