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 September 30, 2009, we owned and operated 128 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 September 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

Since September 2008, the U.S. and global economies have 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 retail automotive 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. Excluding the positive impact of the U.S. government-sponsored Car Allowance Rebate System ("CARS") program on the automotive selling environment during August 2009, consumer demand for new and used vehicles seems to have stabilized. However, due to the lack of appreciable improvements in leading economic indicators, such as consumer confidence and jobless rates, it is possible that the recovery to historically normalized industry selling levels will be extended.

In response to the challenging economic environment, we took a number of steps to adjust our cost structure, strengthen our cash balance and improve liquidity. We have 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. Specifically related to personnel expenses, we initiated various wage cuts for the Board of Directors and senior management, as well as for all other corporate employees and various other regional, market and dealership level employees. In addition, we suspended various employee benefits that were paid for by the Company. Further, we reduced headcount from the beginning of 2008 by approximately 20% to date. As it relates to advertising, our cost reductions were primarily related to a decrease in overall advertising levels and a shift to utilization of various in-house and email marketing tools, as well as our ability to capitalize on declining media rates. Other forecasted expense reductions reflect initiatives designed to reduce software solutions, contract labor, travel and entertainment, delivery and loaner car expenses. For 2009, we expect these actions to generate approximately

$120.0 million in cost savings from 2008 levels. Approximately 65% of the cost reductions are personnel-related expenses and the remaining 35% are attributable to advertising and other expenses.

Further, we have used the cash that we generate from our operations to pay down debt. Accordingly, we repurchased $41.7 million par value of our 2.25% Convertible Senior Notes, due 2036 (the "2.25% Notes") during the first nine months of 2009. To improve liquidity, we reduced new vehicle inventory levels by $388.0 million and our parts inventory levels by $12.1 million during the first nine months of 2009, respectively. 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, which will consist primarily of required facility maintenance projects, will be approximately $20.0 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. Efforts designed to maintain and/or improve the profitability of our parts and service business center around targeted marketing efforts, strategic selling and operational efficiencies. With regards to efforts designed to maintain and/or increase the profitability of our finance and insurance business, our efforts have primarily focused on the minimization of product costs. And, as it relates to inventory management, our local management teams are constantly focused on the tenuous balance between small inventory supply, which reduces inventory carrying costs but increases the risk of not satisfying customer demand, and large inventory supply, which increases inventory carrying costs but decreases the risk of not satisfying customer demand. We believe that our operations will continue to generate positive cash flow that we will carefully invest in order to maximize the return for our company and stockholders.

We disposed of two dealership franchises with 12-month annual revenues of $64.2 million, during the first nine months of 2009. In addition, we completed the acquisition of one Hyundai franchise located in Texas during the first nine months of the 2009 with expected annual revenues of $36.7 million. Our acquisition activity has been tempered during 2009. While we remain committed to our growth-by-acquisition strategy on a long-term basis, we believe that our current strategy of conserving cash and delevering our balance sheet has been critical in responding to economic conditions. However, we will continue to review opportunities as they are presented to us to improve our portfolio of dealerships and we will pursue those opportunities that fit our stringent criteria and that we believe will add value for our stockholders.

During 2009, Chrysler LLC ("Chrysler") and General Motors Corporation ("General Motors") filed for protection under the bankruptcy laws of the U.S. We owned and operated 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 September 30, 2009.

Also, during 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. In addition, we believe that our ability to adjust our cost structure is another key element in our reaction 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 September 30, 2009 and 2008, we reported a net income from continuing operations of $18.3 million and a net loss from continuing operations of $21.8 million, respectively, and a diluted income per share from continuing operations of $0.78 and diluted loss per share from continuing operations of $0.96, respectively. For the nine months ended September 30, 2009 and 2008, we reported a net income from continuing operations of $36.8 million and $11.4 million, respectively, and a diluted income per share from continuing operations of $1.58 and $0.50, 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                 Nine Months
                                                           September 30,                Ended September 30,
                                                         2009           2008            2009           2008

Unit Sales
Retail Sales
New Vehicle                                               25,057        28,661           62,942         89,548
Used Vehicle                                              14,175        15,057           41,181         48,945

Total Retail Sales                                        39,232        43,718          104,123        138,493
Wholesale Sales                                            8,367         9,399           21,222         29,651

