LAD Lithia Motors Inc - 10-K

Item 1A. Risk Factors

You should carefully consider the risks described below before making an investment decision. The risks described below are not the only ones facing our company. Additional risks not presently known to us, or that we currently deem immaterial, may also impair our business operations.

Risks Related to Our Business

The automotive retail industry is sensitive to changing economic conditions and various other factors. Our business and results of operations are substantially dependent on new vehicle sales levels in the United States and in our particular geographic markets and the level of gross profit margins that we can achieve on our sales of new vehicles, all of which are very difficult to predict.

Our business is heavily dependent on consumer demand and preferences. A downturn in overall levels of consumer spending may materially and adversely affect our revenues and gross profit margins. Retail vehicle sales are cyclical and historically have experienced periodic downturns characterized by weak demand. These cycles are often dependent on general economic conditions and consumer confidence, as well as the level of discretionary personal income and credit availability. Additionally, other economic factors, such as rising and sustained periods of high crude oil and fuel prices and other inflation, may impact consumer demand and preferences. As we operate internationally, including across the United States, the United Kingdom, and Canada, changes in and the severity of economic conditions may vary by market. Economic conditions may be anemic for an extended period of time or deteriorate in the future. This would have a material adverse effect on our retail business, particularly sales of new and used vehicles. These economic conditions and other factors may also materially impact our parts and repair and maintenance aftersales, and automotive finance and insurance (F&I) products.

The economies of the United States, the United Kingdom, and Canada have recently experienced heightened inflationary pressures, impacting the costs of labor, fuel, and other costs. In an inflationary environment, depending on automotive industry and other economic conditions, we may be unable to raise prices to keep up with the rate of inflation, which would reduce our profit margins, and if we do raise prices, we may experience less demand. A period of sustained inflationary and interest rate pressures could impact our profitability.

Additionally, elevated interest rates, along with higher vehicle prices, have impacted new and used vehicle sales and vehicle affordability due to the direct relationship between interest rates and monthly loan payments, a critical factor for many vehicle buyers, and the impact interest rates have on customers’ borrowing capacity and disposable income. Consumer demand may be further adversely impacted if interest rates continue to increase or are sustained at current levels.

Natural disasters, adverse weather conditions, and public health emergencies can disrupt our business.

Our dealerships operate in geographic areas in which actual or threatened natural disasters and severe weather events (such as hurricanes, earthquakes, fires, floods, landslides, wind and/or hailstorms) or other extraordinary events have in the past, and may in the future, disrupt our dealership operations and impair the value of our dealership property. In addition, the occurrence of public health emergencies or other extraordinary events, such as regional epidemics or a global pandemic, such as COVID-19, and the governmental, business, and individuals’ actions in response to the event, particularly with respect to our stores that rely on in-person experiences, could also disrupt our operations. A disruption in our operations may adversely impact our business, results of operations, financial condition, and cash flows.

The automotive manufacturing supply chain spans the globe. As such, supply chain disruptions resulting from natural disasters, adverse weather events, or public health emergencies may affect the flow of inventory or parts to us or our manufacturing partners. Such disruptions could have a material adverse effect on our business, financial condition, results of operations, or cash flows.

Intense competition among automotive retailers and new brands may reduce our vehicle sales and profit margins on vehicle sales and related businesses.

Vehicle retailing is a highly competitive business. Our competitors include many publicly and privately-owned dealerships. Our franchise agreements do not grant us the exclusive right to sell a manufacturer’s product within a given geographic area and many of our competitors sell the same or similar makes of new and used vehicles that we offer in our markets at competitive prices, as well as competitive vehicles we may not sell. We do not have any cost advantage in purchasing new vehicles from manufacturers due to the volume of purchases or otherwise.

Our F&I business and other related businesses, which have higher margins than sales of new and used vehicles, are subject to strong competition from various financial institutions and others.

In addition, new manufacturers with whom we do not have franchises are entering the automotive industry. New companies have raised capital to produce fully electric vehicles or to license battery technology to existing manufacturers. Tesla and Rivian have demonstrated the ability to successfully introduce electric vehicles to the marketplace. Foreign manufacturers from China and India are producing significant volumes of new vehicles and are entering the United States and selecting partners to distribute their products. Because the automotive market in the United States is mature and the overall level of new vehicle sales may not increase in the coming years, the success of new competitors will likely be at the expense of other, established brands. This could have material adverse impact on our success in the future.

Changes to the retail delivery model and increased e-commerce and omnichannel competition could materially adversely affect our business, results of operations, financial condition, and cash flows.

Online and mobile applications have become a more significant part of the sales process in our industry as consumers are increasingly using these platforms to shop for new and used vehicles and vehicle repair and maintenance services. Some of our competition relies on or focuses exclusively on an online e-commerce business model. In addition, larger traditional automotive retailers are transforming their models to support omnichannel retail experiences, providing consumers with vehicle purchasing experiences outside of the traditional brick and mortar automotive dealership model.

In addition, there has been some growth in subscription business models that offer consumers and businesses pay-monthly access to vehicles that often include insurance, maintenance, and roadside assistance, often without a long-term commitment or lease. Other consumer delivery models may develop. We are uncertain as to the long-term effect on consumer delivery models that do no result in vehicle ownership by consumers.

We continue to develop our own technology, omnichannel experiences, and solutions to further expand the reach of the networks of service and delivery points in our geographic markets. We may face increased competition for market share with these other delivery models and omnichannel retailers over time which could materially and adversely affect our results of operations. There can be no assurance that our initiatives will be successful or that the amount we invest in these initiatives will result in our maintaining market share and continued or improved financial performance.

In addition, the growing use of social media by consumers increases the speed and extent that information and opinions can be shared, and negative posts or comments on social media about us or any of our stores could materially damage our retail brands, reputation, and sales channels.

We compete in a dynamic industry, and we may invest significant resources to pursue strategies, develop new offerings, and enter into adjacent businesses that do not prove effective or profitable.

The expectations and behaviors of vehicle customers are shifting as e-commerce and digital technology have become a more significant part of the sales process. We have made and may continue to make significant investments to drive the development of and support of e-commerce and digital technology capabilities, including the launch of Driveway, our e-commerce home solution, and DFC, our in-house consumer financing business. We have also recently invested in a dealer-management technology business and a fleet management business. Changes or additions to our offerings or businesses may not prove sufficiently profitable or attract or engage our customers, and may reduce confidence in our brands, expose us to increased market or legal risks, subject us to new laws and regulations, or otherwise harm our business.

Customers may prefer other channels for vehicle sales and related F&I services, because they may offer different or superior platforms, or because customers find those platforms easier to use, faster, or more cost effective than our services. We may not successfully anticipate or keep pace with industry changes, and we have and may continue to invest considerable financial resources, personnel, or other resources to pursue strategies that do not ultimately prove effective. A failure to capture the anticipated benefits of such investments could harm our results of operations and financial condition.

A decline of affordable and available vehicle financing may adversely affect our vehicle sales.

A significant portion of buyers finance their vehicle purchases. The primary finance sources our customers use in connection with the purchase of a new or used vehicle are manufacturer captive finance companies, DFC, and sub-prime lenders. These consumer vehicle financing sources rely to a certain extent on financing markets and sources to provide the capital necessary to support their financing programs. In addition, these financing sources, including DFC, will occasionally change their loan underwriting criteria to alter the risk profile of their loan portfolio. In the event that the cost to customers to finance vehicles becomes more expensive, due to increases in interest rates by the financing sources or their sources of capital, lenders tighten their credit standards, or available vehicle financing declines, consumers may be unable or less willing to purchase vehicles, which could have a material adverse effect on our business, results of operations, financial condition, and cash flows.

Regulatory requirements to reduce emissions in response to climate change, changes in consumer demand toward fuel-efficient vehicles and manufacturers’ commitments to electric vehicles could adversely affect our new and used vehicle sales volumes, F&I and parts and service revenues and our results of operations.

Concerns over the impacts of climate change have led and may continue to lead to governmental initiatives aimed at mitigating those impacts. Consumers may also change their behavior as a result of these concerns, as well as having a preference for vehicles that require less fuel in response to increases in fuel prices.

Certain governments have declared commitments to various electric vehicle and zero emissions goals, such as the state of California’s executive order requiring all new cars and passenger trucks sold in the state to be zero-emission vehicles by 2035. The U.K. government has announced a ban on the sale of gasoline-only engines in new cars and vans after 2030, and beginning in 2035, only electric vehicles will be allowed to be sold. Manufacturers continue to invest in increasing production and quality of electric vehicles, including Battery-Electric Vehicles (BEVs), Hybrid Electric Vehicles, and Plug-in Hybrid Electric Vehicles. These vehicles generally require less maintenance than traditional cars and trucks. The effects of electric-based vehicles on the automotive industry are

uncertain and may include reduced after-sales revenues, as well as changes in the level of sales of certain F&I products such as extended warranty programs and lifetime lube, oil, and filter contracts.

