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What changed in LITHIA MOTORS INC's 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of LITHIA MOTORS INC's 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+327 added−323 removedSource: 10-K (2025-02-24) vs 10-K (2024-02-23)

Top changes in LITHIA MOTORS INC's 2024 10-K

327 paragraphs added · 323 removed · 276 edited across 9 sections

Item 1. Business

Business — how the company describes what it does

51 edited+14 added−13 removed27 unchanged
Biggest changeWe develop pay plans that are measured based upon various factors such as customer satisfaction, profitability and individual performance metrics. These plans serve to reward team members for creating customer 2 loyalty, achieving store potential, developing high-performing talent, meeting and exceeding manufacturer requirements and living our core values.
Biggest changeThese plans reward team members for creating customer loyalty, achieving store potential, developing high-performing talent, meeting and exceeding manufacturer requirements, and living our core values. We centralize many administrative functions to drive efficiencies and streamline store-level operations. These efficiencies allow our local managers to focus on serving customers to increase revenues and gross profit.
The CFPB does not have direct authority over automotive dealers; however, its regulation of larger automotive finance companies and other financial institutions could affect our financing activities. Claims arising out of actual or alleged violations of law may 5 be asserted against us or our stores by individuals, a class of individuals, or governmental entities.
The CFPB does not have direct authority over automotive dealers; however, its regulation of larger automotive finance companies and other financial institutions could affect our financing activities. Claims arising out of actual or alleged violations of law may be asserted against us or our stores by individuals, a class of individuals, or governmental entities.
Generally, you can identify forward-looking statements by terms such as “project,” “outlook,” “target,” “may,” “will,” “would,” “should,” “seek,” “expect,” “plan,” “intend,” “forecast,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “likely,” “goal,” “strategy,” “future,” “maintain,” and “continue” or the negative of these terms or other comparable terms.
Generally, you can identify forward-looking statements by terms such as “project,” “outlook,” “target,” “may,” “will,” “would,” “should,” “seek,” “expect,” “plan,” “intend,” “forecast,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “likely,” “ensure,” “goal,” “strategy,” “future,” “maintain,” and “continue” or the negative of these terms or other comparable terms.
These claims may expose us to significant damages or other penalties, including revocation or suspension of our licenses to conduct store operations and fines. The vehicles we sell are also subject to rules and regulations of various federal and state regulatory agencies.
These claims may expose us to significant damages or other penalties, including revocation or suspension of our licenses to conduct store operations and fines. 6 The vehicles we sell are also subject to rules and regulations of various federal and state regulatory agencies.
These laws and regulations include state franchise laws and regulations, consumer protection laws, privacy laws, escheatment laws, anti-money laundering laws and federal and state wage-hour, anti-discrimination and other employment practices laws. Our financing activities with customers are subject to numerous federal, state and local laws and regulations.
These laws and regulations include jurisdictional franchise laws and regulations, consumer protection laws, privacy laws, escheatment laws, anti-money laundering laws and wage-hour, anti-discrimination, and other employment practices laws. Our financing activities with customers are subject to numerous federal, state and local laws and regulations.
Certain state franchise laws also restrict us from relocating our dealerships, or establishing new dealerships of a particular brand, within any area that is served by another dealer with the same brand. To the extent that a market has multiple dealers of a particular brand, as certain markets we operate in do, we are subject to significant intra-brand competition.
Certain jurisdictional franchise laws also restrict us from relocating our dealerships, or establishing new dealerships of a particular brand, within any area that is served by another dealer with the same brand. To the extent that a market has multiple dealers of a particular brand, as certain markets we operate in do, we are subject to significant intra-brand competition.
Additional programs provide Master Automotive Service Excellence (ASE) training and certification, along with Original Equipment Manufacturer training for technicians. As one of the largest global automotive retailers, we are committed to ongoing investments in expanding the roles and skills of our workforce to drive customer excellence and operational performance.
Additional programs provide Master Automotive Service Excellence (ASE) training and certification, along with manufacturer training for technicians. As one of the largest global automotive retailers, we are committed to ongoing investments in expanding the roles and skills of our workforce to drive customer excellence and operational performance.
Our operations are supported by regional and corporate management, as well as dedicated training and personnel development programs which allow us to share best practices across our network and develop management talent. Growth through acquisition and network optimization Our acquisition growth strategy has been successful both financially and culturally.
Our operations are supported by regional and corporate management, as well as dedicated training and personnel development programs which allow us to share best practices across our network and develop talent. 3 Growth through acquisition and network optimization Our acquisition growth strategy has been financially and culturally successful.
We rely on advertising and merchandising, pricing, our customer guarantees and sales model, our sales expertise, service reputation and the location of our stores to sell new vehicles. Regulation Automotive and Other Laws and Regulations We operate in a highly regulated industry. A number of state and federal laws and regulations affect our business.
We rely on advertising and merchandising, pricing, our customer guarantees and sales model, our sales expertise, service reputation, and the location of our stores to sell new vehicles. Regulation Automotive and Other Laws and Regulations We operate in a highly regulated industry. A number of laws and regulations affect our business.
Forward-Looking Statements Certain statements in this Annual Report, including in the sections entitled “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business” constitute forward-looking statements within the meaning of the “Safe Harbor” provisions of the Private Securities Litigation Reform Act of 1995.
Forward-Looking Statements Certain statements in this Annual Report, including in the sections entitled “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Business” constitute forward-looking statements within the meaning of the “Safe Harbor” provisions of the Private Securities Litigation Reform Act of 1995.
In every state in which we operate, we must obtain various licenses to operate our businesses, including dealer, sales and finance and insurance licenses issued by state regulatory authorities. Numerous laws and regulations govern our business, including those relating to our sales, operations, financing, insurance, advertising and employment practices.
In every jurisdiction in which we operate, we must obtain various licenses to operate our businesses, including dealer, sales and finance and insurance licenses issued by regulatory authorities. Numerous laws and regulations govern our business, including those relating to our sales, operations, financing, insurance, advertising and employment practices.
Our disciplined approach focuses on acquiring new vehicle franchises, which operate in markets ranging from mid-sized regional markets to metropolitan markets. Acquisition of these businesses increases our proximity to consumers throughout North America and the United Kingdom.
Our disciplined approach focuses on acquiring new vehicle franchises in markets ranging from mid-sized regional markets to metropolitan markets. Acquisition of these businesses increases our proximity to consumers throughout North America and the United Kingdom.
Management’s Discussion and Analysis of Financial Condition and Results of Operations, and, from time to time, in our other filings we make with the Securities and Exchange Commission (SEC). Any forward-looking statement made by us in this Annual Report is based only on information currently available to us and speaks only as of the date on which it is made.
Management’s Discussion and Analysis of Financial Condition and Results of Operations, and, from time to time, in our other filings we make with the SEC. Any forward-looking statement made by us in this Annual Report is based only on information currently available to us and speaks only as of the date on which it is made.
In addition to being financially accretive, acquisitions aim to drive network growth that improves our ability to serve customers through vast selection, greater density and access to customers and ability to leverage national branding and advertising.
In addition to being financially accretive, acquisitions aim to drive network growth that improves our ability to serve customers through vast selection, greater density, easy access, and the ability to leverage national branding and advertising.
As we focus on expanding our physical network of stores, one of the criteria we evaluate is a valuation multiple between 3x to 7x of investment in intangibles to estimated annualized adjusted EBITDA, with various factors including location, ability to expand our network and talent considered in determining value.
As we focus on expanding our physical network, one of the criteria we evaluate is a valuation multiple between 3x to 6x of investment in intangibles to estimated annualized adjusted EBITDA, with various factors including location, ability to expand our network and talent considered in determining value.
Similarly, certain air emissions from operations, such as auto body painting, may be subject to the federal Clean Air Act and related state and local laws. Health and safety standards promulgated by the Occupational Safety and Health Administration of the United States Department of Labor and related state agencies also apply.
Similarly, certain air emissions from operations, such as auto body painting, may be subject to the federal Clean Air Act and related state and local laws. Health and safety standards promulgated by the Occupational Safety and Health Administration of the U.S. Department of Labor and related state agencies also apply.
GreenCars is a leading source of knowledge designed to promote the acceleration of electric vehicle (EV) adoption by educating the consumer on such topics as (1) fuel-efficient offerings from model comparisons, (2) personalized incentives, and (3) local rebates to charging network. GreenCars even connects consumers with the largest new-and-preowned inventory for when they are ready to purchase their sustainable vehicle.
GreenCars is a leading source of knowledge designed to promote the acceleration of electric vehicle adoption by educating the consumer on such topics as fuel-efficient offerings from model comparisons, personalized incentives, and local rebates to charging network. GreenCars connects consumers with the largest new-and-preowned inventory when they are ready to purchase a sustainable vehicle.
Examples of forward-looking statements in this Form 10-K include, among others, statements regarding: • Future market conditions, including anticipated car and other sales levels and the supply of inventory • Our business strategy and plans, including our achieving our 2025 Plan and related targets • The growth, expansion, make-up, and success of our network, including our finding accretive acquisitions and acquiring additional stores • Annualized revenues from acquired stores • The growth and performance of our Driveway e-commerce home solution and Driveway Finance Corporation (DFC), their synergies and other impacts on our business and our ability to meet Driveway and DFC-related targets • The impact of sustainable vehicles and other market and regulatory changes on our business • Our capital allocations and uses and levels of capital expenditures in the future • Expected operating results, such as improved store performance, continued improvement of selling, general and administrative expenses (SG&A) as a percentage of gross profit and any projections • Our anticipated financial condition and liquidity, including from our cash and the future availability of our credit facilities, unfinanced real estate, and other financing sources • Our continuing to purchase shares under our share repurchase program • Our compliance with financial and restrictive covenants in our credit facilities and other debt agreements • Our programs and initiatives for employee recruitment, training, and retention • Our strategies and targets for customer retention, growth, market position, operations, financial results, and risk management Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control.
Examples of forward-looking statements in this Form 10-K include, among others, statements regarding: • Future market conditions, including anticipated car and other sales and gross profit levels and the supply of inventory • Our business strategy and plans, including our achieving our long-term financial targets • The growth, expansion, make-up, and success of our network, including our finding accretive acquisitions that meet our target valuations and acquiring additional stores • Annualized revenues from acquired stores or achieving target returns • The growth and performance of our Driveway e-commerce home solution and DFC, their synergies and other impacts on our business and our ability to meet Driveway and DFC-related targets • The impact of sustainable vehicles and other market and regulatory changes on our business, including evolving vehicle distribution models • Our capital allocations and uses and levels of capital expenditures in the future • Expected operating results, such as improved store performance, continued improvement of SG&A as a percentage of gross profit and any projections • Our anticipated financial condition and liquidity, including from our cash and the future availability of our credit facilities, unfinanced real estate, and other financing sources • Our continuing to purchase shares under our share repurchase program • Our compliance with financial and restrictive covenants in our credit facilities and other debt agreements • Our programs and initiatives for team member recruitment, training, and retention • Our strategies and targets for customer retention, growth, market position, operations, financial results, and risk management Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks, and changes in circumstances that are difficult to predict and many of which are outside of our control.
We do not currently expect to incur significant costs for remediation. However, we cannot provide assurance that material environmental commitments or contingencies will not arise in the future, or that they do not already exist but are unknown to us.
We do not currently expect to incur significant costs for remediation. However, we cannot provide assurance that material environmental commitments or contingencies will not arise in the future, or that they do not already exist but are unknown to us. See Item 1A. Risk Factors.
Currently, there are more than 16,500 new vehicle franchise dealers in the United States, 4,500 in the UK, and 3,400 in Canada. Many of these franchised dealers are independent stores managed by individuals, families or small retail groups. We compete primarily with other automotive retailers, both publicly- and privately-held and other used-only automotive retailers such as CarMax, Carvana, and Cazoo.
Currently, there are nearly 17,000 new vehicle franchise dealers in the United States, 4,500 in the United Kingdom, and 3,500 in Canada. Many of these franchised dealers are independent stores managed by individuals, families or small retail groups. We compete primarily with other automotive retailers, both publicly- and privately-held and other used-only automotive retailers such as CarMax, Carvana, and Cazoo.
This goes beyond automotive needs, allowing us to leverage our customer insights across many revenue streams.
This strategy allows us to leverage our customer insights across many revenue streams and goes beyond automotive needs.
We also target an investment in intangibles as a percentage of annualized revenues in the range of 15% to 30%. During 2023, we acquired 56 stores and divested eight stores. We invested $1.1 billion, net of floor plan debt, to acquire these stores and we anticipate these acquisitions to add nearly $3.8 billion in annualized revenues.
We also target an investment in intangibles as a percentage of annualized revenues in the range of 15% to 30%. During 2024, we acquired 146 stores and divested 10 stores. We invested $1.1 billion, net of floor plan debt, to acquire these stores and we anticipate these acquisitions to add nearly $5.9 billion in annualized revenues.
These online channels provide customers with simple, transparent ways to manage their vehicle ownership including search new-and-used inventories, view current pricing, apply incentives and offers, calculate payments for purchase or lease, apply for financing, buy online, sell their vehicle, offering the consumer to schedule service appointments both in store or at home, schedule vehicle pick-up and delivery, and provide us feedback about their experience.
These online channels provide customers with simple, transparent ways to search new and used inventories, view current pricing, apply incentives and offers, calculate payments for purchase or lease, apply for financing, buy online, sell their vehicle, schedule service appointments both in store or at home, schedule vehicle pick-up and delivery, and provide us feedback about their experience. 4 Driveway, our online experience, puts customers in control of every aspect of their car ownership.
Our typical franchise agreement provides for early termination or non-renewal by the manufacturer upon: • a change of management or ownership without manufacturer consent; • insolvency or bankruptcy of the dealer; • death or incapacity of the dealer/manager; • conviction of a dealer/manager or owner of certain crimes; • misrepresentation of certain sales or inventory information to the manufacturer; • failure to adequately operate the store; • failure to maintain any license, permit or authorization required for the conduct of business; • poor market share; or • low customer satisfaction index scores.
Under certain laws, a manufacturer may not terminate or fail to renew a franchise without good cause or prevent any reasonable changes in the capital structure or financing of a store. 5 Our typical franchise agreement provides for early termination or non-renewal by the manufacturer upon: • a change of management or ownership without manufacturer consent; • insolvency or bankruptcy of the dealer; • death or incapacity of the dealer/manager; • conviction of a dealer/manager or owner of certain crimes; • misrepresentation of certain sales or inventory information to the manufacturer; • failure to adequately operate the store; • failure to maintain any license, permit or authorization required for the conduct of business; • poor market share; or • low customer satisfaction index scores.
Founded in 1946 and incorporated in Oregon in 1968, we completed our initial public offering in 1996. Business Strategy We seek to provide customers choice with a seamless, blended online and physical retail experience, broad selection and access to specialized expertise and knowledge.
Founded in 1946 and incorporated in Oregon in 1968, we completed our initial public offering in 1996. Business Strategy We seek to provide customers choice with a seamless, blended online and physical retail experience, broad selection, and access to specialized expertise and knowledge. Our comprehensive network provides convenient touch points for customers and provides services throughout the vehicle life cycle.
With the industry transitioning to more sustainable practices and alternative-fuel vehicles, we are excited that GreenCars, our online education resource for sustainable mobility, had approximately 5.9 million unique visitors in 2023 at GreenCars.com, a 58% increase from 2022.
This platform allows us to significantly increase the geographic reach of our network. With the industry transitioning to more sustainable practices and alternative-fuel vehicles, we are excited that GreenCars, our online education resource for sustainable mobility, had approximately 11.2 million unique visitors in 2024 at GreenCars.com, a 48% increase from 2023.
Typical vehicle franchise agreements specify the locations within a designated market area at which the store may sell vehicles and related products and perform approved services. The designation of the market areas and the allocation of new vehicles among stores are at the discretion of the manufacturer. Franchise agreements do not, however, guarantee exclusivity within a specified territory.
The designation of the market areas and the allocation of new vehicles among stores are at the discretion of the manufacturer. Franchise agreements do not, however, guarantee exclusivity within a specified territory.
They can browse a vast nationwide inventory of new, used, and certified pre-owned vehicles (CPO), then get a vehicle shipped straight to their driveway or pick it up from one of Lithia’s 300+ stores. In 2023, approximately 31.5 million unique users visited Driveway.com, a 46% increase from 2022.
They can browse a vast nationwide inventory of new, used, and certified pre-owned vehicles (CPO), and get their vehicle shipped straight to their driveway or pick it up at one of Lithia’s 290+ stores in the Driveway network.
Business Overview Lithia Motors, Inc. is one of the largest global automotive retailers providing an array of products and services throughout the vehicle ownership lifecycle. Convenient and hassle-free experiences are offered through our comprehensive network of physical locations, e-commerce platforms, captive finance solutions and other synergistic adjacencies. We have delivered consistent profitable growth in a massive and unconsolidated industry.
Business Overview Lithia and Driveway (NYSE: LAD) is the largest global automotive retailer providing an array of products and services throughout the vehicle ownership lifecycle. Simple, convenient and transparent experiences are offered through our comprehensive network of physical locations, e-commerce platforms, captive finance solutions, fleet 2 management offerings, and other synergistic adjacencies.
Marketing Lithia & Driveway’s core value, “Earn Customers for Life”, drives our marketing strategy to empower consumers throughout the vehicle ownership lifecycle. To place ease and value at our customers’ fingertips, we are constantly evolving the retail experience where customers can choose transparent, convenient ways to buy, sell, or service their vehicles wherever, whenever, and however they desire.
To place ease and value at our customers’ fingertips, we are constantly evolving the retail experience so customers can choose transparent, convenient ways to buy, sell, or service their vehicles wherever, whenever, and however they desire. Our national, regional, and local brands connect with consumers through advertising tailored to the individual brand and market.
With a vast selection represented by the largest U.S. new and preowned vehicle inventory for sale online, we employ search engine optimization, search engine marketing, online display, retargeting, social advertising, traditional media, and direct marketing to reach consumers. Most consumers begin their shopping, buying, or selling activity on our store websites, Driveway, and GreenCars.
Utilizing data and omnichannel communications, we strive to create deeper and richer offerings to build lifelong loyalty throughout the vehicle ownership lifecycle. With a vast selection represented by the largest U.S. new and preowned vehicle inventory for sale online, we employ search engine optimization, search engine marketing, online display, retargeting, social advertising, traditional media, and direct marketing to reach consumers.
Our manufacturer partners influence a significant portion of our advertising expense. Certain advertising and marketing expenditures are offset by manufacturer cooperative programs, which require us to submit requests for reimbursement to manufacturers for qualifying advertising expenditures. These advertising credits are not tied to specific vehicles and are earned as qualifying expenses are incurred.
In all of our communications, we seek to convey the promise of a positive customer experience, competitive pricing, and wide selection. Our manufacturer partners influence a significant portion of our advertising expense. Certain advertising and marketing expenditures are offset by manufacturer cooperative programs, which require us to submit requests for reimbursement to manufacturers for qualifying advertising expenditures.
Our comprehensive network enables us to provide convenient touch points for customers and provide services throughout the vehicle life cycle. We seek to increase market share and optimize profitability by focusing on the consumer experience and applying proprietary performance measurement systems to drive high performance.
We seek to increase market share and optimize profitability by focusing on the consumer experience and applying proprietary performance measurement systems fueled by data science.
