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

Overview

We are a leading operator in the $1.0 trillion automotive retailing industry. As of June 30, 2009, we owned and operated 126 franchises, representing 31 brands of automobiles, at 95 dealership locations and 22 collision service centers in the United States of America (the "U.S.") and six franchises at three dealerships and two collision centers in the United Kingdom (the "U.K."). We market and sell an extensive range of automotive products and services, including new and used vehicles and related financing, vehicle maintenance and repair services, replacement parts, and warranty, insurance and extended service contracts. Our operations are primarily located in major metropolitan areas in Alabama, California, Florida, Georgia, Kansas, Louisiana, Maryland, Massachusetts, Mississippi, New Hampshire, New Jersey, New York, Oklahoma, South Carolina and Texas in the U.S. and in the towns of Brighton, Hailsham and Worthing in the U.K.

As of June 30, 2009, our retail network consisted of the following three regions (with the number of dealerships they comprised): (i) Eastern (39 dealerships in Alabama, Florida, Georgia, Louisiana, Maryland, Massachusetts, Mississippi, New Hampshire, New Jersey, New York and South Carolina); (ii) Central (45 dealerships in Kansas, Oklahoma and Texas); and (iii) Western (11 dealerships in California). Each region is managed by a regional vice president who reports directly to our Chief Executive Officer and is responsible for the overall performance of their regions, as well as for overseeing the market directors and dealership general managers that report to them. Each region is also managed by a regional chief financial officer who reports directly to our Chief Financial Officer. In addition, our international operations consist of three dealerships in the U. K. also managed locally with direct reporting responsibilities to our corporate management team.

Outlook

During the last three months of 2008 and the first half of 2009, the U.S. and global economies suffered from, among other things, a substantial decline in consumer confidence, a rise in unemployment and a tightening of credit availability. As a result, the automotive retail industry was negatively impacted by decreasing customer demand for new and used vehicles, vehicle margin pressures and higher inventory levels. In addition, the economic downturn has adversely impacted the manufacturers that supply our new vehicle inventory and some of our parts inventory, particularly the three domestic manufacturers.

The combination of weakening economic conditions, higher jobless rates and tightening credit standards has resulted in a difficult automotive selling environment. All of our revenue segments have been effected to some degree. In response to the increasingly challenging economic environment, we took a number of steps to strengthen our cash balance, adjust our cost structure and improve liquidity during the first six months of 2009. Our top priority at this time is to use the cash that we generate from our operations to pay down debt. Accordingly, we repurchased $36.7 million par value of our 2.25% Convertible Senior Notes, due 2036 (the "2.25% Notes") during the first six months of 2009. In addition, we completed the implementation of significant cost cuts in our ongoing operating structure. We have taken several key steps to appropriately size our business and allow us to manage through this industry downturn, including: wage cuts for our senior management team and Board of Directors, as well as various other levels, alterations to pay plans, headcount reductions and the elimination or minimization of several other variable expenses to align with current and projected operational results. For 2009, we expect these actions to generate approximately $120.0 million in savings from 2008 levels. Further, we reduced new vehicle inventory levels during the first six months of 2009 by $318.3 million. And, we continue to closely scrutinize all planned future capital spending and work closely with our manufacturer partners in this area. As a result, we anticipate that 2009 capital spending will be below $25.0 million, down significantly from 2008 levels of $52.8 million.

Despite the challenging retail and economic environment, we believe that opportunities exist in the marketplace to maintain or improve profitability, including (i) focusing on our higher margin parts and service

and finance and insurance businesses, (ii) managing our inventory to meet customer demands, and (iii) continuing to execute cost reduction initiatives.

We disposed of two dealership franchises with 12-month annual revenues of $64.2 million, during the first six months of 2009. In addition, we completed the acquisition of one Hyundai franchise located in Texas during the first six months of the 2009 with expected annual revenues of $36.7 million. We will continue to review opportunities as they are presented to us and we will pursue those that fit our stringent criteria and that we believe will add value for our shareholders.