Regulations around fuel economy standards and carbon emissions may continue to increase. New requirements may adversely affect any manufacturer’s ability to profitably design, market, produce, and distribute vehicles that comply with such regulations. Our ability to market and sell these vehicles at affordable prices and to finance these inventories could be adversely impacted. These regulations could have a material adverse effect on our business, results of operations, financial condition, and cash flows.

Adverse conditions affecting one or more key manufacturers may negatively affect our business, results of operations, financial condition, and cash flows.

We depend on our manufacturers to provide a supply of vehicles that support expected sales levels. Any event that adversely affects a manufacturer’s timely delivery of new vehicles may adversely affect us by reducing our supply of popular new vehicles, leading to lower sales in our stores during those periods than may otherwise occur. For example, the shortage of semiconductor chips and labor disruptions during 2021 and 2022 significantly constrained the supply of new vehicles resulting in reduced sales volumes and increased gross profit margins on retail vehicle sales. As new vehicle availability has improved, gross profit margins have been negatively impacted.

We depend on our manufacturers to deliver high-quality, defect-free vehicles. If a manufacturer experiences quality issues, our sales and financial performance may be adversely impacted. In addition, the discontinuance of a particular brand that is profitable to us could negatively impact our revenues and profitability.

Vehicle manufacturers would be adversely affected by economic downturns or recessions, adverse fluctuations in currency exchange rates, significant declines in the sales of their new vehicles, increases in interest rates, constraints on financing, port closures, labor strikes or similar disruptions (including within their major suppliers), supply shortages or rising raw material costs, rising team member costs, adverse publicity that may reduce consumer demand for their products, product defects, vehicle recall campaigns, litigation, poor product mix or unappealing vehicle design, or other adverse events. These and other risks could materially adversely affect any manufacturer and limit its ability to profitably design, market, produce or distribute new vehicles, which, in turn, could materially adversely affect our business, results of operations, financial condition, and cash flows.

New vehicles from five manufacturers, Honda, Toyota, Ford, BMW, and Stellantis, represent 25% of our sales. We are subject to a concentration of risk in the event of financial distress, including potential reorganization or bankruptcy, or other issue affecting one or more of these manufacturers.

In the event of a manufacturer or distributor bankruptcy, we could be held liable for damages related to product liability claims, intellectual property suits or other legal actions. These legal actions are typically directed towards the vehicle manufacturer and it is customary for manufacturers to indemnify us from exposure related to any judgments associated with the claims. However, if damages could not be collected from the manufacturer or distributor, we could be named in lawsuits and judgments could be levied against us.

If manufacturers or distributors discontinue or change sales incentives, warranties, and other promotional programs, our business, results of operations, financial condition, and cash flows may be materially adversely affected.

We depend upon the manufacturers and distributors for sales incentives, warranties, and other programs that are intended to promote new vehicle sales or supplement dealer income. Manufacturers and distributors routinely make changes to their incentive programs. Key incentive programs include:

• customer rebates;

• dealer incentives on new vehicles;

• special financing rates on certified, pre-owned vehicles; and

• below-market financing on new vehicles and special leasing terms.

Our financial condition could be materially adversely impacted by a discontinuation or change in our manufacturers’ or distributors’ incentive programs. In addition, certain manufacturers use criteria such as a dealership’s manufacturer-determined customer satisfaction index (CSI score), facility image compliance, team member training,

digital marketing and parts purchase programs as factors governing participation in incentive programs. To the extent we do not meet minimum score requirements, we may be precluded from receiving certain incentives, which could materially adversely affect our business, results of operations, financial condition, and cash flows.

Franchised automotive retailers perform factory authorized service work and sell original replacement parts on vehicles covered by warranties issued by the automotive manufacturer. For the year ended December 31, 2025, approximately 25% of our aftersales revenue was for work covered by manufacturer warranties or manufacturer-sponsored maintenance services. To the extent a manufacturer reduces the labor rates or markup of replacement parts for such warranty work, our aftersales volume could be adversely affected.

The ability of our stores to make new vehicle sales depends in large part upon the franchise agreements with manufacturers and, therefore, any disruption or change in our relationships could impact our business.

We depend on the manufacturers to provide us with a desirable mix of new vehicles. The most popular vehicles usually produce the highest profit margins and are frequently in short supply. If we cannot obtain sufficient quantities of the most popular models, our profitability may be adversely affected. Sales of less desirable models may reduce our profit margins.

Each of our stores operates pursuant to a franchise agreement with each of the respective manufacturers for which it serves as franchisee. Each of our stores may obtain new vehicles from manufacturers, service vehicles, sell new vehicles, and display vehicle manufacturers’ brands only to the extent permitted under these agreements. As a result of the terms of our franchise agreements, manufacturers exert significant control over the day-to-day operations at our stores. Such agreements contain provisions for termination or non-renewal for a variety of causes, including service retention, facility compliance, customer satisfaction, and sales and financial performance. From time to time, certain of our stores have failed to comply with certain provisions of their franchise agreements, and we cannot ensure that our stores will be able to comply with these provisions in the future.

Our franchise agreements expire at various times, and there can be no assurances that we will be able to renew these agreements on a timely basis or on acceptable terms or at all. Actions taken by a manufacturer to exploit its bargaining position in negotiating the terms of renewals of franchise agreements or otherwise could also have a material adverse effect on our revenues and profitability. If a manufacturer terminates or fails to renew one or more of our significant franchise agreements or a large number of our franchise agreements, such action could have a material adverse effect on our business, results of operations, financial condition, and cash flows.

Our franchise agreements also specify that, except in certain situations, we cannot operate a franchise by another manufacturer in the same building as the manufacturer’s franchised store. This may require us to build new facilities at a significant cost. Moreover, our manufacturers generally require that the store meet defined image standards. These commitments could require us to make significant capital expenditures.

Our franchise agreements do not give us the exclusive right to a given geographic area. Manufacturers may be able to establish new franchises or relocate existing franchises, subject to applicable state franchise laws. The establishment of or relocation of franchises in our markets could have a material adverse effect on the business, financial condition, and results of operations of our stores in the market in which the action is taken.

Changes to manufacturer distribution models may disrupt the way we do business and impact our revenues and profitability.

Generally, state dealer laws restrict the ability of vehicle manufacturers to directly enter the retail market. Manufacturer lobbying efforts and lawsuits have led to the repeal or revision of these laws. For example, Tesla received a favorable ruling in certain states allowing direct to consumer sales and service. In addition, some states have passed, or may consider introducing, legislation to permit direct to consumer auto sales in certain circumstances, allowing additional electric vehicle manufacturers such as Rivian to enter the market. In 2025, Scout Motors Inc. secured a dealer license in Colorado allowing it to sell vehicles directly to customers until October 2026, providing a temporary but official pathway to engage in direct-to consumer sales, which may serve as a catalyst for the expansion of the direct-to-consumer sales model. If manufacturers obtain the ability to directly retail vehicles in our markets, our role in the auto retail market would change and we could experience a loss of revenue and profits

and other negative impacts that have a material adverse effect on our business, results of operations, financial condition, and cash flows.

In addition, other changes by manufacturers to their distribution models may impact our operations in the United Kingdom. Certain manufacturers, such as Honda, Volvo, Volkswagen, Mini, Mercedes-Benz and Smart, have already transitioned to an agency model in the United Kingdom, whereby the consumer places an order directly with the manufacturer and names a preferred delivery dealer. We have such an agency relationship with Mercedes-Benz with our U.K. dealers. Other manufacturers have announced their intentions to transition to an agency model in coming years, including, among others, BMW, Ford, Jeep, Peugeot, Citroen, Jaguar and Land Rover. Under an agency model, our dealerships receive a fee for facilitating the sale by the manufacturer of a new vehicle but do not hold such vehicle in inventory. The agency model will reduce reported revenues (as only the fee we receive, and not the price of the vehicle, will be reported as revenue), reduce SG&A expenses, and reduce floorplan interest expense, although the other impacts to our results of operations remain uncertain. If manufacturers continue to transition to an agency model in the United Kingdom or another new model is implemented in the United Kingdom or other countries and regions in which we operate, including in the United States and Canada, for the sale of electric or other vehicles, it could negatively affect our revenues, results of operations, and financial condition.

Our indebtedness and lease obligations could materially adversely affect our financial health, limit our ability to finance future acquisitions and capital expenditures and prevent us from fulfilling our financial obligations. Much of our debt is secured by a substantial portion of our assets. Much of our debt has a variable interest rate component that may significantly increase our interest costs in a rising rate environment.

