GROUP 1 AUTOMOTIVE INC (GPI)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Management’s Discussion and Analysis of Financial Condition and Results of Operations, should be read in conjunction with the accompanying unaudited Condensed Consolidated Financial Statements and the notes thereto, as well as our 2025 Form 10-K.

Overview

We are a leading operator in the automotive retail industry. We sell or lease new and used cars and light trucks; arrange related vehicle financing; sell service and insurance contracts; provide automotive maintenance and repair services; and sell vehicle parts retail and wholesale. We have operations in geographically diverse markets that extend across 17 states in the U.S. and 61 towns and cities in the U.K. As of June 30, 2026, our retail network consisted of 147 dealerships in the U.S. and 106 dealerships in the U.K.

Recent Events

On July 20, 2026, President Donald Trump signed a proclamation imposing an additional 50% ad valorem duty on certain products imported from Canada. The additional duty is scheduled to take effect on August 19, 2026, and would apply on top of any existing duties. Preferential tariff treatment under the United States-Mexico-Canada Agreement does not exempt covered goods. At this time, we cannot predict whether the additional duty will be implemented as scheduled, modified or challenged, or the extent or duration of any resulting impact on our business.

During the second quarter of 2026, disruptions in the global supply of Group III base oils, a key component of synthetic motor oil, resulted in supply constraints and increased costs for certain synthetic oils and lubricants across the sector. These disruptions have been attributed to refinery outages and shipping disruptions associated with ongoing geopolitical conflict in the Middle East. Continued supply constraints could increase the cost of lubricants used in our service operations, limit the availability of certain oil grades and affect our ability to perform routine service for customers. At this time, we cannot predict the extent or duration of any such impacts.

In April 2026, we undertook cost-cutting measures within our U.S. business, reducing our staffing by nearly 700 full-time employees and reducing SG&A costs through contract and vendor elimination. We expect that these efforts will remove at least $50 million in annual costs from our U.S. operations.

On April 13, 2026, the U.K. Department for Transport announced a proposal to update minimum vehicle emissions standards to align with the Euro 7 standard implemented in the European Union. If adopted, the Euro 7 standard would set stricter standards for exhaust and non-exhaust vehicle emissions, including greenhouse gas (“GHG”) emissions. Euro 7 would also set battery durability requirements for EVs. If finalized, stricter emissions standards could result in increased costs and affect our U.K. results of operations. The consultation period closed on May 25, 2026, however the proposal has not yet been finalized. Further, on July 6, 2026, the U.K. Department for Transport opened a consultation on its proposal to prohibit the maintenance or modification of vehicles subsequent to their manufacture that would prevent them from meeting the emissions standards in place when the vehicles were originally produced. The Department for Transport has estimated that the legislation will be passed in 2027.

On February 28, 2026, the U.S. and the State of Israel commenced coordinated military operations against the Islamic Republic of Iran (“Iran”). The resulting conflict has increased volatility in global supply chains and energy markets, as well as geopolitical instability. Disruptions affected energy supplies and critical maritime transit routes, particularly the Strait of Hormuz, driving additional increases in fuel prices and reductions in supplies, which adversely affected consumer demand for vehicles and broader economic conditions. On June 17, 2026, the U.S. and Iran signed a memorandum of understanding intended to end the conflict and reopen the Strait of Hormuz. However, the ceasefire has been repeatedly disrupted by renewed military operations and continued attacks in the region. As a result, uncertainty regarding energy markets, commercial shipping and broader geopolitical conditions continues, and we cannot predict the extent nor duration of any resulting impacts on our business, financial condition or results of operations.

On February 20, 2026, the U.S. Supreme Court held that President Donald Trump lacked authority under the International Emergency Economic Powers Act (“IEEPA”) to impose certain reciprocal and other emergency-based tariffs. The decision invalidated those IEEPA-based tariff actions and halted their collection. On the same date, President Donald Trump issued an executive order, which formally terminated those IEEPA‑based tariff actions and directed that their collection cease. Tariffs imposed under other statutory authorities, including Section 232 (such as the automotive and medium/heavy-duty vehicle proclamations), were not affected by the ruling or executive order and remain in force.

