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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 #124 on the Fortune 500 in 2025. As of February 25, 2026, we offered 54 brands of new vehicles and all brands of used vehicles in 458 stores in the United States, the United Kingdom, and Canada and online at over 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.

Financial Performance

We experienced revenue growth across all major business lines in 2025 compared to 2024, driven by same store growth and complemented by acquisitions. Improvements in same store aftersales and third-party finance and insurance gross profit contributed to total company gross profit growth, partially offset by decreases in new and used vehicle gross profit. On a same store basis, new and used vehicle retail gross profit declined due to lower gross profit per unit as margins continued to normalize toward pre-pandemic levels. The decline in net income was driven by this margin normalization, higher SG&A as a percentage of gross profit, and a higher effective income tax rate, partially offset by lower interest expense.

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. Our Financing Operations segment provides financing options to customers

buying and leasing retail vehicles from our Vehicle Operations segment, as well as leasing vehicles from our fleet management division.

Vehicle Operations

Year Ended December 31,

($ in millions, except per vehicle data) 2025 2024 Change % 2023 Change %

Revenues

Gross profit

Gross profit margins

Units sold

Average selling price per unit (excluding agency)

Average gross profit per unit

(1)Includes the sales and gross profit related to new, used, and F&I 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. Same store measures demonstrate our ability to grow operations in our existing locations. Therefore, we have integrated same store measures into the discussion below.

Same store measures reflect results for stores that were operating in each comparison period, and only include the months when operations occurred in both periods. For example, a store acquired in November 2024 would be included in same store operating data beginning in December 2025, 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.

Year Ended December 31,

Revenues

Gross profit

Gross profit margins

Units Sold

Average selling price per unit (excluding agency)

Average gross profit per unit

(1)Includes the sales and gross profit related to new, used, and F&I and unit sales for new and used retail

New Vehicles

Under our business strategy, we believe that our new vehicle sales create incremental profit opportunities through certain manufacturer incentive programs, providing used vehicle inventory through trade-ins, arranging of third-party financing, vehicle service and insurance contracts, future resale of used vehicles acquired through trade-in, and parts and service aftersales.

2025 vs. 2024

New vehicle revenue increased 2.1%, resulting from an increase in average selling prices of 2.5%, offset by a decrease in unit sales of 0.9%. Same store new vehicle revenue was primarily impacted by an increase in average selling prices of 2.0%, offset by a decrease in unit sales of 1.2%.

New vehicle gross profit decreased 9.0%, due to a decrease in average gross profit per unit of 8.2% and a decrease in unit sales of 0.9%. On a same store basis, gross profit per new vehicle decreased 8.5%, continuing to normalize to pre-pandemic levels.

2024 vs. 2023

New vehicle revenue increased 17.4%, resulting from an increase in unit sales of 22.4%, offset by a decrease in average selling prices of 2.8%. Same store new vehicle revenue was primarily impacted by a 1.4% increase in unit sales, offset by a decrease in average selling prices of 0.1%.

New vehicle gross profit decreased 10.0%, primarily due to a decrease in average gross profit per unit of 26.5%, partially offset by an increase in unit sales of 22.4%. On a same store basis, gross profit per new vehicle decreased 25.9%.

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. We continue to focus on procuring vehicles across the full spectrum of the addressable used vehicle market to provide customers with a wide selection meeting all levels of affordability, driving increased used vehicle unit volumes. 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.

2025 vs. 2024

Used vehicle revenues increased 5.9%, resulting from an increase in retail unit sales of 3.3% and an increase in average selling price per retail unit of 2.8%. On a same store basis, used vehicle revenues increased 5.8%, due to an increase in retail unit sales of 3.6% and an increase in average selling price per retail unit of 2.4%.

The same store revenue increase was primarily driven by an increase in our CPO vehicle category of 10.2% and an increase in our value auto category of 25.3%. The increase in our CPO vehicle category includes an increase in unit sales of 6.7% and an increase in average selling price per vehicle of 3.2%. The increase in our value auto category includes an increase in unit sales of 29.2%, partially offset by a decrease in average selling price per vehicle of 3.0%.

Used vehicle gross profits increased 1.3%, due to an increase in retail unit sales of 3.3%, partially offset by a decrease in average gross profit per retail unit of 0.7%. On a same store basis, used vehicle gross profit decreased 1.1%, due to a decrease in average gross profit per retail unit of 3.1%, partially offset by an increase in retail unit sales of 3.6%.

The same store gross profit decrease was primarily driven by a decrease in core, wholesale, and certified vehicle categories, partially offset by an increase in our value auto category of 28.3% The increase in our value auto category includes an increase in unit sales of 29.2%, partially offset by a decrease in average gross profit per vehicle of 0.7%.

2024 vs. 2023

Used vehicle revenues increased 15.9%, resulting from an increase in retail unit sales of 26.4%, offset by a decrease in average selling price per retail unit of 6.9%. On a same store basis, used vehicle revenues decreased 9.0%, due to a decrease in retail unit sales of 4.1% and a decrease in average selling price per retail unit of 4.1%.

Used vehicle gross profits increased 2.7%, due to an increase in retail unit sales of 26.4%, offset by a decrease in average gross profit per retail unit of 20.1%. On a same store basis, used vehicle gross profit decreased 10.0%, led by a decrease in average gross profit per retail unit of 6.2%.

Third-Party Finance and Insurance

We believe that arranging timely vehicle financing is an important part of providing personal transportation solutions, and we attempt to arrange financing for every vehicle we sell. We also offer related products such as extended warranties, insurance contracts, and vehicle and theft protection. Third-party extended warranty and insurance contracts yield higher profit margins than vehicle sales and contribute significantly to our profitability.

2025 vs. 2024

F&I revenue increased 3.9%, primarily due to increased unit sales related to acquisitions. On a same store basis, F&I revenue increased 3.1%, to $1,863 per unit. This increase was driven by higher finance reserve paid per unit from third-party lenders.

2024 vs. 2023

F&I revenue increased 6.0%, primarily due to increased unit sales related to acquisitions. On a same store basis, F&I revenue decreased 4.6%, to $2,017 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. 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 aftersales revenue in the coming years as more late-model vehicles age, necessitating repairs and maintenance. We focus on retaining customers by offering competitively-priced routine maintenance and through our marketing efforts.

2025 vs. 2024

Aftersales revenue increased 7.0%, primarily driven by increases in customer pay and warranty service work. On a same store basis, aftersales revenue increased 6.3%, primarily driven by an increase in warranty revenue of 13.9% and customer pay of 7.1%.

Aftersales gross profit increased 10.4%, primarily driven by increases in customer pay and warranty service work volume as well as increased gross margins. Same store aftersales gross profit increased 9.4%, driven by an increase in customer pay margins of 120 basis points and an increase in warranty margins of 110 basis points.

2024 vs. 2023

Aftersales revenue increased 19.1%, experiencing growth in all areas, primarily due to acquisition growth. On a same store basis, aftersales revenue and gross profit increased 2.7% and 4.5%, respectively.

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. These product offerings add diversity to the business model and provide an opportunity to capture additional profits, cash flows, and sales while managing our reliance on third-party finance sources.

Management regularly analyzes Financing Operations’ results by assessing profitability, the performance of the finance receivables, including trends in credit losses and delinquencies, and expenses directly related to Financing Operations. This information is used to assess Financing Operations performance and make operating decisions, including resource allocation.

Our proprietary credit model performs a return on investment (ROI) calculation for each application, ensuring that the return obtained is appropriately balanced with the consumer’s credit risk. On a fully discounted basis, we target earnings at least three times the net finance income earned from third party lenders (finance reserve less commissions paid) over the life of the finance receivable. Actual return of the finance receivables may differ based on the changing risk profile of originations, economic conditions, and rates of recovery for charged off vehicles. 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 typically use securitizations, warehouse facilities, third-party asset funding, and internal capital to fund finance receivables originated by our Financing Operations. 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.

