Intangible Franchise Rights and Goodwill

12 Months Ended

Dec. 31, 2020

Goodwill and Intangible Assets Disclosure [Abstract]

INTANGIBLE FRANCHISE RIGHTS AND GOODWILL

The Company evaluates its intangible assets, consisting entirely of indefinite-lived franchise rights and goodwill assets, for impairment annually, or more frequently if events or circumstances indicate possible impairment. Refer to Note 1. Business and Summary of Significant Accounting Policies for further discussion of the Company’s accounting policies relating to impairment testing, including the fair value models and significant inputs and assumptions to the models.

As described in Note 1. Business and Summary of Significant Accounting Policies, since emerging in December 2019, the COVID-19 pandemic has spread globally, including to all of the Company’s markets in the U.S., U.K. and Brazil. While the U.S. and U.K. began to show signs of recovery in the second quarter of 2020, the Company’s showrooms in Brazil did not fully reopen until May 2020 and then operated at reduced hours. Despite operations resuming in Brazil, the impact of the virus continued to worsen in the second quarter and had not yet reached its peak in some of the Company’s Brazilian markets. The slower than expected recovery from the COVID-19 pandemic in Brazil during the second quarter of 2020 constituted a triggering event indicating that goodwill may be impaired. Therefore the Company performed a quantitative goodwill impairment test for the Brazil reporting unit as of May 31, 2020 and as a result, the Company recorded a goodwill impairment charge of $10.7 million within the Brazil reporting unit. There was no remaining goodwill balance in the Brazil segment following the impairment charges recorded in the second quarter of 2020.

The impact of the COVID-19 pandemic on the economy and unemployment during the second quarter of 2020 also adversely impacted the Company’s long-term outlook projections compared to the projections in first quarter of 2020. As a result, it was concluded that it was more-likely-than-not that the intangible franchise rights of some dealerships were impaired, requiring a quantitative test as of May 31, 2020. As a result of the quantitative impairment test, the Company determined that the fair value of the franchise rights on certain dealerships in the U.K. and Brazil were below their respective carrying values, which resulted in franchise rights impairment charges of $11.1 million in the U.K. segment and $0.1 million in the Brazil segment. There was no remaining intangible franchise rights balance in the Brazil segment following the impairment charges recorded in the second quarter of 2020.

The Company performed its annual impairment assessment of the carrying value of its goodwill and intangible franchise rights as of October 31, 2020. For the goodwill test, the Company elected to perform a qualitative assessment of each of its reporting units and determined that it was not more-likely-than-not that the fair value of the reporting unit was less than its respective carrying amount. Thus, no additional goodwill impairment was recorded for the year ended December 31, 2020. For the intangible franchise rights test, the Company elected to perform a qualitative assessment to determine whether it was more-likely-than-not that the carrying value of the franchise rights were more than their respective fair values. Based on the results of the qualitative assessment, certain dealerships required a quantitative test based on their actual results through October 31, 2020 and an update of the annual budget in the fourth quarter of 2020. This resulted in additional franchise rights impairment charges of $9.7 million in the U.S. segment during the fourth quarter of 2020.

During the year ended December 31, 2019, the Company recorded $13.4 million in the U.S. segment and $5.6 million in the U.K. segment of impairments on intangible franchise rights. During the year ended December 31, 2018, the company recorded $38.3 million in the U.S. segment and $0.5 million in the U.K. segment of impairments on intangible franchise rights.

During the year ended December 31, 2020, no additional intangible franchise rights were purchased or acquired through business combinations. During the year ended December 31, 2019, the Company recorded additional indefinite-lived intangible franchise rights acquired through business combinations of $12.1 million in the U.S segment.

Refer to Note 3. Acquisitions and Dispositions for further discussion of the Company’s acquisitions.

The following table presents the Company’s intangible franchise rights balances by reportable segment as of December 31, 2020 and 2019 (in millions):


	Intangible Franchise Rights
	U.S.		U.K.		Brazil		Total







Balance, December 31, 2019	$	223.1	$	30.4	$	0.1	$	253.5






Balance, December 31, 2020	$	213.4	$	19.4	$	—	$	232.8

The following is a roll-forward of the Company’s goodwill accounts by reporting unit (in millions):


	Goodwill
	U.S.		U.K.		Brazil		Total
Balance, December 31, 2018 (1)	$	861.6	$	87.6	$	14.7	$	963.9
Additions through acquisitions	42.0		1.3		—		43.3

Disposals	(1.3)		—		(0.3)		(1.6)

Currency translation	—		3.2		(0.5)		2.7

Balance, December 31, 2019 (1)	$	902.3	$	92.1	$	13.9	$	1,008.3
Additions through acquisitions	1.4		—		—		1.4

Disposals	(2.0)		—		—		(2.0)
Impairments	—		—		(10.7)		(10.7)
Currency translation	—		3.2		(3.1)		0.1

Balance, December 31, 2020	$	901.7	$	95.4	$	—	$	997.1

(1) Net of accumulated impairments of $97.8 million, comprised of $40.6 million in the U.S. reporting unit and $57.2 million in the Brazil reporting unit.

Despite the Company’s improved results in the third quarter of 2020, COVID-19 cases in certain markets in the U.S., and more pervasively throughout the U.K., have continued to rise in the fourth quarter of 2020. On October 31, 2020, the U.K. government announced a national lockdown of non-essential businesses, which includes the Company’s dealership vehicle showrooms, beginning November 5, 2020 through December 2, 2020. Regional lockdowns occurred in late December and on January 4, 2021, the U.K. government announced another national lockdown of non-essential businesses beginning immediately, and are not expected to be lifted until April 2021 at the earliest. The lockdown impacts the Company’s new and used vehicle sales as showrooms are required to close, but has a lesser impact on the Company’s service operations which are allowed to remain open. Due to the temporary nature of the U.K. lockdown announced in January 2021, no impairment indicators of goodwill or intangible franchise rights were identified subsequent to December 31, 2020 and through the date of issuance of this Form 10-K.