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The Supreme Court’s decision and related executive action have created uncertainty regarding the future tariff environment, including the potential for litigation, refund claims by parties directly subject to the invalidated tariffs and the use of alternative statutory authorities by the administration to impose new or modified tariffs. We cannot predict the timing, scope, nor outcome of future tariff‑related actions or their potential effect, if any, on our results of operations. We will continue to monitor the impact of the Trump Administration’s policies and the response of U.S. trading partners on our results of operations in future periods.

On February 18, 2026, the U.S. Environmental Protection Agency (“EPA”) issued a final rule rescinding the GHG “Endangerment Finding,” which provides the authority underpinning the majority of the EPA’s GHG-related regulations, including those for emissions from new motor vehicles and engines, and the National Highway Traffic Safety Administration’s Corporate Average Fuel Economy standards. The final rule also repealed all of the EPA’s GHG emission standards for light-duty, medium-duty and heavy-duty motor vehicles and engines. Litigation challenging the EPA’s final rule is ongoing, and we cannot predict the final outcome. Certain states, such as California, have previously adopted or have announced an intent to adopt standards regulating GHG and other vehicle emissions and setting EV targets. However, on June 12, 2026, the EPA announced its transmission to Congress of four of California’s Clean Air Act preemption waivers, which allow the state to implement more stringent emission control requirements, seeking congressional resolutions disapproving of the waivers under the Congressional Review Act. California has challenged the EPA’s action in the U.S. District Court for the District of Columbia, the outcome of which is uncertain. As a result, there is significant uncertainty with respect to U.S. regulations related to GHG emissions.

Critical Accounting Policies and Accounting Estimates

For discussion of our critical accounting policies and accounting estimates, refer to Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of our 2025 Form 10-K. There have been no material changes to our critical accounting policies or accounting estimates since December 31, 2025.

Results of Operations

The “same store” amounts presented below include the results of dealerships and corporate headquarters for the identical months in each comparative period, commencing with the first full month in which we owned the dealership. Amounts related to divestitures are excluded from each comparative period, ending with the last full month in which we owned the dealership. Same store results provide a measurement of our ability to grow revenues and profitability of our existing stores and also provide a metric for peer group comparisons. For these reasons, same store results allow management to accurately manage and monitor the underlying performance of the business and is also useful to investors.

We evaluate our results of operations on both an as reported and a constant currency basis. The constant currency presentation, which is a non-GAAP measure, excludes the impact of fluctuations in foreign currency exchange rates. Our primary foreign currency exposure is to GBP. We believe providing constant currency information provides valuable supplemental information regarding our underlying business and results of operations, consistent with how we evaluate our performance. We calculate constant currency percentages by converting our current period reported results for entities reporting in currencies other than USD using comparative period exchange rates rather than the actual exchange rates in effect during the respective periods. The constant currency performance measures should not be considered a substitute for, or superior to, the measures of financial performance prepared in accordance with U.S. GAAP. Additionally, we caution investors not to place undue reliance on non-GAAP measures, but also to consider them with the most directly comparable U.S. GAAP measures. Our management also uses constant currency and adjusted cash flows from operating, investing and financing activities in conjunction with U.S. GAAP financial measures to assess our business, including communication with our Board of Directors, investors and industry analysts concerning financial performance. We disclose these non-GAAP measures and the related reconciliations because we believe investors use these metrics in evaluating longer-term period-over-period performance. These metrics also allow investors to better understand and evaluate the information used by management to assess operating performance.

Retail new and used vehicle units sold include new and used vehicle agency units sold under agency arrangements with certain manufacturers in the U.K. The agency units and related revenues are excluded from the calculation of the average sales price per unit sold for new and used vehicles due to their net presentation within revenues as only the sales commission is reported in revenues for dealerships operating under an agency arrangement. The agency units and related net revenues are included in the calculation of gross profit per unit sold.

Certain amounts in the financial statements may not compute due to rounding. All computations have been calculated using unrounded amounts for all periods presented.

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The following tables summarize our operating results on a reported basis and on a same store basis:

Reported Operating Data — Consolidated

(In millions, except unit data)

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

The following discussion should be read in conjunction with Part I, including the matters set forth in Item 1A. Risk Factors, and our Consolidated Financial Statements and notes thereto included elsewhere in this Form 10-K. Refer to Item 1. Business — General for an overview of our operations. Additionally, refer to Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2024 Annual Report on Form 10-K for management’s discussion and analysis of financial condition and results of operations for the fiscal year 2024 compared to fiscal year 2023.