Total Vehicle Sales                                       47,599        53,117          125,345        168,144
Gross Margin
New Vehicle Retail Sales                                     6.7 %         6.3 %            6.0 %          6.4 %
Total Used Vehicle Sales                                     9.2 %         8.4 %            9.5 %          8.7 %
Parts and Service Sales                                     53.7 %        53.2 %           53.1 %         53.9 %
Total Gross Margin                                          17.0 %        16.0 %           17.4 %         16.1 %
SG&A(1) as a % of Gross Profit                              76.6 %        82.4 %           79.7 %         79.5 %
Operating Margin                                             3.4 %        (1.0 )%           2.9 %          1.8 %
Pretax Margin(2)                                             2.2 %        (2.4 )%           1.7 %          0.4 %
Finance and Insurance Revenues per Retail Unit Sold   $      956      $  1,066       $      982      $   1,098

(1) Selling, general and administrative expenses.

(2) Refer to Footnote 2 for a description of adjustments made to historical financial information.

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

Declining consumer confidence, increasing unemployment, reduced credit availability and weakening economic conditions continued to negatively impact our operating results in the third quarter of 2009. Partially offsetting the negative economic conditions, we sold 4,874 new vehicles under the U.S. government-sponsored CARS program in the third quarter of 2009. The success of the CARS program was largely realized in August, leaving us with an insufficient supply of new vehicle inventory, which negatively impacted our sales in September 2009.

Our new vehicle gross margins in the third quarter of 2009 were also positively impacted by the CARS program, as well as the lower levels of inventory experienced by the auto industry in general. But on a year-to-date basis, the CARS program did not fully offset the decline in our new vehicle profitability that has resulted from the deteriorating economic conditions. We believe that our performance is generally consistent with national retail results of the major 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 has sharply affected the number of quality used vehicle trade-ins coming into our dealerships and made the sourcing of used vehicles more challenging. We have been forced to source a larger percentage of our used vehicle inventory from auctions, which has put pressure on our used retail margins. The tighter supply and increased demand for used vehicles has increased prices at the auctions and resulted in improved profitability in the wholesale segment of our business.

Our consolidated finance and insurance income per retail unit has also felt the negative overall impact of the declining economic conditions. 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 and as a percentage of gross profit for the three months ended September 30, 2009 from the comparable period in 2008, as a result of the cost reductions we put in place starting in the fourth quarter of 2008. Our consolidated SG&A expenses decreased in absolute dollars for the nine months ended September 30, 2009 from the comparable period in 2008; however, as a percentage of gross profit, SG&A increased for the nine months ended September 30, 2009, as a result of the disproportionate decline in gross profit.

The combination of these factors, coupled with a $48.1 million impairment charge recognized in the third quarter of 2008 related to our domestic franchise values and certain of our real estate holdings, contributed to a 440 and 110 basis point increase in our operating margin for the three and nine months ended September 30, 2009, respectively.

Our floorplan interest expense decreased 33.0% and 31.7% for the three and nine months ended September 30, 2009 compared to 2008, primarily as a result of a decrease in our weighted average borrowings in both periods. Other interest expense decreased 20.5% and 21.9% for the three and nine months ended September 30, 2009, respectively, primarily attributable to repurchases of our 2.25% Notes in the fourth quarter of 2008 and the first nine months of 2009. As a result, and including the gains on the repurchase of those 2.25% Notes, our pretax margin increased 460 and 130 basis points for the three and nine months ended September 30, 2009, respectively.

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 nine months ended September 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 nine months ended September 30, 2009 as compared to 2008.

Total Same Store Data


                                          Three Months Ended September 30,                       Nine Months Ended September 30,
                                      2009            % Change            2008              2009            % Change            2008
                                                              (Dollars in thousands, except per unit amounts)
Revenues
New vehicle retail                 $   728,090            (15.9 )%     $   865,836       $ 1,871,662            (30.7 )%     $ 2,699,930
Used vehicle retail                    254,715             (1.3 )%         257,971           722,965            (15.1 )%         851,505
Used vehicle wholesale                  43,149            (25.3 )%          57,755           111,574            (41.4 )%         190,438
Parts and Service                      183,254             (0.9 )%         184,929           542,403             (3.4 )%         561,552
Finance, insurance and other            37,471            (18.9 )%          46,217           101,770            (32.5 )%         150,718