With the importance of keeping consumer communications relevant, based on where they are in the shopping process or lifecycle of ownership, we have built a proprietary customer lifecycle communication platform. In an 3 industry where the competition often relies on third parties to manage their customer data, we manage our data internally.
Most consumers begin their shopping, buying, or selling activity on our store websites, Driveway.com, and GreenCars.com. Our proprietary customer lifecycle communication platform targets specific stages in the shopping process or ownership lifecycle. In an industry where the competition often relies on third parties to manage their customer data, we manage our data internally.
Our highly 1 diversified and competitively differentiated design provides us the flexibility and scale to pursue our vision to modernize personal transportation solutions wherever, whenever and however consumers desire. As of December 31, 2023, we operated 344 locations representing 47 brands across the United States, United Kingdom, and Canada.
We have delivered consistent profitable growth in a massive and unconsolidated industry. Our highly diversified and competitively differentiated design provides us the flexibility and scale to pursue our vision to modernize personal transportation solutions wherever, whenever, and however consumers desire.
Total advertising expense, net of manufacturer credits, was $248.2 million in 2023, $253.6 million in 2022 and $162.2 million in 2021. Over 82% of our advertising spent in 2023 was on digital, social, listings, and one-to-one owner communications. In all of our communications, we seek to convey the promise of a positive customer experience, competitive pricing, and wide selection.
GreenCars.com was an important part of the shopping and selection process for 19,000 vehicles across our dealer network in 2024. Total advertising expense, net of manufacturer credits, was $250.7 million in 2024, $248.2 million in 2023 and $253.6 million in 2022. Over 89% of our advertising spent in 2024 was on digital, social, listings, and one-to-one owner communications.
Our long-term strategy to create value for our customers, employees and shareholders includes the following elements: Driving operational excellence, innovation and diversification LAD builds magnetic brand loyalty in our 344 stores and with Driveway, our e-commerce home delivery experience, and GreenCars, our electric vehicle learning resource and marketplace.
Our long-term strategy to create value for our customers, team members, and shareholders includes the following elements: Driving operational excellence, innovation, and diversification LAD builds magnetic customer loyalty across our 459 stores, our Driveway and GreenCars e-commerce platforms, and our entire omnichannel ecosystem by focusing on convenient and transparent experiences supported by proprietary data science.
Year Ended December 31, 2023 Total Revenue Total Gross Profit United States 90 % 92 % United Kingdom 6 % 5 % Canada 4 % 3 % Lithia and Driveway (LAD) offers a wide array of products and services fulfilling the entire vehicle ownership lifecycle including new and used vehicles, finance and insurance products and automotive repair and maintenance.
As of December 31, 2024, we operated 459 locations representing 52 brands in the United States, the United Kingdom, and Canada. We offer a wide array of products and services fulfilling the entire vehicle ownership lifecycle including new and used vehicles, financing and insurance products, and aftersales automotive repair and maintenance services.
Our free cash flow deployment strategy targets an allocation of 65% investment in acquisitions, 25% investment in capital expenditures, innovation, and diversification and 10% in shareholder return in the form of dividends and share repurchases. During 2023, we utilized $230.2 million for capital expenditures investing in our existing business and paid $52.8 million in dividends.
Our current free cash flow deployment strategy has shifted to an allocation of 35% to 45% investment in acquisitions, 25% investment in capital expenditures, innovation, and diversification and 30% to 40% in shareholder return in the form of dividends and share repurchases due to current valuation trends in acquisitions relative to stock price performance.
Human Capital Inspired by our mission statement, “Growth Powered by People,” we prioritize the importance of every Lithia & Driveway associate’s professional success, well-being, and safety. Our approach to attracting, retaining, rewarding, and developing the best talent includes defining clear expectations, providing exceptional training, and recognizing employee milestones and metrics.
Human Capital Our Human Capital and Development strategy is guided by our mission of “Growth Powered by People.” We place a strong emphasis on the professional success, well-being, and safety of each team member. Our strategy for attracting, retaining, rewarding, and developing top talent involves setting clear expectations, offering exceptional training, and celebrating team member milestones and achievements.
As of December 31, 2023, we had available liquidity of $1.7 billion, which was comprised of $825.0 million in cash and $870.4 million availability on our credit facilities. In addition, our unfinanced real estate could provide additional liquidity of approximately $0.4 billion.
During 2024, we utilized $351.4 million for capital expenditures investing in our existing business and paid $56.5 million in dividends. As of December 31, 2024, we had available liquidity of approximately $1.4 billion, which was comprised of $225.1 million in unrestricted cash, $53.4 million in marketable securities, and $1.1 billion availability on our credit facilities.
These reimbursements are recognized as a reduction of advertising expense. Manufacturer cooperative advertising credits were $54.2 million in 2023, $46.3 million in 2022 and $35.6 million in 2021. Franchise Agreements Each of our stores operates under a separate franchise agreement with the manufacturer of the new vehicle brand it sells.
These advertising credits are not tied to specific vehicles and are earned as qualifying expenses are incurred. These reimbursements are recognized as a reduction of advertising expense. Manufacturer cooperative advertising credits were $56.2 million in 2024, $54.2 million in 2023 and $46.3 million in 2022.
Featuring events throughout the year, the program facilitates networking, role modeling, and learning opportunities aimed to foster professional development. • Our learning and development initiatives are dedicated to promoting employee growth through curated content paths, specialized curriculums, and tuition reimbursement programs covering up to 75% of undergraduate or graduate tuition costs.
DART participants learn the ins and outs of performance standards, gain on the job experience, and build relationships cross-functionally to accelerate their careers. • Our learning and development initiatives are dedicated to promoting team member growth through curated content paths, specialized curriculums, and tuition reimbursement benefits covering up to 75% of undergraduate or graduate tuition costs.
Our Driveway and GreenCars brands compliment our in-store experiences and provide convenient, simple, and transparent platforms that serve as our e-commerce home solutions. Diversifying our business with Driveway Finance Corporation (DFC), our captive auto finance division, allows us to provide financing solutions for customers and diversify our business model with an adjacent product.
Enhancing our business, our captive auto financing division allows us to provide financing solutions for customers and diversify our business model with adjacent products.
Since 2021, it has evolved to focus on preparing high performers for various leadership roles beyond general manager. • Introduced in 2015, the Women LEAD (Learn, Explore, Achieve, and Develop) Program offers a platform for women within the organization to connect, learn, and grow together.
The survey also offered valuable insights, leading to the development of action plans by managers to address opportunities to “Improve Constantly.” • Introduced in 2015, our Women LEAD (Learn, Explore, Achieve, and Develop) program offers a platform for women within the organization to connect, learn, and grow together.
Our people and these solutions power our national brands, overlaying our physical footprint in a way that we believe attracts a larger population of digital consumers seeking transparent, empowered, flexible and simple buying and servicing experiences. Our performance-based culture is geared toward an incentive-based compensation structure for a majority of our personnel.
These experiences and offerings, backed by our extensive physical network, broad geographic reach, and customized digital offerings, empower our people to provide transparent, flexible, and simple retail experiences. Our performance-based culture is geared toward an incentive-based compensation structure for a majority of our personnel. We develop pay plans that measure factors such as customer satisfaction, profitability, and individual performance metrics.
In response to evolving consumer preferences, we invest in modernization that supports and expands our core business. These digital strategies combine our experienced, knowledgeable workforce with our owned inventory and physical network of stores, enabling us to be agile and adapt to consumer preferences and market specific conditions.
Investments across our ecosystem built a framework that is responsive to evolving consumer preferences, providing a foundation that supports our current business and our ongoing expansion. These investments, particularly in our digital strategies, connect our experienced, knowledgeable team members with our expansive inventory and physical network of stores to ensure we are agile and adaptable.
These efforts are integral to building dynamic teams who will “Earn Customers for Life” and drive operational excellence. We foster an entrepreneurial, high-performance, customer-centric culture designed to encourage internal promotions, develop leadership skills, and offer professional growth opportunities.
These initiatives are key to driving high performing results; allowing us to reach potential, earn customers for life, and grow through our dynamic teams. We cultivate an entrepreneurial, high-performance, customer-centric culture that supports internal promotions, skill development, and continuous professional growth opportunities.
Additionally, we systematically explore transformative adjacencies, which are identified to be synergistic and complementary to our existing business such as DFC, our captive auto loan portfolio.
Additionally, we systematically explore and invest in transformative adjacencies that are synergistic and complementary to our existing business, such as our captive auto finance and fleet management offerings. These investments support the foundational elements of our strategy. We seek to create durable customer loyalty in our stores and our digital platforms, such as our My Driveway customer portal.
The DART Program is designed to give on-the-job exposure to various areas of the organization through rotations while providing supplemental training necessary to grow internal talent into leadership roles. The program identifies data-centric, customer-focused, proactive people who will push stores to be their best for our customers.
The DART program targets fact-based, customer-focused, proactive talent with leadership potential who will push our teams to be their best for our customers.
In both 2023 and 2022, approximately 97% of our workforce earned above minimum wage. Some examples of our key employee-focused programs and initiatives include: • In 2023, we launched a company-wide Culture Poll to amplify the employee voice. With an 80% participation rate, the survey revealed engagement scores surpassing benchmarks, indicating positive 6 progress in creating a positive workplace experience.
With an 80% participation rate, the survey revealed engagement scores surpassing benchmarks, indicating positive progress in creating a positive workplace experience that fosters team member loyalty.
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Operational excellence is achieved by focusing the business on convenient and transparent consumer experiences supported by proprietary data science to improve market share, consumer loyalty, and profitability. By promoting an entrepreneurial model with our in-store experiences, we build strong businesses responsive to each of our local markets. Utilizing performance-based action plans, we develop high-performing teams and foster manufacturer relationships.
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Our Driveway and GreenCars brands and online customer portal complement our in-store experiences in the United States and provide convenient, simple, and transparent platforms that serve as our e-commerce home solutions and allow us to deliver differentiated, proprietary digital experiences.
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Our investments in modernization are well under way and are taking hold with our teams as they provide digital shopping experiences including finance, contactless test drives and home delivery or curbside pickup for vehicle purchases.
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Our entrepreneurial model that emphasizes personal accountability for our team powers efficient operations and allows dynamic responsiveness to each of our local markets. Our best-in-class performance management reporting provides the foundation to enable high-performing teams to drive our platform’s full potential.
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We have centralized many administrative functions to drive efficiencies and streamline store-level operations. The reduction of administrative functions at our stores allows our local managers to focus on customer-facing opportunities to increase revenues and gross profit.
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In addition, our unfinanced real estate could provide additional liquidity of approximately $290.0 million. Marketing Lithia & Driveway’s core value, “Earn Customers for Life,” drives our marketing strategy to empower consumers throughout the vehicle ownership lifecycle.
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Our national, regional, and local brands connect with consumers through advertising tailored to the individual brand and market. Utilizing data and omnichannel communications, we strive to create deeper and richer offerings to build lifelong loyalty throughout the vehicle ownership life cycle.
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In 2024, we reduced our cost per order by 32.5% and our cost per acquisition by 96.3%, through relentlessly testing our media efficiency in conjunction with operational gains. Driveway provides a differentiated retail experience for customers who prefer the simplicity of online shopping and the optionality of home delivery.
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In 2023, our unique visitors increased over 30% on a same store basis from 2022. Driveway, our online experience, puts customers in control of every aspect of their car ownership.
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Franchise Agreements Each of our stores operates under a separate franchise agreement with the manufacturer of the new vehicle brand it sells. Typical vehicle franchise agreements specify the locations within a designated market area at which the store may sell vehicles and related products and perform approved services.
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We believe no-haggle pricing transparency and a 7-day money-back guarantee make Driveway the better way to buy, sell, finance, or trade in a car online.
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Our manage by thirds approach to talent management allows us to effectively and efficiently make people related decisions that drive us towards our shared goals. As of December 31, 2024, our subsidiaries employed approximately 30,000 persons on a full-time equivalent basis in our global network of 459 retail locations.
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Under certain laws, a manufacturer may not 4 terminate or fail to renew a franchise without good cause or prevent any reasonable changes in the capital structure or financing of a store.
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Our total workforce was comprised of approximately 22% female team members and approximately 41% of minorities. Our management consisted of approximately 23% females and approximately 28% minorities in leadership positions.
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As of December 31, 2023, our subsidiaries employed approximately 27,446 persons on a full-time equivalent basis in our global network of 344 retail locations. Our total workforce was comprised of approximately 21% female employees and approximately 45% of minorities. Our management consisted of approximately 21% females and approximately 36% minorities in leadership positions.
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Some examples of our team member focused efforts include: • The Lithia Partners Group (LPG), our flagship recognition program which has been running for over 10 years, continues to identify, recognize, and reward our top-performing Leaders. The LPG celebrates exceptional leaders who embody our core values and exemplify Loyalty, Potential, and Growth.
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The survey also offered valuable insights, leading to the development of action plans by managers to address opportunities to “Improve Constantly.” • The DART (Develop, Analyze, Research, and Transform) Program started in 2020 to build high-performing leaders who aid in achieving our goal to redefine the automotive industry by providing transportation solutions wherever, whenever, and however consumers desire.
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These leaders serve as role models for organizational success and earn the prestigious title of LPG Winner—an honor that every team member aspires to achieve.
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DART participants learn the ins and outs of performance standards and build relationships cross-functionally to achieve milestones and accelerate their careers. • Launched in 2016, the AMP (Accelerate My Potential) Program initially targeted general manager readiness.
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LPG Winners gain access to exclusive events and 7 opportunities, designed to advance their careers, expand their professional networks, and foster continued personal and professional growth. • In 2023, we launched a company-wide Culture Poll to amplify the team member voice.
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Seasonality and Quarterly Fluctuations In a stable environment, the automotive industry has generally experienced higher volumes of vehicle unit sales in the second and third quarters of each year due to consumer buying trends and the introduction of new vehicle models and, accordingly, we expect our revenues and operating results to generally be higher during these periods.
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Featuring events throughout the year, the program facilitates networking, role modeling, and learning opportunities aimed to foster professional development. • Originally launched in 2000 as a General Manager readiness cohort, our AMP (Accelerate My Potential) program has evolved to provide high potential leaders an opportunity to showcase General Manager competencies through targeted action plan development, cross-store exposure, and results oriented evaluation.
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In addition, we generally experience higher volume of luxury vehicles, which have higher average selling prices and gross profit per vehicle, during the fourth quarter. The timing of our acquisition activity, which varies, and ability to integrate stores into our existing cost structure has moderated this seasonality.
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These opportunities combined with coaching, networking, and strategy alignment discussions help accelerate leaders into key roles giving LAD a pipeline of ready candidates which drives internal promotion and growth. • Our DART (Develop, Analyze, Research, and Transform) program started in 2020 as rotational program for early career talent to gain a diversity of exposure to various areas of the Organization.
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However, if conditions occur that weaken automotive sales, such as severe weather in the geographic areas in which our dealerships operate, war, high fuel costs, depressed economic conditions including unemployment or weakened consumer confidence or similar adverse conditions, or if our ability to acquire stores changes, our revenues for the year may be disproportionately adversely affected.
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Seasonality and Quarterly Fluctuations Our North American operations generally experience lower volumes in the first quarter of each year due to consumer purchasing patterns and inclement weather in certain of our markets. As a result, financial performance is expected to be lower during the first quarter than during the second, third, and fourth quarters of each fiscal year.
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Our U.K. operations generally experience higher volumes in the first and third quarter of each year, due primarily to new vehicle registration practices in the United Kingdom. We believe that interest rates, levels of consumer debt, consumer confidence and manufacturer sales incentives, as well as general economic conditions, also contribute to fluctuations in sales and operating results.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeThese risks may include, but are not limited to, the following: • fluctuations in foreign currency translations within our financial statements driven by exchange rate volatility; • inability to obtain or preserve franchise rights in the foreign countries in which we operate; • changes in distribution models in the foreign countries in which we operate; • compliance with changing laws and regulations; • compliance with United States Foreign Corrupt Practices Act and other anti-corruption laws; • wage inflation; • treatment of revenue from international sources and changes to tax rules, including being subject to foreign tax laws; • difficulties in managing foreign operations and dealing with different customs, practices and local regulations with which we are less familiar; • large uncertainties, timing delays and expenses associated with tariffs, labor matters, import or export licenses and other trade barriers; and • changes in a country’s economic or political conditions, including inflation, recession and interest rate fluctuations, and exposure to regional or global public health issues, pandemics, or epidemics, such as the outbreak of the COVID-19 pandemic.
Biggest changeForeign Corrupt Practices Act and other anti-corruption laws; • wage inflation; • treatment of revenue from international sources and changes to tax rules, including being subject to foreign tax laws; • difficulties in managing foreign operations and dealing with different customs, practices, and local regulations with which we are less familiar; • large uncertainties, timing delays, and expenses associated with tariffs, labor matters, import or export licenses, and other trade barriers; and • changes in a country’s economic or political conditions, including inflation, recession, and interest rate fluctuations, and exposure to regional or global public health issues, pandemics, or epidemics, such as the outbreak of the COVID-19 pandemic.
Economic conditions may be anemic for an extended period of time, or deteriorate in the future. This would have a material adverse effect on our retail business, particularly sales of new and used vehicles. The economies of the United States, Canada and the United Kingdom have recently experienced heightened inflationary pressures, impacting the costs of labor, fuel and other costs.
Economic conditions may be anemic for an extended period of time, or deteriorate in the future. This would have a material adverse effect on our retail business, particularly sales of new and used vehicles. The economies of the United States, the United Kingdom, and Canada have recently experienced heightened inflationary pressures, impacting the costs of labor, fuel, and other costs.
Upon the occurrence of a change in control, as defined in the indentures governing our senior notes, the holders of our senior notes will have the right to require us to purchase all or any part of such holders’ notes at a price equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any.
Upon the occurrence of a change in control, as defined in the indentures 20 governing our senior notes, the holders of our senior notes will have the right to require us to purchase all or any part of such holders’ notes at a price equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any.
In the past, manufacturers have not consented to our purchase of franchised stores and we cannot assure you that manufacturers will approve future acquisitions timely, if at all, which could significantly impair the execution of our acquisition strategy. We make a substantial capital investment when we acquire dealerships.
In the past, manufacturers have not consented to our purchase of certain franchised stores and we cannot assure you that manufacturers will approve future acquisitions timely, if at all, which could significantly impair the execution of our acquisition strategy. We make a substantial capital investment when we acquire dealerships.
Our business and results of operations are substantially dependent on new vehicle sales levels in the United 7 States and in our particular geographic markets and the level of gross profit margins that we can achieve on our sales of new vehicles, all of which are very difficult to predict. Our business is heavily dependent on consumer demand and preferences.
Our business and results of operations are substantially dependent on new vehicle sales levels in the United States and in our particular geographic markets and the level of gross profit margins that we can achieve on our sales of new vehicles, all of which are very difficult to predict. Our business is heavily dependent on consumer demand and preferences.
Changes to the automotive industry and consumer views on car ownership could materially adversely affect our business, results of operations, financial condition and cash flows. The automotive industry is predicted to experience rapid change in the years to come, including advances in electric vehicle production, driverless technology, co-ownership and subscription business models.
Changes to the automotive industry and consumer views on car ownership could materially adversely affect our business, results of operations, financial condition, and cash flows. The automotive industry is predicted to experience rapid change in the years to come, including advances in electric vehicle production, driverless technology, and subscription business models.
Our Board of Directors also has the power, without shareholder approval, to set the terms of any such series of preferred stock that may be issued, including voting powers, preferences over our common stock with respect to dividends or if we voluntarily or involuntarily dissolve or distribute our assets, and other terms.
