8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): January 21, 2010

Penske Automotive Group, Inc.

(Exact name of registrant as specified in its charter)

Delaware	1-12297	22-3086739
(State or other jurisdiction of incorporation)	(Commission File Number)	(IRS Employer Identification No.)

2555 Telegraph Road, Bloomfield Hills, Michigan	48302
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: 248-648-2500

Not Applicable

(Former name or former address, if changed since last report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Explanatory Note: Concurrent with this filing, we are filing a registration statement regarding a secondary offering of our common stock. Because the registration statement includes financial statements that have been revised to reflect certain items discussed below, we are concurrently filing this 8-K to update our financial statements filed pursuant to the Securities Exchange Act of 1934.

Item 2.02 Results of Operations and Financial Condition.

The disclosure below under Item 8.01 of this Current Report on Form 8-K is also responsive to Item 2.01 of this Current Report on Form 8-K and is hereby incorporated by reference into this Item 2.02.

Item 8.01 Other Events.

We are filing this Current Report on Form 8-K to update certain Items of our Annual Report on Form 10-K for the fiscal year ended December 31, 2008 (the “Form 10-K”) to reflect the January 1, 2009 retrospective adoption for all periods presented of (1) FASB Staff Position (“FSP”) APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash Upon Conversion (Including Partial Cash Settlement), (2) FSP EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities, and (3) SFAS No. 160, Non-controlling Interests in Consolidated Financial Statements an Amendment of ARB No. 51. We also revised our previously reported financial statements for an entity which met the criteria to be classified as a discontinued operation pursuant to the provisions of Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, during the second quarter of 2009.

Pursuant to FSP APB 14-1, we were required to account separately for the debt and equity components of our 3.5% Senior Subordinated Convertible Notes due 2026 as of the offering date. The value ascribed to the debt component was determined using a fair value methodology, with the residual representing the equity component. The equity component was recorded as an increase in equity, with the debt discount being amortized as additional interest expense over the expected life of the instrument.

Pursuant to FSP EITF 03-6-1, we were required to treat unvested share-based payment awards with non-forfeitable rights to dividends or dividend equivalents as participating securities and include them in the computation of our earnings per share pursuant to the two-class method.

Pursuant to SFAS No. 160, we were required to reclassify our minority interest liabilities to equity relating to the Company’s non-wholly owned consolidated subsidiaries, and amend the presentation of income attributable to non-controlling interests on the income statement.

All other items of the Form 10-K not presented herein remain unchanged. We have not updated matters in the Form 10-K except to the extent expressly provided above. Accordingly, this Current Report on Form 8-K does not reflect events occurring after the filing of the Form 10-K and should be read in conjunction with the Form 10-K and our filings made with the Securities and Exchange Commission subsequent to the filing of the Form 10-K. Set forth in Exhibits 99.1, 99.2, 99.3 and 99.4 are the Company’s Selected Financial Data, Management’s Discussion and Analysis of Financial Condition and Results of Operations, Quantitative and Qualitative Disclosures About Market Risk, and Financial Statements and Supplementary Data, respectively, for the years presented in the Form 10-K, each as updated to reflect the items outlined above.

Item 9.01 Financial Statements and Exhibits.

(d) Exhibits. The following exhibits are filed herewith:

23.1	Consent of Deloitte & Touche LLP, Independent Registered Public Accounting Firm
23.2	Consent of KPMG LLP, Independent Registered Public Accounting Firm
99.1	Updated Item 6. Selected Financial Data
99.2	Updated Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
99.3	Updated Item 7A. Quantitative and Qualitative Disclosures About Market Risk
99.4	Updated Item 8. Financial Statements and Supplementary Data

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	Penske Automotive Group, Inc.
January 21, 2010	By:	Shane M. Spradlin
		Name:	Shane M. Spradlin
		Title:	Senior Vice President

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statements No. 333-105311, 333-14971, 333-26219, 333-50816, and 333-61835 on Form S-8 of our report dated March 10, 2009 (January 21, 2010, as to the effects of discontinued operations and retrospective adjustments related to accounting changes), relating to the consolidated financial statements and financial statement schedule of Penske Automotive Group, Inc. and subsidiaries (the “Company”) (which report expresses an unqualified opinion and includes an explanatory paragraph relating to retrospective adjustments related to accounting changes and discontinued operations), and the effectiveness of the Company’s internal control over financial reporting, appearing in this Current Report on Form 8-K of Penske Automotive Group, Inc. dated January 21, 2010.

/s/ Deloitte & Touche LLP

Detroit, Michigan
January 21, 2010

EX-23.2

Exhibit 23.2

Consent of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders UAG UK Holdings Limited:

We consent to the incorporation by reference in the registration statements (Nos. 333-105311, 333-14971, 333-26219, 333-50816, and 333-61835) each on Form S-8 of Penske Automotive Group, Inc. of our report dated March 10, 2009, except as to Note 1, which is as of January 21, 2010 with respect to the consolidated balance sheets of UAG UK Holdings Limited as of December 31, 2008 and 2007, and the related consolidated statements of income, stockholders equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2008, the related financial statement schedule and the effectiveness of internal control over financial reporting as of December 31, 2008, which report appears in the December 31, 2008 current report on Form 8-K of Penske Automotive Group, Inc. dated January 21, 2010. Our report refers to the retrospective adjustment for the effects of discontinued operations.

/s/ KPMG Audit Plc

Birmingham, United Kingdom
January 21, 2010

EX-99.1

Exhibit 99.1

Item 6. Selected Financial Data

The following table sets forth our selected historical consolidated financial and other data as of and for each of the five years in the period ended December 31, 2008, which has been derived from our audited consolidated financial statements. During the periods presented, we made a number of acquisitions, each of which has been accounted for using the purchase method of accounting, pursuant to which our financial statements include the results of operations of the acquired dealerships from the date of acquisition. As a result, our period to period results of operations vary depending on the dates of the acquisitions. Accordingly, this selected financial data is not necessarily indicative of our future results. During the periods presented, we also sold certain dealerships which have been treated as discontinued operations in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. Certain income statement and balance sheet amounts presented in the table below reflect the adoption of FASB Staff Position (“FSP”) APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement) and FSP EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities for all periods presented. The presentation and disclosure provisions of SFAS No. 160, Non-controlling Interests in Consolidated Financial Statements an Amendment of ARB No. 51, have been applied retrospectively to all periods presented herein. This table has also been updated to reflect the revision of prior period results for an entity which met the criteria to be classified as a discontinued operation during the second quarter of 2009. You should read this selected consolidated financial data in conjunction with our audited consolidated financial statements and related footnotes included elsewhere in this report.

	As of and for the Years Ended December 31,
	2008(1)			2007(2)		2006		2005(3)		2004(4)
	(In millions, except per share data)
Consolidated Statement of Operations Data:
Total revenues	$	11,625.3		$	12,768.2	$	10,933.0	$	9,367.0	$	8,293.4
Gross profit	$	1,788.3		$	1,894.8	$	1,655.5	$	1,425.1	$	1,237.6
(Loss) income from continuing operations attributable to Penske Automotive Group common stockholders	$	(411.7	)	$	119.5	$	124.8	$	116.8	$	108.8
Net (loss) income attributable to Penske Automotive Group common stockholders	$	(420.0	)	$	120.3	$	118.3	$	119.0	$	111.7
Diluted (loss) earnings per share from continuing operations attributable to Penske Automotive Group common stockholders	$	(4.38	)	$	1.26	$	1.32	$	1.24	$	1.19
Diluted (loss) earnings per share attributable to Penske Automotive Group common stockholders	$	(4.47	)	$	1.27	$	1.25	$	1.26	$	1.22
Shares used in computing diluted share data		94.0			95.0		94.6		94.2		91.5
Balance Sheet Data:
Total assets	$	3,962.1		$	4,667.1	$	4,467.9	$	3,594.2	$	3,532.8
Total floor plan notes payable	$	1,471.5		$	1,525.0	$	1,147.2	$	1,064.7	$	1,020.0
Total debt (excluding floor plan notes payable)	$	1,063.4		$	794.8	$	1,119.3	$	580.2	$	586.3
Total equity attributable to Penske Automotive Group common stockholders	$	804.8		$	1,450.7	$	1,332.3	$	1,145.7	$	1,075.0
Cash dividends per share	$	0.36		$	0.30	$	0.27	$	0.23	$	0.21

(1)	Includes charges of $661.9 million ($505.2 million after-tax), or $5.37 per share, including $643.5 million ($493.1 million after-tax), or $5.25 per share, relating to goodwill and franchise asset impairments, as well as, an additional $18.4 million ($12.0 million after-tax), or $0.13 per share, of dealership consolidation and relocation costs, severance costs, other asset impairment charges, costs associated with the termination of an acquisition agreement, and insurance deductibles relating to damage sustained at our dealerships in the Houston market during Hurricane Ike.
(2)	Includes charges of $18.6 million ($12.3 million after-tax), or $0.13 per share, relating to the redemption of the $300.0 million aggregate amount of 9.625% Senior Subordinated Notes and $6.3 million ($4.5 million after-tax), or $0.05 per share, relating to impairment losses.
(3)	Includes $8.2 million ($5.2 million after-tax), or $0.06 per share, of earnings attributable to the sale of all the remaining variable profits relating to the pool of extended service contracts sold at our dealerships from 2001 through 2005.
(4)	Includes an $11.5 million ($7.2 million after tax), or $0.08 per share, gain resulting from the sale of an investment and an $8.4 million ($5.3 million after tax), or $0.06 per share, gain resulting from a refund of U.K. consumption taxes. These gains were offset in part by non-cash charges of $7.8 million ($4.9 million after tax), or $0.05 per share, principally in connection with the planned relocation of certain U.K. franchises as part of our ongoing facility enhancement program.

EX-99.2

Exhibit 99.2

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

This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those discussed in the forward-looking statements as a result of various factors, including those discussed in “Item 1A. Risk Factors.” We have acquired a number of dealerships since inception. Our financial statements include the results of operations of acquired dealerships from the date of acquisition. This Management’s Discussion and Analysis of Financial Condition and Results of Operations has been updated to reflect the revision of our financial statements for entities which have been treated as discontinued operations through December 31, 2008, as well as for an entity which met the criteria to be classified as a discontinued operation during the second quarter of 2009, in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.”

Overview

We are the second largest automotive retailer headquartered in the U.S. as measured by total revenues. As of December 31, 2008, we owned and operated 156 franchises in the U.S. and 148 franchises outside of the U.S., primarily in the United Kingdom. We offer a full range of vehicle brands with 96% of our total revenue in 2008 generated from brands of non-U.S. based manufacturers, including sales relating to premium brands, such as Audi, BMW, Cadillac and Porsche which represented 65% of our total revenue. As a result, we have the highest concentration of revenues from brands of non-U.S. based manufacturers among the U.S. publicly-traded automotive retailers. Each of our dealerships offers a wide selection of new and used vehicles for sale. In addition to selling new and used vehicles, we generate higher-margin revenue at each of our dealerships through maintenance and repair services and the sale and placement of higher-margin products, such as third-party finance and insurance products, third-party extended service contracts and replacement and aftermarket automotive products. We are also diversified geographically, with 64% of our revenues generated from operations in the U.S. and 36% generated from our operations outside the U.S. (predominately in the U.K.).

We are, through smart Distributor USA, LLC, a wholly-owned subsidiary, the exclusive distributor of the smart fortwo vehicle in the U.S. and Puerto Rico. The smart fortwo is manufactured by Mercedes-Benz Cars and is a Daimler brand. This technologically advanced vehicle achieves 40 plus miles per gallon on the highway and is an ultra-low emissions vehicle as certified by the State of California Air Resources Board. smart USA has certified a network of 75 smart dealerships in 35 states, of which eight are owned and operated by us. The smart fortwo offers five different versions, the pure, passion coupe, passion cabriolet, BRABUS coupe and BRABUS cabriolet with base prices ranging from $11,990 to $20,990. smart USA wholesaled approximately 27,000 smart fortwo vehicles in 2008.

In June 2008, we acquired a 9% limited partnership interest in Penske Truck Leasing Co., L.P. (“PTL”), a leading global transportation services provider, from subsidiaries of General Electric Capital Corporation (collectively, “GE Capital”) in exchange for $219.0 million. PTL operates and maintains more than 200,000 vehicles and serves customers in North America, South America, Europe and Asia. Product lines include full-service leasing, contract maintenance, commercial and consumer truck rental and logistics services, including, transportation and distribution center management and supply chain management. The general partner is Penske Truck Leasing Corporation, a wholly-owned subsidiary of Penske Corporation, which, together with other wholly-owned subsidiaries of Penske Corporation, owns 40% of PTL. The remaining 51% of PTL is owned by GE Capital. We expect to receive annual pro rata cash distributions of partnership profits and realize U.S. cash tax savings from this investment.

Outlook

The worldwide automotive industry experienced significant operational and financial difficulties in 2008. The turbulence in worldwide credit markets and resulting decrease in the availability of financing and leasing alternatives for consumers hampered our sales efforts. In addition, there was reduced consumer confidence and spending in the markets in which we operate, which we believe reduced customer traffic in our dealerships, particularly since September 2008. Rapid changes in fuel prices also resulted in rapid changes in consumer preferences and demand, which negatively impacted vehicle retail sales. We expect our business to remain significantly impacted by economic conditions in 2009.

Market conditions have also negatively impacted vehicle manufacturers. In particular, the U.S. based automotive manufacturers have experienced critical operational and financial distress, due in part to shrinking market share in the U.S. and the recent limitation in worldwide credit capacity. In 2008 and early 2009, certain U.S. based manufacturers received support from the U.S. government in the form of loans, due in part to their admission of limited liquidity. While we have limited exposure to these manufacturers as a percentage of our overall revenue, a restructuring of any one of them would likely lead to significant disruption to the automotive supply chain and to our dealerships that represent those manufacturers, and could possibly also impact other automotive manufacturers and suppliers. We cannot reasonably predict the impact to the automotive retail environment of any such disruption.

In addition, the turbulence in worldwide credit markets has resulted in an increase in the cost of capital for the captive finance subsidiaries that provide us financing for our inventory procurement. Interest rates under our inventory borrowing arrangements are variable and based on changes in the prime rate, defined LIBOR or the Euro Interbank Offer Rate (the “base rate”), plus a spread that varies by lender. While the base rate under these arrangements are generally lower due to government actions designed to spur liquidity and bank lending activities, certain of our lenders raised the spread charged to us, or have established minimum lending rates. These increases became effective in late 2008 and early 2009, and varied between 50 and 250 basis points. Due to these relative increases, we do not expect to realize the full benefit of the lower base rates expected in 2009 compared to 2008. The increases levied by lenders to date would result in $5.8 million of incremental floorplan interest expense based on average outstanding balances during 2008.

In response to the challenging operating environment, we have undertaken significant cost saving initiatives. In 2008, we eliminated approximately 1,400 positions, representing approximately 10.0% of our worldwide workforce, and amended pay plans for certain other employees to better align our workforce for current business levels and to reduce compensation expense generally. Other cost curtailment initiatives include a reduction in advertising activities, a suspension of matching contributions to our defined contribution plan in the U.S., and the suspension of our quarterly cash dividends to stockholders. Our Chief Executive Officer and President also announced that they will each forgo all bonus amounts payable under their 2008 management incentive plans, and our Board of Directors has elected to forgo approximately 25% of its annual cash fee relating to 2008. We will continue to monitor the business climate, and take such further actions as needed to respond to business conditions.

Operating Overview

New and used vehicle revenues include sales to retail customers and to leasing companies providing consumer automobile leasing. We generate finance and insurance revenues from sales of third-party extended service contracts, sales of third-party insurance policies, fees for facilitating the sale of third-party finance and lease contracts and the sale of certain other products. Service and parts revenues include fees paid for repair, maintenance and collision services, the sale of replacement parts and the sale of aftermarket accessories. During 2008, we experienced a decline on a same store basis of new and used vehicle unit sales, coupled with a corresponding decrease in finance and insurance revenues. Our same store service and parts business also experienced a decline during the second half of the year, although less so than vehicle sales. We expect a continuation of this difficult operating environment in 2009.

Our gross profit tends to vary with the mix of revenues we derive from the sale of new vehicles, used vehicles, finance and insurance products, and service and parts. Our gross profit varies across product lines, with vehicle sales usually resulting in lower gross profit margins and our other revenues resulting in higher gross profit margins. Factors such as customer demand, general economic conditions, seasonality, weather, credit availability, fuel prices and manufacturers’ advertising and incentives may impact the mix of our revenues, and therefore influence our gross profit margin. During 2008, we experienced margin declines relating to our new and used vehicle sales, and we expect this margin pressure to continue in 2009. Beginning in the fourth quarter, the economic factors described above caused deterioration in the margins realized in our service and parts operations.

Our selling expenses consist of advertising and compensation for sales personnel, including commissions and related bonuses. General and administrative expenses include compensation for administration, finance, legal and general management personnel, rent, insurance, utilities and other outside services. A significant portion of our selling expenses are variable, and we believe a significant portion of our general and administrative expenses are subject to our control, allowing us to adjust them over time to reflect economic trends. We believe our selling, general and administrative expenses for compensation and advertising will decrease in 2009, due in part to lower vehicle sales volumes, coupled with the cost savings initiatives outlined above. However, our rent expense is expected to grow as a result of cost of living indexes outlined in our lease agreements. As outlined in “Outlook” above, we will continue to monitor the business climate, and take such further actions as needed to respond to business conditions.

Floor plan interest expense relates to financing incurred in connection with the acquisition of new and used vehicle inventories that is secured by those vehicles. Other interest expense consists of interest charges on all of our interest-bearing debt, other than interest relating to floor plan financing. The cost of our variable rate indebtedness is typically based on benchmark lending rates, which are based in large part upon national inter-bank lending rates set by local governments. During the latter part of 2008, such benchmark rates were significantly reduced as a result of government actions designed to spur liquidity and bank lending activities. As a result, we expect that our cost of capital on variable rate indebtedness will decline at least during a portion of 2009. However, the significance of this decrease is expected to be limited somewhat by the increases in rate spreads being charged by our vehicle finance partners outlined in “Outlook” above.

Equity in earnings of affiliates represents our share of the earnings relating to investments in joint ventures and other non-consolidated investments, notably PTL. It is our expectation that the external factors outlined above will similarly impact these businesses in 2009.

Under an arrangement which terminated at the end of 2008, we and Sirius Satellite Radio Inc. (“Sirius”) agreed to jointly promote Sirius Satellite Radio service. As compensation for our efforts, we received warrants to purchase ten million shares of Sirius common stock at $2.392 per share in 2004 that were earned ratably on an annual basis through January 2009. We measured the fair value of the warrants earned ratably on the date they were earned as there were no significant disincentives for non-performance. We also had the right to earn additional warrants to purchase Sirius common stock at $2.392 per share based upon the sale of certain units of specified brands through December 31, 2007. We earned warrants for 189,300 and 1,269,700 during the years ended December 31, 2007 and 2006, respectively. Since we could not reasonably estimate the number of warrants that were earned subject to the sale of units, the fair value of these warrants was recognized when they were earned. Based on the value of Sirius stock on December 31, 2008, we do not expect to receive any further value for the unexercised warrants we achieved under this arrangement, which expire on July 5, 2009.

The future success of our business will likely be dependent on, among other things, general economic and industry conditions, our ability to consummate and integrate acquisitions, our ability to increase sales of higher margin products, especially service and parts services, our ability to realize returns on our significant capital investment in new and upgraded dealerships, the success of our distribution of the smart fortwo, and the return realized from our investments in various joint ventures and other non-consolidated investments, notably PTL. See “Item 1A-Risk Factors.”

Critical Accounting Policies and Estimates

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

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

Revenue Recognition

Vehicle, Parts and Service Sales

We record revenue when vehicles are delivered and title has passed to the customer, when vehicle service or repair work is performed and when parts are delivered to our customers. Sales promotions that we offer to customers are accounted for as a reduction of revenues at the time of sale. Rebates and other incentives offered directly to us by manufacturers are recognized as a reduction of cost of sales. Reimbursement of qualified advertising expenses are treated as a reduction of selling, general and administrative expenses. The amounts received under various manufacturer rebate and incentive programs are based on the attainment of program objectives, and such earnings are recognized either upon the sale of the vehicle for which the award was received, or upon attainment of the particular program goals if not associated with individual vehicles. During the years ended December 31, 2008, 2007 and 2006, we earned $323.0 million, $341.8 million and $265.6 million, respectively, of rebates, incentives and reimbursements from manufacturers, of which $315.5 million, $335.2 million and $259.1 million was recorded as a reduction of cost of sales.

Finance and Insurance Sales

Subsequent to the sale of a vehicle to a customer, we sell our installment sale contracts to various financial institutions on a non-recourse basis (with specified exceptions) to mitigate the risk of default. We receive a commission from the lender equal to either the difference between the interest rate charged to the customer and the interest rate set by the financing institution or a flat fee. We also receive commissions for facilitating the sale of various third-party insurance products to customers, including credit and life insurance policies and extended service contracts. These commissions are recorded as revenue at the time the customer enters into the contract.

Intangible Assets

Our principal intangible assets relate to our franchise agreements with vehicle manufacturers, which represent the estimated value of franchises acquired in business combinations, and goodwill, which represents the excess of cost over the fair value of tangible and identified intangible assets acquired in business combinations. We believe the franchise value of our dealerships has an indefinite useful life based on the following facts:

• Automotive retailing is a mature industry and is based on franchise agreements with the vehicle manufacturers;

• There are no known changes or events that would alter the automotive retailing franchise environment;

• Certain franchise agreement terms are indefinite;

• Franchise agreements that have limited terms have historically been renewed by us without substantial cost; and

• Our history shows that manufacturers have not terminated our franchise agreements.

Impairment Testing

Franchise value impairment is assessed as of October 1 every year and upon the occurrence of an indicator of impairment through a comparison of its carrying amounts and estimated fair values. An indicator of impairment exists if the carrying value of a franchise exceeds its estimated fair value and an impairment loss may be recognized up to that excess. We also evaluate our franchises in connection with the annual impairment testing to determine whether events and circumstances continue to support its assessment that the franchise has an indefinite life. As discussed in Note 7, we determined that the carrying value relating to certain of our franchise rights as of December 31, 2008 was impaired and recorded a pre-tax non-cash impairment charge of $37.1 million.

Goodwill impairment is assessed at the reporting unit level as of October 1 every year and upon the occurrence of an indicator of impairment. We have determined that the dealerships in each of our operating segments within the Retail reportable segment, which are organized by geography, are components that are aggregated into five reporting units as they (A) have similar economic characteristics (all are automotive dealerships having similar margins), (B) offer similar products and services (all sell new and used vehicles, service, parts and third-party finance and insurance products), (C) have similar target markets and customers (generally individuals) and (D) have similar distribution and marketing practices (all distribute products and services through dealership facilities that market to customers in similar fashions). Accordingly, our operating segments are also considered our reporting units for the purpose of goodwill impairment testing relating to our Retail segment. There is no goodwill recorded in our Distribution or PAG Investments reportable segments. An indicator of goodwill impairment exists if the carrying amount of the reporting unit, including goodwill, is determined to exceed the estimated fair value.  If an indication of goodwill impairment exists, an analysis reflecting the allocation of the fair value of the reporting unit to all assets and liabilities, including previously unrecognized intangible assets, is performed.  The impairment is measured by comparing the implied fair value of the reporting unit goodwill with its carrying amount and an impairment loss may be recognized up to that excess. As discussed in Note 7, we determined that the carrying value of goodwill as of December 31, 2008 relating to certain reporting units was impaired and recorded a pre-tax non-cash impairment charge of $606.3 million.

The fair values of franchise rights and goodwill are determined using a discounted cash flow approach, which includes assumptions that include revenue and profitability growth, franchise profit margins, residual values and our cost of capital.

Investments

Investments include marketable securities and investments in businesses accounted for under the equity method. A majority of our investments are in joint venture relationships that are more fully described in “Joint Venture Relationships” below. Such joint venture relationships are accounted for under the equity method, pursuant to which we record our proportionate share of the joint venture’s income each period. In June 2008, we acquired a 9% limited partnership interest in PTL for $219.0 million from GE Capital.

Investments in marketable securities held by us are typically classified as available for sale and stated at fair value, determined by the use of Level 1 inputs as described under SFAS No. 157, on our balance sheet with unrealized gains and losses included in other comprehensive income (loss), a separate component of equity.

The net book value of our investments was $297.8 million and $64.4 million as of December 31, 2008 and 2007, respectively. Investments for which there is not a liquid, actively traded market are reviewed periodically by management for indicators of impairment. If an indicator of impairment were to be identified, management would estimate the fair value of the investment using a discounted cash flow approach, which would include assumptions relating to revenue and profitability growth, profit margins, residual values and our cost of capital. Declines in investment values that are deemed to be other than temporary may result in an impairment charge reducing the investments’ carrying value to fair value. During 2007, we recorded an adjustment to the carrying value of our investment in Internet Brands to recognize an other than temporary impairment of $3.4 million which became apparent upon their initial public offering. As a result of continued deterioration in the value of the stock, the Company recorded an additional other than temporary impairment charge of $0.5 million during the fourth quarter of 2008.

Self-Insurance

We retain risk relating to certain of our general liability insurance, workers’ compensation insurance, auto physical damage insurance, property insurance, employment practices liability insurance, director’s and officers insurance, and employee medical benefits in the U.S. As a result, we are likely to be responsible for a majority of the claims and losses incurred under these programs. The amount of risk we retain varies by program, and, for certain exposures, we have pre-determined maximum loss limits for certain individual claims and/or insurance periods. Losses, if any, above the pre-determined loss limits are paid by third-party insurance carriers. Our estimate of future losses is prepared by management using our historical loss experience and industry-based development factors. Aggregate reserves relating to retained risk were $19.2 million and $12.8 million as of December 31, 2008 and 2007, respectively. Changes in the reserve estimate during 2008 relate primarily to the inclusion of additional participants in our employee medical benefit plans, reserves for current year activity and changes in loss experience in our historical employee medical, general liability and workers compensation programs.

