Financial Instruments and Fair Value Measurements

12 Months Ended

Dec. 31, 2023

Fair Value Disclosures [Abstract]

Financial Instruments and Fair Value Measurements

FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

The fair value of a financial instrument represents the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation. Fair value estimates are made at a specific point in time, based on relevant market information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of judgment, and therefore cannot be determined with precision.

Accounting standards define fair value as the price that would be received from selling an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Accounting standards establish a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value and also establishes the following three levels of inputs that may be used to measure fair value:

Level 1	Quoted prices (unadjusted) in active markets for identical assets or liabilities that a reporting entity can access at the measurement date
Level 2	Inputs other than quoted prices in active markets for identical assets and liabilities that are observable either directly or indirectly
Level 3	Unobservable inputs

The following methods and assumptions were used by us in estimating fair value disclosures for financial instruments:

•Cash and cash equivalents, receivables, other current assets, vehicle floorplan payable, accounts payable, other current liabilities, commercial paper, warehouse credit facilities, and variable rate debt: The amounts reported in the accompanying Consolidated Balance Sheets approximate fair value due to their short-term nature or the existence of variable interest rates that approximate prevailing market rates.

•Auto loans receivable, net: Auto loans receivable are presented net of an allowance for expected credit losses, which we believe approximates fair value.

•Investments in Equity Securities: Our equity investments with readily determinable fair values are measured at fair value using Level 1 inputs. The fair value of our equity investments with readily determinable fair values totaled $22.8 million at December 31, 2023, and $15.4 million at December 31, 2022.

Our equity investment that does not have a readily determinable fair value is measured using the measurement alternative as permitted by accounting standards and was recorded at cost, to be subsequently adjusted for observable price changes. The carrying amount of our equity investment without a readily determinable fair value was $56.7 million at December 31, 2023, and $56.7 million at December 31, 2022. This equity investment reflects a cumulative upward adjustment of $3.4 million based on an observable price change that occurred in the second quarter of 2021. We did not record any upward adjustments during the year ended December 31, 2023. Additionally, we have not recorded any impairments or downward adjustments to the carrying amounts of our equity investment as of and for the year ended December 31, 2023.

Investments in equity securities are reported in Other Current Assets and Other Assets in the accompanying Consolidated Balance Sheets. Realized and unrealized gains and losses are reported in Other Income (Loss), Net (non-operating) in the Consolidated Statements of Income and in the “Corporate and other” category of our segment information.

The following is the portion of unrealized gains recognized during the years ended December 31, 2023 and 2022, related to equity securities still held at December 31:

	2023		2022
Net gains recognized during the period on equity securities	$	5.2	$	2.9
Less: Net gains recognized during the period on equity securities sold during the period	—		—
Unrealized gains recognized during the reporting period on equity securities still held at the reporting date	$	5.2	$	2.9

•Fixed rate long-term debt: Our fixed rate long-term debt consists primarily of amounts outstanding under our senior unsecured notes. We estimate the fair value of our senior unsecured notes using quoted prices for the identical liability (Level 1). A summary of the aggregate carrying values and fair values of our senior unsecured notes at December 31 is as follows:

	2023		2022
Carrying value	$	3,228.1	$	3,224.0
Fair value	$	2,979.3	$	2,803.6

Nonfinancial assets such as goodwill, other intangible assets, and long-lived assets held and used, are measured at fair value when there is an indicator of impairment and recorded at fair value only when impairment is recognized or for a business combination. The fair values less costs to sell of long-lived assets or disposal groups held for sale are assessed each reporting period they remain classified as held for sale. Subsequent changes in the held for sale long-lived asset’s or disposal group’s fair value less cost to sell (increase or decrease) are reported as an adjustment to its carrying amount, except that the adjusted carrying amount cannot exceed the carrying amount of the long-lived asset or disposal group at the time it was initially classified as held for sale.

The following table presents assets measured and recorded at fair value on a nonrecurring basis during the years ended December 31, 2023 and 2022:

	2023				2022
Description	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)		Gain/(Loss)		Fair Value Measurements Using Significant Unobservable Inputs (Level 3)		Gain/(Loss)
Other intangible assets	$	—	$	(2.3)	$	—	$	—
Long-lived assets held and used	$	—	$	(2.9)	$	—	$	(1.6)

Goodwill and Other Intangible Assets

Goodwill for our reporting units and our indefinite-lived intangible assets are tested for impairment annually as of April 30 or more frequently when events or changes in circumstances indicate that impairment may exist. Our principal identifiable intangible assets are individual store rights under franchise agreements with vehicle manufacturers, which have indefinite lives.

Under accounting standards, we chose to make a qualitative evaluation about the likelihood of goodwill impairment for our annual impairment testing as of April 30, 2023, 2022, and 2021 and we determined that it was not more likely than not that the fair values of our reporting units were less than their carrying amounts.

We elected to perform quantitative franchise rights impairment tests as of April 30, 2023, 2022, and 2021 and no impairment charges resulted from these quantitative tests. The quantitative impairment test for franchise rights requires the comparison of the franchise rights’ estimated fair value to carrying value by store. Fair values of rights under franchise

agreements are estimated using Level 3 inputs by discounting expected future cash flows of the store. The forecasted cash flows contain inherent uncertainties, including significant estimates and assumptions related to growth rates, margins, working capital requirements, capital expenditures, and cost of capital, for which we utilize certain market participant-based assumptions, using third-party industry projections, economic projections, and other marketplace data we believe to be reasonable.

The non-cash impairment charge for other intangible assets is related to the write-off of certain finite-lived intangible assets that we ceased using during the year and is included in Other (Income) Expense, Net in our Consolidated Statements of Income and in the “Corporate and other” of our segment information.

Long-Lived Assets and Right-of-Use Assets

Fair value measurements for our long-lived assets and right-of-use assets are based on Level 3 inputs. Changes in fair value measurements are reviewed and assessed each quarter for properties classified as held for sale, or when an indicator of impairment exists for properties classified as held and used or for right-of-use assets. The valuation process is generally based on a combination of the market and replacement cost approaches. In certain cases, fair value measurements are based on pending agreements to sell the related assets.

In a market approach, we use transaction prices for comparable properties that have recently been sold. These transaction prices are adjusted for factors related to a specific property. We evaluate changes in local real estate markets, and/or recent market interest or negotiations related to a specific property. In a replacement cost approach, the cost to replace a specific long-lived asset is considered, which is adjusted for depreciation from physical deterioration, as well as functional and economic obsolescence, if present and measurable.

To validate the fair values determined under the valuation process noted above, we also obtain independent third-party appraisals for our properties and/or third-party brokers’ opinions of value, which are generally developed using the same valuation approaches described above, and we evaluate any recent negotiations or discussions with third-party real estate brokers related to a specific long-lived asset or market. 

The non-cash impairment charges related to long-lived assets held and used are included in Other (Income) Expense, Net in our Consolidated Statements of Income and are reported in the “Corporate and other” category of our segment information.

We had assets held for sale in continuing operations of $21.3 million as of December 31, 2023 and $5.7 million as of December 31, 2022 related to property held for sale, as well as inventory, goodwill, and property of disposal groups held for sale. We had no assets held for sale in discontinued operations of December 31, 2023, and $1.1 million as of December 31, 2022, related to property held for sale. Assets held for sale are included in Other Current Assets in our Consolidated Balance Sheets.