What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-02-14 compared with 2024-02-14 · 159 added, 152 removed, 452 unchanged (41% of the section changed)

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Our operating results reflect the combined performance of each of our interrelated business activities.

Historically, various facets of our business have been directly or indirectly impacted by a variety of supply/demand factors, including vehicle inventories, consumer confidence, consumer transportation preferences, discretionary spending levels, availability and affordability of consumer credit, new vehicle introductions and innovations, manufacturer incentives, the COVID-19 pandemic, weather patterns, fuel prices, inflation and interest rates.

Historically, various facets of our business have been directly or indirectly impacted by a variety of supply/demand factors, including vehicle inventories, consumer confidence, consumer transportation preferences, discretionary spending levels, availability and affordability of consumer credit, new vehicle introductions and innovations, manufacturer incentives, weather patterns, fuel prices, inflation and interest rates.

For example, during periods of sustained economic downturn or significant supply/demand imbalances, new vehicle sales may be negatively impacted as consumers tend to shift their purchases to used vehicles.

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Recent Events

On October 7, 2023, Hamas, an internationally designated terrorist organization and ruling party of the Gaza strip in Palestine, launched an attack on Israel.

On October 8, 2023, Israel declared war on Hamas with the armed conflict ongoing as of the date of this filing.

In tandem with such conflict, the Houthi movement, which controls parts of Yemen, has targeted and launched numerous attacks on Israeli, American and international commercial marine vessels in the Red Sea as the ships approach the Suez Canal, resulting in many shipping companies re-routing to avoid the region altogether and worsening existing supply chain issues, including delays in supplier deliveries, extended lead times and increased cost of freight and materials, including certain parts required for EU vehicle production.

It is not known at this time what impact, if any, this war and regional instability will have on the global economy, our operations or the operations of our suppliers.

On September 15, 2023, the United Auto Workers (“UAW”) announced a labor strike at certain facilities of Ford Motor Company, General Motors Company and Stellantis N.V.

(collectively the “Big 3” domestic automakers).

The strike ended at different dates for each of the Big 3 however all ended prior to December 31, 2023.

The strike was limited in its scope and we did not experience a significant impact on our domestic vehicle and parts inventory.

Our manufacturers’ production continued at historically reduced levels in the Current Year, despite recent production improvements over that same period for some of those manufacturers.

Prior to the UAW labor strike, production and related inventory constraints were primarily a result of sustained global semiconductor and other parts shortages, as well as armed conflicts impacting the global supply chain, including the ongoing conflict in Ukraine.

Increased deliveries from all manufacturers in the Current Year drove a higher volume of new units sold and lack of new vehicle availability in prior years also helped maintain elevated new vehicle retail sales prices and margins relative to pre-COVID-19 pandemic levels.

EV inventory has been building over the Current Year for certain brands, outpacing the buildup of non-EV inventory, as EV sales volume has lagged OEM deliveries in recent quarters.

While EV sales continued to increase in 2023, the growth trend has not continued at the pace experienced in the two years prior.

Challenges with EV technologies continue to make headlines within the U.S.

media market, raising concerns around consumer demand and interest in the products.

Our new vehicle days’ supply of inventory was approximately 37 days at December 31, 2023, as compared to 24 and 12, at December 31, 2022 and 2021, respectively.

In the Current Year, we noted increases of new vehicle days’ supply of inventory for most manufacturers.

As new vehicle days’ supply of inventory normalizes, we expect further pressure on sales prices and margins.

On April 12, 2023, the EPA proposed regulations establishing more stringent air emissions limits for light and medium-duty vehicles, which include passenger cars, vans, pickups, sedans and SUVs for model years 2027 through 2032.

The EPA proposes higher emissions stringency each year, beginning with model year 2027.

These proposed standards include new battery durability requirements and changes to certain existing air emissions credit programs.

These regulations could increase or accelerate the adoption of certain emissions reducing technologies, and further market penetration for hybrid, plug-in and battery-EVs.

For example, should the proposed regulations be enacted, the EPA projects that at least 60% of new light-duty passenger vehicles sold in the U.S.

would be battery-electric by 2030.

The EPA also estimates that the regulations, if finalized, would increase costs for auto manufacturers and reduce consumer repair costs for covered vehicles.

The EPA projects the regulations to become final in 2024.

The regulations, as proposed in their current form, may have a significant impact on the future mix of vehicles provided by our manufacturers.

Although the future impact of these regulations on our operations cannot be predicted with certainty, we will continue to monitor and evaluate any proposed or issued regulations.

The global economy continues to experience inflation.

In response to higher than historical average inflationary pressures and challenging macroeconomic conditions, the U.S.

Federal Reserve, along with other central banks, including in the U.K., increased interest rates throughout 2022 and maintained rates at elevated levels throughout 2023.

As a consequence, the cost of financing vehicles for our consumers has increased and created affordability challenges in addition to higher vehicle prices over the past three years.

Continued inflation reducing the disposable income of our customers, volatility in new vehicle availability and higher interest rates increasing the monthly cost of financing vehicles, contributed to used vehicle prices declining in the latter part of 2022 and during the Current Year.

On February 1, 2025, President Donald Trump signed executive orders imposing a 25% tariff on most imports from Mexico and Canada and a 10% tariff on most imports from China.

The tariffs were effective February 4, 2025, however that same day a 30-day pause was granted to Mexico and Canada.

While the potential implications of these imposed tariffs remain uncertain for the auto industry, there may be a significant impact on the price of our products as well as the future mix and demand for vehicles provided by our manufacturers.

We will continue to monitor the impact of the Trump administration’s policies on our manufacturers and dealership operations.

Since taking office on January 20, 2025, President Donald Trump has signed a series of executive orders.