Income Taxes

Tax regulations may require items to be included in our tax return at different times than the items are reflected in our financial statements. Some of these differences are permanent, such as expenses that are not deductible on our tax return, and some are temporary differences, such as the timing of depreciation expense. Temporary differences create deferred tax assets and liabilities. Deferred tax assets generally represent items that will be used as a tax deduction or credit in our tax return in future years which we have already recorded in our financial statements. Deferred tax liabilities generally represent deductions taken on our tax return that have not yet been recognized as expense in our financial statements. We establish valuation allowances for our deferred tax assets if the amount of expected future taxable income is not likely to allow for the use of the deduction or credit. A valuation allowance of $3.4 million has been recorded relating to net operating losses and credit carryforwards in the U.S. based on our determination that it is more likely than not that they will not be utilized.

Classification of Franchises in Continuing and Discontinued Operations

We classify the results of our operations in our consolidated financial statements based on the provisions of Statement of Financial Accounting Standards (SFAS) No. 144, which requires judgment in determining whether a franchise will be reported within continuing or discontinued operations. Such judgments include whether a franchise will be divested, the period required to complete the divestiture, and the likelihood of changes to the divestiture plans. If we determine that a franchise should be either reclassified from continuing operations to discontinued operations or from discontinued operations to continuing operations, our consolidated financial statements for prior periods are revised to reflect such reclassification.

New Accounting Pronouncements

SFAS No. 157, “Fair Value Measurements” defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosure requirements relating to fair value measurements. The FASB provided a one year deferral of the provisions of this pronouncement for non-financial assets and liabilities, however, the relevant provisions of SFAS No. 157 required by SFAS No. 159 were adopted as of January 1, 2008. SFAS No. 157 thus became effective for our non-financial assets and liabilities on January 1, 2009. We continue to evaluate the impact of this pronouncement on our non-financial assets and liabilities, including but not limited to, the valuation of our reporting units for the purpose of assessing goodwill impairment, the valuation of our franchise rights in connection with assessing franchise value impairments, the valuation of property and equipment in connection with assessing long-lived asset impairment, the valuation of liabilities in connection with exit or disposal activities, and the valuation of assets acquired and liabilities assumed in business combinations.

SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities Including an Amendment of FASB Statement No. 115” permits entities to choose to measure many financial instruments and certain other items at fair value and consequently report unrealized gains and losses on such items in earnings. We did not elect the fair value option with respect to any of our current financial assets or financial liabilities when the provisions of this pronouncement became effective on January 1, 2008. As a result, there was no impact upon the adoption.

SFAS No. 141(R) “Business Combinations” requires almost all assets acquired and liabilities assumed in connection with a business combination to be recorded at fair value as of the acquisition date, liabilities related to contingent consideration to be remeasured at fair value in each subsequent reporting period, and all acquisition related costs to be expensed as incurred. The pronouncement also clarifies the accounting under various scenarios such as step purchases or in situations in which the fair value of assets and liabilities acquired exceeds the total consideration. SFAS No. 141(R) became effective for us on January 1, 2009.

SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities” amends and expands the disclosure requirements of SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” to explain why and how an entity uses derivative instruments, how the hedged items are accounted for under the relevant literature and how the derivative instruments affect an entity’s financial position, financial performance and cash flows. SFAS No. 161 became effective for us on January 1, 2009. This pronouncement will have no impact on our accounting, and we will include the additional disclosure requirements beginning with our first quarter 2009 10-Q filing.

FASB Staff Position (“FSP”) FAS 142-3, “Determination of the Useful Life of Intangible Assets” amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142,“Goodwill and Other Intangible Assets.”  FSP FAS 142-3 became effective for the Company on January 1, 2009.  The guidance in FSP 142-3 for determining the useful life of a recognized intangible asset shall be applied prospectively to intangible assets acquired after adoption, and the disclosure requirements shall be applied prospectively to all intangible assets recognized as of, and subsequent to, adoption.  The FSP will impact our assignment of franchise value in the U.K. for future acquisitions.

Adoption of New Accounting Pronouncements

We adopted FASB Staff Position (“FSP”) APB 14-1, “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)” effective January 1, 2009. Pursuant to FSP APB 14-1, we were required to account separately for the debt and equity components of our 3.5% Senior Subordinated Convertible Notes. The value ascribed to the debt component was determined using a fair value methodology, with the residual representing the equity component. The equity component was recorded as an increase in equity, with the debt discount being amortized as additional interest expense over the expected life of the instrument. We have applied the provisions of this standard retrospectively to all periods presented herein in accordance with SFAS No. 154, “Accounting Changes and Error Corrections.”

We adopted FSP EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities” effective January 1, 2009, which requires that unvested share-based payment awards with non-forfeitable rights to dividends or dividend equivalents be considered participating securities that must be included in the computation of EPS pursuant to the two-class method.  We have applied the provisions of this standard retrospectively to all periods presented herein in accordance with SFAS No. 154.

See Note 1 of the Notes to the Consolidated Condensed Financial Statements for a summary of the effect of the accounting changes resulting from the adoption of FSP APB 14-1 and FSP EITF 03-6-1 on our operating results, financial position and cash flows.

We adopted SFAS No. 160, “Non-controlling Interests in Consolidated Financial Statements an Amendment of ARB No. 51,” effective January 1, 2009, pursuant to which we reclassified our minority interest liabilities to equity relating to the Company’s non-wholly owned consolidated subsidiaries and amended the presentation of income attributable to non-controlling interests on the income statement. We have applied the presentation and disclosure provisions of this standard retrospectively to all periods presented herein.

Results of Operations

The following tables present comparative financial data relating to our operating performance in the aggregate and on a “same-store” basis. Dealership results are included in same-store comparisons when we have consolidated the acquired entity during the entirety of both periods being compared. As an example, if a dealership was acquired on January 15, 2007, the results of the acquired entity would be included in annual same-store comparisons beginning with the year ended December 31, 2009 and in quarterly same-store comparisons beginning with the quarter ended June 30, 2008.

2008 compared to 2007 and 2007 compared to 2006 (in millions, except unit and per unit amounts)

Due in large part to deterioration in our operating results and turbulence in worldwide credit markets in the fourth quarter of 2008, we recorded an estimated non-cash goodwill impairment charge of $606.3 million ($470.4 million after-tax) and $37.1 million ($22.8 million after-tax) of non-cash franchise value impairment charges. In aggregate, our results for the year ended December 31, 2008 include charges of $661.9 million ($505.2 million after-tax), or $5.37 per share, including the goodwill and franchise asset impairments, as well as, an additional $18.4 million ($12.0 million after-tax) of dealership consolidation and relocation costs, severance costs, other asset impairment charges, costs associated with the termination of an acquisition agreement, and insurance deductibles relating to damage sustained at our dealerships in the Houston market during Hurricane Ike.

Our results for the year ended December 31, 2007 included charges of $18.6 million ($12.3 million after-tax) relating to the redemption of the $300.0 million aggregate principal amount of 9.625% Senior Subordinated Notes and $6.3 million ($4.5 million after-tax) relating to impairment losses.

Total Retail Data

							2008 vs. 2007												2007 vs. 2006
Total Retail Data	2008			2007			Change			% Change			2007			2006			Change			% Change
Total retail unit sales		273,301			293,001			(19,700	)		(6.7	)%		293,001			265,402			27,599			10.4	%
Total same-store retail unit sales		246,811			276,829			(30,018	)		(10.8	)%		258,058			250,969			7,089			2.8	%
Total retail sales revenue	$	10,439.0		$	11,696.5		$	(1,257.5	)		(10.8	)%	$	11,696.5		$	10,039.3		$	1,657.2			16.5	%
Total same-store retail sales revenue	$	9,529.0		$	11,111.1		$	(1,582.1	)		(14.2	)%	$	10,155.9		$	9,407.8		$	748.1			8.0	%
Total retail gross profit	$	1,737.6		$	1,887.8		$	(150.2	)		(8.0	)%	$	1,887.8		$	1,650.2		$	237.6			14.4	%
Total same-store retail gross profit	$	1,597.2		$	1,801.7		$	(204.5	)		(11.4	)%	$	1,661.4		$	1,559.2		$	102.2			6.6	%
Total retail gross margin		16.6	%		16.1	%		0.5	%		3.1	%		16.1	%		16.4	%		(0.3	)%		(1.8	)%
Total same-store retail gross margin		16.8	%		16.2	%		0.6	%		3.7	%		16.4	%		16.6	%		(0.2	)%		(1.2	)%

Units

Retail data includes retail new vehicle, retail used vehicle, finance and insurance and service and parts transactions. Retail unit sales of vehicles decreased by 19,700, or 6.7%, from 2007 to 2008 and increased by 27,599, or 10.4%, from 2006 to 2007. The decrease from 2007 to 2008 is due to a 30,018, or 10.8%, decrease in same-store retail unit sales, offset by a 10,318 unit increase from net dealership acquisitions during the year. The increase from 2006 to 2007 is due to a 20,510 unit increase from net dealership acquisitions during the year, coupled with a 7,089, or 2.8%, increase in same-store retail unit sales. The same-store decrease from 2007 to 2008 was driven by decreases in new retail unit sales in our premium brands in the U.S. and U.K. and volume foreign and domestic brands in the U.S. resulting in part from challenging economic conditions and decreased credit availability in the second half of 2008. The same-store increase from 2006 to 2007 was driven by increases in new and used retail unit sales in our premium brands in the U.K., increases in used retail unit sales in our volume foreign brands in the U.S., and increases in new and used retail unit sales in our domestic brands in the U.S.

We believe the decrease from 2007 to 2008 was primarily due to the challenging automotive retail environment. Results were adversely impacted by overall economic conditions, particularly in the second half of 2008, the discontinuation or limitation of certain manufacturer leasing programs, and a decline in consumer confidence. Additionally, volatility in fuel prices impacted consumer preference and caused dramatic swings in consumer demand for various vehicle models, which led to supply and demand imbalances.

Revenues

Retail sales revenue decreased $1.3 billion, or 10.8%, from 2007 to 2008 and increased $1.7 billion, or 16.5%, from 2006 to 2007. The decrease from 2007 to 2008 is due to a $1.6 billion, or 14.2%, decrease in same-store revenues, offset by a $324.6 million increase from net dealership acquisitions during the year. The same-store revenue decrease is due to: (1) the 10.8% decrease in retail unit sales, which decreased revenue by $1.1 billion, (2) a $3,281, or 10.6%, decrease in average revenue per used vehicle unit retailed, which decreased revenue by $311.5 million, (3) a $781, or 2.2%, decrease in average revenue per new vehicle unit retailed, which decreased revenue by $118.5 million, (4) a $33.7 million, or 2.5%, decrease in service and parts revenues, and (5) a $24, or 2.4%, decrease in average finance and insurance revenue per unit retailed, which decreased revenue by $5.9 million. The increase from 2006 to 2007 is due to a $748.1 million, or 8.0%, increase in same-store revenues coupled with a $909.1 million increase from net dealership acquisitions during the year. The same-store revenue increase is due to: (1) a $1,722, or 5.1%, increase in average revenue per new vehicle unit retailed, which increased revenue by $296.6 million, (2) the 2.8% increase in retail unit sales, which increased revenue by $221.7 million, (3) a $1,672, or 5.9%, increase in average revenue per used vehicle unit retailed, which increased revenue by $131.6 million, (4) a $83.8 million, or 7.4%, increase in service and parts revenues, and (5) a $58, or 6.2%, increase in average finance and insurance revenue per unit retailed, which increased revenue by $14.4 million.

Gross Profit

Retail gross profit decreased $150.2 million, or 8.0%, from 2007 to 2008 and increased $237.6 million, or 14.4%, from 2006 to 2007. The decrease from 2007 to 2008 is due to a $204.5 million, or 11.4%, decrease in same-store gross profit, offset by a $54.3 million increase from net dealership acquisitions during the year. The same-store gross profit decrease is due to: (1)  the 10.8% decrease in retail unit sales, which decreased gross profit by $120.7 million, (2) a $345, or 14.1%, decrease in average gross profit per used vehicle retailed, which decreased gross profit by $32.8 million, (3) a $150, or 5.0%, decrease in average gross profit per new vehicle retailed, which decreased gross profit by $22.8 million, (4) a $22.3 million, or 3.0%, decrease in service and parts gross profit, and (5) a $24, or 2.4%, decrease in average finance and insurance revenue per unit retailed, which decreased gross profit by $5.9 million. The increase in retail gross profit from 2006 to 2007 is due to a $102.2 million, or 6.6%, increase in same-store gross profit, coupled with a $135.4 million increase from net dealership acquisitions during the year. The same-store gross profit increase is due to: (1) a $57.5 million, or 9.2%, increase in service and parts gross profit, (2) the 2.8%, increase in retail unit sales, which increased gross profit by $24.6 million, (3) a $58, or 6.2%, increase in average finance and insurance revenue per unit retailed, which increased gross profit by $14.4 million, (4) a $18, or 0.6%, increase in average gross profit per new vehicle retailed, which increased gross profit by $3.1 million, and (5) a $33, or 1.4%, increase in average gross profit per used vehicle retailed, which increased gross profit by $2.6 million.

New Vehicle Data

							2008 vs. 2007												2007 vs. 2006
New Vehicle Data	2008			2007			Change			% Change			2007			2006			Change			% Change
New retail unit sales		171,774			193,083			(21,309	)		(11.0	)%		193,083			179,460			13,623			7.6	%
Same-store new retail unit sales		151,866			181,791			(29,925	)		(16.5	)%		172,849			172,301			548			0.3	%
New retail sales revenue	$	5,942.7		$	6,933.3		$	(990.6	)		(14.3	)%	$	6,933.3		$	6,116.8		$	816.5			13.3	%
Same-store new retail sales revenue	$	5,361.2		$	6,559.5		$	(1,198.3	)		(18.3	)%	$	6,136.2		$	5,820.1		$	316.1			5.4	%
New retail sales revenue per unit	$	34,596		$	35,909		$	(1,313	)		(3.7	)%	$	35,909		$	34,084		$	1,825			5.4	%
Same-store new retail sales revenue per unit	$	35,302		$	36,083		$	(781	)		(2.2	)%	$	35,501		$	33,779		$	1,722			5.1	%
Gross profit — new	$	486.6		$	583.0		$	(96.4	)		(16.5	)%	$	583.0		$	535.2		$	47.8			8.9	%
Same-store gross profit — new	$	436.3		$	549.6		$	(113.3	)		(20.6	)%	$	512.7		$	508.0		$	4.7			0.9	%
Average gross profit per new vehicle retailed	$	2,833		$	3,020		$	(187	)		(6.2	)%	$	3,020		$	2,982		$	38			1.3	%
Same-store average gross profit per new vehicle retailed	$	2,873		$	3,023		$	(150	)		(5.0	)%	$	2,966		$	2,948		$	18			0.6	%
Gross margin% — new		8.2	%		8.4	%		(0.2	)%		(2.4	)%		8.4	%		8.7	%		(0.3	)%		(3.4	)%
Same-store gross margin% — new		8.1	%		8.4	%		(0.3	)%		(3.6	)%		8.4	%		8.7	%		(0.3	)%		(3.4	)%

Units

Retail unit sales of new vehicles decreased 21,309 units, or 11.0%, from 2007 to 2008, and increased 13,623 units, or 7.6%, from 2006 to 2007. The decrease from 2007 to 2008 is due to a 29,925 unit, or 16.5%, decrease in same-store new retail unit sales, offset by a 8,616 unit increase from net dealership acquisitions during the year. The same-store decrease from 2007 to 2008 was driven by decreases in our premium brands in the U.S. and U.K. and volume foreign and domestic brands in the U.S. The increase from 2006 to 2007 is due to a 13,075 unit increase from net dealership acquisitions during the year coupled with a 548 unit, or 0.3%, increase in same-store new retail unit sales. The same-store increase from 2006 to 2007 was driven by increases in premium brands in the U.K., offset by a decrease in volume foreign brands in the U.S.

Revenues

New vehicle retail sales revenue decreased $990.6 million, or 14.3%, from 2007 to 2008 and increased $816.5 million, or 13.3%, from 2006 to 2007. The decrease from 2007 to 2008 is due to a $1.2 billion, or 18.3%, decrease in same-store revenues, offset by a $207.7 million increase from net dealership acquisitions during the year. The same-store revenue decrease is due primarily to the 16.5% decrease in new retail unit sales, which decreased revenue by $1.1 billion, coupled with a $781, or 2.2%, decrease in comparative average selling price per unit which decreased revenue by $118.5 million. The increase from 2006 to 2007 is due to a $316.1 million, or 5.4%, increase in same-store revenues, coupled with a $500.4 million increase from net dealership acquisitions during the year. The same-store revenue increase is due to a $1,722, or 5.1%, increase in comparative average selling price per unit which increased revenue by $296.6 million, coupled with the 0.3% increase in retail unit sales, which increased revenue by $19.5 million.

Gross Profit

Retail gross profit from new vehicle sales decreased $96.4 million, or 16.5%, from 2007 to 2008, and increased $47.8 million, or 8.9%, from 2006 to 2007. The decrease from 2007 to 2008 is due to a $113.3 million, or 20.6%, decrease in same-store gross profit, offset by a $16.9 million increase from net dealership acquisitions during the year. The same-store retail gross profit decrease is due to the 16.5% decrease in new retail unit sales, which decreased gross profit by $90.5 million, coupled with a $150, or 5.0%, decrease in average gross profit per new vehicle retailed, which decreased gross profit by $22.8 million. The increase from 2006 to 2007 is due to a $43.1 million increase from net dealership acquisitions during the year, coupled with a $4.7 million, or 0.9%, increase in same-store gross profit. The same-store retail gross profit increase is due to a $18, or 0.6%, increase in average gross profit per new vehicle retailed, which increased gross profit by $3.1 million, coupled with the 0.3% increase in new retail unit sales, which increased gross profit by $1.6 million.

Used Vehicle Data

							2008 vs. 2007												2007 vs. 2006
Used Vehicle Data	2008			2007			Change			% Change			2007			2006			Change			% Change
Used retail unit sales		101,527			99,918			1,609			1.6	%		99,918			85,942			13,976			16.3	%
Same-store used retail unit sales		94,945			95,038			(93	)		(0.1	)%		85,209			78,668			6,541			8.3	%
Used retail sales revenue	$	2,836.4		$	3,087.1		$	(250.7	)		(8.1	)%	$	3,087.1		$	2,472.9		$	614.2			24.8	%
Same-store used retail sales revenue	$	2,635.1		$	2,949.4		$	(314.3	)		(10.7	)%	$	2,543.3		$	2,216.5		$	326.8			14.7	%
Used retail sales revenue per unit	$	27,938		$	30,896		$	(2,958	)		(9.6	)%	$	30,896		$	28,774		$	2,122			7.4	%
Same-store used retail sales revenue per unit	$	27,753		$	31,034		$	(3,281	)		(10.6	)%	$	29,847		$	28,175		$	1,672			5.9	%
Gross profit — used	$	213.3		$	241.7		$	(28.4	)		(11.8	)%	$	241.7		$	206.3		$	35.4			17.2	%
Same-store gross profit — used	$	200.1		$	233.2		$	(33.1	)		(14.2	)%	$	208.8		$	190.2		$	18.6			9.8	%
Average gross profit per used vehicle retailed	$	2,101		$	2,419		$	(318	)		(13.1	)%	$	2,419		$	2,400		$	19			0.8	%
Same-store average gross profit per used vehicle retailed	$	2,108		$	2,453		$	(345	)		(14.1	)%	$	2,451		$	2,418		$	33			1.4	%
Gross margin % — used		7.5	%		7.8	%		(0.3	)%		(3.8	)%		7.8	%		8.3	%		(0.5	)%		(6.0	)%
Same-store gross margin % — used		7.6	%		7.9	%		(0.3	)%		(3.8	)%		8.2	%		8.6	%		(0.4	)%		(4.7	)%

Units

Retail unit sales of used vehicles increased 1,609 units, or 1.6%, from 2007 to 2008 and increased 13,976 units, or 16.3%, from 2006 to 2007. The increase from 2007 to 2008 is due to a 1,702 unit increase from net dealership acquisitions during the year, offset by a 93 unit, or 0.1%, decrease in same-store used retail unit sales. The increase from 2006 to 2007 is due to a 6,541 unit, or 8.3%, increase in same-store used retail unit sales, coupled with a 7,435 unit increase from net dealership acquisitions during the year. The same-store decrease in 2008 versus 2007 was driven primarily by decreases in our premium brands in the U.K. and volume foreign brands in the U.S., offset by increases in our premium brands in the U.S. We believe our sales of used vehicle units was influenced by customers choosing used vehicles as compared to new vehicles due to the challenging economic climate. The same-store increase in 2007 versus 2006 was driven primarily by increases in our premium brands in the U.S. and U.K. and our volume foreign and domestic brands in the U.S. Used vehicle sales volume was also affected in part by the reduction in traffic into our stores resulting from the significant decline in consumer confidence during 2008 and the volatility in fuel prices.

Revenues

Used vehicle retail sales revenue decreased $250.7 million, or 8.1%, from 2007 to 2008 and increased $614.2 million, or 24.8%, from 2006 to 2007. The decrease from 2007 to 2008 is due to a $314.3 million, or 10.7%, decrease in same-store revenues, offset by a $63.6 million increase from net dealership acquisitions during the year. The same-store revenue decrease is due primarily to the $3,281, or 10.6%, decrease in comparative average selling price per vehicle, which decreased revenue by $311.5 million, coupled with the 0.1% decrease in retail unit sales, which decreased revenue by $2.8 million. The increase from 2006 to 2007 is due to a $326.8 million, or 14.7%, increase in same-store revenues, coupled with a $287.4 million increase from net dealership acquisitions during the year. The same-store revenue increase is due to the 8.3% increase in retail unit sales, which increased revenue by $195.2 million, coupled with a $1,672, or 5.9%, increase in comparative average selling price per unit, which increased revenue by $131.6 million.

Gross Profit

Retail gross profit from used vehicle sales decreased $28.4 million, or 11.8%, from 2007 to 2008 and increased $35.4 million, or 17.2%, from 2006 to 2007. The decrease from 2007 to 2008 is due to a $33.1 million, or 14.2%, decrease in same-store gross profit, offset by a $4.7 million increase from net dealership acquisitions during the year. The same-store gross profit decrease from 2007 to 2008 is due to a $345, or 14.1%, decrease in average gross profit per used vehicle retailed, which decreased gross profit by $32.8 million, coupled with the 0.1% decrease in used retail unit sales, which decreased gross profit by $0.3 million. The increase in retail gross profit from 2006 to 2007 is due to an $18.6 million, or 9.8%, increase in same-store gross profit, coupled with a $16.8 million increase from net dealership acquisitions during the year. The same-store gross profit increase is due to the 8.3% increase in used retail unit sales, which increased gross profit by $16.0 million, coupled with a $33, or 1.4%, increase in average gross profit per used vehicle retailed, which increased gross profit by $2.6 million.

Finance and Insurance Data

					2008 vs. 2007										2007 vs. 2006
Finance and Insurance Data	2008		2007		Change			% Change			2007		2006		Change		% Change
Total retail unit sales		273,301		293,001		(19,700	)		(6.7	)%		293,001		265,402		27,599		10.4	%
Total same-store retail unit sales		246,811		276,829		(30,018	)		(10.8	)%		258,058		250,969		7,089		2.8	%
Finance and insurance revenue	$	259.0	$	286.4	$	(27.4	)		(9.6	)%	$	286.4	$	243.0	$	43.4		17.9	%
Same-store finance and insurance revenue	$	239.8	$	275.6	$	(35.8	)		(13.0	)%	$	255.1	$	233.7	$	21.4		9.2	%
Finance and insurance revenue per unit	$	948	$	978	$	(30	)		(3.1	)%	$	977	$	916	$	61		6.7	%
Same-store finance and insurance revenue per unit	$	972	$	996	$	(24	)		(2.4	)%	$	989	$	931	$	58		6.2	%

Finance and insurance revenue decreased $27.4 million, or 9.6%, from 2007 to 2008 and increased $43.4 million, or 17.9%, from 2006 to 2007. The decrease from 2007 to 2008 is due to a $35.8 million, or 13.0%, decrease in same-store revenues, offset by an $8.4 million increase from net dealership acquisitions during the year. The same-store revenue decrease is due to the 10.8% decrease in retail unit sales, which decreased revenue by $29.9 million, coupled with a $24, or 2.4%, decrease in comparative average finance and insurance revenue per unit retailed, which decreased revenue by $5.9 million. The $24 decrease in comparative average finance and insurance revenue per unit retailed is due primarily to decreased sales penetration of certain products which we believe resulted in part from declining consumer confidence brought about by challenging economic conditions. The increase from 2006 to 2007 is due to a $22.0 million increase from net dealership acquisitions during the year, coupled with a $21.4 million, or 9.2%, increase in same-store revenues. The same-store revenue increase is the result of the 2.8% increase in retail unit sales, which increased revenue by $7.0 million, coupled with a $58, or 6.2%, increase in comparative average finance and insurance revenue per unit retailed, which increased revenue by $14.4 million. The $58 increase in comparative average finance and insurance revenue per unit retailed is due to increased sales penetration of certain products, particularly in the U.K.

Service and Parts Data

							2008 vs. 2007												2007 vs. 2006
Service and Parts Data	2008			2007			Change			% Change			2007			2006			Change			% Change
Service and parts revenue	$	1,400.9		$	1,389.7		$	11.2			0.8	%	$	1,389.7		$	1,206.6		$	183.1			15.2	%
Same-store service and parts revenue	$	1,292.9		$	1,326.6		$	(33.7	)		(2.5	)%	$	1,221.3		$	1,137.5		$	83.8			7.4	%
Gross profit	$	778.7		$	776.7		$	2.0			0.3	%	$	776.7		$	665.7		$	111.0			16.7	%
Same-store gross profit	$	721.0		$	743.3		$	(22.3	)		(3.0	)%	$	684.8		$	627.3		$	57.5			9.2	%
Gross margin		55.6	%		55.9	%		(0.3	)%		(0.5	)%		55.9	%		55.2	%		0.7	%		1.3	%
Same-store gross margin		55.8	%		56.0	%		(0.2	)%		(0.4	)%		56.1	%		55.1	%		1.0	%		1.8	%

Revenues

Service and parts revenue increased $11.2 million, or 0.8%, from 2007 to 2008 and increased $183.1 million, or 15.2%, from 2006 to 2007. The increase from 2007 to 2008 is due to a $44.9 million increase from net dealership acquisitions during the year, offset by a $33.7 million, or 2.5%, decrease in same-store revenues. The same-store decrease largely resulted from a decline in revenues in the second half of the year, due in part to challenging economic conditions. The increase from 2006 to 2007 is due to a $99.3 million increase from net dealership acquisitions during the year, coupled with a $83.8 million, or 7.4%, increase in same-store revenues. We believe that our service and parts business has been positively impacted by the growth in total retail unit sales at our dealerships in prior years and capacity increases in our service and parts operations resulting from our facility improvement and expansion programs.

