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GROUP 1 AUTOMOTIVE INC - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations

As of March 31, 2012, we owned and operated 134 franchises, representing 31 brands of automobiles, at 107 dealership locations and 25 collision service centers in the U.S. and ten franchises at five dealerships and three collision centers in the U.K. Through our dealerships, we sell new and used cars and light trucks; arrange related vehicle financing; sell...

Edgar Online, Inc.
This Management's Discussion and Analysis of Financial Condition and Results of
Operations contains forward-looking statements that involve risks and
uncertainties. Our actual results may differ materially from those discussed in
the forward-looking statements because of various factors. See "Cautionary
Statement about Forward-Looking Statements."

Overview


We are a leading operator in the automotive retail industry. As of March 31,
2012, we owned and operated 134 franchises, representing 31 brands of
automobiles, at 107 dealership locations and 25 collision service centers in the
U.S. and ten franchises at five dealerships and three collision centers in the
U.K. Through our dealerships, we sell new and used cars and light trucks;
arrange related vehicle financing; sell service and insurance contracts; provide
automotive maintenance and repair services; and sell vehicle parts. Our
operations are primarily located in major metropolitan areas in Alabama,
California, Florida, Georgia, Kansas, Louisiana, Maryland, Massachusetts,
Mississippi, New Hampshire, New Jersey, New York, Oklahoma, South Carolina and
Texas in the U.S. and in the towns of Brighton, Farnborough, Hailsham, Hindhead
and Worthing in the U.K.

As of March 31, 2012, our U.S. retail network consisted of the following two
regions (with the number of dealerships they comprised): (i) the East (43
dealerships in Alabama, Florida, Georgia, Louisiana, Maryland, Massachusetts,
Mississippi, New Hampshire, New Jersey, New York and South Carolina) and
(ii) the West (64 dealerships in California, Kansas, Oklahoma and Texas). Each
region is managed by a regional vice president who reports directly to our Chief
Executive Officer and is responsible for the overall performance of their
regions, as well as for overseeing the market directors and dealership general
managers that report to them. Each region is also managed by a regional chief
financial officer who reports directly to our Chief Financial Officer. Our
dealerships in the U.K. are also managed locally with direct reporting
responsibilities to our corporate management team.

Outlook

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From September 2008 through most of 2009, the U.S. and global economies suffered
from, among other things, a substantial decline in consumer confidence, a rise
in unemployment and a tightening of credit availability. As a result, the retail
automotive industry was negatively impacted by decreasing customer demand for
new and used vehicles, vehicle margin pressures and higher inventory levels.
Through 2011 and the first three months of 2012, economic trends have stabilized
and consumer demand for new and used vehicles has shown improvement. According
to industry experts, the March 2012 seasonally adjusted annual rate of sales (or
"SAAR") was 14.4 million units, compared to 13.0 million units a year ago. But
given the depth of the downturn, we believe the recovery to historically
normalized industry selling levels will probably be extended.

Our operations have, and we believe that our operations will continue to
generate positive cash flow. As such, we are focused on maximizing the return on
the capital that we generate from our operations and positioning our balance
sheet to take advantage of investment opportunities as they arise. We believe
that the stabilizing economic trends provide opportunities for us to improve our
operating results as we: (i) expand our new and used vehicle sales results and
improve our sales efficiency; (ii) continue to focus on our higher margin parts
and service business by enhancing the cost effectiveness of our marketing
efforts, implementing strategic selling methods, and improving operational
efficiencies; (iii) invest capital where necessary to support the anticipated
growth, particularly in our parts and service business; and (iv) further
leverage of our revenue and gross profit growth through continued cost
rationalization.

We continue to closely scrutinize all planned future capital spending and work
closely with our manufacturer partners in this area to make prudent investment
decisions that are expected to generate an adequate return and/or improve the
customer experience. We anticipate that 2012 capital spending will be less than
$55.0 million, which includes $15.0 million for specific growth initiatives in
our parts and service business.

We remain committed to our growth-by-acquisition strategy, and with the
prolonged nature of the anticipated economic recovery, we believe that
significant opportunities exist to enhance our portfolio with dealerships that
meet our stringent investment criteria. During the first three months of 2012,
we completed the acquisition of three dealerships. We will continue to pursue
dealership investment opportunities that we believe will add value for our
stockholders.

Financial and Operational Highlights


Our operating results reflect the combined performance of each of our
interrelated business activities, which include the sale of new vehicles, used
vehicles, finance and insurance products, and parts, as well as maintenance and
collision repair services. Historically, each of these activities has been
directly or indirectly impacted by a variety of supply/demand factors, including
vehicle inventories, consumer confidence, discretionary spending, availability
and affordability of consumer credit, manufacturer incentives, weather patterns,
fuel prices and interest rates. For example, during periods of sustained
economic downturn or significant supply/demand



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imbalances, new vehicle sales may be negatively impacted as consumers tend to
shift their purchases to used vehicles. Some consumers may even delay their
purchasing decisions altogether, electing instead to repair their existing
vehicles. In such cases, however, we believe the new vehicle sales impact on our
overall business is mitigated by our ability to offer other products and
services, such as used vehicles and parts, as well as maintenance and collision
repair services. In addition, our ability to reduce our costs in response to
lower sales also tempers the impact of lower new vehicle sales volume.

We generally experience higher volumes of vehicle sales and service in the
second and third calendar quarters of each year. This seasonality is generally
attributable to consumer buying trends and the timing of manufacturer new
vehicle model introductions. In addition, in some regions of the U.S., vehicle
purchases decline during the winter months due to inclement weather. As a
result, our revenues and operating income are typically lower in the first and
fourth quarters and higher in the second and third quarters. Other factors
unrelated to seasonality, such as changes in economic condition and manufacturer
incentive programs, may exaggerate seasonal or cause counter-seasonal
fluctuations in our revenues and operating income.

For the three months ended March 31, 2012, total revenues increased 18.1% from
2011 levels to $1.7 billion and gross profit improved 17.4% to $260.4 million.
Operating income rose for the three months ended March 31, 2012 by 37.6% from
2011 to $54.0 million. Income before income taxes improved to $37.3 million for
the first quarter of 2012, which was a 52.2% improvement over the same period
from the prior year. For the three months ended March 31, 2012 and 2011, we
realized net income of $23.1 million and $15.4 million, respectively, and
diluted income per share of $0.97 and $0.64, respectively. We generated cash
flow of $6.4 million and $25.0 million for the three months ended March 31, 2012
and 2011, respectively.



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Key Performance Indicators

The following table highlights certain of the key performance indicators we use to manage our business:

Consolidated Statistical Data



                                                             Three Months Ended March 31,
                                                             2012                    2011
Unit Sales
Retail Sales
New Vehicle                                                     27,930                  24,704
Used Vehicle                                                    20,749                  16,730

Total Retail Sales                                              48,679                  41,434
Wholesale Sales                                                  9,994                   9,055

Total Vehicle Sales                                             58,673                  50,489
Gross Margin
New Vehicle Retail Sales                                           5.8 %                   5.5 %
Total Used Vehicle Sales                                           8.1 %                   8.1 %
Parts and Service Sales                                           52.2 %                  53.0 %
Total Gross Margin                                                15.6 %                  15.7 %
SG&A(1) as a % of Gross Profit                                    76.5 %                  79.3 %
Operating Margin                                                   3.2 %                   2.8 %
Pretax Margin                                                      2.2 %                   1.7 %

Finance and Insurance Revenues per Retail Unit Sold $ 1,175

     $       1,068



(1) Selling, general and administrative expenses.