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. 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. Although Financing Operations benefits from certain overhead expenditures, we have not allocated corporate overhead costs to Financing Operations to avoid making subjective allocation decisions. Examples of corporate overhead costs not allocated to Financing Operations include general corporate and data processing expenses.

See Note 19 – Segments of Notes to Consolidated Financial Statements for additional information on Financing Operations income and Note 5 – Finance Receivables of Notes to Consolidated Financial Statements for information on finance receivables, including credit quality.

Selected Financing Operations Financial Information

Year Ended December 31,

Other financing operations expenses (51.5) (44.9) (36.7)

Financing operations income (loss) $ 74.6 $ 8.4 $ (45.9)

(1)Percent of total average managed finance receivables.

DFC Portfolio Information(1)

Year Ended December 31,

Loan origination information

Weighted average contract rate 8.6 % 9.8 % 9.6 %

Weighted average term (in months) 72 73 73

Loan performance information

Net credit losses on managed receivables 74.8 88.0 62.0

(1)Excludes Canadian and U.K. portfolios.

(2)Units financed as a percentage of total U.S. new and used vehicle retail units sold.

(3)The credit scores represent FICO scores and reflect only receivables with obligors that have a FICO score at the time of application. For receivables with co-borrowers, the FICO score is the primary borrower’s. FICO scores are not a significant factor in our proprietary credit model, which relies on information from credit bureaus and other application information as discussed in Note 5 – Finance Receivables of Notes to Consolidated Financial Statements.

(4)Front-end loan-to-value represents the ratio of the amount financed to the total collateral value, which is measured as the vehicle selling price plus applicable taxes, title and fees.

(5)Past due is defined as loans that have been on the books greater than or equal to 3 months and are 30 or more days delinquent.

(6)The average recovery rate represents the average percentage of the outstanding principal balance we receive when a vehicle is repossessed and liquidated, generally at wholesale auctions.

Financing operations recorded higher income in 2025 compared to 2024, primarily due to increased interest income resulting from the growth of the portfolio and a decreased cost of funds, resulting in an increased interest margin from 4.0% in 2024 to 4.6% in 2025.

The weighted average contract rate on loans originated in 2025 decreased to 8.6%, compared with 9.8% in 2024 as we decreased rates to maintain competitiveness following Federal Reserve rate cuts. Cost of funds decreased due to Federal Reserve rate cuts along with improved execution on ABS transactions and amendments to warehouse facilities. The decrease in provision expense as a percentage of receivables compared to the prior year reflected the increased credit quality of the portfolio as well as a decrease in the percentage of ending managed receivables constituted by the allowance for loan losses. Other financing operations expenses as a percentage of average managed receivables decreased from 2024 despite significant portfolio growth, reflecting improved operational performance and economies of scale.

The decrease in net credit losses reflects the increasing impact of originations under our tightened credit policy, which are becoming a larger portion of the managed portfolio.

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.

Year Ended December 31,

Year Ended December 31,

2025 vs. 2024

SG&A increased 5.0%, or $189.5 million, primarily due to increased personnel and other costs resulting from our growth through acquisitions. Other expenses in 2025 included acquisition expenses of $17.0 million and $6.7 million of storm related insurance charges. We also recognized a net gain on the disposal of stores of $20.3 million.

On a same store basis and excluding non-core charges, adjusted SG&A as a percentage of gross profit increased across all categories to 68.1% from 66.3% in the prior year.

2024 vs. 2023

SG&A increased 14.0%, or $460.4 million, primarily due to increased personnel costs and other costs which resulted from our growth through acquisitions. Other expenses in 2024 included acquisition expenses of $10.0 million, and $6.1 million of storm related insurance charges, offset by a net gain on the disposal of stores of $8.2 million.

On a same store basis and excluding non-core charges, adjusted SG&A as a percentage of gross profit increased across all categories to 66.1% from 62.3% in the prior year.

SG&A adjusted for non-core charges was as follows:

Year Ended December 31,

Year Ended December 31,

(1)See “Non-GAAP Reconciliations” for more details.

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. The interest rates on these floor plan notes payable commitments vary by lender and are variable rates.

2025 vs. 2024

Floor plan interest expense decreased $50.6 million, primarily due to lower interest rates and decreases in average vehicle inventory levels throughout the year. Floor plan interest expense decreased 16.8% due to lower interest rates and 1.3% due to decreases in inventory at our stores.

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 as well as at existing locations.

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. 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.

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,

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.

Year Ended December 31,

Acquisition activity contributed to the increases in depreciation and amortization in 2025 compared to 2024 and in 2024 compared to 2023. We acquired approximately $121.8 million and $409.5 million of depreciable property as part of our 2025 and 2024 acquisitions, respectively. Capital expenditures totaled $350.9 million and $351.4 million, respectively, in 2025 and 2024. These investments increased the amount of depreciable assets. See the discussion under “Liquidity and Capital Resources” for additional information.

Operating Income

Operating income as a percentage of revenue, or operating margin, was as follows:

Year Ended December 31,

Operating margin 4.2 % 4.3 % 5.5 %

Operating margin adjusted for non-core charges (1) 4.3 4.4 5.5

(1)See “Non-GAAP Reconciliations” for additional information

2025 vs. 2024

Our operating margin decreased 10 basis points compared to the prior year, driven by a decline in gross profit per new and used unit sold. 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 10 basis points.

2024 vs. 2023

Our operating margin decreased 120 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, one-time contract buyouts, and storm insurance charges, offset by a net disposal gain on disposal of stores, our operating margin decreased 110 basis points.

Non-Operating Expenses

Asset Impairments

Asset impairments recorded as a component of operations consist of the following:

Year Ended December 31,

Franchise value $ 5.8 $ — $ —

Goodwill — — —

Long-lived assets — — —

Total asset impairments $ 5.8 $ — $ —

Goodwill and franchise value are tested for impairment annually as of October 1 or more frequently when events or changes in circumstances indicate that impairment may have occurred. We elected to perform qualitative franchise value and goodwill impairment tests as of October 1 each year. These non-cash impairment charges are included in the “Corporate and Other” category of our segment information.

In 2025, we recorded asset impairments of $5.8 million related to franchise value (See Note 6 – Goodwill and Franchise Value). No impairment charges were recorded in 2024 or 2023.

See Note 1 – Summary of Significant Accounting Policies, Note 4 – Property and Equipment, Note 6 – Goodwill and Franchise Value, and Note 15 – Fair Value Measurements of Notes to Consolidated Financial Statements included in Part II, Item 8. Financial Statements and Supplementary Financial Data of this Annual Report.

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.

Year Ended December 31,

2025 vs. 2024

The increase in other interest expense was due to the issuance of $600 million in aggregate principal amount of 5.500% senior notes due 2030 issued in September 2025, as well as new mortgages on owned real estate. See

also Note 10 – Credit Facilities and Long-Term Debt of Notes to Consolidated Financial Statements for additional information.

2024 vs. 2023

The increase in other interest expense was due to higher interest rates and increased borrowings on our credit facilities.

Other Income, Net

Other income, net primarily includes other income associated with investment income and other non-recurring transactions.

Year Ended December 31,

2025 vs. 2024

Other income, net decreased $21.9 million in 2025 compared to 2024, primarily as a result of a decrease in equity method investment income, partially offset by foreign currency translation gains.