Through these executive orders, the Trump administration, among other initiatives, directed the U.S.

to formally withdraw from the Paris Agreement, eliminate the EV mandate, put forth a federal energy policy to support traditional energy exploration and production, declared a national energy emergency to expedite energy and infrastructure projects, issued a regulatory freeze on all executive departments and agencies to review pending and existing laws and regulations and froze the hiring of federal civilian employees in the executive branch.

The executive orders also rescinded certain previous executive orders of the former Biden administration.

The impact of the Trump administration’s executive orders on our results of operations cannot be predicted with certainty.

On August 1, 2024, we completed the acquisition of Inchcape Retail automotive operations in the U.K.

The Inchcape Acquisition, comprised of 54 dealership locations, certain real estate and three collision centers, substantially increased our portfolio acro ss the U.K.

Refer to Note 3.

Acquisitions within our Notes to Consolidated Financial Statements for additional discussion of our acquisition of Inchcape Retail.

On June 19, 2024, we were informed of a cybersecurity incident experienced by CDK, which resulted in service outages on CDK’s dealers’ systems.

CDK provides clients in the automotive industry, including Group 1 dealerships in the U.S., with a SaaS platform used by dealerships in managing customer relationships, sales, financing, service, inventory and back-office operations.

The CDK Incident temporarily disrupted our business applications and processes in our U.S.

operations that rely on CDK’s dealers’ systems.

Despite the CDK Incident, all Group 1 U.S.

dealerships continued to conduct business using alternative processes until CDK’s dealers’ systems were available.

On June 26, 2024, CDK restored service to us for the core DMS, at which time, subject to certain modified procedures, we resumed processing transactions through the CDK DMS.

The overall impact of the CDK Incident did not have a material impact on our overall financial condition or on our ongoing results of operations.

The global economy experienced elevated levels of inflation beginning in 2022.

In response to higher than historical average inflationary pressures and challenging macroeconomic conditions, the Federal Reserve, along with other central banks, including in the U.K., maintained interest rates at elevated levels throughout 2023.

In 2024, inflation began to return to historical norms .

As a result, during the Current Year, the Federal Reserve and the Bank of England lowered their interest rates by 100 and 50 basis points, respectively, in an effort to stimulate economic activity and reduce unemployment.

On January 29, 2025, the Federal Reserve held rates unchanged.

On February 6, 2025, the Bank of England lowered interest rates by 25 basis points.

Although the Federal Reserve and Bank of England decreased interest rates and inflationary pressures moderated during 2024, existing elevated prices as a result of previous rates of inflation above historical levels continue to reduce the disposable income of our customers.

In addition, volatility in new vehicle availability and higher interest rates over historical average rates have increased the monthly cost o f financing vehicles as compared to prior periods.

These factors have contributed to a continued decline in used vehicle prices during the Current Year as compared to the year ended December 31, 2023 (“Prior Year”).

Recent Accounting Pronouncements

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If we elect to bypass the qualitative assessment or if we determine, on the basis of qualitative factors, that the fair value of the reporting unit is more likely than not less than the carrying amount, a quantitative test would be required.

In 2023, we elected to perform a quantitative test.

Based on the quantitative goodwill test performed for the U.S.

reporting units in the fourth quarter of 2023, no impairments of goodwill were recorded during the Current Year.

No goodwill impairments were recorded on any reporting units during the year ended December 31, 2022 (the “Prior Year”).

In 2024, we elected to perform a quantitative test on the U.K.

reporting unit and a qualitative test on the U.S.

reporting unit.

Based on the tests performed for the U.S.

reporting units in the fourth quarter of 2024, no im pairments of goodwill were recorded during the Current Year.

No goodwill impairments were recorded on any reporting units during the Prior Year.

T he quantitative goodwill impairment test is dependent on management estimates and assumptions used to determine the fair value of our reporting units.

While no impairment was recognized in 2024 based on our quantitative assessment of the U.K.

reporting unit, future sustained negative operating results, as well as the deterioration of the macroeconomic environment in the U.K., could result in impairment of the goodwill attributable to the U.K.

reporting unit in future periods.

Refer to Note 13.

Intangible Franchise Rights and Goodwill within our Notes to Consolidated Financial Statements for further discussion of goodwill, including management’s use of estimates and assumptions.

During the Current Year, $25.1 million of impairment was recorded for intangible franchise rights.

During the Current Year, impairment charges of $28.2 million were recorded for intangible franchise rights.

In the Prior Year, impairment charges of $25.1 million were recorded for intangible franchise rights.

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Same store results provide a measurement of our ability to grow revenues and profitability of our existing stores and also provide a metric for peer group comparisons.

For these reasons, same store results allow management to manage and monitor the performance of the business and is also useful to investors.

For these reasons, same store results allow management to accurately manage and monitor the underlying performance of the business and is also useful to investors.

We evaluate our results of operations on both an as reported and a constant currency basis.

The constant currency presentation, which is a non-GAAP measure, excludes the impact of fluctuations in foreign currency exchange rates.

Our primary foreign currency exposure is to the GBP.

We believe providing constant currency information provides valuable supplemental information regarding our underlying business and results of operations, consistent with how we evaluate our performance.

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All computations have been calculated using unrounded amounts for all periods presented.

Retail new vehicle units sold for 2023 include new vehicle agency units sold under agency arrangements with certain manufacturers in the U.K.

Retail new vehicle units sold include new vehicle agency units sold under agency arrangements with certain manufacturers in the U.K.

The agency units and related revenues are excluded from the calculation of the average sales price per unit sold for new vehicles due to their net presentation within revenues as only the sales commission is reported in revenues for dealerships operating under an agency arrangement.