Overview

Our operating results reflect the combined performance of each of our interrelated business activities. Historically, various facets of our business have been directly or indirectly impacted by a variety of supply/demand factors, including vehicle inventories, government trade policies, consumer confidence, consumer transportation preferences, discretionary spending levels, availability and affordability of consumer credit, new vehicle introductions and innovations, manufacturer incentives, weather patterns, fuel prices, inflation 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 delay their purchasing decisions altogether, electing instead to continue to maintain and repair their existing vehicles. In such cases, however, we believe the new vehicle sales impact on our overall business is mitigated by our ability to offer other products and services, such as used vehicles and parts, as well as maintenance, repair and collision services. In addition, our ability to expediently adjust our cost structure in response to changes in new vehicle sales volumes also tempers any negative impact of such sales volume changes.

Recent Events

Changes in trade policy, tariffs and other governmental actions during the Current Year introduced additional uncertainty for the automotive industry. On November 4, 2025, President Donald Trump issued an executive order directing federal agencies to modify the U.S. tariff schedules for designated Chinese-origin goods under an existing bilateral arrangement. While we do not directly import vehicles or parts from China, tariff changes may affect OEM pricing for vehicles, components, and accessories sourced from Chinese suppliers. We are monitoring subsequent agency actions to evaluate any impact on vehicle and parts costs. Effective November 1, 2025, a proclamation under Section 232 imposed 25% tariffs on imported medium- and heavy-duty trucks and parts. It also granted a 3.75% production credit through 2030 for vehicles and engines assembled in the U.S. The measure is expected to affect vehicle costs, sourcing, and production decisions across the automotive industry, particularly for companies involved in the distribution and sale of medium- and heavy-duty vehicles. Separately, effective retroactive to August 7, 2025, an order implementing the U.S.–Japan Agreement generally set a 15% duty on automobiles and auto parts from Japan, adjusted for existing tariff rates, replacing higher additional duties previously applied to these products.

Effective June 23, 2025, the U.S.–U.K. Economic Prosperity Deal established an annual quota allowing 100,000 U.K.-made vehicles to enter the U.S. at a total 10% tariff, with imports above the quota subject to 25%. It also set a 10% total tariff on U.K.-origin parts for use in U.K.-made vehicles imported into the U.S. On March 26, 2025, a separate Section 232 action imposed a 25% tariff on imported automobiles and certain parts. Subsequent U.S. Department of Commerce procedures provided partial relief for United States-Mexico-Canada Agreement-qualifying vehicles and allowed manufacturers with U.S. assembly operations to apply for offsets on parts tariffs. Although a federal appeals court in August 2025 limited certain emergency tariff authorities, the Section 232 automobile tariffs remained in effect. Collectively, the effects of these executive orders, proclamations and related actions on our results of operations cannot be predicted at this time.

On December 10, 2025, the Federal Reserve lowered interest rates by 25 basis points in an effort to stimulate the labor market and economic activity, following earlier reductions in September and October. On December 18, 2025, the Bank of England lowered interest rates by 25 basis points, following earlier reductions in February, May, and August 2025. These interest rate cuts may improve vehicle affordability for consumers, however, the impact on our results of operations cannot be predicted with certainty at this time.

On October 10, 2025 and November 20, 2025, additional fires occurred at a major U.S. aluminum production facility, following an initial fire in September 2025. These incidents caused significant damage to the facility, and as a result, the timing of the plant’s return to full production capacity is uncertain. The facility supplies several OEMs, including Ford, Toyota and Jeep, and the disruption is anticipated to affect the production of certain aluminum-intensive vehicle models. Certain OEMs have indicated they are working with alternative aluminum suppliers to mitigate the impact of the fire. In response to these supply constraints, Ford temporarily suspended production of certain SUV models, and additional impacts to truck production may occur if aluminum shortages persist. While the ultimate impact on our new vehicle supply remains uncertain, these disruptions could result in reduced vehicle availability, which may adversely affect our results of operations.

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On September 2, 2025, Jaguar Land Rover (“JLR”) disclosed that it had experienced a significant cybersecurity incident that resulted in the temporary shutdown of certain production facilities and information technology systems. This disruption has led to delays in new vehicle deliveries, reduced availability of certain models and interruptions in certain parts supply. JLR accounted for approximately 3.6% of our total consolidated revenues during the Current Year. We cannot predict with certainty the expected total impact of the incident on our results of operations at this time and will continue to monitor developments closely.