During the three months ended June 30, 2009, Chrysler LLC ("Chrysler") and General Motors Corporation ("General Motors") filed for protection under the bankruptcy laws of the U.S. We own and operate eight Chrysler brand dealerships, all of which contain Chrysler, Jeep and Dodge franchises, and seven General Motors brand dealerships, five of which contain Chevrolet franchises only and two of which contain Buick, Pontiac and GMC franchises. And although both Chrysler and General Motors terminated a number of their dealer franchise agreements in conjunction with their respective bankruptcies and restructuring efforts, we retained each of our dealership franchise agreements. While the comprehensive impact of the bankruptcies and subsequent business restructurings of Chrysler and General Motors on us will not be fully known for some time, we have continued to collect our receivables from both Chrysler and General Motors and did not experience a significant decline in the valuation of our vehicle and parts inventory as of June 30, 2009.

Also, during the three months ended June 30, 2009, Chrysler Financial and GMAC, the two financing subsidiaries of Chrysler and General Motors, separated from their affiliated manufacturer entities. As a result, GMAC continued to provide services to support the financing of General Motors vehicle purchases and assumed support from Chrysler Financial for the financing of Chrysler vehicle purchases. Prior to these events, we relied upon Chrysler Financial and GMAC to finance a portion of the new and used retail vehicle sales for our customers and, subsequently, will continue to rely upon GMAC for these financing services. However, the operational and financial impact of the separation of Chrysler Financial or GMAC from their respective affiliated manufacturer and the assumption by GMAC of Chrysler Financial financing support is not predictable at this time, but could be adverse to us.

Financial and Operational Highlights

Our operating results reflect the combined performance of each of our interrelated business activities, which include the sale of new vehicles, used vehicles, finance and insurance products, and parts, service and collision repair services. Historically, each of these activities has been directly or indirectly impacted by a variety of supply/demand factors, including vehicle inventories, consumer confidence, discretionary spending, availability and affordability of consumer credit, manufacturer incentives, weather patterns, fuel prices and interest rates. For example, during periods of sustained economic downturn or significant supply/demand imbalances, new vehicle sales may be negatively impacted as consumers tend to shift their purchases to used vehicles. Some consumers may even delay their purchasing decisions altogether, electing instead to repair their existing vehicles. In such cases, however, we believe the new vehicle sales impact on our overall business is partially mitigated by our ability to offer other products and services, such as used vehicles and parts, service and collision repair services. The ability to adjust our cost structure is another key element in our ability to react to changing economic conditions.

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

For the three months ended June 30, 2009 and 2008, we reported a net income from continuing operations of $10.1 million and $17.3 million, respectively, and a diluted income per share from continuing operations of $0.43 and $0.77, respectively. For the six months ended June 30, 2009 and 2008, we reported a net income from

continuing operations of $18.5 million and $33.2 million, respectively, and a diluted income per share from continuing operations of $0.80 and $1.46, respectively.

Key Performance Indicators

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

Consolidated Statistical Data


                                                        Three Months Ended           Six Months Ended
                                                             June 30,                    June 30,
                                                         2009          2008         2009         2008

Unit Sales
Retail Sales
New Vehicle                                               19,954       32,368       37,885        60,887
Used Vehicle                                              13,914       16,783       27,006        33,888

Total Retail Sales                                        33,868       49,151       64,891        94,775
Wholesale Sales                                            6,426       10,304       12,855        20,252

Total Vehicle Sales                                       40,294       59,455       77,746       115,027
Gross Margin
New Vehicle Retail Sales                                     5.7 %        6.5 %        5.6 %         6.5 %
Total Used Vehicle Sales                                     9.5 %        8.6 %        9.6 %         8.8 %
Parts and Service Sales                                     52.7 %       53.8 %       52.8 %        54.3 %
Total Gross Margin                                          17.2 %       15.9 %       17.6 %        16.2 %
SG&A(1) as a % of Gross Profit                              79.1 %       77.7 %       81.4 %        78.2 %
Operating Margin                                             2.8 %        3.1 %        2.6 %         3.1 %
Pretax Margin(2)                                             1.8 %        1.9 %        2.1 %         1.9 %
Finance and Insurance Revenues per Retail Unit Sold   $      964     $  1,078     $    997     $   1,112

(1) Selling, general and administrative expenses.

