PENSKE AUTOMOTIVE GROUP, INC.

2555 TELEGRAPH ROAD, BLOOMFIELD HILLS, MI 48302-0954

WWW.PENSKEAUTOMOTIVE.COM

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INTERNATIONAL

REVENUE MIX

Puerto Rico 15 Franchises

UNITED STATES

Puerto Rico 15 Franchises

United States 155 Franchises

United Kingdom135 Franchises

m Germany10 Franchises

4 Joint Ventures

Mexico3 Franchises

1 Joint Venture

States with PAG Dealerships

Premium47%

Volume Foreign45%

Premium94%

Volume Foreign

4%Fororei

444444444%444%

Domestic2%

Domestic8%

h e l l o U S A — h e r e I a m

smart USA Headquarters and Retail Site — Bloomfi eld Hills, Michigan

■ 74 U.S. Dealerships planned in 2008

■ Over 30,000 Reservations

■ smart 1 Customer Care Center

■ First Deliveries in January 2008

Penske Automotive — the exclusive distributor of the smart® fortwo in the USA

8% 2% %%3%

14%

6%

11% 6% 6%2%

Others8%4%

22%

2% 2%

13%

2%2%5%

% OF TOTAL REVENUE

OUTSTANDING BRAND MIX

WORLDWIDE REVENUE MIX

United States62%

Outside U.S.38%

Premium65%

Volume Foreign29%

Domestic6%

Highest Concentration of Revenues from Non-U.S. and Premium Brands Among

the Publicly-Traded Auto Retailers

Most Geographically Diversifi ed Revenue Mix Among the Publicly-Traded

Auto Retailers

2003 2004 2005 2006 2007

SERVICE/PARTS

UNIT GROWTH

REVENUE GROWTH

2003 2004 2005 2006 2007

65,395

137,385

70,628 75,245 88,262 102,214

150,510 166,209 181,544 195,160

202,780221,138

241,454269,806

297,374

2003 2004 2005 2006 2007

$7.0

11%

10% CAGR

17% CAGR

($ IN BILLIONS)

$8.4$9.6

$11.1

$13.0

10.6%

10.2%

9.8%

9.4%

56.0%

55.0%

54.0%

53.0%

52.0%

% O

F R

EV

EN

UE

GR

OS

S M

AR

GIN

% of RevenueGross Margin

New

Used

Roger S. Penske Chairman of the Board and CEO

T O O U R S T O C K H O L D E R S

2007 was another outstanding year for Penske Automotive Group, highlighted by a 16.5% increase in our overall revenue. During the year, we reported quarter over quarter revenue increases for the 35th consecutive period. More importantly, we continued to generate strong same-store retail revenue growth. In fact, the 7.9% same-store retail revenue growth we reported in 2007 represents our ninth consecutive annual increase, and represents the highest same-store growth rate reported this year by any of the U.S. publicly traded automotive retailers.

We also increased our annualized dividend to $0.36 per year, which demonstrates our confi dence in the continuing strength of the operating performance of the business, while allowing us to maintain the fi nancial fl exibility to implement our business strategies.

While 2007 was a diffi cult year for many in the automotive industry, our business performed well despite the challenges presented by the current operating environment. We believe our success begins with our differentiated business model, which gives us the opportunity to increase revenues and earnings, even in diffi cult economic periods. Our geographic diversifi cation, outstanding brand mix, opportunistic acquisition strategy and other targeted investments foster our goal of enhancing shareholder value.

As a signifi cant highlight, we completed two campus renovation projects in Turnersville, New Jersey, and Warwick, Rhode Island. After three years of construction, and an aggregate $175 million investment, these campuses are now fully operational and represent opportunities for long-term earnings growth in their markets.

During the year, we also purchased dealerships that we expect to generate $450 million of annualized revenues, enhancing our scale in certain markets in the United States and the United Kingdom.

Of course, none of this would be possible without the efforts of our employees. I would like to recognize the hard work and dedication put forth by our nearly 16,000 employees during the year. Particularly pleasing to me are the efforts of our team

that resulted in the growth of our pre-owned vehicle sales business and the sustained strength of our service and parts operations.