Gross Profit

Service and parts gross profit increased $2.0 million, or 0.3%, from 2007 to 2008 and increased $111.0 million, or 16.7%, from 2006 to 2007. The increase from 2007 to 2008 is due to a $24.3 million increase from net dealership acquisitions during the year, offset by a $22.3 million, or 3.0%, decrease in same-store gross profit. The same-store gross profit decrease is due to the $33.7 million, or 2.5%, decrease in revenues, which decreased gross profit by $18.8 million, coupled with a 0.2% decrease in gross margin percentage, which decreased gross profit by $3.5 million. The increase from 2006 to 2007 is due to a $57.5 million, or 9.2%, increase in same-store gross profit, coupled with a $53.5 million increase from net dealership acquisitions during the year. The same-store gross profit increase is due to the $83.8 million, or 7.4%, increase in revenues, which increased gross profit by $47.0 million, and a 1.0% increase in gross margin percentage, which increased gross profit by $10.5 million. The gross margin realized on parts, service and collision repairs in 2008 declined compared to the prior year period, due in part to a higher proportion of sales of lower margin activities such as standard oil changes and tire sales. We believe customers are choosing to forgo or delay significant repair and maintenance work due to the current economic environment.

Distribution

Our wholly-owned subsidiary, smart USA, began distribution the smart fortwo vehicle in the U.S. during 2008 and wholesaled 27,054 units. Total distribution segment revenue during the year ended December 31, 2008 aggregated to $409.6 million. Segment gross profit totaled $55.3 million, which includes gross profit on vehicle and parts sales.

Selling, General and Administrative

SG&A expenses as a percentage of total revenue were 12.8%, 11.8% and 12.0% in 2008, 2007 and 2006, respectively, and as a percentage of gross profit were 83.4%, 79.5% and 79.3% in 2008, 2007 and 2006, respectively. Selling, general and administrative (“SG&A”) expenses decreased $14.6 million, or 1.0%, from 2007 to 2008 and increased $193.3 million, or 14.7%, from 2006 to 2007. The aggregate decrease from 2007 to 2008 is due to an $88.5 million, or 6.2%, decrease in same-store SG&A expenses, offset by a $73.9 million increase from net dealership acquisitions during the year. The aggregate increase in SG&A expenses from 2006 to 2007 is due to an $84.4 million, or 6.8%, increase in same-store SG&A expenses, coupled with a $108.9 million increase from net dealership acquisitions during the year. The decrease in same-store SG&A expenses from 2007 to 2008 is due in large part to (1) a decrease in variable selling expenses, including decreases in variable compensation as a result of the 11.4% decrease in same-store retail gross profit versus the prior year and (2) other cost savings initiatives discussed above under “Outlook,” offset by (1) $18.4 million in charges incurred during 2008 related to dealership consolidation and relocation costs, severance costs, other asset impairment charges, costs associated with the termination of an acquisition agreement, and insurance deductibles relating to damage sustained at our dealerships in the Houston market during Hurricane Ike, (2) $23.0 million of additional costs associated with the smart distribution business, and (3) increased rent and related costs due in part to our facility improvement and expansion programs during the year. The increase in same-store SG&A expenses from 2006 to 2007 is due in large part to (1) increased variable selling expenses, including increases in variable compensation, as a result of the 6.6% increase in retail gross profit over the prior year (2) increased rent and related costs due in part to our facility improvement and expansion program, and (3) increased advertising and promotion caused by the overall competitiveness of the retail vehicle market.

Intangible Impairments

Due in large part to deterioration in our operating results and turbulence in worldwide credit markets in the fourth quarter of 2008, we recorded a non-cash goodwill impairment charge of $606.3 million ($470.4 million after-tax) and $37.1 million ($22.8 million after-tax) of non-cash franchise value impairment charges.

Depreciation and Amortization

Depreciation and amortization increased $3.8 million, or 7.7%, from 2007 to 2008 and increased $7.6 million, or 17.9%, from 2006 to 2007. The increase from 2007 to 2008 is due to a $2.2 million increase from net dealership acquisitions during the year, coupled with a $1.6 million, or 3.5%, increase in same-store depreciation and amortization. The increase from 2006 to 2007 is due to a $5.0 million, or 12.6%, increase in same-store depreciation and amortization, coupled with a $2.6 million increase from net dealership acquisitions during the year. The same-store increases in both periods are due in large part to our facility improvement and expansion program.

Floor Plan Interest Expense

Floor plan interest expense, including the impact of swap transactions, decreased $9.0 million, or 12.3%, from 2007 to 2008 and increased $14.8 million, or 25.4%, from 2006 to 2007. The decrease from 2007 to 2008 is due to a $10.8 million, or 15.7%, decrease in same-store floor plan interest expense, offset by a $1.9 million increase from net dealership acquisitions during the year. The increase from 2006 to 2007 is due to an $8.1 million, or 14.7%, increase in same-store floor plan interest expense, coupled with a $6.7 million increase from net dealership acquisitions during the year. The same store decrease in 2008 is due to decreases in the underlying variable rates of our revolving floor plan arrangements, during the first three quarters of 2008, offset by increases in our average amounts outstanding and, beginning in the fourth quarter, increased interest rates charged to us by our finance partners resulting from turbulence in worldwide credit markets. While the base rate under these arrangements were generally lower in 2008 versus 2007 due to government actions designed to spur liquidity and bank lending activities, certain of our lenders reacted to increases in their cost of capital by raising the spread charged to us, or establishing minimum lending rates. The majority of these increases occurred during the fourth quarter and some were not effective until 2009. Due to these relative increases, we do not expect to realize the full benefit of the lower base rates expected in 2009 compared to 2008. Floor plan interest expense was negatively impacted in 2007 by an increase in our average floor plan notes outstanding.

Other Interest Expense

Other interest expense decreased $0.9 million, or 1.6%, from 2007 to 2008 and increased $6.9 million, or 14.3%, from 2006 to 2007. The decrease from 2007 to 2008 is due to a decrease in our weighted average borrowing rate, offset in part by an increase in our average total outstanding indebtedness in 2008. The increase in our average total outstanding indebtedness is primarily a result of the debt incurred relating to our investment in PTL. The increase from 2006 to 2007 is due to an increase in average total outstanding indebtedness in 2007compared to 2006, offset by a decrease in our weighted average borrowing rate. The decrease in our weighted average borrowing rate was due primarily to the issuance of $375.0 million of 7.75% Senior Subordinated Notes on December 7, 2006 which was used to redeem our 9.625% Senior Subordinated Notes in March 2007.

Debt Discount Amortization

We adopted FSP APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash Upon Conversion (Including Partial Cash Settlement)” effective January 1, 2009. Pursuant to FSP APB 14-1, we were required to account separately for the debt and equity components of our 3.5% Senior Subordinated Convertible Notes. The value ascribed to the debt component was determined using a fair value methodology, with the residual representing the equity component. The equity component was recorded as an increase in equity, with the debt discount being amortized as additional interest expense over the expected life of the instrument. We have applied the provisions of this standard retrospectively to all periods presented herein. Debt discount amortization increased $1.1 million, or 8.4%, from 2007 to 2008 and increased $1.8 million, or 16.4%, from 2006 to 2007 as a result of the requirement to amortize the debt discount over the expected life of the obligation so as to maintain a consistent effective interest rate.

Equity in Income of Affiliates

Equity in income of affiliates increased $12.4 million, from 2007 to 2008 and decreased $4.1 million from 2006 to 2007. The increase from 2007 to 2008 is largely due to our investment in PTL in June 2008. The decrease from 2006 to 2007 is largely due to a loss on disposal of a subsidiary of one of our investments.

Income Taxes

Income taxes decreased $167.4 million, or 270.1%, from 2007 to 2008 and decreased $2.2 million, or 3.5%, from 2006 to 2007. The income tax benefit recorded in 2008 was approximately 20%, which was significantly impacted by the write-off of goodwill that is not deductible for tax purposes. Excluding the impact of the impairment charge, our annual effective tax rate was 35.2% compared to 33.8% in 2007. The decrease from 2006 to 2007 is due primarily to an decrease in pre-tax income.

Liquidity and Capital Resources

Our cash requirements are primarily for working capital, inventory financing, the acquisition of new dealerships, the improvement and expansion of existing facilities, the construction of new facilities and debt service, and potentially for dividends and repurchases of our outstanding securities under the program discussed below. Historically, these cash requirements have been met through cash flow from operations, borrowings under our credit agreements and floor plan arrangements, the issuance of debt securities, sale-leaseback transactions, mortgages, or the issuance of equity securities. As of December 31, 2008, we had working capital of $126.9 million, including $20.1 million of cash available to fund our operations and capital commitments. In addition, we had $250.0 million and £42.5 million ($62.0 million) available for borrowing under our U.S. credit agreement and our U.K. credit agreement, respectively, each of which is discussed below.

We have historically expanded our retail automotive operations through organic growth and the acquisition of retail automotive dealerships. In addition, one of our subsidiaries is the exclusive distributor of smart fortwo vehicles in the U.S. and Puerto Rico. We believe that cash flow from operations and our existing capital resources, including the liquidity provided by our credit agreements and floor plan financing arrangements, will be sufficient to fund our operations and commitments for at least the next twelve months. To the extent we pursue additional significant acquisitions, other expansion opportunities, significant repurchases of our outstanding securities, or refinance or repay existing debt, we may need to raise additional capital either through the public or private issuance of equity or debt securities or through additional borrowings, which sources of funds may not necessarily be available on terms acceptable to us, if at all. In addition, our liquidity could be negatively impacted in the event we fail to comply with the covenants under our various financing and operating agreements or in the event our floor plan financing is withdrawn. For a discussion of these possible events, see the discussion below with respect to our financing agreements, as well as the Risk Factors section.

Share Repurchases and Dividends

Our board of directors has approved a repurchase program for our outstanding securities with a remaining authority of $96.3 million. During 2008, we repurchased 4.015 million shares for $53.7 million, or an average of $13.36 per share, under this program. We may, from time to time as market conditions warrant, purchase our outstanding common stock, debt and convertible debt on the open market and in privately negotiated transactions and, potentially, via a tender offer or a pre-arranged trading plan. We currently intend to fund any repurchases through cash flow from operations and borrowings under our U.S. credit facility. The decision to make repurchases will be based on factors such as the market price of the relevant security versus our view of its intrinsic value, the potential impact of such repurchases on our capital structure, and alternative uses of capital, such as for strategic store acquisitions and capital investments in our current businesses, as well as any then-existing limits imposed by our finance agreements and securities trading policy.

We paid the following dividends in 2007 and 2008:

Per Share Dividends

2007:
First Quarter	$	0.07
Second Quarter		0.07
Third Quarter		0.07
Fourth Quarter		0.09
2008:
First Quarter	$	0.09
Second Quarter		0.09
Third Quarter		0.09
Fourth Quarter		0.09

In February 2009, we announced the suspension of our quarterly cash dividend. Future quarterly or other cash dividends will depend upon our earnings, capital requirements, financial condition, restrictions on any then existing indebtedness and other factors considered relevant by our Board of Directors.

Inventory Financing

We finance substantially all of our new and a portion of our used vehicle inventories under revolving floor plan notes payable with various lenders, including the captive finance companies associated with the U.S. based automotive manufacturers. In the U.S., the floor plan arrangements are due on demand; however, we have not historically been required to make loan principal repayments prior to the sale of the vehicles financed. We typically make monthly interest payments on the amount financed. In the U.K., substantially all of our floor plan arrangements are payable on demand or have an original maturity of 90 days or less and we are generally required to repay floor plan advances at the earlier of the sale of the vehicles financed or the stated maturity. The floor plan agreements grant a security interest in substantially all of the assets of our dealership subsidiaries and in the U.S. are guaranteed by our parent company. Interest rates under the floor plan arrangements are variable and increase or decrease based on changes in the prime rate, defined LIBOR or the Euro Interbank offer Rate. We receive non-refundable credits from certain of our vehicle manufacturers, which are treated as a reduction of cost of sales as vehicles are sold. To date, we have not experienced any material limitation with respect to the amount or availability of financing from any institution providing us vehicle financing. See “Results of Operations — Floor Plan Interest Expense” for a discussion of the impact of challenging credit conditions on the rates charged to us under these agreements.

U.S. Credit Agreement

We are party to a $479.0 million credit agreement with DCFS USA LLC and Toyota Motor Credit Corporation, as amended (“the U.S. credit agreement”), which provides for up to $250.0 million in revolving loans for working capital, acquisitions, capital expenditures, investments and other general corporate purposes, a non-amortizing term loan originally funded for $219.0 million, and for an additional $10.0 million of availability for letters of credit, through September 30, 2011. The revolving loans bear interest at a defined London Interbank Offered Rate (“LIBOR”) plus 1.75%, subject to an incremental 0.50% for uncollateralized borrowings in excess of a defined borrowing base. The term loan, which bears interest at defined LIBOR plus 2.50%, may be prepaid at any time, but then may not be reborrowed. We repaid $10.0 million of this term loan in the fourth quarter of 2008.

The U.S. credit agreement is fully and unconditionally guaranteed on a joint and several basis by our domestic subsidiaries and contains a number of significant covenants that, among other things, restrict our ability to dispose of assets, incur additional indebtedness, repay other indebtedness, pay dividends, create liens on assets, make investments or acquisitions and engage in mergers or consolidations. We are also required to comply with specified financial and other tests and ratios, each as defined in the U.S. credit agreement, including: a ratio of current assets to current liabilities, a fixed charge coverage ratio, a ratio of debt to stockholders’ equity and a ratio of debt to earnings before interest, taxes, depreciation and amortization (“EBITDA”). A breach of these requirements would give rise to certain remedies under the agreement, the most severe of which is the termination of the agreement and acceleration of the amounts owed. As of December 31, 2008, we were in compliance with all covenants under the U.S. credit agreement, and we believe we will remain in compliance with such covenants for the next twelve months. In making such determination, we have considered the current margin of compliance with the covenants and our expected future results of operations, working capital requirements, acquisitions, capital expenditures and investments. However, in the event of continued weakness in the economy and the automotive sector in particular, we may need to seek covenant relief. See the Risk Factors section, including “Our failure to comply with our debt and operating lease covenants could have a material adverse effect on our business, financial condition and results of operations” and “Forward Looking Statements.”

The U.S. credit agreement also contains typical events of default, including change of control, non-payment of obligations and cross-defaults to our other material indebtedness. Substantially all of our domestic assets are subject to security interests granted to lenders under the U.S. credit agreement. As of December 31, 2008, $209.0 million of term loans and $0.5 million of letters of credit were outstanding under this agreement. No revolving loans were outstanding as of December 31, 2008.

U.K. Credit Agreement

Our subsidiaries in the U.K. (the “U.K. subsidiaries”) are party to an agreement with the Royal Bank of Scotland plc, as agent for National Westminster Bank plc, which provides for a funded term loan, a revolving credit agreement and a seasonally adjusted overdraft line of credit (collectively, the “U.K. credit agreement”) to be used to finance acquisitions, working capital, and general corporate purposes. The U.K. credit agreement was amended in 2008 to provide greater flexibility within the financial covenants and increase the borrowing rates. This facility provides for (1) up to £80.0 million in revolving loans through August 31, 2011, which bears interest between a defined LIBOR plus 1.0% and defined LIBOR plus 1.6%, (2) a term loan originally funded for £30.0 million which bears interest between 6.29% and 6.89% and is payable ratably in quarterly intervals until fully repaid on June 30, 2011, and (3) a seasonally adjusted overdraft line of credit for up to £20.0 million that bears interest at the Bank of England Base Rate plus 1.75%, and matures on August 31, 2011.

The U.K. credit agreement is fully and unconditionally guaranteed on a joint and several basis by our U.K. subsidiaries, and contains a number of significant covenants that, among other things, restrict the ability of our U.K. subsidiaries to pay dividends, dispose of assets, incur additional indebtedness, repay other indebtedness, create liens on assets, make investments or acquisitions and engage in mergers or consolidations. In addition, our U.K. subsidiaries are required to comply with specified ratios and tests, each as defined in the U.K. credit agreement, including: a ratio of earnings before interest and taxes plus rental payments to interest plus rental payments (as defined), a measurement of maximum capital expenditures, and a debt to EBITDA ratio (as defined). A breach of these requirements would give rise to certain remedies under the agreement, the most severe of which is the termination of the agreement and acceleration of the amounts owed. As of December 31, 2008, our U.K. Subsidiaries were in compliance with all covenants under the U.K. credit agreement and we believe they will remain in compliance with such covenants for the next twelve months. In making such determination, we have considered the current margin of compliance with the covenants and our expected future results of operations, working capital requirements, acquisitions, capital expenditures and investments in the U.K. However, in the event of continued weakness in the economy and the automotive sector in particular, we may need to seek covenant relief. See the Risk Factors section, including “Our failure to comply with our debt and operating lease covenants could have a material adverse effect on our business, financial condition and results of operations” and “Forward Looking Statements.”

The U.K. credit agreement also contains typical events of default, including change of control and non-payment of obligations and cross-defaults to other material indebtedness of our U.K. subsidiaries. Substantially all of our U.K. subsidiaries’ assets are subject to security interests granted to lenders under the U.K. credit agreement. As of December 31, 2008, outstanding loans under the U.K. credit agreement amounted £65.2 million ($95.1 million), including £17.6 million ($25.7 million) under the term loan.

7.75% Senior Subordinated Notes

On December 7, 2006 we issued $375.0 million aggregate principal amount of 7.75% Senior Subordinated Notes due 2016 (the “7.75% Notes”). The 7.75% Notes are unsecured senior subordinated notes and are subordinate to all existing and future senior debt, including debt under our credit agreements and our floor plan indebtedness. The 7.75% Notes are guaranteed by substantially all of our wholly-owned domestic subsidiaries on an unsecured senior subordinated basis. Those guarantees are full and unconditional and joint and several. We can redeem all or some of the 7.75% Notes at our option beginning in December 2011 at specified redemption prices, or prior to December 2011 at 100% of the principal amount of the notes plus an applicable “make-whole” premium, as defined. In addition, we may redeem up to 40% of the 7.75% Notes at specified redemption prices using the proceeds of certain equity offerings before December 15, 2009. Upon certain sales of assets or specific kinds of changes of control, we are required to make an offer to purchase the 7.75% Notes. The 7.75% Notes also contain customary negative covenants and events of default. As of December 31, 2008, we were in compliance with all negative covenants and there were no events of default.

Senior Subordinated Convertible Notes

On January 31, 2006, we issued $375.0 million aggregate principal amount of 3.50% senior subordinated convertible notes due 2026 (the “Convertible Notes”). The Convertible Notes mature on April 1, 2026, unless earlier converted, redeemed or purchased by us, as discussed below. The Convertible Notes are unsecured senior subordinated obligations and are subordinate to all future and existing debt under our credit agreements and our floor plan indebtedness. The Convertible Notes are guaranteed on an unsecured senior subordinated basis by substantially all of our wholly-owned domestic subsidiaries. The guarantees are full and unconditional and joint and several. The Convertible Notes also contain customary negative covenants and events of default. As of December 31, 2008, we were in compliance with all negative covenants and there were no events of default.

Holders of the convertible notes may convert them based on a conversion rate of 42.7796 shares of our common stock per $1,000 principal amount of the Convertible Notes (which is equal to a conversion price of approximately $23.38 per share), subject to adjustment, only under the following circumstances: (1) in any quarterly period, if the closing price of our common stock for twenty of the last thirty trading days in the prior quarter exceeds $28.43 (subject to adjustment), (2) for specified periods, if the trading price of the Convertible Notes falls below specific thresholds, (3) if the Convertible Notes are called for redemption, (4) if specified distributions to holders of our common stock are made or specified corporate transactions occur, (5) if a fundamental change (as defined) occurs, or (6) during the ten trading days prior to, but excluding, the maturity date.

Upon conversion of the Convertible Notes, for each $1,000 principal amount of the Convertible Notes, a holder will receive an amount in cash, in lieu of shares of our common stock, equal to the lesser of (i) $1,000 or (ii) the conversion value, determined in the manner set forth in the indenture covering the Convertible Notes, of the number of shares of common stock equal to the conversion rate. If the conversion value exceeds $1,000, we will also deliver, at our election, cash, common stock or a combination of cash and common stock with respect to the remaining value deliverable upon conversion.

In the event of a conversion due to a change of control on or before April 6, 2011, we will, in certain circumstances, pay a make-whole premium by increasing the conversion rate used in that conversion. In addition, we will pay additional cash interest commencing with six-month periods beginning on April 1, 2011, if the average trading price of a Convertible Note for certain periods in the prior six-month period equals 120% or more of the principal amount of the Convertible Notes. On or after April 6, 2011, we may redeem the Convertible Notes, in whole at any time or in part from time to time, for cash at a redemption price of 100% of the principal amount of the Convertible Notes to be redeemed, plus any accrued and unpaid interest to the applicable redemption date.

Holders of the Convertible Notes may require us to purchase all or a portion of their Convertible Notes for cash on April 1, 2011, April 1, 2016 or April 1, 2021 at a purchase price equal to 100% of the principal amount of the Convertible Notes to be purchased, plus accrued and unpaid interest, if any, to the applicable purchase date. Because of this feature, we currently expect to be required to redeem the Convertible Notes in April 2011.

Mortgage Facilities

We are party to a $42.4 million seven year mortgage facility with respect to certain of our dealership properties that matures on October 1, 2015. The facility bears interest at a defined rate, requires monthly principal and interest payments, and includes the option to extend the term for successive periods of five years up to a maximum term of twenty-five years. In the event we exercise our options to extend the term, the interest rate will be renegotiated at each renewal period. The mortgage facility also contains typical events of default, including non-payment of obligations, cross-defaults to our other material indebtedness, certain change of control events, and the loss or sale of certain franchises operated at the property. Substantially all of the buildings, improvements, fixtures and personal property of the properties under the mortgage facility are subject to security interests granted to the lender. As of December 31, 2008, $42.2 million was outstanding under this facility.

9.625% Senior Subordinated Notes

In March 2007, we redeemed our outstanding $300.0 million aggregate principal amount of 9.625% senior subordinated notes due 2012 (the “9.625% Notes”). The 9.625% Notes were unsecured senior subordinated notes and were subordinate to all existing senior debt, including debt under our credit agreements and our floor plan indebtedness. We incurred an $18.6 million pre-tax charge in connection with the redemption, consisting of a $14.4 million redemption premium and the write-off of $4.2 million of unamortized deferred financing costs.

Interest Rate Swaps

We are party to interest rate swap agreements through January 7, 2011 pursuant to which the LIBOR portion of $300.0 million of our U.S. floating rate floor plan debt was fixed at 3.67%. We may terminate this arrangement at any time subject to the settlement of the then current fair value of the swap arrangement. The swaps are designated as a cash flow hedge of future interest payments of LIBOR based U.S. floor plan borrowings. During 2008, the swaps increased the weighted average interest rate on our floor plan borrowings by approximately 0.2%. As of December 31, 2008, we used Level 2 inputs as described under SFAS No. 157 to estimate the fair value of these contracts to be a $15.4 million liability, and expect approximately $8.4 million associated with the swaps to be recognized as an increase of interest expense over the next twelve months.

We were party to an interest rate swap agreement which expired in January 2008, pursuant to which a notional $200.0 million of our U.S. floating rate debt was exchanged for fixed rate debt. The swap was designated as a cash flow hedge of future interest payments of LIBOR based U.S. floor plan borrowings.

Operating Leases

We have historically structured our operations so as to minimize our ownership of real property. As a result, we lease or sublease substantially all of our dealerships properties and other facilities. These leases are generally for a period of between five and 20 years, and are typically structured to include renewal options at our election. We estimate our total rent obligations under these leases including any extension periods we may exercise at our discretion and assuming constant consumer price indices to be $4.8 billion. Pursuant to the leases for some of our larger facilities, we are required to comply with specified financial ratios, including a “rent coverage” ratio and a debt to EBITDA ratio, each as defined. For these leases, non-compliance with the ratios may require us to post collateral in the form of a letter of credit. A breach of our other lease covenants give rise to certain remedies by the landlord, the most severe of which include the termination of the applicable lease and acceleration of the total rent payments due under the lease, as defined.

Sale/Leaseback Arrangements

We have in the past and expect in the future to enter into sale-leaseback transactions to finance certain property acquisitions and capital expenditures, pursuant to which we sell property and/or leasehold improvements to third-parties and agree to lease those assets back for a certain period of time. Such sales generate proceeds which vary from period to period. In light of the current market conditions, this financing option has become more expensive and thus we may utilize these arrangements less in the near term.

Off-Balance Sheet Arrangements 

Third Party Lease Obligations

Since 1999, we have sold a number of dealerships to third parties. As a condition to the sale, we have at times remained liable for the lease payments relating to the properties on which those franchises operate. The aggregate rent paid by the tenants on those properties in 2008 was approximately $13.4 million, and, in aggregate, we guarantee or are otherwise liable for approximately $218.7 million of lease payments, including lease payments during available renewal periods. We rely on the buyer of the franchise to pay the associated rent and maintain the property. In the event the buyer does not perform as expected (due to the buyer’s financial condition or other factors such as the market performance of the underlying vehicle manufacturer), we may not be able to recover amounts owed to us by the buyer. In this event, we could be required to fulfill these obligations, which could materially adversely affect our results of operations, financial condition or cash flows.

Cash Flows

Cash and cash equivalents increased by $5.3 and $12.4 million during the years ended December 31, 2008 and 2006, respectively, and decreased by $5.2 million during the year ended December 31, 2007. The major components of these changes are discussed below.