(2) Adjustments were made for the implementation of FSP Accounting Principles Bulletin 14-1, "Accounting for Convertible Debt Instruments that may be Settled in Cash upon Conversion," impacting historically reported amounts.

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

During the last few months of 2008 and continuing into 2009, the retail automotive industry suffered from reduced volumes resulting from declining consumer confidence, increasing unemployment, reduced credit availability and weakening economic conditions. Our new vehicle retail sales and gross margins for the six months ended June 30, 2009 were negatively impacted by these trends. We believe that our performance is generally consistent with national retail results of the brands we represent and the overall blend of markets in which we operate.

Our used vehicle results are directly affected by economic conditions, the level of manufacturer incentives on new vehicles, the number and quality of trade-ins and lease turn-ins and the availability of consumer credit. The slowing new vehicle business sharply affected the number of quality used vehicle trade-ins coming into our dealerships and made the sourcing of used vehicles more challenging. Our wholesale used vehicle sales were down as a result of better used vehicle inventory selection, as well as a decline in trades as new vehicle sales declined. The tighter supply and increased demand for used vehicles increased prices at the auctions and resulted in improved profitability and gross margins in our wholesale used vehicle business.

Our consolidated parts and service gross margin and finance and insurance income per retail unit also felt the negative impact of the same economic conditions that caused the decline in our new and used vehicle sales.

However, our total gross margin improved as a result of the increased margin in our used vehicle business and the shift in business mix from our lower margin vehicle business to our higher margin parts and service business.

Our consolidated selling, general and administrative (SG&A) expenses decreased in absolute dollars by $44.2 million, or 22.6%, for the three months ended June 30, 2009 from the comparable period in 2008; however, as a percentage of gross profit, SG&A increased 140 basis points to 79.1% for the three months ended June 30, 2009, as a result of the decline in gross profit. Our consolidated SG&A expenses decreased in absolute dollars by $86.1 million, or 22.0%, for the six months ended June 30, 2009 from the comparable period in 2008; however, as a percentage of gross profit, SG&A increased 320 basis points to 81.4% for the six months ended June 30, 2009, also as a result of the decline in gross profit.

During the three months ended June 30, 2009, we identified impairment triggers related to certain of our real estate holdings. As a result, we recognized a $2.0 million impairment charge.

The combination of these factors contributed to a 30 basis point decline in our operating margin for the three months ended June 30, 2009 from 3.1% for the comparable period in 2008 to 2.8%. Our floorplan interest expense decreased 36.6% from $12.4 million for the three months ended June 30, 2008 to $7.9 million in the comparable period of 2009, as our weighted average borrowings decreased $392.2 million, while our weighted average floorplan interest rate, including the impact of our interest rate swaps, increased 48 basis points. Other interest expense decreased 16.0% for the three months ended June 30, 2009, primarily attributable to repurchases of our 2.25% Notes in the fourth quarter of 2008 and the first half of 2009. As a result of all of this, our pretax margin declined 10 basis points for the three months ended June 30, 2009 from 1.9% for the comparable period in 2008 to 1.8%.

For the six months ended June 30, 2009, our operating margin declined 50 basis points from 3.1% for the comparable period in 2008 to 2.6%. Our floorplan interest expense decreased 31.1% from $24.4 million for the six months ended June 30, 2008 to $16.8 million in the comparable period of 2009, as our weighted average borrowings decreased $250.5 million, while our weighted average floorplan interest rate, including the impact of our interest rate swaps, decreased 22 basis points. Other interest expense decreased 22.6% for the six months ended June 30, 2009, primarily attributable to repurchases of our 2.25% Notes in the fourth quarter of 2008 and the first half of 2009. As a result, and including a gain of $8.2 million on the repurchase of our 2.25% Notes for the six months ended June 30, 2009, our pretax margin improved 20 basis points in the first half of this year from 1.9% for the comparable period in 2008 to 2.1%.

We address these items further, and other variances between the periods presented, in the results of operations section below.