The following discussion briefly highlights certain of the results and trends
occurring within our business. Throughout the following discussion, references
are made to Same Store results and variances which are discussed in more detail
in the "Results of Operations" section that follows.

While SAAR is still low relative to the years before the recession, it has risen
from 13.0 million at March 31, 2011 to 14.4 million at March 31, 2012. Bolstered
by this improved sales environment, our new vehicle retail sales revenues
increased 16.3% during the first quarter of 2012 as compared to the same period
in 2011. The improvement reflects higher new vehicle unit sales of 13.1%, as
well as an increase of 2.9% in average sales price driven by brand mix and a
shift towards more truck sales. New vehicle retail gross margin improved 30
basis points during the first quarter of 2012, reflecting improvement in our
import and luxury brands. Gross profit per new vehicle sold improved $160 from
the first quarter of 2011 to $1,891.

Our used vehicle results are directly affected by economic conditions, the level
of manufacturer incentives on new vehicles and new vehicle financing, the number
and quality of trade-ins and lease turn-ins and the availability of consumer
credit. The stabilizing economic environment that benefited new vehicle sales
also supported improved used vehicle demand that positively impacted our used
vehicle retail sales in comparison to our 2011 results. As a result, we
experienced a 24.0% increase in retail used vehicle volumes through the first
three months of 2012 as compared to the same period in 2011. In addition, our
average used vehicle retail sales price increased $666, or 3.4%, in the first
quarter of 2012 over the comparable 2011 period to $20,000. Compared to the same
period in 2011, used vehicle retail gross profit per retail unit improved 1.6%
for the three months ended March 31, 2012 to $1,754. Further, the wholesale side
of the business experienced increases in unit sales and gross profit for the
three months ended March 31, 2012 as compared to the same period in 2011.

Our parts and service sales increased by 9.3% for the three months ended
March 31, 2012 as compared to the same period in 2011 primarily driven by
increases in our customer-pay parts and service revenues. We also realized
increases in our wholesale parts and collision business segments. These
increases more than offset the 4.3% decline in our warranty parts and service
revenue. Our parts and service margins declined for the first quarter of 2012 as
compared to the same period in 2011, primarily reflecting a mix shift



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away from our warranty business and toward our collision and wholesale parts
businesses, which on a relative basis generate lower margins. However, on a
sequential quarter basis, our margin increased from 51.8% for the fourth quarter
of 2011 to 52.2% for the first quarter of 2012.

Our consolidated finance and insurance income per retail unit sold increased
$107 for the first quarter of 2012 as compared to the same period in 2011 to
$1,175, primarily driven by increases in vehicle service contract penetration
rates and finance income per contract.

Our total gross margin declined ten basis points to 15.6% for the three months
ended March 31, 2012, primarily due to the decline in parts and service margins
and the shift in our business mix, as we experienced more rapid growth in our
new and used vehicle businesses, which generally produce lower margins than the
other business units.

Our consolidated SG&A expenses increased in absolute dollars, but decreased as a
percentage of gross profit by 280 basis points to 76.5% for the three months
ended March 31, 2012, from the comparable period in 2011, reflecting ongoing
cost control and the leverage on our cost structure that higher gross profit
provides.

The combination of all of these factors contributed to a 40 basis-point increase
in our operating margin to 3.2% for the three months ended March 31, 2012 over
2011 levels.

Our floorplan interest expense increased 12.7% for the three months ended
March 31, 2012, as compared to the first quarter of 2011, primarily as a result
of an increase in both our weighted average floorplan interest rates and our
floorplan borrowings. Other interest expense increased 13.8% for the three
months ended March 31, 2012 as a result of increased real estate borrowings
associated primarily with dealership acquisitions. Despite these increases, our
pretax margin for the three months ended March 31, 2012 increased 50 basis
points to 2.2% as compared to the first quarter of 2011.

We address these items further, and other variances between the periods presented, in the "Results of Operations" section below.

Critical Accounting Policies and Accounting Estimates


The preparation of our Consolidated Financial Statements in conformity with U.S.
generally accepted accounting principles requires management to make certain
estimates and assumptions.

We disclosed certain critical accounting policies and estimates in our 2011 Annual Report on Form 10-K, and no significant changes have occurred since that time.


Results of Operations

The following tables present comparative financial and non-financial data for
the three months ended March 31, 2012 and 2011, of (a) our "Same Store"
locations, (b) those locations acquired or disposed of during the periods
("Transactions"), and (c) the total company. Same Store amounts include the
results of dealerships for the identical months in each period presented in the
comparison, commencing with the first full month in which the dealership was
owned by us and, in the case of dispositions, ending with the last full month it
was owned by us. Same Store results also include the activities of our corporate
headquarters.



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The following table summarizes our combined Same Store results for the three months ended March 31, 2012 as compared to 2011:

Total Same Store Data

(dollars in thousands, except per unit amounts)



                                                         Three Months Ended March 31,
                                                  2012             % Change             2011
Revenues
New vehicle retail                             $   840,731               7.3 %       $   783,652
Used vehicle retail                                385,501              19.3 %           323,044
Used vehicle wholesale                              61,215              (1.2 )%           61,936
Parts and service                                  198,536               2.3 %           194,075
Finance, insurance and other                        53,212              20.4 %            44,193

Total revenues                                   1,539,195               9.4 %         1,406,900
Cost of Sales
New vehicle retail                             $   791,966               6.9 %       $   740,971
Used vehicle retail                                352,096              19.7 %           294,191
Used vehicle wholesale                              58,729              (1.2 )%           59,445
Parts and service                                   94,187               3.5 %            90,975

Total cost of sales                            $ 1,296,978               9.4 %       $ 1,185,582

Gross profit                                       242,217               9.4 %           221,318

Selling, general and administrative
expenses                                           185,277               5.6 %           175,511
Depreciation and amortization expenses               6,918               7.8 %             6,420
Floorplan interest expense                           7,002               3.7 %             6,751
Gross Margin
New vehicle retail                                     5.8 %                                 5.4 %
Used vehicle                                           8.0 %                                 8.1 %
Parts and service                                     52.6 %                                53.1 %
Total gross margin                                    15.7 %                                15.7 %
SG&A as a % of gross profit                           76.5 %                                79.3 %
Operating margin                                       3.2 %                                 2.8 %
Finance and insurance revenues per retail
unit sold                                            1,181              10.6 %             1,068


The discussion that follows provides explanation for the variances noted above.
In addition, each table presents, by primary statement of operations line item,
comparative financial and non-financial data of our Same Store locations,
Transactions and the consolidated company for the three months ended March 31,
2012 and 2011.