Cash Flows from Continuing Operating Activities

Cash provided by operating activities was $405.4 million, $300.7 million and $125.1 million during the years ended December 31, 2008, 2007 and 2006, respectively. Cash flows from operating activities includes net income, as adjusted for non-cash items, and the effects of changes in working capital.

We finance substantially all of our new and a portion of our used vehicle inventories under revolving floor plan notes payable with various lenders. We retain the right to select which, if any, financing source to utilize in connection with the procurement of vehicle inventories. Many vehicle manufacturers provide vehicle financing for the dealers representing their brands, however, it is not a requirement that dealers utilize this financing. Historically, our floor plan finance source has been based on aggregate pricing considerations. In accordance with the guidance under SFAS No. 95, “Statement of Cash Flows”, we report all cash flows arising in connection with floor plan notes payable with the manufacturer of a particular new vehicle as an operating activity in our statement of cash flows, and all cash flows arising in connection with floor plan notes payable to a party other than the manufacturer of a particular new vehicle and all floor plan notes payable relating to pre-owned vehicles as a financing activity in our statement of cash flows. Currently, the majority of our non-trade vehicle financing is with other manufacturer captive lenders. To date, we have not experienced any material limitation with respect to the amount or availability of financing from any institution providing us vehicle financing.

We believe that changes in aggregate floor plan liabilities are typically linked to changes in vehicle inventory and, therefore, are an integral part of understanding changes in our working capital and operating cash flow. As a result, we have presented the following reconciliation of cash flow from operating activities as reported in our condensed consolidated statement of cash flows as if all changes in vehicle floor plan were classified as an operating activity for informational purposes:

	Year Ended December 31,
	2008			2007		2006
Net cash from operating activities as reported	$	405.4		$	300.7	$	125.1
Floor plan notes payable — non-trade as reported		(52.6	)		189.0		(57.2	)
Net cash from operating activities including all floor plan notes payable	$	352.8		$	489.7	$	67.9

Cash Flows from Continuing Investing Activities

Cash used in investing activities was $541.3 million, $227.8 million and $484.2 million during the years ended December 31, 2008, 2007 and 2006, respectively. Cash flows from investing activities consist primarily of cash used for capital expenditures, proceeds from sale-leaseback transactions and net expenditures for acquisitions and other investments. Capital expenditures were $211.1 million, $194.4 million and $222.2 million during the years ended December 31, 2008, 2007 and 2006, respectively. Capital expenditures relate primarily to improvements to our existing dealership facilities and the construction of new facilities. As of December 31, 2008, we do not have material commitments related to our planned or ongoing capital projects. We currently expect to finance our capital expenditures with operating cash flows or borrowings under our U.S. or U.K. credit facilities. Proceeds from sale-leaseback transactions were $37.4 million, $131.8 million and $106.2 million during the years ended December 31, 2008, 2007 and 2006, respectively. Cash used in acquisitions, net of cash acquired, was $147.1 million, $180.7 million and $368.2 million during the years ended December 31, 2008, 2007 and 2006, respectively, and included cash used to repay sellers floor plan liabilities in such business acquisitions of $30.7 million, $51.9 million and $111.3 million, respectively. We used $220.5 million for other investing activities during the year ended December 31, 2008, including $219.0 million for the acquisition of the 9% interest in PTL. The year ended December 31, 2007 also includes $15.5 million of proceeds relating to other investing activities.

Cash Flows from Continuing Financing Activities

Cash provided by financing activities was $109.9 million and $438.4 million during the years ended December 31, 2008 and 2006, respectively, and cash used in financing activities was $185.4 million during the year ended December 31, 2007. Cash flows from financing activities include net borrowings or repayments of long-term debt, net borrowings or repayments of floor plan notes payable non-trade, payments of deferred financing costs, proceeds from the issuance of common stock and the exercise of stock options, repurchases of common stock and dividends. We had net borrowings of long-term debt of $249.9 million during the year ended December 31, 2008 and net repayments of $348.6 million and $211.1 million during the years ended December 31, 2007 and 2006, respectively. The borrowings in the year ended December 31, 2008 included the $219.0 million loan to finance the PTL limited partnership interest acquisition and proceeds relating to a $42.4 million mortgage facility. The repayments in the year ended December 31, 2007 included $14.4 million of premium paid on the redemption of our 9.625% Notes. During the year ended December 31, 2006 we issued $750.0 million of subordinated debt and we paid $17.2 million of financing costs. Proceeds from the $750.0 million of subordinated debt issued in 2006 were used to repurchase one million shares of our common stock for $18.9 million and to repay debt. This activity, combined with borrowing to fund acquisition and other liquidity requirements, resulted in net repayments of long-term debt of $211.1 million during the year ended December 31, 2006. We had net repayments of floor plan notes payable non-trade of $52.6 and $57.2 million during the years ended December 31, 2008 and 2006, respectively, and net borrowings of floor plan notes payable non-trade of $189.0 million during the year ended December 31, 2007. During the years ended December 31, 2008, 2007 and 2006, we received proceeds of $0.8 million, $2.6 million and $18.1 million, respectively, from the issuance of common stock. In 2008, we repurchased 4.015 million shares of common stock for $53.7 million. During the years ended December 31, 2008, 2007 and 2006, we also paid $33.9 million, $28.4 million and $25.2 million, respectively, of cash dividends to our stockholders.

Cash Flows from Discontinued Operations

Cash flows relating to discontinued operations are not currently considered, nor are they expected to be considered, material to our liquidity or our capital resources. Management does not believe that there are any significant past, present or upcoming cash transactions relating to discontinued operations.

Contractual Payment Obligations

The table below sets forth our best estimates as to the amounts and timing of future payments relating to our most significant contractual obligations as of December 31, 2008. The information in the table reflects future unconditional payments and is based upon, among other things, the terms of any relevant agreements. Future events, including acquisitions, divestitures, new or revised operating lease agreements, borrowings or repayments under our credit agreements and our floor plan arrangements, and purchases or refinancing of our securities, could cause actual payments to differ significantly from these amounts.

			Less than						More than
	Total		1 year		1 to 3 years		3 to 5 years		5 years
Floorplan Notes Payable(A)	$	1,471.5	$	1,471.5	$	—	$	—	$	—
Long-Term Debt Obligations(B)		1,099.2		11.3		670.9		2.3		414.7
Operating Lease Commitments		4,821.2		167.4		330.1		326.1		3,997.6
Scheduled Interest Payments(B)(C)		275.4		44.3		78.6		62.0		90.5
Other Long-Term Liabilities(D)		32.9		1.2		—		31.7		—
	$	7,700.2	$	1,695.7	$	1,079.6	$	422.1	$	4,502.8

(A)	Floor plan notes payable are revolving financing arrangements. Payments are generally made as required pursuant to the floor plan borrowing agreements discussed above under “Inventory Financing.”
(B)	Interest and principal repayments under our $375.0 million of 3.5% senior subordinated notes due 2026 are reflected in the table above, however, this excludes any amount in payment of a premium due for conversion of the notes above the specified conversion trading price. While these notes are not due until 2026, in 2011 the holders may require us to purchase all or a portion of their notes for cash. This acceleration of ultimate repayment is reflected in the table above.
(C)	Estimates of future variable rate interest payments under floorplan notes payable and our credit agreements are excluded due to our inability to estimate changes to interest rates in the future. See “Inventory Financing,” “U.S. Credit Agreement,” and “U.K. Credit Agreement” above for a discussion of such variable rates.
(D)	Includes uncertain tax positions. Due to the subjective nature of our uncertain tax positions, we are unable to make reasonably reliable estimates of the timing of payments arising in connection with the unrecognized tax benefits, however, as a result of the statute of limitations, we do not expect any of these payments to occur in more than 5 years. We have thus classified this as “3 to 5 years.”

We expect that, other than for scheduled balloon payments upon the maturity or termination dates of certain of our debt instruments, the amounts above will be funded through cash flow from operations. In the case of scheduled balloon payments upon the maturity or termination dates of our debt instruments, we currently expect to be able to refinance such instruments in the normal course of business.

Related Party Transactions

Stockholders Agreement

Several of our directors and officers are affiliated with Penske Corporation or related entities. Roger S. Penske, our Chairman of the Board and Chief Executive Officer, is also Chairman of the Board and Chief Executive Officer of Penske Corporation, and through entities affiliated with Penske Corporation, our largest stockholder owning approximately 41% of our outstanding common stock. Mitsui & Co., Ltd. and Mitsui & Co. (USA), Inc. (collectively, “Mitsui”) own approximately 17% of our outstanding common stock. Mitsui, Penske Corporation and certain other affiliates of Penske Corporation are parties to a stockholders agreement pursuant to which the Penske affiliated companies agreed to vote their shares for one director who is a representative of Mitsui. In turn, Mitsui agreed to vote their shares for up to fourteen directors voted for by the Penske affiliated companies. This agreement terminates in March 2014, upon the mutual consent of the parties, or when either party no longer owns any of our common stock.

Other Related Party Interests and Transactions

Roger S. Penske is also a managing member of Penske Capital Partners and Transportation Resource Partners, each organizations that undertake investments in transportation-related industries. Richard J. Peters, one of our directors, is a managing director of Transportation Resource Partners and is a director of Penske Corporation. Lucio A. Noto (one of our directors) is an investor in Transportation Resource Partners. One of our directors, Hiroshi Ishikawa, serves as our Executive Vice President — International Business Development and serves in a similar capacity for Penske Corporation. Robert H. Kurnick, Jr., our President and a director, is also the President and a director of Penske Corporation.

We sometimes pay to and/or receive fees from Penske Corporation and its affiliates for services rendered in the normal course of business, or to reimburse payments made to third parties on each others’ behalf. These transactions are reviewed periodically by our Audit Committee and reflect the provider’s cost or an amount mutually agreed upon by both parties. We and Penske Corporation have entered into a joint insurance agreement which provides that, with respect to our joint insurance policies (which includes our property policy), available coverage with respect to a loss shall be paid to each party as stipulated in the policies. In the event of losses by us and Penske Corporation that exceed the limit of liability for any policy or policy period, the total policy proceeds shall be allocated based on the ratio of premiums paid.

We are a 9% limited partner of PTL, a leading global transportation services provider. PTL operates and maintains more than 200,000 vehicles and serves customers in North America, South America, Europe and Asia. Product lines include full-service leasing, contract maintenance, commercial and consumer truck rental and logistics services, including, transportation and distribution center management and supply chain management. The general partner is Penske Truck Leasing Corporation, a wholly-owned subsidiary of Penske Corporation, which together with other wholly-owned subsidiaries of Penske Corporation, owns 40% of PTL. The remaining 51% of PTL is owned by GE Capital. We are party to a partnership agreement among the other partners which, among other things, provides us with specified partner distribution and governance rights and restricts our ability to transfer our interests.

We have entered into joint ventures with certain related parties as more fully discussed below.

Joint Venture Relationships

From time to time, we enter into joint venture relationships in the ordinary course of business, through which we own and operate automotive dealerships together with other investors. We may provide these dealerships with working capital and other debt financing at costs that are based on our incremental borrowing rate. As of December 31, 2008, our automotive joint venture relationships included:

		Ownership
Location	Dealerships	Interest
Fairfield, Connecticut	Audi, Mercedes-Benz, Porsche, smart		88.53	%(A)(B)
Edison, New Jersey	Ferrari, Maserati		70.00	%(B)
Las Vegas, Nevada	Ferrari, Maserati		50.00	%(C)
Munich, Germany	BMW, MINI		50.00	%(C)
Frankfurt, Germany	Lexus, Toyota		50.00	%(C)
Aachen, Germany	Audi, Lexus, Toyota, Volkswagen		50.00	%(C)
Mexico	Toyota		48.70	%(C)
Mexico	Toyota		45.00	%(C)

(A) An entity controlled by one of our directors, Lucio A. Noto (the “Investor”), owns an 11.47% interest in this joint venture, which entitles the Investor to 20% of the joint venture’s operating profits. In addition, the Investor has an option to purchase up to a 20% interest in the joint venture for specified amounts.

(B)	Entity is consolidated in our financial statements.
(C)	Entity is accounted for using the equity method of accounting.

Cyclicality

Unit sales of motor vehicles, particularly new vehicles, historically have been cyclical, fluctuating with general economic cycles. During economic downturns, the automotive retailing industry tends to experience periods of decline and recession similar to those experienced by the general economy. We believe that the industry is influenced by general economic conditions and particularly by consumer confidence, the level of personal discretionary spending, fuel prices, interest rates and credit availability.

Seasonality

Our business is modestly seasonal overall. Our U.S. operations generally experience higher volumes of vehicle sales in the second and third quarters of each year due in part to consumer buying trends and the introduction of new vehicle models. Also, vehicle demand, and to a lesser extent demand for service and parts, is generally lower during the winter months than in other seasons, particularly in regions of the U.S. where dealerships may be subject to severe winters. Our U.K. operations generally experience higher volumes of vehicle sales in the first and third quarters of each year, due primarily to vehicle registration practices in the U.K.

Effects of Inflation

We believe that inflation rates over the last few years have not had a significant impact on revenues or profitability. We do not expect inflation to have any near-term material effects on the sale of our products and services, however, we cannot be sure there will be no such effect in the future. We finance substantially all of our inventory through various revolving floor plan arrangements with interest rates that vary based on various benchmarks. Such rates have historically increased during periods of increasing inflation.

Forward-Looking Statements

This annual report on Form 10-K contains “forward-looking statements”. Forward-looking statements generally can be identified by the use of terms such as “may,” “will,” “should,” “expect,” “anticipate,” “believe,” “intend,” “plan,” “estimate,” “predict,” “potential,” “forecast,” “continue” or variations of such terms, or the use of these terms in the negative. Forward-looking statements include statements regarding our current plans, forecasts, estimates, beliefs or expectations, including, without limitation, statements with respect to:

• our future financial performance;

• future acquisitions;

• future capital expenditures and share repurchases;

• our ability to obtain cost savings and synergies;

• our ability to respond to economic cycles;

• trends in the automotive retail industry and in the general economy in the various countries in which we operate dealerships;

• our ability to access the remaining availability under our credit agreements;

• our liquidity;

• interest rates;

• trends affecting our future financial condition or results of operations; and

• our business strategy.

Forward-looking statements involve known and unknown risks and uncertainties and are not assurances of future performance. Actual results may differ materially from anticipated results due to a variety of factors, including the factors identified under “Item 1A. — Risk Factors.” Important factors that could cause actual results to differ materially from our expectations include those mentioned in “Item 1A. — Risk Factors” such as the following:

• our business and the automotive retail industry in general are susceptible to further or continued adverse economic conditions, including changes in interest rates, consumer confidence, fuel prices and credit availability;

• the ability of automobile manufacturers to exercise significant control over our operations, since we depend on them in order to operate our business;

• because we depend on the success and popularity of the brands we sell, adverse conditions affecting one or more automobile manufacturers may negatively impact our revenues and profitability;

• a restructuring of one of the U.S. automotive manufacturers may adversely affect our operations, as well as the automotive sector as a whole;

• we may not be able to satisfy our capital requirements for acquisitions, dealership renovation projects, or financing the purchase of our inventory;

• our failure to meet a manufacturer’s consumer satisfaction requirements may adversely affect our ability to acquire new dealerships, our ability to obtain incentive payments from manufacturers and our profitability;

• with respect to PTL, changes in tax, financial or regulatory rules on requirements, changes in the financial health of PTL’s customers, labor strikes or work stoppages, asset utilization rates and industry competition;

• substantial competition in automotive sales and services may adversely affect our profitability;

• if we lose key personnel, especially our Chief Executive Officer, or are unable to attract additional qualified personnel, our business could be adversely affected;

• because most customers finance the cost of purchasing a vehicle, increased interest rates where we operate may adversely affect our vehicle sales;

• our business may be adversely affected by import product restrictions and foreign trade risks that may impair our ability to sell foreign vehicles profitably;

• our automobile dealerships are subject to substantial regulation which may adversely affect our profitability;

• if state dealer laws in the U.S. are repealed or weakened, our U.S. automotive dealerships may be subject to increased competition and may be more susceptible to termination, non-renewal or renegotiation of their franchise agreements;

• non-compliance with the financial ratios and other covenants under our credit agreements and operating leases may materially adversely affect us;

• the success of our smart distribution operations depends upon continued availability of the vehicle and customer demand for that vehicle;

• our dealership operations may be affected by severe weather or other periodic business interruptions;

• our principal stockholders have substantial influence over us and may make decisions with which other stockholders may disagree;

• some of our directors and officers may have conflicts of interest with respect to certain related party transactions and other business interests;

• our level of indebtedness may limit our ability to obtain financing for acquisitions and may require that a significant portion of our cash flow be used for debt service;

• we may be involved in legal proceedings that could have a material adverse effect on our business;

• our operations outside of the U.S. subject our profitability to fluctuations relating to changes in foreign currency valuations; and

• we are a holding company and, as a result, must rely on the receipt of payments from our subsidiaries, which are subject to limitations, in order to meet our cash needs and service our indebtedness.

In addition:

• the price of our common stock is subject to substantial fluctuation, which may be unrelated to our performance; and

• shares eligible for future sale, or issuable under the terms of our convertible notes, may cause the market price of our common stock to drop significantly, even if our business is doing well.

We urge you to carefully consider these risk factors in evaluating all forward-looking statements regarding our business. Readers of this report are cautioned not to place undue reliance on the forward-looking statements contained in this report. All forward-looking statements attributable to us are qualified in their entirety by this cautionary statement. Except to the extent required by the federal securities laws and the Securities and Exchange Commission’s rules and regulations, we have no intention or obligation to update publicly any forward-looking statements whether as a result of new information, future events or otherwise.

EX-99.3

Exhibit 99.3

Item 7A.  Quantitative and Qualitative Disclosures About Market Risk

Interest Rates.  We are exposed to market risk from changes in interest rates on a significant portion of our outstanding debt. Outstanding revolving balances under our credit agreements bear interest at variable rates based on a margin over defined LIBOR or the Bank of England Base Rate. Based on the amount outstanding under these facilities as of December 31, 2008, a 100 basis point change in interest rates would result in an approximate $2.8 million change to our annual other interest expense. Similarly, amounts outstanding under our floor plan financing arrangements bear interest at a variable rate based on a margin over the prime rate, defined LIBOR or the Euro Interbank offer Rate. We are currently party to swap agreements pursuant to which a notional $300.0 million of our floating rate floor plan debt was exchanged for fixed rate debt through January 2011. Based on an average of the aggregate amounts outstanding under our floor plan financing arrangements subject to variable interest payments, adjusted to exclude the notional value of the swap agreements, during the year ended December 31, 2008, a 100 basis point change in interest rates would result in an approximate $12.9 million change to our annual floor plan interest expense.

We evaluate our exposure to interest rate fluctuations and follow established policies and procedures to implement strategies designed to manage the amount of variable rate indebtedness outstanding at any point in time in an effort to mitigate the effect of interest rate fluctuations on our earnings and cash flows. These policies include:

• the maintenance of our overall debt portfolio with targeted fixed and variable rate components;

• the use of authorized derivative instruments;

• the prohibition of using derivatives for trading or other speculative purposes; and

• the prohibition of highly leveraged derivatives or derivatives which we are unable to reliably value or obtain a market quotation.

Interest rate fluctuations affect the fair market value of our fixed rate debt, including our swaps, the 7.75% Notes, the Convertible Notes and certain seller financed promissory notes, but, with respect to such fixed rate debt instruments, do not impact our earnings and cash flows.

Foreign Currency Exchange Rates.  As of December 31, 2008, we had dealership operations in the U.K. and Germany. In each of these markets, the local currency is the functional currency. Due to our intent to remain permanently invested in these foreign markets, we do not hedge against foreign currency fluctuations. In the event we change our intent with respect to the investment in any of our international operations, we would expect to implement strategies designed to manage those risks in an effort to mitigate the effect of foreign currency fluctuations on our earnings and cash flows. A ten percent change in average exchange rates versus the U.S. Dollar would have resulted in an approximate $419.9 million change to our revenues for the year ended December 31, 2008.

In common with other automotive retailers, we purchase certain of our new vehicle and parts inventories from foreign manufacturers. Although we purchase the majority of our inventories in the local functional currency, our business is subject to certain risks, including, but not limited to, differing economic conditions, changes in political climate, differing tax structures, other regulations and restrictions and foreign exchange rate volatility which may influence such manufacturers’ ability to provide their products at competitive prices in the local jurisdictions. Our future results could be materially and adversely impacted by changes in these or other factors.

EX-99.4

Exhibit 99.4

Item 8.  Financial Statements and Supplementary Data

The consolidated financial statements listed in the accompanying Index to Consolidated Financial Statements are incorporated by reference into this Item 8.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PENSKE AUTOMOTIVE GROUP, INC
As of December 31, 2008 and 2007 and For the Years Ended
December 31, 2008, 2007 and 2006

Management Reports on Internal Control Over Financial Reporting	F-2
Reports of Independent Registered Public Accounting Firms	F-3
Consolidated Balance Sheets	F-6
Consolidated Statements of Operations	F-7
Consolidated Statements of Equity and Comprehensive Income	F-8
Consolidated Statements of Cash Flows	F-9
Notes to Consolidated Financial Statements	F-10

F-1

MANAGEMENT REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The management of Penske Automotive Group, Inc. and subsidiaries (the “Company”) is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control system was designed to provide reasonable assurance to the Company’s management and board of directors that the Company’s internal control over financial reporting provides reasonable assurance regarding the reliability of financial reporting and the preparation and presentation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.

All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2008. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control — Integrated Framework. Based on our assessment we believe that, as of December 31, 2008, the Company’s internal control over financial reporting is effective based on those criteria.

The Company’s independent registered public accounting firm that audited the consolidated financial statements included in the Company’s Annual Report on Form 10-K has issued an audit report on the effectiveness of the Company’s internal control over financial reporting. This report appears on page F-3.

Penske Automotive Group, Inc.
March 10, 2009

MANAGEMENT REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The management of UAG UK Holdings Limited and subsidiaries (the “Company”) is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control system was designed to provide reasonable assurance to the Company’s management and board of directors that the Company’s internal control over financial reporting provides reasonable assurance regarding the reliability of financial reporting and the preparation and presentation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.

All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2008. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control — Integrated Framework. Based on our assessment we believe that, as of December 31, 2008, the Company’s internal control over financial reporting is effective based on those criteria.

The Company’s independent registered public accounting firm that audited the consolidated financial statements of UAG UK Holdings Limited has issued an audit report on the effectiveness of the Company’s internal control over financial reporting. This report appears on page F-5.

UAG UK Holdings Limited
March 10, 2009

F-2

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of Penske Automotive Group, Inc.
Bloomfield Hills, Michigan

We have audited the accompanying consolidated balance sheets of Penske Automotive Group, Inc. and subsidiaries (the “Company”) as of December 31, 2008 and 2007, and the related consolidated statements of operations, equity and comprehensive income, and cash flows for each of the three years in the period ended December 31, 2008. Our audits also included the financial statement schedule listed in the Index at Item 15.  We also have audited the Company’s internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.  The Company’s management is responsible for these financial statements and financial statement schedules, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on these financial statements and financial statement schedules and an opinion on the Company’s internal control over financial reporting based on our audits. We did not audit the financial statements or the effectiveness of internal control over financial reporting of UAG UK Holdings Limited and subsidiaries (a consolidated subsidiary), which statements reflect total assets constituting 29% and 31% of consolidated total assets as of December 31, 2008 and 2007, respectively, and total revenues constituting 35%, 36%, and 30% of consolidated total revenues for the years ended December 31, 2008, 2007 and 2006, respectively. Those financial statements and the effectiveness of UAG UK Holdings Limited and subsidiaries’ internal control over financial reporting were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts and to the effectiveness of UAG UK Holdings Limited and subsidiaries’ internal control over financial reporting, is based solely on the report of the other auditors.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects.  Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation.  Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.  Our audits also included performing such other procedures as we considered necessary in the circumstances.  We believe that our audits and the report of the other auditors provide a reasonable basis for our opinions.

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

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis.  Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

F-3

In our opinion, based on our audits and the report of the other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company at December 31, 2008 and 2007, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2008, in conformity with accounting principles generally accepted in the United States of America.  Also, in our opinion, based on our audits and (as to the amounts included for UAG UK Holdings Limited and subsidiaries) the report of the other auditors, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.  Also, in our opinion, based on our audit and the report of the other auditors, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2008, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

As discussed in Note 1, the financial statements have been retrospectively adjusted to conform to FSP APB 14-1, FSP EITF 03-6-1, and SFAS No. 160, and for the effects of discontinued operations.

/s/  Deloitte & Touche LLP

Detroit, Michigan
March 10, 2009, except as to the effects of discontinued operations and retrospective adjustments discussed in Note 1, as to which the date is January 21, 2010

F-4

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders
UAG UK Holdings Limited:

We have audited the accompanying consolidated balance sheets of UAG UK Holdings Limited and subsidiaries (the “Company”) as of December 31, 2008 and 2007, and the related consolidated statements of income, stockholders equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2008. In connection with our audits of the consolidated financial statements, we also have audited the related financial statement schedule. We also have audited UAG UK Holdings Limited’s internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these consolidated financial statements and financial statement schedule, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule and an opinion on the Company’s internal control over financial reporting based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

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

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2008 and 2007, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2008, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

As discussed in Note 1, the financial statements have been retrospectively adjusted for the effects of discontinued operations.

