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 in active markets for identical assets or liabilities

Level 2			Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted market prices in markets that are not active; or model-derived valuations or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities

Level 3			Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities

•Cash and cash equivalents, receivables, other current assets, vehicle floorplan payable, accounts payable, other current liabilities, commercial paper, 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.

•Investments in Equity Securities: As of December 31, 2020, the carrying amount of our Vroom equity investment was $101.9 million. The fair value of this equity investment is based on the quoted price in active markets for the identical asset (Level 1). In March 2020, we invested $50.0 million in the equity securities of Waymo LLC, which do not have a readily determinable fair value. We elected to measure this investment using the measurement alternative as permitted by accounting standards, and we recorded the equity interest at its cost of $50.0 million. We have considered all relevant transactions since the date of our investment through December 31, 2020, and we have not recorded any impairments or upward or downward adjustments to the carrying amount of our Waymo investment as of December 31, 2020, as there have not been any indications of impairment or observable price changes in orderly transactions for the identical or a similar investment of the same issuer as of such date. Investments in equity securities are reported in Other Assets in the accompanying Consolidated Balance Sheets. Realized and unrealized gains and losses are reported in Other Income, Net (non-operating) in the Consolidated Statements of Income and in the “Corporate and other” category of our segment information.


	2020		2019
Net gains recognized during the period on equity securities	$	131.5	$	25.7
Less: Net gains recognized during the period on equity securities sold during the period	63.4		—
Unrealized gains recognized during the reporting period on equity securities still held at the reporting date	$	68.1	$	25.7

•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 fixed rate long-term debt at December 31 is as follows:

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.


	2020				2019
Description	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)		Gain/(Loss)		Fair Value Measurements Using Significant Unobservable Inputs (Level 3)		Gain/(Loss)
Goodwill	$	457.5	$	(318.3)	$	—	$	—
Franchise rights and other	$	26.2	$	(59.9)	$	8.9	$	(9.9)
Equity investment	$	—	$	—	$	75.7	$	25.7
Right-of-use assets	$	5.0	$	(3.1)	$	0.1	$	(0.2)
Long-lived assets held and used	$	1.8	$	(9.2)	$	—	$	(0.1)
Long-lived assets held for sale:
Continuing operations	$	—	$	—	$	26.1	$	(1.6)
Discontinued operations	—		—		5.4		(0.5)
Total assets held for sale	$	—	$	—	$	31.5	$	(2.1)

Goodwill for our reporting units is tested for impairment annually as of April 30 or more frequently when events or changes in circumstances indicate that the carrying value of a reporting unit more likely than not exceeds its fair value. During the first quarter of 2020, our stock price, along with the U.S. stock market in general, was adversely impacted by the market reaction to the COVID-19 pandemic. In light of the uncertainty surrounding the COVID-19 pandemic and the decrease in our market capitalization as of March 31, 2020, we concluded that a triggering event had occurred potentially indicating that the fair values of our reporting units were less than their carrying values as of March 31, 2020. Therefore, we performed quantitative goodwill impairment tests for each of our reporting units as of March 31, 2020.

The quantitative goodwill impairment test requires a determination of whether the fair value of a reporting unit is less than its carrying value. We estimate the fair value of our reporting units using an “income” valuation approach, which discounts projected free cash flows of the reporting unit at a computed weighted average cost of capital as the discount rate. The income valuation approach requires the use of significant estimates and assumptions, which include revenue growth rates and future operating margins used to calculate projected future cash flows, weighted average costs of capital, and future economic and market conditions. In connection with this process, we also reconcile the estimated aggregate fair values of our reporting units to our market capitalization, including consideration of a control premium that represents the estimated amount an investor would pay for our equity securities to obtain a controlling interest. We believe that this reconciliation process is consistent with a market participant perspective. We base our cash flow forecasts on our knowledge of the automotive industry, our recent performance, our expectations of our future performance, and other assumptions we believe to be reasonable but that are unpredictable and inherently uncertain. Actual future results may differ from those estimates. We also make certain judgments and assumptions in allocating shared assets and liabilities to determine the carrying values for each of our reporting units.