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New Vehicle Retail Data

(dollars in thousands, except per unit amounts)



                                                Three Months Ended March 31,
                                             2012          % Change         2011
      Retail Unit Sales
      Same Stores                             25,792             4.6 %       24,660
      Transactions                             2,138                             44

      Total                                   27,930            13.1 %       24,704
      Retail Sales Revenues
      Same Stores                         $  840,731             7.3 %    $ 783,652
      Transactions                            71,864                          1,062

      Total                               $  912,595            16.3 %    $ 784,714
      Gross Profit
      Same Stores                         $   48,765            14.3 %    $  42,682
      Transactions                             4,055                             90

      Total                               $   52,820            23.5 %    $  42,772

Gross Profit per Retail Unit Sold

      Same Stores                         $    1,891             9.2 %    $   1,731
      Transactions                        $    1,897                      $   2,045
      Total                               $    1,891             9.2 %    $   1,731
      Gross Margin
      Same Stores                                5.8 %                          5.4 %
      Transactions                               5.6 %                          8.5 %
      Total                                      5.8 %                          5.5 %


Coupled with the increase in SAAR, the focus that we have placed on improving
our dealership sales processes has led to increased Same Store new vehicle sales
and profit. Our Same Store new vehicle retail revenues increased 7.3%, primarily
on increased new vehicle unit sales of 4.6% for the three months ended March 31,
2012 as compared to the corresponding period in 2011. Our Same Store revenues
per retail unit ("PRU") increased 2.6% to $32,597 in the first quarter of 2012
as compared to the same period in 2011 due primarily to manufacturer price
increases. From a mix standpoint, we generated the majority of this volume
increase through our domestic brands, which sold 22.0% more units in 2012. Same
Store revenues improved 23.2%, 6.8% and 1.0% in our domestic, import and luxury
categories, respectively. The level of retail sales, as well as our own ability
to retain or grow market share during the future periods, is difficult to
predict.

Our Same Store new vehicle gross profits improved 14.3% for the three months
ended March 31, 2012 and our Same Store gross profit PRU increased by 9.2% to
$1,891. This gross profit PRU improvement was lead by a $463 increase in our
luxury brands and a $122 increase in our import brands. As a result, our Same
Store gross margin increased by 40 basis points from 5.4% in the first quarter
of 2011 to 5.8% in the first quarter of 2012.



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The following table sets forth our Same Store new vehicle retail sales volume by manufacturer:

Same Store New Vehicle Unit Sales



                                       Three Months Ended March 31,
                                    2012           % Change         2011
                Toyota                8,575              0.7 %       8,515
                Nissan                3,646              4.8         3,478
                Honda                 3,047             (3.7 )       3,163
                BMW                   2,834             (2.0 )       2,891
                Ford                  2,153             22.3         1,761
                Daimler               1,322              1.1         1,308
                General Motors        1,233              6.3         1,160
                Chrysler              1,269             42.1           893
                Volkswagen              473             25.5           377
                Other                 1,240             11.3         1,114

                Total                25,792              4.6 %      24,660



Most manufacturers offer interest assistance to offset floorplan interest
charges incurred in connection with inventory purchases. This assistance varies
by manufacturer, but generally provides for a defined amount, adjusted
periodically for changes in market interest rates, regardless of our actual
floorplan interest rate or the length of time for which the inventory is
financed. We record these incentives as a reduction of new vehicle cost of sales
as the vehicles are sold, impacting the gross profit and gross margin detailed
above. The total assistance recognized in cost of goods sold during the three
months ended March 31, 2012 and 2011 was $7.4 million and $6.2 million,
respectively. The amount of interest assistance we recognize in a given period
is primarily a function of: (1) the mix of units being sold, as domestic brands
tend to provide more assistance, (2) the specific terms of the respective
manufacturers' interest assistance programs and market interest rates, (3) the
average wholesale price of inventory sold, and (4) our rate of inventory
turnover.

In effect, as of March 31, 2012, we had interest rate swaps with an aggregate
notional amount of $275.0 million, at a weighted average fixed rate of 4.4%. We
record the majority of the impact of the periodic settlements of these swaps as
a component of floorplan interest expense, effectively hedging a substantial
portion of our total floorplan interest expense and further mitigating the
impact of interest rate fluctuations. Over the past three years, manufacturers'
interest assistance as a percentage of our total consolidated floorplan interest
expense has ranged from 60.1% for the second quarter of 2009 to 98.2% for the
fourth quarter of 2011. For the quarter ended March 31, 2012, the floorplan
assistance as a percentage of our consolidated interest expense was 97.3%.

We continue to aggressively manage our new vehicle inventory in response to the
rapidly changing market conditions. We increased our new vehicle inventory
levels by $75.3 million, or 12.2%, from $619.2 million as of December 31, 2011
to $694.5 million as of March 31, 2012, as inventory supply constraints that
negatively impacted inventory levels for most of 2011 have improved and as the
overall selling environment has strengthened. Our consolidated days' supply of
new vehicle inventory as of March 31, 2012 remained flat with December 31, 2011
levels at 54 days.



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Used Vehicle Retail Data

(dollars in thousands, except per unit amounts)



                                           Three Months Ended March 31,
                                        2012          % Change         2011
           Retail Unit Sales
           Same Stores                   19,280            15.4 %       16,705
           Transactions                   1,469                             25

           Total                         20,749            24.0 %       16,730
           Retail Sales Revenues
           Same Stores                  385,501            19.3 %      323,044
           Transactions                  29,473                            403

           Total                     $  414,974            28.3 %    $ 323,447
           Gross Profit
           Same Stores               $   33,405            15.8 %    $  28,853
           Transactions                   2,992                             47

           Total                     $   36,397            25.9 %    $  28,900
           Gross Profit per Retail
           Unit Sold
           Same Stores               $    1,733             0.3 %    $   1,727
           Transactions              $    2,037                      $   1,880
           Total                     $    1,754             1.6 %    $   1,727
           Gross Margin
           Same Stores                      8.7 %                          8.9 %
           Transactions                    10.2 %                         11.7 %
           Total                            8.8 %                          8.9 %




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Used Vehicle Wholesale Data

(dollars in thousands, except per unit amounts)



                                           Three Months Ended March 31,
                                        2012          % Change          2011
          Wholesale Unit Sales
          Same Stores                     9,213             1.8 %        9,051
          Transactions                      781                              4

          Total                           9,994            10.4 %        9,055
          Wholesale Sales Revenues
          Same Stores                    61,215            (1.2 )%      61,936
          Transactions                    5,642                             15

          Total                      $   66,857             7.9 %     $ 61,951
          Gross Profit
          Same Stores                $    2,485            (0.2 )%    $  2,491
          Transactions                      219                              3

          Total                      $    2,704             8.4 %     $  2,494
          Gross Profit per
          Wholesale Unit Sold
          Same Stores                $      270            (1.8 )%    $    275
          Transactions               $      280                       $    750
          Total                      $      271            (1.5 )%    $    275
          Gross Margin
          Same Stores                       4.1 %                          4.0 %
          Transactions                      3.9 %                         20.0 %
          Total                             4.0 %                          4.0 %




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Total Used Vehicle Data

(dollars in thousands, except per unit amounts)



                                           Three Months Ended March 31,
                                        2012          % Change         2011
           Used Vehicle Unit Sales
           Same Stores                   28,493            10.6 %       25,756
           Transactions                   2,250                             29

           Total                         30,743            19.2 %       25,785
           Sales Revenues
           Same Stores               $  446,716            16.0 %    $ 384,980
           Transactions                  35,115                            418