Our Board also has the power, without shareholder approval, to set the terms of any such series of preferred stock that may be issued, including voting powers, preferences over our common stock with respect to dividends or if we voluntarily or involuntarily dissolve or distribute our assets, and other terms.
Key incentive programs include: • customer rebates; • dealer incentives on new vehicles; • special financing rates on certified, pre-owned cars; and • below-market financing on new vehicles and special leasing terms. Our financial condition could be materially adversely impacted by a discontinuation or change in our manufacturers’ or distributors’ incentive programs.
Key incentive programs include: • customer rebates; • dealer incentives on new vehicles; • special financing rates on certified, pre-owned vehicles; and • below-market financing on new vehicles and special leasing terms. Our financial condition could be materially adversely impacted by a discontinuation or change in our manufacturers’ or distributors’ incentive programs.
Even if new financing were available, it may not be on terms acceptable to us. As a result of this risk, we could be 12 forced to take actions that we otherwise would not take, or not take actions that we otherwise might take, in order to comply with these agreements.
Even if new financing were available, it may not be on terms acceptable to us. As a result of this risk, we could be forced to take actions that we otherwise would not take, or not take actions that we otherwise might take, in order to comply with these agreements.
Changes or additions to our offerings may not attract or engage our customers or prove sufficiently profitable, and may reduce confidence in our brands, expose us to increased market or legal risks, subject us to new laws and regulations, or otherwise harm our business.
Changes or additions to our offerings or businesses may not prove sufficiently profitable, attract, or engage our customers, and may reduce confidence in our brands, expose us to increased market or legal risks, subject us to new laws and regulations, or otherwise harm our business.
Regulatory Risks Our dealerships and our new vehicle sales model may not be protected if state dealer laws are repealed or weakened, a manufacturer becomes bankrupt or there is a shift to other sales models.
Cybersecurity Regulatory Risks Our dealerships and our new vehicle sales model may not be protected if state dealer laws are repealed or weakened, a manufacturer becomes bankrupt or there is a shift to other sales models.
These risks include, without limitation: • failing to identify suitable acquisition candidates and negotiate acceptable terms; • failing to assimilate the operations and personnel of acquired dealerships; • straining our existing systems, procedures, structures and personnel, including by disrupting our ongoing business and diverting our management resources; • failing to achieve expected performance levels; • incurring significantly higher capital expenditures and operating expenses, including incurring additional facility renovation costs or other expenses required by the manufacturer; • entering new, unfamiliar markets; • encountering undiscovered liabilities and operational difficulties at acquired dealerships; • failing to maintain uniform standards, controls and policies; • impairing relationships with employees, manufacturers and customers; and • overvaluing entities to be acquired.
These risks include, without limitation: • failing to identify suitable acquisition candidates and negotiate acceptable terms; • failing to assimilate the operations and personnel of acquired dealerships; • straining our existing systems, procedures, structures and personnel, including by disrupting our ongoing business and diverting our management resources; • failing to achieve expected performance levels; • incurring significantly higher capital expenditures and operating expenses, including incurring additional facility renovation costs or other expenses required by the manufacturer; • entering new, unfamiliar markets; • encountering undiscovered liabilities and operational difficulties at acquired dealerships; • failing to maintain uniform standards, controls, and policies; • impairing relationships with team members, manufacturers, and customers; and • overvaluing entities to be acquired.
Under an agency model, our dealerships receive a fee for facilitating the sale by the manufacturer of a new vehicle but do not hold the vehicle in inventory.
Under an agency model, our dealerships receive a fee for facilitating the sale by the manufacturer of a new vehicle but do not hold such vehicle in inventory.
Vehicle manufacturers would be adversely affected by economic downturns or recessions, adverse fluctuations in currency exchange rates, significant declines in the sales of their new vehicles, increases in interest rates, declines in their credit ratings, port closures, labor strikes or similar disruptions (including within their major suppliers), supply shortages or rising raw material costs, rising employee benefit costs, adverse publicity that may reduce consumer demand for their products, product defects, vehicle recall campaigns, litigation, poor product mix or unappealing vehicle design, or other adverse events.
Vehicle manufacturers would be adversely affected by economic downturns or recessions, adverse fluctuations in currency exchange rates, significant declines in the sales of their new vehicles, increases in interest rates, declines in their credit ratings, port closures, labor strikes or similar disruptions (including within their major suppliers), supply shortages or rising raw material costs, rising team member benefit costs, adverse publicity that may reduce consumer demand for their products, product defects, vehicle recall campaigns, litigation, poor product mix or unappealing vehicle design, or other adverse events.
Our sales volume could be materially adversely impacted by a manufacturer’s or distributor’s inability to supply our stores with an adequate supply of vehicles. 10 In the event of a manufacturer or distributor bankruptcy, we could be held liable for damages related to product liability claims, intellectual property suits or other legal actions.
Our sales volume could be 11 materially adversely impacted by a manufacturer’s or distributor’s inability to supply our stores with an adequate supply of vehicles. In the event of a manufacturer or distributor bankruptcy, we could be held liable for damages related to product liability claims, intellectual property suits or other legal actions.
Our financing activities are subject to federal truth-in-lending, consumer leasing and equal credit opportunity laws and regulations, as well as state and local motor vehicle finance laws, installment finance laws, insurance laws, usury laws and other installment sales laws and regulations. Some states regulate finance, documentation and administrative fees that may be charged in connection with vehicle sales.
Our financing activities are subject to federal truth-in-lending, consumer leasing, and equal credit opportunity laws and regulations, as well as motor vehicle finance laws, installment finance laws, insurance laws, usury laws and other installment sales laws and regulations. Some states regulate finance, documentation and administrative fees that may be charged in connection with vehicle sales.
Our Board of Directors is authorized to issue a series of preferred stock without any action on the part of our holders of common stock.
Our Board is authorized to issue a series of preferred stock without any action on the part of our holders of common stock.
Any security breach or event resulting in the misappropriation, loss, or other unauthorized disclosure of confidential information, or degradation of services provided by critical business systems, whether by us directly or our third-party service providers, could adversely affect our business operations, sales, reputation with current and potential customers, associates or vendors, as well as other operational and financial impacts derived from investigations, litigation, imposition of penalties or other means.
Any security breach or event resulting in the misappropriation, loss, or other unauthorized disclosure of confidential information, or degradation or loss of services provided by critical business systems, whether by us directly or our third-party service providers, or any other loss of access to such critical business systems, could adversely affect our business operations, sales, reputation with current and potential customers, associates or vendors, as well as other operational and financial impacts derived from investigations, litigation, imposition of penalties or other means.
We have granted a security interest in a substantial portion of our assets to certain of our lenders and other secured parties, including those under our $4.6 billion syndicated credit facility and $1.1 billion CAD Canadian syndicated credit facility.
We have granted a security interest in a substantial portion of our assets to certain of our lenders and other secured parties, including those under our $6.0 billion syndicated credit facility and $1.1 billion CAD Canadian syndicated credit facility.
In addition, larger traditional automotive retailers are transforming their models to support omni-channel retail experiences, providing consumers with vehicle purchasing experiences outside of the traditional brick and mortar automotive dealership model. We continue to develop our own internal technology solutions to further expand the reach of the networks of service and delivery points in our geographic markets.
In addition, larger traditional automotive retailers are transforming their models to support omnichannel retail experiences, providing consumers with vehicle purchasing experiences outside of the traditional brick and mortar automotive dealership model. We continue to develop our own internal technology solutions to further expand the reach of the networks of service and delivery points in our geographic markets.
For instance, authorized dealers are generally able to, subject to manufacturer facility requirements, relocate or add additional facilities throughout the European Union, 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 European Union.
For instance, 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.
The loss of the services of key employees or the inability to attract additional qualified personnel could have a material adverse effect on our business, results of operations, financial condition and cash flows. In addition, the lack of qualified managers or other employees employed by potential acquisition candidates may limit our ability to consummate future acquisitions.
The loss of the services of key team members or the inability to attract additional qualified personnel could have a material adverse effect on our business, results of operations, financial condition, and cash flows. In addition, the lack of qualified managers or other team members employed by potential acquisition candidates may limit our ability to consummate future acquisitions.
Further, private causes of action on behalf of individuals or a class of individuals could result in significant damages or injunctive relief. We may be involved in legal proceedings arising from the conduct of our business, including litigation with customers, employee-related lawsuits, class actions, purported class actions and actions brought by or on behalf of governmental authorities.
Further, private causes of action on behalf of individuals or a class of individuals could result in significant damages or injunctive relief. We may be involved in legal proceedings arising from the conduct of our business, including litigation with customers, team member-related lawsuits, class actions, purported class actions and actions brought by or on behalf of governmental authorities.
Our dealerships are in states and regions in the United States, Canada, and the U.K. in which actual or threatened natural disasters and severe weather events (such as hurricanes, earthquakes, fires, floods, landslides, wind and/or hail storms) or other extraordinary events have in the past, and may in the future, disrupt our dealership operations and impair the value of our dealership property.
Our dealerships are in states and regions in the United States, the United Kingdom, and Canada in which actual or threatened natural disasters and severe weather events (such as hurricanes, earthquakes, fires, floods, landslides, wind and/or hail storms) or other extraordinary events have in the past, and may in the future, disrupt our dealership operations and impair the value of our dealership property.
Any cost increase that disproportionately applies to manufacturers that sell to us could adversely affect our business compared to other vehicle retailers. 16 Our operations are subject to extensive governmental laws and regulations.
Any cost increase that disproportionately applies to manufacturers that sell to us could adversely affect our business compared to other vehicle retailers. 17 Our operations are subject to extensive governmental laws and regulations.
Our internal and third-party systems have been and may in the future be subject to cyber-attacks, viruses, malicious software, ransomware, break-ins, theft, computer hacking, phishing, exploitation of system vulnerabilities or misconfigurations, employee error, or malfeasance or other security breaches or loss of service.
Our internal and third-party systems have been and may in the future be subject to cyber-attacks, viruses, malicious software, ransomware, break-ins, theft, computer hacking, phishing, exploitation of system vulnerabilities or misconfigurations, team member error, or malfeasance or other security breaches or loss of service.
If there are unauthorized activities, the state and federal authorities have the power to impose civil penalties and sanctions, suspend or withdraw dealer licenses or take other actions. These actions could materially impair our activities or our ability to acquire new stores in those states where violations occurred.
If there are unauthorized activities, the jurisdictional authorities have the power to impose civil penalties and sanctions, suspend or withdraw dealer licenses or take other actions. These actions could materially impair our activities or our ability to acquire new stores in those states where violations occurred.
In addition, as we expand into new markets and develop our digital e-commerce solutions, we will need to hire additional managers, engineers, data scientists and other employees. The market for qualified employees in the 18 automotive and technology-related industries is highly competitive and may subject us to increased labor costs during periods of low unemployment.
In addition, as we expand into new markets and develop our digital e-commerce solutions, we will need to hire additional managers, engineers, data scientists, and other team members. The market for qualified team members in the automotive and technology-related industries is highly competitive and may subject us to increased labor costs during periods of low unemployment.
If we or any of our employees at any individual dealership violate or are alleged to violate laws and regulations applicable to them or protecting consumers generally, we could be subject to individual claims or consumer class actions, administrative, civil or criminal investigations or actions and adverse publicity.
If we or any of our team members at any individual dealership violate or are alleged to violate laws and regulations applicable to them or protecting consumers generally, we could be subject to individual claims or consumer class actions, administrative, civil or criminal investigations or actions and adverse publicity.
We are subject to federal, state and local laws and regulations in the geographic regions in which we operate, such as those relating to franchising, motor vehicle sales, retail installment sales, leasing, finance and insurance, marketing, licensing, consumer protection, consumer privacy, escheatment, anti-money laundering, environmental, vehicle emissions and fuel economy, and health and safety.
We are subject to federal, state, and local laws and regulations in the geographic regions in which we operate, such as those relating to franchising, motor vehicle sales, retail installment sales, leasing, F&I, marketing, licensing, consumer protection, consumer privacy, escheatment, anti-money laundering, environmental, vehicle emissions and fuel economy, and health and safety.
In addition, certain manufacturers use criteria such as a dealership’s manufacturer-determined customer satisfaction index (CSI score), facility image compliance, employee training, digital marketing and parts purchase programs as factors governing participation in incentive programs.
In addition, certain manufacturers use criteria such as a dealership’s manufacturer-determined customer satisfaction index (CSI score), facility image compliance, team member training, digital marketing and parts purchase programs as factors governing participation in incentive programs.
In recent years, private plaintiffs and state attorneys general in the United States have increased their scrutiny of advertising, sales, and finance and insurance activities in the sale and leasing of motor vehicles. These activities have led many lenders to limit the amounts that may be charged to customers as fee income for these activities.
In recent years, private plaintiffs and state attorneys general in the United States have increased their scrutiny of advertising, sales, and F&I activities in the sale and leasing of motor vehicles. These activities have led many lenders to limit the amounts that may be charged to customers as fee income for these activities.
These provisions may also affect attempts that might result in a premium over the market price for the shares held by shareholders and may make removal of the incumbent management and directors more difficult, which, under certain circumstances, could reduce the market price of our common stock. Our issuance of preferred stock could adversely affect holders of common stock.
These provisions may also affect attempts that might result in a premium over the market price for the shares held by shareholders and may make removal of the incumbent management and directors more difficult, which, under certain circumstances, could reduce the market price of our common stock.
Customers are using the Internet to compare pricing for vehicles and related finance and insurance services, which may further reduce margins for new and used vehicles and profits for related finance and insurance services. If Internet new vehicle sales are allowed to be conducted without the involvement of franchised dealers, our business could be materially adversely affected.
Customers are using the Internet to compare pricing for vehicles and related F&I services, which may further reduce margins for new and used vehicles and profits for related F&I services. If Internet new vehicle sales are allowed to be conducted without the involvement of franchised dealers, our business could be materially adversely affected.
Our finance and insurance business and other related businesses, which have higher margins than sales of new and used vehicles, are subject to strong competition from various financial institutions and others. The Internet has become a significant part of the sales process in our industry.
Our F&I business and other related businesses, which have higher margins than sales of new and used vehicles, are subject to strong competition from various financial institutions and others. The Internet has become a significant part of the sales process in our industry.
Technology and Cybersecurity Risks Changes to the retail delivery model and increased e-commerce and omni-channel competition could adversely affect our business, results of operations, financial condition and cash flows.
Technology and Cybersecurity Risks Changes to the retail delivery model and increased e-commerce and omnichannel competition could adversely affect our business, results of operations, financial condition and cash flows.
We may face increased competition for market share with these other delivery models and omni-channel retailers over time which could materially and adversely affect our results of operations.
We may face increased competition for market share with these other delivery models and omnichannel retailers over time which could materially and adversely affect our results of operations.
Our floor plan notes payable, credit facilities and a portion of our real estate debt are subject to variable interest rates. As of December 31, 2023, 63% of our total debt was variable rate. In the event interest rates increase, our borrowing costs may increase substantially.
Our floor plan notes payable, credit facilities and a portion of our real estate debt are subject to variable interest rates. As of December 31, 2024, 66% of our total debt was variable rate. In the event interest rates increase, our borrowing costs may increase substantially.
The effect of driverless vehicles on the automotive industry is uncertain and could include changes in the level of new and used vehicle sales, the price of new vehicles, and the role of franchised dealers, any of which could materially and adversely affect our business. 9 We compete in a dynamic industry, and we may invest significant resources to pursue strategies and develop new offerings that do not prove effective.
The effect of driverless vehicles on the automotive industry is uncertain and could include changes in the level of new and used vehicle sales, the price of new vehicles, and the role of franchised dealers, any of which could materially and adversely affect our business. 10 We compete in a dynamic industry, and we may invest significant resources to pursue strategies, develop new offerings, and enter into adjacent businesses that do not prove effective.
Changes in United States trade policies, including the United States-Mexico-Canada Agreement or policies intended to penalize foreign manufacturing or imports, and policies of foreign countries in reaction to those changes, could increase the prices we pay for some of the new vehicles and parts we sell.
Changes in U.S. trade policies, including the U.S.-Mexico-Canada Agreement or policies intended to penalize foreign manufacturing or imports, and policies of foreign countries in reaction to those changes, could increase the prices we pay for some of the new vehicles and parts we sell.
Customers may prefer other channels for vehicle sales and related finance and insurance services, because they may offer different or superior platforms, or because customers find those platforms easier to use, faster, or more cost effective than our services.
Customers may prefer other channels for vehicle sales and related F&I services, because they may offer different or superior platforms, or because customers find those platforms easier to use, faster, or more cost effective than our services.
The most popular vehicles usually produce the highest profit margins and are frequently in short supply. If we cannot obtain sufficient quantities of the most popular models, our profitability may be adversely affected. Sales of less desirable models may reduce our profit margins.
The most popular vehicles usually produce the highest profit margins and are frequently in short supply. If we cannot obtain sufficient quantities of the most popular models, our profitability may be adversely affected.
Our competitors include publicly and privately-owned dealerships. Many of our competitors sell the same or similar makes of new and used vehicles that we offer in our markets at competitive prices. We do not have any cost advantage in purchasing new vehicles from manufacturers due to the volume of purchases or otherwise.
Many of our competitors sell the same or similar makes of new and used vehicles that we offer in our markets at competitive prices. We do not have any cost advantage in purchasing new vehicles from manufacturers due to the volume of purchases or otherwise.
However, under the EU Motor Vehicle Block Exemption Regulation, which was retained in U.K. law following U.K.’s exit from the European Union on January 31, 2020, certain restrictions on dealerships are permissible in franchise agreements provided certain conditions are met.
However, under the EU Motor Vehicle Block Exemption Regulation, which was retained in U.K. law following the United Kingdom’s exit from the EU on January 31, 2020, certain restrictions on dealerships are permissible in franchise agreements provided certain conditions are met.
Credit and residual value losses are an inherent risk of our auto loan and lease portfolio and could result in a material adverse effect on our results of operations. We estimate an allowance for loan losses based on a variety of assumptions about DFC’s portfolio of auto loan receivables and lease receivables.
Credit and residual value losses are an inherent risk of our finance receivable portfolio and could result in a material adverse effect on our results of operations. We estimate an allowance for credit losses based on a variety of assumptions about DFC’s portfolio of finance receivables.
Certain United States state dealer laws allow dealers to file protests or petitions or attempt to comply with the manufacturer’s criteria within the notice period to avoid the termination or non-renewal.
Certain U.S. state dealer laws allow dealers to file protests or petitions or attempt to comply with the manufacturer’s criteria within the notice period to avoid the termination or non-renewal.
Additionally, other economic factors, such as rising and sustained periods of high crude oil and fuel prices, may impact consumer demand and preferences. As we operate internationally, including across the U.S., Canada, and the U.K., changes in and the severity of economic conditions may vary by market.
Additionally, other economic factors, such as rising and sustained periods of high crude oil and fuel prices, may impact consumer demand and preferences. As we operate internationally, including across the United States, the United Kingdom, and Canada, changes in and the severity of economic conditions may vary by market.
In addition, we may face increasingly significant competition as we strive to gain market share through acquisitions or otherwise. Our operating margins may decline over time as we expand into markets where we do not have a leading position.
In addition, we may face increasingly significant competition as we strive to gain market share through acquisitions or otherwise. Our operating margins may decline over time as we expand into markets where we do not have a leading position or that operate under higher pressure on margins.