As a result of these impairment tests, during the three months ended March 31, 2020, we recorded non-cash goodwill impairment charges totaling $318.3 million, of which $257.4 million related to our Premium Luxury reporting unit, $41.6 million related to our Collision Centers reporting unit, and $19.3 million related to our Parts Centers reporting unit. The non-cash impairment charges are reflected as Goodwill Impairment in the accompanying Consolidated Statements of Income and in the “Corporate and other” category of our segment information. For our April 30, 2020 annual impairment test, we chose to make a qualitative evaluation about the likelihood of goodwill impairment, 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.

For our April 30, 2019 annual impairment test, we chose to make a qualitative evaluation about the likelihood of goodwill impairment for our Domestic, Import, and Premium Luxury reporting units, and we determined that it was not more likely than not that the fair values of these reporting units were less than their carrying amounts. We elected to perform a quantitative goodwill impairment test for our Collision Centers and Parts Centers reporting units as of April 30, 2019, and no impairment charges resulted from the impairment test.

Our principal identifiable intangible assets are individual store rights under franchise agreements with vehicle manufacturers, which have indefinite lives and are tested for impairment annually as of April 30 or more frequently when events or changes in circumstances indicate that impairment may have occurred. During the first quarter of 2020, we concluded that, as a result of the impacts from the COVID-19 pandemic, a triggering event had occurred that indicated the fair values of our franchise rights may have been less than their carrying values as of March 31, 2020. Therefore, we performed quantitative franchise rights impairment tests as of March 31, 2020.

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.

As a result of the quantitative tests, we identified eight stores with franchise rights carrying values that exceeded their estimated fair values, and we recorded non-cash franchise rights impairment charges of $57.5 million during the three months ended March 31, 2020. For our April 30, 2020 annual impairment test, we elected to perform quantitative franchise rights impairment tests, and no additional impairment charges resulted from these quantitative tests.

For our April 30, 2019 and 2018 annual impairment tests, we elected to perform quantitative franchise rights impairment tests. As a result of these tests, we recorded non-cash impairment charges of $9.6 million in 2019 and $8.1 million in 2018 to reduce the carrying values of certain franchise rights to their estimated fair values.

In 2020, we also recorded non-cash impairment charges of $2.4 million to reduce the carrying value of certain finite-lived intangible assets to estimated fair value, which are included in Other (Income) Expense, Net in our Consolidated Statements of Income and in the “Corporate and other” category of our segment information.

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.

We recorded no impairment charges related to our long-lived assets held for sale in 2020. In 2019, we recorded non-cash impairment charges of $1.6 million related to our long-lived assets held for sale in continuing operations and $0.5 million related to our long-lived assets held for sale in discontinued operations.

We had assets held for sale in continuing operations of $25.5 million as of December 31, 2020, and $40.6 million as of December 31, 2019, primarily related to property held for sale, as well as inventory, goodwill, and property of disposal groups held for sale. We had assets held for sale in discontinued operations of $8.0 million as of December 31, 2020, and $8.0 million as of December 31, 2019, primarily related to property held for sale. Assets held for sale are included in Other Current Assets in our Consolidated Balance Sheets.

Quantitative Information about Level 3 Fair Value Measurements


Description	Fair Value at March 31, 2020		Valuation Technique	Unobservable Input	Range (Average)
Franchise rights	$	24.6	Discounted cash flow	Weighted average cost of capital	8.5	%
				Discount rate	11.1% - 14.3% (12.1%)
				Long-term revenue growth rate	2.0	%
				Long-term pretax income margin	0.6% - 2.8% (1.4%)
				Contributory asset charges	4.2% - 12.1% (6.2%)