In addition, the efforts of the smart USA LLC team to develop the distribution system for the smart fortwo® vehicle in the United States, including the selection of 74 dealers around the country, in 18 months were truly outstanding. We shipped the fi rst smart fortwos to our retail partners in January of 2008, and are excited about the opportunity the smart distribution business presents to enhance shareholder value.

As we announced in March of 2008, our Board of Directors authorized a program to repurchase up to $150 million of our common stock. This program highlights our belief in the long-term fundamentals and value of our business. We plan to opportunistically repurchase shares under this program, balanced by the capital needs of our continued investment in the growth of our business, in an effort to enhance the overall returns of our shareholders.

Finally, I would like to note that we changed the name of our company to Penske Automotive Group, Inc. in July 2007. This name change emphasizes our long-term commitment to the business, as we seek to build a world-class automotive enterprise.

We remain confi dent in the ability of our business model to adapt to the challenges of the domestic and international markets, and we remain excited about the opportunities for our continued growth.

Thank you for your continued support of Penske Automotive Group.

Roger S. PenskeChairman

L E A D E R S H I P

EXECUTIVE OFFICERS

Roger S. Penske Chairman of the Board and CEO

Robert H. Kurnick, Jr. President

Robert O’ShaughnessyChief Financial Offi cerExecutive Vice President – Finance

Calvin C. SharpExecutive Vice President –Human Resources

Shane M. SpradlinSenior Vice President,General Counsel and Secretary

OPERATIONS

George BrochickExecutive Vice President – West Operations

Gerard NieuwenhuysManaging Director –Sytner Group

R. Whitfi eld RamonatExecutive Vice President – Central Operations andFinancial Services

Bernie W. WolfeExecutive Vice President –Eastern Operations

INVESTOR RELATIONS

Anthony R. PordonSenior Vice President

BOARD OF DIRECTORS

Roger S. Penske Chairman of the Board and CEOPenske Automotive Group

Robert H. Kurnick, Jr. PresidentPenske Automotive Group

John D. BarrCEOPapa Murphy’s International, Inc.

Michael R. EisensonManaging Director & CEOCharlesbank Capital Partners, LLC

Hiroshi IshikawaExecutive Vice PresidentInternational Business DevelopmentPenske Automotive Group

William J. LovejoyManagerLovejoy & Associates

Kimberly J. McWatersCEOUniversal Technical Institute, Inc.

Eustace W. MitaChairmanAchristavest Properties, LLC

Lucio A. Noto Retired Vice ChairmanExxonMobil Corporation

Richard J. PetersManaging DirectorTransportation Resource Partners, LP

Ronald G. SteinhartRetired Chairman & CEOCommercial Banking GroupBank One Corporation

H. Brian ThompsonExecutive ChairmanGlobal Telecom & Technology

EXECUTIVE OFFICES

Penske Automotive Group, Inc.2555 Telegraph RoadBloomfi eld Hills, MI 48302-0954248 648-2500

Investor Relations and Corporate CommunicationsAnthony R. PordonSenior Vice President 2555 Telegraph RoadBloomfi eld Hills, MI 48302 248 648-2540

Stock Exchange ListingPenske Automotive Group common stock is traded on the New York Stock Exchange under the ticker symbol PAG

Transfer AgentComputershare Investor ServicesP.O. Box 40378Providence, RI 02940-3078

Independent AuditorsDeloitte & Touche LLP600 Renaissance CenterSuite 900Detroit, MI 48243

Form 10-KThe Company’s Form 10-K is on fi le with the Securities and Exchange Commission. You may download an electronic copy by accessing the Company’s Investor Relations section at www.penskeautomotive.com.

©2008 Penske Automotive Group, Inc.

UNITED STATES SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

Form 10-K/A¥ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2007

n TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 1-12297

Penske Automotive Group, Inc.(Exact name of registrant as specified in its charter)

Delaware(State or other jurisdiction of incorporation or organization)

22-3086739(I.R.S. Employer

Identification No.)