In addition, state dealer laws restrict the ability of vehicle manufacturers to directly enter the retail market. Manufacturer lobbying efforts and lawsuits may lead to the repeal or revision of these laws. For example, Tesla has 15 received a favorable ruling in certain states allowing direct to consumer sales and service.
Generally, state dealer laws restrict the ability of vehicle manufacturers to directly enter the retail market. Manufacturer lobbying efforts and lawsuits have led to the repeal or revision of these laws. For example, Tesla received a favorable ruling in certain states allowing direct to consumer sales and service.
We collect, process, share, disclose, transfer, and otherwise use personal information about identifiable individuals including, but not limited to, our customers, employees, partners, and vendors, and so are subject to US and international laws and regulations, regarding data privacy and security such as the California Consumer Privacy Act and the UK General Data Protection Regulation.
We collect, process, share, disclose, transfer, and otherwise use personal information about 15 identifiable individuals including, but not limited to, our customers, team members, partners, and vendors, and so are subject to U.S. and international laws and regulations, regarding data privacy and security such as the California Consumer Privacy Act and the U.K. General Data Protection Regulation.
We have made and may continue to make significant investments to drive the development of and support of e-commerce and digital technology capabilities, including the launch of Driveway, our e-commerce home solution, and DFC, our in-house consumer financing business.
We have made and may continue to make significant investments to drive the development of and support of e-commerce and digital technology capabilities, including the launch of Driveway, our e-commerce home solution, and DFC, our in-house consumer financing business. We have also recently invested in a dealer-management technology business and a fleet management business.
While our operations outside of the United States currently represent a small portion of our revenue, we anticipate that our international operations will expand. We face regulatory, operational, political and economic risks and uncertainties with respect to our international operations that may be different from those in the United States.
While our operations outside of the United States currently represent less than 25% of our revenues, we anticipate that our international operations will expand. We face regulatory, operational, political, and economic risks and uncertainties with respect to our international operations that may be different from those in the United States.
Technological advances are also facilitating the development of driverless vehicles. The eventual timing of availability of driverless vehicles is uncertain due to regulatory requirements, technological hurdles, and uncertain consumer acceptance of these technologies.
The eventual timing of availability of driverless vehicles is uncertain due to regulatory requirements, technological hurdles, and uncertain consumer acceptance of these technologies.
For the year ended December 31, 2023, approximately 21% of our service, body and parts revenue was for work covered by manufacturer warranties or manufacturer-sponsored maintenance services. To the extent a manufacturer reduces the labor rates or markup of replacement parts for such warranty work, our service, body and parts sales volume could be adversely affected.
For the year ended December 31, 2024, approximately 24% of our aftersales revenue was for work covered by manufacturer warranties or manufacturer-sponsored maintenance services. To the extent a manufacturer reduces the labor rates or markup of replacement parts for such warranty work, our aftersales volume could be adversely affected.
Economic conditions and the other factors described above may also materially adversely impact our sales of used vehicles, parts and repair and maintenance services, and automotive finance and insurance products. Natural disasters, adverse weather conditions, and public health emergencies can disrupt our business.
Economic conditions and the other factors described above may also materially adversely impact our parts and repair and maintenance aftersales, and automotive finance and insurance (F&I) products. Natural disasters, adverse weather conditions, and public health emergencies can disrupt our business.
If new vehicle production exceeds the rate at which new vehicles are sold, our gross profit per vehicle could be adversely affected by this excess and any resulting changes in manufacturer incentive and marketing programs.
A period of sustained inflationary and interest rate pressures could impact our profitability. If new vehicle production exceeds the rate at which new vehicles are sold, our gross profit per vehicle could be adversely affected by this excess and any resulting changes in manufacturer incentive and marketing programs.
We depend on our manufacturers to deliver high-quality, defect-free vehicles. If a manufacturer experiences quality issues, our sales and financial performance may be adversely impacted. In addition, the discontinuance of a particular brand that is profitable to us could negatively impact our revenues and profitability.
If a manufacturer experiences quality issues, our sales and financial performance may be adversely impacted. In addition, the discontinuance of a particular brand that is profitable to us could negatively impact our revenues and profitability.
The extent to which global pandemics impact our business going forward will depend on factors such as the duration and scope of the pandemic; governmental, business, and individuals' actions in response to the pandemic; and the impact on economic activity, including the possibility of recession or financial market instability. The automotive manufacturing supply chain spans the globe.
The extent to which public health emergencies or other extraordinary events impact our business going forward will depend on factors such as the duration and scope of the event; governmental, business, and individuals' actions in response to the event; and the impact on economic activity, including the possibility of recession or financial market instability. 9 The automotive manufacturing supply chain spans the globe.
Additionally, recent increases in interest rates have impacted new and used vehicle sales and vehicle affordability due to the direct relationship between interest rates and monthly loan payments, a critical factor for many vehicle buyers, and the impact interest rates have on customers’ borrowing capacity and disposable income.
Additionally, interest rates remain significantly elevated above the rates available in 2021, which has impacted new and used vehicle sales and vehicle affordability due to the direct relationship between interest rates and monthly loan payments, a critical factor for many vehicle buyers, and the impact interest rates have on customers’ borrowing capacity and disposable income.
Breaches in our data security systems or in systems used by our vendor partners, including cyber-attacks or unauthorized data distribution by employees or affiliated vendors, or disruptions to access and connectivity of our information systems could impact our operations or result in the loss or misuse of customers’ proprietary information. 14 Our information technology systems are important to operating our business efficiently.
Breaches in our data security systems or in systems used by our vendor partners, including cyber-attacks or unauthorized data distribution by team members or affiliated vendors, or disruptions to access and connectivity of our information systems could impact our operations or result in the loss or misuse of customers’ proprietary information.
BEVs generally require less maintenance than traditional cars and trucks. The effects of BEVs on the automotive industry are uncertain and may include reduced parts and service revenues, as well as changes in the level of sales of certain Finance and Insurance (F&I) products such as extended warranty and lifetime lube, oil and filter contracts.
BEVs generally require less maintenance than traditional cars and trucks. The effects of BEVs on the automotive industry are uncertain and may include reduced aftersales revenues, as well as changes in the level of sales of certain F&I products such as extended warranty and lifetime lube, oil and filter contracts. Technological advances are also facilitating the development of driverless vehicles.
Much of our debt has a variable interest rate component that may significantly increase our interest costs in a rising rate environment.
Much of our debt is secured by a substantial portion of our assets. Much of our debt has a variable interest rate component that may significantly increase our interest costs in a rising rate environment.
Our failure to address these risks or other problems encountered in connection with our acquisitions could cause us to fail to realize the anticipated benefits of these acquisitions, cause us to incur unanticipated liabilities and otherwise harm our business. Any of these risks, if realized, could materially and adversely affect our business, financial condition and results of operations.
Our failure to address these risks or other problems encountered in connection with our acquisitions could cause us to fail to realize the anticipated benefits of these acquisitions, cause us to incur unanticipated liabilities and otherwise harm our business.
We employ information technology systems, including websites, that allow for the secure handling and processing of customers’ proprietary information.
Our information technology systems are important to operating our business efficiently. We employ information technology systems, including websites, that allow for the secure handling and processing of customers’ proprietary information.
See Note 11 – Derivative Financial Instruments, related to current hedge activity. We may not be able to satisfy our debt obligations upon the occurrence of a change in control under our debt instruments.
We may not be able to satisfy our debt obligations upon the occurrence of a change in control under our debt instruments.
We finance acquisitions activity with cash flows from our operations, borrowings under our credit arrangements, proceeds from our offering of senior notes, proceeds from mortgage financing and the issuance of shares of common stock. The size of our acquisition activity in recent years magnifies risks associated with debt service obligations.
We finance acquisitions activity primarily with cash flows from our operations, borrowings under our credit arrangements, mortgage financing proceeds, and we may obtain financing from debt and equity capital market offerings. The size of our acquisition activity in recent years magnifies risks associated with debt service obligations.
As such, supply chain disruptions resulting from natural disasters, adverse weather events, or public health emergencies may affect the flow of inventory or parts to us or our manufacturing partners.
As such, supply chain disruptions resulting from natural disasters, adverse weather events, or public health emergencies may affect the flow of inventory or parts to us or our manufacturing partners. Such disruptions could have a material adverse effect on our business, financial condition, results of operations, or cash flows.
The establishment of or relocation of franchises in our markets could have a material adverse effect on the business, financial condition and results of operations of our stores in the market in which the action is taken.
The establishment of or relocation of franchises in our markets could have a material adverse effect on the business, financial condition, and results of operations of our stores in the market in which the action is taken. Changes to manufacturer distribution models may disrupt the way we do business and impact our revenues and profitability.
The majority of our dealerships in the U.K. operate under franchise agreements with vehicle manufacturers, however, unlike in the United States, 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 that exist in the United States.
Our U.K. dealerships are subject to different regulatory frameworks than our U.S. and Canada operations, and changes to these regulatory frameworks could negatively affect our results of operations. 16 The majority of our dealerships in the United Kingdom currently operate under franchise agreements with vehicle manufacturers, however, unlike in the United States, the United Kingdom generally does not have automotive dealership franchise laws and, as a result, our U.K. dealerships operate without these types of specific protections that exist in the United States.
In addition, many states have recently passed or are introducing legislation to permit direct to consumer auto sales in certain circumstances, allowing additional electric vehicle manufacturers such as Rivian to enter the market.
In addition, some states are considering introducing legislation to permit direct to consumer auto sales in certain circumstances, allowing additional electric vehicle manufacturers such as Rivian to enter the market. Other manufacturers, such as Scout have signaled a desire to commence a direct-to-consumer model.
Failure to comply with applicable laws and regulations, or significant additional expenditures required to maintain compliance therewith, may have a material adverse effect on our business, results of operations, financial condition, cash flows and prospects. 17 Structural and Organizational Risks Our ability to increase revenues and profitability through acquisitions depends on our ability to acquire and successfully integrate new vehicle franchises.
Failure to comply with applicable laws and regulations, or significant additional expenditures required 18 to maintain compliance therewith, may have a material adverse effect on our business, results of operations, financial condition, cash flows, and prospects.
Additionally, our expansion into Canada and the United Kingdom subjects us to additional privacy and security regulations which also impact the way we handle and secure data across borders. We collect, process, and retain personally identifiable information regarding customers, associates and vendors in the normal course of our business.
Additionally, our expansion into Canada and the United Kingdom subjects us to additional privacy and security regulations which also impact the way we handle and secure data across borders.
For example, the shortage of chip supply and labor disruptions in 2021 and 2022 caused a significant constraint in the supply of new cars resulting in reduced volumes and increased gross profit margins on retail vehicle sales. As new vehicle availability continues to improve, volumes may improve; however, gross profit margins may be impacted.
For example, the shortage of chip supply and labor disruptions in 2021 and 2022 caused a significant constraint in the supply of new vehicles resulting in reduced volumes and increased gross profit margins on retail vehicle sales. As new vehicle availability has improved, gross profit margins have been negatively impacted. We depend on our manufacturers to deliver high-quality, defect-free vehicles.
Item 1A. Risk Factors You should carefully consider the risks described below before making an investment decision. The risks described below are not the only ones facing our company. Additional risks not presently known to us, or that we currently deem immaterial, may also impair our business operations.
Item 1A. Risk Factors You should carefully consider the risks described below before making an investment decision. The risks described below are not the only ones facing our company.
Each of our stores operates pursuant to a franchise agreement with each of the respective manufacturers for which it serves as franchisee. Each of our stores may obtain new vehicles from manufacturers, service vehicles, sell new vehicles, and display vehicle manufacturers’ brand only to the extent permitted under these agreements.
Each of our stores may obtain new vehicles from manufacturers, service vehicles, sell new vehicles, and display vehicle manufacturers’ brand only to the extent permitted under these agreements. As a result of the terms of our franchise agreements, manufacturers exert significant control over the day-to-day operations at our stores.
Such disruptions could have a material adverse effect on our business, financial condition, results of operations, or cash flows. 8 Increasing competition among automotive retailers reduces our profit margins on vehicle sales and related businesses. Further, the use of the Internet in the car purchasing process could materially adversely affect us. Vehicle retailing is a highly competitive business.
Increasing competition among automotive retailers reduces our profit margins on vehicle sales and related businesses. Further, the use of the Internet, e-commerce, and digital technology in the car purchasing process could materially adversely affect us. Vehicle retailing is a highly competitive business. Our competitors include publicly and privately-owned dealerships.
As a result 11 of the terms of our franchise agreements, manufacturers exert significant control over the day-to-day operations at our stores. Such agreements contain provisions for termination or non-renewal for a variety of causes, including service retention, facility compliance, customer satisfaction and sales and financial performance.
Such agreements contain provisions for termination or non-renewal for a variety of causes, including service retention, facility compliance, customer satisfaction, and sales and financial performance.
Environmental laws and regulations govern, among other things, discharges into the air and water, storage of petroleum substances and chemicals, the handling and disposal of wastes and remediation of contamination arising from spills and releases.
Environmental laws and regulations govern, among other things, discharges into the air and water, storage of petroleum substances and chemicals, the handling and disposal of wastes and remediation of contamination arising from spills and releases. In addition, we may also have liability in connection with materials that were sent to third-party recycling, treatment and/or disposal facilities.
Import product restrictions, currency valuations, and foreign trade risks may impair our ability to sell foreign vehicles or parts profitably. A significant portion of the vehicles we sell are manufactured outside of the geographic regions in which we operate, and all of the vehicles we sell include parts manufactured outside of the geographic regions in which we operate.
A significant portion of the vehicles we sell are manufactured outside of the geographic regions in which we operate, and all of the vehicles we sell include parts manufactured outside of the geographic regions in which we operate.
A “change in control” as defined in our credit agreement includes, among other events, the acquisition by any person, or two or more persons acting in concert, in either case other than Lithia Holdings Company, L.L.C., Sid DeBoer or Bryan DeBoer, of beneficial ownership (within the meaning of Rule 13d-3 of the SEC under the Securities Exchange Act of 1934) of 35% or more of the outstanding shares of our voting stock on a fully diluted basis.
A “change in control” as defined in our credit agreement includes, among other events, the acquisition by any person, or two or more persons acting in concert, in either case other than Lithia Holdings Company, L.L.C., Sidney B. DeBoer or Bryan B.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeWe assess cybersecurity risks for their potential impact on our operations, data, and reputation. Risks are prioritized based on their severity and likelihood of occurrence before implementing appropriate controls, safeguards, and mitigation measures to address and manage these risks effectively.
Biggest changeRisks are prioritized based on their severity and likelihood of occurrence before implementing appropriate controls, safeguards, and mitigation measures to address and manage these risks effectively. We have developed a well-defined and frequently updated information security incident response plan that outlines procedures to be followed in the event of a cybersecurity incident.
Management’s Assessment and Response to Material Risks from Cybersecurity Threats Our information security team and its leadership have primary responsibility for assessing and managing cybersecurity risks, within the scope of the overall ERM Committee.
Management’s Assessment and Response to Material Risks from Cybersecurity Threats Our information security team and its leadership have primary responsibility for assessing and managing cybersecurity risks, within the scope of the overall ERM Committee. Our Senior Director of Information Security is responsible for identifying, assessing, and managing risks from cybersecurity threats.
The committee meets on a quarterly basis or as necessary to assess and respond to enterprise risks, including cybersecurity. The ERM Committee reports updates to the Board of Directors when appropriate and at least on an annual basis.
The ERM Committee meets on a quarterly basis or as necessary to assess and respond to enterprise risks, including cybersecurity, and reports updates to the Board.
We use advanced threat detection tools and technologies to identify potential cybersecurity risks. This includes continuous monitoring, intrusion detection systems, and anomaly detection mechanisms, to promptly identify any unusual activities or security breaches. Threat intelligence sharing with industry partners helps ensure we stay informed about the latest cybersecurity threats.
This includes continuous monitoring, intrusion detection systems, and anomaly detection mechanisms, to promptly identify any unusual activities or security breaches. Threat intelligence sharing with industry partners helps us stay informed about the latest cybersecurity threats. We assess cybersecurity risks for their potential impact on our operations, data, and reputation.
Board members and executives participate in engagements on cybersecurity, such as simulated cyber incident response and crisis management exercises. Our Board also regularly receives and reviews third-party cybersecurity assessments, which include assessments of our cyber maturity and cyber risk.
Our Board is briefed on our cybersecurity posture, current and future risks and potential incidents or vulnerabilities on a quarterly basis. Board members and executives participate in engagements on cybersecurity, such as simulated cyber incident response and crisis management exercises. Our Board also regularly receives and reviews third-party cybersecurity assessments, which include assessments of our cyber maturity and cyber risk.
Employees are regularly trained on key cybersecurity subjects to ensure awareness. 19 While no company can or will be completely immune from cybersecurity threats, especially as they relate to vendors and government agencies that we rely on, we know of no cybersecurity incident that has or is likely to materially affect us, our business strategy, or our results of operations, or financial condition.
While no company can or will be completely immune from cybersecurity threats, especially as they relate to vendors and government agencies that we rely on, we know of no cybersecurity incident that has or is likely to materially affect us, our business strategy, or our results of operations, or financial condition. 21 Board of Directors Cybersecurity Oversight Our Board oversees our cybersecurity and data protection strategy and appoints a director to lead the Board’s efforts.
The identification and oversight of material cybersecurity risks is included in continuous Enterprise Risk Management (ERM) Committee and Board of Directors meetings and reporting. We complete regular cybersecurity assessments to identify potential vulnerabilities and threats, analyzing our infrastructure, systems, and data.
The identification and oversight of material cybersecurity risks is included in continuous ERM Committee and Board meetings and reporting. We complete regular cybersecurity assessments to identify potential vulnerabilities and threats, analyzing our infrastructure, systems, and data. Assessments are conducted both internally and by third parties and consider internal and external factors, technological changes, regulatory requirements, and emerging cyber threats.
We have developed a well-defined and frequently updated information security incident response plan that outlines procedures to be followed in the event of a cybersecurity incident. The plan is periodically drilled with incident response team members and includes robust processes for identification, categorization, escalation and reporting of incidents.
The plan is periodically drilled with incident response team members and includes robust processes for identification, categorization, escalation and reporting of incidents. Team members are regularly trained on key cybersecurity subjects to ensure awareness.
Assessments are conducted both internally and by third parties and consider internal and external factors, technological changes, regulatory requirements, and emerging cyber threats. Our cybersecurity program adheres to widely recognized standards for managing cybersecurity risk, including the National Institute of Standards and Technology Cybersecurity Framework, Center for Internet Security Controls and UK Cyber Essentials.
Our cybersecurity program adheres to widely recognized standards for managing cybersecurity risk, including the National Institute of Standards and Technology Cybersecurity Framework, Center for Internet Security Controls and U.K. Cyber Essentials. We use advanced threat detection tools and technologies to identify potential cybersecurity risks.
Removed
Board of Directors Cybersecurity Oversight Our Board of Directors oversees our cybersecurity and data protection strategy and appoints a director to lead the Board’s efforts. Our Board is briefed on our cybersecurity posture, current and future risks and potential incidents or vulnerabilities on a quarterly basis.
Added
In June 2024, a cybersecurity incident occurred involving CDK, a third-party provider of certain information systems used by us, that triggered our information security incident response plan. Although the incident disrupted our operations, we believe our response plan operated substantially as we intended and the incident did not materially impact our financial condition or results of operations.