As of December 31, 2025, we had $5.1 billion of total non-vehicle long-term debt and $6.1 billion of vehicle inventory financing, as well as substantial lease obligations and non-recourse debt under our warehouse facilities and ABS structure. Our substantial indebtedness and lease obligations could have important consequences to us, including the following:

• difficulty satisfying our debt service obligations and maintaining financial covenants, which if we fail to comply with these requirements, an event of default could result;

• limitations on our ability to make acquisitions;

• impaired ability to obtain additional financing for acquisitions, capital expenditures, working capital or general corporate purposes;

• reduced funds available for our operations and other purposes, as a larger portion of our cash flow from operations would be dedicated to the payment of principal and interest on our indebtedness;

• exposure to the risk of increasing interest rates as certain borrowings are, and will continue to be, at variable rates of interest; and

• increased risk in the event of an economic downturn.

In addition, our loan agreements and our senior note indentures contain covenants that limit our discretion with respect to business matters, including incurring additional debt, granting additional security interests in our assets, acquisition activity, disposing of assets, and other business matters. Other covenants are financial in nature, including current ratio, fixed charge coverage, and leverage ratio calculations. A breach of any of these covenants could result in a default under the applicable agreement. In addition, a default under one agreement could result in a default and acceleration of our repayment obligations under the other agreements under the cross-default provisions in such other agreements.

We have granted a security interest in a substantial portion of our assets to certain of our lenders and other secured parties, including those under our $6.5 billion syndicated credit facility and $1.1 billion CAD Canadian syndicated credit facility. If we default on our obligations under those agreements, the secured parties may be able to foreclose upon their security interests and otherwise be entitled to obtain or control those assets.

Certain debt agreements contain subjective acceleration clauses based on a lender deeming itself insecure or if a “material adverse change” in our business has occurred. If these clauses are implicated, and the lender declares that an event of default has occurred, the outstanding indebtedness would likely be immediately due and owing.

If these events were to occur, we may not be able to pay our debts or borrow sufficient funds to refinance them. Even if new financing were available, it may not be on terms acceptable to us. As a result of this risk, we could be

forced to take actions that we otherwise would not take, or not take actions that we otherwise might take, in order to comply with these agreements.

In addition, the lenders’ obligations to make loans or other credit accommodations under certain credit agreements is subject to the satisfaction of certain conditions precedent including, for example, the satisfaction of financial covenants and conditions and that our representations and warranties in the agreement are true and correct in all material respects as of the date of the proposed credit extension. If any of the conditions precedent are not satisfied, we may not be able to request new loans or other credit accommodations under those credit facilities, which could have a material adverse impact on our business, results of operations, financial condition, and cash flows.

Additionally, at various times in the future, we will need to refinance portions of our debt. At the time we must refinance, the market for new debt, or our financial condition or asset valuations, might not be favorable. It is possible that financing to replace or renew our debt may be unfavorable, which would adversely affect our financial condition and results of operations. In certain cases, we may turn to equity or other alternative financing.

Our floor plan notes payable, credit facilities and a portion of our real estate debt are subject to variable interest rates. As of December 31, 2025, 63% of our total debt was variable rate. In the event interest rates increase, our borrowing costs may increase substantially. Additionally, fixed rate debt that matures may be renewed at interest rates significantly higher than current levels. As a result, this could have a material adverse impact on our business, results of operations, financial condition, and cash flows. We may use interest rate derivatives to hedge a portion of our variable rate debt, when appropriate, based upon market conditions. See Note 12 – Derivative Financial Instruments, related to current hedge activity.

We may experience greater credit losses in DFC’s finance receivable portfolio than anticipated, which will create losses for us.

Customers who finance a vehicle purchase or lease a vehicle through a DFC auto loan or lease may be unable to repay the loans based on the original terms and the fair value of the vehicles used as collateral against the loans may not be sufficient to ensure full repayment. Credit and residual value losses are an inherent risk of our finance receivable portfolio and could result in a material adverse effect on our results of operations.

We estimate an allowance for credit losses based on a variety of assumptions about DFC’s portfolio of finance receivables. Although management prepares an estimate it believes appropriate based on available information, this allowance for credit losses may not be a sufficient reserve for loan and lease losses. For example, sudden economic changes such as an economic downturn or a change in consumer spending may result in additional losses incurred that we did not estimate in our original allowance for credit losses. Losses in excess of our allowance for credit losses could have a material adverse effect on our business and results of operations. In addition, finance companies are highly regulated by governmental authorities, as discussed in the risk factors under the heading, “Regulatory Risks.”

The growth and success of our DFC business is dependent upon obtaining sufficient capital to grow our finance receivable portfolio.

Changes in the availability or cost of financing to support our finance receivable portfolio under DFC could adversely affect our results of operations. Our finance receivable portfolio is funded through a combination of free cash flows from operations and securitized funding, including asset-backed securitization. Changes in the condition of the asset backed securitization market may result in increased costs to access funds in the market or require us to explore new financing options to fund new auto loans and leases. In the event that there is no alternative financing available, we may be forced to pause our auto loan and lease financing business for a period of time. The impact of reducing or pausing our auto loan and lease financing business could result in a material adverse effect on our results of operations.

In addition, securitizing our finance receivable portfolio decreases our credit loss exposure. Market conditions could result in our accumulating a significant portfolio without the ability to, or cost-effectively, securitize a portion of the portfolio.

Technology and Cybersecurity Risks

Technological advances could affect our sales and business.

Technological advances are facilitating the development of driverless vehicles. The eventual timing of availability of driverless vehicles is uncertain due to regulatory requirements, technological hurdles, and uncertain consumer acceptance of these technologies. The effect of driverless vehicles and other technologies that may result in lower vehicle ownership on the automotive industry is uncertain and could include changes in the level of new and used vehicle sales, the price of new vehicles, and the role of franchised dealers, any of which could materially and adversely affect our business.

Breaches in our data security systems or in systems used by our vendor partners, including cyber-attacks or unauthorized data distribution by team members or affiliated vendors, or disruptions to access and connectivity of our information systems could impact our operations or result in the loss or misuse of customers’ proprietary information.

Our information technology systems are important to operating our business efficiently. We employ information technology systems, including websites, that allow for the secure handling and processing of customers’ proprietary information. The failure of our information technology systems, and those of our partner software and technology vendors, to perform as we anticipate could disrupt our business and could expose us to a risk of loss or misuse of this information, litigation and potential liability.

Aspects of our operations are subject to privacy, data use, and data security regulations, which impact the way we use and handle data. We collect, process, share, disclose, transfer, and otherwise use personal information about identifiable individuals including, but not limited to, our customers, team members, partners, and vendors, and so are subject to U.S. and international laws and regulations, regarding data privacy and security such as the California Consumer Privacy Act and the U.K. General Data Protection Regulation. These laws impose comprehensive data privacy compliance obligations in relation to our processing of personal data, including providing privacy rights to the individuals whose data we process and introducing requirements to maintain policies, processes, and procedures regarding our data handing practices. Additionally, our expansion into Canada and the United Kingdom subjects us to additional privacy and security regulations which also impact the way we handle and secure data across borders.

Our internal and third-party systems have been and may in the future be subject to cyber-attacks, viruses, malicious software, ransomware, break-ins, theft, computer hacking, phishing, exploitation of system vulnerabilities or misconfigurations, team member error, or malfeasance or other security breaches or loss of service. We invest in commercially reasonable security technology to protect our data and business processes against many of these risks. We also purchase insurance to mitigate the potential financial impact of many of these risks. Despite the security measures we have in place, our facilities and systems, and those of our third-party service providers, could be vulnerable to security breaches, computer viruses, lost or misplaced data, programming errors, human errors, acts of vandalism, or other events. Any security breach or event resulting in the misappropriation, loss, or other unauthorized disclosure of confidential information, or degradation or loss of services provided by critical business systems, whether by us directly or our third-party service providers, or any other loss of access to such critical business systems, could adversely affect our business operations, sales, reputation with current and potential customers, associates or vendors, as well as other operational and financial impacts derived from investigations, litigation, imposition of penalties or other means. While we have policies and procedures in place for mitigating the impact of a cybersecurity event on our business, which adhere to widely recognized standards for managing cybersecurity risk, these policies and procedures may not ultimately be sufficient or otherwise as effective as intended to eliminate, or in some cases reduce or mitigate, the impact of a cybersecurity event on our business. For example, in June 2024, one of our third-party providers, Global CDK (CDK), suspended information systems used by us in response to a cybersecurity incident impacting CDK. While we activated our cyber incident response procedures as a result of the incident, we still experienced disruption to our business in North America, including to our CDK-hosted dealer management system, which temporarily resulted in declines in same store sales during that time. For more information regarding our cybersecurity policies and procedures, see Item 1C. Cybersecurity.

Regulatory Risks

Our dealerships and our new vehicle sales model may not be protected if U.S. or Canadian state or provincial dealer laws are repealed or weakened, a manufacturer becomes bankrupt, or there is a shift to other sales models.