/s/  KPMG Audit Plc

Birmingham, United Kingdom
March 10, 2009, except for Note 1, as to which the date is January 21, 2010

F-5

PENSKE AUTOMOTIVE GROUP, INC.
CONSOLIDATED BALANCE SHEETS

	December 31,
	2008			2007
	(In thousands, except
	per share amounts)
ASSETS
Cash and cash equivalents	$	20,108		$	14,797
Accounts receivable, net of allowance for doubtful accounts of $2,075 and $2,869, as of December 31, 2008 and 2007, respectively		294,048			445,248
Inventories		1,589,105			1,662,003
Other current assets		88,251			64,998
Assets held for sale		15,534			114,697
Total current assets		2,007,046			2,301,743
Property and equipment, net		662,121			615,581
Goodwill		777,677			1,430,393
Franchise value		196,358			235,505
Equity method investments		296,487			62,752
Other assets		22,460			21,117
Total assets	$	3,962,149		$	4,667,091
LIABILITIES AND EQUITY
Floor plan notes payable	$	964,783		$	1,056,120
Floor plan notes payable — non-trade		506,688			468,830
Accounts payable		178,282			264,134
Accrued expenses		195,994			205,432
Current portion of long-term debt		11,305			14,522
Liabilities held for sale		23,060			82,578
Total current liabilities		1,880,112			2,091,616
Long-term debt		1,052,060			780,252
Other long-term liabilities		221,556			329,287
Total liabilities		3,153,728			3,201,155
Commitments and contingent liabilities
Equity
Penske Automotive Group stockholders’ equity:
Preferred Stock, $0.0001 par value; 100 shares authorized; none issued and outstanding		—			—
Common Stock, $0.0001 par value, 240,000 shares authorized; 91,431 shares issued and outstanding at December 31, 2008; 95,020 shares issued and outstanding at December 31, 2007		9			9
Non-voting Common Stock, $0.0001 par value, 7,125 shares authorized; none issued and outstanding		—			—
Class C Common Stock, $0.0001 par value, 20,000 shares authorized; none issued and outstanding		—			—
Additional paid-in-capital		731,037			776,989
Retained earnings		119,745			573,682
Accumulated other comprehensive (loss) income		(45,990	)		99,988
Total Penske Automotive Group stockholders’ equity		804,801			1,450,668
Non-controlling interest		3,620			15,268
Total equity		808,421			1,465,936
Total liabilities and equity	$	3,962,149		$	4,667,091

See Notes to Consolidated Financial Statements.

F-6

PENSKE AUTOMOTIVE GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS

	Year Ended December 31,
	2008			2007			2006
	(In thousands, except per share amounts)
Revenue:
New vehicle	$	5,942,667		$	6,933,349		$	6,116,762
Used vehicle		2,836,447			3,087,059			2,472,863
Finance and insurance, net		258,955			286,363			243,006
Service and parts		1,400,922			1,389,654			1,206,581
Distribution		348,809			—			—
Fleet and wholesale		837,459			1,071,777			893,745
Total revenues		11,625,259			12,768,202			10,932,957
Cost of sales:
New vehicle		5,456,032			6,350,401			5,581,562
Used vehicle		2,623,127			2,845,368			2,266,573
Service and parts		622,176			612,918			540,873
Distribution		294,535			—			—
Fleet and wholesale		841,042			1,064,673			888,485
Total cost of sales		9,836,912			10,873,360			9,277,493
Gross profit		1,788,347			1,894,842			1,655,464
Selling, general and administrative expenses		1,491,164			1,505,794			1,312,467
Intangible impairments		643,459			—			—
Depreciation and amortization		53,715			49,868			42,306
Operating (loss) income		(399,991	)		339,180			300,691
Floor plan interest expense		(64,164	)		(73,148	)		(58,311	)
Other interest expense		(54,322	)		(55,184	)		(48,286	)
Debt discount amortization		(13,983	)		(12,896	)		(11,080	)
Equity in earnings of affiliates		16,513			4,084			8,201
Loss on debt redemption		—			(18,634	)		—
(Loss) income from continuing operations before income taxes		(515,947	)		183,402			191,215
Income tax benefit (provision)		105,393			(61,965	)		(64,198	)
(Loss) income from continuing operations		(410,554	)		121,437			127,017
(Loss) income from discontinued operations, net of tax		(8,348	)		796			(6,550	)
Net (loss) income		(418,902	)		122,233			120,467
Less: Income attributable to non-controlling interests		1,133			1,972			2,172
Net (loss) income attributable to Penske Automotive Group common stockholders	$	(420,035	)	$	120,261		$	118,295
Basic earnings per share attributable to Penske Automotive Group common stockholders:
Continuing operations	$	(4.38	)	$	1.26		$	1.33
Discontinued operations		(0.09	)		0.01			(0.07	)
Net (loss) income	$	(4.47	)	$	1.27		$	1.26
Shares used in determining basic earnings per share		93,958			94,854			94,165
Diluted earnings per share attributable to Penske Automotive Group common stockholders:
Continuing operations	$	(4.38	)	$	1.26		$	1.32
Discontinued operations		(0.09	)		0.01			(0.07	)
Net (loss) income	$	(4.47	)	$	1.27		$	1.25
Shares used in determining diluted earnings per share		93,958			95,046			94,590
Amounts attributable to Penske Automotive Group common stockholders:
(Loss) income from continuing operations	$	(410,554	)	$	121,437		$	127,017
Less: Income attributable to non-controlling interests		1,133			1,972			2,172
(Loss) income from continuing operations, net of tax		(411,687	)		119,465			124,845
(Loss) income from discontinued operations, net of tax		(8,348	)		796			(6,550	)
Net (loss) income	$	(420,035	)	$	120,261		$	118,295
Cash dividends per share	$	0.36		$	0.30		$	0.27

See Notes to Consolidated Financial Statements.

F-7

PENSKE AUTOMOTIVE GROUP, INC.
CONSOLIDATED STATEMENTS OF EQUITY AND COMPREHENSIVE INCOME

	Voting and
	Non-voting											Accumulated						Total
	Common Stock					Additional						Other						Stockholders’ Equity									Comprehensive Income
	Issued					Paid-in			Retained			Comprehensive			Treasury			Attributable to Penske			Non-controlling			Total			Attributable to Penske			Non-controlling
	Shares			Amount		Capital			Earnings			Income (Loss)			Stock			Automotive Group			Interest			Equity			Automotive Group			Interest		Total
Balance, January 1, 2006		93,767,468		$	9	$	746,161		$	404,010		$	21,830		$	(26,278	)	$	1,145,732		$	14,409		$	1,160,141
Adjustment (note 1)		—			—		—			(10,792	)		—			—			(10,792	)		—			(10,792	)
Adoption of FSP APB 14-1		—			—		43,093			—			—			—			43,093			—			43,093
Equity compensation		226,797			—		4,564			—			—			—			4,564			—			4,564
Exercise of options, including tax benefit of $8,695		1,473,748			—		18,069			—			—			—			18,069			—			18,069
Repurchase of common stock		(1,000,000	)		—		—			—			—			(18,955	)		(18,955	)		—			(18,955	)
Dividends		—			—		—			(25,215	)		—			—			(25,215	)		—			(25,215	)
Distributions to non-controlling interests		—			—		—			—			—			—			—			(1,934	)		(1,934	)
Sale of subsidiary shares to non-controlling interest		—			—		—			—			—			—			—			132			132
Foreign currency translation		—			—		—			—			53,420			—			53,420			—			53,420		$	53,420		$	—	$	53,420
Other		—			—		—			—			4,129			—			4,129			252			4,381			4,129			—		4,129
Net income		—			—		—			118,295			—			—			118,295			2,172			120,467			118,295			2,172		120,467
Balance, December 31, 2006		94,468,013			9		811,887			486,298			79,379			(45,233	)		1,332,340			15,031			1,347,371		$	175,844		$	2,172	$	178,016
Adoption of Fin 48 (note 16)		—			—		—			(4,430	)		—			—			(4,430	)		—			(4,430	)
Equity compensation		346,265			—		7,721			—			—			—			7,721			—			7,721
Exercise of options, including tax benefit of $1,113		205,485			—		2,614			—			—			—			2,614			—			2,614
Dividends		—			—		—			(28,447	)		—			—			(28,447	)		—			(28,447	)
Distributions to non-controlling interests		—			—		—			—			—			—			—			(3,230	)		(3,230	)
Sale of subsidiary shares to non-controlling interest		—			—		—			—			—			—			—			465			465
Foreign currency translation		—			—		—			—			12,745			—			12,745			—			12,745		$	12,745		$	—	$	12,745
Other		—			—		—			—			7,864			—			7,864			1,030			8,894			7,864			—		7,864
Retirement of treasury stock		—			—		(45,233	)		—			—			45,233			—			—			—
Net income		—			—		—			120,261			—			—			120,261			1,972			122,233			120,261			1,972		122,233
Balance, December 31, 2007		95,019,763			9		776,989			573,682			99,988			—			1,450,668			15,268			1,465,936		$	140,870		$	1,972	$	142,842
Equity compensation		365,825			—		6,884			—			—			—			6,884			—			6,884
Exercise of options, including tax benefit of $245		60,336			—		825			—			—			—			825			—			825
Repurchase of common stock		(4,015,143	)		—		(53,661	)		—			—			—			(53,661	)		—			(53,661	)
Dividends		—			—		—			(33,902	)		—			—			(33,902	)		—			(33,902	)
Distributions to non-controlling interests		—			—		—			—			—			—			—			(1,565	)		(1,565	)
Purchase of subsidiary shares from non-conrolling interests		—			—		—			—			—			—			—			(12,389	)		(12,389	)
Sale of subsidiary shares to non-controlling interest		—			—		—			—			—			—			—			402			402
Foreign currency translation		—			—		—			—			(134,088	)		—			(134,088	)		—			(134,088	)	$	(134,088	)	$	—	$	(134,088	)
Other		—			—		—			—			(11,890	)		—			(11,890	)		771			(11,119	)		(11,890	)		—		(11,890	)
Net (loss) income		—			—		—			(420,035	)		—			—			(420,035	)		1,133			(418,902	)		(420,035	)		1,133		(418,902	)
Balance, December 31, 2008		91,430,781		$	9	$	731,037		$	119,745		$	(45,990	)	$	—		$	804,801		$	3,620		$	808,421		$	(566,013	)	$	1,133	$	(564,880	)

See Notes to Consolidated Financial Statements.

F-8

PENSKE AUTOMOTIVE GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

	Year Ended December 31,
	2008			2007			2006
	(In thousands)
Operating Activities:
Net (loss) income	$	(418,902	)	$	122,233		$	120,467
Adjustments to reconcile net (loss) income to net cash from continuing operating activities:
Intangible impairments		643,459			—			—
Depreciation and amortization		53,715			49,868			42,306
Debt discount amortization		13,983			12,896			11,080
Undistributed earnings of equity method investments		(13,821	)		(4,084	)		(7,951	)
Loss (income) from discontinued operations, net of tax		8,348			(796	)		6,550
Loss on debt redemption		—			18,634			—
Deferred income taxes		(106,431	)		24,782			25,685
Changes in operating assets and liabilities:
Accounts receivable		145,282			22,877			(49,985	)
Inventories		143,028			(145,542	)		(208,961	)
Floor plan notes payable		(916	)		208,422			139,739
Accounts payable and accrued expenses		(121,309	)		(34,168	)		61,492
Other		58,942			25,605			(15,298	)
Net cash from continuing operating activities		405,378			300,727			125,124
Investing Activities:
Purchase of equipment and improvements		(211,115	)		(194,425	)		(222,198	)
Proceeds from sale-leaseback transactions		37,422			131,793			106,167
Dealership acquisitions, net, including repayment of sellers floor plan notes payable of $30,711, $51,904 and $111,347, respectively		(147,089	)		(180,721	)		(368,193	)
Purchase of Penske Truck Leasing Co., L.P. partnership interest		(219,000	)		—			—
Other		(1,500	)		15,518			—
Net cash from continuing investing activities		(541,282	)		(227,835	)		(484,224	)
Financing Activities:
Proceeds from borrowings under U.S. Credit Agreement		550,900			426,900			441,500
Repayments under U.S. Credit Agreement		(550,900	)		(426,900	)		(713,500	)
Proceeds from U.S. Credit Agreement term loan		219,000			—			—
Repayments under U.S. Credit Agreement term loan		(10,000	)		—			—
Proceeds from mortgage facility		42,400			—			—
Issuance of subordinated debt		—			—			750,000
Net (repayments) borrowings of other long-term debt		(1,520	)		(34,190	)		60,925
Net borrowings (repayments) of floor plan notes payable — non-trade		(52,563	)		189,028			(57,245	)
Payment of deferred financing costs		(661	)		—			(17,210	)
Redemption 9 5/8% senior subordinated debt		—			(314,439	)		—
Proceeds from exercises of options, including excess tax benefit		825			2,614			18,069
Repurchase of common stock		(53,661	)		—			(18,955	)
Dividends		(33,902	)		(28,447	)		(25,215	)
Net cash from continuing financing activities		109,918			(185,434	)		438,369
Discontinued operations:
Net cash from discontinued operating activities		(2,753	)		16,279			(65,857	)
Net cash from discontinued investing activities		64,635			69,616			51,899
Net cash from discontinued financing activities		(30,585	)		21,415			(52,931	)
Net cash from discontinued operations		31,297			107,310			(66,889	)
Net change in cash and cash equivalents		5,311			(5,232	)		12,380
Cash and cash equivalents, beginning of period		14,797			20,029			7,649
Cash and cash equivalents, end of period	$	20,108		$	14,797		$	20,029
Supplemental disclosures of cash flow information:
Cash paid for:
Interest	$	125,184		$	138,941		$	105,787
Income taxes		8,862			35,054			35,230
Seller financed/assumed debt		4,728			2,992			64,168

See Notes to Consolidated Financial Statements.

F-9

PENSKE AUTOMOTIVE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)

1. Organization and Summary of Significant Accounting Policies

Business Overview and Concentrations

Penske Automotive Group, Inc. (the “Company”) is engaged in the sale of new and used motor vehicles and related products and services, including vehicle service, parts, collision repair, finance and lease contracts, third-party insurance products and other aftermarket products. The Company operates dealerships under franchise agreements with a number of automotive manufacturers. In accordance with individual franchise agreements, each dealership is subject to certain rights and restrictions typical of the industry. The ability of the manufacturers to influence the operations of the dealerships, or the loss of a significant number of franchise agreements, could have a material impact on the Company’s results of operations, financial position and cash flows. For the year ended December 31, 2008, BMW/MINI franchises accounted for 22% of the Company’s total revenues, Toyota/Lexus franchises accounted for 19%, Honda/Acura franchises accounted for 15% and Daimler franchises accounted for 10%. No other manufacturers’ franchises accounted for more than 10% of our total revenue. At December 31, 2008 and 2007, the Company had receivables from manufacturers of $72,150 and $87,663, respectively. In addition, a large portion of the Company’s contracts in transit, which are included in accounts receivable, are due from manufacturers’ captive finance subsidiaries. In 2007, the Company established a wholly-owned subsidiary, smart USA Distributor LLC (“smart USA”), which is the exclusive distributor of the smart fortwo vehicle in the U.S. and Puerto Rico.

Basis of Presentation

Results for the year ended December 31, 2008 include charges of $661,880, including $643,459 relating to goodwill and franchise asset impairments, as well as, an additional $18,421 of dealership consolidation and relocation costs, severance costs, other asset impairment charges, costs associated with the termination of an acquisition agreement, and insurance deductibles relating to damage sustained at our dealerships in the Houston market during Hurricane Ike. Results for the year ended December 31, 2007 include charges of $18,634 relating to the redemption of the $300.0 million aggregate principal amount of 9.625% Senior Subordinated Notes and $6,267 relating to impairment losses.

The consolidated financial statements include all majority-owned subsidiaries. Investments in affiliated companies, representing an ownership interest in the voting stock of the affiliate of between 20% and 50% or an investment in a limited partnership or a limited liability corporation for which the Company’s investment is more than minor, are stated at cost of acquisition plus the Company’s equity in undistributed earnings since acquisition. All intercompany accounts and transactions have been eliminated in consolidation.

The consolidated financial statements have been adjusted for entities that have been treated as discontinued operations through December 31, 2008 in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. In addition, the consolidated financial statements have been adjusted for an entity which met the criteria to be classified as a discontinued operation during the second quarter of 2009.

In June 2008, the Company acquired a 9% limited partnership interest in Penske Truck Leasing Co., L.P. (“PTL”), a leading global transportation services provider, from subsidiaries of General Electric Capital Corporation (collectively, “GE Capital”) in exchange for $219,000. PTL operates and maintains more than 200,000 vehicles and serves customers in North America, South America, Europe and Asia. Product lines include full-service leasing, contract maintenance, commercial and consumer truck rental and logistics services, including, transportation and distribution center management and supply chain management.

In September 2006, the SEC released Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements When Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”), which permitted the Company to adjust for the cumulative effect of prior period immaterial errors in the carrying amount of assets and liabilities as of the beginning of 2006, with an offsetting adjustment to the opening balance of retained earnings in that year. SAB 108 required the adjustment of any prior quarterly financial statements within the fiscal year of adoption for the effects of such errors on the quarters when that information was next presented. Such adjustments did not require previously filed reports with the SEC to be amended. Pursuant to SAB 108, the Company adjusted its opening retained earnings for fiscal 2006 and its financial results for the first three quarters of fiscal 2006 to correct errors related to operating leases with scheduled rent increases which were not accounted for on a straight line basis over the rental period. A summary of the errors, which were previously determined to be immaterial on a quantitative and qualitative basis under the Company’s assessment methodology for each individual period, follows:

F-10

PENSKE AUTOMOTIVE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts) — (Continued)

	2006
Cumulative effect on Penske Automotive Group stockholders’ equity as of January 1,	$	(10,792	)
Effect on:
Net income attributable to Penske Automotive Group common stockholders for the three months ended March 31,	$	(138	)
Net income attributable to Penske Automotive Group common stockholders for the three months ended June 30,	$	(143	)
Net income attributable to Penske Automotive Group common stockholders for the three months ended September 30,	$	(143	)

Adoption of New Accounting Pronouncements

The Company adopted FASB Staff Position (“FSP”) APB 14-1, “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)” effective January 1, 2009. Pursuant to FSP APB 14-1, the Company was required to account separately for the debt and equity components of its 3.5% Senior Subordinated Convertible Notes. The value ascribed to the debt component was determined using a fair value methodology, with the residual representing the equity component. The equity component was recorded as an increase in equity, with the debt discount being amortized as additional interest expense over the expected life of the instrument. The Company has applied the provisions of this standard retrospectively to all periods presented herein in accordance with SFAS No. 154, “Accounting Changes and Error Corrections.”

The Company adopted FSP EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities” effective January 1, 2009, which requires that unvested share-based payment awards with non-forfeitable rights to dividends or dividend equivalents be considered participating securities that must be included in the computation of EPS pursuant to the two-class method.  The Company has applied the provisions of this standard retrospectively to all periods presented herein in accordance with SFAS No. 154.

The following tables summarize the effect of the accounting changes resulting from the adoption of FSP APB 14-1 and FSP EITF 03-6-1, which required retrospective application, on our consolidated condensed financial statements.

	2008									2007							2006
	As									As							As
	calculated									calculated							calculated
	under			Effect						under		Effect					under		Effect
	previous			of			As			previous		of			As		previous		of			As
	accounting			changes			reported			accounting		changes			reported		accounting		changes			reported
Statement of Income for the year ended December 31:
Other interest expense		54,771			(449	)		54,322			55,633		(449	)		55,184		48,698		(412	)		48,286
Debt discount amortization		—			13,983			13,983			—		12,896			12,896		—		11,080			11,080
Income tax (benefit) expense		(99,993	)		(5,400	)		(105,393	)		66,934		(4,969	)		61,965		68,460		(4,262	)		64,198
(Loss) income from continuing operations (*)		(403,553	)		(8,134	)		(411,687	)		126,943		(7,478	)		119,465		131,251		(6,406	)		124,845
Net (loss) income (*)		(411,901	)		(8,134	)		(420,035	)		127,739		(7,478	)		120,261		124,701		(6,406	)		118,295
(Loss) income from continuing operations (*) per basic common share		(4.33	)		(0.05	)		(4.38	)		1.35		(0.09	)		1.26		1.41		(0.08	)		1.33
Net (loss) income (*) per basic common share		(4.42	)		(0.05	)		(4.47	)		1.36		(0.09	)		1.27		1.34		(0.08	)		1.26
Shares used in determining basic earnings per share		93,210			748			93,958			94,104		750			94,854		93,393		772			94,165
(Loss) income from continuing operations (*) per diluted common share		(4.33	)		(0.05	)		(4.38	)		1.34		(0.08	)		1.26		1.39		(0.07	)		1.32
Net (loss) income (*) per diluted common share		(4.42	)		(0.05	)		(4.47	)		1.35		(0.08	)		1.27		1.32		(0.07	)		1.25
Shares used in determining diluted earnings per share		93,210			748			93,958			94,558		488			95,046		94,178		412			94,590

* attributable to Penske Automotive Group common stockholders

F-11

PENSKE AUTOMOTIVE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts) — (Continued)

	2008							2007
	As							As
	calculated							calculated
	under		Effect					under		Effect
	previous		of			As		previous		of			As
	accounting		changes			reported		accounting		changes			reported
Balance Sheet as of December 31:
Other current assets		88,701		(450	)		88,251		65,448		(450	)		64,998
Other long-term assets		23,022		(562	)		22,460		22,129		(1,012	)		21,117
Long-term debt		1,087,932		(35,872	)		1,052,060		830,106		(49,854	)		780,252
Other long-term liabilities		207,771		13,785			221,556		310,104		19,183			329,287
Additional paid-in capital		687,944		43,093			731,037		733,896		43,093			776,989
Retained earnings		141,763		(22,018	)		119,745		587,566		(13,884	)		573,682

	2008									2007							2006
	As									As							As
	calculated									calculated							calculated
	under			Effect						under		Effect					under			Effect
	previous			of			As			previous		of			As		previous			of			As
	accounting			changes			reported			accounting		changes			reported		accounting			changes			reported
Statement of Cash Flows for the year ended December 31:
Net (loss) income		(410,768	)		(8,134	)		(418,902	)		129,711		(7,478	)		122,233		126,873			(6,406	)		120,467
Debt discount amortization		—			13,983			13,983			—		12,896			12,896		—			11,080			11,080
Deferred income taxes		(101,031	)		(5,400	)		(106,431	)		29,751		(4,969	)		24,782		29,947			(4,262	)		25,685
Other		59,391			(449	)		58,942			26,054		(449	)		25,605		(14,886	)		(412	)		(15,298	)
Net cash from continuing operating activities		405,378			—			405,378			300,727		—			300,727		125,124			—			125,124

The Company also adopted SFAS No. 160, “Non-controlling Interests in Consolidated Financial Statements an Amendment of ARB No. 51,” effective January 1, 2009, pursuant to which the Company reclassified its minority interest liabilities to equity relating to the Company’s non-wholly owned consolidated subsidiaries and amended the presentation of income attributable to non-controlling interests on the income statement. The Company has applied the presentation and disclosure provisions of this standard retrospectively to all periods presented herein.

Reclassification

The 2007 balance sheet has been reclassified to conform to the current year presentation.

Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The accounts requiring the use of significant estimates include accounts receivable, inventories, income taxes, intangible assets and certain reserves.

Cash and Cash Equivalents

Cash and cash equivalents include all highly-liquid investments that have an original maturity of three months or less at the date of purchase.

F-12

PENSKE AUTOMOTIVE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts) — (Continued)

Contracts in Transit

Contracts in transit represent receivables from unaffiliated finance companies relating to the sale of customers’ installment sales contracts arising in connection with the sale of a vehicle by us. Contracts in transit, included in accounts receivable, net in the Company’s consolidated balance sheets, amounted to $106,058 and $181,410 as of December 31, 2008 and 2007, respectively.

Inventory Valuation

Inventories are stated at the lower of cost or market. Cost for new and used vehicle inventories is determined using the specific identification method. Cost for parts and accessories are based on factory list prices.

Property and Equipment

Property and equipment are recorded at cost and depreciated over estimated useful lives using the straight-line method. Useful lives for purposes of computing depreciation for assets, other than leasehold improvements, range between 3 and 15 years. Leasehold improvements and equipment under capital lease are depreciated over the shorter of the term of the lease or the estimated useful life of the asset, not to exceed 40 years.

Expenditures relating to recurring repair and maintenance are expensed as incurred. Expenditures that increase the useful life or substantially increase the serviceability of an existing asset are capitalized.

When equipment is sold or otherwise disposed of, the cost and related accumulated depreciation are removed from the balance sheet, with any resulting gain or loss being reflected in income.

Income Taxes

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

Intangible Assets

The Company’s principal intangible assets relate to its franchise agreements with vehicle manufacturers, which represent the estimated value of franchises acquired in business combinations, and goodwill, which represents the excess of cost over the fair value of tangible and identified intangible assets acquired in business combinations. Intangible assets are required to be amortized over their estimated useful lives. The Company believes the franchise values of its dealerships have an indefinite useful life based on the following facts:

• Automotive retailing is a mature industry and is based on franchise agreements with the vehicle manufacturers;

• There are no known changes or events that would alter the automotive retailing franchise environment;

• Certain franchise agreement terms are indefinite;

• Franchise agreements that have limited terms have historically been renewed by us without substantial cost; and

• The Company’s history shows that manufacturers have not terminated our franchise agreements.

F-13

PENSKE AUTOMOTIVE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts) — (Continued)

Impairment Testing

Franchise value impairment is assessed as of October 1 every year and upon the occurrence of an indicator of impairment through a comparison of its carrying amounts and estimated fair values. An indicator of impairment exists if the carrying value of a franchise exceeds its estimated fair value and an impairment loss may be recognized up to that excess. The fair value of franchise value is determined using a discounted cash flow approach, which includes assumptions that include revenue and profitability growth, franchise profit margins, residual values and the Company’s cost of capital. The Company also evaluates its franchises in connection with the annual impairment testing to determine whether events and circumstances continue to support its assessment that the franchise has an indefinite life. As discussed in Note 7, the Company determined that the carrying value as of December 31, 2008 relating to certain of its franchise value was impaired and recorded a pre-tax non-cash impairment charge of $37,110.