2024 vs. 2023

Other income, net increased $17.3 million in 2024 compared to 2023, primarily as a result of an increase in equity method investment income, offset by foreign currency translation losses.

Income Tax Provision

Our effective income tax rate was as follows:

Year Ended December 31,

Effective income tax rate 25.5 % 23.8 % 25.7 %

Effective income tax rate excluding non-core items (1) 25.1 24.6 25.5

(1)See “Non-GAAP Reconciliations” for more details

Our effective income tax rate was 25.5% for 2025 compared to 23.8% for 2024. Our effective income tax rate was negatively affected by a decrease in general business credits and tax basis differences on divested assets, offset by a reduction in valuation allowance.

Adjusting for non-deductible acquisition costs, tax basis differences on divested assets, and the benefit of transferable federal tax credits during 2025, our effective income tax rate excluding non-core items was 25.1%, an increase of 50 basis points compared to the effective income tax rate excluding non-core items for 2024.

Our effective income tax rate in 2024 was positively affected by an increase in general business credits and a reduction in valuation allowance.

Canada and the U.K. have enacted legislation implementing the OECD’s Pillar Two global minimum tax framework, effective beginning January 1, 2024. Based on the Company’s analysis of Pillar Two provisions, these tax law changes did not have a material effect on our overall effective tax rate.

Non-GAAP Reconciliations

Non-GAAP measures do not have definitions under GAAP and may be defined differently by and not comparable to similarly titled measures used by other companies. As a result, we review any non-GAAP financial measures in connection with a review of the most directly comparable measures calculated in accordance with GAAP. We caution you not to place undue reliance on such non-GAAP measures, but also to consider them with the most directly comparable GAAP measures. We believe each of the non-GAAP financial measures below improves the transparency of our disclosures, provides a meaningful presentation of our results from the core business

operations because they exclude items not related to our ongoing core business operations and other non-cash items, and improves the period-to-period comparability of our results from the core business operations. 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. These measures should not be considered an alternative to GAAP measures.

The following tables reconcile certain reported non-GAAP measures to the most comparable GAAP measure from our Consolidated Statements of Operations:

Asset impairment $ 5.8 $ — $ (5.8) $ — $ — $ — $ — $ —

Net income attributable to non-controlling interest (6.3) — — — — — — (6.3)

Diluted share count 25.4

Other income (expense), net 39.3 — (30.2) — — — — 9.1

Net income attributable to non-controlling interest (4.8) — — — — — — (4.8)

Diluted share count 27.1

Net income attributable to non-controlling interest (6.5) — — — — — (6.5)

Diluted share count 27.6

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. Our free cash flow deployment strategy targets an allocation of 25% to 35% investment in acquisitions, 25% investment in capital expenditures, innovation,

and diversification, and 40% to 50% in shareholder return in the form of dividends and share repurchases based on current valuation trends in acquisitions relative to stock price performance.

We believe we have sufficient sources of funding to meet our business requirements for the next 12 months and in the longer term. 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. We evaluate all of these options and may select one or more of them depending on overall capital needs and the availability and cost of capital, although no assurances can be provided that these capital sources will be available in sufficient amounts or with terms acceptable to us.

Available Sources

Below is a summary of our immediately available funds:

As of December 31,

($ in millions) 2025 2024 Change % Change

Information about our cash flows, by category, is presented in our Consolidated Statements of Cash Flows. The following table summarizes our cash flows:

Year Ended December 31,

Net cash provided by (used in) operating activities $ 356.7 $ 425.1 $ (472.4)

Operating Activities

Cash provided by operating activities decreased $68.4 million in 2025 compared to 2024, primarily as a result of changes in floor plan notes payable, finance receivables, and other assets, partially offset by changes in inventories, trade receivables, and other long-term liabilities and deferred revenue.

Borrowings from and repayments to our syndicated credit facilities related to our new vehicle inventory floor plan financing are presented as financing activities. 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 these items, adjusted net cash provided by operating activities, a non-GAAP measure, is presented below:

Year Ended December 31,

Inventories are one of the most significant components of our cash flow from operations. As of December 31, 2025, our new vehicle days’ supply was 54 days, or five days lower than our days’ supply as of December 31, 2024. Our days’ supply of used vehicles was 48 days, which was five days lower than our days’ supply as of December 31, 2024. 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.

Investing Activities

Net cash used in investing activities totaled $1.0 billion and $1.9 billion, respectively, for 2025 and 2024. Cash flows from investing activities relate primarily to capital expenditures, acquisition and divestiture activity and sales of property and equipment.

Below are highlights of significant activity related to our cash flows from investing activities:

Year Ended December 31,

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. We expect that certain facility upgrades and remodels will generate additional manufacturer incentive payments. Also, tax laws allowing accelerated deductions for capital expenditures reduce the overall investment needed and encourage accelerated project timelines.

We expect to use a portion of our future capital expenditures to upgrade facilities that we recently acquired. This additional capital investment is contemplated in our initial evaluation of the investment return metrics applied to each acquisition and is usually associated with manufacturer image standards and requirements.

If we undertake a significant capital commitment in the future, we expect to pay for the commitment out of existing cash balances, construction financing and borrowings on our credit facilities. Upon completion of the projects, we believe we would have the ability to secure long-term financing and general borrowings from third party lenders for 70% to 90% of the amounts expended, although no assurances can be provided that these financings will be available to us in sufficient amounts or on terms acceptable to us.

Acquisitions

Growth through acquisitions is a key component of our long-term strategy that enables us to increase our network of locations, support maintaining a diverse franchise and geographic mix and improve our ability to serve customers through wider selection and improved proximity. Our disciplined approach focuses on acquiring new vehicle franchises that are accretive and cash flow positive at reasonable valuations.

We are able to subsequently floor new vehicle inventory acquired as part of an acquisition; however, the cash generated by these transactions are recorded as borrowings on floor plan notes payable, non-trade. 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,

Number of stores opened 7 1 —

We evaluate potential capital investments primarily based on targeted rates of return on assets and return on our net equity investment.

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,

Cash provided by financing activities, as reported $ 612.1 907.6 $ 2,409.8

Less: Net borrowings on non-recourse notes payable (364.5) (403.7) (1,283.4)

Cash provided by financing activities, as adjusted $ 55.9 $ 199.1 $ 247.7

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,

Borrowing and Repayment Activity

During 2025, we raised net proceeds of $786.8 million through the issuance of debt, and had net borrowings of $408.6 million on our lines of credit. 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 52.5% at December 31, 2025 compared to 48.4% at December 31, 2024.

Equity Transactions

During 2025, we repurchased 3,019,951 shares at a weighted average price of $313.73 under our current share repurchase authorization, with $621.6 million remaining for future repurchases.

During 2025, we paid dividends on our common stock as follows:

We evaluate performance and make a recommendation to the Board on dividend payments on a quarterly basis.

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:

Floor plan notes payable: non-trade $ 3,016.3 $ — (1)

Floor plan notes payable 1,992.6 —

Used and service loaner vehicle inventory financing commitments 1,043.0 15.4 (2)

Non-recourse notes payable 2,473.9 —

Real estate mortgages, finance lease obligations, and other debt 1,152.1 —

Unamortized debt issuance costs (27.8) — (4)

Less: Inventory related debt (6,051.9)

Less: Financing operations related debt (3,724.9)

Less: Unrestricted cash and cash equivalents (109.2)

Less: Marketable securities (56.4)

Less: Availability on used and service loaner financing facilities (15.4)

(1)As of December 31, 2025, we had a $3.0 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.

(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, 2025. This amount is reduced by $6.4 million for outstanding letters of credit.

(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.

(5)Non-GAAP financial measure.

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.

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.