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Used vehicle retail sales 330.0 300.9 29.1 9.7 % 2.5 8.8 %

Used vehicle wholesale sales (3.8) — (3.8) NM — NM

Used vehicle wholesale sales (3.3) (3.8) 0.5 12.7 % (0.1) 15.4 %

Total used 326.7 297.2 29.6 9.9 % 2.4 9.1 %

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Used vehicle retail sales $ 1,574 $ 1,604 $ (30) (1.9) % $ 12 (2.6) %

Used vehicle wholesale sales $ (86) $ — $ (86) NM $ (1) NM

Used vehicle wholesale sales $ (63) $ (86) $ 24 27.4 % $ (2) 29.7 %

Total used $ 1,246 $ 1,284 $ (38) (3.0) % $ 9 (3.7) %

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(1) Floorplan assistance is included within Gross profit — New vehicle retail sales above and Cost of sales — New vehicle retail sales in our Consolidated Statements of Operations.

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Same Store Operating Data — Consolidated

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Used vehicle retail sales 290.0 291.4 (1.4) (0.5) % 1.6 (1.0) %

Used vehicle wholesale sales (3.7) 0.2 (4.0) NM — NM

Used vehicle wholesale sales (3.3) (3.6) 0.3 7.8 % (0.1) 10.8 %

Total used 286.7 287.8 (1.1) (0.4) % 1.5 (0.9) %

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Used vehicle retail sales $ 1,563 $ 1,611 $ (47) (2.9) % $ 8 (3.5) %

Used vehicle wholesale sales $ (89) $ 7 $ (96) NM $ (1) NM

Used vehicle wholesale sales $ (74) $ (86) $ 12 14.4 % $ (2) 17.3 %

Total used $ 1,242 $ 1,290 $ (49) (3.8) % $ 6 (4.3) %

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SG&A as % gross profit 68.1 % 64.2 % 3.9 %

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Reported Operating Data — U.S.

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Total revenues in the U.S.

during the Current Year increased $1,387.1 million, or 10.3%, as compared to the Prior Year, driven by higher same store revenues and the acquisition of stores.

during the Current Year increased $958.7 million, or 6.5%, as compared to the same period in the Prior Year, driven by the acquisition of stores and higher same store revenues.

Total same store revenues in the U.S.

during the Current Year increased $319.8 million, or 2.2%, as compared to the Prior Year.

This increase was driven by higher revenues from new vehicle retail, parts and service and used vehicle wholesale, partially offset by lower used vehicle retail and F&I, net.

New and used vehicle retail revenues benefited from the sale of approximately 45,000 units from our online digital platform, AcceleRide®, during the Current Year, a 47.7% increase as compared to the Prior Year.

New vehicle retail same store revenues outperformed the Prior Year, driven by strong new vehicle retail pricing coupled with more units sold.

The shortage of new vehicle inventory, compared to pre-COVID-19 pandemic levels, despite recent manufacturers’ production improvements, drove strong pricing.

While new vehicle inventory levels remain depressed compared to pre-COVID-19 pandemic levels, manufacturer vehicle deliveries were higher in the Current Year and as a result, our inventory levels were higher than the Prior Year, providing for the increase in units sold.

This increase was driven by higher revenues across all business lines except used vehicle retail sales.

New vehicle retail same store revenues outperformed the Prior Year, driven by more units sold, partially offset by lower pricing.

Manufacturer vehicle deliveries were higher in the Current Year and as a result, our inventory levels were higher than the Prior Year, providing for the increase in units sold.

Higher new vehicle supply compared to the Prior Year created downward pressure on pricing and margins.

We ended the Current Year with a U.S.

new vehicle inventory supply of 36 days, 15 days higher than the Prior Year , but below pre-COVID-19 pandemic levels .

Used vehicle retail same store revenues underperformed the Prior Year, driven by lower pricing , coupl ed with fewer units sold , due to the ongoing new vehicle supply shortage impacting the supply of used vehicles, as well as impacts from inflation reducing the disposable income of our customers and higher interest rates increasing the monthly cost of financing vehicles.

Used vehicle wholesale same store revenues increased primarily due to more wholesale units sold coupled with higher wholesale pricing.

Parts and service same store revenues outperformed the Prior Year, driven by increases across all parts and service business lines, reflecting increased business activity and increased same store technician headcount through our technician recruiting and retention efforts, providing greater capacity to meet increased demand.

In addition to technician recruitment efforts, we have invested in improving the operations of our U.S.

customer contact center, online scheduling, one-to-one marketing initiatives and by using artificial intelligence.

Customer pay saw the largest increase of the parts and service business lines.

F&I, net same store revenues underperformed the Prior Year, primarily driven by lower used vehicle finance penetration as a result of customers seeking alternative providers of financing in this higher interest rate environment and tighter lending requirements requiring larger down payments.

In addition, used VSC penetration has also declined as a result of vehicle affordability challenges for consumers with higher interest rates.

New vehicle finance and VSC penetration increased in the Current Year, partially offsetting the used vehicle impact.

new vehicle inventory supply of 43 days, 7 days higher than the Prior Year.

Used vehicle retail same store revenues slightly underperformed the Prior Year, driven by lower pricing, partially offset by more units sold .

Used vehicle supply improved as a result of higher new vehicle supply.

However, lingering impacts from above-historical average inflation over the past two years reducing the disposable income of our customers and higher interest rates compared to historical averages increasing the monthly cost of financing vehicles, continued to create downward pressure on pricing.

Parts and service same store revenues outperformed the Prior Year, driven by increases in customer pay and warranty revenues, partially offset by decreases in wholesale and collision revenues.

This outperformance reflects increased business activity for warranty and customer pay services, supported by increased same store technician headcount through our technician recruiting and retention efforts, providing greater capacity to meet increased demand.

F&I same store revenues outperformed the Prior Year, primarily driven by higher same store new and used vehicle units sold, coupled with higher same store F&I gross profit per unit sold.