2555 Telegraph RoadBloomfield Hills, Michigan

(Address of principal executive offices)

48302-0954(Zip Code)

Registrant’s telephone number, including area code (248) 648-2500

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class Name of Each Exchange on Which Registered

Voting Common Stock, par value $0.0001 per share New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the SecuritiesAct. Yes ¥ No n

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of theExchange Act. Yes n No ¥

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required tofile such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ¥ No n

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, andwill not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated byreference in Part III of this Form 10-K or any amendment to this Form 10-K. ¥

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or asmaller reporting company. (Check one):

Large accelerated filer ¥ Accelerated filer n Non-accelerated filer n Smaller reporting company n

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the ExchangeAct). Yes n No ¥

The aggregate market value of the voting common stock held by non-affiliates as of June 30, 2007 was $894,529,752. As ofFebruary 15, 2008, there were 95,022,292 shares of voting common stock outstanding.

Documents Incorporated by Reference

Certain portions, as expressly described in this report, of the registrant’s proxy statement for the 2008 Annual Meeting ofthe Stockholders to be held May 1, 2008 are incorporated by reference into Part III, Items 10-14.

Explanatory Note

We are filing this Form 10-K/A to correct a typographical error in the opinion of our principal auditor. All otherinformation remains unchanged.

TABLE OF CONTENTS

Items Page

PART I1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

1A. Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

PART II5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of

Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

7. Management’s Discussion and Analysis of Financial Condition and Results of Operations . . . . . . 30

7A. Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49

8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . 50

9A. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

PART III10. Directors and Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

12. Security Ownership of Certain Beneficial Owners and Management and Related StockholderMatters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

13. Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . . . . . . . . . 51

14. Principal Accountant Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

PART IV15. Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

i

PART I

Item 1. Business

We are the second largest automotive retailer headquartered in the U.S. as measured by total revenues. As ofFebruary 1, 2008, we owned and operated 170 franchises in the U.S. and 145 franchises outside of the U.S.,primarily in the United Kingdom. We offer a full range of vehicle brands, with 94% of our total revenue in 2007generated from the sales of brands such as Audi, BMW, Honda, Lexus, Mercedes-Benz and Toyota(“non-U.S. brands”). Sales relating to premium brands, such as Audi, BMW, Cadillac and Porsche, represented65% of our total revenue. As a result, we have the highest concentration of revenues from non-U.S. and premiumbrands among the U.S. publicly-traded automotive retailers.

Each of our dealerships offers a wide selection of new and used vehicles for sale. In addition to selling new andused vehicles, we offer a full range of maintenance and repair services, and we facilitate the placement of third-partyfinance and insurance products, third-party extended service contracts and replacement and aftermarket automotiveproducts. We are also diversified geographically, with 62% of our revenues generated from U.S. operations and 38%generated from our operations outside the U.S. (predominately in the U.K.).

Beginning in 2007, our wholly-owned subsidiary, smart USA Distributor LLC, became the exclusivedistributor of the smart fortwo vehicle in the U.S. and Puerto Rico.

We believe our diversified revenue streams help to mitigate the historical cyclicality found in some elements ofthe automotive sector. Revenues from higher margin service and parts sales are typically less cyclical than retailvehicle sales, and generate the largest part of our gross profit. The following graphic shows the percentage of ourretail revenues by product area and their respective contribution to our overall gross profit in 2007:

Revenue Mix Gross Profit Mix

F&I 2%

Used 27%

New 59%

S&P 12%

Used 13%

New 31%

S&P 41%

F&I 15%

Business Strategy

Our strategy is to sell and service outstanding vehicle brands in premium facilities. We believe offering ourcustomers superior customer service in a premium location fosters a long-term relationship, which helps generaterepeat and referral business, particularly in our higher-margin service and parts business. We believe our focus ondeveloping a loyal customer base has helped to increase our profitability and generate incremental service and partssales. In addition, our large number of dealerships, geographically concentrated by region, allows us the opportunityto achieve cost savings and implement best practices, while also providing access to a broad base of potentialacquisitions.