State and provincial dealer laws generally provide that a manufacturer may not terminate or refuse to renew a franchise agreement unless it has first provided the dealer with written notice setting forth good cause and stating the grounds for termination or non-renewal. Certain U.S. state dealer laws allow dealers to file protests or petitions or attempt to comply with the manufacturer’s criteria within the notice period to avoid the termination or non-renewal. If dealer laws are repealed in the states in which we operate, manufacturers may be able to terminate our franchises without an opportunity to cure or a showing of good cause. In Canada, although laws differ by province, provincial law generally provides that both a manufacturer and dealer each has a common law and statutory duty of good faith and fair dealing in performance and enforcement of any franchise agreement. Disputes are generally handled through the National Automobile Dealer Arbitration Program (NADAP). If a manufacturer wished to terminate a franchise, there is no guaranty that we would win such a dispute. Without the protection of state and provincial dealer laws, it may also be more difficult to renew our franchise agreements upon expiration or on terms acceptable to us.

As evidenced by the bankruptcy proceedings of both Chrysler and GM in 2009, state dealer laws do not afford continued protection from manufacturer terminations or non-renewal of franchise agreements. No assurances can be given that a manufacturer will not seek protection under bankruptcy laws, or that, in this event, they will not seek to terminate franchise rights held by us.

Our U.K. dealerships are subject to different regulatory frameworks than our U.S. and Canada operations, and changes to these regulatory frameworks could negatively affect our results of operations.

The majority of our dealerships in the United Kingdom currently operate under franchise agreements with vehicle manufacturers, however, unlike in the United States, the United Kingdom generally does not have automotive dealership franchise laws and, as a result, our U.K. dealerships operate without these types of specific protections that exist in the United States. In addition, our U.K. dealerships are also subject to U.K. antitrust regulations prohibiting certain restrictions on the sale of new vehicles and spare parts and on the provision of repairs and maintenance. For instance, authorized dealers are generally able to, subject to manufacturer facility requirements, relocate or add additional facilities throughout the EU, offer multiple brands in the same facility, allow the operation of service facilities independent of new car sales facilities and ease restrictions on cross supplies (including on transfers of dealerships) between existing authorized dealers within the EU. However, under the EU Motor Vehicle Block Exemption Regulation, which was retained in U.K. law following the United Kingdom’s exit from the EU on January 31, 2020, certain restrictions on dealerships are permissible in franchise agreements provided certain conditions are met. In October 2022, the Competition and Markets Authority of the U.K. published recommendations to introduce an updated U.K. equivalent broadly similar to the EU Motor Vehicle Block Exemption Regulations, however, changes to these protections or rules could negatively affect our revenues, results of operations and financial condition.

Changes to laws or regulatory frameworks applicable to automotive consumer financing transactions could negatively affect our results of operations.

Our financing activities are subject to federal truth-in-lending, consumer leasing, and equal credit opportunity laws and regulations, as well as motor vehicle finance laws, installment finance laws, insurance laws, usury laws, and other installment sales laws and regulations. Some jurisdictions regulate finance, documentation, and administrative fees that may be charged in connection with vehicle sales. In recent years, private plaintiffs and state attorneys general in the United States have increased their scrutiny of advertising, sales, and F&I activities in the sale and leasing of motor vehicles. These activities have led many lenders to limit the amounts that may be charged to customers as fee income for these activities. If these or similar activities were to significantly restrict our ability to generate revenue from arranging financing for our customers, we could be adversely affected. Further, the Consumer Finance Protection Board has supervisory authority over certain non-bank lenders, including automotive finance companies, such as our captive auto finance company DFC. The CFPB can use this authority to conduct supervisory examinations or initiate enforcement actions and/or litigation to ensure compliance with various federal consumer protection laws.

Auto finance agreements between consumers and finance lenders typically include amounts to be paid as commissions to the dealership of purchase. In October 2024, the U.K. Court of Appeals ruled that brokers, including car dealerships, could not lawfully receive commissions from finance lenders without obtaining the customer’s fully informed consent to the commission payments. This ruling is now on appeal to the Supreme Court of the United Kingdom. As a result of the appeals court ruling, car dealerships in the United Kingdom are now required to explicitly disclose to their customers the commissions they receive in connection with auto financing arrangements. In response to this ruling, several major finance lenders in the United Kingdom temporarily stopped underwriting new auto finance agreements to review their policies and practices and make any updates necessary to ensure compliance with the new requirements. While these lenders have resumed underwriting since, the initial pause caused significant disruption in the U.K. motor finance market and led to reduced sales volume. Because many of our customers in the United Kingdom rely on financing arrangements to purchase their vehicles from us, any additional judicial or legislative development that changes any of our or third parties’ obligations with respect to auto finance transactions could lead to further disruption that causes our U.K. sales volumes and related commissions to decline. Similarly, any law, regulation, or court ruling that has a similar impact with respect to auto finance transactions in the United States or Canada could lead to reduced sales volumes and related commissions in those regions. If our sales volume or commissions are reduced as a result of any such changes in the United Kingdom, the United States, or Canada, it could negatively affect our revenues, results of operations, and financial condition.

Import product restrictions, currency valuations, tariffs, U.S. and foreign trade policies and risks may impair our ability to sell vehicles or parts profitably.

A significant portion of the vehicles we sell are manufactured outside of the geographic regions in which we operate, and all of the vehicles we sell include parts manufactured outside of the geographic regions in which we operate. As a result, our operations are subject to customary risks of importing merchandise, including currency fluctuation, import duties or tariffs, exchange rates, trade restrictions, work stoppages, transportation costs, natural or man-made disasters, and general political and socioeconomic conditions in other countries. The United States or the countries from which our products are imported, may, from time to time, impose new quotas, duties, tariffs or other restrictions, or adjust presently prevailing quotas, duties or tariffs, which may affect our operations and our ability to purchase imported vehicles and/or parts at reasonable prices. Changes in U.S. trade policies, including policies intended to penalize foreign manufacturing or imports, and policies of foreign countries in reaction to those changes, could increase the prices we pay for, or limit the supply of, the new vehicles and parts we sell. Any changes that increase the costs of vehicles and parts generally, to the extent passed on to customers, could negatively affect customer demand and our revenues and profitability. If not passed on to our customers, any cost increases will adversely affect our profitability. Any cost increase that disproportionately applies to manufacturers that sell to us could adversely affect our business compared to other vehicle retailers.

Our operations are subject to extensive governmental laws and regulations. If we are found to be in violation of or subject to liabilities under any of these laws, or if new laws or regulations are enacted that adversely affect our operations, our business, operating results, and prospects could suffer.

We are subject to federal, state, and local laws and regulations in the geographic regions in which we operate, such as those relating to franchising, motor vehicle sales, retail installment sales, leasing, F&I, marketing, licensing, consumer protection, consumer privacy, escheatment, anti-money laundering, environmental, vehicle emissions and fuel economy, and health and safety, as well as consumer financing as discussed above. In addition, with respect to employment practices, we are subject to various laws and regulations, including complex federal, state, and local wage and hour and anti-discrimination laws. New laws and regulations are enacted on an ongoing basis. With the number of stores we operate, the number of personnel we employ and the large volume of transactions we handle, it is possible that technical mistakes will be made. These regulations affect our profitability and require ongoing training. Current practices in stores may become prohibited. We are responsible for ensuring that continued compliance with laws is maintained. If there are unauthorized activities, the jurisdictional authorities have the power to impose civil penalties and sanctions, suspend or withdraw dealer licenses or take other actions. These actions could materially impair our activities or our ability to acquire new stores in those states where violations occurred. Further, private causes of action on behalf of individuals or a class of individuals could result in significant damages or injunctive relief.

We may be involved in legal proceedings arising from the conduct of our business, including litigation with customers, team member-related lawsuits, class actions, purported class actions and actions brought by or on

behalf of governmental authorities. Claims arising out of actual or alleged violations of law may be asserted against us or any of our dealers by individuals, either individually or through class actions, or by governmental entities in civil or criminal investigations and proceedings. Such actions may expose us to substantial monetary damages and legal defense costs, injunctive relief, criminal and civil fines and penalties, and damage our reputation and sales.

In the United Kingdom, the Financial Conduct Authority (FCA) regulates financial services firms and financial markets, including the practice of dealerships acting as the broker in arranging the financing for vehicle sales. The FCA is investigating the historic use of discretionary commission arrangements amid concerns that this practice may have been unfair to customers. We await the outcome of the FCA’s investigation which is expected sometime in 2026. Any regulatory or judicial outcome that ultimately results in the refund of historical commissions paid to us or that reduces the commissions paid to us could materially and adversely affect us. Similarly, the U.S. Federal Trade Commission recently has attempted to prohibit certain automotive sales and marketing practices and establish significant new dealer disclosure and record-keeping requirements broadly applicable throughout the car-buying process. Depending on the results of ongoing litigation, regulatory review, and the final scope and implementation of the proposed rule, we may be subject to new administrative burdens that would likely increase our costs and could expose us to significant damages, other penalties, and/or adverse publicity.