Total revenues                       1,246,679            (11.8 )%       1,412,708         3,350,374            (24.8 )%       4,454,143
Cost of Sales
New vehicle retail                     679,470            (16.2 )%         810,722         1,759,090            (30.4 )%       2,526,260
Used vehicle retail                    228,442             (0.9 )%         230,608           646,942            (14.8 )%         759,232
Used vehicle wholesale                  41,872            (28.4 )%          58,451           108,259            (43.5 )%         191,627
Parts and Service                       84,883             (1.8 )%          86,422           254,642             (1.6 )%         258,792

Total cost of sales                  1,034,667            (12.8 )%       1,186,203         2,768,933            (25.9 )%       3,735,911

Gross profit                       $   212,012             (6.4 )%     $   226,505       $   581,441            (19.0 )%     $   718,232

Selling, general and
administrative expenses            $   162,007            (12.8 )%     $   185,822       $   462,735            (18.6 )%     $   568,666
Depreciation and amortization
expenses                           $     6,628             (0.3 )%     $     6,651       $    19,353              2.8 %      $    18,825
Floorplan interest expense         $     7,522            (32.1 )%     $    11,070       $    24,253            (30.9 )%     $    35,089

                                     Three Months Ended September 30,                      Nine Months Ended September 30,
                                 2009              % Change           2008            2009              % Change            2008
                                                         (Dollars in thousands, except per unit amounts)
Gross Margin
New Vehicle Retail                   6.7 %                               6.4 %            6.0 %                                6.4 %
Used Vehicle                         9.2 %                               8.4 %            9.5 %                                8.7 %
Parts and Service                   53.7 %                              53.3 %           53.1 %                               53.9 %
Total Gross Margin                  17.0 %                              16.0 %           17.4 %                               16.1 %
SG&A as a % of Gross
Profit                              76.4 %                              82.0 %           79.6 %                               79.2 %
Operating Margin                     3.4 %                              (1.0 )%           2.9 %                                1.9 %
Finance and Insurance
Revenues per Retail Unit
Sold                           $     955               (11.0 )%     $  1,073        $     983                (11.0 )%     $  1,105

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 nine months ended September 30, 2009 and 2008.

New Vehicle Retail Data


                                          Three Months Ended September 30,                      Nine Months Ended September 30,
                                      2009             % Change           2008             2009            % Change            2008
                                                             (Dollars in thousands, except per unit amounts)
Retail Unit Sales
Same Stores                             25,057             (11.4 )%        28,269            62,608            (29.1 )%          88,318
Transactions                                 -                                392               334                               1,230

Total                                   25,057             (12.6 )%        28,661            62,942            (29.7 )%          89,548
Retail Sales Revenues
Same Stores                        $   728,090             (15.9 )%     $ 865,836       $ 1,871,662            (30.7 )%     $ 2,699,930
Transactions                                (1 )                           11,833            12,311                              37,802

Total                              $   728,089             (17.0 )%     $ 877,669       $ 1,883,973            (31.2 )%     $ 2,737,732
Gross Profit
Same Stores                        $    48,620             (11.8 )%     $  55,114       $   112,572            (35.2 )%     $   173,670
Transactions                                (1 )                              591               501                               2,199

Total                              $    48,619             (12.7 )%     $  55,705       $   113,073            (35.7 )%     $   175,869
Gross Profit per Retail
Unit Sold
Same Stores                        $     1,940              (0.5 )%     $   1,950       $     1,798             (8.5 )%     $     1,966
Transactions                                 -                          $   1,508       $     1,500                         $     1,788
Total                              $     1,940              (0.2 )%     $   1,944       $     1,796             (8.6 )%     $     1,964
Gross Margin
Same Stores                                6.7 %                              6.4 %             6.0 %                               6.4 %
Transactions                             100.0 %                              5.0 %             4.1 %                               5.8 %
Total                                      6.7 %                              6.3 %             6.0 %                               6.4 %

For the three months ended September 30, 2009, as compared to the corresponding period in 2008, Same Store new vehicle unit sales and revenues declined 11.4% and 15.9%, respectively, which was generally consistent with industry declines. The combination of slowing economic conditions, declining consumer confidence, higher jobless

. . .