Offer Outstanding Brands in Premium Facilities

We have the highest concentration of revenues from non-U.S. brands among the U.S. publicly-tradedautomotive retailers. We believe the market performance of the brands we represent contributed to our

1

same-store revenue and gross profit growth, as non-U.S. vehicle brands have gained market share in recent years.The following chart reflects our revenue mix:

Domestic6%

Premium 65%

Volume Foreign29%

The following chart reflects our percentage of total revenues by brand in 2007:

2%8%

14%

6%

11%

6%2%5%

13%

2%

2%

22%

4% Other3%

Over time, we are making substantial investments in our retail dealerships in an effort to create an outstandingretail experience for our customers. We believe the experience we offer customers in our facilities drives repeat andreferral business, particularly in our higher margin service and parts operations. Where advantageous, we attempt toaggregate our dealerships in a campus or group setting in order to build a destination location for our customers,which we believe helps to drive increased customer traffic to each of the brands at the location. This strategy alsocreates an opportunity to reduce personnel expenses and administrative expenses, and leverage operating expensesover a larger base of dealerships. We believe this strategy has enabled us to consistently achieve new unit vehiclesales per dealership that are significantly higher than industry averages for most of the brands we sell.

2

The following is a list of our larger dealership campuses or groups:

Location Square Feet Service Bays

2007Revenue(millions) Franchises

North Scottsdale, Arizona . . 450,000 226 $584.4 Acura, Audi, BMW, Jaguar, Land Rover,MINI, Porsche, Volkswagen, Volvo

Scottsdale, Arizona . . . . . . . 136,000 76 $299.2 Aston Martin, Bentley, Ferrari, Jaguar, LandRover, Lexus, Maserati, Rolls-Royce

San Diego, California . . . . . 348,000 232 $683.9 Acura, Aston Martin, BMW, Jaguar, Lexus,Mercedes-Benz, Scion, smart, Toyota

Fayetteville, Arkansas . . . . . 122,000 59 $270.0 Acura, Chevrolet, Honda, HUMMER,Scion, Toyota

Tyson’s Corner, Virginia . . . 191,000 138 $274.4 Audi, Aston Martin, Mercedes-Benz,Porsche, smart

Inskip, Rhode Island . . . . . . 319,000 176 $402.5 Acura, Audi, Bentley, BMW, Infiniti, Lexus,Mercedes-Benz, MINI, Nissan, Porsche,smart, Volvo

Turnersville, New Jersey . . . 303,000 177 $389.7 Acura, BMW, Cadillac, Chevrolet, Honda,HUMMER, Hyundai, Nissan, Scion, Toyota

By way of example, our Scottsdale 101 Auto Mall features nine separate showrooms and franchises with over450,000 square feet of facilities. Typically, customers may choose from an inventory of over 1,500 new and usedvehicles, and have access to approximately 226 service bays with the capacity to service approximately 1,000vehicles per day. This campus also features an on/off road test course where customers may experience theuniqueness of the brands offered. We will continue to evaluate other opportunities to aggregate our facilities to reapthe benefits of a destination location.

Expand Revenues at Existing Locations and Increase Higher-Margin Businesses

We aim to increase our existing business by generating additional revenue at existing dealerships, with aparticular focus on developing our higher-margin businesses such as finance, insurance and other products andservice, parts and collision repair services.

Increase Same-Store Sales. We believe our emphasis on improving customer service and upgrading ourfacilities should result in continued increases in same-store sales. As part of the investment program noted above,we added numerous incremental service bays in order to better accommodate our customers.

Grow Finance, Insurance and Other Aftermarket Revenues. Each sale of a vehicle provides us the oppor-tunity to assist in financing the sale, selling the customer a third party extended service contract or insuranceproduct, or selling other aftermarket products, such as entertainment systems, security systems, satellite radios andprotective coatings. In order to improve our finance and insurance business, we focus on enhancing andstandardizing our salesperson training programs, strengthening our product offerings and standardizing our sellingprocess.

Expand Service and Parts and Collision Repair Revenues. In recent years, we have added a significantnumber of service bays at our dealerships in an effort to expand this higher-margin element of our business. Many oftoday’s vehicles are complex and require sophisticated equipment and specially trained technicians to performcertain services. Unlike independent service shops, our dealerships are authorized to perform this work as well aswarranty work for the manufacturers. We believe that our brand-mix and the complexity of today’s vehicles,combined with our focus on customer service and superior facilities, contribute to our service and parts revenueincreases. We also operate 27 collision repair centers which are operated as an integral part of our dealershipoperations. As a result, the repair centers benefit from the dealerships’ repeat and referral business.