Removed
Such individuals collectively have over 80 years of prior work experience in various roles involving managing information security, developing cybersecurity strategy, and implementing effective information and cybersecurity programs. Cybersecurity threats are reported to management through robust and documented incident reporting processes. Our ERM Committee is comprised of Information Security, Legal, Treasury and other key executive stakeholders.
Added
The incident, however, provided us an opportunity to test our response plan, refine our procedures and consider improvements.
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The Senior Director of Information Security manages our cybersecurity program and receives information regarding cybersecurity incidents and threats from our information security management team, through internal cyber risk management processes.
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The Senior Director of Information Security reports to the Chief Technology and Innovation Officer (CTIO) and provides frequent and up to date reporting on cyber risk to our ERM Committee, a cross functional executive-level steering group, which includes the CTIO and has a wealth of experience in enterprise risk.
Added
The Senior Director of Information Security has over 10 years of experience in senior level information security roles, has over 20 years' experience in Fortune 500 enterprise IT roles, and holds Associate and Bachelor Degrees and the Certified Information Security Manager (CISM) Professional certification, amongst others.
Added
The members of our information security management team have extensive experience in technology and security roles, possessing cybersecurity certifications such as Certified Information Systems Security Professional (CISSP), Cisco Certified Network Professional (CCNP) and Global Certified Incident Handler (GCIH), amongst others."

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeManagement’s Discussion and Analysis of Financial Condition and Results of Operations. We believe our facilities are currently adequate for our needs and are in good repair. Some of our facilities do not currently meet manufacturer image or size requirements and we are actively working to find a mutually acceptable outcome in terms of timing and overall cost.
Biggest changeSome of our facilities do not currently meet manufacturer image or size requirements and we are actively working to find a mutually acceptable outcome in terms of timing and overall cost. We own our corporate headquarters in Medford, Oregon, and numerous other properties used in our operations.
Item 2. Properties Our stores and other facilities consist primarily of vehicle showrooms, display lots, service facilities, collision repair and paint shops, supply facilities, vehicle storage lots, parking lots and offices across the U.S., Canada, and the U.K. in the locations shown in the maps under the Overview section of Item 7.
Item 2. Properties Our stores and other facilities consist primarily of vehicle showrooms, display lots, service facilities, collision repair and paint shops, supply facilities, vehicle storage lots, parking lots, and offices across the United States, the United Kingdom, and Canada. We believe our facilities are currently adequate for our needs and are in good repair.
We own our corporate headquarters in Medford, Oregon, and numerous other properties used in our operations. Certain of our owned properties are mortgaged or secured as part of commitments on our various real estate credit facilities. As of December 31, 2023, we had outstanding mortgage debt of $624.4 million, and $295.8 million outstanding on our real estate credit facilities.
Certain of our owned properties are mortgaged or secured as part of commitments on our various real estate credit facilities. As of December 31, 2024, we had outstanding mortgage debt of $904.6 million, none outstanding on our real estate credit facilities, and $1.8 billion committed as part of availability on our working capital lines of credit.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeAlthough we do not anticipate that the resolution of legal proceedings arising in the normal course of business will have a material adverse effect on our business, results of operations, financial condition, or cash flows, we cannot predict this with certainty. 20 PART II
Biggest changeAlthough we do not anticipate that the resolution of legal proceedings arising in the normal course of business will have a material adverse effect on our business, results of operations, financial condition, or cash flows, we cannot predict this with certainty. 22 PART II

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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Biggest changeItem 4. Mine Safety Disclosure s Not applicable PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 21 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations : 23 Results of operations 23 Liquidity and capital resources 37 Critical accounting estimates 41 Item 7A.
Biggest changeItem 4. Mine Safety Disclosure s Not applicable PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 23 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations : 25 Results of operations 25 Liquidity and capital resources 37 Critical accounting estimates 41 Item 7A.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest change(1) Base Period Indexed Returns for the Year Ended Company/Index 2018 2019 2020 2021 2022 2023 Lithia Motors, Inc. $100.00 $ 194.56 $ 390.67 $ 397.87 $ 275.97 $ 447.15 S&P 500 Index - Total Return 100.00 131.49 155.68 200.37 164.08 207.21 Auto Peer Group 100.00 144.28 172.07 255.85 194.26 263.40 (1) The graph and table assume that $100 was invested on the last day of trading for the calendar year ended December 31, 2018 in Lithia Motors, Inc’s common stock, the S&P 500 Index, and peer group indexes, and that all dividends were reinvested. 22
Biggest change(1) Base Period Indexed Returns for the Year Ended December 31, Company/Index 2019 2020 2021 2022 2023 2024 Lithia Motors, Inc. $100.00 $ 200.80 $ 204.49 $ 141.84 $ 229.83 $ 251.20 S&P 500 Index - Total Return 100.00 118.40 152.39 124.79 157.59 197.02 Auto Peer Group 100.00 128.09 178.97 134.01 187.12 204.20 (1) The graph and table assume that $100 was invested on the last day of trading for the calendar year ended December 31, 2019 in Lithia Motors, Inc’s common stock, the S&P 500 Index, and peer group indexes, and that all dividends were reinvested. 24
The peer group indexes utilize the same methods of presentation and assumptions for the total return calculation as does Lithia Motors and the S&P 500 Index. All companies in the peer group indexes are weighted in accordance with their market capitalizations.
The peer group indexes utilize the same methods of presentation and assumptions for the total return calculation as does Lithia Motors and the S&P 500 Index. All companies in the peer group indexes are weighted in accordance with their market capitalization.
There is no expiration date for this share repurchase authorization. 21 Stock Performance Graph The stock performance graph and table that follow compare the cumulative total stockholder return on Lithia Motors, Inc.’s common stock with the cumulative total return of the Standard & Poor’s 500 Stock Index (S&P 500 Index), and an auto peer group index composed of Penske Automotive Group, AutoNation, Sonic Automotive, Group 1 Automotive, Asbury Automotive Group, and CarMax for the five years ended December 31, 2023.
There is no expiration date for this share repurchase authorization. 23 Stock Performance Graph The stock performance graph and table that follow compare the cumulative total stockholder return on Lithia Motors, Inc.’s common stock with the cumulative total return of the Standard & Poor’s 500 Stock Index (S&P 500 Index), and an auto peer group index composed of Penske Automotive Group, AutoNation, Sonic Automotive, Group 1 Automotive, Asbury Automotive Group, and CarMax for the five years ended December 31, 2024.
(2) On November 1, 2022, our Board of Directors approved an additional $450 million repurchase authorization of our common stock. This authorization was in addition to the amount previously authorized by the Board for repurchase.
(2) On June 4, 2024, our Board approved an additional $350 million repurchase authorization of our common stock. This authorization was in addition to the amount previously authorized by the Board for repurchase.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Our common stock trades on the New York Stock Exchange under the symbol LAD. The number of shareholders of record and approximate number of beneficial holders of common stock as of February 23, 2024 was 428 and 90,497, respectively.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Our common stock trades on the NYSE under the symbol LAD. The number of shareholders of record and approximate number of beneficial holders of common stock as of February 24, 2025 was 424 and 97,452, respectively.
Repurchases of Equity Securities We made the following repurchases of our common stock during the fourth quarter of 2023: For the full calendar month of Total number of shares purchased (1) Average price paid per share Total number of shares purchased as part of publicly announced plan (2) Maximum dollar value of shares that may yet be purchased under publicly announced plan (in thousands) October 142,729 $ 240.81 142,729 $ 466,996 November 66 242.21 — 466,996 December — — — 466,996 Total 142,795 240.81 142,729 (1) 66 shares repurchased in the fourth quarter of 2023 were related to tax withholding on the vesting of RSUs.
Repurchases of Equity Securities We made the following repurchases of our common stock during the fourth quarter of 2024: For the full calendar month of Total number of shares purchased (1) Average price paid per share Total number of shares purchased as part of publicly announced plan (2) Maximum dollar value of shares that may yet be purchased under publicly announced plan (in thousands) October — $ — — $ 560,867 November 70,233 374.70 70,147 534,579 December 173,324 378.25 173,324 469,020 Total 243,557 377.22 243,471 (1) 86 shares repurchased in the fourth quarter of 2024 were related to tax withholding on the vesting of RSUs.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

100 edited+10 added−27 removed26 unchanged
Biggest changeThese measures should not be considered an alternative to GAAP measures. 35 The following tables reconcile certain reported non-GAAP measures to the most comparable GAAP measure from our Consolidated Statements of Operations: Year Ended December 31, 2023 ($ in millions, except per share amounts) As reported Net disposal gain on sale of stores Investment loss Insurance reserves Acquisition expenses Contract buyouts Adjusted Selling, general and administrative $ 3,294.8 $ 31.2 $ — $ (5.4) $ (27.2) $ (14.3) $ 3,279.1 Operating income (loss) 1,692.4 (31.2) — 5.4 27.2 14.3 1,708.1 Other income, net 22.0 — 1.7 — — — 23.7 Income (loss) before income taxes $ 1,362.3 $ (31.2) $ 1.7 $ 5.4 $ 27.2 $ 14.3 $ 1,379.7 Income tax (provision) benefit (350.6) 8.2 (4.0) (1.4) (1.0) (3.8) (352.6) Net income (loss) 1,011.7 (23.0) (2.3) 4.0 26.2 10.5 1,027.1 Net income attributable to non-controlling interest (6.5) — — — — — (6.5) Net income attributable to redeemable non-controlling interest (4.4) — — — — — (4.4) Net income (loss) attributable to Lithia Motors, Inc. $ 1,000.8 $ (23.0) $ (2.3) $ 4.0 $ 26.2 $ 10.5 $ 1,016.2 Diluted earnings (loss) per share attributable to Lithia Motors, Inc. $ 36.29 $ (0.83) $ (0.08) $ 0.15 $ 0.95 $ 0.38 $ 36.86 Diluted share count 27.6 Year Ended December 31, 2022 ($ in millions, except per share amounts) As reported Net disposal gain on sale of stores Investment loss Insurance reserves Acquisition expenses Adjusted Selling, general and administrative 3,044.1 66.0 — (4.9) (15.0) 3,090.2 Operating income (loss) 1,941.1 (66.0) — 4.9 15.0 1,895.0 Other (expense) income, net (43.2) — 39.2 — — (4.0) Income (loss) before income taxes $ 1,730.0 $ (66.0) $ 39.2 $ 4.9 $ 15.0 $ 1,723.1 Income tax (provision) benefit (468.4) 19.1 — (1.3) (4.0) (454.6) Net income (loss) 1,261.6 $ (46.9) 39.2 3.6 11.0 1,268.5 Net income attributable to non-controlling interest (4.8) — — — — (4.8) Net income attributable to redeemable non-controlling interest (5.8) — — — — (5.8) Net income (loss) attributable to Lithia Motors, Inc. $ 1,251.0 $ (46.9) $ 39.2 $ 3.6 $ 11.0 $ 1,257.9 Diluted earnings (loss) per share attributable to Lithia Motors, Inc. $ 44.17 $ (1.65) $ 1.38 $ 0.13 $ 0.39 $ 44.42 Diluted share count 28.3 36 Year Ended December 31, 2021 ($ in millions, except per share amounts) As reported Asset impairment Investment loss Insurance reserves Acquisition expenses Loss on redemption of senior notes Adjusted Asset impairment $ 1.9 $ (1.9) $ — $ — $ — $ — $ — Selling, general and administrative 2,480.8 — — (5.8) (20.2) — 2,454.8 Operating income 1,662.5 1.9 — 5.8 20.2 — 1,690.4 Other (expense) income, net (52.0) — 66.4 — — 10.3 24.7 Income before income taxes $ 1,484.8 $ 1.9 $ 66.4 $ 5.8 $ 20.2 $ 10.3 $ 1,589.4 Income tax (provision) benefit (422.1) (0.5) 6.6 (1.6) (5.1) (2.7) (425.4) Net income $ 1,062.7 $ 1.4 $ 73.0 $ 4.2 $ 15.1 $ 7.6 $ 1,164.0 Net income attributable to non-controlling interest (1.7) — — — — — (1.7) Net income attributable to redeemable non-controlling interest (0.9) — — — — — (0.9) Net income attributable to Lithia Motors, Inc. $ 1,060.1 $ 1.4 $ 73.0 $ 4.2 $ 15.1 $ 7.6 $ 1,161.4 Diluted earnings per share attributable to Lithia Motors, Inc. $ 36.54 $ 0.05 $ 2.52 $ 0.14 $ 0.52 $ 0.26 $ 40.03 Diluted share count 29.0 Liquidity and Capital Resources We manage our liquidity and capital resources in the context of our overall business strategy, continually forecasting and managing our cash, working capital balances and capital structure to meet the short-term and long-term obligations of our business while maintaining liquidity and financial flexibility.
Biggest changeThese measures should not be considered an alternative to GAAP measures. 35 The following tables reconcile certain reported non-GAAP measures to the most comparable GAAP measure from our Consolidated Statements of Operations: Year Ended December 31, 2024 ($ in millions, except per share amounts) As reported Net gain on disposal of stores Insurance reserves Acquisition expenses Premium on redeemable NCI buyout Tax attribute Adjusted Selling, general and administrative $ 3,755.2 $ 8.2 $ (6.1) $ (10.0) $ — $ — $ 3,747.3 Operating income (loss) 1,575.6 (8.2) 6.1 10.0 — — 1,583.5 Income (loss) before income taxes $ 1,078.3 $ (8.2) $ 6.1 $ 10.0 $ — $ — $ 1,086.2 Income tax (provision) benefit (256.7) 4.1 (1.6) (0.5) — (13.1) (267.8) Net income (loss) 821.6 (4.1) 4.5 9.5 — (13.1) 818.4 Net income attributable to non-controlling interest (4.8) — — — — — (4.8) Net income attributable to redeemable non-controlling interest (14.8) — — — 11.6 — (3.2) Net income (loss) attributable to Lithia Motors, Inc. $ 802.0 $ (4.1) $ 4.5 $ 9.5 $ 11.6 $ (13.1) $ 810.4 Diluted earnings (loss) per share attributable to Lithia Motors, Inc. $ 29.65 $ (0.15) $ 0.17 $ 0.35 $ 0.43 $ (0.49) $ 29.96 Diluted share count 27.1 Year Ended December 31, 2023 ($ in millions, except per share amounts) As reported Net gain on disposal of stores Insurance reserves Acquisition expenses Contract buyouts Adjusted Selling, general and administrative $ 3,294.8 $ 31.2 $ (5.4) $ (27.2) $ (14.3) $ 3,279.1 Operating income (loss) 1,692.4 (31.2) 5.4 27.2 14.3 1,708.1 Income (loss) before income taxes $ 1,362.3 $ (31.2) $ 5.4 $ 27.2 $ 14.3 $ 1,378.0 Income tax (provision) benefit (350.6) 8.2 (1.4) (1.0) (3.8) (348.6) Net income (loss) 1,011.7 $ (23.0) 4.0 26.2 10.5 1,029.4 Net income attributable to non-controlling interest (6.5) — — — — (6.5) Net income attributable to redeemable non-controlling interest (4.4) — — — — (4.4) Net income (loss) attributable to Lithia Motors, Inc. $ 1,000.8 $ (23.0) $ 4.0 $ 26.2 $ 10.5 $ 1,018.5 Diluted earnings (loss) per share attributable to Lithia Motors, Inc. $ 36.29 $ (0.83) $ 0.15 $ 0.95 $ 0.38 $ 36.94 Diluted share count 27.6 36 Year Ended December 31, 2022 ($ in millions, except per share amounts) As reported Net gain on disposal of stores Insurance reserves Acquisition expenses Adjusted Selling, general and administrative $ 3,044.1 $ 66.0 $ (4.9) $ (15.0) $ 3,090.2 Operating income (loss) 1,941.1 (66.0) 4.9 15.0 1,895.0 Income (loss) before income taxes $ 1,730.0 $ (66.0) $ 4.9 $ 15.0 $ 1,683.9 Income tax (provision) benefit (468.4) 19.1 (1.3) (4.0) (454.6) Net income (loss) 1,261.6 (46.9) 3.6 11.0 1,229.3 Net income attributable to non-controlling interest (4.8) — — — (4.8) Net income attributable to redeemable non-controlling interest (5.8) — — — (5.8) Net income (loss) attributable to Lithia Motors, Inc. $ 1,251.0 $ (46.9) $ 3.6 $ 11.0 $ 1,218.7 Diluted earnings per share attributable to Lithia Motors, Inc. $ 44.17 $ (1.65) $ 0.13 $ 0.39 $ 43.04 Diluted share count 28.3 Liquidity and Capital Resources We manage our liquidity and capital resources in the context of our overall business strategy, continually forecasting and managing our cash, working capital balances, and capital structure to meet the short-term and long-term obligations of our business while maintaining liquidity and financial flexibility.
To better understand the impact of changes in inventory, other assets, and the associated financing, we also consider our adjusted net cash provided by operating activities to include borrowings or repayments associated with our new vehicle floor plan commitment and exclude the impact of our financing receivables activity.
To better understand the impact of changes in inventory, other 37 assets, and the associated financing, we also consider our adjusted net cash provided by operating activities to include borrowings or repayments associated with our new vehicle floor plan commitment and exclude the impact of our financing receivables activity.
However, because manufacturers provide this assistance to offset inventory carrying costs, we believe a comparison of floor plan interest expense to floor plan assistance is a useful measure of the efficiency of our new vehicle sales relative to stocking levels.
However, because manufacturers provide this assistance to offset inventory carrying costs, we believe a comparison of floor plan interest expense to floor plan assistance is a useful measure of the efficiency of our vehicle sales relative to stocking levels.
(4) Debt issuance costs are presented on the balance sheet as a reduction from the carrying amount of the related debt liability. See Note 9 – Credit Facilities and Long-Term Debt of Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report.
(4) Debt issuance costs are presented on the balance sheet as a reduction from the carrying amount of the related debt liability. See Note 10 – Credit Facilities and Long-Term Debt of Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report.
Global Implementation of Pillar Two We are subject to corporation tax on profits in the United States, Canada, and the UK. The Organization for Economic Co-operation and Development (OECD) and the G20 Inclusive Framework on Base Erosion and Profit Shifting has developed the Pillar Two global minimum tax regime.
Global Implementation of Pillar Two We are subject to corporation tax on profits in the United States, the United Kingdom, and Canada. The Organization for Economic Co-operation and Development (OECD) and the G20 Inclusive Framework on Base Erosion and Profit Shifting has developed the Pillar Two global minimum tax regime.
Contractual Obligations Our cash requirements greater than twelve months from contractual obligations and commitments include: Debt Obligations and Interest Payments Refer to Note 9 – Credit Facilities and Long-Term Debt of the notes to the consolidated financial statements for further information of our obligations and the timing of expected payments.
Contractual Obligations Our cash requirements greater than twelve months from contractual obligations and commitments include: Debt Obligations and Interest Payments Refer to Note 10 – Credit Facilities and Long-Term Debt of the Notes to the Consolidated Financial Statements for further information of our obligations and the timing of expected payments.
Financing Operations income reflects the interest, fee, and lease income generated by the portfolio of auto loan and lease receivables less the interest expense associated with the debt utilized to fund the lending, including internal capital, a provision for estimated loan and lease losses, depreciation on vehicles leased via operating leases and directly-related expenses.
Financing Operations income reflects the interest, fee, and lease income generated by the portfolio of finance receivables less the interest expense associated with the debt utilized to fund the lending, including internal capital, a provision for estimated losses, depreciation on vehicles leased via operating leases, and directly-related expenses.