Penetration rates for vehicle service contracts, new vehicle finance and other F&I products improved, contributing to the higher same store F&I gross profit per unit sold.

OEM incentives have increased in the Current Year, leading to the improved new vehicle F&I penetration.

Total gross profit in the U.S.

during the Current Year increased $27.8 million, or 1.1%, as compared to the Prior Year, driven by the acquisition of stores.

during the Current Year increased $70.7 million, or 2.7%, as compared to the Prior Year, driven by the acquisition of stores, partially offset by lower same store gross profit.

Total same store gross profit in the U.S.

during the Current Year decreased $55.5 million, or 2.2%, as compared to the Prior Year, primarily driven by downward pressures on new vehicle margins and lower F&I PRU.

New vehicle retail same store gross profit underperformed the Prior Year, driven by a decrease in new vehicle retail same store gross profit per unit sold, partially offset by an increase in same store new vehicle retail units sold.

The decrease in new vehicle retail same store gross profit per unit is due to modestly higher production and inventory levels of new vehicles as described above.

Used vehicle retail same store gross profit underperformed the Prior Year, driven by a decrease in used vehicle retail same store gross profit per unit sold, coupled with lower same store used vehicle retail units sold.

These decreases were driven by the ongoing new vehicle supply shortage impacting the supply of used vehicles, as well as impacts from inflation reducing the disposable income of our customers and rising interest rates increasing the monthly cost of financing vehicles.

Our used vehicle wholesale same store gross profit underperformed the Prior Year, driven by a decrease in used vehicle wholesale same store gross profit per unit sold, partially offset by an increase in same store wholesale used vehicle units sold.

The decrease in used vehicle wholesale same store gross profit per unit sold was driven by higher wholesale vehicle acquisition costs.

Parts and service same store gross profit outperformed the Prior Year, as described above for same store revenues.

F&I, net same store gross profit, underperformed the Prior Year, as described above for F&I, net same store revenues.

Total same store gross margin decreased 144 basis points, primarily driven by the reasons described above for same store gross profit per unit sold for new vehicle retail, used vehicle retail, used vehicle wholesale and F&I, net.

In addition, same store parts and service gross margin declined slightly, largely due to increased labor costs.

during the Current Yea r decreased $27.7 million, or 1.1%, as compared to the Prior Year, driven by downward pressure on new vehicle margins, partially offset by increases from parts and service, F&I and used vehicle gross profit.

The decrease in new vehicle retail same store gross profit per unit sold is due to higher deliveries from our OEMs, leading to increasing inventory levels of new vehicles as described above.

Used vehicle retail same store gross profit outperformed the Prior Year, primarily driven by higher same store used vehicle retail units sold, partially offset by lower same store gross profit per unit sold, as described above for used vehicle retail same store revenues.

Used vehicle wholesale same store gross profit outperformed the Prior Year, driven by an increase in same store gross profit per unit sold, coupled with an increase in same store units sold.

Parts and service same store gross profit outperformed the Prior Year, as described above for parts and service same store revenues.

F&I same store gross profit outperformed the Prior Year, as described above for F&I same store revenues.

Total same store gross margin in the U.S.

decreased 58 basis points, primarily driven by an underperformance in new vehicle retail, for the reasons described above for same store gross profit per unit sold for new vehicle retail.

This underperformance was partially offset by improvement in parts and service and used vehicle gross margins.

SG&A Expenses

SG&A as a percentage of gross profit increased 344 basis points and 303 basis points on an as reported and same store basis, respectively, compared to the Prior Year.

SG&A as a percentage of gross profit increased 139 basis points and increased 332 basis points on an as reported and same store basis, respectively, compared to the Prior Year.

Total SG&A expenses in the U.S.

during the Current Year increased $106.0 million, or 7.0%, as compared to the Prior Year, primarily driven by the acquisition of stores and higher same store SG&A expenses.

during the Current Ye ar increased $81.1 million, or 5.0%, as compared to the Prior Year, primarily driven by higher same store SG&A expenses.

Total same store SG&A expenses in the U.S.

during the Current Year increased $41.2 million or 2.7% as compared to the Prior Year, primarily driven by increased activity related to outside services and professional fees, loaner car and related expenses, insurance and taxes, advertising expenses, and rent and facilities expenses, including related taxes, insurance and utilities.

In addition, higher than historical average inflation has contributed to the increase in these same store SG&A expense categories.

These increases were partially offset by lower employee-related costs.

during the Current Year increased $65.3 million or 4.2% as compared to the Prior Year, primarily driven by increased employee related costs, outside services, advertising expenses, loaner car and related expenses, and fees associated with the Inchcape Acquisition.

SG&A expenses also included $5.9 million in pre-tax one-time compensation payments to retain our field employees during the CDK Incident.

Reported Operating Data — U.K.

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Region — Year Ended December 31, 2024 compared to 2023

The following discussion of our U.K.

operating results is on an as reported and same store basis.

The difference between the as reported amounts and same store amounts is related to acquisition and disposition activity, as well as new add-point openings.

Retail new vehicle units sold for 2023 include new vehicle agency units.

The agency units and related revenues are excluded from the calculation of the average sales price per unit sold for new vehicles due to their net presentation within revenues.

Retail new vehicle units sold include new vehicle agency units.

The agency units and related revenues are excluded from the calculation of the average sales price per unit sold for new vehicles as only the sales commission is reported within revenues.

The agency units and related net revenues are included in the calculation of gross profit per unit sold.

The GBP to USD foreign currency exchange rate has fluctuated from £1 to $1.21 a t December 31, 2022, to £1 to $1.27 at December 31, 2023, or an increase in the value of the GBP of 5.2%.

The GBP to USD foreign currency exchange rat e has fluctuated from £1 to $1.273 at December 31, 2023, to £1 to $1.254 at December 31, 2024, or a slight decrease in the value of the GBP of 1.5%.

