PAG US Equity☆

Item 1A. Risk Factors

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Our business, financial condition, results of operations, cash flows, prospects, and the prevailing market price and performance of our common stock may be affected by a number of factors, including the matters discussed below. Certain statements and information set forth herein as well, as other written or oral statements made from time to time by us or by our authorized officers on our behalf, constitute “forward-looking statements” within the meaning of the Federal Private Securities Litigation Reform Act of 1995. Words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “goal,” “plan,” “seek,” “project,” “continue,” “will,” “would,” and variations of such words and similar expressions are intended to identify such forward-looking statements. We intend for our forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and we set forth this statement in order to comply with such safe harbor provisions. You should note that our forward-looking statements speak only as of the date of this Annual Report on Form 10-K or when made, and we undertake no duty or obligation to update or revise our forward-looking statements, whether as a result of new information, future events, or otherwise.

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Although we believe that the expectations, plans, intentions, and projections reflected in our forward-looking statements are reasonable, such statements are subject to known and unknown risks, uncertainties, and other factors that may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements.

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The material risks, uncertainties, and other factors that our stockholders and prospective investors should consider include the following:

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Operational Risks

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The COVID-19 pandemic has disrupted, and may continue to disrupt, our business, which could adversely affect our financial performance. The outbreak of the COVID-19 pandemic across the globe has adversely impacted each of our markets and the global economy, leading to disruptions to our business. The COVID-19 pandemic continues in virtually all of our markets. Governmental authorities have taken countermeasures to slow the outbreak, including shelter-in-place orders, restrictions on travel, and government-funded assistance programs to individuals and businesses. Business closures and shelter-in-place orders negatively impacted our business during 2020, and in response to increased incidence of the COVID-19 pandemic, certain parts of the U.K. have reinstated shelter-in-place orders which require our dealership showrooms to close, although we continue to conduct sales through our online “Click & Collect” program where available, though we are unsure of the continued availability of our “Click & Collect” program in response to continuing high levels of infection in certain areas of the U.K. If shelter-in-place orders are extended or additional restrictions are enacted that require our dealerships to close, we may be adversely impacted. The COVID-19 pandemic is a highly fluid and rapidly evolving situation due to numerous uncertainties, including the duration of the outbreak, travel restrictions, business closures, the effectiveness of actions taken to contain the disease, the distribution rate and acceptance rate of a vaccine, the effect of government assistance programs, production levels from our manufacturing partners, and other unintended consequences, and while we continue to adjust our operations to conform to regulatory changes and consumer preferences in the evolving environment, we cannot anticipate with any certainty the length, scope, or severity of the business impact from the COVID-19 pandemic in each of the jurisdictions that we operate.

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This business impact could include changes in customer demand; our relationship with, and the financial and operational capacities of, vehicle manufacturers, captive finance companies and other suppliers; workforce availability; risks associated with our indebtedness (including available borrowing capacity, compliance with financial covenants and ability to refinance or repay indebtedness on favorable terms); the adequacy of our cash flow and earnings and other conditions which may affect our liquidity; our ability to pay our quarterly dividend at prior levels; and disruptions to our technology network and other critical systems, including our dealer management systems and software or other facilities or equipment. Moreover, due to remote working and lack of mobility associated with the pandemic in our markets, we believe our customers are driving less, which may affect our services revenues should this trend continue.

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We believe that business disruption relating to the COVID-19 pandemic will continue to negatively impact the global economy and may materially affect our businesses as outlined above, or in other manners, all of which would adversely impact our business and results of operations.

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Macro-economic conditions. Our performance is impacted by general economic conditions overall and in particular by economic conditions in the markets in which we operate. These economic conditions include levels of new and used vehicle sales, availability of consumer credit, changes in consumer demand, consumer confidence levels, fuel prices, personal discretionary spending levels, interest rates, and unemployment rates. When the worldwide economy faltered early in 2020, we were adversely affected, and we expect a similar relationship between general economic and industry conditions and our performance in the future.

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Adverse conditions affecting a significant automotive manufacturer or supplier will affect us. Our success depends on the overall success of the automotive industry generally and in particular on the success of the brands of vehicles that each of our dealerships sell. In 2020, revenue generated at our Audi/Volkswagen/Porsche/Bentley, BMW/MINI, Toyota/Lexus, and Mercedes-Benz/Sprinter/smart dealerships represented 22%, 23%, 14%, and 10%, respectively, of our total automotive dealership revenues. In addition, our retail commercial truck operations rely principally on Freightliner and Western Star trucks (both Daimler brands).

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Significant adverse weather related events, supply chain issues, or other events that interrupt vehicle or parts supply to our dealerships would likely have a significant and adverse impact on the industry as a whole, including us, particularly if the events impact any of the manufacturers whose franchises generate a significant percentage of our revenue. For example, in 2017, hurricanes in Puerto Rico, Florida, Georgia, and Texas generated storm-related losses. Should these or similar events reoccur, we would expect similar adverse effects. Moreover, new rules in place after the recent Brexit accord between the European Union and the U.K. could slow parts originating in the U.K or Europe for distribution to our dealerships. COVID-19 has impacted and may continue to impact the supply of vehicles or parts to the U.S. or European markets, and our business could be materially adversely affected. The supply chain required to manufacture and supply the parts for the vehicles we sell is highly complex and integrated. Any failure of that supply chain could materially and adversely affect us. For example, recently, many of our principal vehicle manufacturers have announced production disruptions caused by a shortage of automotive microchips. The shortage is reported to be due to the overall demand for microchips in the global economy. IHS Markit has predicted that automotive supply globally will be reduced by 1.0 million units in the first quarter of 2021 due to the shortage. However, IHS Markit notes they believe production will recover later in the year. While we have ample levels of new vehicles in our inventory currently and expect to continue to have normal levels of used vehicles for sale, prolonged shortages could result in lower new vehicle sales volumes which could adversely affect us. Moreover, due to remote working and lack of mobility associated with the pandemic in our markets, we believe our customers are driving less, which may affect our services revenues should this trend continue.

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Manufacturer incentive programs. Vehicle manufacturers offer incentive programs intended to promote and support vehicle sales. These incentive programs include but are not limited to customer rebates, dealer incentives on new vehicles, manufacturer floor plan interest and advertising assistance, and warranties on new and used vehicles. A discontinuation of or change to the manufacturers’ incentive programs may adversely impact vehicle demand, the value of new and used vehicles, and may materially affect our results of operations.

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The success of our commercial vehicle distribution businesses is directly impacted by availability and demand for the vehicles and other products we distribute. We are the exclusive distributor of Western Star commercial trucks, MAN commercial trucks and buses, and Dennis Eagle refuse collection vehicles, together with associated parts, across Australia, New Zealand, and portions of the Pacific. We are also the distributor of diesel and gas engines and power systems in these same markets. The profitability of these businesses depends upon the number of vehicles, engines, power systems, and parts we distribute, which in turn is impacted by demand for these products. We believe demand is subject to general economic conditions, exchange rate fluctuations, regulatory changes, competitiveness of the products, and other factors over which we have limited control. In the event sales of these products are less than we expect, our related results of operations and cash flows for this aspect of our business may be materially adversely affected. The products we distribute are principally manufactured at a limited number of locations. In the event of a supply disruption, sufficient quantities of the vehicles, engines, power systems, and parts are not made available to us, or if we accept these

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products and are unable to economically distribute them, our cash flows or results of operations may be materially adversely affected.

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Australian economic conditions. Our commercial vehicle distribution operations in Australia and New Zealand may be impacted by local economic conditions and in particular, the price of commodities such as copper and iron ore, which may impact the desire of our customers to operate their mining operations and replace their vehicle fleets. Adverse pricing concerns of those, and other commodities, may have a material adverse effect on our ability to distribute, and/or retail, commercial vehicles and other products profitably. These same conditions may also negatively impact the value of the Australian Dollar versus the U.S. Dollar, which negatively impacts our U.S. Dollar reported financial results and the pricing of products sold by Penske Australia, which are manufactured in the U.S., U.K., and Germany.

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Additional risks relating to PTS. PTS’ business has additional risks to those in the retail business.

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Customers. PTS has a more concentrated customer base than we do and is subject to changes in the financial health of its customers, changes in their asset utilization rates, and increased competition for those customers.

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Workforce. PTS requires a significant number of qualified drivers and technicians, which may be difficult to hire, and is subject to increased compliance costs or work stoppages relating to those employees, particularly in regard to changes in labor laws and time of work rules regarding those employees. PTS contributes to 10 U.S. multi-employer pension plans that provide defined benefits to approximately 3,350 associates covered by collective bargaining agreements. If they withdraw or are deemed to withdraw from participation in any of these plans, then applicable law could require them to make withdrawal liability payments to the plan. If any of those plans were deemed to be underfunded, PTS could be subject to additional assessments, which could be substantial.

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Fleet risk. As one of the largest purchasers of commercial trucks in North America, PTS requires continued availability from truck manufacturers and suppliers of vehicles and parts for its fleet, which may be uncertain, in particular if a significant recall were to occur. In addition, because PTS sells a large number of trucks each year and is subject to residual risk for the vehicles it leases to customers, changes in values of used trucks affects PTS’ profitability.

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Capital markets risk. PTS relies on banks and the capital markets to fund its operations and capital commitments. PTS had a significant amount of total indebtedness at December 31, 2020, which it uses in part to purchase its vehicle fleet and therefore, is subject to changes in, and continued access to, the capital markets.

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Strategic Risks

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Brand reputation. Our businesses and our commercial vehicle operations, in particular, as those are more concentrated with a particular manufacturer, are impacted by consumer demand and brand preference, including consumers’ perception of the quality of those brands. A decline in the quality and brand reputation of the vehicles or other products we sell or distribute, as a result of events such as manufacturer recalls or legal proceedings, may adversely affect our business. If such events were to occur, the profitability of our business related to those manufacturers could be adversely affected.

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Our business is very competitive. We generally compete with other franchised dealerships in our markets, used vehicle superstores, private market buyers and sellers of used vehicles, an increasing number of internet-based vehicle sellers, recently, electric vehicle manufacturers that sell direct to consumers, national and local service and repair shops and parts retailers with respect to commercial vehicles, distributors of similar products, and manufacturers in certain markets. Purchase decisions by consumers when shopping for a vehicle are extremely price sensitive. The level of competition in the market can lead to lower selling prices and related profits. If there is a prolonged drop in retail prices or if new vehicle sales are allowed to be made over the internet without the involvement of franchised dealers, our business could be materially adversely affected.