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. 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. 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. Changes in the accounting estimates we used are reasonably likely to occur from period to period, which may have a material impact on the presentation of our financial condition and results of operations.

Our most critical accounting estimates include those related to goodwill and franchise value, and acquisitions. We also have other key accounting policies for valuation of finance receivables and expense accruals. However, these policies either do not meet the definition of critical accounting estimates described above or the policies are not currently material items in our financial statements. We review our estimates, judgments, and assumptions periodically and reflect the effects of revisions in the period that they are deemed to be necessary. We believe that these estimates are reasonable. However, actual results could differ materially from these estimates.

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. Vehicle Operations, and U.S. and Canada Financing Operations. We have the option to qualitatively or quantitatively assess goodwill for impairment and, in 2025, we evaluated our goodwill using a qualitative assessment process. 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.

As of December 31, 2025, we had $2.5 billion of goodwill on our balance sheet associated with our reporting units. The annual goodwill impairment analysis resulted in no indications of impairment in 2025, 2024, or 2023.

We have determined the appropriate unit of accounting for testing franchise rights for impairment is on an individual legal entity basis. We have the option to qualitatively or quantitatively assess indefinite-lived intangible assets for impairment. In 2025, 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. If the qualitative assessment determines it is more likely than not that the fair value is less than the carrying amount, then a quantitative valuation of our franchise value is performed. An impairment charge is recorded to the extent the fair value is less than the carrying value.

As of December 31, 2025, we had $2.8 billion of franchise value on our balance sheet. No individual entity accounted for more than 2% of our total franchise value as of December 31, 2025. The annual franchise value impairment analysis, which we perform as of October 1 each year, resulted in indications of impairment at an individual entity. We tested the franchise value for this location, which resulted in an impairment charge of $5.8 million. There were no indications of impairment in 2024 or 2023.

We are subject to financial statement risk to the extent that our goodwill or franchise rights become impaired due to decreases in the fair value. A future decline in performance, decreases in projected growth rates or margin assumptions or changes in discount rates could result in a potential impairment, which could have a material adverse impact on our financial position and results of operations. 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 17% of our total franchise value as of December 31, 2025.

See Note 1 – Summary of Significant Accounting Policies and Note 6 – Goodwill and Franchise Value of Notes to Consolidated Financial Statements included in Part II, Item 8. Financial Statements and Supplementary Financial Data of this Annual Report.

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. Determination of the estimated fair value assigned to each asset acquired or liability assumed can materially impact the net income in subsequent periods through depreciation and amortization and potential impairment charges.

The most significant items we generally acquire in a transaction are inventory, long-lived assets, intangible franchise rights and goodwill. The fair value of acquired inventory is based on manufacturer invoice cost and market data. We estimate the fair value of property and equipment based on a market valuation approach. Additionally, we may use a cost valuation approach to value long-lived assets when a market valuation approach is unavailable. We apply an income approach for the fair value of intangible franchise rights which discounts the projected future net cash flow using an appropriate discount rate that reflects the risks associated with such projected future cash flow.

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.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to market risks relating to market fluctuations in interest rates, foreign currency exchange rates, and equity values. We do not acquire our market risk sensitive instruments for trading purposes.

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), 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. 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. As of December 31, 2025, we had $9.3 billion outstanding under such agreements at a weighted average interest rate of 5.6% per annum. A 10% increase in interest rates, or 55.8 basis points, would increase annual interest expense by approximately $38.8 million, net of tax, based on amounts outstanding as of December 31, 2025.

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 $38.0 million, net of tax, based on amounts outstanding as of December 31, 2024.

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. 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.

As of December 31, 2025, we had $5.6 billion of long-term fixed interest rate debt outstanding and recorded on the balance sheet, with maturity dates between April 1, 2026 and July 1, 2038. 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 $5.5 billion as of December 31, 2025.

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. 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 $4.4 billion as of December 31, 2024.

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. Our exposure to fluctuating exchange rates relates to the effects of translating financial statements of those subsidiaries into our reporting currency, which we do not hedge against based on our investment strategy in these foreign operations. A 10% devaluation in average exchange rates would have resulted in an $806.8 million and a $794.1 million decrease to our revenues for the years ended December 31, 2025, and 2024, respectively.

Risk Management Policies

Our risk management policies are designed to identify, monitor, and manage exposure to market risks, including interest rate risk and foreign currency exchange rate risk, that may impact future cash flows. We manage interest rate risk by monitoring the mix of fixed-rate and variable-rate debt within our capital structure. We manage foreign currency exchange rate risk by monitoring exposures arising from foreign currency–denominated transactions and obligations and by evaluating available hedging strategies.

We finance our operations and growth through a combination of bank debt, mortgage financing, high-yield debt, and internally generated cash flows. In managing market risk, we monitor our credit ratings and evaluate the cost and availability of financing alternatives and risk management strategies.

We maintain risk management controls to monitor interest rate and foreign exchange exposures associated with our outstanding and forecasted debt obligations and operating cash flows, as well as any related hedging activities. These policies do not permit the use of derivative instruments for speculative purposes.

Item 8. Financial Statements and Supplementary Financial Data

The financial statements and notes thereto required by this item begin on page F-1 as listed in Item 15. Exhibits and Financial Statement Schedules of Part IV of this document.

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management evaluated, with the participation and under the supervision of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Annual Report on Form 10-K. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures are effective to ensure that information we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934 is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure and that such information is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms.

Changes in Internal Control Over Financial Reporting

There was no change in our internal control over financial reporting that occurred during our last fiscal quarter that has materially affected or is reasonably likely to materially affect our internal control over financial reporting.

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP.

Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2025. In making this assessment, we used the criteria set forth in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

In accordance with guidance issued by the SEC, companies are permitted to exclude acquisitions from their final assessment of internal controls over financial reporting during the year of the acquisition while integrating the acquired operations. Management’s evaluation of internal control over financial reporting excludes the operations of the 17 stores acquired in 2025, which represented 2% of consolidated total assets as of December 31, 2025 and 1% of consolidated revenues for the year ended December 31, 2025.

Based on our assessment, our management concluded that, as of December 31, 2025, our internal control over financial reporting was effective.

KPMG LLP, our Independent Registered Public Accounting Firm, has issued an attestation report on our internal control over financial reporting as of December 31, 2025, which is included in Item 8. Financial Statements and Supplementary Financial Data of this Form 10-K.

Item 9B. Other Information

During the fiscal quarter ended December 31, 2025, none of our directors or officers (as defined in Rule 16a-1 under the Exchange Act) adopted, modified or terminated any Rule 10b5-1 plan or any non-Rule 10b5-1 trading arrangement.

PART III

Item 10. Directors, Executive Officers and Corporate Governance

Information required by this item will be included in our Proxy Statement for our 2026 Annual Meeting of Shareholders and, upon filing with the SEC within 120 days of December 31, 2025, is incorporated herein by reference.

Item 11. Executive Compensation

Information required by this item will be included in our Proxy Statement for our 2026 Annual Meeting of Shareholders and, upon filing with the SEC within 120 days of December 31, 2025, is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Equity Compensation Plan Information

The following table summarizes equity securities authorized for issuance as of December 31, 2025.

Equity compensation plans approved by shareholders 753,536 $ — (1) 2,348,525

Equity compensation plans not approved by shareholders — — —

(1)There is no exercise price associated with our RSUs.

(2)Includes 1,530,834 shares available pursuant to our 2013 Amended and Restated Stock Incentive Plan and 817,691 shares available pursuant to our Employee Stock Purchase Plan.

The additional information required by this item will be included in our Proxy Statement for our 2026 Annual Meeting of Shareholders and, upon filing with the SEC within 120 days of December 31, 2025, is incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions, and Director Independence

Information required by this item will be included in our Proxy Statement for our 2026 Annual Meeting of Shareholders and, upon filing with the SEC within 120 days of December 31, 2025, is incorporated herein by reference.