           Total                     $  481,831            25.0 %    $ 385,398
           Gross Profit
           Same Stores               $   35,890            14.5 %    $  31,344
           Transactions                   3,211                             50

           Total                     $   39,101            24.5 %    $  31,394
           Gross Profit per Used
           Vehicle Unit Sold
           Same Stores               $    1,260             3.5 %    $   1,217
           Transactions              $    1,427                      $   1,724
           Total                     $    1,272             4.4 %    $   1,218
           Gross Margin
           Same Stores                      8.0 %                          8.1 %
           Transactions                     9.1 %                         12.0 %
           Total                            8.1 %                          8.1 %


In addition to factors such as general economic conditions and consumer
confidence, our used vehicle business is affected by the level of manufacturer
incentives on new vehicles and new vehicle financing, the number and quality of
trade-ins and lease turn-ins, the availability of consumer credit, and our
ability to effectively manage the level and quality of our overall used vehicle
inventory. The improved economic conditions, uptick in consumer confidence, and
healthier new vehicle selling environment have translated into an increase in
used vehicle demand. During the first three months of 2012, auction prices of
used vehicles increased over comparable 2011 levels. The Manheim Index, which
measures used vehicle auction prices, increased by an average of 1.3% in the
first quarter of 2012, as compared to the same period in 2011.

This improved selling environment, coupled with our emphasis on improving our
dealership sales processes, has resulted in an increase in our Same Store used
retail unit sales of 15.4% for the three months ended March 31, 2012, as
compared to the same period in 2011. In addition, our average used retail
selling price increased 3.4%, or $657, during the three months ended March 31,
2012 to $19,995. As a result, our Same Store used retail revenues improved
19.3%.

Our certified pre-owned ("CPO") volume increased 19.4% to 6,814 units for the
three months ended March 31, 2012 as compared to the same period of 2011,
corresponding to the overall lift in used retail volume. As a percentage of
total retail sales, CPO units decreased 130 basis points to 32.8% of total used
retail units for the three months ended March 31, 2012 as compared to the same
period of 2011.

For the three months ended March 31, 2012, our gross profit per used retail unit
increased 0.3%, but was outpaced by the increase in average retail selling price
PRU. As a result, our Same Store used retail vehicle margins declined 20 basis
points to 8.7% as compared to the same period in 2011.

During the first three months of 2012, our Same Store wholesale used vehicle
unit sales increased 1.8% over the comparable 2011 period, also corresponding to
the overall rise in new and used retail volume. Same Store wholesale used
vehicle gross profit PRU decreased $5, or 1.8%, to $270 on 1.2% less revenues.

Our supply of used vehicle inventory was 28 days at March 31, 2012, which was down from December 31, 2011 levels of 33 days.

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Parts and Service Data

(dollars in thousands)



                                            Three Months Ended March 31,
                                         2012          % Change         2011
         Parts and Service Revenues
         Same Stores                  $   198,536            2.3 %    $ 194,075
         Transactions                      14,565                           875

         Total                        $   213,101            9.3 %    $ 194,950
         Gross Profit
         Same Stores                  $   104,350            1.2 %    $ 103,099
         Transactions                       6,935                           270

         Total                        $   111,285            7.7 %    $ 103,369
         Gross Margin
         Same Stores                         52.6 %                        53.1 %
         Transactions                        47.6 %                        30.9 %
         Total                               52.2 %                        53.0 %


Our Same Store parts and service revenues increased 2.3% for the three months
ended March 31, 2012, primarily driven by a 7.1% increase in customer-pay parts
and service sales. We also generated a 10.8% increase in collision revenues and
a 2.6% increase in wholesale parts sales. These increases were partially offset
by a 12.4% decrease in our warranty parts and service revenues.

The increase in Same Store customer-pay parts and service revenues for the three
months ended March 31, 2012, as compared to prior periods, was primarily driven
by initiatives focused on customers, products and processes that continue to
build momentum and generate positive results. The decrease in our Same Store
warranty parts and service revenue for the first quarter 2012, as compared to
the corresponding period in 2011, was driven by a general decrease in recall
activity by the manufacturers that we represent. Specifically by brand, Same
Store warranty parts and service revenues from Lexus, BMW and Toyota declined
49.6%, 20.2% and 13.8%, respectively.

Same Store parts and service gross profit for the three months ended March 31,
2012 increased 1.2% from the comparable period in 2011, primarily benefiting
from improvements in the profitability of our customer-pay parts and service and
collision business, as well as increasing internal parts and service activity.
Same Store parts and service margins declined 50 basis points, primarily
explained by a mix shift away from our warranty parts and service business and
towards our collision and wholesale parts businesses, which generate lower
margins on a relative basis.



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Finance and Insurance Data

(dollars in thousands, except per unit amounts)



                                                      Three Months Ended March 31,
                                                   2012           % Change         2011

Retail New and Used Unit Sales

 Same Stores                                        45,072              9.0 %      41,365
 Transactions                                        3,607                             69

 Total                                              48,679             17.5 %      41,434
 Retail Finance Fees
 Same Stores                                        18,323             21.1 %      15,132
 Transactions                                        1,646                             31

 Total                                              19,969             31.7 %      15,163

Vehicle Service Contract Fees

 Same Stores                                        22,345             18.7 %      18,821
 Transactions                                        1,417                             13

 Total                                              23,762             26.2 %      18,834
 Insurance and Other
 Same Stores                                    $   12,544             22.5 %    $ 10,240
 Transactions                                          943                              3

 Total                                          $   13,487             31.7 %    $ 10,243
 Total
 Same Stores                                    $   53,212             20.4 %    $ 44,193
 Transactions                                        4,006                             47

 Total                                          $   57,218             29.3 %    $ 44,240

Finance and Insurance Revenues per Unit Sold

 Same Stores                                    $    1,181             10.6 %    $  1,068
 Transactions                                   $    1,111                       $    681
 Total                                          $    1,175             10.0 %    $  1,068


We have continued our focus on improving our finance and insurance business
processes. As a result, Same Store finance and insurance revenues increased by
20.4% during the three months ended March 31, 2012 to $53.2 million. This
improvement was primarily driven by a 9.0% increase in new and used vehicle unit
sales, along with an increase in penetration rates for finance and vehicle
service contracts of 120 basis points and 360 basis points, respectively. In
addition, finance income per contract increased by 10.3% as compared to the same
period in 2011, driven by an increase in amounts financed, which correspond with
higher average selling prices, and stabilizing economic and customer lending
conditions that have allowed for lower customer down-payments and higher amounts
financed. In addition, we experienced a 22.5% increase in insurance and other
product revenue as a result of increases in both income per contract and
penetration rates relating to these product offerings. These increases more than
offset an increase in our chargeback expense. As a result, our Same Store
revenues PRU for the three months ended March 31, 2012 improved 10.6%, or $113,
to $1,181 per retail unit sold.