If we or any of our team members at any individual dealership violate or are alleged to violate laws and regulations applicable to them or protecting consumers generally, we could be subject to individual claims or consumer class actions, administrative, civil or criminal investigations or actions and adverse publicity. Such actions could expose us to substantial monetary damages and legal defense costs, injunctive relief, and criminal and civil fines and penalties, including suspension or revocation of our licenses and franchises to conduct dealership operations.

Environmental laws and regulations govern, among other things, discharges into the air and water, storage of petroleum substances and chemicals, the handling and disposal of wastes and remediation of contamination arising from spills and releases. In addition, we may also have liability in connection with materials that were sent to third-party recycling, treatment and/or disposal facilities. Jurisdictional statutes impose liability for investigation and remediation of contamination without regard to fault or the legality of the conduct that contributed to the contamination. Similar to many of our competitors, we have incurred and expect to continue to incur capital and operating expenditures and other costs in complying with such statutes. In addition, we may be subject to broad liabilities arising out of contamination at our currently and formerly owned or operated facilities, at locations to which hazardous substances were transported from such facilities, and at such locations related to entities formerly affiliated with us. Although for some such potential liabilities we believe we are entitled to indemnification from other entities, we cannot assure you that such entities will view their obligations as we do or will be able or willing to satisfy them. Failure to comply with applicable laws and regulations, or significant additional expenditures required to maintain compliance therewith, may have a material adverse effect on our business, results of operations, financial condition, cash flows, and prospects.

Structural and Organizational Risks

Our ability to increase revenues and profitability through acquisitions depends on our ability to acquire and successfully integrate new vehicle franchises.

The vehicle industry in the jurisdictions in which we operate is considered a mature industry in which minimal growth is expected in unit sales of new vehicles. Accordingly, a principal component of our growth strategy is to make dealership acquisitions in our existing markets and in new geographic markets. Restrictions by our manufacturers and limitations on our access to capital resources may directly or indirectly limit our ability to acquire additional dealerships. In addition, increased competition for acquisitions, including from other national, regional, and local dealership groups, and other strategic and financial buyers, some of which may have greater financial resources than us, could result in fewer acquisition opportunities for us and higher acquisition prices in the future.

We are required to obtain consent from the applicable manufacturer prior to the acquisition of a franchised store, which typically takes 60 to 90 days. In determining whether to approve an acquisition, a manufacturer considers factors including the number of such manufacturers’ stores currently owned, ownership of stores in contiguous markets, performance of existing stores, frequency of acquisitions, and our financial condition. In the past, manufacturers have not consented to our purchase of certain franchised stores and we cannot assure you that manufacturers will approve future acquisitions timely, if at all, which could significantly impair the execution of our acquisition strategy.

We make a substantial capital investment when we acquire dealerships. We finance acquisitions activity primarily with cash flows from our operations, borrowings under our credit arrangements, mortgage financing proceeds, and we may obtain financing from debt and equity capital market offerings. The size of our acquisition activity in recent years magnifies risks associated with debt service obligations. These risks include potential lower earnings per share, our inability to pay dividends and potential negative impacts to the debt covenants we negotiated under our credit agreement. In addition, issuances of equity securities could result in dilution to existing shareholders.

We face other risks commonly encountered with growth through acquisitions. These risks include, without limitation:

• failing to identify suitable acquisition candidates and negotiate acceptable terms;

• failing to assimilate the operations and personnel of acquired dealerships;

• straining our existing systems, procedures, structures and personnel, including by disrupting our ongoing business and diverting our management resources;

• failing to achieve expected performance levels;

• incurring significantly higher capital expenditures and operating expenses, including incurring additional facility renovation costs or other expenses required by the manufacturer;

• entering new, unfamiliar markets;

• encountering undiscovered liabilities and operational difficulties at acquired dealerships;

• failing to maintain uniform standards, controls, and policies;

• impairing relationships with team members, manufacturers, and customers; and

• overvaluing entities to be acquired.

Our failure to address these risks or other problems encountered in connection with our acquisitions could cause us to fail to realize the anticipated benefits of these acquisitions, cause us to incur unanticipated liabilities and otherwise harm our business. Any of these risks, if realized, could materially and adversely affect our business, financial condition, and results of operations.

Risks associated with our international operations may negatively affect our business, results of operations and, financial condition.

We operate dealerships in the United States, the United Kingdom, and Canada. While our operations outside of the United States currently represent 22% of our revenues, our international operations may expand. We face regulatory, operational, political, and economic risks and uncertainties with respect to our international operations that may be different from those in the United States. These risks may include, but are not limited to, the following:

• fluctuations in foreign currency translations within our financial statements driven by exchange rate volatility;

• inability to obtain or preserve franchise rights in the foreign countries in which we operate;

• changes in distribution models in the foreign countries in which we operate;

• compliance with changing laws and regulations;

• compliance with U.S. Foreign Corrupt Practices Act and other anti-corruption laws;

• wage inflation;

• treatment of revenue from international sources and changes to tax rules, including being subject to foreign tax laws;

• difficulties in managing foreign operations and dealing with different customs, practices, and local regulations with which we are less familiar;

• large uncertainties, timing delays, and expenses associated with tariffs, labor matters, import or export licenses, and other trade barriers; and

• changes in a country’s economic or political conditions, including inflation, recession, and interest rate fluctuations, and exposure to regional or global public health issues, pandemics, or epidemics, such as the outbreak of the COVID-19 pandemic.

The loss of key personnel or the failure to attract additional qualified management personnel could adversely affect our operations and growth.

Our success depends to a significant degree on the efforts and abilities of our senior management. Further, we have identified Bryan B. DeBoer in most of our store franchise agreements as the individual who controls the franchises and upon whose financial resources and management expertise the manufacturers may rely when awarding or approving the transfer of any franchise. If we lose these key personnel, our business may suffer.

In addition, as we expand into new markets and develop our digital e-commerce solutions, we will need to hire additional managers, engineers, data scientists, and other team members. The market for qualified team members in the automotive and technology-related industries is highly competitive and may subject us to increased labor costs during periods of low unemployment. The loss of the services of key team members or the inability to attract additional qualified personnel could have a material adverse effect on our business, results of operations, financial condition, and cash flows. In addition, the lack of qualified managers or other team members employed by potential acquisition candidates may limit our ability to consummate future acquisitions.

Risks Related to Investing in Our Common Stock

Oregon law and our Restated Articles of Incorporation may impede or discourage a takeover, which could impair the market price of our common stock.

We are an Oregon corporation, and certain provisions of Oregon law and our Restated Articles of Incorporation may have anti-takeover effects. These provisions could delay, defer or prevent a tender offer or takeover attempt that a shareholder might consider to be in his or her best interest. These provisions may also affect attempts that might result in a premium over the market price for the shares held by shareholders and may make removal of the incumbent management and directors more difficult, which, under certain circumstances, could reduce the market price of our common stock.

We may not be able to satisfy our debt obligations upon the occurrence of a change in control under our debt instruments.

Upon the occurrence of a change in control as defined in our credit agreement, the agent under the credit agreement will have the right to declare all outstanding obligations immediately due and payable and to terminate the availability of future advances to us. Upon the occurrence of a change in control, as defined in the indentures governing our senior notes, the holders of our senior notes will have the right to require us to purchase all or any part of such holders’ notes at a price equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any. There can be no assurance that we would have sufficient resources available to satisfy all of our obligations under the credit agreement in the event of a change in control or fundamental change. In the event we were unable to satisfy these obligations, it could have a material adverse impact on our business and our common stock holders. A “change in control” as defined in our credit agreement includes, among other events, the acquisition by any person, or two or more persons acting in concert, in either case other than Lithia Holdings Company, L.L.C., Sidney B. DeBoer or Bryan B. DeBoer, of beneficial ownership (within the meaning of Rule 13d-3 of the SEC under the Securities Exchange Act of 1934) of 35% or more of the outstanding shares of our voting stock on a fully diluted basis.

Our issuance of preferred stock could adversely affect holders of common stock.

Our Board is authorized to issue a series of preferred stock without any action on the part of our holders of common stock. Our Board also has the power, without shareholder approval, to set the terms of any such series of preferred stock that may be issued, including voting powers, preferences over our common stock with respect to dividends or if we voluntarily or involuntarily dissolve or distribute our assets, and other terms. If we issue preferred stock in the future that has preference over our common stock with respect to the payment of dividends or upon our liquidation, dissolution or winding up, or if we issue preferred stock with voting rights that dilute the voting power of our common stock, the rights of holders of our common stock or the price of our common stock could be adversely affected.