Item 14. Principal Accounting Fees and Services

Our independent registered public accounting firm is KPMG LLP, Portland, OR, Auditor Firm ID: 185.

Information required by this item will be included in our Proxy Statement for our 2026 Annual Meeting of Shareholders and, upon filing with the SEC within 120 days of December 31, 2025, is incorporated herein by reference.

PART IV

Item 15. Exhibits and Financial Statement Schedules

Financial Statements and Schedules

The Consolidated Financial Statements, together with the reports thereon of KPMG LLP, Independent Registered Public Accounting Firm, are included on the pages indicated below:

Page

Report of Independent Registered Public Accounting Firm F-1

Consolidated Balance Sheets as of December 31, 2025 and 2024 F-5

Notes to Consolidated Financial Statements F-11

There are no schedules required to be filed herewith.

Exhibit Index

The following exhibits are filed herewith. An asterisk (*) beside the exhibit number indicates the exhibits containing a management contract, compensatory plan or arrangement.

Incorporated by Reference Filed or Furnished Herewith

Exhibit Number Exhibit Description Form File Number Exhibit Filing Date

Incorporated by Reference Filed or Furnished Herewith

Incorporated by Reference Filed or Furnished Herewith

21 Subsidiaries of Lithia Motors, Inc. X

23 Consent of KPMG LLP, Independent Registered Public Accounting Firm X

104 Cover page formatted as Inline XBRL and contained in Exhibit 101. X

† Substantially similar agreements exist between Lithia Motors, Inc. and each of Michael Cavanaugh, Thomas Dobry, Dianna du Preez, Gary Glandon, George Hines, Cornelis Hogeveen, Christopher S. Holzshu, Edward Impert, Kevin Jarrard, Shawn Kukic, Charles Lietz, Katherine Macaddino, Kris Miller, Tina Miller, Thomas Naso, Bryan Osterhout, Ross Sherman, David Stork, and Boyd Westeren. The “Cash Change in Control Benefits” under the agreements with Michael Cavanaugh, Dianna du Preez, Cornelis Hogeveen, Edward Impert, Kevin Jarrard, Kris Miller, Ross Sherman, and Boyd Westeren provide for 12 months of base salary rather than 24 months.

†† Certain confidential and immaterial terms redacted pursuant to Item 601(b)(10)(iv) of Regulation S-K.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: February 25, 2026 LITHIA MOTORS, INC.

Registrant

By: /s/ Bryan B. DeBoer

Bryan B. DeBoer

Chief Executive Officer, President, Director, and Principal Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on February 25, 2026:

/s/ Bryan B. DeBoer /s/ Tina Miller

Bryan B. DeBoer Tina Miller

/s/ Sidney B. DeBoer /s/ Richard J. Bailey Jr.

Sidney B. DeBoer Richard J. Bailey Jr.

Chairman of the Board and Director Director

/s/ James E. Lentz /s/ Stacy C. Loretz-Congdon

James E. Lentz Stacy C. Loretz-Congdon

Director Director

/s/ Shauna F. McIntyre /s/ Cassandra M. McKinney

Shauna F. McIntyre Cassandra M. McKinney

Director Director

/s/ Louis P. Miramontes /s/ Heidi L. O’Neill

Louis P. Miramontes Heidi L. O’Neill

Director Director

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors

Lithia Motors, Inc.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Lithia Motors, Inc. and subsidiaries (the Company) as of December 31, 2025 and 2024, the related consolidated statements of operations, comprehensive income, equity and redeemable non-controlling interest, and cash flows for each of the years in the three-year period ended December 31, 2025, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2025 and 2024, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2025, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 25, 2026 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Assessment of the Company’s impairment tests over franchise value intangible assets

As disclosed in Note 1 and Note 6 to the consolidated financial statements, the Company had indefinite-lived franchise value intangible assets with a book value of $2,777.4 million as of December 31, 2025. The Company tested its franchise value intangible assets for impairment using a qualitative assessment performed at each individual legal entity level as of October 1, 2025. The Company determined that a $5.8 million impairment existed in 2025.

We identified the assessment of the Company’s qualitative impairment test over franchise value intangible assets for legal entities whose current operating results indicate a higher risk of potential impairment as a critical audit matter. The tests included the qualitative evaluation of factors such as future profitability and

AUDITOR’S REPORT F-1

comparable dealership divestitures for entities with recent losses, which required especially subjective auditor judgment.

The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s franchise value impairment assessment process, including controls related to the identification and development of relevant qualitative factors. We evaluated future profitability assumptions by comparing key financial metrics across entities with similar demographics, including historical legal entity level profitability, and evaluated differences for potential indicators of impairments. We evaluated the Company’s intent and ability to carry out a particular course of action by evaluating the Company’s history of carrying out its stated intentions. Additionally, we evaluated information about recent comparable dealership divestitures to identify potential indicators of impairment.

/s/ KPMG LLP

We have served as the Company’s auditor since 1993.

Portland, Oregon

February 25, 2026

AUDITOR’S REPORT F-2

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors

Lithia Motors, Inc.:

Opinion on Internal Control Over Financial Reporting

We have audited Lithia Motors, Inc. and subsidiaries' (the Company) internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2025 and 2024, the related consolidated statements of operations, comprehensive income, equity and redeemable non-controlling interest, and cash flows for each of the years in the three-year period ended December 31, 2025, and the related notes (collectively, the consolidated financial statements), and our report dated February 25, 2026 expressed an unqualified opinion on those consolidated financial statements.

The Company acquired 17 stores during 2025, and management excluded from its assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2025, these acquired stores’ internal control over financial reporting which represented 2% of assets and 1% of revenues included in the consolidated financial statements of the Company as of and for the year ended December 31, 2025. Our audit of internal control over financial reporting of the Company also excluded an evaluation of the internal control over financial reporting of these 17 stores.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

AUDITOR’S REPORT F-3

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ KPMG LLP

Portland, Oregon

February 25, 2026

AUDITOR’S REPORT F-4

CONSOLIDATED BALANCE SHEETS

December 31,

Assets

Current assets:

Cash, restricted cash, and cash equivalents $ 341.8 $ 402.2

Operating lease right-of-use assets 717.2 658.7

Liabilities and equity

Current liabilities:

Floor plan notes payable: non-trade 3,016.3 2,848.0

Current maturities of long-term debt 64.2 134.0

Current maturities of non-recourse notes payable 69.7 58.1

Long-term debt, less current maturities 7,274.9 6,119.3

Non-recourse notes payable, less current maturities 2,404.2 2,051.2

Non-current operating lease liabilities 662.1 596.5

Redeemable non-controlling interest — —

Equity:

Preferred stock - no par value; authorized 15.0 shares; none outstanding — —

Additional paid-in capital 18.1 107.2

Accumulated other comprehensive income (loss) 67.3 (3.6)

Total stockholders’ equity - Lithia Motors, Inc. 6,603.2 6,650.2

Non-controlling interest 25.2 23.9

See accompanying notes to consolidated financial statements.

FINANCIAL STATEMENTS F-5

CONSOLIDATED STATEMENTS OF OPERATIONS

Year Ended December 31,

Revenues:

Cost of sales:

Financing operations income (loss) 74.6 8.4 (45.9)

Asset impairments 5.8 — —

Net income attributable to non-controlling interests (6.3) (4.8) (6.5)

Net income attributable to redeemable non-controlling interest — (14.8) (4.4)

Net income attributable to Lithia Motors, Inc. $ 819.6 $ 796.7 $ 1,000.8

Shares used in basic per share calculations 25.3 27.0 27.5

Shares used in diluted per share calculations 25.4 27.1 27.6

Cash dividends paid per share $ 2.18 $ 2.09 $ 1.92

See accompanying notes to consolidated financial statements.