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Selling, General and Administrative Data

(dollars in thousands)



                                             Three Months Ended March 31,
                                         2012          % Change          2011
         Personnel
         Same Stores                     116,415             9.5 %       106,267
         Transactions                      8,620                             239

         Total                           125,035            17.4 %       106,506
         Advertising
         Same Stores                      11,581             3.9 %        11,143
         Transactions                        708                              51

         Total                            12,289             9.8 %        11,194

Rent and Facility Costs

         Same Stores                      20,897            (6.8 )%       22,414
         Transactions                      1,518                             (78 )

         Total                            22,415             0.4 %        22,336
         Other SG&A
         Same Stores                   $  36,384             2.0 %     $  35,687
         Transactions                      2,989                             161

         Total                         $  39,373             9.8 %     $  35,848
         Total SG&A
         Same Stores                   $ 185,277             5.6 %     $ 175,511
         Transactions                     13,835                             373

         Total                         $ 199,112            13.2 %     $ 175,884

         Total Gross Profit
         Same Stores                   $ 242,217             9.4 %     $ 221,318
         Transactions                     18,207                             457

         Total                         $ 260,424            17.4 %     $ 221,775

SG&A as a % of Gross Profit

         Same Stores                        76.5 %                          79.3 %
         Transactions                       76.0 %                          81.6 %
         Total                              76.5 %                          79.3 %
         Employees                         8,200                           7,600


Our SG&A consists primarily of salaries, commissions and incentive-based
compensation, as well as rent, advertising, insurance, benefits, utilities and
other fixed expenses. We believe that the majority of our personnel and all of
our advertising expenses are variable and can be adjusted in response to
changing business conditions given time.

Throughout the first quarter of 2012 we continued to benefit from our ongoing
cost rationalization efforts, which have produced a leaner cost organization and
better leverage of gross profit growth. Coupled with the increase in gross
profit, our Same Store SG&A as a percentage of gross profit improved 280 basis
points to 76.5% for the three months ended March 31, 2012. Our absolute dollars
of Same Store SG&A expenses increased by $9.8 million for the three months ended
March 31, 2012, from the same period in 2011. The increase was primarily
attributable to personnel costs, which predominantly correlate with vehicle
sales.

Same Store advertising expenses increased by 3.9%, or $0.4 million, for the three months ended March 31, 2012, as compared to the same period in 2011, primarily corresponding with our efforts to stimulate parts and service activity.


Our Same Store rent and facility costs for the three months ended March 31, 2012
declined $1.5 million as compared to the same period in 2011. This decrease was
primarily a result of our purchase of real estate associated with existing
dealerships, which served to reduce our rent expense. We plan to continue to
strategically add dealership-related real estate to our portfolio.



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Same Store other SG&A increased $0.7 million for the three months ended March 31, 2012, as compared to the same period in 2011. This increase is primarily attributable to other expense categories that traditionally trend with sales volume. We continue to aggressively pursue opportunities that take advantage of our size and negotiating leverage with all of our vendors and service providers.

Depreciation and Amortization Data


(dollars in thousands)



                                      Three Months Ended March 31,
                                   2012           % Change        2011
                 Same Stores         6,918              7.8 %      6,420
                 Transactions          318                            35

                 Total               7,236             12.1 %      6,455



Our Same Store depreciation and amortization expense increased 7.8% for the
three months ended March 31, 2012, as compared to the same period of 2011. We
continue to strategically add dealership related real estate to our portfolio
and to make improvements to our existing facilities that are designed to enhance
the profitability of our dealerships and the overall customer experience. We
critically evaluate all planned future capital spending, working closely with
our manufacturer partners to maximize the return on our investments.

Floorplan Interest Expense

(dollars in thousands)



                                             Three Months Ended March 31,
                                          2012           % Change        2011
           Same Stores                      7,002              3.7 %      6,751
           Transactions                       617                             9

           Total                            7,619             12.7 %      6,760

           Memo:
           Manufacturer's assistance        7,414             19.4 %      6,210


Our floorplan interest expense fluctuates with changes in borrowings outstanding
and interest rates, which are based on one-month LIBOR (or Prime rate in some
cases) plus a spread. We utilize excess cash on hand to pay down our floorplan
borrowings, and the resulting interest earned is recognized as an offset to our
gross floorplan interest expense. Mitigating the impact of interest rate
fluctuations, we employ an interest rate hedging strategy, whereby we swap a
portion of our variable interest rate exposure for a fixed interest rate over
the term of the variable interest rate debt. As of March 31, 2012, we had
effective interest rate swaps with an aggregate notional amount of $275.0
million that fixed our underlying one-month LIBOR at a weighted average rate of
4.4%. The majority of the monthly settlements of these interest rate swap
liabilities are recognized as floorplan interest expense.

Our Same Store floorplan interest expense increased 3.7%, or $0.3 million, for
the three months ended March 31, 2012, compared to the corresponding period of
2011. The increase primarily reflects a nine basis-point increase in our
weighted average floorplan interest rates, including the impact of our interest
rate swaps, and an increase of $8.9 million in our weighted average floorplan
borrowings outstanding between the respective periods, including the floorplan
offset account.

Other Interest Expense, net

Other net interest expense consists primarily of interest charges on our Real
Estate Debt and our other long-term debt, partially offset by interest
income. For the three months ended March 31, 2012, other interest expense
increased $1.1 million, or 13.8%, to $9.0 million as compared to the same period
in 2011. This increase is primarily related to a $42.9 million increase in our
weighted average real estate borrowings outstanding. Since the second half of
2011, we entered into seven additional loan agreements with third-party
financial institutions to finance real estate purchases associated primarily
with our recently acquired dealerships. We will continue to strategically add
dealership related real estate to our portfolio. This increase was partially
offset by a 12 basis-point decline in our weighted average real estate interest
rates.



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Included in other interest expense for the three months ended March 31, 2012 and
2011 is non-cash, discount amortization expense of $2.4 million and $2.2
million, respectively, representing the impact of the accounting for convertible
debt as required by ASC 470. Based on the level of 2.25% Convertible Senior
Notes due 2036 ("2.25% Notes") and 3.00% Convertible Senior Notes due 2020
("3.00% Notes") outstanding, we anticipate that the ongoing annual non-cash
discount amortization expense related to the convertible debt instruments will
be $12.7 million, which will be included in other interest expense, net.

Provision for Income Taxes


Our provision for income taxes increased $5.0 million to $14.2 million for the
three months ended March 31, 2012, from a provision of $9.2 million for the same
period in 2011, primarily due to the increase of pretax book income. For the
three months ended March 31, 2012, our effective tax rate increased to 38.1%
from 37.3% for the same period in 2011. This increase was primarily due to the
mix of our pretax income from the taxable state jurisdictions in which we
operate, as well as a change in valuation allowances for certain state net
operating losses that occurred during the three months ended March 31, 2011.

We believe that it is more likely than not that our deferred tax assets, net of
valuation allowances provided, will be realized, based primarily on the
assumption of future taxable income and taxes available in carry back periods.
We expect our effective tax rate for the remainder of 2012 will be approximately
39.0%.

Liquidity and Capital Resources


Our liquidity and capital resources are primarily derived from cash on hand,
cash temporarily invested as a pay down of Floorplan Line levels, cash from
operations, borrowings under our credit facilities, which provide vehicle
floorplan financing, working capital, dealership and real estate acquisition
financing, and proceeds from debt and equity offerings. Based on current facts
and circumstances, we believe we have adequate cash flow, coupled with available
borrowing capacity, to fund our current operations, capital expenditures and
acquisitions for the remainder of 2012. If economic and business conditions
deteriorate or if our capital expenditures or acquisition plans for 2012 change,
we may need to access the private or public capital markets to obtain additional
funding.