Recent Accounting Pronouncements

Refer to the Recent Accounting Pronouncements section within Note 2, "Summary of Significant Accounting Policies," of Item 1 for a discussion of those recent pronouncements that impact us.

Critical Accounting Policies and Accounting Estimates

Our consolidated financial statements are impacted by the accounting policies we use and the estimates and assumptions we make during their preparation. On June 30, 2008, we sold certain operations that qualified for discontinuing operations accounting and reporting treatment.

Refer to Note 2, "Summary of Significant Accounting Policies," in Item 1 for a discussion of our critical accounting policies and accounting estimates. Also, we disclosed our critical accounting policies and estimates in our 2008 Annual Report on Form 10-K, and no significant changes have occurred since that time.

Results of Operations

The following tables present comparative financial and non-financial data for the three and six months ended June 30, 2009 and 2008, of (a) our "Same Store" locations, (b) those locations acquired or disposed of ("Transactions") during the periods and (c) the total company. Same Store amounts include the results of dealerships for the identical months in each period presented in the comparison, commencing with the first full month in which the dealership was owned by us and, in the case of dispositions, ending with the last full month it was owned by us. Same Store results also include the activities of our corporate headquarters.

The following table summarizes our combined Same Store results for the three and six months ended June 30, 2009 as compared to 2008.

Total Same Store Data


                                          Three Months Ended June 30,                          Six Months Ended June 30,
                                     2009          % Change          2008                2009          % Change          2008
                                                          (Dollars in thousands, except per unit amounts)

Revenues
New vehicle retail                $   602,897          (36.8 )%   $   954,220         $ 1,143,572          (37.6 )%   $ 1,834,094
Used vehicle retail                   247,301          (15.5 )%       292,781             468,250          (21.1 )%   $   593,534
Used vehicle wholesale                 34,207          (48.3 )%        66,167              68,425          (48.4 )%   $   132,683
Parts and Service                     181,333           (3.7 )%       188,353             359,149           (4.6 )%   $   376,624
Finance, insurance and other           32,553          (37.9 )%        52,430              64,299          (38.5 )%   $   104,501

Total revenues                      1,098,291          (29.3 )%     1,553,951           2,103,695          (30.8 )%     3,041,436
Cost of Sales
New vehicle retail                    568,175          (36.3 )%       892,417           1,079,620          (37.1 )%     1,715,539
Used vehicle retail                   221,741          (15.0 )%       261,025             418,499          (20.8 )%       528,624
Used vehicle wholesale                 33,145          (50.3 )%        66,740              66,388          (50.2 )%       133,177
Parts and Service                      85,866           (1.3 )%        87,011             169,759           (1.5 )%       172,370

Total cost of sales                   908,927          (30.5 )%     1,307,193           1,734,266          (32.0 )%     2,549,710

Gross profit                      $   189,364          (23.3 )%   $   246,758         $   369,429          (24.9 )%   $   491,726

Selling, general and
administrative expenses           $   150,482          (21.1 )%   $   190,620         $   300,728          (21.4 )%   $   382,844
Depreciation and amortization
expenses                          $     6,357           (0.8 )%   $     6,408         $    12,725            4.5 %    $    12,174
Floorplan interest expense        $     7,816          (35.7 )%   $    12,153         $    16,731          (30.3 )%   $    24,020
Gross Margin
New Vehicle Retail                        5.8 %                           6.5 %               5.6 %                           6.5 %
Used Vehicle                              9.5 %                           8.7 %               9.6 %                           8.9 %
Parts and Service                        52.6 %                          53.8 %              52.7 %                          54.2 %
Total Gross Margin                       17.2 %                          15.9 %              17.6 %                          16.2 %
SG&A as a % of Gross Profit              79.5 %                          77.2 %              81.4 %                          77.9 %
Operating Margin                          3.0 %                           3.2 %               2.7 %                           3.2 %
Finance and Insurance Revenues
per Retail Unit Sold              $       968          (10.9 )%   $     1,086         $     1,000          (10.6 )%   $     1,119

The discussion that follows provides explanation for the variances noted above. In addition, each table presents, by primary statement of operations line item, comparative financial and non-financial data for our Same Store locations, Transactions and the consolidated company for the three and six months ended June 30, 2009 and 2008.