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Evolving automotive and trucking industries. The automotive and trucking industries are predicted to experience rapid change. Shared vehicle services such as Uber and Lyft provide consumers with increased choice in their personal mobility options. The effect of these and similar mobility options on the retail automotive industry is uncertain and may

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include lower levels of new vehicles sales but with increasing miles driven, which could require additional demand for vehicle maintenance. In part due to regulatory requirements to limit vehicle emissions, many automotive manufacturers have announced plans to further electrify their vehicle offerings. We expect to continue to sell electric and hybrid gas/electric vehicles through our franchised dealerships; however, if pure electric vehicles were widely accepted by customers, our service revenues may decline as these vehicles may require less physical maintenance than gas and hybrid vehicles. In addition, technological advances are facilitating the development of driverless vehicles. The eventual timing of availability of driverless vehicles is uncertain due to regulatory requirements, additional technological requirements, and uncertain consumer acceptance of these vehicles. The effect of driverless vehicles on the automotive retail and trucking industries is uncertain and could include changes in the level of new and used vehicles sales, the price of new vehicles, and the role of franchised dealers, any of which could materially and adversely affect our business.

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Key personnel. We believe that our success depends to a significant extent upon the efforts and abilities of our senior management and in particular, upon Roger Penske who is our Chair and Chief Executive Officer. To the extent Mr. Penske, or other key personnel, were to depart from our Company unexpectedly, our business could be significantly disrupted.

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Financial Risks

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Leverage. Our significant debt and other commitments expose us to a number of risks, including:

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Cash requirements for debt and lease obligations.A significant portion of the cash flow we generate must be used to service the interest and principal payments relating to our various financial commitments, including $3.1 billion of floor plan notes payable, $1.7 billion of non-vehicle long-term debt, and $5.4billion of future lease commitments(including extension periods that are reasonably assured of being exercised and assuming constant consumer price indices). A sustained or significant decrease in our operating cash flows could lead to an inability to meet our debt service or lease requirements or to a failure to meet specified financial and operating covenants included in certain of our agreements. If this were to occur, it may lead to a default under one or more of our commitments and potentially the acceleration of amounts due, which could have a significant and adverse effect on us.

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Availability. Because we finance the majority of our operating and strategic initiatives using a variety of commitments, including floor plan notes payable and revolving credit facilities, we are dependent on continued availability of these sources of funds. If these agreements are terminated or we are unable to access them because of a breach of financial or operating covenants or otherwise, we will likely be materially affected.

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Interest rate variability. The interest rates we are charged on a substantial portion of our debt, including the floor plan notes payable we issue to purchase the majority of our inventory, are variable, increasing or decreasing based on changes in certain published interest rates. Increases to such interest rates has resulted and may continue to result in higher interest expense for us, which negatively affects our operating results. Because many of our customers finance their vehicle purchases, increased interest rates may also decrease vehicle sales, which would negatively affect our operating results.

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We may be adversely affected by changes in LIBOR reporting practices or the method in which LIBOR is determined. Regulatory authorities in both the U.S. and U.K. have announced their intention to stop compelling banks to submit rates for the calculation of LIBOR after 2021 in the U.K and after June 30, 2023 in the U.S. In the U.S., we expect the Secured Overnight Financing Rate (“SOFR”) will be adopted in lieu of LIBOR. In the U.K., we expect the Sterling Overnight Indexed Average (SONIA) to be adopted. Our senior secured revolving credit facilities in the U.S. and U.K. and many of our floorplan arrangements utilize LIBOR as a benchmark for calculating the applicable interest rate. Changes in the method of calculating LIBOR, the elimination of LIBOR, or the replacement of LIBOR with an alternative rate or benchmark may require us to renegotiate or amend these facilities, loans, and programs, which may adversely affect interest rates and result in higher borrowing costs. This could materially and adversely affect our results of operations, cash flows, and liquidity. We cannot predict the effect of the potential changes to or elimination of LIBOR, the establishment and use of alternative rates or benchmarks, and the corresponding effects on our cost of capital may be adversely affected by changes in LIBOR reporting practices or the method in which LIBOR is determined.

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Impairment of our goodwill or other indefinite-lived intangible assets has in the past had, and in the future could have, a material adverse impact on our earnings. We evaluate goodwill and other indefinite-lived intangible assets for impairment annually and upon the occurrence of an indicator of impairment. Our process for impairment testing of these assets is described further under “Impairment Testing” in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies and Estimates. If we determine that the amount of our goodwill or other indefinite-lived intangible assets are impaired at any point in time, we would be required to reduce the value of these assets on our balance sheet, which would also result in a material non-cash impairment charge that could also have a material adverse effect on our results of operations for the period in which the impairment occurs.

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Performance of sublessees. In connection with the sale, relocation, and closure of certain of our franchises, we have entered into a number of third-party sublease agreements. The rent paid by our sub-tenants on such properties in 2020 totaled approximately $25.8 million. In the aggregate, we remain ultimately liable for approximately $202.3 million of such lease payments including payments relating to all available renewal periods. We rely on our sub-tenants to pay the rent and maintain the properties covered by these leases. In the event a subtenant does not perform under the terms of their lease with us, we could be required to fulfill such obligations, which could have a significant and adverse effect on us.

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International and foreign currency risk. We have significant operations outside the U.S. that expose us to changes in foreign exchange rates and to the impact of economic and political conditions in the markets where we operate. As exchange rates fluctuate, our results of operations as reported in U.S. Dollars fluctuate. For example, if the U.S. Dollar were to continue to strengthen against the British Pound, our U.K. results of operations would translate into less U.S. Dollar reported results. Sustained levels or an increase in the value of the U.S. Dollar, particularly as compared to the British Pound, could result in a significant and adverse effect on our reported results.

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Joint ventures. We have significant investments in a variety of joint ventures, including retail automotive operations in Germany, Japan, Italy, and Spain. We have a 28.9% interest in PTS. We expect to receive annual operating distributions from PTS and the other ventures and in the case of PTS, realize significant cash tax savings. These benefits may not be realized if the joint ventures do not perform as expected, or if changes in tax, financial, or regulatory requirements negatively impact the results of the joint venture operations. Our ability to dispose of these investments may be limited. In addition, the relevant joint venture agreement and other contractual restrictions may limit our access to the cash flows of these joint ventures. For example, PTS’ principal debt agreements allow partner distributions only as long as PTS is not in default under that agreement and the amount PTS distributes does not exceed 50% of its consolidated net income.

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Legal and Compliance Risks

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Vehicle manufacturers exercise significant control over us. Each of our new vehicle dealerships and distributor operations operate under franchise and other agreements with automotive manufacturers, commercial vehicle manufacturers, or related distributors. These agreements govern almost every aspect of the operation of our dealerships and give manufacturers the discretion to terminate or not renew our franchise agreements for a variety of reasons, including certain events outside our control such as accumulation of our stock by third parties. Without franchise or distributor agreements, we would be unable to sell or distribute new vehicles or perform manufacturer authorized warranty service. If a significant number of our franchise agreements are terminated, not renewed, or, with respect to our distributor operations, a competing distributor were introduced, we would be materially affected.

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Regulatory issues. We are subject to a wide variety of regulatory activities, including:

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Governmental regulations, claims, and legal proceedings. Governmental regulations affect almost every aspect of our business, including the fair treatment of our employees, wage and hour issues, and our financing activities with customers. In California, previous judicial decisions have called into question whether long-standing methods for compensating dealership employees comply with the local wage and hour rules and may do so again. We could be susceptible to claims or related actions if we fail to operate our business in accordance with applicable laws or it is determined that long-standing compensation methods did not comply with local laws. Many laws and regulations

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applicable to our business were adopted prior to the introduction of online vehicle sales, the Internet and certain digital technology, generally. As a result, we are tasked with maintaining compliance in an uncertain regulatory environment. Claims arising out of actual or alleged violations of law which may be asserted against us or any of our dealers by individuals, through class actions, or by governmental entities in civil or criminal investigations and proceedings, may expose us to substantial monetary damages which may adversely affect us.

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In the U.K., the FCA regulates consumer finance and insurance operations. Effective January 28, 2021, the FCA has prohibited certain types of compensation in connection with dealer assisted financing. Our U.K. franchises are no longer allowed to increase or decrease the interest rate of a consumer’s financing if such changes increase or decrease the dealer’s related compensation. We expect to generate lower revenues from dealer assisted financing; however, industry practice is still evolving in response to these changes. If these changes significantly restrict our ability to generate revenue from arranging financing or selling insurance products, we could be materially and adversely affected.

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Privacy Regulation. We are subject to numerous laws and regulations in the U.S. and internationally designed to protect the information of clients, customers, employees and other third parties that we collect and maintain, including the European Union General Data Protection Regulation (the “GDPR”). The GDPR, among other things, mandates new requirements regarding the handling of personal data of employees and customers, including its use, protection and the ability of persons whose data is stored to correct or delete such data about themselves. The state of California has a similar law called the California Consumer Privacy Act (the “CCPA”). The CCPA was amended in 2020 to create the “California Privacy Protection Agency” which will have the authority to audit and enforce privacy rules, among other responsibilities. If we fail to comply with these laws or other similar regulations applicable to our business, we could be subject to significant litigation, monetary damages, regulatory enforcement actions or fines in one or more jurisdictions. For example, a failure to comply with the GDPR could result in fines up to the greater of €20 million or 4% of annual global revenues.

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Recalls. Legislative and regulatory bodies from time to time have considered laws or regulations that would prohibit companies from renting or selling any vehicle that is subject to a recall until the recall service is performed. Whether any such prohibition may be enacted, and its ultimate scope, cannot be determined at this time. If a law or regulation is enacted that prevents the sale of vehicles until recall service has been performed, we could be required to reserve a significant portion of our vehicles from being available for sale for even a minor recall unrelated to vehicle safety. In addition, various manufacturers have issued stop sale notices in relation to certain recalls that require that we retain vehicles until the recall can be performed, whether or not parts are then available. While servicing recall vehicles yields parts and service revenue to us, the inability to sell a significant portion of our vehicles could increase our costs and have an adverse effect on our results of operations if a large number of our vehicles are the subject of simultaneous recalls or if needed replacement parts are not in adequate supply.

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Vehicle requirements. Federal and state governments in our markets have increasingly placed restrictions and limitations on the vehicles sold in the market in an effort to combat perceived negative environmental effects. For example, in the U.S., automotive manufacturers are subject to federally mandated corporate average fuel economy standards, which will increase substantially through 2026. Certain representatives of the U.K. government suggested a ban on the sale of gasoline engines in cars and vans as early as 2030 and a ban on the sale of gasoline hybrid engines in cars and vans as early as 2035. Similar bans have been announced in California and Massachusetts which would ban the sale of new vehicle with gasoline engines in cars in 2035. Furthermore, numerous states and other jurisdictions, including California, have adopted or are considering regulations requiring the sale of specified numbers of zero-emission vehicles. Significant increases in fuel economy requirements and new restrictions on emissions on vehicles and fuels could adversely affect prices of and demand for the new vehicles that we sell, which could materially adversely affect us.