Cash on Hand. As of March 31, 2012, our total cash on hand was $21.3 million.
Included in cash on hand are balances from various investments in marketable and
debt securities, such as money market accounts and variable-rate demand
obligations with manufacturer-affiliated finance companies, which have
maturities of less than three months or are redeemable on demand by us. The
balance of cash on hand excludes $111.0 million of immediately available funds
used to pay down our Floorplan Line. We use the pay down of our Floorplan Line
as a channel for the short-term investment of excess cash.

Cash Flows. The following table sets forth selected historical information regarding cash flows from our Consolidated Statements of Cash Flows:



                                                            Three Months Ended March 31,
                                                             2012                   2011
                                                                   (In thousands)

Net cash provided by (used in) operating activities $ (9,450 )

    $       54,455
Net cash used in investing activities                          (72,509 )              (45,991 )
Net cash provided by financing activities                       88,132                 16,378
Effect of exchange rate changes on cash                            248                    119

Net increase in cash and cash equivalents               $        6,421      

$ 24,961




With respect to all new vehicle floorplan borrowings, the manufacturers of the
vehicles draft our credit facilities directly with no cash flow to or from us.
With respect to borrowings for used vehicle financing, we finance up to 80% of
the value of our used vehicle inventory, except in the U.K., and the funds flow
directly to us from the lender. All borrowings from, and repayments to, lenders
affiliated with our vehicle manufacturers (excluding the cash flows from or to
manufacturer-affiliated lenders participating in our syndicated lending group)
are presented within Cash Flows from Operating Activities on the Consolidated
Statements of Cash Flows. All borrowings from, and repayments to, the syndicated
lending group under our revolving credit facility ("Revolving Credit Facility")
(including the cash flows from or to manufacturer-affiliated lenders
participating in the facility) are presented within Cash Flows from Financing
Activities.



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Sources and Uses of Liquidity from Operating Activities


For the three months ended March 31, 2012, we used $9.5 million in net cash flow
from operating activities, primarily driven by $49.0 million in net changes in
operating assets and liabilities. This net use of cash was substantially offset
by $23.1 million in net income, as well as significant non-cash adjustments
related to depreciation and amortization of $7.2 million, amortization of debt
discounts and debt issue costs of $3.2 million, deferred income taxes of $3.1
million and stock-based compensation of $2.9 million. Included in the net
changes in operating assets and liabilities are cash inflows of $18.0 million
from decreases of vehicle receivables and contracts-in-transit, $7.8 million
from increases in accounts payable and accrued expenses, $7.1 million from
decreases in accounts and notes receivables and $4.5 million from decreases in
prepaid expenses and other assets. These cash inflows were more than offset by
cash outflows of $84.6 million from increases of inventory levels.

For the three months ended March 31, 2011, we generated $54.5 million in net
cash flow from operating activities, primarily driven by $15.4 million in net
income and $19.9 million in net changes in operating assets and liabilities, as
well as significant non-cash adjustments related to depreciation and
amortization of $6.5 million, deferred income taxes of $7.0 million,
amortization of debt discounts and debt issue costs of $2.9 million and
stock-based compensation of $2.7 million. Included in the net changes in
operating assets and liabilities are cash inflows of $10.4 million from
increases in accounts payable and accrued expenses, $7.3 million from decreases
in accounts and notes receivables and $5.7 million from decreases in inventory
levels. These cash inflows were partially offset by cash outflows of $3.6
million from increases of vehicles receivables and contracts-in-transit.

Working Capital. At March 31, 2012, we had $129.2 million of working capital.
Changes in our working capital are driven primarily by changes in floorplan
notes payable outstanding. Borrowings on our new vehicle floorplan notes
payable, subject to agreed upon pay-off terms, are equal to 100% of the factory
invoice of the vehicles. Borrowings on our used vehicle floorplan notes payable,
subject to agreed upon pay-off terms, are limited to 70% of the aggregate book
value of our used vehicle inventory. At times, we have made payments on our
floorplan notes payable using excess cash flow from operations and the proceeds
of debt and equity offerings. As needed, we re-borrow the amounts later, up to
the limits on the floorplan notes payable discussed below, for working capital,
acquisitions, capital expenditures or general corporate purposes.

Sources and Uses of Liquidity from Investing Activities


During the first three months of 2012, we used $72.5 million for investing
activities, primarily related to the acquisition of three dealerships located in
South Carolina, Texas, and Kansas, for a total of $55.3 million, including the
amounts paid for vehicle inventory, parts inventory, equipment and furniture
fixtures, as well as the purchase of the associated real estate. The acquired
vehicle inventory was subsequently financed through borrowing under our
Floorplan Line. We also used $17.6 million during the first quarter of 2012 for
purchases of property and equipment to construct new and improve existing
facilities, $7.1 million of which was accrued as of December 2011.

During the first three months of 2011, we used $46.0 million for investing
activities, primarily related to the acquisition of two dealerships in Texas for
a total of $35.0 million, including the amounts paid for vehicle inventory,
parts inventory, equipment and furniture fixtures, as well as the purchase of
the associated real estate. The vehicle inventory was subsequently financed
through borrowing under the FMCC Facility and our Floorplan Line, respectively.
We also used $15.8 million during the first quarter of 2011 for purchases of
property and equipment to construct new and improve existing facilities,
consisting of $10.5 million for real estate to be used for existing dealership
operations and $5.3 million for capital expenditures. These cash outflows were
partially offset by $4.2 million in proceeds from the sale of property and
equipment.

Capital Expenditures. Our capital expenditures include expenditures to extend
the useful lives of current facilities and expenditures to start or expand
operations. In general, expenditures relating to the construction or expansion
of dealership facilities are driven by new franchises being granted to us by a
manufacturer, significant growth in sales at an existing facility, dealership
acquisition activity or manufacturer imaging programs. We forecast our capital
expenditures for 2012 to be less than $55.0 million, generally funded from
excess cash. This amount includes approximately $15.0 million for specific
growth initiatives in our parts and service business.

Acquisitions. We purchase businesses based on expected return on investment. In
general, the purchase price, excluding real estate and floorplan liabilities, is
approximately 20% to 25% of the annual revenues acquired. Cash needed to
complete our acquisitions comes from excess working capital, operating cash
flows of our dealerships and borrowings under our floorplan facilities, Mortgage
Facility, Real Estate Notes and our Acquisition Line.

Sources and Uses of Liquidity from Financing Activities


We generated $88.1 million in net cash inflows from financing activities during
the three months ended March 31, 2012, primarily related to $80.2 million in net
borrowings under the Floorplan Line of our Revolving Credit Facility, which
included a net cash outflow of $1.8 million due to a decrease in our floorplan
offset account. In addition, financing cash inflows included $13.6 million in
borrowings of long-term debt related to real estate loans. These cash inflows
were partially offset by outflows of $3.2 million for dividend payments for the
fourth quarter of 2011 to stockholders of record on March 1, 2012 and $2.8
million for principal payments of long-term debt related to real estate loans.