See Note 1 – Summary of Significant Accounting Policies and Note 16 – Acquisitions of Notes to Consolidated Financial Statements included in Part II, Item 8. Financial Statements and Supplementary Financial Data of this Annual Report. 42
See Note 1 – Summary of Significant Accounting Policies and Note 17 – Acquisitions of Notes to Consolidated Financial Statements included in Part II, Item 8. Financial Statements and Supplementary Financial Data of this Annual Report. 42
Actions taken during 2022 to adjust ROI targets in the context of the uncertain macroeconomic environment, along with the acquisition of dealerships whose brands attract relatively more credit-worthy consumers, resulted in loans and leases originated subsequently having higher weighted average credit scores and lower weighted average contract rate and front-end loan-to-values (FE LTV) than prior periods.
Actions taken during 2022 to adjust ROI targets in the context of the uncertain macroeconomic environment, along with the acquisition of dealerships whose brands attract relatively more credit-worthy consumers, resulted in finance receivables originated subsequently having higher weighted average credit scores and lower weighted average contract rate and front-end loan-to-values (FE LTV) than prior periods.
We use these measures in conjunction with GAAP financial measures to assess our business, including our compliance with covenants in our credit facilities and in communications with our Board of Directors concerning financial performance.
We use these measures in conjunction with GAAP financial measures to assess our business, including our compliance with covenants in our credit facilities and in communications with our Board concerning financial performance.
Contract Obligations Refer to Note 8 – Commitments and Contingencies of the notes to the consolidated financial statements for further information of our obligations and the timing of expected payments.
Contract Obligations Refer to Note 9 – Commitments and Contingencies of the Notes to the Consolidated Financial Statements for further information of our obligations and the timing of expected payments.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations You should read the following discussion in conjunction with Item 1. Business, Item 1A. Risk Factors, and our Consolidated Financial Statements and Notes thereto. Overview We are a global automotive retailer ranked #145 on the Fortune 500 in 2023.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations You should read the following discussion in conjunction with Item 1. Business, Item 1A. Risk Factors, and our Consolidated Financial Statements and Notes thereto. Overview We are a global automotive retailer ranked #140 on the Fortune 500 in 2024.
Our parts and service operations are an integral part of our customer retention and the largest contributor to our overall profitability. Earnings from service, body and parts have historically been more resilient during economic downturns, when owners have tended to repair their existing vehicles rather than buy new vehicles.
Our aftersales operations are an integral part of our customer retention and the largest contributor to our overall profitability. Earnings from aftersales have historically been more resilient during economic downturns, when owners have tended to repair their existing vehicles rather than buy new vehicles.
With more late-model units in operation, continued increase of vehicles in operation, and a plateauing new vehicle market, we believe the increased number of units in operation will continue to benefit our service, body and parts revenue in the coming years as more late-model vehicles age, necessitating repairs and maintenance.
With more late-model units in operation, continued increase of vehicles in operation, and a plateauing new vehicle market, we believe the increased number of units in operation will continue to benefit our aftersales revenue in the coming years as more late-model vehicles age, necessitating repairs and maintenance.
Acquisitions We account for acquisitions using the purchase method of accounting which requires recognition of assets acquired and liabilities assumed at fair value as of the date of the acquisition.
Acquisitions We account for business combinations using the acquisition method of accounting which requires recognition of assets acquired and liabilities assumed at fair value as of the date of the acquisition.
Furthermore, if a manufacturer becomes insolvent, we may be required to record a partial or total impairment on the franchise value and/or goodwill related to that manufacturer. No individual manufacturer accounted for more than 2.1% of our total franchise value and goodwill as of December 31, 2023.
Furthermore, if a manufacturer becomes insolvent, we may be required to record a partial or total impairment on the franchise value and/or goodwill related to that manufacturer. No individual manufacturer accounted for more than 20% of our total franchise value as of December 31, 2024.
Changes in the provision for loan and lease losses as a percentage of ending managed receivables reflect the effect of changes in loss experience, economic factors, and asset-specific risks on our outlook for net losses expected to occur over the remaining contractual life of the loans and leases receivable. 29 Financing Operations income does not include any allocation of corporate overhead costs.
Changes in the provision for losses as a percentage of ending managed receivables reflect the effect of changes in loss experience, economic factors, and asset-specific risks on our outlook for net losses expected to occur over the remaining contractual life of the finance receivables. Financing Operations income does not include any allocation of corporate overhead costs.
Adjusted net cash paid for acquisitions, a non-GAAP measure, as well as certain other acquisition-related information is presented below: Year Ended December 31, ($ in millions) 2023 2022 2021 Number of stores acquired 56 31 77 Number of stores opened — 1 1 Cash paid for acquisitions, net of cash acquired $ (1,185.1) $ (1,243.6) $ (2,699.3) Add: Borrowings on floor plan notes payable: non-trade associated with acquired new vehicle inventory 109.2 116.5 355.5 Cash paid for acquisitions, net of cash acquired – adjusted $ (1,075.9) $ (1,127.1) $ (2,343.8) 39 We evaluate potential capital investments primarily based on targeted rates of return on assets and return on our net equity investment.
Adjusted net cash paid for acquisitions, a non-GAAP measure, as well as certain other acquisition-related information is presented below: Year Ended December 31, ($ in millions) 2024 2023 2022 Number of stores acquired 146 56 31 Number of stores opened 1 — 1 Cash paid for acquisitions, net of cash acquired $ (1,248.5) $ (1,185.1) $ (1,243.6) Add: Borrowings on floor plan notes payable: non-trade associated with acquired new vehicle inventory 105.5 109.2 116.5 Cash paid for acquisitions, net of cash acquired – adjusted $ (1,143.0) $ (1,075.9) $ (1,127.1) 39 We evaluate potential capital investments primarily based on targeted rates of return on assets and return on our net equity investment.
(2) The amounts available on the credit facilities are limited based on borrowing base calculations and fluctuates monthly. (3) Available credit is based on the borrowing base amount effective as of November 30, 2023. This amount is reduced by $37.0 million for outstanding letters of credit.
(2) The amounts available on the credit facilities are limited based on borrowing base calculations and fluctuate monthly. (3) Available credit is based on the borrowing base amount effective as of November 30, 2024. This amount is reduced by $25.0 million for outstanding letters of credit.
Operating Income Operating income as a percentage of revenue, or operating margin, was as follows: Year Ended December 31, 2023 2022 2021 Operating margin 5.5 % 6.9 % 7.3 % Operating margin adjusted for non-core charges (1) 5.5 6.7 7.4 (1) See “Non-GAAP Reconciliations” for additional information 2023 vs. 2022 Our operating margin decreased 140 basis points compared to the prior year, driven by a decline in gross profit per new and used unit sold.
See the discussion under “Liquidity and Capital Resources” for additional information. 33 Operating Income Operating income as a percentage of revenue, or operating margin, was as follows: Year Ended December 31, 2024 2023 2022 Operating margin 4.4 % 5.5 % 6.9 % Operating margin adjusted for non-core charges (1) 4.4 5.5 6.7 (1) See “Non-GAAP Reconciliations” for additional information 2024 vs. 2023 Our operating margin decreased 110 basis points compared to the prior year, driven by a decline in gross profit per new and used unit sold.
On June 20, 2023, the UK’s Finance (No. 2) Bill 2023 was enacted, which represents the UK’s introduction of a Pillar Two regime, effective for annual reporting periods beginning on or after December 31, 2023.
On June 20, 2023, the U.K.’s Finance (No. 2) Bill 2023 was enacted, which represents the United Kingdom’s introduction of a Pillar Two regime, effective for annual reporting periods beginning on or after December 31, 2023.
On August 4, 2023, Canada released draft legislation to implement the primary taxing rule in Pillar Two for fiscal periods beginning on or after December 31, 2023. We analyzed the expected tax impact of the Pillar Two regime based on available guidance and expect these rules to have an immaterial impact on our overall effective tax rate.
On August 4, 2023, Canada released draft legislation to implement the primary taxing rule in Pillar Two for fiscal periods beginning on or after December 31, 2023. We analyzed the tax impact of the Pillar Two regime based on available guidance and determined these rules do not have a material impact on our overall effective tax rate.
However, actual results could differ materially from these estimates. 41 Goodwill and Franchise Value We are required to test our goodwill and franchise value for impairment at least annually on October 1, or more frequently if conditions indicate that an impairment may have occurred.
However, actual results could differ materially from these estimates. 41 Goodwill and Franchise Value We are required to test our goodwill and franchise value for impairment at least annually on October 1, or more frequently if conditions indicate that an impairment may have occurred. Our reporting units for goodwill impairment testing are North America Vehicle Operations, U.K.
On a same store basis and excluding non-core charges, adjusted SG&A as a percentage of gross profit increased across all categories to 62.3% from 59.8% in the prior year. 2022 vs. 2021 SG&A increased 22.7%, or $563.3 million, primarily due to increased personnel costs which resulted from our growth through acquisitions.
On a same store basis and excluding non-core charges, adjusted SG&A as a percentage of gross profit increased across all categories to 66.0% from 62.2% in the prior year. 2023 vs. 2022 SG&A increased 8.2%, or $250.7 million, primarily due to increased personnel costs and other costs which resulted from our growth through acquisitions.
Adjusting for non-core charges, including acquisition expenses, one-time contract buyouts, and storm related insurance charges, offset by a net disposal gain on sale of stores, our operating margin decreased 120 basis points. 2022 vs. 2021 Our operating margin decreased 40 basis points compared to the prior year, driven by an increase in SG&A as a percentage of gross profit.
Adjusting for non-core charges, including acquisition expenses and storm related insurance charges, offset by a net disposal gain on disposal of stores, our operating margin decreased 110 basis points. 2023 vs. 2022 Our operating margin decreased 140 basis points compared to the prior year, driven by an increase in SG&A as a percentage of gross profit.
These funds were primarily used for acquisitions, share repurchases and capital expenditures. Our debt to total capital ratio, excluding floor plan notes payable, was 47.1% at December 31, 2023 compared to 49.5% at December 31, 2022.
These funds were primarily used for acquisitions, share repurchases and capital expenditures. Our debt to total capital ratio, excluding floor plan notes payable and non-recourse notes payable, was 48.4% at December 31, 2024 compared to 47.1% at December 31, 2023.
Floor Plan Interest Expense and Floor Plan Assistance We have floor plan agreements with both manufacturer-affiliated finance companies and as part of our syndicated credit facilities for certain new vehicles and vehicles that are designated for use as service loaners.
Floor Plan Interest Expense and Floor Plan Assistance We have floor plan agreements with both manufacturer-affiliated finance companies and as part of our syndicated credit facilities for certain new and used vehicles.
Adjusting for non-core charges, including storm insurance charges and acquisition expenses, offset by a net disposal gain on sale of stores, our operating margin decreased 70 basis points.
Adjusting for non-core charges, including acquisition expenses, one-time contract buyouts, and storm insurance charges, offset by a net disposal gain on disposal of stores, our operating margin decreased 120 basis points.
Year Ended December 31, 2023 vs. 2022 2022 vs. 2021 ($ in millions) 2023 2022 Change % 2021 Change % Depreciation and amortization $ 195.8 $ 163.2 $ 32.6 20.0 % $ 124.8 $ 38.4 30.8 % Acquisition activity contributed to the increases in depreciation and amortization in 2023 compared to 2022 and in 2022 compared to 2021.
Year Ended December 31, 2024 vs. 2023 2023 vs. 2022 ($ in millions) 2024 2023 Change % 2022 Change % Depreciation and amortization $ 245.6 $ 195.8 $ 49.8 25.4 % $ 163.2 $ 32.6 20.0 % Acquisition activity contributed to the increases in depreciation and amortization in 2024 compared to 2023 and in 2023 compared to 2022.
Below are highlights of significant activity related to our cash flows from investing activities: Year Ended December 31, 2023 vs. 2022 2022 vs. 2021 ($ in millions) 2023 2022 Change 2021 Change Capital expenditures $ (230.2) $ (303.1) $ 72.9 $ (260.4) $ (42.7) Cash paid for acquisitions, net of cash acquired (1,185.1) (1,243.6) 58.5 (2,699.3) 1,455.7 Proceeds from sales of stores 142.9 212.1 (69.2) 76.3 135.8 38 Capital Expenditures Below is a summary of our capital expenditure activities: Many manufacturers provide assistance in the form of additional incentives or assistance if facilities meet manufacturer image standards and requirements.
Below are highlights of significant activity related to our cash flows from investing activities: Year Ended December 31, 2024 vs. 2023 2023 vs. 2022 ($ in millions) 2024 2023 Change 2022 Change Capital expenditures $ (351.4) $ (230.2) $ (121.2) $ (303.1) $ 72.9 Cash paid for acquisitions, net of cash acquired (1,248.5) (1,185.1) (63.4) (1,243.6) 58.5 Cash paid for other investments (354.7) (11.1) (343.6) (11.8) 0.7 Proceeds from sales of stores 85.7 142.9 (57.2) 212.1 (69.2) 38 Capital Expenditures Below is a summary of our capital expenditure activities: Many manufacturers provide assistance in the form of additional incentives or assistance if facilities meet manufacturer image standards and requirements.
Financing Activities Adjusted net cash provided by financing activities, a non-GAAP measure, which is adjusted for borrowings and repayments on floor plan facilities: non-trade and borrowings and repayments associated with our Financing Operations segment was as follows: Year Ended December 31, ($ in millions) 2023 2022 2021 Cash provided by financing activities, as reported $ 2,409.8 2,035.9 $ 1,106.7 Add (less): Net (borrowings) repayments on floor plan notes payable: non-trade (878.7) (737.9) 685.3 Less: Net borrowings on non-recourse notes payable (1,283.4) (104.6) (317.6) Cash provided by financing activities, as adjusted $ 247.7 $ 1,193.4 $ 1,474.4 Below are highlights of significant activity related to our cash flows from financing activities, excluding borrowings and repayments on floor plan notes payable: non-trade and non-recourse notes payable, which are discussed above: Year Ended December 31, 2023 vs. 2022 2022 vs. 2021 ($ in millions) 2023 2022 Change 2021 Change Net borrowings on lines of credit $ 324.3 $ 2,023.8 $ (1,699.5) $ 325.4 $ 1,698.4 Principal payments on long-term debt and finance lease liabilities, other (10.6) (171.7) 161.1 (486.5) 314.8 Proceeds from the issuance of long-term debt 79.8 113.3 (33.5) 817.4 (704.1) Proceeds from the issuance of common stock 29.7 36.1 (6.4) 1,136.2 (1,100.1) Payment of debt issuance costs (16.7) (11.8) (4.9) (14.7) 2.9 Repurchases of common stock (48.9) (688.3) 639.4 (230.7) (457.6) Dividends paid (52.8) (45.2) (7.6) (38.8) (6.4) Borrowing and Repayment Activity During 2023, we raised net proceeds of $79.8 million through the issuance of debt, and had net borrowings of $0.3 billion on our lines of credit.
Financing Activities Adjusted net cash provided by financing activities, a non-GAAP measure, which is adjusted for borrowings and repayments on floor plan facilities: non-trade and borrowings and repayments associated with our Financing Operations segment was as follows: Year Ended December 31, ($ in millions) 2024 2023 2022 Cash provided by financing activities, as reported $ 907.6 2,409.8 $ 2,035.9 Less: Net borrowings on floor plan notes payable: non-trade (304.8) (878.7) (737.9) Less: Net borrowings on non-recourse notes payable (403.7) (1,283.4) (104.6) Cash provided by financing activities, as adjusted $ 199.1 $ 247.7 $ 1,193.4 Below are highlights of significant activity related to our cash flows from financing activities, excluding borrowings and repayments on floor plan notes payable: non-trade and non-recourse notes payable, which are discussed above: Year Ended December 31, 2024 vs. 2023 2023 vs. 2022 ($ in millions) 2024 2023 Change 2022 Change Net borrowings on lines of credit $ 346.8 $ 324.3 $ 22.5 $ 2,023.8 $ (1,699.5) Principal payments on long-term debt and finance lease liabilities, scheduled (64.9) (35.2) (29.7) (51.2) 16.0 Principal payments on long-term debt and finance lease liabilities, other (74.3) (10.6) (63.7) (171.7) 161.1 Proceeds from the issuance of long-term debt 408.2 79.8 328.4 113.3 (33.5) Proceeds from the issuance of common stock 27.3 29.7 (2.4) 36.1 (6.4) Payment of debt issuance costs (10.7) (16.7) 6.0 (11.8) (4.9) Repurchases of common stock (365.9) (48.9) (317.0) (688.3) 639.4 Dividends paid (56.5) (52.8) (3.7) (45.2) (7.6) Other financing activity 0.8 (7.9) 8.7 (4.4) (3.5) Borrowing and Repayment Activity During 2024, we raised net proceeds of $408.2 million through the issuance of debt, and had net borrowings of $346.8 million on our lines of credit.
Income Tax Provision Our effective income tax rate was as follows: Year Ended December 31, 2023 2022 2021 Effective income tax rate 25.7 % 27.1 % 28.4 % Effective income tax rate excluding non-core items (1) 25.6 26.4 26.8 (1) See “Non-GAAP Reconciliations” for more details Our effective income tax rate was 25.7% for 2023 compared to 27.1% for 2022.
Income Tax Provision Our effective income tax rate was as follows: Year Ended December 31, 2024 2023 2022 Effective income tax rate 23.8 % 25.7 % 27.1 % Effective income tax rate excluding non-core items (1) 24.7 25.3 27.0 (1) See “Non-GAAP Reconciliations” for more details Our effective income tax rate was 23.8% for 2024 compared to 25.7% for 2023.
On a same store basis, used vehicle revenues decreased 11.0%, due to a 5.7% decrease in unit volume and a 5.6% decrease in average selling price per retail unit.
On a same store basis, used vehicle revenues decreased 8.0%, due to a 4.1% decrease in average selling price per retail unit and a 4.0% decrease in unit volume.
During 2023, we paid dividends on our common stock as follows: Dividend paid: Dividend amount per share Total amount of dividend (in millions) March 2023 $ 0.42 $ 11.5 May 2023 0.50 13.8 August 2023 0.50 13.8 November 2023 0.50 13.7 We evaluate performance and make a recommendation to the Board of Directors on dividend payments on a quarterly basis. 40 Summary of Outstanding Balances on Credit Facilities and Long-Term Debt Below is a summary of our outstanding balances on credit facilities and long-term debt: ($ in millions) Outstanding as of December 31, 2023 Remaining Available as of December 31, 2023 Floor plan notes payable: non-trade $ 2,288.5 $ — (1) Floor plan notes payable 1,347.0 — Used and service loaner vehicle inventory financing commitments 902.8 25.5 (2) Revolving lines of credit 1,620.7 829.6 (2),(3) Warehouse facilities 587.0 15.4 (2) Non-recourse notes payable 1,705.6 — 4.625% Senior notes due 2027 400.0 — 4.375% Senior notes due 2031 550.0 — 3.875% Senior notes due 2029 800.0 — Real estate mortgages, finance lease obligations, and other debt 730.7 — Unamortized debt issuance costs (31.8) — (4) Total debt $ 10,900.5 $ 870.4 (1) As of December 31, 2023, we had a $2.1 billion new vehicle floor plan commitment as part of our USB credit facility, and a $500 million CAD wholesale floorplan commitment as part of our BNS credit facility.