3

Continue Growth through Targeted Acquisitions

We believe that attractive acquisition opportunities exist for well-capitalized dealership groups with expe-rience in identifying, acquiring and integrating dealerships. The automotive retail market provides us withsignificant growth opportunities in each of the markets in which we operate. In the U.S., the ten largest industryparticipants generated less than 10% of new vehicle industry sales in 2007. Generally, we seek to acquiredealerships with high growth automotive brands in highly concentrated or rapidly growing demographic areas. Wefocus on larger dealership operations that will benefit from our management assistance, manufacturer relations andscale of operations, as well as individual dealerships that can be effectively integrated into our existing operations.

Diversification Outside the U.S.

One of the unique attributes of our operations versus our peers is our diversification outside the U.S.Approximately 38% of our consolidated revenue during 2007 was generated from operations located outside theU.S. and Puerto Rico, predominately in the United Kingdom. According to industry data, the United Kingdomrepresented the third largest retail automotive market in Western Europe in 2007 with approximately 2.4 millionnew vehicle registrations. Our brand mix in the United Kingdom is predominantly premium. As of December 31,2007, we believe we were the largest or second largest volume Audi, Bentley, BMW, Land Rover, Lexus, Mercedes-Benz, Porsche and Toyota dealer in this market. Additionally, we operate a number of dealerships in Germany, somein the form of joint ventures with experienced local partners, which sell and service Audi, BMW, Lexus, MINI,Toyota, Volkswagen and other premium brands.

Strengthen Customer Loyalty

Our ability to generate and maintain repeat and referral business depends on our ability to deliver superiorcustomer service. We believe that customer loyalty contributes directly to increases in same-store sales. By offeringoutstanding brands in premium facilities, “one-stop” shopping convenience, competitive pricing and a well-trainedand knowledgeable sales staff, we aim to establish lasting relationships with our customers, enhance our reputationin the community, and create the opportunity for significant repeat and referral business. We believe our low andsteadily decreasing employee turnover has been critical to furthering our customer relationships. Additionally, wemonitor customer satisfaction data accumulated by manufacturers to track the performance of dealership operationsand use it as a factor in determining the compensation of general managers and sales and service personnel in ourdealerships.

Maintain Diversified Revenue Stream and Variable Cost Structure

We believe that our diversified revenue mix may mitigate the historical cyclicality found in some elements ofthe automotive sector, and that demand for our higher-margin service and parts business is less affected byeconomic cycles than demand for new vehicles. We are further diversified due to our brand mix and thegeographical dispersion of our dealership operations. In addition, a significant percentage of our operatingexpenses are variable, including sales compensation, floor plan interest expense (inventory-secured financing)and advertising, which we believe we can adjust over time to reflect economic trends.

Leverage Scale and Implement “Best Practices”

We seek to build scale in many of the markets where we have dealership operations. Our desire is to reduce oreliminate redundant operating costs such as accounting, information technology systems and general administrativecosts. In addition, we seek to leverage our industry knowledge and experience to foster communication andcooperation between like brand dealerships throughout our organization. Senior management and dealershipmanagement meet regularly to review the operating performance of our dealerships, examine industry trends and,where appropriate, implement specific operating improvements. Key financial information is discussed andcompared to other dealerships across all markets. This frequent interaction facilitates implementation of successfulstrategies throughout the organization so that each of our dealerships can benefit from the successes of our otherdealerships and the knowledge and experience of our senior management.

4

smart Distributorship

smart USA Distributor, LLC, a wholly owned subsidiary, is the exclusive distributor of the smart fortwovehicle in U.S. and Puerto Rico. The smart fortwo is manufactured by Mercedes-Benz Cars and is a Daimler brand.This technologically advanced vehicle achieves 40-plus miles per gallon on the highway and is an ultra-lowemissions vehicle as certified by the State of California Air Resources Board. Though launched in the U.S. in 2008,more than 850,000 fortwo vehicles have previously been sold outside the U.S. As distributor, smart USA isresponsible for developing and maintaining a smart vehicle dealership network throughout the U.S. and PuertoRico.

smart USA has certified a network of 68 smart dealerships in 31 states, most of which have received therequisite licensing and other required approvals and are actively selling vehicles. Additional dealerships areexpected to commence retailing vehicles during 2008 upon completion of their facilities and obtaining licensingapproval. Of the 74 dealerships currently planned in the U.S., eight are owned and operated by us (see below“Acquisitions” for a listing of those dealerships). The smart fortwo offers three different versions, the Pure, Passionand Cabriolet with base prices ranging from $11,600 to $16,600. We currently expect to distribute at least 20,000smart fortwo vehicles in 2008.