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We generated $16.4 million in net cash inflows from financing activities during
the three months ended March 31, 2011, primarily related to $20.5 million in net
borrowings under the Floorplan Line of our Revolving Credit Facility, which
included a net cash inflow of $21.5 million due to a decrease in our floorplan
offset account, partially offset by $2.6 million for dividend payments for the
fourth quarter of 2010 to stockholders of record on March 1, 2011 and $2.0
million for principal payments of long-term debt related to real estate loans.

Credit Facilities. Our various credit facilities are used to finance the
purchase of inventory and real estate, provide acquisition funding and provide
working capital for general corporate purposes. Our most significant domestic
revolving facilities currently provide us with a total of $1.25 billion of
borrowing capacity for inventory floorplan financing and an additional
$250.0 million for acquisitions, capital expenditures and/or other general
corporate purposes.

Revolving Credit Facility. Effective July 1, 2011, we entered into an amended
and restated revolving credit facility, which we refer to herein as our
Revolving Credit Facility. Our Revolving Credit Facility, which is comprised of
21 financial institutions, including four manufacturer-affiliated finance
companies, expires on June 1, 2016 and consists of two tranches: $1.1 billion
for the Floorplan Line and $250.0 million for the Acquisition Line. Up to half
of the Acquisition Line can be borrowed in either Euros or Pound Sterling. The
capacity under these two tranches can be re-designated within the overall
$1.35 billion commitment, subject to the original limits of a minimum of
$1.1 billion for the Floorplan Line and maximum of $250.0 million for the
Acquisition Line. The Revolving Credit Facility can be expanded to its maximum
commitment of $1.6 billion, subject to participating lender approval. The
Floorplan Line bears interest at rates equal to one-month LIBOR plus 150 basis
points for new vehicle inventory and one-month LIBOR plus 175 basis points for
used vehicle inventory. The Acquisition Line bears interest at the one-month
LIBOR plus a margin that ranges from 150 to 250 basis points, depending on our
leverage ratio. The Floorplan Line requires a commitment fee of 0.20% per annum
on the unused portion. The Acquisition Line also requires a commitment fee
ranging from 0.25% to 0.45% per annum, depending on our leverage ratio, based on
a minimum commitment of $100.0 million less outstanding borrowings.

As of March 31, 2012, after considering outstanding balances, we had $410.0
million of available floorplan borrowing capacity under the Floorplan Line.
Included in the $410.0 million available borrowings under the Floorplan Line was
$111.0 million of immediately available funds. The weighted average interest
rate on the Floorplan Line was 1.7% as of March 31, 2012, excluding the impact
of our interest rate swaps. After considering $24.3 million of outstanding
letters of credit at March 31, 2012, and other factors included in our available
borrowing base calculation, there was $225.7 million of available borrowing
capacity under the Acquisition Line as of March 31, 2012. The amount of
available borrowing capacity under the Acquisition Line may be limited from time
to time based upon certain debt covenants.

All of our domestic dealership-owning subsidiaries are co-borrowers under the
Revolving Credit Facility. Our obligations under the Revolving Credit Facility
are secured by essentially all of our domestic personal property (other than
equity interests in dealership-owning subsidiaries) including all motor vehicle
inventory and proceeds from the disposition of dealership-owning subsidiaries.
The Revolving Credit Facility contains a number of significant covenants that,
among other things, restrict our ability to make disbursements outside of the
ordinary course of business, dispose of assets, incur additional indebtedness,
create liens on assets, make investments and engage in mergers or
consolidations. We are also required to comply with specified financial tests
and ratios defined in the Revolving Credit Facility, such as fixed charge
coverage, total leverage, and senior secured leverage. Further, the Revolving
Credit Facility restricts our ability to make certain payments, such as
dividends or other distributions of assets, properties, cash, rights,
obligations or securities ("Restricted Payments"). The Restricted Payments may
not exceed the sum of $100.0 million plus (or minus if negative) (a) one-half of
our aggregate consolidated net income for the period beginning on January 1,
2011 and ending on the date of determination and (b) the amount of net cash
proceeds received from the sale of capital stock on or after January 1, 2011 and
ending on the date of determination ("Restricted Payment Basket"). For purposes
of the Restricted Payment Basket calculation, net income represents such amounts
per our consolidated financial statements, adjusted to exclude our foreign
operations, non-cash interest expense, non-cash asset impairment charges,
non-cash stock-based compensation, and gains and losses on the redemption of
debt. As of March 31, 2012, the Restricted Payment Basket totaled $95.4 million.
As of March 31, 2012, we were in compliance with all our Revolving Credit
Facility's financial covenants, including:



                                                    As of March 31, 2012
                                                    Required       Actual
          Senior Secured Adjusted Leverage Ratio      <3.75         2.35
          Total Adjusted Leverage Ratio               <5.50         3.46
          Fixed Charge Coverage Ratio .               >1.35         2.07




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Based upon our current operating and financial projections, we believe that we will remain compliant with such covenants in the future.


Ford Motor Credit Company Facility. Our FMCC Facility provides for the financing
of, and is collateralized by, our Ford new vehicle inventory, including
affiliated brands. This arrangement provides for $150.0 million of floorplan
financing and is an evergreen arrangement that may be canceled with 30 days
notice by either party. As of March 31, 2012, we had an outstanding balance of
$97.8 million under the FMCC Facility, with an available floorplan capacity of
$52.2 million. This facility bears interest at a rate of Prime plus 150 basis
points minus certain incentives; however, the prime rate is defined to be a
minimum of 3.75%. As of March 31, 2012, the interest rate on the FMCC Facility
was 5.25% before considering the applicable incentives.

Other Credit Facilities. We finance the new, used and rental vehicle inventories
related to our U.K. operations using a credit facility with BMW Financial
Services. This facility is an evergreen arrangement that may be canceled with
notice by either party and bears interest at a base rate, plus a surcharge that
varies based upon the type of vehicle being financed. Dependent upon the type of
inventory financed, the interest rates charged on borrowings outstanding under
this facility ranged from 1.1% to 4.5%, as of March 31, 2012.

Financing for rental vehicles is typically obtained directly from the automobile
manufacturers, excluding rental vehicles financed through the Revolving Credit
Facility. These financing arrangements generally require small monthly payments
and mature in varying amounts over the next two years. As of March 31, 2012, the
interest rate charged on borrowings related to our rental vehicle fleet ranged
from 2.5% to 5.3%. Rental vehicles are typically moved to used vehicle inventory
when they are removed from rental service and repayment of the borrowing is
required at that time.

The following table summarizes the position of our credit facilities as of
March 31, 2012:



                                                    As of March 31, 2012
                                           Total
      Credit Facility                   Commitment       Outstanding      Available
                                                       (In thousands)
      Floorplan Line (1)                $ 1,100,000     $     689,978     $  410,022
      Acquisition Line (2)                  250,000            24,288        225,712
      Total Revolving Credit Facility     1,350,000           714,266      

635,734

      FMCC Facility                         150,000            97,774      

52,226

Total Credit Facilities (3) $ 1,500,000$ 812,040 $

 687,960




(1) The available balance at March 31, 2012 includes $111.0 million of

immediately available funds.

(2) The outstanding balance of $24.3 million at March 31, 2012 is related to

outstanding letters of credit.

(3) The outstanding balance excludes $56.8 million of borrowings with

manufacturer-affiliates for foreign and rental vehicle financing not

associated with any of the Company's credit facilities.