Total revenues in the U.K.

during the Current Year increased $264.4 million, or 9.5%, as compared to the Prior Year, driven by higher same store results and the acquisition of stores.

during the Curren t Year increased $1.1 billion, or 36.0%, as compared to the Prior Year, primarily driven by the acquisition of stores and changes in foreign currency exchange rates.

Total same store revenues in the U.K.

during the Current Year increased $218.7 million, or 7.9%, as compared to the Prior Year.

On a constant currency basis, total same store revenues increased 7.2%, driven by outperformances across all of our business lines except used vehicle wholesale sales.

New vehicle retail same store revenues, on a constant currency basis, outperformed the Prior Year, driven by more units sold, coupled with higher new vehicle retail pricing.

The shortage of new vehicle inventory, compared to pre-COVID-19 pandemic levels, despite recent manufacturers’ production improvements, drove strong pricing.

Vehicle demand was and continues to be pent-up from past years due to the withdrawal of the U.K.

from the EU (“Brexit”) and the COVID-19 pandemic.

In addition, despite the increase in same store new vehicle units sold, we experienced vehicle delivery shortages at various times throughout the Current Year from certain OEMs, limiting our revenue potential.

during the Current Year increased $25.1 million, or 0.8%, as compared to the Prior Year, primarily driven by the positive impact of changes in foreign currency exchange rates, outperformances in new vehicle retail sales and parts and service, offset by lower used vehicle sales and F&I.

On a constan t currency basis, same store revenues decreased 2.0%, primarily driven by underperformances in used vehicle sales and F&I, offset by higher new vehicle retail sales and parts and service.

New vehicle retail same store revenues, on a constant currency basis, outperformed the Prior Year, driven by more units sold, coupled with higher pri cing.

We ended the Current Year with a U.K.

new vehicle inventory suppl y of 48 days, twelve d ays higher than the Prior Year , but below pre-COVID-19 pandemic levels .

Used vehicle retail same store revenues, on a constant currency basis, outperformed the Prior Year, primarily driven by more units sold, coupled with higher used vehicle retail pricing.

Parts and service same store revenues, on a constant currency basis, outperformed the Prior Year, driven by i ncreases in all business lines, reflecting increased business activity.

new vehicle inventory supply of 45 days, three days lower than the Prior Year.

Used vehicle retail same store revenues, on a constant currency basis, underperformed the Prior Year, driven by lower used vehicle retail pricing, partially offset by more units sold.

Used vehicle wholesale same store revenues, on a constant currency basis, underperformed the Prior Year, primarily driven by a decrease in wholesale used vehicle units sold.

Parts and service same store revenues, on a constant currency basis, outperformed the Prior Year, driven by i ncreases in customer pay, warranty and wholesale revenues reflecting increased business activity.

W e have invested in improvements to our U.K.

customer contact center, streamlining operations to make scheduling appointments easier for customers, resulting in an increase in parts and service activity driving an increase in revenues as compared to the Prior Year.

F&I, net same store revenues, on a constant currency basis, outperformed the Prior Year, driven by an increase in retail units sold, partially offset by decreases in income per contract for retail finance fees and service contracts.

F&I, net same store revenues, on a constant currency basis, underperformed the Prior Year, driven by decreases in income per contract for retail finance fees and service contracts.

Total gross profit in the U.K.

during the Current Year increased $27.3 million, or 7.1%, as compared to the Prior Year, driven by higher same store results and the acquisition of stores .

Total same store gross profit in the U.K.

during the Current Year increased $20.0 million, or 5.3%, as compared to the Prior Year.

On a constant currency basis, total same store gross profit increased 4.5% driven by improvements in new vehicle retail, parts and service and F&I, net gross profit, partially offset by a decline in total used vehicle gross profit.

New vehicle retail same store gross profit, on a constant currency basis, outperformed the Prior Year, due to an increase in new vehicle retail units sold, partially offset by a decrease in new vehicle retail gross profit per unit sold as a result of the increase in vehicle inventory supply as described above generating downward pressure on new vehicle margins.

during t he Current Year increased $150.0 million, or 36.6%, as compared to the Prior Year, primarily driven by the acquisition of stores, partially offset by lower same store gross profit.

T otal same store gross profit in the U.K.

during the Current Year decreased $12.5 million, or 3.1%, as compared to the Prior Year.

On a constant currency basis, total same store gross profit decreased 5.8%, driven by downward pressures on margins across all lines of business.

New vehicle retail same store gross profit, on a constant currency basis, underperformed the Prior Year, primarily due to decrease in new vehicle retail gross profit per unit sold, partially offset by an increase in units sold, as a result of the increase in vehicle inventory production generating downward pressure on new vehicle margins.

Used vehicle retail same store gross profit, on a constant currency basis, underperformed the Prior Year, driven by a decrease in used vehicle retail same store gross profit per unit sold, partially offset by an increase in used vehicle retail units sold.

This decrease in gross profit per unit sold was driven by increases in used vehicle acquisition costs, outpacing the increase in used vehicle retail average sales price per unit sold as a result of continued inflationary pressures.

Parts and service same store gross profit, on a constant currency basis, outperformed the Prior Year, driven by increases in parts and service same store revenues, as discussed above, while maintaining gross margin relatively flat compared to the prior year.

F&I, net same store gross profit, on a constant currency basis, outperformed the Prior Year, driven by increases in F&I, net same store revenues, as described above.

Parts and service same store gross profit, on a constant currency basis, outperformed the Prior Year, driven by increases in parts and service same store revenues, as discussed above.

F&I same store gross profit, on a constant currency basis, underperformed the Prior Year, as described above in F&I same store revenues.