Industry Overview

The automotive retail industry is among the largest retail trade sectors in each of the markets in which weoperate. In the U.S., the majority of automotive retail sales are generated by approximately 21,800 U.S. franchiseddealerships, producing revenues of approximately $675 billion. Of these $675 billion in U.S. franchised dealerrevenues, new vehicle sales represent approximately 59%, used vehicle sales represent approximately 29% andservice and parts sales represent 12%. Dealerships also offer a wide range of higher-margin products and services,including extended service contracts, financing arrangements and credit insurance. The National AutomobileDealers Association figures noted above include finance and insurance revenues within either new or used vehiclesales as sales of these products are usually incremental with the sale of a vehicle.

Germany and the U.K. represented the first and third largest European automotive retail markets in 2007, withnew car registrations of 3.1 million and 2.4 million vehicles, respectively. In 2006, U.K. and German automotivesales exceeded $260 billion and $330 billion, respectively. Combined, the UK and German markets make upapproximately 35% of the European market, based on new vehicle sales.

The automotive retail industry is highly fragmented and largely privately held in the U.S and Europe, with theU.S. publicly held automotive retail groups accounting for less than 10% of total industry revenue. According toindustry data, the number of U.S. franchised dealerships has declined from approximately 24,000 in 1990 toapproximately 21,800 as of January 1, 2007. Although significant consolidation has already taken place, theindustry remains highly fragmented, with more than 90% of the U.S. industry’s market share remaining in the handsof smaller regional and independent players. We believe that further consolidation in the industry is probable due tothe significant capital requirements of maintaining manufacturer facility standards and the limited number of viablealternative exit strategies for dealership owners.

Generally, new vehicle unit sales are cyclical and, historically, fluctuations have been influenced by factorssuch as manufacturer incentives, interest rates, fuel prices, unemployment, inflation, weather, the level of personaldiscretionary spending, credit availability, consumer confidence and other general economic factors. However,from a profitability perspective, automotive retailers have historically been less vulnerable than automobilemanufacturers to declines in new vehicle sales. We believe this may be due to the retailers’ more flexible expensestructure (a significant portion of the automotive retail industry’s costs are variable, relating to sales personnel,advertising and inventory finance cost) and diversified revenue stream. In addition, automobile manufacturers mayincrease dealer incentives when sales are slow, which further increases the volatility in profitability for automobilemanufacturers and may help to decrease volatility for automotive retailers.

5

Acquisitions

We have completed a number of dealership acquisitions since January 2005. Our financial statements includethe results of operations of acquired dealerships from the date of acquisition. The following table sets forthinformation with respect to our current dealerships acquired or opened since January 2005:

DealershipDate Openedor Acquired Location Franchises

U.S.Honda Mall of Georgia . . . . . . . . . . . . . . . 1/05 Buford, GA HondaJaguar of Tulsa . . . . . . . . . . . . . . . . . . . . . 1/05 Tulsa, OK JaguarUnited Ford North . . . . . . . . . . . . . . . . . . . 1/05 Tulsa, OK FordUnited Ford South . . . . . . . . . . . . . . . . . . . 1/05 Tulsa, OK FordHUMMER of Turnersville . . . . . . . . . . . . . 5/05 Turnersville, NJ HUMMERInskip Nissan . . . . . . . . . . . . . . . . . . . . . . 7/05 Warwick, RI NissanStevens Creek Porsche Audi . . . . . . . . . . . 10/05 San Jose, CA Audi PorscheAcura of Escondido . . . . . . . . . . . . . . . . . . 1/06 Escondido, CA AcuraAston Martin San Diego . . . . . . . . . . . . . . 1/06 San Diego, CA Aston MartinAudi of Escondido . . . . . . . . . . . . . . . . . . 1/06 Escondido, CA AudiHonda Mission Valley . . . . . . . . . . . . . . . . 1/06 San Diego, CA HondaHonda of Escondido . . . . . . . . . . . . . . . . . 1/06 Escondido, CA HondaJaguar Kearny Mesa . . . . . . . . . . . . . . . . . 1/06 San Diego, CA JaguarKearny Mesa Acura . . . . . . . . . . . . . . . . . . 1/06 San Diego, CA AcuraMazda of Escondido . . . . . . . . . . . . . . . . . 1/06 Escondido, CA MazdaUnited HUMMER of Tulsa . . . . . . . . . . . . 1/06 Tulsa, OK HUMMERMotorwerks BMW/MINI . . . . . . . . . . . . . . 5/06 Minneapolis, MN BMW/MINIWest Palm Subaru . . . . . . . . . . . . . . . . . . . 7/06 West Palm Beach, FL SubaruTriangle Nissan del Oeste . . . . . . . . . . . . . 7/06 Puerto Rico NissanCadillac of Turnersville . . . . . . . . . . . . . . . 11/06 Turnersville, NJ CadillacLanders Ford Lincoln Mercury. . . . . . . . . . 1/07 Benton, Arkansas Ford, Lincoln,