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Tariff and trade risk. Increased tariffs, import product restrictions, and foreign trade risks may impair our ability to sell foreign vehicles profitably. The United States Mexico Canada Agreement allows tariff-free importing of automobiles among the countries only if (i) the vehicles have 75% of their components manufactured in the US, Mexico, or Canada, (ii) workers with an hourly wage of at least $16, manufacture at least 30% of the vehicle, which graduates up to 40% of the vehicle in 2023, or in the case of trucks, 45% and (iii) 70% of the steel and aluminum used in the production of the vehicle is sourced within North America. Should tariffs increase, we expect the price

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of many new vehicles we sell to increase which may adversely affect our new vehicle sales and related finance and insurance sales. Moreover, new rules in place after the recent Brexit accord between the European Union and the U.K. require varying levels of content in vehicles to originate in either the U.K. or the European Union to remain tariff free. If automotive manufacturers cannot meet these content rules, there may be import tariffs on any affected vehicles, which could adversely affect our U.K. results.

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Franchise laws in the U.S. In the U.S., state law generally provides protections to franchised vehicle dealers from discriminatory practices by manufacturers and from unreasonable termination or non-renewal of their franchise agreements. In many states, the laws require that new vehicle sales be conducted exclusively by automotive retailers (not manufacturers). In recent years, new electric vehicle manufacturers have been able to conduct new vehicle sales outside of the franchised automotive system as new entrants. While the sales levels of these new entrants is small and we expect continued good relations with our manufacturer partners, should U.S. franchise laws be repealed or amended to allow our existing manufacturer partners to effectively operate outside the franchised system, our results of operations may be materially and adversely impacted. Our franchised automotive dealers in the U.K. and European Union operate effectively without such protections.

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Changes in law. New laws and regulations at the state and federal level may be enacted which could materially adversely impact our business. For example, in 2013, a ballot initiative in California titled the California Car Buyers Protection Act was proposed that would have eliminated our ability to be compensated for assisting in financing customer vehicle purchases, among other matters. If these initiatives or other adverse changes in law were to be enacted, it could have a significant and adverse effect on us.

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Climate change and environmental regulations. Scientific evidence suggests that the globe is warming potentially resulting in an environment more prone to natural disasters, such as flooding. To date, we have seen increases in our cost to insure against such risks, which costs could continue to increase should this trend continue.We are subject to a wide range of environmental laws and regulations, including those governing discharges into the air and water; the operation and removal of storage tanks; and the use, storage, and disposal of hazardous substances. In the normal course of our operations we use, generate, and dispose of materials covered by these laws and regulations. In the face of climate change, these laws could become more stringent. We face potentially significant costs relating to claims, penalties, and remediation efforts in the event of non-compliance with existing and future laws and regulations. Furthermore, should climate change continue, we expect further regulation of gas engines and vehicle emissions which may affect the types of vehicles we sell and service. We cannot predict the future costs to our businesses for these developments.

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Accounting rules and regulations. Significant changes to GAAP in the U.S. could significantly affect our reported financial position, earnings, and cash flows upon adoption and effectiveness. In addition, any changes to lease accounting could affect PTS customers’ decisions to purchase or lease trucks, which could adversely affect their business if leasing becomes a less favorable option. See the disclosure provided under “Recent Accounting Pronouncements” in Part II, Item 8, Note 1 of the Notes to our Consolidated Financial Statements for additional detail on accounting standard updates that could have an impact on us.

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Related parties. Our two largest stockholders, Penske Corporation and its affiliates (“Penske Corporation”) and Mitsui & Co., Ltd. and its affiliates (“Mitsui”), together beneficially own approximately 60% of our outstanding common stock. The presence of such significant stockholders results in several risks, including:

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Our principal stockholders have substantial influence. Penske Corporation and Mitsui have entered into a stockholders agreement pursuant to which they have agreed to vote together as to the election of our directors. As a result, Penske Corporation has the ability to control the composition of our Board of Directors, which may allow it to control our affairs and business. This concentration of ownership coupled with certain provisions contained in our agreements with manufacturers, our certificate of incorporation, and our bylaws could discourage, delay, or prevent a change in control of us.

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Some of our directors and officers may have conflicts of interest with respect to certain related party transactions and other business interests. Roger Penske, our Chair and Chief Executive Officer and a director, holds the same offices at Penske Corporation. Robert Kurnick, Jr., our President and a director, is also the Vice Chair and a director

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of Penske Corporation. Bud Denker, our Executive Vice President, Human Resources, is also the President of Penske Corporation. Each of these officers is paid much of their compensation by Penske Corporation. The compensation they receive from us is based on their efforts on our behalf; however, they are not required to spend any specific amount of time on our matters. One of our directors, Greg Penske, is the son of our Chair and also serves as a director of Penske Corporation. Michael Eisenson, one of our directors, is also a director of Penske Corporation. Masashi Yamanaka, one of our directors, is also an employee of Mitsui & Co. Roger Penske also serves as Chairman of Penske Transportation Solutions, for which he is compensated by PTS.

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Penske Corporation ownership levels. Certain of our agreements have clauses that are triggered in the event of a material change in the level of ownership of our common stock by Penske Corporation, such as our trademark agreement between us and Penske Corporation that governs our use of the “Penske” name which can be terminated 24 months after the date that Penske Corporation no longer owns at least 20% of our voting stock. We may not be able to renegotiate such agreements on terms that are acceptable to us, if at all, in the event of a significant change in Penske Corporation’s ownership.

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We have a significant number of shares of common stock eligible for future sale.Penske Corporation and Mitsui own approximately 60% of our common stock, and each has two demand registration rights that could result in a substantial number of shares being introduced for sale in the market. We also have a significant amount of authorized but unissued shares. Penske Corporation has pledged all of its shares of our common stock as collateral to secure a loan facility. A default by Penske Corporation could result in the foreclosure on those shares by the lenders, after which the lenders could attempt to sell those shares on the open market or to a third party. The introduction of any of these shares into the market could have a material adverse effect on our stock price.

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General Risks

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Property loss, business interruption, or other liabilities. Our business is subject to substantial risk of loss due to the significant concentration of property values, including vehicle and parts inventories at our operating locations; claims by employees, customers, and third parties for personal injury or property damage; and fines and penalties in connection with alleged violations of regulatory requirements. While we have insurance for many of these risks, we retain risk relating to certain of these perils and certain perils are not covered by our insurance. Certain insurers have limited available property coverage in response to the natural catastrophes experienced in recent years. If we experience significant losses that are not covered by our insurance, whether due to adverse weather conditions or otherwise, or we are required to retain a significant portion of a loss, it could have a significant and adverse effect on us.

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Information technology. Our information systems are fully integrated into our operations, and we rely on them to operate effectively, including with respect to electronic communications and data transfer protocols with manufacturers and other vendors, customer relationship management, sales and service scheduling, data storage, and financial and operational reporting. The majority of our systems are licensed from third parties; the most significant of which are provided by a limited number of suppliers in the U.S., U.K., and Australia. The failure of our information systems to perform as designed, the failure to protect the integrity of these systems, or the interruption of these systems due to natural disasters, power loss, unexpected termination of our agreements, or other reasons could significantly and adversely disrupt our business operations, impact sales and results of operations, expose us to customer or third-party claims, or result in adverse publicity.

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Cyber-security. As part of our business model, we receive sensitive information regarding customers, associates, and vendors from various online and offline channels. We collect, process, and retain this information in the normal course of our business. Our internal and third-party systems are under a moderate level of risk from cyber criminals or other individuals with malicious intent to gain unauthorized access to our systems. Cyber-attacks continue to grow in number and sophistication thus presenting an ongoing threat to systems, whether internal or external, used to operate the business on a day to day basis. Despite the security measures we have in place, our facilities, systems, associates, and those of our third-party service providers, could be vulnerable to cyber-attacks, security breaches, social engineering, malicious software, lost or misplaced data, programming errors, human errors, acts of vandalism, or other events. Numerous national retailers have disclosed security breaches involving sophisticated cyber-attacks that were not recognized or detected until after such retailers had been affected, notwithstanding the preventive measures such retailers had in place. Any security breach or event resulting in the misappropriation, loss, or other unauthorized disclosure of confidential

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information or degradation of services provided by critical business systems, whether by us directly or our third-party service providers, could adversely affect our business operations, sales, reputation with current and potential customers, associates or vendors as well as other operational and financial impacts derived from investigations, litigation, imposition of penalties, or other means. In addition, our failure to respond quickly and appropriately to such a security breach could exacerbate the consequences of the breach.

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Item 1B. Unresolved Staff Comments

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Not applicable.

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Item 2. Properties

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We lease or sublease substantially all of our dealership properties and other facilities. These leases are generally for a period of between 5 and 20 years and are typically structured to include renewal options at our election. We lease office space in Bloomfield Hills, Michigan; Leicester, England; and Brisbane, Australia for our principal administrative headquarters and other corporate related activities. We believe that our facilities are sufficient for our needs and are in good repair.

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Item 3. Legal Proceedings

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We are involved in litigation which may relate to claims brought by governmental authorities, customers, vendors, or employees, including class action claims and purported class action claims. We are not a party to any legal proceedings, including class action lawsuits, that individually or in the aggregate are reasonably expected to have a material effect on us. However, the results of these matters cannot be predicted with certainty, and an unfavorable resolution of one or more of these matters could have a material adverse effect.

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Item 4. Mine Safety Disclosures

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Not applicable.

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PART II

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Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities

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Our common stock is traded on the New York Stock Exchange under the symbol “PAG.” As of February 12, 2021, there were 215 holders of record of our common stock.

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Dividends

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In May 2020, our Board of Directors temporarily suspended our cash dividend. On October 14, 2020, we announced the reinstatement of our cash dividend in the amount of $0.42 per share. We have also announced a cash dividend of $0.43 per share to be paid on March 1, 2021, to stockholders of record as of February 10, 2021. While future cash dividends will depend upon our earnings, capital requirements, financial condition, restrictions imposed by any then-existing indebtedness, and other factors considered relevant by our Board of Directors, we currently expect to continue to pay comparable dividends in the future.

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Securities Repurchases

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In September 2019, our Board of Directors increased the authority delegated to management to repurchase our outstanding securities to $200.0 million. As of December 31, 2020, we had $170.6 million in repurchase authorization remaining under the securities repurchase program. For further information with respect to repurchases of our shares by us, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Securities Repurchases” and Part II, Item 8, Note 15 of the Notes to our Consolidated Financial Statements.

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SHARE INVESTMENT PERFORMANCE

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The following graph compares the cumulative total stockholder returns on our common stock based on an investment of $100 on December 31, 2015, and the close of the market on December 31 of each year thereafter against (i) the Standard & Poor’s 500 Index and (ii) an industry/peer group consisting of Asbury Automotive Group, Inc., AutoNation, Inc., Group 1 Automotive, Inc., Lithia Motors, Inc., and Sonic Automotive, Inc. The graph assumes the reinvestment of all dividends.