Goodwill impairment is assessed at the reporting unit level as of October 1 every year and upon the occurrence of an indicator of impairment. The Company has determined that the dealerships in each of its operating segments within the Retail reportable segment, which are organized by geography, are components that are aggregated into five reporting units as they (A) have similar economic characteristics (all are automotive dealerships having similar margins), (B) offer similar products and services (all sell new and used vehicles, service, parts and third-party finance and insurance products), (C) have similar target markets and customers (generally individuals) and (D) have similar distribution and marketing practices (all distribute products and services through dealership facilities that market to customers in similar fashions). Accordingly, our operating segments are also considered our reporting units for the purpose of goodwill impairment testing relating to the Company’s Retail segment. There is no goodwill recorded in the Distribution or PAG Investments reportable segments. An indicator of goodwill impairment exists if the carrying amount of the reporting unit, including goodwill, is determined to exceed the estimated fair value.  The fair value of goodwill is determined using a discounted cash flow approach, which includes assumptions that include revenue and profitability growth, franchise profit margins, residual values and the Company’s cost of capital. If an indication of goodwill impairment exists, an analysis reflecting the allocation of the fair value of the reporting unit to all assets and liabilities, including previously unrecognized intangible assets, is performed.  The impairment is measured by comparing the implied fair value of the reporting unit goodwill with its carrying amount and an impairment loss may be recognized up to that excess. As discussed in Note 7, the Company determined that the carrying value of goodwill as of December 31, 2008 relating to certain reporting units was impaired and recorded a pre-tax non-cash impairment charge of $606,349.

Investments

Investments include marketable securities and investments in businesses accounted for under the equity method. A majority of the Company’s investments are in joint venture relationships. Such joint venture relationships are accounted for under the equity method, pursuant to which the Company records its proportionate share of the joint ventures’ income each period. In June 2008, the Company acquired the 9% limited partnership interest in PTL for $219,000 from GE Capital.

Under an arrangement which terminated at the end of 2008, the Company and Sirius Satellite Radio Inc. (“Sirius”) agreed to jointly promote Sirius Satellite Radio service. Pursuant to the terms of the arrangement with Sirius, the Company’s dealerships in the U.S. endeavored to order a significant percentage of eligible vehicles with a factory installed Sirius radio. The Company’s costs relating to such marketing initiatives are expensed as incurred. As compensation for its efforts, the Company received warrants to purchase ten million shares of Sirius common stock at $2.392 per share in 2004 that were earned ratably on an annual basis through January 2009. The Company measured the fair value of the warrants earned ratably on the date they were earned as there were no significant disincentives for non-performance. Since the Company could reasonably estimate the number of warrants being earned pursuant to the ratable schedule, the estimated fair value (based on current fair value) of these warrants was recognized ratably during each annual period. The Company also received the right to earn additional warrants to purchase Sirius common stock at $2.392 per share based upon the sale of certain units of specified vehicle brands through December 31, 2007. The Company earned warrants for 189,300 and 1,269,700 shares during the years ended December 31, 2007 and 2006, respectively. Since the Company could not reasonably estimate the number of warrants earned subject to the sale of units, the fair value of these warrants was recognized when they were earned. Based on the value of Sirius stock on December 31, 2008, the Company does not expect to receive any further value for the unexercised warrants it has achieved, which expire on July 5, 2009, under this arrangement.

The remaining marketable securities held by the Company are classified as available for sale and are stated at fair value, determined by the use of Level 1 inputs as described under SFAS No. 157, on our balance sheet and related unrealized gains and losses are included in other comprehensive income (loss), a separate component of equity.

F-14

PENSKE AUTOMOTIVE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts) — (Continued)

Investments for which there is not a liquid, actively traded market are reviewed periodically by management for indicators of impairment. If an indicator of impairment was identified, management would estimate the fair value of the investment using a discounted cash flow approach, which would include assumptions relating to revenue and profitability growth, profit margins, residual values and the Company’s cost of capital. Declines in investment values that are deemed to be other than temporary may result in an impairment charge reducing the investments’ carrying value to fair value. During 2007, the Company recorded an adjustment to the carrying value of its investment in Internet Brands to recognize an other than temporary impairment of $3,360 which became apparent upon its initial public offering. As a result of continued deterioration in the value of the stock, the Company recorded an additional other than temporary impairment charge of $506 relating to Internet Brands during the fourth quarter of 2008.

Foreign Currency Translation

For all of the Company’s foreign operations, the functional currency is the local currency. The revenue and expense accounts of the Company’s foreign operations are translated into U.S. dollars using the average exchange rates that prevailed during the period. Assets and liabilities of foreign operations are translated into U.S. dollars using period end exchange rates. Cumulative translation adjustments relating to foreign functional currency assets and liabilities are recorded in accumulated other comprehensive income (loss), a separate component of equity.

Fair Value of Financial Instruments

Financial instruments consist of cash and cash equivalents, accounts receivable, available for sale investments, accounts payable, debt, floor plan notes payable, and interest rate swaps used to hedge future cash flows. Other than our subordinated notes, the carrying amount of all significant financial instruments approximates fair value due either to length of maturity, the existence of variable interest rates that approximate prevailing market rates, or as a result of mark to market accounting. A summary of the fair value of the subordinated notes, based on quoted, level one market data, follows:

	December 31, 2008				December 31, 2007
	Carrying Value		Fair Value		Carrying Value		Fair Value
7.75% Senior Subordinated Notes due 2016	$	375,000	$	150,938	$	375,000	$	361,875
3.5% Senior Subordinated Convertible Notes due 2026		339,128		206,250		325,146		373,650

Revenue Recognition

Vehicle, Parts and Service Sales

The Company records revenue when vehicles are delivered and title has passed to the customer, when vehicle service or repair work is completed, and when parts are delivered to our customers. Sales promotions that we offer to customers are accounted for as a reduction of revenues at the time of sale. Rebates and other incentives offered directly to us by manufacturers are recognized as a reduction of cost of sales. Reimbursement of qualified advertising expenses are treated as a reduction of selling, general and administrative expenses. The amounts received under various manufacturer rebate and incentive programs are based on the attainment of program objectives, and such earnings are recognized either upon the sale of the vehicle for which the award is received, or upon attainment of the particular program goals if not associated with individual vehicles.

Finance and Insurance Sales

Subsequent to the sale of a vehicle to a customer, the Company sells its installment sale contracts to various financial institutions on a non-recourse basis (with specified exceptions) to mitigate the risk of default. The Company receives a commission from the lender equal to either the difference between the interest rate charged to the customer and the interest rate set by the financing institution or a flat fee. The Company also receives commissions for facilitating the sale of various third-party insurance products to customers, including credit and life insurance policies and extended service contracts. These commissions are recorded as revenue at the time the customer enters into the contract. In the case of finance contracts, a customer may prepay or fail to pay their contract, thereby terminating the contract. Customers may also terminate extended service contracts and other insurance products, which are fully paid at purchase, and become eligible for refunds of unused premiums. In these circumstances, a portion of the commissions the Company received may be charged back based on the terms of the contracts. The revenue the Company records relating to these transactions is net of an estimate of the amount of chargebacks the Company will be required to pay. The Company’s estimate is based upon the Company’s historical experience with similar contracts, including the impact of refinance and default rates on retail finance contracts and cancellation rates on extended service contracts and other insurance products. Aggregate reserves relating to chargeback activity were $20,420 and $19,400 as of December 31, 2008 and 2007, respectively. Changes in reserve estimates relate primarily to an increase in the level of chargeback activity.

F-15

PENSKE AUTOMOTIVE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts) — (Continued)

Defined Contribution Plans

The Company sponsors a number of defined contribution plans covering a significant majority of the Company’s employees. Company contributions to such plans are discretionary and are based on the level of compensation and contributions by plan participants. The Company suspended its contributions to its U.S. 401(K) plan beginning in the fourth quarter 2008. The Company incurred expense of $10,424, $11,053 and $9,596 relating to such plans during the years ended December 31, 2008, 2007 and 2006, respectively.

Advertising

Advertising costs are expensed as incurred or when such advertising takes place. The Company incurred net advertising costs of $81,127, $87,032 and $83,571 during the years ended December 31, 2008, 2007 and 2006, respectively. Qualified advertising expenditures reimbursed by manufacturers, which are treated as a reduction of advertising expense, were $7,696, $15,524 and $6,940 during the years ended December 31, 2008, 2007 and 2006, respectively.

Self Insurance

We retain risk relating to certain of our general liability insurance, workers’ compensation insurance, auto physical damage insurance, property insurance, employment practices liability insurance, directors and officers insurance, and employee medical benefits in the U.S. As a result, we are likely to be responsible for a majority of the claims and losses incurred under these programs. The amount of risk we retain varies by program, and, for certain exposures, we have pre-determined maximum loss limits for certain individual claims and/or insurance periods. Losses, if any, above the pre-determined exposure limits are paid by third-party insurance carriers. Our estimate of future losses is prepared by management using our historical loss experience and industry-based development factors.

Earnings Per Share

Basic earnings per share is computed using net income attributable to Penske Automotive Group common stockholders and the weighted average shares of voting common stock outstanding. Diluted earnings per share is computed using net income attributable to Penske Automotive Group common stockholders and the weighted average shares of voting common stock outstanding, adjusted for the dilutive effect of stock options. For the year ended December 31, 2008, no stock options were included in the computation of diluted loss per share because the Company reported a net loss from continuing operations and the effect of their inclusion would be anti-dilutive. A reconciliation of the number of shares used in the calculation of basic and diluted earnings per share for the years ended December 31, 2008, 2007 and 2006 follows:

	Year Ended December 31,
	2008		2007		2006
Weighted average number of common shares outstanding		93,958		94,854		94,165
Effect of stock options		—		192		425
Weighted average number of common shares outstanding, including effect of dilutive securities		93,958		95,046		94,590

As of December 31, 2008, 3 stock options have been excluded from the calculation of diluted earnings per share because the effect of such securities was anti-dilutive. There were no anti-dilutive stock options in 2007 or 2006. In addition, the Company has senior subordinated convertible notes outstanding which, under certain circumstances discussed in Note 9, may be converted to voting common stock. As of December 31, 2008 2007, and 2006, no shares related to the senior subordinated convertible notes were included in the calculation of diluted earnings per share because the effect of such securities was not dilutive.

F-16

PENSKE AUTOMOTIVE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts) — (Continued)

Hedging

SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended and interpreted, establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. Under SFAS No. 133, all derivatives, whether designated in hedging relationships or not, are required to be recorded on the balance sheet at fair value. SFAS No. 133 defines requirements for designation and documentation of hedging relationships, as well as ongoing effectiveness assessments, which must be met in order to qualify for hedge accounting. For a derivative that does not qualify as a hedge, changes in fair value are recorded in earnings immediately. If the derivative is designated in a fair-value hedge, the changes in the fair value of the derivative and the hedged item are recorded in earnings. If the derivative is designated in a cash-flow hedge, effective changes in the fair value of the derivative are recorded in accumulated other comprehensive income (loss), a separate component of equity, and recorded in the income statement only when the hedged item affects earnings. Changes in the fair value of the derivative attributable to hedge ineffectiveness are recorded in earnings immediately.

Stock-Based Compensation

SFAS No. 123(R), “Share-Based Payment,” as amended and interpreted, requires the Company to record compensation expense for all awards based on their grant-date fair value. The Company’s share-based payments have generally been in the form of “non-vested shares,” the fair value of which are measured as if they were vested and issued on the grant date.

New Accounting Pronouncements

SFAS No. 157, “Fair Value Measurements” defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosure requirements relating to fair value measurements. The FASB provided a one year deferral of the provisions of this pronouncement for non-financial assets and liabilities, however, the relevant provisions of SFAS No. 157 required by SFAS No. 159 were adopted as of January 1, 2008. SFAS No. 157 thus became effective for the Company’s non-financial assets and liabilities on January 1, 2009. The Company continues to evaluate the impact of this pronouncement on its non-financial assets and liabilities, including but not limited to, the valuation of reporting units for the purpose of assessing goodwill impairment, the valuation of franchise rights in connection with assessing franchise value impairments, the valuation of property and equipment in connection with assessing long-lived asset impairment, the valuation of liabilities in connection with exit or disposal activities, and the valuation of assets acquired and liabilities assumed in business combinations.

SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities Including an Amendment of FASB Statement No. 115” permits entities to choose to measure many financial instruments and certain other items at fair value and consequently report unrealized gains and losses on such items in earnings. The Company did not elect the fair value option with respect to any of its current financial assets or financial liabilities when the provisions of this statement became effective on January 1, 2008. As a result, there was no impact upon adoption.

SFAS No. 141(R) “Business Combinations” requires almost all assets acquired and liabilities assumed in connection with a business combination to be recorded at fair value as of the acquisition date, liabilities related to contingent consideration to be remeasured at fair value in each subsequent reporting period, and all acquisition related costs to be expensed as incurred. The pronouncement also clarifies the accounting under various scenarios such as step purchases or situations in which the fair value of assets and liabilities acquired exceeds the total consideration. SFAS No. 141(R) became effective for the Company on January 1, 2009.

SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities” amends and expands the disclosure requirements of SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” to explain why and how an entity uses derivative instruments, how the hedged items are accounted for under the relevant literature and how the derivative instruments affect an entity’s financial position, financial performance and cash flows. SFAS No. 161 became effective for the Company on January 1, 2009. This pronouncement will have no impact on the Company’s accounting, and the Company will include the additional disclosure requirements beginning with it’s first quarter 2009 10-Q filing.

FASB Staff Position (“FSP”) FAS 142-3, “Determination of the Useful Life of Intangible Assets” amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142,“Goodwill and Other Intangible Assets.”  FSP FAS 142-3 became effective for the Company on January 1, 2009.  The guidance in FSP 142-3 for determining the useful life of a recognized intangible asset shall be applied prospectively to intangible assets acquired after adoption, and the disclosure requirements shall be applied prospectively to all intangible assets recognized as of, and subsequent to, adoption.  The FSP will impact the Company’s assignment of franchise value in the U.K. for future acquisitions.

F-17

PENSKE AUTOMOTIVE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts) — (Continued)

2. Equity Method Investees

In June 2008, the Company acquired the 9% limited partnership interest in PTL, a leading global transportation services provider, from subsidiaries of General Electric Capital Corporation (collectively, “GE Capital”) in exchange for $219,000. PTL operates and maintains more than 200,000 vehicles and serves customers in North America, South America, Europe and Asia. Product lines include full-service leasing, contract maintenance, commercial and consumer truck rental and logistics services, including, transportation and distribution center management and supply chain management.

The Company’s other investments in companies that are accounted for under the equity method consist of the following: the Jacobs Group (50%), the Nix Group (50%), the Reisacher Group (50%), Penske Wynn Ferrari Maserati (50%), Max Cycles (50%), Toyota de Monterrey (48.7%), Toyota de Aguascalientes (45%), QEK Global Solutions (22.5%), Cycle Express, LP (9.4%), and Fleetwash, LLC (7%). All of these operations except QEK, Fleetwash, Cycle Express, and Max Cycles are engaged in the sale and servicing of automobiles. QEK is an automotive fleet management company, Fleetwash provides vehicle fleet washing services, Cycle Express provides auction services to the motorcycle, ATV and other recreational vehicle market, and Max Cycles is engaged in the sale and servicing of BMW motorcycles. The Company’s investment in entities accounted for under the equity method amounted to $296,487 and $62,752 at December 31, 2008 and 2007, respectively.

The combined results of operations and financial position of the Company’s equity basis investments are summarized as follows:

Condensed income statement information:

	Year Ended December 31,
	2008		2007		2006
Revenues	$	5,220,893	$	1,074,144	$	927,158
Gross margin		2,003,977		199,033		172,089
Net income		242,001		7,079		17,372
Equity in net income of affiliates		16,513		4,084		8,201

Condensed balance sheet information:

	December 31,		December 31,
	2008		2007
Current assets	$	1,097,773	$	318,965
Noncurrent assets		6,725,220		284,184
Total assets	$	7,822,993	$	603,149
Current liabilities	$	1,028,494	$	305,607
Noncurrent liabilities		5,739,895		124,368
Equity		1,054,604		173,174
Total liabilities and equity	$	7,822,993	$	603,149

3.  Business Combinations

The Company’s retail operations acquired thirteen and eleven franchises during 2008 and 2007, respectively. The Company’s financial statements include the results of operations of the acquired dealerships from the date of acquisition. Purchase price allocations may be subject to final adjustment. Of the total amount allocated to intangible assets, approximately $22,523 and $4,250 is deductible for tax purposes as of December 31, 2008 and 2007, respectively. A summary of the aggregate purchase price allocations in each year follows:

F-18

PENSKE AUTOMOTIVE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts) — (Continued)

	December 31,
	2008			2007
Accounts receivable	$	4,845		$	16,198
Inventory		70,130			68,449
Other current assets		962			2,979
Property and equipment		4,734			6,152
Goodwill		57,729			104,846
Franchise value		23,894			41,917
Other assets		1,084			6,921
Current liabilities		(11,561	)		(19,219	)
Non-current liabilities		—			(44,530	)
Total purchase price		151,817			183,713
Seller financed/assumed debt		(4,728	)		(2,992	)
Cash used in dealership acquisitions	$	147,089		$	180,721

The following unaudited consolidated pro forma results of operations of the Company for the years ended December 31, 2008 and 2007 give effect to acquisitions consummated during 2008 and 2007 as if they had occurred on January 1, 2007.

	December 31,
	2008			2007
Revenues	$	12,016,289		$	13,719,620
(Loss) income from continuing operations attributable to Penske Automotive Group common stockholders		(409,472	)		123,610
Net (loss) income attributable to Penske Automotive Group common stockholders		(417,820	)		124,406
(Loss) income from continuing operations per diluted common share attributable to Penske Automotive Group common stockholders		(4.36	)		1.30
Net (loss) income per diluted common share attributable to Penske Automotive Group common stockholders	$	(4.45	)	$	1.31

4. Discontinued Operations

The Company accounts for dispositions of its retail operations as discontinued operations when it is evident that the operations and cash flows of a franchise being disposed of will be eliminated from on-going operations and that the Company will not have any significant continuing involvement in its operations. In reaching the determination as to whether the cash flows of a dealership will be eliminated from ongoing operations, the Company considers whether it is likely that customers will migrate to similar franchises that it owns in the same geographic market. The Company’s consideration includes an evaluation of the brands sold at other dealerships it operates in the market and their proximity to the disposed dealership. When the Company disposes of franchises, it typically does not have continuing brand representation in that market. If the franchise being disposed of is located in a complex of Company owned dealerships, the Company does not treat the disposition as a discontinued operation if the Company believes that the cash flows previously generated by the disposed franchise will be replaced by expanded operations of the remaining franchises. The net assets of dealerships accounted for as discontinued operations in the accompanying balance sheets were immaterial. Combined income statement information regarding dealerships accounted for as discontinued operations follows:

	Year Ended December 31,
	2008			2007		2006
Revenues	$	292,487		$	680,412	$	1,176,895
Pre-tax (loss) income		(8,667	)		375		(7,239	)
(Loss) gain on disposal		(7,391	)		1,276		(2,995	)

5. Inventories

Inventories consisted of the following:

	December 31,		December 31,
	2008		2007
New vehicles	$	1,247,897	$	1,205,582
Used vehicles		259,274		373,578
Parts, accessories and other		81,934		82,843
Total inventories, net	$	1,589,105	$	1,662,003

F-19

PENSKE AUTOMOTIVE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts) — (Continued)

The Company receives non-refundable credits from certain of its vehicle manufacturers that reduce cost of sales when the vehicles are sold. Such credits amounted to $24,884, $31,031 and $29,443 during the years ended December 31, 2008, 2007 and 2006, respectively.

6. Property and Equipment

Property and equipment consisted of the following:

	December 31,
	2008			2007
Buildings and leasehold improvements	$	583,110		$	528,517
Furniture, fixtures and equipment		291,602			288,051
Total		874,712			816,568
Less: Accumulated depreciation and amortization		(212,591	)		(200,987	)
Property and equipment, net	$	662,121		$	615,581

As of December 31, 2008 and 2007, approximately $27,700 and $23,700, respectively, of capitalized interest is included in buildings and leasehold improvements and is being amortized over the useful life of the related assets.

7. Intangible Assets

The following is a summary of the changes in the carrying amount of goodwill and franchise value during the years ended December 31, 2008 and 2007:

				Franchise
	Goodwill			Value
Balance — December 31, 2006	$	1,279,958		$	240,447
Additions		104,846			41,917
Deletions		(10,254	)		(1,224	)
Reclassifications		49,248			(49,248	)
Foreign currency translation		6,595			3,613
Balance — December 31, 2007	$	1,430,393		$	235,505
Additions		57,623			23,894
Deletions		(356	)		(1,758	)
Impairment		(606,349	)		(36,997	)
Foreign currency translation		(103,634	)		(24,286	)
Balance — December 31, 2008	$	777,677		$	196,358

We were required to perform our test for goodwill and franchise value impairment during the fourth quarter. Due to the continued tightening of the credit markets and deterioration in our operating results during the fourth quarter, we utilized information as of December 31 in our testing.

The test for goodwill impairment, as defined by SFAS No. 142, is a two-step approach. The first step of the goodwill impairment test requires a determination of whether or not the fair value of a reporting unit is less than its carrying value. If so, the second step is required, which involves an analysis reflecting the allocation of the fair value determined in the first step to all of the reporting units’ assets and liabilities, including goodwill (as if the calculated fair value was the purchase price in a business combination). If the calculated fair value of the implied goodwill resulting from this allocation is lower than the carrying value of the goodwill in the reporting unit, the difference is recognized as a non-cash impairment charge. The purpose of the second step is only to determine the amount of goodwill that should be recorded on the balance sheet. The recorded amounts of other items on the balance sheet are not adjusted.

F-20

PENSKE AUTOMOTIVE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts) — (Continued)

We estimated the fair value of our reporting units using an “income” valuation approach. The “income” valuation approach estimates our enterprise value using a net present value model, which discounts projected free cash flows of our business using our weighted average cost of capital as the discount rate. We also considered whether the allocation of our enterprise value, which is comprised of our market capitalization and our debt, supported the values obtained through our “income” approach. Through this consideration we include a control premium that represents the estimated amount an investor would pay for our equity securities to obtain a controlling interest. The discounted cash flow approach used in the impairment test contains significant assumptions including revenue and profitability growth, franchise profit margins, residual values and the Company’s cost of capital. Due to the weak operating environment, particularly in the fourth quarter of 2008, the Company adjusted the assumptions underlying its historical discounted cash flow. Among the assumptions applied are projected cash flows for 2009 which are lower than historical levels. Revenue and profitability growth estimates reflect growth beginning after 2009 at levels slightly above historical rates to reflect anticipated improvement to the business environment, while the residual value reflects a growth rate more consistent with our historical growth rate. Additionally, the discount rate used in the current year reflects an increase in the Company’s cost of capital due to the turbulence in worldwide credit markets.

The requirements of the goodwill impairment testing process are such that, in our situation, if the first step of the impairment testing process indicates that the fair value of the reporting unit is below its carrying value (even by a relatively small amount), the requirements of the second step of the test result in a significant decrease in the amount of goodwill recorded on the balance sheet. This is due to the fact that, prior to our adoption on July 1, 2001 of SFAS No. 141, “Business Combinations,” we did not separately identify franchise rights associated with the acquisition of dealerships as separate intangible assets. In performing the second step, we are required by SFAS No. 142 to assign value to any previously unrecognized identifiable intangible assets (including such franchise rights, which are substantial) even though such amounts are not separately recorded on our Consolidated Balance Sheet.

As a result of completing the first step of this interim goodwill impairment test, we determined that the carrying value of the goodwill in four of our five reporting units exceeded their fair value, which required us to perform the second step of the goodwill impairment test. Due to the fact that we were required to allocate significant value to the theoretical value of the franchise value we did not record prior to the advent of SFAS No.142, the remaining fair value that was allocated to goodwill was significantly reduced. In effect, we were required by the second step of the impairment testing under SFAS No. 142 to reduce our goodwill by the amount of our previously unrecognized franchise value. Based on the results of the second step of the goodwill impairment test, we determined that goodwill was impaired, and we recorded an estimated pre-tax non-cash impairment charge of $606,349. We expect to finalize this non-cash goodwill impairment amount during the first quarter of 2009 as the valuation of certain assets and liabilities is completed, and any adjustment will be reflected in the Company’s results for the first quarter of 2009.

In connection with the impairment testing of our goodwill noted above, we also tested our franchise value for impairment as of December 31, and determined that $37,110 of the carrying value associated with franchise value was impaired.

If there is continued deterioration in the retail automotive market, or if the growth assumptions embodied in the current year impairment test prove inaccurate, the Company may incur incremental impairment charges. In particular, a decline of 10% or more in the estimated fair market value of our U.K. reporting unit would yield a further substantial write down. The net book value of the goodwill attributable to the U.K. reporting unit is approximately $306,000, a substantial portion of which would likely be written off if step one of the impairment test indicated impairment. If we experienced such a decline in our other reporting units, we would not expect to incur significant goodwill impairment charges. However, a 10% reduction in the estimated fair value of the franchises would result in incremental franchise value impairment charges of approximately $10,000.

During 2007, the Company recorded a reclassification between goodwill and franchise value to correct an immaterial error in the carrying value of franchise value recorded in connection with certain business combination transactions between 2002 and 2006.

8. Floor Plan Notes Payable — Trade and Non-trade

The Company finances substantially all of its new and a portion of its used vehicle inventories under revolving floor plan arrangements with various lenders. In the U.S., the floor plan arrangements are due on demand; however, the Company has not historically been required to repay floor plan advances prior to the sale of the vehicles that have been financed. The Company typically makes monthly interest payments on the amount financed. Outside of the U.S., substantially all of the floor plan arrangements are payable on demand or have an original maturity of 90 days or less and the Company is generally required to repay floor plan advances at the earlier of the sale of the vehicles that have been financed or the stated maturity. All of the floor plan agreements grant a security interest in substantially all of the assets of the Company’s dealership subsidiaries and in the U.S. are guaranteed by the Company’s parent. Interest rates under the floor plan arrangements are variable and increase or decrease based on changes in the prime rate, defined LIBOR or Euro Interbank offer Rate. The weighted average interest rate on floor plan borrowings, including the effect of the interest rate swap discussed in Note 10, was 5.0%, 5.2% and 6.1% for the years ended December 31, 2008, 2007 and 2006, respectively. The Company classifies floor plan notes payable to a party other than the manufacturer of a particular new vehicle, and all floor plan notes payable relating to pre-owned vehicles, as floor plan notes payable — non-trade on its consolidated balance sheets and classifies related cash flows as a financing activity on its consolidated statements of cash flows.