FINANCIAL STATEMENTS F-6

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Year Ended December 31,

Other comprehensive income (loss), net of tax:

Foreign currency translation adjustment 92.7 (36.4) 56.5

Total other comprehensive income (loss), net of tax 70.9 (23.7) 38.1

Comprehensive income attributable to non-controlling interest (6.3) (4.8) (6.5)

See accompanying notes to consolidated financial statements.

FINANCIAL STATEMENTS F-7

CONSOLIDATED STATEMENTS OF EQUITY AND REDEEMABLE NON-CONTROLLING INTEREST

Year Ended December 31,

Repurchase of common stock, including excise tax (851.8) (365.9) (48.9)

Additional paid-in capital, beginning balances 107.2 79.9 76.8

Repurchase of common stock (118.2) — —

Additional paid-in capital, ending balances 18.1 107.2 79.9

Foreign currency translation adjustment 92.7 (36.4) 56.5

Accumulated other comprehensive income (loss), ending balances 67.3 (3.6) 20.1

Net income attributable to Lithia Motors, Inc. 819.6 796.7 1,000.8

Non-controlling interest, beginning balances 23.9 25.0 4.2

Net (distributions) contributions of non-controlling interest (5.0) (5.9) 14.3

Net income attributable to non-controlling interest 6.3 4.8 6.5

Non-controlling interest, ending balances 25.2 23.9 25.0

Redeemable non-controlling interest, beginning balances $ — $ 44.0 $ 40.7

Net distributions of redeemable non-controlling interest — (0.1) (1.1)

Net income attributable to redeemable non-controlling interest — 14.8 4.4

Redemption of redeemable non-controlling interest — (58.7) —

Redeemable non-controlling interest, ending balances $ — $ — $ 44.0

See accompanying notes to consolidated financial statements.

FINANCIAL STATEMENTS F-8

CONSOLIDATED STATEMENTS OF CASH FLOWS

Year Ended December 31,

Cash flows from operating activities:

Asset impairments 5.8 — —

Net loss (gain) on disposal of other assets 9.3 (8.2) (3.8)

Net gain on disposal of stores (20.3) (8.2) (31.2)

Investment loss (gain) 14.2 (33.1) —

Amortization of operating lease right-of-use assets 91.3 94.5 60.5

Decrease (increase) (net of acquisitions and dispositions):

(Decrease) increase (net of acquisitions and dispositions):

Other long-term liabilities and deferred revenue 52.5 (4.2) 18.6

Net cash provided by (used in) operating activities 356.7 425.1 (472.4)

Cash flows from investing activities:

Net cash used for other investments (15.3) (354.7) (11.1)

Cash paid for acquisitions, net of cash acquired (886.4) (1,248.5) (1,185.1)

Cash flows from financing activities:

Borrowings on floor plan notes payable: non-trade, net 191.7 304.8 878.7

Proceeds from issuance of long-term debt 786.8 408.2 79.8

Principal payments on non-recourse notes payable (1,314.0) (950.2) (589.5)

Proceeds from issuance of non-recourse notes payable 1,678.5 1,353.9 1,872.9

Payment of debt issuance costs (16.0) (10.7) (16.7)

Proceeds from issuance of common stock 27.5 27.3 29.7

Payments of contingent consideration related to acquisitions (9.4) (11.7) (14.0)

Other financing activities (69.1) 0.8 (7.9)

Effect of exchange rate changes on cash and restricted cash 4.6 (4.5) 33.4

(Decrease) increase in cash and restricted cash (54.5) (526.2) 700.5

Cash and restricted cash at beginning of year 445.8 972.0 271.5

Cash and restricted cash at end of year $ 391.3 $ 445.8 $ 972.0

See accompanying notes to consolidated financial statements.

FINANCIAL STATEMENTS F-9

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

Year Ended December 31,

Reconciliation of cash and restricted cash to the consolidated balance sheets

Cash, restricted cash, and cash equivalents $ 109.2 $ 225.1 $ 825.0

Restricted cash from collections on finance receivables 232.6 177.1 116.4

Supplemental cash flow information:

Cash paid during the period for interest $ 709.4 $ 739.7 $ 514.3

Cash paid during the period for income taxes, net 201.9 242.7 222.1

Floor plan debt paid in connection with store disposals 41.7 20.6 27.4

Non-cash activities:

Contingent consideration in connection with acquisitions $ — $ — $ 7.3

Debt assumed in connection with acquisitions 60.7 868.1 401.6

Acquisition of finance leases in connection with acquisitions — 22.7 45.0

Non-controlling interest recognized in connection with acquisitions — — ` 21.1

Right-of-use assets obtained in exchange for lease liabilities 155.1 290.2 150.0

Unsettled repurchases of common stock and excise taxes 9.1 0.1 —

See accompanying notes to consolidated financial statements.

FINANCIAL STATEMENTS F-10

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Business

We are the world’s largest global automotive retailer, operating a unique omnichannel ecosystem of comprehensive sales, financing, leasing, and aftersales. In 2025, we were ranked 124 on the Fortune 500. As of December 31, 2025, we operated 455 locations across the United States, the United Kingdom, and Canada representing 54 brands. We connect customers to their mobility needs through seamlessly integrated physical locations, e-commerce platforms, and tailored solutions including captive finance and fleet management. We focus on creating customer loyalty to maximize the potential of each store. This approach enables us to unlock sustained growth by delivering personalized experiences wherever, whenever, and however customers desire.

Basis of Presentation

The accompanying Consolidated Financial Statements reflect the results of operations, the financial position, and the cash flows for Lithia Motors, Inc. and its directly and indirectly wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Cash, Restricted Cash, and Cash Equivalents

Cash and cash equivalents are defined as cash on hand, cash in bank accounts without restrictions, and highly liquid investments with original maturities of three months or less. Restricted cash consisted of collections of principal, interest and fee payments on finance receivables that are restricted for repayment on borrowings on our securitization facilities before being unrestricted.

Accounts Receivable

Accounts receivable classifications include the following:

•Contracts in transit are receivables from various lenders for the financing of vehicles that we have arranged on behalf of the customer and are typically received within five to ten days of selling a vehicle.

•Trade receivables are comprised of amounts due from customers, lenders for the commissions earned on financing and others for commissions earned on service contracts and insurance products.

•Vehicle receivables represent receivables for the portion of the vehicle sales price paid directly by the customer.

•Manufacturer receivables represent amounts due from manufacturers, including holdbacks, rebates, incentives, and warranty claims.

Receivables are recorded at invoice and do not bear interest until they are 60 days past due. The historical losses related to these balances are immaterial. The long-term portion of accounts receivable was included as a component of other non-current assets in the Consolidated Balance Sheets. See Note 2 – Accounts Receivable.

Finance Receivables

Finance receivables consist of auto loan and lease contracts originated through our Financing Operations, which are secured by the vehicles we sell. Finance receivables are presented net of an allowance for credit losses. The allowance for credit losses represents the net credit losses expected over the remaining contractual life of our finance receivables. See Note 5 – Finance Receivables for additional information on our significant accounting policies related to finance receivables and the allowance for credit losses.

Inventories

Inventories are valued at the lower of net realizable value or cost, using the specific identification method for new and used vehicles, and the lower of cost (first-in, first-out) or market method for parts. The cost of new and used vehicle inventories includes the cost of any equipment added, reconditioning, and transportation.