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COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*

Among Penske Automotive Group, Inc., the S&P 500 Index, and a Peer Group

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​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Cumulative Total Return

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Item 6. Selected Financial Data

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Not Applicable.

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Item 7. Management’s Discussion and Analysis of Financial Condition andResults of Operations

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This Management’s Discussion and Analysis of Financial Condition and Results ofOperations contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those discussed in the forward-lookingstatements as a result of various factors, including those discussed in “Item 1A.Risk Factors” and “Forward-Looking Statements.” We have acquired and initiated a number of businesses during the periods presented and addressed in this Management’s Discussion and Analysis of Financial Condition and Results of Operations. Ourfinancial statements include the results of operations of those businesses fromthe date acquired or when they commenced operations. Our period to period results of operations may vary depending on the dates of acquisitions or disposals.

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Overview

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We are a diversified international transportation services company that operates automotive and commercial truck dealerships principally in the United States, Canada, and Western Europe and distributes commercial vehicles, power systems, and related parts and services principally in Australia and New Zealand. We employ over 23,000 people worldwide.

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COVID-19 Disclosure

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Overview - The outbreak of the COVID-19 pandemic across the globe adversely impacted each of our markets and the global economy beginning in the first quarter of 2020, leading to disruptions to our business. Governmental authorities have taken countermeasures to slow the outbreak, including shelter-in-place orders, restrictions on travel, and government-funded assistance programs to individuals and businesses. The shelter-in-place orders and resulting business closures severely and negatively impacted our results, in particular in the second quarter of 2020. While the pandemic continues in all of our markets, as these orders lapsed and businesses reopened, we experienced improved business conditions and improved financial results in the third and fourth quarters, primarily driven by our cost cutting measures and increased gross profit on vehicles sold. During 2020, our new and used gross profit per unit increased 17.1% and 29.3%, principally resulting from limited vehicle availability due to plant shutdowns related to the COVID-19 pandemic, as new and used retail automotive gross profit per unit increased when compared to 2019. In addition, selling, general, and administrative expenses as a percentage of gross profit decreased by 3.6 percentage points in 2020 in part due to employee reductions, temporary compensation reductions, government assistance, and other expense reductions noted below.

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The situation caused by the COVID-19 pandemic is highly fluid and rapidly evolving, and while we continue to adjust our operations to conform to regulatory changes and consumer preferences in the evolving environment, we cannot anticipate with any certainty the length, scope, or severity of the business impact from the COVID-19 pandemic in each of the jurisdictions that we operate. See “Part I, Item 1A. Risk Factors.”

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In response to shelter-in-place orders resulting from the COVID-19 pandemic, many of our automotive and commercial vehicle showrooms experienced temporary closures during 2020. Nearly all of our service, parts, and collision center departments remained open during the crisis, and curbside or home delivery offerings supplemented our traditional service offerings. We modified certain business practices to conform to government restrictions and best practices encouraged by governmental and regulatory authorities. We continue to offer sales activity by appointment and through our e-commerce channels. In all of our locations, we implemented enhanced cleaning procedures, enforced social distancing guidelines, and took other precautions to maintain the health and safety of our employees and customers. We continue to experience interim business closures at some of our facilities in response to a customer or employee reporting a positive test result for COVID-19. When we become aware of such result, we notify appropriate personnel and deep clean our facility, which may include closure of that facility. We also are experiencing increased costs for providing the appropriate level of safety equipment for our facilities, employees, and customers, as well as increased costs for daily and enhanced deep cleaning when appropriate.

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Beginning in the first quarter of 2020, we implemented a hiring freeze and expense reductions across the company, including the postponement and elimination of an estimated $150 million in capital expenditures. We furloughed

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approximately 15,000 employees in April and May in various countries, though we returned most of those employees to work during the course of the year. We also reduced our workforce by approximately 3,300 employees or 12.4% compared to December 31, 2019. During 2020, many of our employees who were not furloughed worked reduced hours and experienced pay cuts, including a six-month 100% reduction in salary for our CEO and President and 25% temporary reductions in salary for our other named executive officers. In addition, our Board of Directors waived six months of board service fees in 2020. The compensation levels for our executive officers and Board of Directors have since returned to their pre-COVID-19 levels.

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Most of our manufacturer partners began suspending production beginning in late March 2020, and production disruptions continued into the second quarter of 2020. These disruptions resulted in lower inventory levels, in particular for new vehicles and limited inventory of certain models. Our manufacturer partners began providing us with additional incentive support in March 2020, and our manufacturer and lending partners have provided support to retail customers, such as increased incentives, payment deferrals, as well as 0% financing on certain vehicles and term lengths. While production has improved, the level of new vehicle inventory remains well below historical levels, which has contributed to increased gross profit on vehicles sold.

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United States – Beginning in March 2020, shelter-in-place rules in many states either required we close dealerships or limit our automotive dealership operations to essential services. Virtual/online sales of new and used vehicles remained available in all locations, while the service departments remained open to support critical transportation needs. In May 2020, many shelter-in-place rules began to expire, and restrictions were slowly lifted in many states allowing us to reopen dealerships all of which remain open, subject in certain locations to personnel capacity limits. For the year ended December 31, 2020, new and used retail automotive gross profit per unit increased 19.5% and 16.8%, primarily due to inventory shortages and additional manufacturer incentives, while our automotive dealerships experienced a 14.4% decrease in unit volume and a 12.5% decrease in service and parts revenues compared to the prior year on a same-store basis. Our U.S. Used Vehicle SuperCenters experienced a same-store used unit sales decline of 26.9% in 2020, largely attributable to lower inventory and the COVID-19 pandemic.

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Commercial truck dealership sales and service operations were classified as essential businesses and remained open throughout 2020 in most locations around the U.S. and Canada providing services to our customers. For the year ended December 31, 2020, the North American Class 6-8 retail sales market declined 29.6%, and our new same-store unit sales and revenue declined 10.0% and 5.2%, respectively, during the same period.

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Penske Transportation Solutions– We have a 28.9% ownership interest in Penske Transportation Solutions ("PTS"). As an integral part of the North American supply chain, PTS has been generally classified as essential by governmental authorities which allowed PTS to remain operating in much of its business, providing crucial supply chain and transportation services to its customers. While its full-service leasing and contract maintenance businesses remained consistent, commercial rental utilization slowed during the second quarter of 2020 but increased with the expirations of the shelter-in-place orders. In the third quarter of 2020, PTS began to experience increased levels of utilization and profitability as business conditions improved. In its logistics services business, throughout 2020, PTS experienced heavy volumes in the grocery sector which were offset by plant closings in automotive and manufacturing. In the third quarter of 2020, most of PTS’ logistics customers returned to normal operations, generating strong results. PTS has also experienced improved remarketing results as truck prices improved in response to limited inventory. In response to the COVID-19 pandemic, PTS initially furloughed over 5,000 employees, most of which returned to work. PTS also reduced executive salaries by up to 30%, which reductions have been eliminated.

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United Kingdom – All dealerships closed on March 24, 2020, in accordance with government orders, though we provided service and parts operations on an emergency basis. Over 90% of the employees in the U.K. were placed on furlough beginning March 24, 2020. However, we opened substantially all service and parts operations in mid-May 2020 and showrooms in early June 2020. During the fourth quarter of 2020 and continuing into 2021, in response to increased incidence of the COVID-19 pandemic, certain parts of the U.K. reinstated shelter-in-place orders which required our dealerships to close. We continue to conduct sales through our online “Click & Collect” program, which allows vehicle sales without showroom access. Despite showroom closures in the U.K. during the fourth quarter of 2020, our UK dealers experienced a 5.6% increase in gross profit when compared to the fourth quarter of 2019 driven by an increase in gross profit per unit and sales through our e-commerce channels. For the year ended December 31, 2020, new and used retail automotive gross profit per unit increased 10.1% and 45.6%, primarily due to inventory shortages and additional

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manufacturer incentives, while our automotive dealerships experienced a 20.5% decrease in unit volume and a 14.1% decrease in service and parts revenues compared to the prior year on a same-store basis. Our U.K. Used Vehicle SuperCenters also experienced a same-store gross profit per unit increase of 35.2%, primarily due to improved inventory management, and a same-store used unit sales decrease of 31.3% in 2020.

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Australia – In most jurisdictions, non-essential business operations were closed by government order in March 2020 though many governmental restrictions have since been lifted. Penske Australia has been deemed essential throughout the COVID-19 pandemic, and therefore, sales, parts, service, and defense functions continue to remain operational. Throughout 2020, Penske Australia results of operations have remained consistent in spite of the COVID-19 pandemic.

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Government Assistance –We received government assistance in most of our jurisdictions through COVID-19 related government programs which provided tax credits or direct wage or health care assistance payments to us. These programs generally require us to claim tax credits or apply to the government for reimbursement of wages or employee health benefits based on the applicable laws and programs within each jurisdiction. During 2020, we received $57.5 million of wage assistance for furloughed employees in the U.K., as well as an additional $8.5 million of assistance and tax credits in our U.S. and other jurisdictions. As a result, we recorded a reduction to selling, general, and administrative expenses of approximately $66.0 million for the amounts of government assistance received during 2020.

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Liquidity – As of December 31, 2020, we had $49.5 million of cash and access to an additional $952 million of availability through our revolving credit facilities. This amount includes $100 million of additional borrowing capacity under our U.S. credit agreement which we amended effective August 1, 2020.

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During the third quarter of 2020, we repaid in full at scheduled maturity our $300 million 3.75% senior subordinated notes due August 15, 2020. We also issued $550 million in aggregate principal amount of 3.50% senior subordinated notes due 2025 in August 2020, the proceeds of which were used to redeem our $550 million in aggregate principal amount of 5.75% senior subordinated notes due 2022 on October 1, 2020. During the fourth quarter of 2020, we also redeemed our $300 million 5.375% senior subordinated notes due 2024 at a redemption price equal to 101.792% of the principal amount together with accrued and unpaid interest, using availability under our U.S. revolving credit facility and cash flow from operations. Refer to Part II, Item 8, Note 10 of the Notes to our Consolidated Financial Statements for further discussion of our long-term debt.

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Risks and Uncertainties – The full impact that the COVID-19 pandemic will have on our business cannot be predicted at this time due to numerous uncertainties, including the duration of the outbreak, travel restrictions, business closures, the effectiveness of actions taken to contain the disease, the distribution rate and acceptance rate of a vaccine, the effect of government assistance programs, production levels from our manufacturing partners, and other unintended consequences. This impact could include changes in customer demand, our relationship with, and the financial and operational capacities of, vehicle manufacturers, captive finance companies and other suppliers, workforce availability, risks associated with our indebtedness (including available borrowing capacity, compliance with financial covenants and ability to refinance or repay indebtedness on favorable terms), the adequacy of our cash flow and earnings and other conditions which may affect our liquidity, our ability to pay our quarterly dividend at prior levels, and disruptions to our technology network and other critical systems, including our dealer management systems and software or other facilities or equipment.