Total same store gross margin in the U.K.

decreased 32 basis points, primarily driven by lower same store total used gross margin caused by inflationary impacts on our used vehicle customers and higher used vehicle acquisition prices.

decreased 52 basis points, driven by margin declines across all lines of business attributable to the factors as described above under gross profit.

SG&A Expenses

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Total SG&A expenses in the U.K.

during the Current Year increased $37.4 million, or 14.0%, as compared to the Prior Year, primarily driven by increases in same store SG&A and the full year impact of prior period acquisitions.

during the Curre nt Year increased $171.3 million, or 56.4%, as compared to the Prior Year.

Total same store SG&A expenses in the U.K.

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On a constant currency basis, total same store SG& A expenses increased 4.2%.

These increases were primarily driven by increased employee-related expenses and facilities-related expenses as a result of higher activity and continued inflationary pressures, coupled with increased demonstration and loaner car expenses compared to the Prior Year.

The vehicle delivery shortages from certain manufacturers, as discussed above, resulted in higher than anticipated SG&A as a percentage of gross profit given our staffing levels assumed the delivery and sale of these vehicles in the Current Year.

The increases on a total same store basis were primarily driven by fees associated with the Inchcape Acqui sition, coupled with increased employee related costs, demonstration and loaner car expenses and advertising costs, offset by lower facilities costs compared to the Prior Year.

Consolidated Selected Comparisons — Year Ended December 31, 2024 compared to 2023

The following table (in millions) and discussion of our results of operations is on a consolidated basis, unless otherwise noted.

The following table (in millions) and discussion of our results of operations are on a consolidated basis, unless otherwise noted.

For the Years Ended December 31,

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Depreciation and amortization expense $ 113.1 $ 92.0 $ 21.1 22.9 %

Asset impairments $ 32.9 $ 2.1 $ 30.7 NM

Asset impairments $ 33.0 $ 32.9 $ 0.1 0.3 %

Restructuring charges

$ 16.7 $ — $ 16.7 100.0 %

Other operating (income) expense

$ (10.0) $ — $ (10.0) (100.0) %

Floorplan interest expense $ 108.5 $ 64.1 $ 44.4 69.3 %

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Provision for income taxes $ 161.5 $ 198.2 $ (36.7) (18.5) %

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Depreciation and Amortization Expense

Depreciation and amortization expense for the Current Year increased compared to the Prior Year, primarily driven by acquired property and equipment in our U.S.

region, as we continue to strategically add dealership related real estate and facilities to our investment portfolio and make improvements to our existing facilities intended to enhance the profitability of our dealerships and improve the overall customer experience.

Depreciation and amortization expense for the Current Year was higher compared to the Prior Year, primarily driven by acquired property and equipment in our U.S.

regions, as we continue to strategically add dealership related real estate and facilities to our investment portfolio and make improvements to our existing facilities intended to enhance the profitability of our dealerships and improve the overall customer experience.

Impairment of Assets

No goodwill impairments were recorded during the Current Year and the Prior Year.

During the Current Year and Prior Year we recorded impairment of franchise rights of $25.1 million and $1.3 million for franchise agreements in the U.S.

During the Current Year and the Prior Year, we recorded no goodwill impairments.

During the Current Year and Prior Year we recorded impairments of franchise rights of $28.2 million and $25.1 million for franchise agreements in the U.S.

region, respectively.

We review long-lived assets including property and equipment and ROU assets for impairment at the lowest level of identifiable cash flows whenever there is evidence that the carrying value of these assets may not be recoverable (i.e., triggering events).

During the Current Year and Prior Year, we recorded total property and equipment and ROU asset impairment charges of $6.8 million and $0.8 million in the U.S.

region, respectively.

During the Current Year, there was no asset impairment charges associated with property and equipment and ROU assets.

During the Prior Year, we recorded total property and equipment and ROU asset impairment charges of $6.8 million in the U.S.

During the Current Year, we recognized $4.8 million in intangible asset impairment associated with assets held for sale.

Refer to Note 13.

Intangible Franchise Rights and Goodwill, Note 11.

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Leases within our Notes to Consolidated Financial Statements for further discussion of our assessment for impairments.

Restructuring Charges

During the Current Year, we incurred $ 16.7 million of restructuring charges.

Restructuring charges primarily consist of planned workforce realignment, strategic closing of certain facilities and systems integrations, among other efforts to increase operational efficiency and profitability in connection with the integration of the Inchcape Retail acquisition with our U.K.

Refer to Note 5.

Restructuring within our Notes to Consolidated Financial Statements for further discussion of our restructuring plan.

Other Operating Income

During the Current Year, we recognized $ 10.0 million of business interruption insurance recoveries as a result of the June 2024 cybersecurity incident experienced by CDK, which resulted in service outages on CDK’s dealers’ systems.

The CDK Incident temporarily disrupted the Company’s business applications and processes in its U.S.

operations that rely on CDK’s dealers’ systems.

The CDK Incident did not have a material impact on our overall financial condition or on our ongoing results of operations.

Refer to Note 1.

Basis of Presentation, Consolidation and Summary of Accounting Policies within our Notes to Consolidated Financial Statements for further discussion of the CDK Incident.

Floorplan Interest Expense

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To mitigate the impact of interest rate fluctuations, we employ an interest rate hedging strategy, whereby we swap variable interest rate exposure on a portion of our borrowings for a fixed interest rate.

For the Current Year, floorplan interest expense increased $36.8 million, or 134.9%, as compared to the Prior Year, driven primarily by an increase in inventories due to improvements in manufacturer production as well as acquisitions, partially offset by realized gains on our interest rate swap portfolio due to increases in corresponding interest rates.

For the Current Year, floorplan interest expense increased $44.4 million, or 69.3%, as compared to the Prior Year, driven primarily by an increase in inventories added to our floorplan due to improvements in manufacturer production as well as acquisitions, partially offset by realized gains on our interest rate swap portfolio due to increases in corresponding interest rates.