Real Estate Credit Facility. As amended and restated, the real estate credit
facility with Bank of America, N.A. and Comerica Bank ("Mortgage Facility")
provides only term loans with the right to expand to $75.0 million of term loans
and no longer has a revolving feature. The term loans can be expanded provided
that (i) no default or event of default exists under the Mortgage Facility,
(ii) we obtain commitments from the lenders who would qualify as assignees for
such increased amounts, and (iii) certain other agreed upon terms and conditions
have been satisfied. The Mortgage Facility is guaranteed by us and essentially
all of our existing and future direct and indirect domestic subsidiaries. Each
loan is secured by the relevant real property (and improvements related thereto)
that is mortgaged under the Mortgage Facility.

The interest rate is now equal to (i) the per annum rate equal to one-month
LIBOR plus between 2.50% and 3.00% per annum, determined on the first day of
each month, or (ii) between 1.45% and 1.95% per annum in excess of the higher of
(a) the Bank of America prime rate (adjusted daily on the day specified in the
public announcement of such price rate), (b) the Federal Funds Rate adjusted
daily, plus 0.5%, or (c) the per annum rate equal to one-month LIBOR plus
1.05% per annum. The Federal Funds Rate is the weighted average of the rates on
overnight Federal funds transactions with members of the Federal Reserve System
arranged by Federal funds brokers on such day, as published by the Federal
Reserve Bank of New York on the business day succeeding such day.

We are required to make quarterly principal payments equal to 1.25% of the
principal amount outstanding beginning in April 2011 and are required to repay
the aggregate principal amount outstanding on the maturity date, which is
December 29, 2015. During the three months ended March 31, 2012, we borrowed an
additional $4.0 million to finance the acquisition of a dealership facility and



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made principal payments of $0.5 million on outstanding borrowings from the
Mortgage Facility. As of March 31, 2012, borrowings under the amended and
restated Mortgage Facility totaled $44.5 million, with $2.3 million recorded as
a current maturity of long-term debt in the accompanying Consolidated Balance
Sheet.

The Mortgage Facility also contains usual and customary provisions limiting our
ability to engage in certain transactions, including limitations on our ability
to incur additional debt, additional liens, make investments, and pay
distributions to our stockholders. In addition, effective December 31, 2011, the
Mortgage Facility was amended to require certain financial covenants that are
identical to those contained in our Revolving Credit Facility.

Real Estate Related Debt. We have entered into separate term mortgage loans with
three of our manufacturer-affiliated finance partners, TMCC, MBFS, BMWFS and a
third party financial institution (collectively, "Real Estate Notes"). The Real
Estate Notes may be expanded for borrowings related to specific buildings and/or
properties and are guaranteed by us. Each loan was made in connection with, and
is secured by mortgage liens on the relevant real property owned by us that is
mortgaged under the Real Estate Notes. The Real Estate Notes bear interest at
fixed rates between 4.56% and 5.47%, and at variable indexed rates plus between
2.25% and 3.35% per annum. During the first three months of 2012, we entered
into two new term mortgage loans for a total of $9.6 million. At March 31, 2012,
the aggregate outstanding balance under these Real Estate Notes was $180.9
million.

Dividends. The payment of dividends is subject to the discretion of our Board of
Directors after considering the results of operations, financial condition, cash
flows, capital requirements, outlook for our business, general business
conditions, the political and legislative environments and other factors.

Further, we are limited under the terms of the Credit Facility and Mortgage
Facility in our ability to make cash dividend payments to our stockholders and
to repurchase shares of our outstanding common stock, based primarily on our
quarterly net income or loss. As of March 31, 2012, the Restricted Payment
Basket under both facilities was $95.4 million and will increase in the future
periods by 50.0% of our cumulative net income, as well as the net proceeds from
stock option exercises, and decrease by subsequent payments for cash dividends
and share repurchases.



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Stock Issuances. No shares of our common stock have been issued or received
under the 3.00% Purchased Options or the 3.00% Warrants. For diluted
earnings-per-share calculations, we are required to include the dilutive effect,
if applicable, of the net shares issuable under the 3.00% Notes and the 3.00%
Warrants as depicted in the table below under the heading "Potential Dilutive
Shares." Although the 3.00% Purchased Options have the economic benefit of
decreasing the dilutive effect of the 3.00% Notes, for EPS purposes we cannot
factor this benefit into our dilutive shares outstanding as their impact would
be anti-dilutive. As of March 31, 2012, changes in the average price of our
common stock will impact the share settlement of 3.00% Notes, the 3.00%
Purchased Options and the 3.00% Warrants as illustrated below:



               Net Shares Issuable        Share Entitlement              Shares                           Potential
  Company        Under the 3.00%         Under the Purchased         Issuable Under      Net Shares       Dilutive
Stock Price           Notes                    Options                the Warrants        Issuable         Shares
                                        (Shares in thousands)
  $37.50                         -                          -                     -               -               -
  $40.00                        153                       (153 )                  -               -              153
  $42.50                        323                       (323 )                  -               -              323
  $45.00                        473                       (473 )                  -               -              473
  $47.50                        607                       (607 )                  -               -              607
  $50.00                        728                       (728 )                  -               -              728
  $52.50                        838                       (838 )                  -               -              838
  $55.00                        938                       (938 )                  -               -              938
  $57.50                      1,028                     (1,028 )                  90              90           1,118
  $60.00                      1,112                     (1,112 )                 212             212           1,324
  $62.50                      1,188                     (1,188 )                 325             325           1,513
  $65.00                      1,259                     (1,259 )                 429             429           1,688
  $67.50                      1,325                     (1,325 )                 525             525           1,850
  $70.00                      1,386                     (1,386 )                 614             614           2,000
  $72.50                      1,442                     (1,442 )                 698             698           2,140
  $75.00                      1,495                     (1,495 )                 775             775           2,270
  $77.50                      1,545                     (1,545 )                 848             848           2,393
  $80.00                      1,591                     (1,591 )                 916             916           2,507
  $82.50                      1,635                     (1,635 )                 980             980           2,615
  $85.00                      1,676                     (1,676 )               1,040            1040           2,716
  $87.50                      1,714                     (1,714 )               1,097            1097           2,811
  $90.00                      1,751                     (1,751 )               1,151            1151           2,902
  $92.50                      1,785                     (1,785 )               1,202            1202           2,987
  $95.00                      1,818                     (1,818 )               1,250            1250           3,068
  $97.50                      1,849                     (1,849 )               1,295            1295           3,144
  $100.00                     1,878                     (1,878 )               1,339            1339           3,217


Stock Repurchases. From time to time, our Board of Directors authorizes us to
repurchase shares of our common stock, subject to the restrictions of various
debt agreements and our judgment. In August 2011, our Board of Directors
authorized the repurchase of up to $50.0 million of our common shares. Under the
August 2011 authorization, we have repurchased 891,854 shares at an average
price of $37.30 for a cost of $33.3 million, leaving $16.7 million of authorized
repurchases available. No shares were repurchased during the first three months
of 2012. Future repurchases are subject to the discretion of our Board of
Directors after considering our results of operations, financial condition, cash
flows, capital requirements, existing debt covenants, outlook for our business,
general business conditions and other factors.
Wordcount: 9901



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