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We believe that business disruption relating to the COVID-19 pandemic will continue to negatively impact the global economy and may materially affect our businesses as outlined above, or in other manners, all of which would adversely impact our business and results of operations.

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Business Overview

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In 2020, our business generated $20.4 billion in total revenue, which is comprised of approximately $17.9 billion from retail automotive dealerships, $2.1 billion from retail commercial truck dealerships, and $454.2 million from commercial vehicle distribution and other operations. We generated $3.2 billion in gross profit, which is comprised of $2.8 billion from retail automotive dealerships, $280.9 million from retail commercial truck dealerships, and $122.3 million from commercial vehicle distribution and other operations.

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Retail Automotive Dealership. We believe we are the second largest automotive retailer headquartered in the U.S. as measured by the $17.9 billion in total retail automotive dealership revenue we generated in 2020. As of December 31, 2020, we operated 304 retail automotive franchises, of which 142 franchises are located in the U.S. and 162 franchises are located outside of the U.S. The franchises outside the U.S. are located primarily in the U.K. In 2020, we retailed and wholesaled more than 505,000 vehicles. We are diversified geographically with 57% of our total retail automotive dealership revenues in 2020 generated in the U.S. and Puerto Rico and 43% generated outside the U.S. We offer over 35 vehicle brands with 71% of our retail automotive dealership revenue in 2020 generated from premium brands, such as Audi, BMW, Land Rover, Mercedes-Benz, and Porsche. Each of our franchised dealerships offers a wide selection of new and used vehicles for sale. In addition to selling new and used vehicles, we generate higher-margin revenue at each of our dealerships through maintenance and repair services, the sale and placement of third-party finance and insurance products, third-party extended service and maintenance contracts, and replacement and aftermarket automotive products. In 2020, we also acquired the remaining 8.2% interest in one of our former retail automotive joint ventures in Aachen, Germany.

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We also operate seventeen Used Vehicle SuperCenters in the U.S. and the U.K., which retail and wholesale used vehicles under a one price, “no-haggle” methodology. Our operations in the U.S. consist of six retail locations operating in the Philadelphia and Pittsburgh, Pennsylvania market areas. Our operations in the U.K. consist of eleven retail locations and a vehicle preparation center. During 2020, we opened one Used Vehicle SuperCenter in Nottingham, United Kingdom. For the year ended December 31, 2020, these Used Vehicle SuperCenters retailed 53,207 units and generated $1.0 billion in revenue.

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Retail automotive dealerships represented 87.7% of our total revenues and 87.3% of our total gross profit in 2020.

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Retail Commercial Truck Dealership. We operate a heavy and medium duty truck dealership group known as Premier Truck Group (“PTG”) offering primarily Freightliner and Western Star trucks (both Daimler brands) with locations in Texas, Oklahoma, Tennessee, Georgia, Utah, Idaho, and Canada. As of December 31, 2020, PTG operated twenty-five locations. PTG also offers a full range of used trucks available for sale as well as service and parts departments, providing a full range of maintenance and repair services.

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This business represented 10.1% of our total revenues and 8.8% of our total gross profit in 2020.

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Penske Australia. We are the exclusive importer and distributor of Western Star heavy-duty trucks, MAN heavy and medium duty trucks and buses (a VW Group brand), and Dennis Eagle refuse collection vehicles, together with associated parts, across Australia, New Zealand, and portions of the Pacific. In most of these same markets, we are also a leading distributor of diesel and gas engines and power systems, principally representing MTU, Detroit Diesel, Allison Transmission, MTU Onsite Energy, Rolls Royce Power Systems, and Bergen Engines. This business, known as Penske Australia, offers products across the on- and off-highway markets, including in the construction, mining, marine, defense, and power generation sectors and supports full parts and aftersales service through a network of branches, field locations, and dealers across the region.

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These businesses represented 2.2% of our total revenues and 3.9% of our total gross profit in 2020.

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Penske Transportation Solutions. We hold a 28.9% ownership interest in Penske Truck Leasing Co., L.P (“PTL”). PTL is owned 41.1% by Penske Corporation, 28.9% by us, and 30.0% by Mitsui & Co., Ltd. (“Mitsui”). We account for our investment in PTL under the equity method, and we therefore record our share of PTL’s earnings on our statements of income under the caption “Equity in earnings of affiliates,” which also includes the results of our other equity method investments. Penske Transportation Solutions (“PTS”) is the universal brand name for PTL’s various business lines through which it is capable of meeting customers’ needs across the supply chain with a broad product offering that includes full-service truck leasing, truck rental, and contract maintenance along with logistic services, such as dedicated contract carriage, distribution center management, transportation management, lead logistics provider services, and dry van truckload carrier services. We recorded $164.5 million in equity earnings from this investment in 2020.

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Outlook

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Please see the discussion provided under “Outlook” in Part I, Item 1 for a discussion of our outlook in our markets.

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Operating Overview

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Automotive and commercial truck dealerships represent the majority of our results of operations. New and used vehicle revenues typically include sales to retail customers, fleet customers, and leasing companies providing consumer leasing. We generate finance and insurance revenues from sales of third-party extended service contracts, sales of third-party insurance policies, commissions relating to the sale of finance and lease contracts to third parties, and the sales of certain other products. Service and parts revenues include fees paid by customers for repair, maintenance and collision services, and the sale of replacement parts and other aftermarket accessories as well as warranty repairs that are reimbursed directly by various OEMs.

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Our gross profit tends to vary with the mix of revenues we derive from the sale of new vehicles, used vehicles, finance and insurance products, and service and parts transactions. Our gross profit varies across product lines with vehicle sales usually resulting in lower gross profit margins and our other revenues resulting in higher gross profit margins. Factors such as inventory and vehicle availability, customer demand, consumer confidence, unemployment, general economic conditions, seasonality, weather, credit availability, fuel prices, and manufacturers’ advertising and incentives also impact the mix of our revenues and therefore, influence our gross profit margin.

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The results of our commercial vehicle distribution business in Australia and New Zealand are principally driven by the number and types of products and vehicles ordered by our customers.

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Aggregate revenue and gross profit decreased $2,735.5 million, or 11.8%, and $271.0 million, or 7.8%, respectively, during 2020 compared to 2019. See “COVID-19 Disclosure” above.

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As exchange rates fluctuate, our revenue and results of operations as reported in U.S. Dollars fluctuate. For example, if the British Pound were to weaken against the U.S. Dollar, our U.K. results of operations would translate into less U.S. Dollar reported results. Foreign currency average rate fluctuations increased revenue and gross profit by $118.6 million and $16.9 million, respectively, in 2020. Foreign currency average rate fluctuations increased earnings per share from continuing operations by approximately $0.03 per share in 2020. Excluding the impact of foreign currency average rate fluctuations, revenue and gross profit decreased 12.3% and 8.3%, respectively, in 2020.

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Our selling expenses consist of advertising and compensation for sales personnel, including commissions and related bonuses. General and administrative expenses include compensation for administration, finance, legal and general management personnel, rent, insurance, utilities, and other expenses. As the majority of our selling expenses are variable and we believe a significant portion of our general and administrative expenses are subject to our control, we believe our expenses can be adjusted over time to reflect economic trends.

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Floor plan interest expense relates to financing incurred in connection with the acquisition of new and used vehicle inventories that are secured by those vehicles. Other interest expense consists of interest charges on all of our interest-bearing debt, other than interest relating to floor plan financing, and includes interest relating to our retail commercial truck dealership and commercial vehicle distribution operations. The cost of our variable rate indebtedness is based on the prime rate, defined London Interbank Offered Rate (“LIBOR”), the Bank of England Base Rate, the Finance House Base Rate, the Euro Interbank Offered Rate, the Canadian Prime Rate, the Australian Bank Bill Swap Rate, or the New Zealand Bank Bill Benchmark Rate.

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Regulatory authorities in both the U.S. and U.K. have announced their intention to stop compelling banks to submit rates for the calculation of LIBOR after 2021. In the U.S., we expect the Secured Overnight Financing Rate (“SOFR”) will be adopted in lieu of LIBOR. In the U.K., we expect the Sterling Overnight Indexed Average (SONIA) to be adopted. Our senior secured revolving credit facilities in the U.S. and U.K., and many of our floorplan arrangements, utilize LIBOR as a benchmark for calculating the applicable interest rate. We cannot predict the effect of the potential changes to or elimination of LIBOR or the establishment and use of alternative rates or benchmarks and the corresponding effects on our cost of capital.

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Equity in earnings of affiliates principally represents our share of the earnings from PTS, along with our investments in joint ventures and other non-consolidated investments.

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The future success of our business is dependent upon, among other things, general economic and industry conditions; including the recovery time frame for the global economy in light of the COVID-19 pandemic; our ability to react effectively to changing business conditions in light of the COVID-19 pandemic; our ability to consummate and integrate acquisitions; the level of vehicle sales in the markets where we operate; our ability to obtain vehicles from our manufacturers, especially in light of the COVID-19 pandemic; our ability to increase sales of higher margin products, especially service and parts sales; our ability to realize returns on our significant capital investment in new and upgraded dealership facilities; our ability to navigate a rapidly changing automotive and truck landscape; the success of our distribution of commercial vehicles, engines, and power systems; and the return realized from our investments in various joint ventures and other non-consolidated investments. See “Item 1A. Risk Factors” and “Forward-Looking Statements” below.

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Critical Accounting Policies and Estimates

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The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires the application of accounting policies that often involve making estimates and employing judgments. Such judgments influence the assets, liabilities, revenues, and expenses recognized in our financial statements. Management, on an ongoing basis, reviews these estimates and assumptions. Management may determine that modifications in assumptions and estimates are required, which may result in a material change in our results of operations or financial position.

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The following are the accounting policies applied in the preparation of our financial statements that management believes are most dependent upon the use of estimates and assumptions.

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Revenue Recognition

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Dealership Vehicle, Parts, and Service Sales. We record revenue for vehicle sales at a point in time when vehicles are delivered, which is when the transfer of title, risks, and rewards of ownership and control are considered passed to the customer. We record revenue for vehicle service and collision work over time as work is completed and when parts are delivered to our customers. Sales promotions that we offer to customers are accounted for as a reduction of revenues at the time of sale. Rebates and other incentives offered directly to us by manufacturers are recognized as a reduction of cost of sales. Reimbursements of qualified advertising expenses are treated as a reduction of selling, general, and administrative expenses. The amounts received under certain manufacturer rebate and incentive programs are based on the attainment of program objectives, and such earnings are recognized either upon the sale of the vehicle for which the award was received or upon attainment of the particular program goals if not associated with individual vehicles. Taxes collected from customers and remitted to governmental authorities are recorded on a net basis (excluded from revenue). During 2020, 2019, and 2018, we earned $588.7 million, $698.4 million, and $699.4 million, respectively, of rebates, incentives, and reimbursements from manufacturers, of which $575.4 million, $679.2 million, and $680.0 million, respectively, was recorded as a reduction of cost of sales. The remaining $13.3 million, $19.2 million, and $19.4 million was recorded as a reduction of selling, general, and administrative expenses during 2020, 2019, and 2018, respectively.