During 2024, we paid dividends on our common stock as follows: Dividend paid: Dividend amount per share Total amount of dividends paid ($ in millions) March 2024 $ 0.50 $ 13.8 May 2024 0.53 14.4 August 2024 0.53 14.2 November 2024 0.53 14.1 We evaluate performance and make a recommendation to the Board on dividend payments on a quarterly basis. 40 Summary of Outstanding Balances on Credit Facilities and Long-Term Debt Below is a summary of our outstanding balances on credit facilities and long-term debt: ($ in millions) Outstanding as of December 31, 2024 Remaining Available as of December 31, 2024 Floor plan notes payable: non-trade $ 2,848.0 $ — (1) Floor plan notes payable 2,055.1 — Used and service loaner vehicle inventory financing commitments 975.3 23.3 (2) Revolving lines of credit 1,633.2 1,034.6 (2),(3) Warehouse facilities 834.0 17.4 (2) Non-recourse notes payable 2,109.3 — 4.625% Senior notes due 2027 400.0 — 4.375% Senior notes due 2031 550.0 — 3.875% Senior notes due 2029 800.0 — Real estate mortgages, finance lease obligations, and other debt 1,085.9 — Unamortized debt issuance costs (25.1) — (4) Total debt $ 13,265.7 $ 1,075.3 (1) As of December 31, 2024, we had a $2.8 billion new vehicle floor plan commitment as part of our USB credit facility, and a $1.1 billion CAD wholesale floorplan commitment as part of our BNS credit facility.
The increase in net credit losses was driven by the growth in the portfolio, as net credit losses as a percentage of total averaged managed receivables, along with delinquencies, decreased compared to the prior year, driven by increased credit quality.
The increase in net credit losses was driven by the growth in the portfolio, as net credit losses as a percentage of total averaged managed receivables, along with delinquencies, were relatively consistent with the prior year.
Portfolio Information (1) Year Ended December 31, ($ in millions) 2023 2022 2021 Loan origination information Net loans originated $ 2,118.5 $ 1,933.9 $ 703.7 Vehicle units financed 70,154 59,604 21,357 Total penetration rate (2) 11.0 % 10.2 % 4.0 % Weighted average contract rate 9.6 % 7.7 % 8.4 % Weighted average credit score (3) 732 718 674 Weighted average FE LTV (4) 95.5 % 99.4 % 104.9 % Weighted average term (in months) 73 73 73 Loan performance information Total ending managed receivables $ 3,177.6 $ 2,109.4 $ 724.9 Total average managed receivables $ 2,643.5 $ 1,417.2 $ 449.8 Allowance for loan losses $ 102.2 $ 65.1 $ 22.5 Allowance for loan losses as a percentage of ending managed receivables 3.2 % 3.1 % 3.1 % Net credit losses on managed receivables 62.0 42.9 7.8 Net credit losses as a percentage of total average managed receivables 2.3 % 3.0 % 1.7 % Past due accounts as a percentage of ending managed receivables (5) 4.6 % 5.4 % 4.9 % Average recovery rate (6) 49.8 % 59.3 % 74.9 % (1) Excludes Canadian portfolio (2) Units financed as a percentage of total new and used vehicle retail units sold.
DFC Portfolio Information (1) Year Ended December 31, ($ in millions) 2024 2023 2022 Loan origination information Net loans originated $ 2,073.3 $ 2,118.5 $ 1,933.9 Vehicle units financed 70,647 70,154 59,604 Total penetration rate (2) 11.6 % 11.0 % 10.2 % Weighted average contract rate 9.8 % 9.6 % 7.7 % Weighted average credit score (3) 738 732 718 Weighted average FE LTV (4) 95.4 % 95.5 % 99.4 % Weighted average term (in months) 73 73 73 Loan performance information Allowance for credit losses as a percentage of ending managed receivables 3.2 % 3.2 % 3.1 % Net credit losses on managed receivables 88.0 62.0 42.9 Net credit losses as a percentage of total average managed receivables 2.5 % 2.3 % 3.0 % Past due accounts as a percentage of ending managed receivables (5) 4.8 % 4.6 % 5.4 % Average recovery rate (6) 44.3 % 49.6 % 59.3 % (1) Excludes Canadian and U.K. portfolios (2) Units financed as a percentage of total U.S. new and used vehicle retail units sold.
Our Vehicle Operations segment consists of all aspects of our auto merchandising and service operations, excluding financing provided by our Financing Operations segment.
Segments We operate in two reportable segments: Vehicle Operations and Financing Operations. Our Vehicle Operations segment consists of all aspects of our auto merchandising and service operations, excluding financing provided by our Financing Operations segment.
Financial Statements and Supplementary Financial Data of this Annual Report. Other Interest Expense Other interest expense includes interest on debt incurred related to acquisitions, real estate mortgages, our used and service loaner vehicle inventory financing commitments, our revolving lines of credit, and issued senior notes.
Non-Operating Expenses Other Interest Expense Other interest expense includes interest on debt incurred related to issued senior notes, real estate mortgages, our used and service loaner vehicle inventory financing commitments, and our revolving lines of credit.
Cash flows from operations and borrowings under our credit facilities are our main sources for liquidity. In addition to the above sources of liquidity, potential sources to fund our business strategy include financing of real estate and proceeds from debt or equity offerings.
In addition to the above sources of liquidity, potential sources to fund our business strategy include financing of real estate and proceeds from debt or equity offerings.
To better understand the impact of these items, adjusted net cash provided by operating activities, a non-GAAP measure, is presented below: Year Ended December 31, 2023 vs. 2022 2022 vs. 2021 ($ in millions) 2023 2022 Change 2021 Change Net cash (used in) provided by operating activities – as reported $ (472.4) (610.1) $ 137.7 $ 1,797.2 $ (2,407.3) Add (less): Net borrowings (repayments) on floor plan notes payable: non-trade 878.7 737.9 140.8 (685.3) 1,423.2 Less: Borrowings on floor plan notes payable: non-trade associated with acquired new vehicle inventory (109.2) (116.5) 7.3 (355.5) 239.0 Adjust: Financing receivables activity 1,045.5 1,363.0 (317.5) 640.8 722.2 Net cash provided by operating activities – adjusted $ 1,342.6 $ 1,374.3 $ (31.7) $ 1,397.2 $ (22.9) Inventories are one of the most significant component of our cash flow from operations.
To better understand the impact of these items, adjusted net cash provided by operating activities, a non-GAAP measure, is presented below: Year Ended December 31, 2024 vs. 2023 2023 vs. 2022 ($ in millions) 2024 2023 Change 2022 Change Net cash provided by (used in) operating activities – as reported $ 425.1 (472.4) $ 897.5 $ (610.1) $ 137.7 Add: Net borrowings on floor plan notes payable: non-trade 304.8 878.7 (573.9) 737.9 140.8 Less: Borrowings on floor plan notes payable: non-trade associated with acquired new vehicle inventory (105.5) (109.2) 3.7 (116.5) 7.3 Adjust: Financing receivables activity 629.4 1,052.0 (422.6) 1,372.5 (320.5) Net cash provided by operating activities – adjusted $ 1,253.8 $ 1,349.1 $ (95.3) $ 1,383.8 $ (34.7) Inventories are one of the most significant components of our cash flow from operations.
On a same store basis, new and used vehicle retail gross profits experienced declines primarily driven by decreases in gross profit per unit as margins normalize to pre-pandemic levels.
On a same store basis, new and used vehicle retail gross profits experienced declines primarily driven by decreases in gross profit per unit as margins normalize to pre-pandemic levels. Net income decline was primarily driven by this margin normalization, increased interest expense, and increased SG&A as a percentage of gross profit.
As of February 23, 2024, we offered 47 brands of new vehicles and all brands of used vehicles in 344 stores in the United States, Canada, and the United Kingdom and online at nearly 360 websites. We offer a wide range of products and services including new and used vehicles, finance and insurance products and vehicle repair and maintenance.
As of February 24, 2025, we offered 52 brands of new vehicles and all brands of used vehicles in 460 stores in the United States, the United Kingdom, and Canada and online at nearly 400 websites. We offer a wide range of products and services including new and used vehicles, F&I products, and vehicle repair and maintenance aftersales.
Used vehicle retail sales are a strategic focus for organic growth. We offer three categories of used vehicles: manufacturer certified pre-owned (CPO) vehicles; core vehicles, which are late-model vehicles with lower mileage; and value autos, which are vehicles with over 80,000 miles.
On a same store basis, gross profit per new vehicle decreased 24.1%. Used Vehicles Used vehicle retail sales are a strategic focus for organic growth. We offer three categories of used vehicles: CPO vehicles; core vehicles, which are late-model vehicles with lower mileage; and value autos, which are vehicles with over 80,000 miles.
The interest rates on these floor plan notes payable commitments vary by lender and are variable rates. 2023 vs. 2022 Floor plan interest expense increased $112.1 million, primarily due to higher interest rates, increases in new vehicle inventory levels from acquisitions as well as existing locations recovering from prior year inventory shortages.
The interest rates on these floor plan notes payable commitments vary by lender and are variable rates. 2024 vs. 2023 Floor plan interest expense increased $127.9 million, primarily due to higher interest rates and increases in vehicle inventory levels from acquisitions.
Under accounting standards, floor plan assistance is recorded as a component of new vehicle gross profit when the specific vehicle is sold.
Floor plan assistance is provided by manufacturers to support store financing of vehicle inventory. Under accounting standards, floor plan assistance is recorded as a component of vehicle gross profit when the specific vehicle is sold.
We typically use securitizations, warehouse facilities, and internal capital to fund loans and leases originated by our Financing Operations.
We typically use securitizations, warehouse facilities, third-party asset funding, and internal capital to fund finance receivables originated by our Financing Operations.
The following tables detail the carrying costs for new vehicles and include new vehicle floor plan interest net of floor plan assistance earned: Year Ended December 31, 2023 vs. 2022 2022 vs. 2021 ($ in millions) 2023 2022 Change % 2021 Change % Floor plan interest expense (new vehicles) $ 150.9 $ 38.8 $ 112.1 288.9 % $ 22.3 $ 16.5 74.0 % Floor plan assistance (included as an offset to cost of sales) (159.2) (130.6) (28.6) 21.9 (120.1) (10.5) 8.7 Net new vehicle carrying costs (benefit) $ (8.3) $ (91.8) $ 83.5 (91.0) % $ (97.8) $ 6.0 (6.1) 32 Depreciation and Amortization Depreciation and amortization is comprised of depreciation expense related to buildings, significant remodels or improvements, furniture, tools, equipment and signage and amortization related to non-compete agreements.
The following table details the carrying costs for vehicle inventory and include vehicle floor plan interest net of floor plan assistance earned: Year Ended December 31, 2024 vs. 2023 2023 vs. 2022 ($ in millions) 2024 2023 Change % 2022 Change % Floor plan interest expense $ 278.8 $ 150.9 $ 127.9 84.8 % $ 38.8 $ 112.1 288.9 % Floor plan assistance (included as an offset to cost of sales) (170.3) (160.8) (9.5) (5.9) (130.1) (30.7) (23.6) Net vehicle carrying costs (benefit) $ 108.5 $ (9.9) $ 118.4 1,196.0 % $ (91.3) $ 81.4 89.2 % Depreciation and Amortization Depreciation and amortization is comprised of depreciation expense related to buildings, significant remodels or improvements, furniture, tools, equipment and signage and amortization related to non-compete agreements.
Investing Activities Net cash used in investing activities totaled $1.3 billion and $1.3 billion, respectively, for 2023 and 2022. Cash flows from investing activities relate primarily to capital expenditures, acquisition and divestiture activity and sales of property and equipment. Our surplus of cash as of December 31, 2023, has been made available to fund upcoming acquisition activity.
Investing Activities Net cash used in investing activities totaled $1.9 billion and $1.3 billion, respectively, for 2024 and 2023. Cash flows from investing activities relate primarily to capital expenditures, acquisition and divestiture activity and sales of property and equipment.
Performance in body shop also saw an increase of 8.0%. Same store service, body and parts gross profit increased 7.7%. Our gross margins continue to increase as our mix has shifted towards customer pay, which has higher margins than other service work. 2022 vs. 2021 Service, body and parts revenue grew in all areas, primarily due to acquisition growth.
Our gross margins continue to increase as our mix has shifted towards customer pay and warranty, which has higher margins than other service work. 2023 vs. 2022 Aftersales revenue grew in all areas, primarily due to acquisition growth. On a same store basis, aftersales revenue and gross profit increased 5.8% and 7.9%, respectively.
While we have made our best estimates based on facts and circumstances available to us at the time, different estimates could have been used in the current period.
The following accounting policies involve critical accounting estimates because they are particularly dependent on assumptions made by management. While we have made our best estimates based on facts and circumstances available to us at the time, different estimates could have been used in the current period.
Year Ended December 31, 2023 vs. 2022 2022 vs. 2021 ($ in millions) 2023 2022 Change % 2021 Change % Mortgage interest $ 35.8 $ 25.9 $ 9.9 38.2 % $ 24.9 $ 1.0 4.0 % Other interest 168.0 105.8 62.2 58.8 80.5 $ 25.3 31.4 Capitalized interest (2.6) (2.6) — — (2.0) (0.6) 30.0 Total other interest expense $ 201.2 $ 129.1 $ 72.1 55.8 % $ 103.4 $ 25.7 24.9 % 2023 vs. 2022 The increase in other interest expense was due to higher interest rates and increased borrowings on our credit facilities.
Year Ended December 31, 2024 vs. 2023 2023 vs. 2022 ($ in millions) 2024 2023 Change % 2022 Change % Senior notes interest $ 76.1 $ 76.1 $ — — % $ 76.1 $ 0.0 — % Mortgage interest 50.8 35.8 15.0 41.9 25.9 9.9 38.2 Other interest 136.3 91.9 44.4 48.3 29.7 62.2 209.4 Capitalized interest (5.4) (2.6) (2.8) (107.7) (2.6) — — Total other interest expense $ 257.8 $ 201.2 $ 56.6 28.1 % $ 129.1 $ 72.1 55.8 % 2024 vs. 2023 The increase in other interest expense was due to higher interest rates and increased borrowings on our credit facilities.
Our effective income tax rate was positively affected by a reduction in the current and deferred state tax rate, due to changing state mix, as well as a reduction in valuation allowance.
Our effective income tax rate in 2023 was positively affected by a reduction in the current and deferred state tax rate, due to changing state mix, and a reduction in valuation allowance. The decrease in tax rate was offset by non-deductible acquisition costs recorded during the period.
Operating and Finance Leases Refer to Note 8 – Commitments and Contingencies of the notes to the consolidated financial statements for further information of our obligations and the timing of expected payments.
Operating and Finance Leases Refer to Note 9 – Commitments and Contingencies of the Notes to the Consolidated Financial Statements for further information of our obligations and the timing of expected payments. Critical Accounting Policies and Estimates The preparation of financial statements in conformity with U.S.
Excluding the impact of acquisitions, on a same store basis, used vehicle revenues increased 12.8%, due to a 13.7% increase in average selling price per retail unit, partially offset by a 0.8% decrease in unit volume.
Excluding the impact of acquisitions, on a same store basis, used vehicle revenues decreased 10.7%, due to a 5.5% decrease in average selling price per retail unit and 5.5% decrease in unit volume. Used vehicle gross profits decreased 12.6%, due to a 16.4% decrease in average gross profit per unit, partially offset by a 4.5% increase in units sold.
For example, a store acquired in November 2022 would be included in same store operating data beginning in December 2023, after its first complete comparable month of operations.
For example, a store acquired in November 2023 would be included in same store operating data beginning in December 2024, after its first complete comparable month of operations. The fourth quarter operating results for the same store comparisons would include results for that store in only the period of December for both comparable periods.
As of December 31, 2023, our new vehicle days’ supply was 65 days, or 18 days higher than our days’ supply as of December 31, 2022. Our days’ supply of used vehicles was 64 days, which was six days higher than our days’ supply as of December 31, 2022.
As of December 31, 2024, our new vehicle days’ supply was 59 days, or nine days higher than our days’ supply as of December 31, 2023. Our days’ supply of used vehicles was 53 days, which was eleven days higher than our days’ supply as of December 31, 2023.
New vehicle gross profit declined 11.7%, primarily due to a 23.7% decrease in average gross profit per unit, partially offset by a 15.7% increase in unit sales driven by acquisitions.
Same store new vehicle revenue was primarily impacted by a 3.4% increase in unit sales, complemented by an increase in average selling prices of 2.0%. New vehicle gross profit declined 11.7%, primarily due to a 23.7% decrease in average gross profit per unit, partially offset by a 15.7% increase in unit sales driven by acquisitions.
The following table summarizes our cash flows: Year Ended December 31, ($ in millions) 2023 2022 2021 Net cash (used in) provided by operating activities $ (472.4) $ (610.1) $ 1,797.2 Net cash used in investing activities (1,270.3) (1,329.8) (2,890.4) Net cash provided by financing activities 2,409.8 2,035.9 1,106.7 37 Operating Activities Cash used in operating activities decreased $137.7 million in 2023 compared to 2022, primarily as a result of maturation of our financing receivables portfolio and an increase in manufacturer floor plan financing related to recovering new vehicle inventory levels, partially offset by reduced net income and an increase in trade receivables.
The following table summarizes our cash flows: Year Ended December 31, ($ in millions) 2024 2023 2022 Net cash provided by (used in) operating activities $ 425.1 $ (472.4) $ (610.1) Net cash used in investing activities (1,854.4) (1,270.3) (1,329.8) Net cash provided by financing activities 907.6 2,409.8 2,035.9 Operating Activities Cash provided by operating activities increased $897.5 million in 2024 compared to 2023, primarily as a result of maturation of our financing receivables portfolio and a decrease in inventory levels at our seasoned stores, partially offset by net changes in floor plan notes payable and reduced net income.
The same store revenue decrease in 2023 was driven by a decrease in our core vehicles of 14.9% and decreases in value auto and CPO vehicle categories of 12.4% and 0.7%, respectively. The decrease in our core vehicle category includes a 10.3% decrease in volume and a 5.1% decrease in average selling price per vehicle.
The same store revenue decrease was driven by a decrease in our CPO vehicle category of 10.0% and a decrease in our core vehicles of 8.3%, partially offset by an increase in our value autos of 1.4%. The decrease in our CPO vehicle category includes an 8.0% decrease in volume and a 2.2% decrease in average selling price per vehicle.
The decrease in same store gross profit in our value auto category was driven by a 8.9% decrease in gross profit per unit to $2,433. 2022 vs. 2021 Used vehicle revenues increased 29.9%, due to a combination of increased volume from acquisitions and organic growth in all categories of used vehicle sales at our seasoned stores.
The increase in same store gross profit in our value auto category was driven by an increase in unit volume of 8.6%, offset by a 3.9% decrease in gross profit per unit to $2,331. 2023 vs. 2022 Used vehicle revenues increased 1.5%, due to increased volume from acquisitions, offset by decreased volume at our seasoned stores.
Total interest margin reflects the spread between interest, fee, and lease charges to consumers and our funding costs. Changes in the interest margin on new originations affect Financing Operations income over time.
Total interest margin reflects the spread between interest and fee charges to consumers and our funding costs. Changes in consumer rates on new originations affect Financing Operations income over time. Increases or decreases in interest rates, which affect Financing Operations’ funding costs, or other competitive pressures on consumer rates, could result in compression or expansion in the interest margin.
If the qualitative factors determine that it is more likely than not that the fair value of the individual store’s franchise value exceeds the carrying amount, the franchise value is not impaired, and the second step is not necessary.