Item 1C. Cybersecurity

Assessing, identifying, and managing material risks from cybersecurity threats

We are committed to maintaining cybersecurity practices designed to safeguard our information assets and ensure the confidentiality, integrity, and availability of our operations. We employ a comprehensive risk-based approach to assess, identify, and manage risks arising from cybersecurity threats that could reasonably be expected to materially affect our business, financial condition, results of operations, or reputation. The identification and oversight of material cybersecurity risks is integrated into our enterprise risk management (ERM) program and included in ongoing ERM Committee and Board meetings and reporting.

We complete regular cybersecurity risk assessments to identify potential vulnerabilities and threats, analyzing our infrastructure, systems, and data. Assessments are conducted both internally and by third parties and consider internal and external factors, technological changes, regulatory requirements, and emerging cyber threats. Our cybersecurity program is informed by widely recognized standards for managing cybersecurity risk, including the National Institute of Standards and Technology Cybersecurity Framework, Center for Internet Security Controls and U.K. Cyber Essentials.

We use threat detection and monitoring tools and technologies to identify potential cybersecurity risks. This includes continuous monitoring, mechanisms designed to detect unusual or anomalous activity, to promptly identify any unusual activities or security breaches. Threat intelligence sharing with industry partners helps us stay informed about the latest cybersecurity threats.

We assess cybersecurity risks for their potential impact on our operations, data, financial condition, and reputation. Risks are prioritized based on their severity and likelihood of occurrence before implementing appropriate controls, safeguards, and mitigation measures designed to manage and reduce those risks to acceptable levels.

We have developed a documented information security incident response plan that outlines procedures to be followed in the event of a cybersecurity incident. The plan is periodically tested through tabletop exercises and simulations with incident response team members and includes processes for identification, categorization, escalation and reporting of incidents and remediation, as appropriate. Team members are regularly trained on key cybersecurity subjects to ensure awareness.

While no company can or will be completely immune from cybersecurity threats, especially as they relate to vendors and government agencies that we rely on, we know of no cybersecurity incident that has or is reasonably likely to materially affect us, our business strategy, or our results of operations, or financial condition.

Board of Directors Cybersecurity Oversight

Our Board oversees our cybersecurity and data protection strategy and has designated a director to lead its cybersecurity efforts. Our Board is briefed on our cybersecurity posture, current and future risks and potential incidents or vulnerabilities on a quarterly basis. Board members and executives participate in engagements on cybersecurity, such as simulated cyber incident response and crisis management exercises. Our Board also receives and reviews third-party cybersecurity assessments at least annually, which include assessments of our cyber maturity and cyber risk.

Management’s Assessment and Response to Material Risks from Cybersecurity Threats

Our information security team and its leadership have primary responsibility for assessing and managing cybersecurity risks, within the scope of the overall ERM Committee.

Our Senior Director of Information Security is responsible for identifying, assessing, and managing risks from cybersecurity threats. The Senior Director of Information Security manages our cybersecurity program and receives information regarding cybersecurity incidents and threats from our information security management team, through internal cyber risk management processes. The Senior Director of Information Security reports to the Chief Innovation and Technology Officer (CITO) and provides frequent, up-to-date reporting on cyber risk to our ERM Committee, a cross functional executive-level steering group, which includes the CITO. The ERM Committee meets on a quarterly basis or as necessary to assess and respond to enterprise risks, including cybersecurity, and reports updates to the Board. Management has authority to escalate significant cybersecurity matters to the Board as appropriate.

The Senior Director of Information Security has over 10 years of experience in senior level information security roles, has over 20 years' experience in Fortune 500 enterprise IT roles, and holds Associate and Bachelor Degrees and the Certified Information Security Manager (CISM) Professional certification. The members of our information security management team have extensive experience in technology and security roles, possessing cybersecurity certifications such as Certified Information Systems Security Professional (CISSP), Cisco Certified Network Professional (CCNP) and Global Certified Incident Handler (GCIH).

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

You should read the following discussion in conjunction with Item 1. Business, Item 1A. Risk Factors, and our Consolidated Financial Statements and Notes thereto.

Overview

We are a global automotive retailer ranked #124 on the Fortune 500 in 2025. As of February 25, 2026, we offered 54 brands of new vehicles and all brands of used vehicles in 458 stores in the United States, the United Kingdom, and Canada and online at over 400 websites. We offer a wide range of products and services including new and used vehicles, F&I products, and vehicle repair and maintenance aftersales.

Financial Performance

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

Segments

We operate in two reportable segments: Vehicle Operations and Financing Operations. Our Vehicle Operations segment consists of all aspects of our auto merchandising and service operations, excluding financing provided by our Financing Operations segment. Our Financing Operations segment provides financing options to customers

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

Vehicle Operations

Year Ended December 31,

($ in millions, except per vehicle data)

Change

Change

Revenues

New vehicle

Used vehicle

Finance and insurance

Aftersales

Total revenues

Gross profit

New vehicle

Used vehicle

Finance and insurance

Aftersales

Total gross profit

Gross profit margins

New vehicle

-70 bps

-220 bps

Used vehicle

-20 bps

-80 bps

Finance and insurance

— bps

— bps

Aftersales

180 bps

100 bps

Total gross profit margin

-20 bps

-140 bps

Units sold

New vehicle

Used vehicle retail

Average selling price per unit (excluding agency)

New vehicle

Used vehicle retail

Average gross profit per unit

New vehicle

Used vehicle retail

Finance and insurance

Total vehicle (1)

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

Same Store Operating Data

We believe that same store comparisons are an important indicator of our financial performance. Same store measures demonstrate our ability to grow operations in our existing locations. Therefore, we have integrated same store measures into the discussion below.

Same store measures reflect results for stores that were operating in each comparison period, and only include the months when operations occurred in both periods. For example, a store acquired in November 2024 would be included in same store operating data beginning in December 2025, after its first complete comparable month of operations. The fourth quarter operating results for the same store comparisons would include results for that store in only the period of December for both comparable periods.

Year Ended December 31,

($ in millions, except per vehicle data)

Change

Change

Revenues

New vehicle

Used vehicle

Finance and insurance

Aftersales

Total revenues

Gross profit

New vehicle

Used vehicle

Finance and insurance

Aftersales

Total gross profit

Gross profit margins

New vehicle

-70 bps

-230 bps

Used vehicle

-40 bps

-10 bps

Finance and insurance

— bps

— bps

Aftersales

170 bps

100 bps

Total gross profit margin

-20 bps

-90 bps

Units Sold

New vehicle

Used vehicle retail

Average selling price per unit (excluding agency)

New vehicle

Used vehicle retail

Average gross profit per unit

New vehicle

Used vehicle retail

Finance and insurance

Total vehicle (1)

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

New Vehicles

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

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

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

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

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

Used Vehicles

Used vehicle retail sales are a strategic focus for organic growth. We offer three categories of used vehicles: CPO vehicles; core vehicles, which are late-model vehicles with lower mileage; and value autos, which are vehicles with over 80,000 miles. We continue to focus on procuring vehicles across the full spectrum of the addressable used vehicle market to provide customers with a wide selection meeting all levels of affordability, driving increased used vehicle unit volumes. Our used vehicle operations provide an opportunity to generate sales to customers unable or unwilling to purchase a new vehicle, sell brands other than the store’s new vehicle franchise(s), access additional used vehicle inventory through trade-ins, and increase sales from F&I products and aftersales.

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

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

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

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

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

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

Third-Party Finance and Insurance

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

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

F&I revenue increased 6.0%, primarily due to increased unit sales related to acquisitions. On a same store basis, F&I revenue decreased 4.6%, to $2,017 per unit.

Aftersales

We provide automotive repair and maintenance services for customers for the new vehicle brands sold by our stores, as well as service and repairs for most other makes and models. Our aftersales operations are an integral part of our customer retention and the largest contributor to our overall profitability. Earnings from aftersales have historically been more resilient during economic downturns, when owners have tended to repair their existing vehicles rather than buy new vehicles. With more late-model units in operation, continued increase of vehicles in operation, and a plateauing new vehicle market, we believe the increased number of units in operation will continue to benefit our aftersales revenue in the coming years as more late-model vehicles age, necessitating repairs and maintenance. We focus on retaining customers by offering competitively-priced routine maintenance and through our marketing efforts.

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

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

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

Financing Operations

In the United States, Financing Operations is a captive lender, originating loans only from our stores and Driveway. In Canada, Financing Operations originates loans and leases from both our Canadian stores and third-party dealerships. In the United Kingdom, Financing Operations is related to our fleet funding and management division. These product offerings add diversity to the business model and provide an opportunity to capture additional profits, cash flows, and sales while managing our reliance on third-party finance sources.