F-21

PENSKE AUTOMOTIVE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts) — (Continued)

9. Long-Term Debt

Long-term debt consisted of the following:

	December 31,			December 31,
	2008			2007
U.S. credit agreement — revolving credit line	$	—		$	—
U.S. credit agreement — term loan		209,000			—
U.K. credit agreement — revolving credit line		59,831			23,844
U.K. credit agreement — term loan		25,752			49,091
U.K. credit agreement — seasonally adjusted overdraft line of credit		9,502			18,330
7.75% senior subordinated notes due 2016		375,000			375,000
3.5% senior subordinated convertible notes due 2026, net of debt discount		339,128			325,146
Mortgage facilities		42,243			—
Other		2,909			3,363
Total long-term debt		1,063,365			794,774
Less: current portion		(11,305	)		(14,522	)
Net long-term debt	$	1,052,060		$	780,252

Scheduled maturities of long-term debt for each of the next five years and thereafter are as follows:

2009	$	11,305
2010		11,360
2011		659,572
2012		1,133
2013		1,196
2014 and thereafter		414,671
Total long-term debt maturities		1,099,237
Less: unamortized debt discount		35,872
Total long-term debt reported	$	1,063,365

Principal repayments under our $375.0 million of 3.5% senior subordinated notes due in 2026 are reflected in the table above, however, while these notes are not due until 2026, in 2011 the holders may require us to purchase all or a portion of their notes for cash. This acceleration of ultimate repayment is reflected in the table above.

U.S. Credit Agreement

The Company is party to a $479,000 credit agreement with DCFS USA LLC and Toyota Motor Credit Corporation, as amended (the “U.S. Credit Agreement”), which provides for up to $250,000 in revolving loans for working capital, acquisitions, capital expenditures, investments and other general corporate purposes, a non-amortizing term loan originally funded for $219,000, and for an additional $10,000 of availability for letters of credit, through September 30, 2011. The revolving loans bear interest at a defined LIBOR plus 1.75%, subject to an incremental 0.50% for uncollateralized borrowings in excess of a defined borrowing base. The term loan, which bears interest at defined LIBOR plus 2.50%, may be prepaid at any time, but then may not be reborrowed. The Company repaid $10,000 of this term loan in the fourth quarter of 2008.

The U.S. Credit Agreement is fully and unconditionally guaranteed on a joint and several basis by the Company’s domestic subsidiaries and contains a number of significant covenants that, among other things, restrict the Company’s ability to dispose of assets, incur additional indebtedness, repay other indebtedness, pay dividends, create liens on assets, make investments or acquisitions and engage in mergers or consolidations. The Company is also required to comply with specified financial and other tests and ratios, each as defined in the U.S. Credit Agreement, including: a ratio of current assets to current liabilities, a fixed charge coverage ratio, a ratio of debt to stockholders’ equity and a ratio of debt to EBITDA. A breach of these requirements would give rise to certain remedies under the agreement, the most severe of which is the termination of the agreement and acceleration of the amounts owed. As of December 31, 2008, the Company was in compliance with all covenants under the U.S. Credit Agreement.

F-22

PENSKE AUTOMOTIVE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts) — (Continued)

The U.S. Credit Agreement also contains typical events of default, including change of control, non-payment of obligations and cross-defaults to the Company’s other material indebtedness. Substantially all of the Company’s domestic assets are subject to security interests granted to lenders under the U.S. Credit Agreement. As of December 31, 2008, $209,000 of term loans and $500 of letters of credit were outstanding under this facility. No revolving loans were outstanding as of December 31, 2008.

U.K. Credit Agreement

The Company’s subsidiaries in the U.K. (the “U.K. Subsidiaries”) are party to an agreement with the Royal Bank of Scotland plc, as agent for National Westminster Bank plc, as amended, which provides for a funded term loan, a revolving credit agreement and a seasonally adjusted overdraft line of credit (collectively, the “U.K. Credit Agreement”) to be used to finance acquisitions, working capital, and general corporate purposes. The U.K. Credit Agreement was amended in 2008 to provide greater flexibility within the financial covenants and increase the borrowing rates. This facility provides for (1) up to £80,000 in revolving loans through August 31, 2011, which bears interest between a defined LIBOR plus 1.0% and defined LIBOR plus 1.6%, (2) a term loan originally funded for £30,000 which bears interest between 6.29% and 6.89% and is payable ratably in quarterly intervals until fully repaid on June 30, 2011, and (3) a seasonally adjusted overdraft line of credit for up to £20,000 that bears interest at the Bank of England Base Rate plus 1.75%, and matures on August 31, 2011.

The U.K. Credit Agreement is fully and unconditionally guaranteed on a joint and several basis by the U.K. Subsidiaries, and contains a number of significant covenants that, among other things, restrict the ability of the U.K. Subsidiaries to pay dividends, dispose of assets, incur additional indebtedness, repay other indebtedness, create liens on assets, make investments or acquisitions and engage in mergers or consolidations. In addition, the U.K. Subsidiaries are required to comply with specified ratios and tests, each as defined in the U.K. Credit Agreement, including: a ratio of earnings before interest and taxes plus rental payments to interest plus rental payments (as defined), a measurement of maximum capital expenditures, and a debt to EBITDA ratio (as defined). A breach of these requirements would give rise to certain remedies under the agreement, the most severe of which is the termination of the agreement and acceleration of the amounts owed. As of December 31, 2008, the U.K. subsidiaries were in compliance with all covenants under the U.K. Credit Agreement.

The U.K. Credit Agreement also contains typical events of default, including change of control and non-payment of obligations and cross-defaults to other material indebtedness of the U.K. Subsidiaries. Substantially all of the U.K. Subsidiaries’ assets are subject to security interests granted to lenders under the U.K. Credit Agreement. As of December 31, 2008, outstanding loans under the U.K. Credit Agreement amounted to £65,158 ($95,085), including £17,647 ($25,752) under the term loan.

7.75% Senior Subordinated Notes

On December 7, 2006, the Company issued $375,000 aggregate principal amount of 7.75% senior subordinated notes (the “7.75% Notes”) due 2016. The 7.75% Notes are unsecured senior subordinated notes and are subordinate to all existing and future senior debt, including debt under the Company’s credit agreements and floor plan indebtedness. The 7.75% Notes are guaranteed by substantially all of the Company’s wholly-owned domestic subsidiaries on a unsecured senior subordinated basis. Those guarantees are full and unconditional and joint and several. The Company can redeem all or some of the 7.75% Notes at its option beginning in December 2011 at specified redemption prices, or prior to December 2011 at 100% of the principal amount of the notes plus an applicable “make-whole” premium, as defined. In addition, the Company may redeem up to 40% of the 7.75% Notes at specified redemption prices using the proceeds of certain equity offerings before December 15, 2009. Upon certain sales of assets or specific kinds of changes of control the Company is required to make an offer to purchase the 7.75% Notes. The 7.75% Notes also contain customary negative covenants and events of default. As of December 31, 2008, the Company was in compliance with all negative covenants and there were no events of default.

Senior Subordinated Convertible Notes

On January 31, 2006, the Company issued $375,000 aggregate principal amount of 3.50% senior subordinated convertible notes due 2026 (the “Convertible Notes”). The Convertible Notes mature on April 1, 2026, unless earlier converted, redeemed or purchased by the Company, as discussed below. The Convertible Notes are unsecured senior subordinated obligations and subordinate to all future and existing debt under the Company’s credit agreements and floor plan indebtedness. The Convertible Notes are guaranteed on an unsecured senior subordinated basis by substantially all of the Company’s wholly-owned domestic subsidiaries. Those guarantees are full and unconditional and joint and several. The Convertible Notes also contain customary negative covenants and events of default. As of December 31, 2008, the Company was in compliance with all negative covenants and there were no events of default.

F-23

PENSKE AUTOMOTIVE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts) — (Continued)

Holders of the convertible notes may convert them based on a conversion rate of 42.7796 shares of common stock per $1,000 principal amount of the Convertible Notes (which is equal to a conversion price of approximately $23.38 per share), subject to adjustment, only under the following circumstances: (1) in any quarterly period, if the closing price of the common stock for twenty of the last thirty trading days in the prior quarter exceeds $28.43 (subject to adjustment), (2) for specified periods, if the trading price of the Convertible Notes falls below specific thresholds, (3) if the Convertible Notes are called for redemption, (4) if specified distributions to holders of the common stock are made or specified corporate transactions occur, (5) if a fundamental change (as defined) occurs, or (6) during the ten trading days prior to, but excluding, the maturity date.

Upon conversion of the Convertible Notes, for each $1,000 principal amount of the Convertible Notes, a holder will receive an amount in cash, in lieu of shares of the Company’s common stock, equal to the lesser of (i) $1,000 or (ii) the conversion value, determined in the manner set forth in the related indenture covering the Convertible Notes, of the number of shares of common stock equal to the conversion rate. If the conversion value exceeds $1,000, the Company will also deliver, at its election, cash, common stock or a combination of cash and common stock with respect to the remaining value deliverable upon conversion.

In the event of a change of control on or before April 6, 2011, the Company will, in certain circumstances, pay a make-whole premium by increasing the conversion rate used in that conversion. In addition, the Company will pay additional cash interest, commencing with six-month periods beginning on April 1, 2011, if the average trading price of a Convertible Note for certain periods in the prior six-month period equals 120% or more of the principal amount of the Convertible Notes. On or after April 6, 2011, the Company may redeem the Convertible Notes, in whole at any time or in part from time to time, for cash at a redemption price of 100% of the principal amount of the Convertible Notes to be redeemed, plus any accrued and unpaid interest to the applicable redemption date.

Holders of the Convertible Notes may require the Company to purchase all or a portion of their Convertible Notes for cash on each of April 1, 2011, April 1, 2016 and April 1, 2021 at a purchase price equal to 100% of the principal amount of the Convertible Notes to be purchased, plus accrued and unpaid interest, if any, to the applicable purchase date.

The liability and equity components related to the Convertible Notes consist of the following at December 31:

	2008		2007
Carrying amount of the equity component	$	43,093	$	43,093
Principal amount of the liability component	$	375,000	$	375,000
Unamortized debt discount		35,872		49,854
Net carrying amount of the liability component	$	339,128	$	325,146

The unamortized debt discount will be amortized as additional interest expense through April 1, 2011, the date the Company expects to be required to redeem the Convertible Notes. Approximately $15,159 of the unamortized debt discount will be recognized as an increase of interest expense over the next twelve months. The effective interest rate on the liability component is based on an annual rate of 8.25%.

Mortgage Facilities

The Company is party to a $42,400 seven year mortgage facility with respect to certain of our dealership properties that matures on October 1, 2015. The facility bears interest at a defined rate, requires monthly principal and interest payments, and includes the option to extend the term for successive periods of five years up to a maximum term of twenty-five years. In the event the Company exercises its options to extend the term, the interest rate will be renegotiated at each renewal period. The mortgage facility also contains typical events of default, including non-payment of obligations, cross-defaults to the Company’s other material indebtedness, certain change of control events, and the loss or sale of certain franchises operated at the property. Substantially all of the buildings, improvements, fixtures and personal property of the properties under the mortgage facility are subject to security interests granted to the lender. As of December 31, 2008, $42,243 was outstanding under this facility.

F-24

PENSKE AUTOMOTIVE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts) — (Continued)

9.625% Senior Subordinated Notes

In March 2007, the Company redeemed its $300,000 aggregate principal amount of 9.625% senior subordinated notes due 2012 (the “9.625% Notes”) at a price of 104.813%. The 9.625% Notes were unsecured senior subordinated notes and were subordinate to all existing senior debt, including debt under the Company’s credit agreements and floor plan indebtedness. The Company incurred an $18,634 pre-tax charge in connection with the redemption, consisting of a $14,439 redemption premium and the write-off of $4,195 of unamortized deferred financing costs.

10. Interest Rate Swaps

The Company is party to interest rate swap agreements through January 7, 2011 pursuant to which the LIBOR portion of $300,000 of the Company’s U.S. floating rate floor plan debt was fixed at 3.67%. We may terminate these arrangements at any time subject to the settlement of the then current fair value of the swap arrangements. These swaps are designated as cash flow hedges of future interest payments of LIBOR based U.S. floor plan borrowings. During 2008, the swaps increased the weighted average interest rate on the Company’s floor plan borrowings by approximately 0.2%. As of December 31, 2008, the Company used Level 2 inputs as described under SFAS No. 157 to estimate the fair value of these contracts to be a $15,375 liability, and expects approximately $8,403 associated with the swaps to be recognized as an increase of interest expense over the next twelve months.

The Company was party to an interest rate swap agreement which expired in January 2008, pursuant to which a notional $200,000 of its U.S. floating rate debt was exchanged for fixed rate debt. The swap was designated as a cash flow hedge of future interest payments of LIBOR based U.S. floor plan borrowings.

11. Off-Balance Sheet Arrangements

See Note 12 for a discussion of the Company’s lease obligations relating to properties associated with disposed franchises.

12. Commitments and Contingent Liabilities

The Company is involved in litigation which may relate to issues with customers, employment related matters, class action claims, purported class action claims, and claims brought by governmental authorities. As of December 31, 2008, the Company is not party to any legal proceedings, including class action lawsuits, that, individually or in the aggregate, are reasonably expected to have a material adverse effect on the Company’s results of operations, financial condition or cash flows. However, the results of these matters cannot be predicted with certainty, and an unfavorable resolution of one or more of these matters could have a material adverse effect on the Company’s results of operations, financial condition or cash flows. See MD&A — “Forward Looking Statements.”

The Company was party to a joint venture agreement with respect to one of the Company’s franchises pursuant to which the Company was required to repurchase its partner’s interest. The Company completed this repurchase on July 23, 2008 with a payment of $5,100.

The Company has historically structured its operations so as to minimize ownership of real property. As a result, the Company leases or subleases substantially all of its dealerships properties and other facilities. These leases are generally for a period of between five and 20 years, and are typically structured to include renewal options at the Company’s election. The Company estimates the total rent obligations under these leases including any extension periods it may exercise at its discretion and assuming constant consumer price indices to be $4.8 billion. Pursuant to the leases for some of the Company’s larger facilities, the Company is required to comply with specified financial rations, including a “rent coverage” ratio and a debt to EBITDA ratio, each as defined. For these leases, non-compliance with the ratios may require the Company to post collateral in the form of a letter of credit. A breach of the other lease covenants give rise to certain remedies by the landlord, the most severe of which include the termination of the applicable lease and acceleration of the total rent payments due under the lease, as defined.

F-25

PENSKE AUTOMOTIVE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts) — (Continued)

Minimum future rental payments required under operating leases in effect as of December 31, 2008 are as follows:

2009	$	167,445
2010		165,476
2011		164,627
2012		163,415
2013		162,695
2014 and thereafter		3,997,568
	$	4,821,226

Rent expense for the years ended December 31, 2008, 2007 and 2006 amounted to $159,802, $150,229 and $130,747, respectively. Of the total rental payments, $470, $455 and $9,860, respectively, were made to related parties during 2008, 2007 and 2006, respectively (See Note 13).

Since 1999, the Company has sold a number of dealerships to third parties. As a condition to the sale, the Company has at times remained liable for the lease payments relating to the properties on which those franchises operate. The aggregate rent paid by the tenants on those properties in 2008 was approximately $13,365, and, in aggregate, the Company currently guarantees or is otherwise liable for approximately $218,680 of lease payments, including lease payments during available renewal periods. The Company relies on the buyer of the franchise to pay the associated rent and maintain the property. In the event the buyer does not perform as expected (due to the buyer’s financial condition or other factors such as the market performance of the underlying vehicle manufacturer), the Company may not be able to recover amounts owed to it by the buyer. In this event, the Company could be required to fulfill these obligations, which could materially adversely affect its results of operations, financial condition or cash flows.

13. Related Party Transactions

The Company currently is a tenant under a number of non-cancelable lease agreements with Automotive Group Realty, LLC and its subsidiaries (together “AGR”), which are subsidiaries of Penske Corporation. During the years ended December 31, 2008, 2007 and 2006, the Company paid $470, $455 and $4,160, respectively, to AGR under these lease agreements. From time to time, we may sell AGR real property and improvements that are subsequently leased by AGR to us. In addition, we may purchase real property or improvements from AGR. Each of these transactions is valued at a price that is independently confirmed. During the year ended December 31, 2006, the Company sold AGR real property and/or improvements for $132, which was subsequently leased by AGR to the Company. There were no gains or losses associated with such sales. During the year ended December 31, 2006, the Company purchased $25,630 of real property and improvements from AGR. There were no purchase or sale transactions with AGR in 2007 or 2008.

The Company sometimes pays to and/or receives fees from Penske Corporation and its affiliates for services rendered in the normal course of business, or to reimburse payments made to third parties on each others’ behalf. These transactions and those relating to AGR mentioned above are reviewed periodically by the Company’s Audit Committee and reflect the provider’s cost or an amount mutually agreed upon by both parties. During the years ended December 31, 2008, 2007 and 2006, Penske Corporation and its affiliates billed the Company $2,522, $3,989 and $5,396, respectively, and the Company billed Penske Corporation and its affiliates $27, $105 and $223, respectively, for such services. As of December 31, 2008 and 2007, the Company had $11 and $4 of receivables from and $313 and $358 of payables to Penske Corporation and its subsidiaries, respectively.

The Company and Penske Corporation have entered into a joint insurance agreement which provides that, with respect to joint insurance policies (which includes the Company’s property policy), available coverage with respect to a loss shall be paid to each party as stipulated in the policies. In the event of losses by the Company and Penske Corporation that exceed the limit of liability for any policy or policy period, the total policy proceeds shall be allocated based on the ratio of premiums paid.

The general partner of PTL is Penske Truck Leasing Corporation, a wholly-owned subsidiary of Penske Corporation, which together with other wholly-owned subsidiaries of Penske Corporation, owns 40% of PTL. The remaining 51% of PTL is owned by GE Capital. The Company is party to a partnership agreement among the other partners which, among other things, provides us with specified partner distribution and governance rights and restricts our ability to transfer our interests. In 2008, the Company received $2,691 from PTL in pro rata dividends. The Company is also party to a five year sublease pursuant to which PTL occupies a portion of one of our dealership locations in New Jersey for $87 per year plus its pro rata share of certain property expenses. During 2008, smart USA paid PTL $1,164 for assistance with roadside assistance and other services to smart fortwo owners, of which $860 includes pass-through expenses to be paid by PTL to third party vendors.

F-26

PENSKE AUTOMOTIVE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts) — (Continued)

Pursuant to the stock repurchase program described in Note 15 below, the Company repurchased an aggregate of 950,000 shares of it’s outstanding common stock from Eustace W. Mita, a former director, for $10,300. The transaction prices were based on the closing prices of the Company’s common stock on the New York Stock Exchange on the dates the shares were acquired.

From time to time the Company enters into joint venture relationships in the ordinary course of business, pursuant to which it acquires automotive dealerships together with other investors. The Company may also provide these dealerships with working capital and other debt financing at costs that are based on the Company’s incremental borrowing rate. As of December 31, 2008, the Company’s automotive joint venture relationships were as follows:

		Ownership
Location	Dealerships	Interest
Fairfield, Connecticut	Audi, Mercedes-Benz, Porsche, smart		88.53	%(A)(B)
Edison, New Jersey	Ferrari, Maserati		70.00	%(B)
Las Vegas, Nevada	Ferrari, Maserati		50.00	%(C)
Munich, Germany	BMW, MINI		50.00	%(C)
Frankfurt, Germany	Lexus, Toyota		50.00	%(C)
Achen, Germany	Audi, Lexus, Toyota, Volkswagen		50.00	%(C)
Mexico	Toyota		48.70	%(C)
Mexico	Toyota		45.00	%(C)

(A)	An entity controlled by one of the Company’s directors, Lucio A. Noto (the “Investor”), owns an 11.47% interest in this joint venture, which entitles the Investor to 20% of the operating profits of the joint venture. In addition, the Investor has an option to purchase up to a 20% interest in the joint venture for specified amounts.
(B)	Entity is consolidated in the Company’s financial statements.
(C)	Entity is accounted for using the equity method of accounting.

14. Stock-Based Compensation

Key employees, outside directors, consultants and advisors of the Company are eligible to receive stock-based compensation pursuant to the terms of the Company’s 2002 Equity Compensation Plan (the “Plan”). The Plan originally allowed for the issuance of 4,200 shares for stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares and other awards. As of December 31, 2008, 2,254 shares of common stock were available for grant under the Plan. Compensation expense related to the Plan was $5,710, $5,045, and $3,610 during the years ended December 31, 2008, 2007 and 2006, respectively.

Restricted Stock

During 2008, 2007 and 2006, the Company granted 378, 269 and 245 shares, respectively, of restricted common stock at no cost to participants under the Plan. The restricted stock entitles the participants to vote their respective shares and receive dividends. The shares are subject to forfeiture and are non-transferable, which restrictions generally lapse over a four year period from the grant date. The grant date quoted market price of the underlying common stock is amortized to expense over the restriction period. As of December 31, 2008, there was $8,838 of total unrecognized compensation cost related to the restricted stock. That cost is expected to be recognized over the next 3.5 years.

Presented below is a summary of the status of the Company’s restricted stock as of December 31, 2007 and changes during the year ended December 31, 2008:

				Weighted Average
	Shares			Grant-Date Fair Value		Intrinsic Value
December 31, 2007		705		$	19.24	$	12,300
Granted		378			18.62
Vested		(327	)		17.64
Forfeited		(16	)		19.77
December 31, 2008		740		$	19.45	$	5,700

F-27

PENSKE AUTOMOTIVE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts) — (Continued)

Stock Options

Options were granted by the Company prior to 2006. These options generally vested over a three year period and had a maximum term of ten years.

Presented below is a summary of the status of stock options held by participants during 2008, 2007 and 2006:

	2008				2007				2006
			Weighted				Weighted				Weighted
			Average				Average				Average
			Exercise				Exercise				Exercise
Stock Options	Shares		Price		Shares		Price		Shares		Price
Options outstanding at beginning of year		386	$	9.11		733	$	8.40		1,406	$	8.20
Granted		—		—		—		—		—		—
Exercised		60		9.61		205		7.30		673		7.98
Forfeited		2		8.95		142		8.05		—		—
Options outstanding at end of year		324	$	9.01		386	$	9.11		733	$	8.40

The following table summarizes the status of stock options outstanding and exercisable for the year ended December 31, 2008:

			Weighted		Weighted						Weighted
	Stock		Average		Average				Stock		Average
	Options		Remaining		Exercise		Intrinsic		Options		Exercise		Intrinsic
Range of Exercise Prices	Outstanding		Contractual Life		Price		Value		Exercisable		Price		Value
$3 to $6		85		1.8	$	5.65	$	653		85	$	5.65	$	653
$6 to $16		239		2.6		9.94		130		239		9.94		130
		324					$	783		324			$	783

During 2006, options to purchase 800 shares of common stock with an exercise price of $5.00 per share were exercised that were issued outside of the Plan in 1999. As of December 31, 2008, no options issued outside of the Plan were outstanding.

15. Equity

Share Repurchase

In 2007, the Company’s board of directors approved a stock repurchase program for up to $150,000 of outstanding common stock. During 2008, the Company repurchased 4.015 million shares of our outstanding common stock for $53,661, or an average of $13.36 per share.

On January 26, 2006, the Company repurchased 1,000 shares of our outstanding common stock for $18,960, or $18.96 per share.

Accumulated Other Comprehensive Income (Loss)

The components of accumulated other comprehensive income (loss), net of tax, follow:

							Accumulated
							Other
	Currency						Comprehensive
	Translation			Other			Income (Loss)
Balance at December 31, 2005	$	24,876		$	(3,046	)	$	21,830
Change		53,420			4,129			57,549
Balance at December 31, 2006		78,296			1,083			79,379
Change		12,745			7,864			20,609
Balance at December 31, 2007		91,041			8,947			99,988
Change		(134,088	)		(11,890	)		(145,978	)
Balance at December 31, 2008	$	(43,047	)	$	(2,943	)	$	(45,990	)

F-28

PENSKE AUTOMOTIVE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts) — (Continued)

“Other” represents changes associated with the accounting for immaterial items, including: two defined contribution plans in the U.K., changes in the fair value of interest rate swap agreements, and valuation adjustments relating to certain available for sale securities each of which has been excluded from net income and reflected in equity.

16. Income Taxes

Income taxes relating to (loss) income from continuing operations consisted of the following:

	Year Ended December 31,
	2008			2007		2006
Current:
Federal	$	(17,884	)	$	9,382	$	15,500
State and local		1,592			2,838		3,371
Foreign		17,332			24,309		19,010
Total current		1,040			36,529		37,881
Deferred:
Federal		(88,167	)		15,869		18,762
State and local		(19,292	)		3,489		3,128
Foreign		1,026			6,078		4,427
Total deferred		(106,433	)		25,436		26,317
Income taxes relating to continuing operations	$	(105,393	)	$	61,965	$	64,198

Income taxes relating to income (loss) from continuing operations varied from the U.S. federal statutory income tax rate due to the following:

	Year Ended December 31,
	2008			2007			2006
Income taxes relating to continuing operations at federal statutory rate of 35%	$	(180,592	)	$	64,290		$	67,018
State and local income taxes, net of federal taxes		(12,836	)		3,741			3,335
Foreign		(1,806	)		(4,595	)		(6,716	)
Goodwill impairment		90,575			—			—
Other		(734	)		(1,471	)		561
Income taxes relating to continuing operations	$	(105,393	)	$	61,965		$	64,198

The components of deferred tax assets and liabilities at December 31, 2008 and 2007 were as follows:

	2008			2007
Deferred Tax Assets
Accrued liabilities	$	41,362		$	29,424
Net operating loss carryforwards		24,051			8,154
Interest rate swap		6,273			384
Other		3,503			7,374
Total deferred tax assets		75,189			45,336
Valuation allowance		(3,378	)		(2,337	)
Net deferred tax assets		71,811			42,999
Deferred Tax Liabilities
Depreciation and amortization		(51,748	)		(189,595	)
Partnership investments		(58,992	)		(16,412	)
Convertible notes		(36,982	)		(34,111	)
Other		(2,575	)		(1,859	)
Total deferred tax liabilities		(150,297	)		(241,977	)
Net deferred tax liabilities	$	(78,486	)	$	(198,978	)

As of December 31, 2008 and 2007, approximately $676,321 and $653,798 respectively, of the Company’s goodwill is deductible for tax purposes. The Company has established deferred tax liabilities related to the temporary differences relating to such tax deductible goodwill.