In 2024, we evaluated our indefinite-lived intangible assets using a qualitative assessment process. If the qualitative factors determine that it is more likely than not that the fair value of the individual entity’s franchise value exceeds the carrying amount, the franchise value is not impaired, and the second step is not necessary.
Our Financing Operations segment provides financing to customers buying and leasing retail vehicles from our Vehicle Operations segment. 24 Vehicle Operations Year Ended December 31, 2023 vs. 2022 2022 vs. 2021 ($ in millions, except per vehicle data) 2023 2022 Change % 2021 Change % Revenues New vehicle retail $ 15,154.2 $ 12,894.5 $ 2,259.7 17.5 % $ 11,197.7 $ 1,696.8 15.2 % Used vehicle retail 9,570.2 9,425.0 145.2 1.5 7,255.3 2,169.7 29.9 Finance and insurance 1,337.0 1,285.4 51.6 4.0 1,051.3 234.1 22.3 Service, body and parts 3,197.1 2,738.8 458.3 16.7 2,110.9 627.9 29.7 Total revenues 31,042.3 28,187.8 2,854.5 10.1 22,831.7 5,356.1 23.5 Gross profit New vehicle retail $ 1,394.1 $ 1,579.7 $ (185.6) (11.7) % $ 1,218.5 $ 361.2 29.6 % Used vehicle retail 721.4 825.4 (104.0) (12.6) 826.7 (1.3) (0.2) Finance and insurance 1,337.0 1,285.4 51.6 4.0 1,051.3 234.1 22.3 Service, body and parts 1,751.4 1,463.1 288.3 19.7 1,110.5 352.6 31.8 Total gross profit 5,228.9 5,152.4 76.5 1.5 4,259.0 893.4 21.0 Gross profit margins New vehicle retail 9.2 % 12.3 % -310 bp 10.9 % 140 bp Used vehicle retail 7.5 8.8 -130 bp 11.4 -260 bp Finance and insurance 100.0 100.0 — bp 100.0 — bp Service, body and parts 54.8 53.4 140 bp 52.6 80 bp Total gross profit margin 16.8 18.3 -150 bp 18.7 -40 bp Retail units sold New vehicle retail 314,116 271,596 42,520 15.7 % 260,738 10,858 4.2 % Used vehicle retail 325,764 311,764 14,000 4.5 275,495 36,269 13.2 Average selling price per retail unit New vehicle retail $ 48,244 $ 47,477 $ 767 1.6 % $ 42,946 $ 4,531 10.6 % Used vehicle retail 29,378 30,231 (853) (2.8) 26,336 3,895 14.8 Average gross profit per retail unit New vehicle retail $ 4,438 $ 5,816 $ (1,378) (23.7) % $ 4,673 $ 1,143 24.5 % Used vehicle retail 2,215 2,648 (433) (16.4) 3,001 (353) (11.8) Finance and insurance 2,090 2,203 (113) (5.1) 1,960 243 12.4 Total vehicle (1) 5,367 6,300 (933) (14.8) 5,855 445 7.6 (1) Includes the sales and gross profit related to new, used retail, used wholesale and finance and insurance and unit sales for new and used retail Same Store Operating Data We believe that same store comparisons are an important indicator of our financial performance.
Vehicle Operations Year Ended December 31, 2024 vs. 2023 2023 vs. 2022 ($ in millions, except per vehicle data) 2024 2023 Change % 2022 Change % Revenues New vehicle retail $ 17,553.8 $ 15,154.2 $ 2,399.6 15.8 % $ 12,894.5 $ 2,259.7 17.5 % Used vehicle retail 11,268.5 9,570.2 1,698.3 17.7 9,425.0 145.2 1.5 Finance and insurance 1,417.7 1,337.0 80.7 6.0 1,285.4 51.6 4.0 Aftersales 3,801.5 3,197.1 604.4 18.9 2,738.8 458.3 16.7 Total revenues 36,188.2 31,042.3 5,145.9 16.6 28,187.8 2,854.5 10.1 Gross profit New vehicle retail $ 1,229.7 $ 1,394.1 $ (164.4) (11.8) % $ 1,579.7 $ (185.6) (11.7) % Used vehicle retail 728.6 721.4 7.2 1.0 825.4 (104.0) (12.6) Finance and insurance 1,417.7 1,337.0 80.7 6.0 1,285.4 51.6 4.0 Aftersales 2,122.9 1,751.4 371.5 21.2 1,463.1 288.3 19.7 Total gross profit 5,561.0 5,228.9 332.1 6.4 5,152.4 76.5 1.5 Gross profit margins New vehicle retail 7.0 % 9.2 % -220 bps 12.3 % -310 bps Used vehicle retail 6.5 7.5 -100 bps 8.8 -130 bps Finance and insurance 100.0 100.0 — bps 100.0 — bps Aftersales 55.8 54.8 100 bps 53.4 140 bps Total gross profit margin 15.4 16.8 -140 bps 18.3 -150 bps Retail units sold New vehicle retail 369,913 314,116 55,797 17.8 % 271,596 42,520 15.7 % Used vehicle retail 411,925 325,764 86,161 26.4 311,764 14,000 4.5 Average selling price per retail unit New vehicle retail $ 47,454 $ 48,244 $ (790) (1.6) % $ 47,477 $ 767 1.6 % Used vehicle retail 27,356 29,378 (2,022) (6.9) 30,231 (853) (2.8) Average gross profit per retail unit New vehicle retail $ 3,324 $ 4,438 $ (1,114) (25.1) % $ 5,816 $ (1,378) (23.7) % Used vehicle retail 1,769 2,215 (446) (20.1) 2,648 (433) (16.4) Finance and insurance 1,813 2,090 (277) (13.3) 2,203 (113) (5.1) Total vehicle (1) 4,310 5,367 (1,057) (19.7) 6,300 (933) (14.8) (1) Includes the sales and gross profit related to new, used retail, used wholesale and F&I and unit sales for new and used retail 26 Same Store Operating Data We believe that same store comparisons are an important indicator of our financial performance.
We acquired approximately $260.5 million and $236.9 million of depreciable property as part of our 2023 and 2022 acquisitions, respectively. Capital expenditures totaled $230.2 million and $303.1 million, respectively, in 2023 and 2022. These investments increase the amount of depreciable assets. See the discussion under “Liquidity and Capital Resources” for additional information.
We acquired approximately $409.5 million and $260.5 million of depreciable property as part of our 2024 and 2023 acquisitions, respectively. Capital expenditures totaled $351.4 million and $230.2 million, respectively, in 2024 and 2023. These investments increase the amount of depreciable assets.
Other expenses in 2023 included acquisition expenses of $27.2 million and $5.4 million of storm related insurance charges. We also recognized a gain on the sale of stores of $31.2 million.
Other expenses in 2024 included acquisition expenses of $10.0 million and $6.1 million of storm related insurance charges. We also recognized a gain on the disposal of stores of $8.2 million.
See also Note 9 – Credit Facilities and Long-Term Debt of Notes to Consolidated Financial Statements for additional information. 2022 vs. 2021 The increase in other interest expense was due to higher interest rates on our credit facilities and the full year impact of our $800 million in aggregate principal amount of 3.875% senior notes due 2029 issued in May 2021.
See also Note 10 – Credit Facilities and Long-Term Debt of Notes to Consolidated Financial Statements for additional information. 2023 vs. 2022 The increase in other interest expense was due to higher interest rates and increased borrowings on our credit facilities.
Available Sources Below is a summary of our immediately available funds: As of December 31, ($ in millions) 2023 2022 Change % Change Cash $ 825.0 $ 168.1 $ 656.9 390.8 % Available credit on the credit facilities 870.4 1,415.6 (545.2) (38.5) % Total current available funds $ 1,695.4 $ 1,583.7 $ 111.7 7.1 % Information about our cash flows, by category, is presented in our Consolidated Statements of Cash Flows.
Available Sources Below is a summary of our immediately available funds: As of December 31, ($ in millions) 2024 2023 Change % Change Cash and cash equivalents $ 225.1 $ 825.0 $ (599.9) (72.7) % Marketable securities 53.4 — 53.4 NM Available credit on the credit facilities 1,075.3 870.4 204.9 23.5 % Total current available funds $ 1,353.8 $ 1,695.4 $ (341.6) (20.1) % Information about our cash flows, by category, is presented in our Consolidated Statements of Cash Flows.
Financial Performance We experienced growth of revenue and gross profit in all major business lines in 2023 compared to 2022, primarily driven by increases in volume related to acquisitions, complimented by organic growth in new vehicles, and service, body and parts sales.
Financial Performance We experienced growth of revenue in all major business lines in 2024 compared to 2023, primarily driven by increases in volume related to acquisitions, complemented by organic growth in new vehicles, and aftersales. Acquisition volume contributed to growth of our total company gross profit, offset by a decrease in new vehicle gross profit.
We calculate days’ supply of inventory based on current inventory levels, including in-transit vehicles, and a 30-day historical cost of sales level. We have continued to focus on managing our unit mix and maintaining an appropriate level of new and used vehicle inventory.
We calculate days’ supply of inventory on-ground inventory unit levels and a 30-day total units sales volume, both at the end of each reporting period. We have continued to focus on managing our unit mix and maintaining an appropriate level of new and used vehicle inventory.
Equity Transactions During 2023, we repurchased over 142,700 shares at a weighted average price of $240.81 under our current share repurchase authorization, with approximately $467.0 million remaining.
Equity Transactions During 2024, we repurchased 1,229,503 shares at a weighted average price of $283.02 under our current share repurchase authorization, with $469.0 million remaining.
On a same store basis, finance and insurance revenue increased 1.7%, to $2,181 per unit. 28 Service, Body and Parts We provide service, body and parts for the new vehicle brands sold by our stores, as well as service and repairs for most other makes and models.
On a same store basis, F&I revenue decreased 3.6%, to $2,152 per unit. Aftersales We provide automotive repair and maintenance services for customers for the new vehicle brands sold by our stores, as well as service and repairs for most other makes and models.
The decrease in our CPO vehicle category was driven by a decrease in gross profit per unit of 38.2% to $2,321, offset by an increase in unit volume of 5.2%. Gross profit per unit in our core vehicle category, which accounted for 58.2% of our used vehicle unit sales, decreased 11.3% to $1,992.
The decrease in our CPO vehicle category was driven by a decrease in gross profit per unit of 18.0% to $2,138, and a decrease in unit volume of 8.0%. Gross profit per unit in our core vehicle category, which accounted for 55.3% of our used vehicle unit sales, increased 0.4% to $1,975.
Critical Accounting Policies and Estimates The preparation of financial statements in conformity with United States generally accepted accounting principles requires us to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and reported amounts of revenues and expenses at the date of the financial statements.
GAAP requires us to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and reported amounts of revenues and expenses at the date of the financial statements. Certain accounting policies require us to make difficult and subjective judgments on matters that are inherently uncertain.
Used Vehicles Our used vehicle operations provide an opportunity to generate sales to customers unable or unwilling to purchase a new vehicle, sell brands other than the store’s new vehicle franchise(s), access additional used vehicle inventory through trade-ins and increase sales from finance and insurance products and parts and service.
Our used vehicle operations provide an opportunity to generate sales to customers unable or unwilling to purchase a new vehicle, sell brands other than the store’s new vehicle franchise(s), access additional used vehicle inventory through trade-ins, and increase sales from F&I products and aftersales. 28 2024 vs. 2023 Used vehicle revenues increased 17.7%, due to increased volume from acquisitions, offset by decreased volume at our seasoned stores.
We focus on retaining customers by offering competitively-priced routine maintenance and through our marketing efforts. 2023 vs. 2022 Our service, body and parts revenue grew in all areas, primarily due to our strategic acquisition growth. On a same store basis, service, body and parts revenue increased 5.5%, primarily driven by an increase in customer pay of 5.2%.
We focus on retaining customers by offering competitively-priced routine maintenance and through our marketing efforts. 2024 vs. 2023 Our aftersales revenue growth was driven by increases in warranty and customer pay service work, primarily due to our strategic acquisition growth.
Our free cash flow deployment strategy targets an allocation of 65% investment in acquisitions, 25% investment in capital expenditures, innovation, and diversification and 10% in shareholder return in the form of dividends and share repurchases. We believe we have sufficient sources of funding to meet our business requirements for the next 12 months and in the longer term.
Our free cash flow deployment strategy targets an allocation of 35% to 45% investment in acquisitions, 25% investment in capital expenditures, innovation, and diversification, and 30% to 40% in shareholder return in the form of dividends and share repurchases.
If the qualitative factors determine that it is more likely than not that the fair value of the reporting unit exceeds the carrying amount, goodwill is not impaired. If the qualitative assessment determines it is more likely than not the fair value is less than the carrying amount, we would further evaluate for potential impairment.
If the qualitative assessment determines it is more likely than not the fair value is less than the carrying amount, we would further evaluate for potential impairment. As of December 31, 2024, we had $2.1 billion of goodwill on our balance sheet associated with our reporting units.
On a same store basis, service, body and parts revenue and gross profit increased 9.9% and 12.8%, respectively. Financing Operations In the United States, Financing Operations is a captive lender, originating loans only from stores and Driveway. In Canada, Financing Operations originates loans and leases from both our Canadian stores and third-party dealerships.
Financing Operations In the United States, Financing Operations is a captive lender, originating loans only from our stores and Driveway. In Canada, Financing Operations originates loans and leases from both our Canadian stores and third-party dealerships. In the United Kingdom, Financing Operations is related to our fleet funding and management division.
Our 2023 effective income tax rate was negatively affected by non-deductible acquisition costs recorded during the period. 34 Adjusting for non-deductible acquisition costs and valuation allowance activity recorded during 2023, our effective income tax rate excluding non-core items is 25.6%, a decrease of 90 basis points compared to the effective income tax rate excluding non-core items for 2022.
Adjusting for non-deductible acquisition costs and the benefit of transferable federal tax credits during 2024, our effective income tax rate excluding non-core items is 24.7%, a decrease of 60 basis points compared to the effective income tax rate excluding non-core items for 2023.
The decline in the average recovery rate was driven by used vehicle price depreciation outpacing the amortization of the principal balance on loan principal balances, due to the relatively limited seasoning of the portfolio.
The decline in the average recovery rate was driven by used vehicle price depreciation outpacing the amortization of the principal balance on loan principal balances, due to the relatively limited seasoning of the portfolio. 31 Operating Expenses Selling, General, and Administrative SG&A includes salaries and related personnel expenses, advertising (net of manufacturer cooperative advertising credits), rent, facility costs, and other general corporate expenses.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

10 edited+2 added−1 removed6 unchanged
Biggest changeA 10% increase in interest rates, or 68.1 basis points, would increase annual interest expense by approximately $34.8 million, net of tax, based on amounts outstanding as of December 31, 2023. As of December 31, 2022, we had $5.0 billion outstanding under such agreements at a weighted average interest rate of 4.1% per annum.
Biggest changeAs of December 31, 2023, we had $6.9 billion outstanding under such agreements at a weighted average interest rate of 6.8% per annum. A 10% increase in interest rates, or 68.1 basis points, would increase annual interest expense by approximately $35.0 million, net of tax, based on amounts outstanding as of December 31, 2023.
Based on discounted cash flows using current interest rates for comparable debt, we have determined that the fair value of this long-term fixed interest rate debt was approximately $3.9 billion as of December 31, 2023.
Based on discounted cash flows using then current interest rates for comparable debt, we determined that the fair value of this long-term fixed interest rate debt was approximately $3.9 billion as of December 31, 2023.
Based on discounted cash flows using then current interest rates for comparable debt, we determined that the fair value of this long-term fixed interest rate debt was approximately $2.3 billion as of December 31, 2022.
Based on discounted cash flows using current interest rates for comparable debt, we have determined that the fair value of this long-term fixed interest rate debt was approximately $4.1 billion as of December 31, 2024.
A 10% devaluation in average exchange rates would have resulted in a $303.1 million and $105.7 million decrease to our revenues for the years ended December 31, 2023, and 2022, respectively.
A 10% devaluation in average exchange rates would have resulted in a $798.5 million and $306.3 million decrease to our revenues for the years ended December 31, 2024, and 2023, respectively.
Foreign Currency Exchange Risk We have foreign currency risks related to our foreign subsidiaries’ operating activities denominated in currencies other than the U.S. dollar, including the Canadian dollar and the British pound sterling.
Foreign Currency Exchange Risk We have foreign currency risks related to our foreign subsidiaries’ operating activities denominated in currencies other than the USD, including the CAD and the GBP.
As of December 31, 2022, we had $2.7 billion of long-term fixed interest rate debt outstanding and recorded on the balance sheet, with maturity dates between May 28, 2023 and December 31, 2050.
As of December 31, 2024, we had $4.6 billion of long-term fixed interest rate debt outstanding and recorded on the balance sheet, with maturity dates between May 1, 2025 and July 1, 2038.
Generally, the fair value of fixed interest rate debt will increase as interest rates fall because we would expect to be able to refinance for a lower rate. Conversely, the fair value of fixed interest rate debt will decrease as interest rates rise. The interest rate changes affect the fair value but do not impact earnings or cash flows.
Conversely, the fair value of fixed interest rate debt will decrease as interest rates rise. The interest rate changes affect the fair value but do not impact earnings or cash flows.
These debt obligations, therefore, expose us to variability in interest payments due to changes in these rates. Certain floor plan debt is based on open-ended lines of credit tied to each individual store from the various manufacturer finance companies.
Certain floor plan debt is based on open-ended lines of credit tied to each individual store from the various manufacturer finance companies. Our variable-rate floor plan notes payable, variable rate mortgage notes payable, and other credit line borrowings subject us to market risk exposure.
Variable Rate Debt Our credit facilities, other floor plan notes payable, and certain real estate mortgages are structured as variable rate debt. The interest rates on our variable rate debt are tied to either the one-day Secured Overnight Financing Rate (SOFR), one-month Canadian Dollar Offered Rate (CDOR), or the prime rate.
Variable Rate Debt Our credit facilities, other floor plan notes payable, and certain real estate mortgages are structured as variable rate debt.
A 10% increase in interest rates, or 40.8 basis points, would increase annual interest expense by approximately $15.1 million, net of tax, based on amounts outstanding as of December 31, 2022. Fixed Rate Debt The fair value of our long-term fixed interest rate debt is subject to interest rate risk.
As of December 31, 2024, we had $8.7 billion outstanding under such agreements at a weighted average interest rate of 5.8% per annum. A 10% increase in interest rates, or 57.7 basis points, would increase annual interest expense by approximately $37.9 million, net of tax, based on amounts outstanding as of December 31, 2024.
Removed
Our variable-rate floor plan notes payable, variable rate mortgage notes payable and other credit line borrowings subject us to market risk exposure. As of December 31, 2023, we had $6.9 billion outstanding under such agreements at a weighted average interest rate of 6.8% per annum.
Added
The interest rates on our variable rate debt are tied to either the one-day Secured Overnight Financing Rate (SOFR), the Daily Simple SOFR, the Canadian Overnight Repo Rate Average (CORRA), the Sterling Overnight Index Average (SONIA), or the prime rate. These debt obligations, therefore, expose us to variability in interest payments due to changes in these rates.
Added
Fixed Rate Debt The fair value of our long-term fixed interest rate debt is subject to interest rate risk. Generally, the fair value of fixed interest rate debt will increase as interest rates fall because we would expect to be able to refinance for a lower rate.

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