Manufacturers reimburse us for holdbacks, floor plan interest assistance, and advertising assistance, which are reflected as a reduction in the carrying value of each vehicle purchased. We recognize advertising assistance, floor plan interest assistance, holdbacks, cash incentives, and other rebates received from manufacturers that are tied to specific vehicles as a reduction to cost of sales as the related vehicles are sold.

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Parts purchase discounts that we receive from the manufacturer are reflected as a reduction in the carrying value of the parts purchased from the manufacturer and are recognized as a reduction to cost of goods sold as the related inventory is sold. See Note 3 – Inventories and Floor Plan Notes Payable.

Property and Equipment

Property and equipment are stated at cost and depreciated over their estimated useful lives on the straight-line basis. Leasehold improvements made at the inception of the lease or during the term of the lease are amortized on a straight-line basis over the shorter of the life of the improvement or the remaining term of the lease.

The range of estimated useful lives is as follows:

Buildings and improvements 5 to 40 years

Service equipment 5 to 15 years

Furniture, office equipment, signs, and fixtures 3 to 10 years

The cost for maintenance, repairs and minor renewals is expensed as incurred, while significant remodels and betterments are capitalized. In addition, interest on borrowings for major capital projects, significant remodels, and betterments is capitalized. Capitalized interest becomes a part of the cost of the depreciable asset and is depreciated according to the estimated useful lives as previously stated. For the years ended December 31, 2025, 2024, and 2023, we recorded capitalized interest of $8.5 million, $5.4 million and $2.6 million, respectively.

When an asset is retired, or otherwise disposed of, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is credited or charged to income from operations, as a component of SG&A.

Leased property meeting certain criteria are recorded as finance leases. We have finance leases for certain locations, expiring at various dates through August 31, 2037. Our finance lease right-of-use assets are included in property and equipment on our Consolidated Balance Sheets. Amortization of finance lease right-of-use assets is computed on a straight-line basis over the term of the lease, unless the lease transfers title or it contains a bargain purchase option, in which case, it is amortized over the asset’s useful life and is included in depreciation expense. Finance lease liabilities are recorded as the lesser of the estimated fair market value of the leased property or the net present value of the aggregated future minimum payments and are included in current maturities of long-term debt and long-term debt on our Consolidated Balance Sheets. Interest associated with these obligations is included in other interest expense in the Consolidated Statements of Operations. See Note 9 – Commitments and Contingencies.

Long-lived assets held and used by us are reviewed for impairment whenever events or circumstances indicate that the carrying amount of assets may not be recoverable. We consider several factors when evaluating whether there are indications of potential impairment related to our long-lived assets, including store profitability, overall macroeconomic factors and the impact of our strategic management decisions. If recoverability testing is performed, we evaluate assets to be held and used by comparing the carrying amount of an asset to future net undiscounted cash flows associated with the asset, including its disposition. If such assets are considered to be impaired, the amount by which the carrying amount of the assets exceeds the fair value of the assets is recognized as a charge to income from operations. See Note 4 – Property and Equipment.

Goodwill

Goodwill represents the excess purchase price over the fair value of net assets acquired which is not allocable to separately identifiable intangible assets. Other identifiable intangible assets, such as franchise rights, are separately recognized if the intangible asset is obtained through contractual or other legal right or if the intangible asset can be sold, transferred, licensed or exchanged.

Goodwill is not amortized but tested for impairment at least annually, and more frequently if events or circumstances indicate the carrying amount of the reporting unit more likely than not exceeds fair value. We have the option to qualitatively or quantitatively assess goodwill for impairment. We test our goodwill for impairment on October 1 of each year. In 2025, we evaluated our goodwill using a qualitative assessment process. 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. We have determined the appropriate unit of accounting for testing goodwill for impairment is at our reporting unit level: North America Vehicle Operations, U.K.

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Vehicle Operations, and U.S. and Canada Financing Operations. See Note 6 – Goodwill and Franchise Value and Note 15 – Fair Value Measurements.

Franchise Value

We enter into agreements (franchise agreements) with our manufacturers. Franchise value represents a right received under franchise agreements with manufacturers and is identified on a legal entity basis.

We evaluated the useful lives of our franchise agreements based on the following factors:

•certain of our franchise agreements continue indefinitely by their terms;

•certain of our franchise agreements have limited terms, but are routinely renewed without substantial cost to us;

•other than franchise terminations related to the unprecedented reorganizations of Chrysler and GM, and allowed by bankruptcy law, we are not aware of manufacturers terminating franchise agreements against the wishes of the franchise owners in the ordinary course of business. A manufacturer may pressure a franchise owner to sell a franchise when the owner is in breach of the franchise agreement over an extended period of time;

•state dealership franchise laws typically limit the rights of the manufacturer to terminate or not renew a franchise;

•we are not aware of any legislation or other factors that would materially change the retail automotive franchise system; and

•as evidenced by our acquisition and disposition history, there is an active market for most automotive dealership franchises. We attribute value to the franchise agreements acquired with the dealerships we purchase based on the understanding and industry practice that the franchise agreements will be renewed indefinitely by the manufacturer.

Accordingly, we have determined that our franchise agreements will continue to contribute to our cash flows indefinitely and, therefore, have indefinite lives.

As an indefinite-lived intangible asset, franchise value is tested for impairment at least annually, and more frequently if events or circumstances indicate the carrying value may exceed fair value. The impairment test for indefinite-lived intangible assets requires the comparison of estimated fair value to carrying value. An impairment charge is recorded to the extent the fair value is less than the carrying value. We have the option to qualitatively or quantitatively assess indefinite-lived intangible assets for impairment. We evaluated our indefinite-lived intangible assets using a qualitative assessment process. We have determined the appropriate unit of accounting for testing franchise value for impairment is each legal entity assigned franchise value.

We test our franchise value for impairment on October 1 of each year. In 2025, we evaluated our franchise value using a qualitative assessment process. If the qualitative factors discussed above determine that it is more likely than not that the fair value of the legal entity’s franchise value exceeds the carrying amount, the franchise value is not impaired and the second step is not necessary. If the qualitative assessment determines it is more likely than not the fair value is less than the carrying value, then a quantitative valuation of our franchise value is performed and an impairment would be recorded. See Note 6 – Goodwill and Franchise Value and Note 15 – Fair Value Measurements.

Variable Interest Entities and Securitization Transactions

We maintain a revolving funding program composed of warehouse facilities that we use to fund finance receivables originated by our Financing Operations.

We use term securitizations to provide long-term funding for most of the finance receivables initially funded through the warehouse facilities. In these transactions, a pool of finance receivables is sold to a bankruptcy-remote, special purpose entity that, in turn, transfers the finance receivables to a special purpose securitization trust. The securitization trust issues asset-backed securities, secured or otherwise supported by the transferred finance receivables, and the proceeds from the sale of the asset-backed securities are used to finance the securitized finance receivables.

The securitization trusts established in connection with asset-backed securitization transactions are variable interest entities (VIE). We are required to evaluate term securitization trusts for consolidation. In our capacity as servicer, we have the power to direct the activities of the trusts that most significantly impact the economic performance of the

NOTES TO FINANCIAL STATEMENTS F-13

trusts. In addition, we have the obligation to absorb losses (subject to limitations) and the rights to receive any returns of the trusts, which could be significant. Accordingly, we are the primary beneficiary of the trusts and are required to consolidate them.

We recognize these term securitizations as secured borrowings, which result in recording the finance receivables and the related non-recourse notes payable on our Consolidated Balance Sheets.

