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INTANGIBLE FRANCHISE RIGHTS AND GOODWILL
 12 Months Ended
Dec. 31, 2022
Goodwill and Intangible Assets Disclosure [Abstract]  
INTANGIBLE FRANCHISE RIGHTS AND GOODWILL INTANGIBLE FRANCHISE RIGHTS AND GOODWILL
The Company evaluates its intangible assets, including goodwill, for impairment annually, or more frequently if events or circumstances indicate possible impairment. Refer to Note 1. Basis of Presentation, Consolidation and Summary of Accounting Policies for further discussion of the Company’s accounting policies relating to impairment testing.
For the October 31, 2022 annual goodwill impairment assessment, the Company elected to perform a qualitative assessment and determined that it was not more-likely-than-not that the fair values of the Company’s reporting units were less than their carrying values.
The qualitative assessment included a review of changes, since the last quantitative assessment was performed, in those assumptions having the most significant impact on the current year fair value.
When a quantitative impairment assessment is performed, the Company estimates fair value of goodwill using a combination of the discounted cash flow, or income approach, and the market approach. The Company weights the income approach and market approach 80% and 20%, respectively, in the fair value model. For intangible franchise rights, the fair value of the respective franchise right is estimated using a discounted cash flow, or income approach. The income approach measures fair value by discounting expected future cash flows at a WACC that proportionately weights the cost of debt and equity. Significant assumptions in the model include revenue growth rates, future EBITDA margins, the WACC and terminal growth rates. The Company applies a five-year projection period which aligns with the Company’s strategic plan. Key considerations in the assumed growth rates include industry SAAR projections, macroeconomic conditions including consumer confidence levels, unemployment rates and GDP growth, and internal measures such as historical financial performance, cost control and planned capital expenditures.
Beyond the five forecasted years, the terminal value is determined using a perpetuity growth rate based on long-term inflation projections for each reporting unit. Significant inputs to the WACC include the risk-free rate, an adjustment for stock market risk, an adjustment for company size risk and country risk adjustments for the U.K. For the market approach, the Company utilizes recent market multiples of guideline companies for both revenue and pre-tax net income weighted as appropriate by reporting unit.
Each of the significant assumptions to the fair value model are considered level 3 inputs within the fair value hierarchy described further in Note 7. Financial Instruments and Fair Value Measurements. Developing these assumptions requires applying management’s knowledge of the industry, recent transactions and reasonable performance expectations for its operations.
For the October 31, 2022 annual intangible franchise rights assessment, the Company elected to perform a qualitative assessment. Based on the results of the qualitative assessment, no dealerships required a further quantitative test. Subsequent to the annual assessment, the Company decided to voluntarily terminate a portion of its franchise rights at two dealerships in the U.S. beginning in the first quarter of 2023. As a result, the Company recorded an impairment charge on its intangible franchise rights of $1.3 million in the U.S. during the year ended December 31, 2022.
When an intangible franchise rights quantitative assessment is required, the Company estimates the fair values of the respective franchise rights using a discounted cash flow, or income approach, following the income approach as described for goodwill.
During the year ended December 31, 2022, the Company recorded impairment charges of $1.3 million in the U.S. segment and none in the U.K. segment on intangible franchise rights. No impairment was recorded for intangible franchise rights during the year ended December 31, 2021. During the year ended December 31, 2020, the Company recorded impairment charges of $9.7 million in the U.S. segment and $11.1 million in the U.K. segment on intangible franchise rights. The impairment charges were recognized within Asset impairments in the Company’s Consolidated Statements of Operations.
During the year ended December 31, 2022, the Company recorded additional intangible franchise rights acquired through business combinations of $127.4 million in the U.S. segment and none in the U.K. segment. During the year ended December 31, 2021, the Company recorded additional indefinite-lived intangible franchise rights acquired through business combinations of $161.2 million in the U.S. segment and $1.2 million in the U.K. segment.
Refer to Note 3. Acquisitions for further discussion of the Company’s acquisitions.
The following table presents the Company’s intangible franchise rights balances by segment as of December 31, 2022 and 2021 (in millions):
Intangible Franchise Rights
U.S.U.K.Total
Balance, December 31, 2021$372.0 $20.4 $392.3 
Balance, December 31, 2022$498.0 $18.3 $516.3 
The following is a roll-forward of the Company’s goodwill accounts by reporting unit (in millions):
Goodwill
U.S.U.K.Total
Balance, December 31, 2020 (1)
$901.7 $95.4 $997.1 
Additions through acquisitions434.6 18.9 453.5 
Disposals(4.1)— (4.1)
Reclassified from (to) assets held for sale, net(25.0)— (25.0)
Currency translation— (1.3)(1.3)
Balance, December 31, 2021 (1)
$1,307.3 $112.9 $1,420.2 
Additions through acquisitions236.1 10.2 246.3 
Purchase price allocation adjustments35.0 — 35.0 
Disposals(37.3)— (37.3)
Reclassified from (to) assets held for sale, net8.8 — 8.8 
Currency translation— (11.2)(11.2)
Balance, December 31, 2022(1)
$1,549.9 $111.9 $1,661.8 
(1) Net of accumulated impairments of $40.6 million in the U.S. reporting unit.