MercuryLexus of Edison . . . . . . . . . . . . . . . . . . . . 3/07 Edison, NJ LexusRound Rock Toyota-Scion . . . . . . . . . . . . . 4/07 Round Rock, TX Toyota, ScionRound Rock Hyundai . . . . . . . . . . . . . . . . 4/07 Round Rock, TX HyundaiRound Rock Honda . . . . . . . . . . . . . . . . . . 4/07 Round Rock, TX HondaInskip MINI . . . . . . . . . . . . . . . . . . . . . . . 5/07 Warwick, RI MINIRoyal Palm Toyota-Scion . . . . . . . . . . . . . 1/08 Royal Palm, FL Toyota, Scionsmart center Bedford . . . . . . . . . . . . . . . . . 1/08 Bedford, OH smartsmart center Bloomfield . . . . . . . . . . . . . . 1/08 Bloomfield Hills, MI smartsmart center Chandler . . . . . . . . . . . . . . . . 1/08 Chandler, AZ smartsmart center Fairfield. . . . . . . . . . . . . . . . . 1/08 Fairfield, CT smartsmart center Round Rock . . . . . . . . . . . . . 1/08 Round Rock, TX smartsmart center San Diego . . . . . . . . . . . . . . . 1/08 San Diego, CA smartsmart center Tysons Corner . . . . . . . . . . . . 1/08 Vienna, VA smartsmart center Warwick . . . . . . . . . . . . . . . . 1/08 Warwick, RI smart

Outside the U.S.Kings Swindon . . . . . . . . . . . . . . . . . . . . . 4/05 Swindon, England Chrysler, Jeep, DodgeLexus of Milton Keynes . . . . . . . . . . . . . . 11/05 Milton Keynes, England LexusBMW/ Mini Sunningdale . . . . . . . . . . . . . . 1/06 Berkshire, England BMW, MINIGuy Salmon Jaguar Ascot . . . . . . . . . . . . . 1/06 Berks, England JaguarGuy Salmon Jaguar Gatwick . . . . . . . . . . . 1/06 West Sussex, England Jaguar

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DealershipDate Openedor Acquired Location Franchises