F-29

PENSKE AUTOMOTIVE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts) — (Continued)

FASB Interpretation (“FIN”) No. 48 “Accounting for Uncertainty in Income Taxes” clarifies the accounting for uncertain tax positions, prescribing a minimum recognition threshold a tax position is required to meet before being recognized, and providing guidance on the derecognition, measurement, classification and disclosure relating to income taxes. The Company adopted FIN No. 48 as of January 1, 2007, pursuant to which the Company recorded a $4,430 increase in the liability for unrecognized tax benefits, which was accounted for as a reduction to the January 1, 2007 balance of retained earnings.

The movement in uncertain tax positions for the year ended December 31, 2008 was as follows:

Uncertain tax positions — January 1, 2008	$	43,333
Gross increase — tax position in prior periods		2,751
Gross decrease — tax position in prior periods		(787	)
Gross increase — current period tax position		50
Settlements		(1,453	)
Lapse in statute of limitations		(1,481	)
Foreign exchange		(9,512	)
Uncertain tax positions — December 31, 2008	$	32,901

The Company has elected to include interest and penalties in its income tax expense. The total interest and penalties included within uncertain tax positions at December 31, 2008 was $6,739. We do not expect a significant change to the amount of uncertain tax positions within the next twelve months. The Company’s U.S. federal returns remain open to examination for 2007 and various foreign and U.S. states jurisdictions are open for periods ranging from 2002 through 2007. The portion of the total amount of uncertain tax positions as of December 31, 2008 that would, if recognized, impact the effective tax rate was $21,939.

The Company does not provide for U.S. taxes relating to undistributed earnings or losses of its foreign subsidiaries. Income from continuing operations before income taxes of foreign subsidiaries (which subsidiaries are predominately in the United Kingdom) was $35,112, $103,395 and $84,635 during the years ended December 31, 2008, 2007 and 2006, respectively. It is the Company’s belief that such earnings will be indefinitely reinvested in the companies that produced them. At December 31, 2008, the Company has not provided U.S. federal income taxes on a total of $409,993 of earnings of individual foreign subsidiaries. If these earnings were remitted as dividends, the Company would be subject to U.S. income taxes and certain foreign withholding taxes.

At December 31, 2008, the Company has $32,763 of federal net operating loss carryforwards in the U.S. expiring in 2028, $185,845 of state net operating loss carryforwards in the U.S. that expire at various dates through 2028, U.S. federal and state credit carryforwards of $2,967 that will not expire, a U.K. net operating loss carryforward of $3,811 that will not expire, a U.K. capital loss of $3,504 that will not expire, and a German net operating loss of $742 that will not expire. A valuation allowance of $3,349 has been recorded against the state net operating loss carryforwards in the U.S. and a valuation allowance of $29 has been recorded against the U.S. state credit carryforwards.

The Company has classified its tax reserves as a long term obligation on the basis that management does not expect to make payments relating to those reserves within the next twelve months.

17. Segment Information

The Company’s operations are organized by management into operating segments by line of business and geography. The Company has determined it has three reportable segments as defined in SFAS No. 131: (i) Retail, consisting of our automotive retail operations, (ii) Distribution, consisting of our distribution of the smart fortwo vehicle, parts and accessories in the U.S. and Puerto Rico and (iii) PAG Investments, consisting of our investments in non-automotive retail operations. The Retail reportable segment includes all automotive dealerships and all departments relevant to the operation of the dealerships. The individual dealership operations included in the Retail segment have been grouped into five geographic operating segments which are aggregated into one reportable segment as their operations (A) have similar economic characteristics (all are automotive dealerships having similar margins), (B) offer similar products and services (all sell new and used vehicles, service, parts and third-party finance and insurance products), (C) have similar target markets and customers (generally individuals) and (D) have similar distribution and marketing practices (all distribute products and services through dealership facilities that market to customers in similar fashions). The accounting policies of the segments are the same and are described in Note 1. In connection with the addition of PAG Investments, the third reportable segment, we have reclassified historical amounts to conform to our current segment presentation.

F-30

PENSKE AUTOMOTIVE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts) — (Continued)

The following table summarizes revenues, floor plan interest expense, other interest expense, debt discount amortization, depreciation and amortization, equity in earnings (loss) of affiliates and income (loss) from continuing operations before certain non-recurring items and income taxes, which is the measure by which management allocates resources to its segments and which we refer to as adjusted segment income (loss), for each of our reportable segments.

					PAG			Intersegment
	Retail		Distribution		Investments			Elimination			Total
Revenues
2008	$	11,276,450	$	409,640	$	—		$	(60,831	)	$	11,625,259
2007		12,768,202		—		—			—			12,768,202
2006		10,932,957		—		—			—			10,932,957
Floor plan interest expense
2008	$	63,497	$	667	$	—		$	—		$	64,164
2007		73,148		—		—			—			73,148
2006		58,311		—		—			—			58,311
Other interest expense
2008	$	54,322	$	—	$	—		$	—		$	54,322
2007		55,184		—		—			—			55,184
2006		48,286		—		—			—			48,286
Debt discount amortization
2008	$	13,983	$	—	$	—		$	—		$	13,983
2007		12,896		—		—			—			12,896
2006		11,080		—		—			—			11,080
Depreciation and amortization
2008	$	53,313	$	402	$	—		$	—		$	53,715
2007		49,868		—		—			—			49,868
2006		42,306		—		—			—			42,306
Equity in earnings (losses) of affiliates
2008	$	3,293	$	—	$	13,220		$	—		$	16,513
2007		4,415		—		(331	)		—			4,084
2006		7,339		—		862			—			8,201
Adjusted segment income (loss)
2008	$	84,753	$	30,525	$	13,220		$	(986	)	$	127,512
2007		202,367		—		(331	)		—			202,036
2006		190,353		—		862			—			191,215

The following table reconciles total adjusted segment income (loss) to consolidated (loss) income from continuing operations before income taxes. Adjusted segment income (loss) excludes the items discussed below in order to enhance the comparability of segment income from period to period. The intangible impairment is associated with the Retail reportable segment as there is no goodwill reported in the Distribution or PAG Investments reportable segments.

	Year Ended December 31,
	2008			2007			2006
Adjusted segment income	$	127,512		$	202,036		$	191,215
Intangible impairments		(643,459	)		—			—
Loss on debt redemption		—			(18,634	)		—
(Loss) income from continuing operations before income taxes	$	(515,947	)	$	183,402		$	191,215

Total assets, equity method investments, and capital expenditures by reporting segment are as set forth in the table below.

					PAG		Intersegment
	Retail		Distribution		Investments		Elimination			Total
Total assets
2008	$	3,676,347	$	47,054	$	240,138	$	(1,390	)	$	3,962,149
2007		4,622,223		36,073		8,795		—			4,667,091
Equity method investments
2008	$	56,349	$	—	$	240,138	$	—		$	296,487
2007		53,957		—		8,795		—			62,752
Capital expenditures
2008	$	207,574	$	5,644	$	—	$	(2,103	)	$	211,115
2007		190,463		5,405		—		(1,443	)		194,425
2006		222,198		—		—		—			222,198

F-31

PENSKE AUTOMOTIVE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts) — (Continued)

The following table presents certain data by geographic area:

	Year Ended December 31,
	2008		2007		2006
Sales to external customers:
United States	$	7,426,059	$	8,026,926	$	7,458,355
Foreign		4,199,200		4,741,276		3,474,602
Total sales to external customers	$	11,625,259	$	12,768,202	$	10,932,957
Long-lived assets, net:
United States	$	770,635	$	459,031
Foreign		210,433		240,419
Total long-lived assets	$	981,068	$	699,450

The Company’s foreign operations are predominantly based in the United Kingdom.

18. Summary of Quarterly Financial Data (Unaudited)

	First		Second		Third		Fourth
	Quarter		Quarter		Quarter		Quarter
2008(1)(2)(3)
Total revenues	$	3,168,678	$	3,331,054	$	2,970,415	$	2,155,112
Gross profit		487,402		496,162		457,318		347,465
Net income (loss) attributable to Penske Automotive Group common stockholders		31,896		37,830		22,183		(511,944	)
Diluted earnings (loss) per share attributable to Penske Automotive Group common stockholders	$	0.33	$	0.40	$	0.24	$	(5.59	)

	First		Second		Third		Fourth
	Quarter		Quarter		Quarter		Quarter
2007(1)(2)(4)
Total revenues	$	3,043,798	$	3,328,600	$	3,351,370	$	3,044,434
Gross profit		456,189		487,113		494,373		457,167
Net income attributable to Penske Automotive Group common stockholders		12,711		38,484		41,529		27,537
Diluted earnings per share attributable to Penske Automotive Group common stockholders	$	0.13	$	0.40	$	0.44	$	0.29

(1)	As discussed in Note 4, the Company has treated the operations of certain entities as discontinued operations. The results for all periods have been restated to reflect such treatment.
(2)	Per share amounts are calculated independently for each of the quarters presented. The sum of the quarters may not equal the full year per share amounts due to rounding.
(3)	Results for the year ended December 31, 2008 include fourth quarter charges of $657,590, including $643,459, relating to goodwill and franchise asset impairments, as well as, an additional $14,131 of dealership consolidation and relocation costs, severance costs, and other asset impairment charges, and third quarter charges of $4,290 relating to severance costs, costs associated with the termination of an acquisition agreement, and insurance deductibles relating to damage sustained at our dealerships in the Houston market during Hurricane Ike.
(4)	Results for the year ended December 31, 2007 include charges of $18,634 relating to the redemption of $300,000 aggregate principal amount of 9.625% Senior Subordinated Notes during the first quarter and $6,267 relating to impairment losses during the fourth quarter.

F-32

PENSKE AUTOMOTIVE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts) — (Continued)

19. Condensed Consolidating Financial Information

The following tables include condensed consolidating financial information as of December 31, 2008 and 2007 and for the years ended December 31, 2008, 2007, and 2006 for Penske Automotive Group, Inc. (as the issuer of the Convertible Notes and the 7.75% Notes), guarantor subsidiaries and non-guarantor subsidiaries (primarily representing foreign entities). The condensed consolidating financial information includes certain allocations of balance sheet, income statement and cash flow items which are not necessarily indicative of the financial position, results of operations and cash flows of these entities on a stand-alone basis.

CONDENSED CONSOLIDATING BALANCE SHEET
December 31, 2008

						Penske				Non-
	Total					Automotive		Guarantor		Guarantor
	Company		Eliminations			Group, Inc.		Subsidiaries		Subsidiaries
	(In thousands)
Cash and cash equivalents	$	20,108	$	—		$	—	$	14,060	$	6,048
Accounts receivable, net		294,048		(196,465	)		196,465		182,583		111,465
Inventories		1,589,105		—			—		1,001,571		587,534
Other current assets		88,251		—			2,711		59,931		25,609
Assets held for sale		15,534		—			—		1,643		13,891
Total current assets		2,007,046		(196,465	)		199,176		1,259,788		744,547
Property and equipment, net		662,121		—			6,927		416,277		238,917
Intangible assets		974,035		—			—		542,185		431,850
Equity method investments		296,487		—			227,451		—		69,036
Other assets		22,460		(1,293,431	)		1,300,546		12,169		3,176
Total assets	$	3,962,149	$	(1,489,896	)	$	1,734,100	$	2,230,419	$	1,487,526
Floor plan notes payable	$	964,783	$	—		$	—	$	659,531	$	305,252
Floor plan notes payable — non-trade		506,688		—			—		268,988		237,700
Accounts payable		178,282		—			2,183		80,002		96,097
Accrued expenses		195,994		(196,465	)		368		94,983		297,108
Current portion of long-term debt		11,305		—			—		978		10,327
Liabilities held for sale		23,060		—			—		1,460		21,600
Total current liabilities		1,880,112		(196,465	)		2,551		1,105,942		968,084
Long-term debt		1,052,060		(138,341	)		923,128		44,117		223,156
Other long-term liabilities		221,556		—			—		201,691		19,865
Total liabilities		3,153,728		(334,806	)		925,679		1,351,750		1,211,105
Total equity		808,421		(1,155,090	)		808,421		878,669		276,421
Total liabilities and equity	$	3,962,149	$	(1,489,896	)	$	1,734,100	$	2,230,419	$	1,487,526

F-33

PENSKE AUTOMOTIVE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts) — (Continued)

CONDENSED CONSOLIDATING BALANCE SHEET
December 31, 2007

						Penske				Non-
	Total					Automotive		Guarantor		Guarantor
	Company		Eliminations			Group, Inc.		Subsidiaries		Subsidiaries
	(In thousands)
Cash and cash equivalents	$	14,797	$	—		$	—	$	480	$	14,317
Accounts receivable, net		445,248		(210,645	)		210,945		286,457		158,491
Inventories		1,662,003		—			—		914,402		747,601
Other current assets		64,998		—			3,399		27,958		33,641
Assets held for sale		114,697		—			—		79,423		35,274
Total current assets		2,301,743		(210,645	)		214,344		1,308,720		989,324
Property and equipment, net		615,581		—			4,617		344,706		266,258
Intangible assets		1,665,898		—			—		1,072,078		593,820
Equity method investments		62,752		—			—		—		62,752
Other assets		21,117		(1,947,135	)		1,951,861		12,382		4,009
Total assets	$	4,667,091	$	(2,157,780	)	$	2,170,822	$	2,737,886	$	1,916,163
Floor plan notes payable	$	1,056,120	$	—		$	—	$	560,851	$	495,269
Floor plan notes payable — non-trade		468,830		—			—		293,190		175,640
Accounts payable		264,134		—			4,550		96,214		163,370
Accrued expenses		205,432		(210,645	)		190		59,212		356,675
Current portion of long-term debt		14,522		—			—		496		14,026
Liabilities held for sale		82,578		—			—		43,494		39,084
Total current liabilities		2,091,616		(210,645	)		4,740		1,053,457		1,244,064
Long-term debt		780,252		(237,616	)		700,146		2,548		315,174
Other long-term liabilities		329,287		—			—		296,985		32,302
Total liabilities		3,201,155		(448,261	)		704,886		1,352,990		1,591,540
Total equity		1,465,936		(1,709,519	)		1,465,936		1,384,896		324,623
Total liabilities and equity	$	4,667,091	$	(2,157,780	)	$	2,170,822	$	2,737,886	$	1,916,163

F-34

PENSKE AUTOMOTIVE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts) — (Continued)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Year Ended December 31, 2008

							Penske						Non-
	Total						Automotive			Guarantor			Guarantor
	Company			Eliminations			Group, Inc.			Subsidiaries			Subsidiaries
	(In thousands)
Revenues	$	11,625,259		$	—		$	—		$	6,849,126		$	4,776,133
Cost of sales		9,836,912			—			—			5,748,897			4,088,015
Gross profit		1,788,347			—			—			1,100,229			688,118
Selling, general, and administrative expenses		1,491,164			—			26,436			938,655			526,073
Intangible impairments		643,459			—			—			611,520			31,939
Depreciation and amortization		53,715			—			1,233			31,412			21,070
Operating (loss) income		(399,991	)		—			(27,669	)		(481,358	)		109,036
Floor plan interest expense		(64,164	)		—			—			(37,439	)		(26,725	)
Other interest expense		(54,322	)		—			(37,412	)		(230	)		(16,680	)
Debt discount amortization		(13,983	)		—			(13,983	)		—			—
Equity in earnings of affiliates		16,513			—			10,827			—			5,686
Equity in earnings of subsidiaries		—			448,843			(448,843	)		—			—
(Loss) income from continuing operations before income taxes		(515,947	)		448,843			(517,080	)		(519,027	)		71,317
Income tax benefit (provision)		105,393			(89,185	)		105,393			110,927			(21,742	)
(Loss) income from continuing operations		(410,554	)		359,658			(411,687	)		(408,100	)		49,575
Loss from discontinued operations, net of tax		(8,348	)		8,348			(8,348	)		(6,495	)		(1,853	)
Net (loss) income		(418,902	)		368,006			(420,035	)		(414,595	)		47,722
Less: Income attributable to the non-controlling interest		1,133			—			—			—			1,133
Net (loss) income attributable to Penske Automotive Group common stockholders	$	(420,035	)	$	368,006		$	(420,035	)	$	(414,595	)	$	46,589

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Year Ended December 31, 2007

							Penske						Non-
	Total						Automotive			Guarantor			Guarantor
	Company			Eliminations			Group, Inc.			Subsidiaries			Subsidiaries
	(In thousands)
Revenues	$	12,768,202		$	—		$	—		$	7,099,899		$	5,668,303
Cost of sales		10,873,360			—			—			6,009,873			4,863,487
Gross profit		1,894,842			—			—			1,090,026			804,816
Selling, general, and administrative expenses		1,505,794			—			16,529			866,291			622,974
Depreciation and amortization		49,868			—			1,166			26,415			22,287
Operating income (loss)		339,180			—			(17,695	)		197,320			159,555
Floor plan interest expense		(73,148	)		—			—			(42,277	)		(30,871	)
Other interest expense		(55,184	)		—			(31,060	)		(97	)		(24,027	)
Debt discount amortization		(12,896	)		—			(12,896	)		—			—
Equity in earnings of affiliates		4,084			—			—			—			4,084
Loss on debt redemption		(18,634	)		—			(18,634	)		—			—
Equity in earnings of subsidiaries		—			(261,715	)		261,715			—			—
Income from continuing operations before income taxes		183,402			(261,715	)		181,430			154,946			108,741
Income tax provision		(61,965	)		88,983			(61,965	)		(54,555	)		(34,428	)
Income from continuing operations		121,437			(172,732	)		119,465			100,391			74,313
Income (loss) from discontinued operations, net of tax		796			1,310			796			(1,473	)		163
Net income		122,233			(171,422	)		120,261			98,918			74,476
Less: Income attributable to the non-controlling interest		1,972			—			—			—			1,972
Net income attributable to Penske Automotive Group common stockholders	$	120,261		$	(171,422	)	$	120,261		$	98,918		$	72,504

F-35

PENSKE AUTOMOTIVE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts) — (Continued)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Year Ended December 31, 2006

							Penske						Non-
	Total						Automotive			Guarantor			Guarantor
	Company			Eliminations			Group, Inc.			Subsidiaries			Subsidiaries
	(In thousands)
Revenues	$	10,932,957		$	—		$	—		$	6,607,478		$	4,325,479
Cost of sales		9,277,493			—			—			5,580,906			3,696,587
Gross profit		1,655,464			—			—			1,026,572			628,892
Selling, general, and administrative expenses		1,312,467			—			15,153			805,797			491,517
Depreciation and amortization		42,306			—			1,427			23,432			17,447
Operating income (loss)		300,691			—			(16,580	)		197,343			119,928
Floor plan interest expense		(58,311	)		—			—			(38,090	)		(20,221	)
Other interest expense		(48,286	)		—			(29,212	)		(5	)		(19,069	)
Debt discount amortization		(11,080	)		—			(11,080	)		—			—
Equity in earnings of affiliates		8,201			—			—			—			8,201
Equity in earnings of subsidiaries		—			(245,915	)		245,915			—			—
Income from continuing operations before income taxes		191,215			(245,915	)		189,043			159,248			88,839
Income tax provision		(64,198	)		84,300			(64,198	)		(56,152	)		(28,148	)
Income from continuing operations		127,017			(161,615	)		124,845			103,096			60,691
(Loss) from discontinued operations, net of tax		(6,550	)		6,550			(6,550	)		(6,152	)		(398	)
Net income		120,467			(155,065	)		118,295			96,944			60,293
Less: Income attributable to non-controlling interests		2,172			—			—			—			2,172
Net income attributable to Penske Automotive Group common stockholders	$	118,295		$	(155,065	)	$	118,295		$	96,944		$	58,121

F-36

PENSKE AUTOMOTIVE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts) — (Continued)

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Year Ended December 31, 2008

				Penske						Non-
	Total			Automotive			Guarantor			Guarantor
	Company			Group, Inc.			Subsidiaries			Subsidiaries
	(In thousands)
Net cash from continuing operating activities	$	405,378		$	23,543		$	204,089		$	177,746
Investing Activities:
Purchase of equipment and improvements		(211,115	)		(3,543	)		(130,809	)		(76,763	)
Proceeds from sale — leaseback transactions		37,422			—			23,223			14,199
Dealership acquisitions, net		(147,089	)		—			(98,589	)		(48,500	)
Purchase of Penske Truck Leasing Co., L.P. partnership interest		(219,000	)		(219,000	)		—			—
Other		(1,500	)		—			—			(1,500	)
Net cash from continuing investing activities		(541,282	)		(222,543	)		(206,175	)		(112,564	)
Financing Activities:
Proceeds from U.S. credit agreement term loan		219,000			219,000			—			—
Repayments under U.S. credit agreement term loan		(10,000	)		(10,000	)		—			—
Proceeds from mortgage facility		42,400			—			42,400			—
Net (repayments) borrowings of long-term debt		(1,520	)		77,259			7,798			(86,577	)
Net (repayments) borrowings of floor plan notes payable — non-trade		(52,563	)		—			(63,658	)		11,095
Payment of deferred financing costs		(661	)		(521	)		—			(140	)
Proceeds from exercises of options, including excess tax benefit		825			825			—			—
Distributions from (to) parent		—			—			4,824			(4,824	)
Repurchase of common stock		(53,661	)		(53,661	)		—			—
Dividends		(33,902	)		(33,902	)		—			—
Net cash from continuing financing activities		109,918			199,000			(8,636	)		(80,446	)
Net cash from discontinued operations		31,297			—			24,302			6,995
Net change in cash and cash equivalents		5,311			—			13,580			(8,269	)
Cash and cash equivalents, beginning of period		14,797			—			480			14,317
Cash and cash equivalents, end of period	$	20,108		$	—		$	14,060		$	6,048

F-37

PENSKE AUTOMOTIVE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts) — (Continued)

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Year Ended December 31, 2007

				Penske						Non-
	Total			Automotive			Guarantor			Guarantor
	Company			Group, Inc.			Subsidiaries			Subsidiaries
	(In thousands)
Net cash from continuing operating activities	$	300,727		$	7,634		$	115,063		$	178,030
Investing Activities:
Purchase of equipment and improvements		(194,425	)		(1,959	)		(103,793	)		(88,673	)
Proceeds from sale — leaseback transactions		131,793			—			67,351			64,442
Dealership acquisitions, net		(180,721	)		—			(121,025	)		(59,696	)
Other		15,518			8,764			—			6,754
Net cash from continuing investing activities		(227,835	)		6,805			(157,467	)		(77,173	)
Financing Activities:
Net (repayments) borrowings of long-term debt		(34,190	)		325,833			(287,212	)		(72,811	)
Net borrowings (repayments) of floor plan notes payable — non-trade		189,028			—			202,390			(13,362	)
Proceeds from exercises of options, including excess tax benefit		2,614			2,614			—			—
Redemption of 9 5/8% senior subordinated debt		(314,439	)		(314,439	)		—			—
Distributions from (to) parent		—			—			17,002			(17,002	)
Dividends		(28,447	)		(28,447	)		—			—
Net cash from continuing financing activities		(185,434	)		(14,439	)		(67,820	)		(103,175	)
Net cash from discontinued operations		107,310			—			108,285			(975	)
Net change in cash and cash equivalents		(5,232	)		—			(1,939	)		(3,293	)
Cash and cash equivalents, beginning of period		20,029			—			2,419			17,610
Cash and cash equivalents, end of period	$	14,797		$	—		$	480		$	14,317

F-38

PENSKE AUTOMOTIVE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts) — (Continued)

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Year Ended December 31, 2006

				Penske						Non-
	Total			Automotive			Guarantor			Guarantor
	Company			Group, Inc.			Subsidiaries			Subsidiaries
	(In thousands)
Net cash from continuing operating activities	$	125,124		$	954		$	115,706		$	8,464
Investing Activities:
Purchase of equipment and improvements		(222,198	)		(954	)		(54,580	)		(166,664	)
Proceeds from sale — leaseback transactions		106,167			—			26,447			79,720
Dealership acquisitions, net		(368,193	)		—			(134,122	)		(234,071	)
Net cash from continuing investing activities		(484,224	)		(954	)		(162,255	)		(321,015	)
Financing Activities:
Net (repayments) borrowings of long-term debt		(211,075	)		(706,689	)		338,866			156,748
Issuance of subordinated debt		750,000			750,000			—			—
Net (repayments) borrowings of floor plan notes payable — non-trade		(57,245	)		—			(223,251	)		166,006
Payment of deferred financing costs		(17,210	)		(17,210	)		—			—
Proceeds from exercises of options, including excess tax benefit		18,069			18,069			—			—
Repurchase of common stock		(18,955	)		(18,955	)		—			—
Distributions from (to) parent		—			—			5,144			(5,144	)
Dividends		(25,215	)		(25,215	)		—			—
Net cash from continuing financing activities		438,369			—			120,759			317,610
Net cash from discontinued operations		(66,889	)		—			(69,538	)		2,649
Net change in cash and cash equivalents		12,380			—			4,672			7,708
Cash and cash equivalents, beginning of period		7,649			—			(2,253	)		9,902
Cash and cash equivalents, end of period	$	20,029		$	—		$	2,419		$	17,610

F-39

Schedule II

PENSKE AUTOMOTIVE GROUP, INC.
VALUATION AND QUALIFYING ACCOUNTS

	Balance at				Deductions,			Balance at
	Beginning				Recoveries			End
Description	of Year		Additions		& Other			of Year
	(In thousands)
Year Ended December 31, 2008
Allowance for doubtful accounts		2,869		1,353		(2,147	)		2,075
Tax valuation allowance		2,337		1,041		—			3,378
Year Ended December 31, 2007
Allowance for doubtful accounts		2,724		1,813		(1,668	)		2,869
Tax valuation allowance		3,943		725		(2,331	)		2,337
Year Ended December 31, 2006
Allowance for doubtful accounts		3,708		1,469		(2,453	)		2,724
Tax valuation allowance		4,119		1,456		(1,632	)		3,943

F-40