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

Our proprietary credit model performs a return on investment (ROI) calculation for each application, ensuring that the return obtained is appropriately balanced with the consumer’s credit risk. On a fully discounted basis, we target earnings at least three times the net finance income earned from third party lenders (finance reserve less commissions paid) over the life of the finance receivable. Actual return of the finance receivables may differ based on the changing risk profile of originations, economic conditions, and rates of recovery for charged off vehicles. Actions taken during 2022 to adjust ROI targets in the context of the uncertain macroeconomic environment, along with the acquisition of dealerships whose brands attract relatively more credit-worthy consumers, resulted in finance receivables originated subsequently having higher weighted average credit scores and lower weighted average contract rate and front-end loan-to-values (FE LTV) than prior periods.

We typically use securitizations, warehouse facilities, third-party asset funding, and internal capital to fund finance receivables originated by our Financing Operations. Financing Operations income reflects the interest, fee, and lease income generated by the portfolio of finance receivables less the interest expense associated with the debt utilized to fund the lending, including internal capital, a provision for estimated losses, depreciation on vehicles leased via operating leases, and directly-related expenses.

Total interest margin reflects the spread between interest and fee charges to consumers and our funding costs. Changes in consumer rates on new originations affect Financing Operations income over time. Increases or decreases in interest rates, which affect Financing Operations’ funding costs, or other competitive pressures on consumer rates, could result in compression or expansion in the interest margin. Changes in the provision for losses as a percentage of ending managed receivables reflect the effect of changes in loss experience, economic factors, and asset-specific risks on our outlook for net losses expected to occur over the remaining contractual life of the finance receivables.

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

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

Selected Financing Operations Financial Information

Year Ended December 31,

($ in millions)

Interest and fee income

Interest expense

Total interest margin

Lease income

Lease costs

Lease income, net

Provision expense

Other financing operations expenses

Financing operations income (loss)

Total average managed finance receivables

(1) Percent of total average managed finance receivables.

DFC Portfolio Information (1)

Year Ended December 31,

($ in millions)

Loan origination information

Net loans originated

Vehicle units financed

Total penetration rate (2)

Weighted average contract rate

Weighted average credit score (3)

Weighted average FE LTV (4)

Weighted average term (in months)

Loan performance information

Allowance for credit losses as a percentage of ending managed receivables

Net credit losses on managed receivables

Net credit losses as a percentage of total average managed receivables

Past due accounts as a percentage of ending managed receivables (5)

Average recovery rate (6)

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

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

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

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

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

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

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

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

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

Operating Expenses

Selling, General, and Administrative

SG&A includes salaries and related personnel expenses, advertising (net of manufacturer cooperative advertising credits), rent, facility costs, and other general corporate expenses.

Year Ended December 31,

($ in millions)

Change

Change

Personnel

Rent and facility costs

Advertising

Other

Total SG&A

Year Ended December 31,

As a % of gross profit

Change

Change

Personnel

bps

bps

Rent and facility costs

Advertising

Other

Total SG&A

bps

bps

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

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

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

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

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

Year Ended December 31,

($ in millions)

Change

Change

Personnel

Rent and facility costs

Advertising

Adjusted other (1)

Total adjusted SG&A (1)

Year Ended December 31,

As a % of gross profit

Change

Change

Personnel

bps

bps

Rent and facility costs

Advertising

Adjusted other (1)

Total adjusted SG&A (1)

bps

bps

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

Floor Plan Interest Expense and Floor Plan Assistance

We have floor plan agreements with both manufacturer-affiliated finance companies and as part of our syndicated credit facilities for certain new and used vehicles. The interest rates on these floor plan notes payable commitments vary by lender and are variable rates.

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

Floor plan interest expense increased $127.9 million, primarily due to higher interest rates and increases in vehicle inventory levels from acquisitions as well as at existing locations.

Floor plan assistance is provided by manufacturers to support store financing of vehicle inventory. Under accounting standards, floor plan assistance is recorded as a component of vehicle gross profit when the specific vehicle is sold. However, because manufacturers provide this assistance to offset inventory carrying costs, we believe a comparison of floor plan interest expense to floor plan assistance is a useful measure of the efficiency of our vehicle sales relative to stocking levels.

The following table details the carrying costs for vehicle inventory and include vehicle floor plan interest net of floor plan assistance earned:

Year Ended December 31,

($ in millions)

Change

Change

Floor plan interest expense

Floor plan assistance (included as an offset to cost of sales)

Net vehicle carrying costs (benefit)

Depreciation and Amortization

Depreciation and amortization is comprised of depreciation expense related to buildings, significant remodels or improvements, furniture, tools, equipment and signage and amortization related to non-compete agreements.

Year Ended December 31,

($ in millions)

Change

Change

Depreciation and amortization

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

Operating Income

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

Year Ended December 31,

Operating margin

Operating margin adjusted for non-core charges (1)

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

Our operating margin decreased 10 basis points compared to the prior year, driven by a decline in gross profit per new and used unit sold. Adjusting for non-core charges, including acquisition expenses and storm related insurance charges, offset by a net disposal gain on disposal of stores, our operating margin decreased 10 basis points.

Our operating margin decreased 120 basis points compared to the prior year, driven by an increase in SG&A as a percentage of gross profit. Adjusting for non-core charges, including acquisition expenses, one-time contract buyouts, and storm insurance charges, offset by a net disposal gain on disposal of stores, our operating margin decreased 110 basis points.

Non-Operating Expenses

Asset Impairments

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

Year Ended December 31,

($ in millions)

Franchise value

Goodwill

Long-lived assets

Total asset impairments

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

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

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

Other Interest Expense

Other interest expense includes interest on debt incurred related to issued senior notes, real estate mortgages, our used and service loaner vehicle inventory financing commitments, and our revolving lines of credit.

Year Ended December 31,

($ in millions)

Change

Change

Senior notes

Mortgages

Credit facilities and other

Capitalized interest

Total other interest expense

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

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

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

Other Income, Net

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

Year Ended December 31,

($ in millions)

Change

Change

Equity method investment

Foreign currency remeasurement

Net pension benefit

Miscellaneous

Other income, net

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

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

Income Tax Provision

Our effective income tax rate was as follows:

Year Ended December 31,

Effective income tax rate

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

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

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

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

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

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

Non-GAAP Reconciliations

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

operations because they exclude items not related to our ongoing core business operations and other non-cash items, and improves the period-to-period comparability of our results from the core business operations. We use these measures in conjunction with GAAP financial measures to assess our business, including our compliance with covenants in our credit facilities and in communications with our Board concerning financial performance. These measures should not be considered an alternative to GAAP measures.

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

Year Ended December 31, 2025

($ in millions, except per share amounts)

As reported

Net gain on disposal of stores

Asset impairment

Investment loss

Insurance reserves

Acquisition expenses

Tax attribute

Adjusted

Asset impairment

Selling, general and administrative

Operating income (loss)

Other income, net

Income (loss) before income taxes

Income tax (provision) benefit

Net income (loss)

Net income attributable to non-controlling interest

Net income (loss) attributable to Lithia Motors, Inc.

Diluted earnings (loss) per share attributable to Lithia Motors, Inc.

Diluted share count

Year Ended December 31, 2024

($ in millions, except per share amounts)

reported

Net gain on disposal of stores

Investment gain

Insurance reserves

Acquisition expenses

Premium on redeemable NCI buyout

Tax attribute

Adjusted

Selling, general and administrative

Operating income (loss)

Other income (expense), net

Income (loss) before income taxes

Income tax (provision) benefit

Net income (loss)

Net income attributable to non-controlling interest

Net income attributable to redeemable non-controlling interest

Net income (loss) attributable to Lithia Motors, Inc.

Diluted earnings (loss) per share attributable to Lithia Motors, Inc.

Diluted share count

Year Ended December 31, 2023

($ in millions, except per share amounts)

reported

Net gain on disposal of stores

Investment loss

Insurance reserves

Acquisition expenses

Contract buyouts

Adjusted

Selling, general and administrative

Operating income (loss)

Other income, net

Income (loss) before income taxes

Income tax (provision) benefit

Net income (loss)

Net income attributable to non-controlling interest

Net income attributable to redeemable non-controlling interest

Net income (loss) attributable to Lithia Motors, Inc.

Diluted earnings per share attributable to Lithia Motors, Inc.

Diluted share count

Liquidity and Capital Resources

We manage our liquidity and capital resources in the context of our overall business strategy, continually forecasting and managing our cash, working capital balances, and capital structure to meet the short-term and long-term obligations of our business while maintaining liquidity and financial flexibility. Our free cash flow deployment strategy targets an allocation of 25% to 35% investment in acquisitions, 25% investment in capital expenditures, innovation,

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

We believe we have sufficient sources of funding to meet our business requirements for the next 12 months and in the longer term. Cash flows from operations and borrowings under our credit facilities are our main sources for liquidity. In addition to the above sources of liquidity, potential sources to fund our business strategy include financing of real estate and proceeds from debt or equity offerings. We evaluate all of these options and may select one or more of them depending on overall capital needs and the availability and cost of capital, although no assurances can be provided that these capital sources will be available in sufficient amounts or with terms acceptable to us.