In the U.K., the FCA is reviewing the historic use of discretionary commission arrangements in motor finance. On August 1, 2025, the Supreme Court of the United Kingdom issued its judgment in the Johnson v FirstRand Bank Ltd, Wrench v FirstRand Bank Ltd and Hopcraft v Close Brothers Ltd cases. The Supreme Court of the United Kingdom ruled that dealers do not generally owe fiduciary duties but confirmed that, in some cases, commission arrangements that were not properly disclosed to customers could be treated as creating an unfair relationship under the Consumer Credit Act. On August 3, 2025, the FCA announced it will consult in October 2025 on a possible industry-wide redress scheme for affected consumers. If adopted, the scheme could be finalized such that compensation payments may begin in 2026. The FCA also confirmed that firms will not be required to issue final responses to related customer complaints until after December 4, 2025. The outcomes of the FCA’s review, any redress scheme and related proceedings remain uncertain.

On July 4, 2025, H.R. 1, the OBBBA, was signed into law. For the automotive industry, the bill provides consumers with a tax deduction for the interest on loans for certain U.S.-assembled vehicles. The bill also eliminates federal EV tax credits for vehicles purchased or leased after September 30, 2025. Additionally, the OBBBA reinstates 100% bonus depreciation for qualified property placed in service after January 19, 2025. This provision allows for immediate expensing for income tax purposes of the full cost of eligible tangible assets, including certain machinery, equipment and building improvements. The impact of the OBBBA on our results of operations cannot be predicted with certainty at this time.

The U.K. government has established mandated targets for the sale of new zero emissions vehicles with increasing targets in future years. On April 6, 2025, the U.K. Prime Minister announced planned changes to the EV mandate, which aim to allow carmakers more flexibility in reaching their goal to phase out internal combustion engine vehicles. The plan increases flexibility of the mandate through 2030, allowing more EVs to be sold in later years as demand increases. Further, the plan allows for the continued sale of hybrid vehicles, which can be operated by both internal combustion and batteries, through 2035 to help ease the transition. As of July 16, 2025, U.K. car manufacturers can apply for Electric Car Grants, which will discount eligible new EVs for consumers at the point of sale. Certain manufacturers urged the U.K. government to provide additional flexibility in the mandate, citing consumer demand, infrastructure limitations and the cost of compliance as potential barriers to meet future targets. Further, as of December 2025, U.K. political leaders have issued proposals to rescind the ban on gasoline and diesel-powered vehicles.

Additionally, on June 12, 2025, President Donald Trump signed resolutions revoking California’s authority to enforce certain regulations it previously set forth, including Advanced Clean Cars II, which imposes stricter emissions limits for vehicles than the federal standards and requires nearly all new car sales to be zero-emission by 2035. California and ten other states set to implement Advanced Clean Cars II-like rules sued the EPA and President Donald Trump and are seeking to enjoin the resolutions. The legal challenges remain ongoing. The impact of these changes on our vehicle mix and results of operations cannot be predicted with certainty at this time. Further, on August 1, 2025, the EPA issued a proposed rule to rescind the “Endangerment Finding,” which underpins the majority of the EPA’s GHG regulations, and all GHG emission standards for light-duty, medium-duty, and heavy-duty vehicles and engines. We cannot predict whether such efforts will ultimately be successful.

While the possibility exists for delays, reductions, or exemptions of the automotive and reciprocal tariffs, the potential impacts of the tariffs described above, as well as the reaction of the OEMs to such tariffs, remain uncertain and could significantly increase the price of our products as well as the future mix and demand for vehicles provided by our manufacturers. Additionally, reciprocal tariffs, tariffs on steel, aluminum, copper and other materials, and the elevated tariffs against China and other countries could negatively impact the global economy, demand for our products and our manufacturers’ global supply chains. Our manufacturers’ supply chain dependencies and production facility locations vary by OEM, and as a result, certain manufacturers, vehicle models, vehicle model variations and parts could be affected more significantly by the imposition of tariffs than others. We will continue to monitor the impact of the Trump Administration’s policies and the response of U.S. trading partners on our results of operations in future periods.

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Critical Accounting Estimates

The preparation of our financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities at the balance sheet date and the amounts of revenues and expenses recognized during the reporting period. Below are the accounting policies and estimates that have been determined to be critical to our

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