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Dealership Finance and Insurance Sales. Subsequent to the sale of a vehicle to a customer, we sell installment sale contracts to various financial institutions on a non-recourse basis (with specified exceptions) to mitigate the risk of default. We receive a commission from the lender equal to either the difference between the interest rate charged to the customer and the interest rate set by the financing institution or a flat fee. We also receive commissions for facilitating the sale of various products to customers, including guaranteed vehicle protection insurance, vehicle theft protection, and extended service contracts. These commissions are recorded as revenue at a point in time when the customer enters into the contract. Payment is typically due and collected within 30 days subsequent to the execution of the contract with the customer. In the case of finance contracts, a customer may prepay or fail to pay their contract, thereby terminating the contract. Customers may also terminate extended service contracts and other insurance products, which are fully paid at purchase, and become eligible for refunds of unused premiums. In these circumstances, a portion of the commissions we received may be charged back based on the terms of the contracts. The revenue we record relating to these transactions is net of an estimate of the amount of chargebacks we will be required to pay. Our estimate is based upon our historical experience with similar contracts, including the impact of refinance and default rates on retail finance contracts and

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cancellation rates on extended service contracts and other insurance products. Aggregate reserves relating to chargeback activity were $28.7 million and $26.6 million as of December 31, 2020, and December 31, 2019, respectively.

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Commercial Vehicle Distribution. We record revenue from the distribution of vehicles, engines, and other products at a point in time when delivered, which is when the transfer of title, risks, and rewards of ownership and control are considered passed to the customer. We record revenue for service or repair work over time as work is completed and when parts are delivered to our customers. For our long-term power generation contracts, we record revenue over time as services are provided in accordance with contract milestones.

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Refer to the disclosures provided in Part II, Item 8, Note 2 of the Notes to our Consolidated Financial Statements for additional detail on revenue recognition.

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Impairment Testing

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Other indefinite-lived intangible assets are assessed for impairment annually on October 1 and upon the occurrence of an indicator of impairment through a comparison of its carrying amount and estimated fair value. These indefinite-lived intangible assets relate to franchise agreements with vehicle manufacturers and distributors, which represent the estimated value of franchises acquired in business combinations, and distribution agreements with commercial vehicle manufacturers, which represent the estimated value for distribution rights acquired in business combinations. An indicator of impairment exists if the carrying value exceeds its estimated fair value, and an impairment loss may be recognized up to that excess. The fair value is determined using a discounted cash flow approach, which includes assumptions about revenue and profitability growth, profit margins, and the cost of capital. We also evaluate, in connection with the annual impairment testing, whether events and circumstances continue to support our assessment that the other indefinite-lived intangible assets continue to have an indefinite life.

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Goodwill impairment is assessed at the reporting unit level annually on October 1 and upon the occurrence of an indicator of impairment. Our operations are organized by management into operating segments by line of business and geography. We have determined that we have four reportable segments as defined in generally accepted accounting principles for segment reporting: (i) Retail Automotive, consisting of our retail automotive dealership operations; (ii) Retail Commercial Truck, consisting of our retail commercial truck dealership operations in the U.S. and Canada; (iii) Other, consisting of our commercial vehicle and power systems distribution operations and other non-automotive consolidated operations; and (iv) Non-Automotive Investments, consisting of our equity method investments in non-automotive operations which includes our investment in PTS. We have determined that the dealerships in each of our operating segments within the Retail Automotive reportable segment are components that are aggregated into six reporting units for the purpose of goodwill impairment testing as they (A) have similar economic characteristics (all are automotive dealerships having similar margins), (B) offer similar products and services (all sell new and/or used vehicles, service, parts and third-party finance and insurance products), (C) have similar target markets and customers (generally individuals), and (D) have similar distribution and marketing practices (all distribute products and services through dealership facilities that market to customers in similar fashions). The reporting units are Eastern, Central, and Western United States, Stand-Alone Used United States, International, and Stand-Alone Used International. Our Retail Commercial Truck reportable segment has been determined to represent one operating segment and reporting unit. The goodwill included in our Other reportable segment relates to our commercial vehicle distribution operating segment. There is no goodwill recorded in our Non-Automotive Investments reportable segment.

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For our Retail Automotive, Retail Commercial Truck, and Other reporting units, we prepared a quantitative assessment of the carrying value of goodwill. We estimated the fair value of our reporting units using an “income” valuation approach. The “income” valuation approach estimates our enterprise value using a net present value model, which discounts projected free cash flows of our business using the weighted average cost of capital as the discount rate. We also validate the fair value for each reporting unit using the income approach by calculating a cash earnings multiple and determining whether the multiple was reasonable compared to recent market transactions completed by the Company or in the industry. As part of that assessment, we also reconcile the estimated aggregate fair values of our reporting units to our market capitalization. We believe this reconciliation process is consistent with a market participant perspective. This consideration would also include a control premium that represents the estimated amount an investor would pay for our equity securities to obtain a controlling interest and other significant assumptions, including revenue and profitability growth, franchise profit margins, residual values, and the cost of capital. During 2020, we concluded

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that for the retail automotive, retail commercial truck, and other reporting units that their fair values exceeded its carrying value.

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Investments

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We account for each of our investments under the equity method, pursuant to which we record our proportionate share of the investee’s income each period. The net book value of our investments was $1,500.3 million and $1,399.0 million as of December 31, 2020, and 2019, respectively, including $1,419.2 million and $1,323.2 million relating to PTS as of December 31, 2020, and 2019, respectively. We currently hold a 28.9% ownership interest in PTS.

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Investments for which there is not a liquid, actively traded market are reviewed periodically by management for indicators of impairment. If an indicator of impairment is identified, management estimates the fair value of the investment using a discounted cash flow approach, which includes assumptions relating to revenue and profitability growth, profit margins, residual values, and our cost of capital. Declines in investment values that are deemed to be other than temporary may result in an impairment charge reducing the investments’ carrying value to fair value.

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Self-Insurance

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We retain risk relating to certain of our general liability insurance, workers’ compensation insurance, vehicle physical damage insurance, property insurance, employment practices liability insurance, information security risk insurance, directors and officers’ insurance, and employee medical benefits in the U.S. As a result, we are likely to be responsible for a significant portion of the claims and losses incurred under these programs. The amount of risk we retain varies by program, and for certain exposures, we have pre-determined maximum loss limits for certain individual claims and/or insurance periods. Losses, if any, above the pre-determined loss limits are paid by third-party insurance carriers. Certain insurers have limited available property coverage in response to the natural catastrophes experienced in recent years. Our estimate of future losses is prepared by management using our historical loss experience and industry-based development factors. Aggregate reserves relating to retained risk were $29.7 million and $28.6 million as of December 31, 2020, and 2019, respectively.

​

Income Taxes

​

Tax regulations may require items to be included in our tax returns at different times than the items are reflected in our financial statements. Some of these differences are permanent, such as expenses that are not deductible on our tax return, and some are temporary differences, such as the timing of depreciation expense. Temporary differences create deferred tax assets and liabilities. Deferred tax assets generally represent items that will be used as a tax deduction or credit in our tax returns in future years which we have already recorded in our financial statements. Deferred tax liabilities generally represent deductions taken on our tax returns that have not yet been recognized as expense in our financial statements. We establish valuation allowances for our deferred tax assets if the amount of expected future taxable income is not likely to allow for the use of the deduction or credit.

​

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted in response to the COVID-19 pandemic. The CARES Act, among other things, includes various income and payroll tax provisions, modifications to federal net operating loss rules, business interest deduction limitations, and bonus depreciation eligibility for qualified improvement property. As a result of the net operating loss carryback provision of the CARES Act and various other U.S. and foreign tax legislation changes, we recorded an income tax benefit of $11.4 million for the year ended December 31, 2020. Additionally, we received payroll tax deferrals and benefits from the employee retention tax credit.

​

Refer to the disclosures provided in Part II, Item 8, Note 17 of the Notes to our Consolidated Financial Statements for additional detail on our accounting for income taxes, including additional discussion on the enactment of the Act and the resulting impact on our financial statements.

​

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Leases

​

We determine if an arrangement is a lease at inception. Our operating leases primarily consist of land and facilities, including certain dealerships and office space. We also have equipment leases that primarily relate to office and computer equipment, service and shop equipment, company vehicles, and other miscellaneous items. We do not have any material leases, individually or in the aggregate, classified as a finance leasing arrangement.

​

Operating leases are included in “operating lease right-of-use assets,” “accrued expenses and other current liabilities,” and “long-term operating lease liabilities” on our Consolidated Balance Sheet. Operating lease right-of-use assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. Our property leases are generally for an initial period between 5 and 20 years and are typically structured to include renewal options at our election. We include renewal options that we are reasonably certain to exercise in the measurement our lease liabilities and right-of-use assets. As the rate implicit in the lease is generally not readily determinable for our operating leases, the discount rates used to determine the present value of our lease liability are based on our incremental borrowing rate at the lease commencement date and commensurate with the remaining lease term. Our incremental borrowing rate for a lease is the rate of interest we would have to pay to borrow on a collateralized basis over a similar term for an amount equal to the lease payments in a similar economic environment. Lease expense is recognized on a straight-line basis over the lease term.

​

Refer to the disclosures provided in Part II, Item 8, Note 3 and Note 12 of the Notes to our Consolidated Financial Statements for a description of our operating leases.

​

Recent Accounting Pronouncements

​

Please see the disclosures provided under “Recent Accounting Pronouncements” in Part II, Item 8, Note 1 of the Notes to our Consolidated Financial Statements set forth below which are incorporated by reference herein.

​

Results of Operations

​

The following tables present comparative financial data relating to our operating performance in the aggregate and on a “same-store” basis. Dealership results are included in same-store comparisons when we have consolidated the acquired entity during the entirety of both periods being compared. As an example, if a dealership were acquired on January 15, 2018, the results of the acquired entity would be included in annual same-store comparisons beginning with the year ended December 31, 2020, and in quarterly same-store comparisons beginning with the quarter ended June 30, 2019.

​

The results for 2020 have been impacted by the COVID-19 pandemic, and each of the items mentioned below should be reviewed in light of our discussion under “COVID-19 Disclosure” and “Item 1A. Risk Factors” which are incorporated herein. The results for 2020 include a net income tax benefit of $11.4 million, or $0.14 per share, related to the CARES Act and various other U.S. and foreign tax legislation changes. The results for 2020 also include a net benefit of $3.3 million, or $0.04 per share, related to a gain on the sale of retail automotive dealerships, partially offset by a loss on debt extinguishment of $6.4 million, or $0.08 per share.