New Vehicle Retail Data


                                          Three Months Ended June 30,                        Six Months Ended June 30,
                                      2009         % Change         2008               2009          % Change          2008
                                                          (Dollars in thousands, except per unit amounts)

Retail Unit Sales
Same Stores                            19,807          (37.8 )%      31,825              37,551          (37.5 )%        60,049
Transactions                              147                           543                 334                             838

Total                                  19,954          (38.4 )%      32,368              37,885          (37.8 )%        60,887
Retail Sales Revenues
Same Stores                         $ 602,897          (36.8 )%   $ 954,220         $ 1,143,572          (37.6 )%   $ 1,834,094
Transactions                            5,695                        17,061              12,312                          25,968

Total                               $ 608,592          (37.3 )%   $ 971,281         $ 1,155,884          (37.9 )%   $ 1,860,062
Gross Profit
Same Stores                         $  34,722          (43.8 )%   $  61,803         $    63,952          (46.1 )%   $   118,555
Transactions                              258                         1,216                 502                           1,608

Total                               $  34,980          (44.5 )%   $  63,019         $    64,454          (46.4 )%   $   120,163
Gross Profit per Retail Unit Sold
Same Stores                         $   1,753           (9.7 )%   $   1,942         $     1,703          (13.7 )%   $     1,974
Transactions                        $   1,755                     $   2,239         $     1,503                     $     1,919
Total                               $   1,753          (10.0 )%   $   1,947         $     1,701          (13.8 )%   $     1,974
Gross Margin
Same Stores                               5.8 %                         6.5 %               5.6 %                           6.5 %
Transactions                              4.5 %                         7.1 %               4.1 %                           6.2 %
Total                                     5.7 %                         6.5 %               5.6 %                           6.5 %

For the three months ended June 30, 2009, as compared to the corresponding period in 2008, Same Store new vehicle unit sales and revenues declined 37.8% and 36.8%, respectively, which was generally consistent with industry declines. The combination of slowing economic conditions, declining consumer confidence, higher jobless rates, tightened credit standards and industry wide pressure to lower vehicle inventory levels has lead to lower sales and extremely competitive pricing. In addition, the bankruptcy declarations by Chrysler and General Motors and the resulting restructuring of those domestic manufacturers, which included the termination of numerous franchises, placed additional pressure on the industry to reduce inventory exposure and caused further pressure on margins during the second quarter of 2009. As a result, most segments of our new vehicle business were adversely affected by decreased sales and margins in the second quarter of 2009. Same Store new vehicle retail sales revenues declined $351.3 million to $602.9 million, while gross margin fell 70 basis points from 6.5% in 2008 to 5.8% in the second quarter of 2009. Our Same Store gross profit decreased 43.8% to $34.7 million in the second quarter of 2009 compared to the corresponding period in 2008 and gross profit per retail unit slipped to $1,753 in the second quarter of 2009 from $1,942 in the second quarter of 2008.

The persistent economic slowdown throughout 2009 translated into declining new vehicle sales results for the six months ended June 30, 2009, as well. Our Same Store new vehicle unit sales and revenues decreased 37.5% and 37.6% for the first half of 2009, when compared to 2008. Through the first six months of 2009, we experienced sales decreases in our domestic, import and luxury brands. Same Store unit sales and revenues from our domestic brands declined 38.7% and 37.1%, respectively in the first half of 2009 while imports brands declined 38.4% and 38.3%, respectively, and luxury brands decreased 34.2% and 37.1%, respectively. Same Store gross profits declined

$54.6 million, or 46.1% for the six months ended June 30, 2009, while gross profit per retail units sold decreased 13.7%, from $1,974 for the six months ended June 30, 2008, to $1,703 for the same period in 2009. These declines were generally consistent with overall industry declines.

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

Same Store New Vehicle Unit Sales


                        Three Months Ended June 30,                   Six Months Ended June 30,
. . .