Refer to Note 8 .

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Other Interest Expense, Net

Other interest expense, net consists of interest charges primarily on our $750.0 million 4.00% Senior Notes due August 2028 (“4.00% Senior Notes”), real estate related debt and other debt, partially offset by interest income.

Other interest expense, net consists of interest charges primarily on our $750.0 million 4.00% Senior Notes due August 2028 (“4.00% Senior Notes”), $500.0 million 6.375% Senior Notes due January 2030 (“6.375% Senior Notes”), real estate related debt and other debt, partially offset by interest income.

For the Current Year, other interest expense, net, increased $41.5 million, or 41.6%, as compared to the Prior Year.

The increase in other interest expense, net during the Current Year was primarily attributable to the additional borrowings used to acquire property in our U.S.

The increase in the Current Year was partially offset by the gain on the de-designation of a mortgage interest rate swap of $4.0 million.

The increase in other interest expense, net during the Current Year was primarily attributable to the issuance of the 6.375% Senior Notes during the Current Year, additional real estate related and other debt in our U.S.

regions, primarily due to acquisition activity.

Additionally, the difference in the Current Year was partly due to a decrease in the gain recognized on the de-designation of a mortgage interest rate swap as compared to the Prior Year of approximately $3.8 million .

Refer to Note 15.

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The year-over-year tax expense decrease was primarily due to lower pre-tax book income.

The 2023 effective tax rate of 24.8% was higher than the 2022 effective tax rate of 23.5%.

The tax rate increase was primarily due to taxable gains from asset dispositions and the higher U.K.

statutory tax rate in the Current Year compared to the Prior Year.

The 2024 effective tax rate of 24.5% was lower than the 2023 effective tax rate of 24.8%.

The tax rate decrease was primarily due to the mix of earnings and an increase in tax credits.

We believe that it is more-likely-than-not that our deferred tax assets, net of valuation allowances provided, will be realized, based primarily on assumptions of our future taxable income, considering future reversals of existing taxable temporary differences.

For further discussion, please see Note 15.

For further discussion, please refer to Note 16.

Income Taxes within our Notes to Consolidated Financial Statements.

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Our liquidity and capital resources are primarily derived from cash on hand, cash temporarily invested as a pay down of our U.S.

Floorplan Line and FMCC Facility levels (see Note 13.

Floorplan Notes Payable in our Notes to the Consolidated Financial Statements for additional information), cash from operations, borrowings under our credit facilities, working capital, dealership and real estate acquisition financing and proceeds from debt and equity offerings.

Floorplan Line and FMCC Facility levels (refer to Note 14.

Floorplan Notes Payable within our Notes to Consolidated Financial Statements for additional information), cash from operations, borrowings under our credit facilities, working capital, dealership and real estate acquisition financing and proceeds from debt and equity offerings.

We anticipate we will generate sufficient cash flows from operations, coupled with cash on hand and available borrowing capacity under our credit facilities, to fund our working capital requirements, service our debt and meet any other recurring operating expenditures.

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Refer to Note 14.

Floorplan Notes Payable within our Notes to the Consolidated Financial Statements for additional discussion of our Revolving Credit Facility.

Floorplan Notes Payable within our Notes to Consolidated Financial Statements for additional discussion of our Revolving Credit Facility.

However, we believe that all floorplan financing of inventory purchases in the normal course of business should correspond with the related inventory activity and be classified as an operating activity.

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CASH FLOWS FROM FINANCING ACTIVITIES:

Net cash provided by (used in) financing activities:

Net cash provided by financing activities:

$ 681.1 $ 185.2

Change in Floorplan notes payable, excluding floorplan offset (115.2) (547.3)

Adjusted net cash used in financing activities $ (362.1) $ (418.6)

Adjusted net cash provided by (used in) financing activities $ 565.9 $ (362.1)

Sources and Uses of Liquidity from Operating Activities — Year Ended December 31, 2024 compared to 2023

For the Current Year, net cash provided by operating activities decreased by $395.8 million as compared to the Prior Year.

For the Current Year, net cash provided by operating activities increased by $396.1 million as compared to the Prior Year.

On an adjusted basis for the same period, adjusted net cash provided by operating activities decreased by $36.9 million.

The decrease on an adjusted basis was primarily driven by a $285.6 million increase in inventory levels, a $149.9 million decrease in net income, a $32.7 million increase in contracts-in-transit and vehicle receivables and a $27.3 million decrease in accounts payable and accrued expenses, partially offset by a $319.1 million increase in Floorplan notes payable — manufacturer affiliates.

The decrease on an adjusted basis was primarily driven by a $103.5 million decrease in net income, a $440.1 million decrease in floorplan notes payable – manufacturer affiliates, partially offset by a $313.2 million decrease in inventory levels, a $126.8 million decrease in contracts-in-transit and vehicle receivables and a $51.5 million increase in accounts payable and accrued expenses.

Sources and Uses of Liquidity from Investing Activities — Year Ended December 31, 2024 compared to 2023

For the Current Year, net cash used in investing activities decreased by $118.5 million, as compared to the Prior Year.

On an adjusted basis for the same period, adjusted net cash used in investing activities decreased by $114.7 million, driven by a $203.6 million decrease in acquisition activity, offset by a $59.4 million decrease in sales proceeds due to the sale of the Brazil Disposal Group in the Prior Year, which did not reoccur in the Current Year and a $30.0 million increase in purchases of property and equipment.

For the Current Year, net cash used in investing activities increased by $916.5 million, as compared to the Prior Year.