​

For the discussion and analysis comparing the results of operations for 2018 to 2019, we refer you to Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results in the 2019 Form 10-K filed on February 21, 2020.

​

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Retail Automotive Dealership New Vehicle Data

(In millions, except unit and perunit amounts)

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Gross margin % — new ​ 8.1 % 7.5 % 0.6 % 8.0 % ​ 7.5 % 7.5 % — % — %

​

Units

​

Retail unit sales of new vehicles decreased from 2019 to 2020 due to a 36,695 unit, or 17.2%, decrease in same-store new retail unit sales, coupled with a 7,572 unit decrease from net dealership dispositions. Same-store units decreased 14.0% in the U.S. and decreased 22.6% internationally. Overall, new units decreased 14.8% in the U.S. and decreased 27.8% internationally. The decrease in units is primarily due to the decline in our retail automotive business resulting from the COVID-19 pandemic, as well as the limited availability of inventory from our manufacturers as discussed above.

​

Revenues

​

New vehicle retail sales revenue decreased from 2019 to 2020 due to a $1,006.2 million, or 11.2%, decrease in same-store revenues, coupled with a $242.8 million decrease from net dealership dispositions. Excluding $40.0 million of favorable foreign currency fluctuations, same-store new retail revenue decreased 11.6%. The same-store revenue decrease is due to the decrease in same-store new retail unit sales, which decreased revenue by $1,553.9 million, partially offset by the $3,109 per unit increase in comparative average selling prices (including a $227 per unit increase attributable to favorable foreign currency fluctuations), which increased revenue by $547.7 million.

​

Gross Profit

​

Retail gross profit from new vehicle sales decreased from 2019 to 2020 due to a $27.5 million, or 4.1%, decrease in same-store gross profit, coupled with a $15.3 million decrease from net dealership dispositions. Excluding $3.9 million of favorable foreign currency fluctuations, same-store gross profit decreased 4.6%. The decrease in same-store gross profit is due to the decrease in same-store new retail unit sales, which decreased gross profit by $116.6 million, partially offset by a $506 per unit increase in the average gross profit per new vehicle retailed (including a $22 per unit increase attributable to favorable foreign currency fluctuations), which increased gross profit by $89.1 million. The increase in average gross profit per new vehicle retailed is partially attributed to limited availability of inventory from our manufacturers as discussed above.

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​

Retail Automotive Dealership Used Vehicle Data

(In millions, except unit and per unit amounts)

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​

Units

​

Retail unit sales of used vehicles decreased from 2019 to 2020 due to a 46,812 unit, or 17.1%, decrease in same-store used retail unit sales, coupled with a 3,909 unit decrease from net dealership dispositions. Same-store units decreased 14.8% in the U.S. and decreased 19.1% internationally. Same-store retail units for our U.S. and U.K. Used Vehicle SuperCenters decreased 26.9% and 31.3%, respectively. Overall, used units decreased 14.5% in the U.S. and decreased 20.7% internationally. The decrease in units is primarily due to the decline in our retail automotive business resulting from the COVID-19 pandemic.

​

Revenues

​

Used vehicle retail sales revenue decreased from 2019 to 2020 due to a $725.8 million decrease in same-store revenues, coupled with a $100.7 million decrease from net dealership dispositions. Excluding $58.9 million of favorable foreign currency fluctuations, same-store used retail revenue decreased 11.2%. The same-store revenue decrease is primarily due to the decrease in same-store used retail unit sales, which decreased revenue by $1,199.6 million, partially offset by a $2,088 per unit increase in comparative average selling prices (including a $259 per unit increase attributable to favorable foreign currency fluctuations), which increased revenue by $473.8 million. The average sales price per unit for our Used Vehicle SuperCenters increased 7.8% to $15,901.

​

Gross Profit

​

Retail gross profit from used vehicle sales increased $22.8 million, or 6.2%, from 2019 to 2020, including a $22.6 million, or 6.3%, increase in same-store gross profit. Excluding $4.1 million of favorable foreign currency fluctuations, same-store gross profit increased 5.1%. The increase in same-store gross profit is due to a $371 per unit increase in average gross profit per used vehicle retailed (including an $18 per unit increase attributable to favorable foreign currency fluctuations), which increased gross profit by $84.1 million, partially offset by the decrease in same-store used retail unit sales, which decreased gross profit by $61.5 million. The average gross profit per unit for our Used Vehicle SuperCenters increased 16.2% to $924. The increase in average gross profit per used vehicle retailed is primarily due to

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lower inventory availability of new vehicles and greater affordability of used vehicles as compared to new, which increased demand for used vehicles, and improved vehicle sourcing particularly in our Used Vehicle SuperCenters.

​

Retail Automotive Dealership Finance and Insurance Data

(In millions, except unit and perunit amounts)

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​

Finance and insurance revenue decreased from 2019 to 2020 due to a $67.9 million, or 10.7%, decrease in same-store revenues, coupled with a $7.9 million decrease from net dealership dispositions. Excluding $3.6 million of favorable foreign currency fluctuations, same-store finance and insurance revenue decreased 11.3%. The same-store revenue decrease is due to the decrease in same-store retail unit sales, which decreased revenue by $108.7 million, partially offset by a $101 per unit increase in comparative average finance and insurance revenue per unit (including an $8 per unit increase attributable to favorable foreign currency fluctuations), which increased revenue by $40.8 million. Finance and insurance revenue per unit increased 9.1% in the U.S. and 6.5% in the U.K. We believe the increase in same-store finance and insurance revenue per unit is primarily due to our efforts to increase finance and insurance penetration, which include implementing interactive digital customer sales platforms, additional training, and targeting underperforming locations.

​

Retail Automotive Dealership Service and Parts Data

(In millions)

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​

Revenues

​

Service and parts revenue decreased from 2019 to 2020 with a decrease of 13.3% in the U.S. and 15.9% internationally. The overall decrease in service and parts revenue is due to a $266.9 million, or 12.5%, decrease in same-store revenues, coupled with a $45.3 million decrease from net dealership dispositions. Excluding $10.1 million of favorable foreign currency fluctuations, same-store revenue decreased 13.0%. The decrease in same-store revenue is due to a $161.7 million, or 11.2%, decrease in customer pay revenue, a $77.8 million, or 14.3% decrease in warranty revenue, and a $27.4 million, or 18.6%, decrease in vehicle preparation and body shop revenue. We believe the decrease

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in service and parts revenue is related to the COVID-19 pandemic discussed above as changes in vehicle use patterns such as working from home resulted in lower vehicle miles traveled, coupled with lower vehicle recall activity.

​

Gross Profit

​

Service and parts gross profit decreased from 2019 to 2020 due to a $150.6 million, or 11.9%, decrease in same-store gross profit, coupled with a $27.8 million decrease from net dispositions. Excluding $5.7 million of favorable foreign currency fluctuations, same-store gross profit decreased 12.3%. The same-store gross profit decrease is due to the decrease in same-store revenues, which decreased gross profit by $159.4 million, partially offset by a 0.4% increase in same-store gross margin, which increased gross profit by $8.8 million. The same-store gross profit decrease is due to a $73.7 million, or 10.7%, decrease in customer pay gross profit, a $41.5 million, or 14.6%, decrease in vehicle preparation and body shop gross profit, and a $35.4 million, or 12.2%, decrease in warranty gross profit.

​

Retail Commercial Truck Dealership Data

(In millions, except unit and per unit amounts)

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​

Units

​

Retail unit sales of new trucks decreased from 2019 to 2020 primarily due to an 838 unit, or 10.0%, decrease in same-store retail unit sales, partially offset by a 265 unit increase from net dealership acquisitions. Same-store new truck units decreased largely due to the expected decline from cyclicality as the North American Class 6-8 heavy-duty truck sales decreased 29.6% during 2020, coupled with challenging business conditions related to the COVID-19 pandemic.

​

Revenues

​

New commercial truck retail sales revenue decreased from 2019 to 2020 due to a $48.4 million, or 5.2%, decrease in same-store revenues, partially offset by a $17.1 million increase from net dealership acquisitions. The same-store revenue decrease is due to the decrease in same-store new retail unit sales, which decreased revenue by $93.0 million, partially offset by a $5,891 per unit increase in comparative average selling prices, which increased revenue by $44.6 million.

​

Gross Profit

​

New commercial truck retail gross profit decreased $11.0 million, or 17.9%, from 2019 to 2020, including a $5.9 million, or 14.7%, decrease in same-store gross profit. The decrease in same-store gross profit is due to the decrease in same-store new retail unit sales, which decreased gross profit by $4.0 million, coupled with a $249 per unit decrease in average gross profit per new truck retailed, which decreased gross profit by $1.9 million.

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​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​

Units

​

Retail unit sales of used trucks increased from 2019 to 2020 due to a 986 unit increase from net dealership acquisitions, coupled with an 886 unit, or 53.9%, increase in same-store retail unit sales. We believe the increase in used truck unit sales is attributable to our marketing efforts to retail an oversupply of used inventory earlier in 2020, coupled with higher demand for used vehicles later in the year as higher freight rates increased demand for used units.

​

Revenues

Used commercial truck retail sales revenue increased from 2019 to 2020 due to a $45.3 million increase from net dealership acquisitions, coupled with a $31.9 million, or 32.6%, increase in same-store revenues. The same-store revenue increase is due to the increase in same-store used retail unit sales, which increased revenue by $45.4 million, partially offset by an $8,231 per unit decrease in comparative average selling prices, which decreased revenue by $13.5 million. The decline in used retail sales revenue per unit is attributable to an oversupply of used trucks in the market when compared to 2019.

​

Gross Profit

​

Used commercial truck retail gross profit decreased $8.8 million, or 95.7%, from 2019 to 2020, including a $2.7 million, or 34.2%, decrease in same-store gross profit. The decrease in same-store gross profit is due to a $2,763 per unit decrease in average gross profit per used truck retailed, which decreased gross profit by $4.5 million, partially offset by the increase in same-store used retail unit sales, which increased gross profit by $1.8 million. The decline in average gross profit per used truck retailed is attributable to an oversupply of used trucks in the market when compared to 2019, combined with greater availability of new heavy-duty trucks.

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​

Revenues

​

Service and parts revenue decreased from 2019 to 2020 due to a $36.5 million, or 9.8%, decrease in same-store revenues, partially offset by an $11.3 million increase from net dealership acquisitions. Customer pay work represents approximately 77.4% of PTG’s service and parts revenue, largely due to the significant amount of retail sales of parts

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and accessories. The decrease in same-store revenue is due to a $33.3 million, or 10.7%, decrease in customer pay revenue, a $2.0 million, or 4.2%, decrease in warranty revenue, and a $1.2 million, or 8.2%, decrease in body shop revenue. The same-store decrease in service and parts revenue is primarily due to the decline in new retail truck sales which correlates to service for certain customers, a change in fleet services revenue, and the COVID-19 pandemic as discussed above.