Available Sources

Below is a summary of our immediately available funds:

As of December 31,

($ in millions)

Change

% Change

Cash and cash equivalents

Marketable securities

Available credit on the credit facilities

Total current available funds

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

Year Ended December 31,

($ in millions)

Net cash provided by (used in) operating activities

Net cash used in investing activities

Net cash provided by financing activities

Operating Activities

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

Borrowings from and repayments to our syndicated credit facilities related to our new vehicle inventory floor plan financing are presented as financing activities. To better understand the impact of changes in inventory, other assets, and the associated financing, we also consider our adjusted net cash provided by operating activities to include borrowings or repayments associated with our new vehicle floor plan commitment and exclude the impact of our financing receivables activity.

To better understand the impact of these items, adjusted net cash provided by operating activities, a non-GAAP measure, is presented below:

Year Ended December 31,

($ in millions)

Change

Change

Net cash provided by (used in) operating activities – as reported

Add: Net borrowings on floor plan notes payable: non-trade

Less: Borrowings on floor plan notes payable: non-trade associated with acquired new vehicle inventory

Adjust: Financing receivables activity

Net cash provided by operating activities – adjusted

Inventories are one of the most significant components of our cash flow from operations. As of December 31, 2025, our new vehicle days’ supply was 54 days, or five days lower than our days’ supply as of December 31, 2024. Our days’ supply of used vehicles was 48 days, which was five days lower than our days’ supply as of December 31, 2024. We calculate days’ supply of inventory on-ground inventory unit levels and a 30-day total units sales volume,

both at the end of each reporting period. We have continued to focus on managing our unit mix and maintaining an appropriate level of new and used vehicle inventory.

Investing Activities

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

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

Year Ended December 31,

($ in millions)

Change

Change

Capital expenditures

Cash paid for acquisitions, net of cash acquired

Cash paid for other investments

Proceeds from sales of stores

Capital Expenditures

Below is a summary of our capital expenditure activities:

Many manufacturers provide assistance in the form of additional incentives or assistance if facilities meet manufacturer image standards and requirements. We expect that certain facility upgrades and remodels will generate additional manufacturer incentive payments. Also, tax laws allowing accelerated deductions for capital expenditures reduce the overall investment needed and encourage accelerated project timelines.

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

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

Acquisitions

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

We are able to subsequently floor new vehicle inventory acquired as part of an acquisition; however, the cash generated by these transactions are recorded as borrowings on floor plan notes payable, non-trade. Adjusted net cash paid for acquisitions, a non-GAAP measure, as well as certain other acquisition-related information is presented below:

Year Ended December 31,

($ in millions)

Number of stores acquired

Number of stores opened

Cash paid for acquisitions, net of cash acquired

Add: Borrowings on floor plan notes payable: non-trade associated with acquired new vehicle inventory

Cash paid for acquisitions, net of cash acquired – adjusted

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

Financing Activities

Adjusted net cash provided by financing activities, a non-GAAP measure, which is adjusted for borrowings and repayments on floor plan facilities: non-trade and borrowings and repayments associated with our Financing Operations segment was as follows:

Year Ended December 31,

($ in millions)

Cash provided by financing activities, as reported

Less: Net borrowings on floor plan notes payable: non-trade

Less: Net borrowings on non-recourse notes payable

Cash provided by financing activities, as adjusted

Below are highlights of significant activity related to our cash flows from financing activities, excluding borrowings and repayments on floor plan notes payable: non-trade and non-recourse notes payable, which are discussed above:

Year Ended December 31,

($ in millions)

Change

Change

Net borrowings on lines of credit

Proceeds from the issuance of long-term debt

Repurchases of common stock

Borrowing and Repayment Activity

During 2025, we raised net proceeds of $786.8 million through the issuance of debt, and had net borrowings of $408.6 million on our lines of credit. These funds were primarily used for acquisitions, share repurchases and capital expenditures.

Our debt to total capital ratio, excluding floor plan notes payable and non-recourse notes payable, was 52.5% at December 31, 2025 compared to 48.4% at December 31, 2024.

Equity Transactions

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

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

Dividend paid:

Dividend amount per share

Total amount of dividends paid ($ in millions)

March 2025

May 2025

August 2025

November 2025

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

Summary of Outstanding Balances on Credit Facilities and Long-Term Debt

Below is a summary of our outstanding balances on credit facilities and long-term debt:

($ in millions)

Outstanding of December 31, 2025

Remaining available as of December 31, 2025

Floor plan notes payable: non-trade

Floor plan notes payable

Used and service loaner vehicle inventory financing commitments

Revolving lines of credit

Warehouse facilities

Non-recourse notes payable

4.625% Senior notes due 2027

3.875% Senior notes due 2029

5.500% Senior notes due 2030

4.375% Senior notes due 2031

Real estate mortgages, finance lease obligations, and other debt

Unamortized debt issuance costs

Total debt

Less: Inventory related debt

Less: Financing operations related debt

Less: Unrestricted cash and cash equivalents

Less: Marketable securities

Less: Availability on used and service loaner financing facilities

Net debt (5)

(1) As of December 31, 2025, we had a $3.0 billion new vehicle floor plan commitment as part of our USB credit facility, and a $1.1 billion CAD wholesale floorplan commitment as part of our BNS credit facility.

(2) The amounts available on the credit facilities are limited based on borrowing base calculations and fluctuate monthly.

(3) Available credit is based on the borrowing base amount effective as of November 30, 2025. This amount is reduced by $6.4 million for outstanding letters of credit.

(4) Debt issuance costs are presented on the balance sheet as a reduction from the carrying amount of the related debt liability. See Note 10 – Credit Facilities and Long-Term Debt of Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report.

(5) Non-GAAP financial measure.

Contractual Obligations

Our cash requirements greater than twelve months from contractual obligations and commitments include:

Debt Obligations and Interest Payments

Refer to Note 10 – Credit Facilities and Long-Term Debt of the Notes to the Consolidated Financial Statements for further information of our obligations and the timing of expected payments.

Contract Obligations

Refer to Note 9 – Commitments and Contingencies of the Notes to the Consolidated Financial Statements for further information of our obligations and the timing of expected payments.

Operating and Finance Leases

Refer to Note 9 – Commitments and Contingencies of the Notes to the Consolidated Financial Statements for further information of our obligations and the timing of expected payments.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with U.S. GAAP requires us to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and reported amounts of revenues and expenses at the date of the financial statements. Certain accounting policies require us to make difficult and subjective judgments on matters that are inherently uncertain. The following accounting policies involve critical accounting estimates because they are particularly dependent on assumptions made by management. While we have made our best estimates based on facts and circumstances available to us at the time, different estimates could have been used in the current period. Changes in the accounting estimates we used are reasonably likely to occur from period to period, which may have a material impact on the presentation of our financial condition and results of operations.

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

Goodwill and Franchise Value

We are required to test our goodwill and franchise value for impairment at least annually on October 1, or more frequently if conditions indicate that an impairment may have occurred. Our reporting units for goodwill impairment testing are North America Vehicle Operations, U.K. Vehicle Operations, and U.S. and Canada Financing Operations. We have the option to qualitatively or quantitatively assess goodwill for impairment and, in 2025, we evaluated our goodwill using a qualitative assessment process. If the qualitative factors determine that it is more likely than not that the fair value of the reporting unit exceeds the carrying amount, goodwill is not impaired. If the qualitative assessment determines it is more likely than not the fair value is less than the carrying amount, we would further evaluate for potential impairment.

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

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

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

We are subject to financial statement risk to the extent that our goodwill or franchise rights become impaired due to decreases in the fair value. A future decline in performance, decreases in projected growth rates or margin assumptions or changes in discount rates could result in a potential impairment, which could have a material adverse impact on our financial position and results of operations. Furthermore, if a manufacturer becomes insolvent, we may be required to record a partial or total impairment on the franchise value and/or goodwill related to that manufacturer. No individual manufacturer accounted for more than 17% of our total franchise value as of December 31, 2025.

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

Acquisitions

We account for business combinations using the acquisition method of accounting which requires recognition of assets acquired and liabilities assumed at fair value as of the date of the acquisition. Determination of the estimated fair value assigned to each asset acquired or liability assumed can materially impact the net income in subsequent periods through depreciation and amortization and potential impairment charges.

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

See Note 1 – Summary of Significant Accounting Policies and Note 17 – Acquisitions of Notes to Consolidated Financial Statements included in Part II, Item 8. Financial Statements and Supplementary Financial Data of this Annual Report.