These finance receivables can only be used as collateral to settle obligations of the related non-recourse funding vehicles. The non-recourse funding vehicles and investors have no recourse to our assets beyond the related finance receivables, the amounts on deposit in reserve accounts and the restricted cash from collections on finance receivables. We have not provided financial or other support to the non-recourse funding vehicles that was not previously contractually required, and there are no additional arrangements, guarantees, or other commitments that could require us to provide financial support to the non-recourse funding vehicles.

See Note 5 – Finance Receivables and Note 10 – Credit Facilities and Long-Term Debt for additional information on finance receivables and non-recourse notes payable.

Restricted Cash on Deposit in Reserve Accounts

The restricted cash on deposit in reserve accounts is for the benefit of holders of non-recourse notes payable, and these funds are not expected to be available to the company or its creditors. In the event that the cash generated by the related receivables in a given period was insufficient to pay the interest, principal, and other required payments, the balances on deposit in the reserve accounts would be used to pay those amounts. Restricted cash on deposit in reserve accounts is invested in both FDIC insured bank savings accounts as well as money market securities and is included in “Other non-current assets” on our Consolidated Balance Sheets. Restricted cash on deposit in reserve accounts totaled $49.5 million and $43.6 million at December 31, 2025 and 2024, respectively.

Advertising

We expense production and other costs of advertising as incurred as a component of SG&A expense. Additionally, manufacturer cooperative advertising credits for qualifying, specifically-identified advertising expenditures are recognized as a reduction of advertising expense.Advertising expense and manufacturer cooperative advertising credits were as follows:

Year Ended December 31,

Manufacturer cooperative advertising credits (62.5) (56.2) (54.2)

Contract Origination Costs

Contract origination commissions paid to our team members directly related to the sale of our self-insured lifetime lube, oil, and filter service contracts and finance receivables originations are deferred and charged to expense in proportion to the associated revenue to be recognized.

Legal Costs

We are a party to numerous legal proceedings arising in the normal course of business. We accrue for certain legal costs, including attorney fees and potential settlement claims related to various legal proceedings that are estimable and probable. See Note 9 – Commitments and Contingencies.

Share-Based Compensation

Compensation costs associated with equity instruments exchanged for team member and director services are measured at the grant date, based on the fair value of the award. If there is a performance-based element to the award, the expense is recognized based on the estimated attainment level, estimated time to achieve the attainment level and/or the vesting period. Estimates of fair value are not intended to predict actual future events or the value ultimately realized by persons who receive equity awards. The fair value of non-vested share-based awards is based on the closing price of our common stock on the date of grant. We account for forfeitures of share-based awards as they occur. See Note 14 – Share-Based Compensation Plans.

NOTES TO FINANCIAL STATEMENTS F-14

Income and Other Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities, their respective tax bases, operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance, if needed, reduces deferred tax assets when it is more likely than not that some or all of the deferred tax assets will not be realized.

When there are situations with uncertainty as to the timing of the deduction, the amount of the deduction, or the validity of the deduction, we adjust our financial statements to reflect only those tax positions that are more-likely-than-not to be sustained. Positions that meet this criterion are measured using the largest benefit that is more than 50% likely to be realized. Interest and penalties are recorded as income tax provision in the period incurred or accrued when related to an uncertain tax position. See Note 16 – Income Taxes.

We account for all taxes assessed by a governmental authority that are directly imposed on a revenue-producing transaction (i.e., sales, use, value-added) on a net (excluded from revenues) basis.

Concentration of Risk and Uncertainties

We purchase substantially all of our new vehicles and inventory from various manufacturers at the prevailing prices charged by auto manufacturers to all franchised dealers. Our overall sales could be impacted by the auto manufacturers’ inability or unwillingness to supply dealerships with an adequate supply of popular models.

We depend on our manufacturers to provide a supply of vehicles which supports expected sales levels. In the event that manufacturers are unable to supply the needed level of vehicles, our financial performance may be adversely impacted.

We depend on our manufacturers to deliver high-quality, defect-free vehicles. In the event that manufacturers experience future quality issues, our financial performance may be adversely impacted.

We are subject to a concentration of risk in the event of financial distress, including potential reorganization or bankruptcy, of a major vehicle manufacturer. Our sales volume could be materially adversely impacted by the manufacturers’ or distributors’ inability to supply the stores with an adequate supply of vehicles. We also receive incentives and rebates from our manufacturers, including cash allowances, financing programs, discounts, holdbacks and other incentives. These incentives are recorded as accounts receivable in our Consolidated Balance Sheets until payment is received. Our financial condition could be materially adversely impacted by the manufacturers’ or distributors’ inability to continue to offer these incentives and rebates at substantially similar terms, or to pay our outstanding receivables.

We enter into franchise agreements with the manufacturers. The franchise agreements generally limit the location of the dealership and provide the auto manufacturer approval rights over changes in dealership management and ownership. The auto manufacturers are also entitled to terminate the franchise agreement if the dealership is in material breach of the terms. Our ability to expand operations depends, in part, on obtaining consents of the manufacturers for the acquisition of additional dealerships. See also “Goodwill” and “Franchise Value” above.

We have a variety of syndicated credit facilities with several of the included financial institutions also providing vehicle financing for certain new vehicles, vehicles that are designated for use as service loaners and mortgage financing. These credit facilities are the primary source of floor plan financing for our new vehicle inventory and also provides used vehicle financing and a revolving line of credit. The terms of the facilities extends through various dates through February 23, 2029. At maturity, our financial condition could be materially adversely impacted if lenders are unable to provide credit that has typically been extended to us or with terms unacceptable to us. Our financial condition could be materially adversely impacted if these providers incur losses in the future or undergo funding limitations. See Note 10 – Credit Facilities and Long-Term Debt.

We anticipate continued organic growth and growth through acquisitions. This growth will require additional credit which may be unavailable or with terms unacceptable to us. If these events were to occur, we may not be able to borrow sufficient funds to facilitate our growth.

NOTES TO FINANCIAL STATEMENTS F-15

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements and related Notes to Consolidated Financial Statements. Changes in such estimates may affect amounts reported in future periods.

Estimates are used in the calculation of certain reserves maintained for charge-backs on estimated cancellations of service contracts; life, accident, and disability insurance policies; finance fees from customer financing contracts and uncollectible accounts receivable.

Estimates are also used in our allowance for credit losses, which represents the net credit losses expected over the remaining contractual life of our finance receivables. Because net loss performance can vary substantially over time, estimating net losses requires assumptions about matters that are uncertain. The allowance for credit losses is determined using a net loss timing curve, primarily based on the composition of the portfolio of managed finance receivables and historical gross loss and recovery trends. Determining the appropriateness of the allowance for credit losses requires management to exercise judgment about matters that are inherently uncertain, including the timing and distribution of net losses that could materially affect the allowance for credit losses and, therefore, net earnings.

We also use estimates in the calculation of various expenses, accruals and reserves, including anticipated losses related to workers’ compensation insurance; anticipated losses related to self-insurance components of our property and casualty and medical insurance; self-insured lifetime lube, oil, and filter service contracts; discretionary team member bonuses, the Transition Agreement with Sidney B. DeBoer, our Chairman of the Board; warranties provided on certain products and services; legal reserves and share-based compensation. We also make certain estimates regarding the assessment of the recoverability of long-lived assets, indefinite-lived intangible assets and deferred tax assets.

We offer a limited warranty on the sale of most retail used vehicles. This warranty is based on mileage and time. We also offer a mileage and time based warranty on parts used in our service repair work and on tire purchases. The cost that may be incurred for these warranties is estimated at the time the related revenue is recorded. A reserve for these warranty liabilities is estimated based on current sales levels, warranty experience rates and estimated costs per claim. The annual activity for reserve increases and claims is immaterial.

Fair Value of Assets Acquired and Liabilities Assumed