​

Gross Profit

​

Service and parts gross profit increased from 2019 to 2020 due to a $35.8 million increase from net dealership acquisitions, partially offset by a $10.9 million, or 7.4%, decrease in same-store gross profit. The same-store gross profit decrease is due to the decrease in same-store revenues, which decreased gross profit by $14.9 million, partially offset by a 1.0% increase in gross margin, which increased gross profit by $4.0 million. The same-store gross profit decrease is due to an $11.1 million, or 10.3%, decrease in customer pay gross profit, a $0.1 million, or 0.4%, decrease in warranty gross profit, partially offset by a $0.3 million, or 2.5%, increase in body shop gross profit.

​

Commercial Vehicle Distribution Data

(In millions, except unit amounts)

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​

Our Penske Australia operations are primarily comprised of commercial vehicle, engine, and power systems distribution. This business generated $454.2 million of revenue during 2020 compared to $513.1 million of revenue during 2019, a decrease of 11.5%. These businesses generated $122.3 million of gross profit during 2020 compared to $138.8 million of gross profit during 2019, a decrease of 11.9%.

​

The decrease in units from 2019 to 2020 is primarily due to the decline in the Australian heavy-duty truck market, including significant declines due to the COVID-19 pandemic as discussed above. Excluding $1.5 million of unfavorable foreign currency fluctuations, revenues decreased 11.2%. Excluding $0.8 million of unfavorable foreign currency fluctuations, gross profit decreased 11.3%.

​

​

Selling, General and Administrative Data

(In millions)

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​

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Selling, general, and administrative expenses (“SG&A”) decreased from 2019 to 2020 due to a $312.5 million, or 12.1%, decrease in same-store SG&A, coupled with a $16.2 million decrease from net dispositions. Excluding the $10.6 million increase related to foreign currency fluctuations, same-store SG&A decreased 12.5%. The decrease in SG&A is primarily due to employee reductions, temporary compensation reductions, government assistance, a reduction of travel and entertainment expenses, and other expense reductions as discussed above under “COVID-19 Disclosure.”

​

SG&A expenses as a percentage of total revenue were 11.6%, 11.6%, and 11.6% in 2020, 2019, and 2018, respectively, and as a percentage of gross profit were 74.3%, 77.9%, and 77.5%, in 2020, 2019, and 2018, respectively.

​

Depreciation

(In millions)

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​

The increase in depreciation from 2019 to 2020 is primarily due to a $6.7 million, or 6.4%, increase in same-store depreciation, partially offset by a $0.8 million decrease from net dispositions. The overall increase is primarily related to our ongoing facility improvements and expansion programs.

​

Floor Plan Interest Expense

(In millions)

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​

Floor plan interest expense, including the impact of swap transactions, decreased $38.2 million from 2019 to 2020 primarily due to a $36.0 million decrease in same-store floor plan interest expense, coupled with $2.2 million decrease from net dealership dispositions. The overall decrease is primarily due to decreases in amounts outstanding under floor plan arrangements and decreases in applicable rates.

​

Other Interest Expense

(In millions)

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​

The decrease in other interest expense from 2019 to 2020 is primarily due to the decrease in outstanding revolver borrowings under the U.S. and U.K. credit agreements, decreases in applicable rates, and redemption of certain senior subordinated notes.

​

Equity in Earnings of Affiliates

(In millions)

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​

The increase in equity in earnings of affiliates from 2019 to 2020 is primarily due to a $22.1 million, or 15.5%, increase in earnings from our investment in PTS, partially offset by the decrease in earnings from our retail automotive joint ventures. The increase in our PTS equity earnings is primarily attributed to increases in full service lease demand,

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strong consumer rental demand, higher vehicle utilization rates in commercial rental, and cost reduction efforts in the logistics operations, partially offset by lower gains on sale from remarketing activities.

​

Income Taxes

(In millions)

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​

Income taxes increased from 2019 to 2020 primarily due to a $116.1 million increase in our pre-tax income compared to the prior year, partially offset by a net income tax benefit of $11.4 million from various U.S. and foreign tax legislation changes. Our effective tax rate was 23.0% during 2020 compared to 26.5% during 2019primarily due to the income tax benefit discussed above as well as the fluctuations in our geographic pre-tax income mix.

​

​

Liquidity and Capital Resources

​

Our cash requirements are primarily for working capital, inventory financing, the acquisition of new businesses, the improvement and expansion of existing facilities, the purchase or construction of new facilities, building additional Used Vehicle SuperCenters (including five additional sites currently under development), debt service and repayments, dividends, and potential repurchases of our outstanding securities under the program discussed below. Historically, these cash requirements have been met through cash flow from operations, borrowings under our credit agreements and floor plan arrangements, the issuance of debt securities, sale-leaseback transactions, mortgages, and dividends and distributions from joint venture investments.

​

We have historically expanded our operations through organic growth and the acquisition of dealerships and other businesses. We believe that cash flow from operations, dividends and distributions from our joint venture investments, and our existing capital resources, including the liquidity provided by our credit agreements and floor plan financing arrangements, will be sufficient to fund our existing operations and current commitments for at least the next twelve months. In the event that economic conditions remain impacted for longer than we expect due to the COVID-19 pandemic, we pursue significant acquisitions or other expansion opportunities, pursue significant repurchases of our outstanding securities, or refinance or repay existing debt, we may need to raise additional capital either through the public or private issuance of equity or debt securities or through additional borrowings, which sources of funds may not necessarily be available on terms acceptable to us, if at all. In addition, our liquidity could be negatively impacted in the event we fail to comply with the covenants under our various financing and operating agreements or in the event our floor plan financing is withdrawn. Future events, including acquisitions, divestitures, new or revised operating lease agreements, borrowings or repayments under our credit agreements and our floor plan arrangements, raising capital, and purchases or refinancing of our securities, may also impact our liquidity.

​

We expect that scheduled payments of our debt instruments will be funded through cash flows from operations or borrowings under our credit agreements. In the case of payments upon the maturity or termination dates of our debt instruments, we currently expect to be able to refinance such instruments in the normal course of business or otherwise fund them from cash flows from operations or borrowings under our credit agreements. Refer to the disclosures provided in Part II, Item 8, Note 10 of the Notes to our Consolidated Financial Statements set forth below for a detailed description of our long-term debt obligations and scheduled interest payments.

​

Floor plan notes payable are revolving financing arrangements. Payments are generally made as required pursuant to the floor plan borrowing agreements. Refer to the disclosures provided in Part II, Item 8, Note 9 of the Notes to our Consolidated Financial Statements for a detailed description of financing for the vehicles we purchase, including discussion of our floor plan and other revolving arrangements.

​

Refer to the disclosures provided in Part II, Item 8, Note 12 of the Notes to our Consolidated Financial Statements for a description of our off-balance sheet arrangements which includes a repurchase commitment related to our floor plan credit agreement with Mercedes Benz Financial Services Australia.

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​

As of December 31, 2020, we had $49.5 million of cash available to fund our operations and capital commitments. In addition, we had $692.0 million, £162.0 million ($221.4 million), and AU $50.0 million ($38.5 million) available for borrowing under our U.S. credit agreement, U.K. credit agreement, and Australian working capital loan agreement, respectively.

​

Securities Repurchases

​

From time to time, our Board of Directors has authorized securities repurchase programs pursuant to which we may, as market conditions warrant, purchase our outstanding common stock or debt on the open market, in privately negotiated transactions, via a tender offer, or through a pre-arranged trading plan. We have historically funded any such repurchases using cash flow from operations, borrowings under our U.S. credit agreement, and borrowings under our U.S. floor plan arrangements. The decision to make repurchases will be based on factors such as the market price of the relevant security versus our view of its intrinsic value, the potential impact of such repurchases on our capital structure, and our consideration of any alternative uses of our capital, such as for acquisitions and strategic investments in our current businesses, in addition to any then-existing limits imposed by our finance agreements and securities trading policy. As of December 31, 2020, we had $170.6 million in repurchase authorization remaining under the securities repurchase program. Refer to the disclosures provided in Part II, Item 8, Note 15 of the Notes to our Consolidated Financial Statements for a summary of shares repurchased during 2020.

​

Dividends

​

We paid the following cash dividends on our common stock in 2019 and 2020:

​

Per Share Dividends

​

​

​ ​ ​ ​

​ ​ ​ ​

First Quarter ​ $ 0.38

Second Quarter ​ 0.39

Third Quarter ​ 0.40

Fourth Quarter ​ 0.41

​

​ ​ ​ ​

​ ​ ​ ​

First Quarter ​ $ 0.42

Second Quarter ​ $ —

Third Quarter ​ $ —

Fourth Quarter ​ $ 0.42

​

In May 2020, our Board of Directors suspended our cash dividend. On October 14, 2020, we announced the reinstatement of our cash dividend in the amount of $0.42 per share. We also announced a cash dividend of $0.43 per share payable on March 1, 2021, to stockholders of record as of February 10, 2021, which represents a dividend yield of 2.7% using our January 25, 2021, closing stock price. Future quarterly or other cash dividends will depend upon a variety of factors considered relevant by our Board of Directors, which may include our expectations regarding the severity and duration of the COVID-19 pandemic, earnings, cash flow, capital requirements, restrictions relating to any then-existing indebtedness, financial condition and other factors.

​

Vehicle Financing

​

Refer to the disclosures provided in Part II, Item 8, Note 9 of the Notes to our Consolidated Financial Statements for a detailed description of financing for the vehicles we purchase, including discussion of our floor plan and other revolving arrangements.

​

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Long-Term Debt Obligations

​

As of December 31, 2020, we had the following long-term debt obligations outstanding:

​

​ ​ ​ ​

​ December 31,

U.S. credit agreement — revolving credit line ​ $ 108.0

U.K. credit agreement — revolving credit line ​ —

U.K. credit agreement — overdraft line of credit ​ —

Australia capital loan agreement ​ ​ 32.1

Australia working capital loan agreement ​ —

Mortgage facilities ​ 458.1

Total long-term debt ​ $ 1,689.6

​

During the third quarter of 2020, we repaid in full at scheduled maturity our $300 million 3.75% senior subordinated notes due August 15, 2020. We also issued $550 million in aggregate principal amount of 3.50% senior subordinated notes due 2025 in August 2020, the proceeds of which were used to redeem our $550 million in aggregate principal amount of 5.75% senior subordinated notes due 2022 on October 1, 2020. During the fourth quarter of 2020, we also redeemed our $300 million 5.375% senior subordinated notes due 2024 at a redemption price equal to 101.792% of the principal amount together with accrued and unpaid interest, using availability under our U.S. revolving credit facility and cash flow from operations.