On an adjusted basis for the same period, adjusted net cash used in investing activities increased by $915.7 million, primarily due to a $926.8 million increase in acquisition activity, and a $59.7 million increase in purchases of property and equipment, including real estate, partially offset by a $52.8 million increase in proceeds from disposition of franchises and property and equipment.

Capital Expenditures

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For the Current Year, net cash provided by financing activities increased by $495.9 million, as compared to the Prior Year.

On an adjusted basis for the same period, adjusted net cash used in financing activities decreased by $56.4 million.

The decrease in net cash used in financing activities on an adjusted basis was primarily driven by a decrease of $348.5 million in cash paid for share repurchases from $521.2 million in the Prior Year to $172.8 million in the Current Year, an increase in acquisition line net borrowings of $44.8 million and a decrease in debt issuance costs paid of $4.3 million, offset by net repayments in credit facilities of $239.9 million and net repayments of other debt of $102.5 million.

On an adjusted basis for the same period, adjusted net cash provided by financing activities increased by $928.1 million.

The increase in net cash provided by financing activities on an adjusted basis was primarily driven by a $586.4 million increase in net borrowings of other debt, including real estate-related debt, the issuance of $500.0 million of 6.375% Senior Notes, and increases in net borrowings on our U.S.

Floorplan line of $108.5 million (representing the net cash activity in our floorplan offset account).

These increases were partially offset by a $249.6 million increase in net repayments on the Acquisition Line.

Credit Facilities, Debt Instruments and Other Financing Arrangements

Our various credit facilities, debt instruments and other financing arrangements are used to finance the purchase of inventory and real estate, acquisitions and working capital for general corporate purposes.

Our various credit facilities, debt instruments and other financing arrangements are used to finance the purchase of inventory and real estate, provide acquisition funding and provide working capital for general corporate purposes.

The following table summarizes the commitment of our credit facilities as of December 31, 2024 (in millions):

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The remaining available balance can be used for vehicle inventory financing.

(2) The outstanding balance of $337.2 million is related to outstanding letters of credit of $12.2 million and $325.0 million in borrowings.

The borrowings outstanding under the Acquisition Line included $325.0 million USD borrowings.

The available borrowings may be limited from time to time, based on certain debt covenants.

(2) The outstanding balance of $106.8 million is related to outstanding letters of credit of $11.8 million and $95.0 million in USD borrowings.

The available borrowings may be limited from time to time, based on certain debt covenant calculations, and as a result, the outstanding balance plus available borrowings may not equal the total commitment.

(3) The available balance as of December 31, 2024, includes $2.0 million of immediately available funds.

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We have other credit facilities in the U.S.

with third-party financial institutions, most of which are affiliated with the automobile manufacturers that provide financing for portions of our new, used and rental vehicle inventories.

In addition, we have outstanding debt instruments, including our 4.00% Senior Notes, as well as real estate related and other debt instruments.

with third-party financial institutions, most of which are affiliated with the automobile manufacturers that provide financing for portions of our new, used and loaner vehicle inventories.

In addition, we have outstanding debt instruments, including our 4.00% and 6.375% Senior Notes, as well as real estate related and other debt instruments.

Refer to Note 15.

Debt in our Notes to Consolidated Financial Statements for further information.

Our Revolving Credit Facility, indentures governing our 4.00% Senior Notes and certain mortgage term loans contain customary financial and operating covenants that place restrictions on us, including our ability to incur additional indebtedness, create liens or to sell or otherwise dispose of assets and to merge or consolidate with other entities.

Debt within our Notes to Consolidated Financial Statements for further information.

Our Revolving Credit Facility, indentures governing our 4.00% and 6.375% Senior Notes and certain mortgage term loans contain customary financial and operating covenants that place restrictions on us, including our ability to incur additional indebtedness, create liens or to sell or otherwise dispose of assets and to merge or consolidate with other entities.

Certain of our mortgage agreements contain cross-default provisions that, in the event of a default of certain mortgage agreements and of our Revolving Credit Facility, could trigger an uncured default.

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Floorplan Notes Payable and Note 15.

Debt in our Notes to Consolidated Financial Statements for further discussion of our credit facilities, debt instruments and other financing arrangements existing as of December 31, 2023.

Stock Repurchases and Dividends

Debt within our Notes to Consolidated Financial Statements for further discussion of our debt instruments, credit facilities and other financing arrangements existing as of December 31, 2024.

Share Repurchases and Dividends

From time to time, our Board of Directors authorizes the repurchase of shares of our common stock up to a certain monetary limit.

On August 2, 2023, our Board of Directors increased the share repurchase authorization to $250.0 million.

During the Current Year, 729,582 shares were repurchased at an average price of $236.78 per share, for a total of $172.8 million.

As of December 31, 2023, we had $143.3 million available under our current stock repurchase authorization.

On November 12 , 2024 , our Board of Directors increased the share repurchase authorization to $500.0 million.

For the Current Year, 518,465 shares were repurchased, at an average price of $311.67 per share, for a total of $161.6 million, excluding excise taxes of $1.4 million.

As of December 31, 2024, we had $476.1 million available under our current share repurchase authorization.

During the Current Year, our Board of Directors approved quarterly cash dividends per share on all shares of our common stock totaling $1.88 per share, which resulted in $24.7 million paid to common shareholders and $0.5 million to unvested RSA holders.

Future share repurchases and the payment of any future dividends are subject to the business judgment of our Board of Directors, taking into consideration our historical and projected results of operations, financial condition, cash flows, capital requirements, covenant compliance, changes in laws and regulations, current and predicted economic environment and other factors considered relevant.

Future share repurchases and the payment of any future dividends are subject to the business judgment of our Board of Directors, taking into consideration our historical and projected results of operations, financial condition, cash flows, capital requirements, covenant compliance, changes in laws and regulations, current economic environment and other factors considered relevant.

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 7. Management’s Discussion and Analysis