Guy Salmon Jaguar Maidstone. . . . . . . . . . 1/06 Kent, England JaguarGuy Salmon Land Rover Ascot . . . . . . . . . 1/06 Berks, England Land RoverGuy Salmon Land Rover Gatwick . . . . . . . 1/06 West Sussex, England Land RoverGuy Salmon Land Rover Maidstone. . . . . . 1/06 Kent, England Land RoverGuy Salmon Land Rover Portsmouth . . . . . 1/06 Portsmouth, England Land RoverHonda Redhill . . . . . . . . . . . . . . . . . . . . . . 1/06 Surrey, England HondaKings Bristol Chrysler Jeep Dodge . . . . . . 1/06 Bristol, England Chrysler, Jeep, DodgeRolls Royce Sunningdale . . . . . . . . . . . . . . 1/06 Berkshire, England Rolls RoyceSytner Coventry . . . . . . . . . . . . . . . . . . . . 1/06 West Midlands, England BMW, MINILamborghini Birmingham . . . . . . . . . . . . . 6/06 Birmingham, England LamborghiniLamborghini Edinburgh . . . . . . . . . . . . . . . 6/06 Edinburgh, Scotland LamborghiniKings Chrysler Jeep Dodge Newcastle . . . . 8/06 Cleveland, England Chrysler, Jeep, DodgeKings Chrysler Jeep Dodge Stockton . . . . . 8/06 Stockton-on-Tees, England Chrysler, Jeep, DodgeMercedes-Benz of Carlisle . . . . . . . . . . . . . 8/06 Cumbria, England Mercedes-BenzMercedes-Benz of Newcastle . . . . . . . . . . . 8/06 Cleveland, England Mercedes-BenzMercedes-Benz of Stockton . . . . . . . . . . . . 8/06 Stockton-on-Tees, England Mercedes-BenzMercedes-Benz of Sunderland . . . . . . . . . . 8/06 Sunderland, England Mercedes-BenzSytner BMW/MINI Cardiff . . . . . . . . . . . . 8/06 South Glamorgan, Wales BMW/MINISytner BMW/MINI Central . . . . . . . . . . . . 8/06 West Midlands, England BMW/MINISytner BMW/MINI Newport . . . . . . . . . . . 8/06 Newport, South Wales BMW/MINISytner BMW/MINI Sutton. . . . . . . . . . . . . 8/06 West Midlands, England BMW/MINISytner BMW/MINI Warley . . . . . . . . . . . . 8/06 West Midlands, England BMW/MINIAudi Leicester . . . . . . . . . . . . . . . . . . . . . . 6/07 Leicester, England AudiAudi Nottingham. . . . . . . . . . . . . . . . . . . . 6/07 Nottingham, England AudiToyota Solihull . . . . . . . . . . . . . . . . . . . . . 9/07 West Midlands, England ToyotaMaranello Ferrari/Maserati. . . . . . . . . . . . . 10/07 Surrey, England Ferrari, Maserati

In 2006 and 2007, we disposed of 23 and 21 dealerships, respectively, that we believe were not integral to ourstrategy or operations. We expect to continue to pursue acquisitions, selected dispositions and related transactions inthe future.

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Dealership Operations

Franchises. The following charts reflect our franchises by location and our dealership mix by franchise as ofFebruary 1, 2008:

Location Franchises Franchises U.S. Non-U.S. Total

Arizona . . . . . . . . . . . . . . . . . . . . . . 21 Toyota/Lexus . . . . . . . . . . . . 38 14 52

Arkansas. . . . . . . . . . . . . . . . . . . . . . 14 BMW/MINI. . . . . . . . . . . . . 11 30 41

California . . . . . . . . . . . . . . . . . . . . . 26 Ford/PAG . . . . . . . . . . . . . . 18 22 40

Connecticut . . . . . . . . . . . . . . . . . . . 5 Daimler . . . . . . . . . . . . . . . . 15 21 36

Florida . . . . . . . . . . . . . . . . . . . . . . . 9 Honda/Acura . . . . . . . . . . . . 27 1 28

Georgia . . . . . . . . . . . . . . . . . . . . . . 4 Chrysler . . . . . . . . . . . . . . . . 9 18 27

Indiana . . . . . . . . . . . . . . . . . . . . . . . 2 Audi . . . . . . . . . . . . . . . . . . 7 10 17

Michigan . . . . . . . . . . . . . . . . . . . . . 7 General Motors . . . . . . . . . . 16 — 16

Minnesota . . . . . . . . . . . . . . . . . . . . . 2 Porsche . . . . . . . . . . . . . . . . 5 4 9

Nevada . . . . . . . . . . . . . . . . . . . . . . . 2 Nissan/Infiniti . . . . . . . . . . . 7 — 7New Jersey . . . . . . . . . . . . . . . . . . . . 19 Others . . . . . . . . . . . . . . . . . 17 25 42

New York . . . . . . . . . . . . . . . . . . . . . 4 Total . . . . . . . . . . . . . . . . 170 145 315

Ohio . . . . . . . . . . . . . . . . . . . . . . . . . 6

Oklahoma . . . . . . . . . . . . . . . . . . . . . 7

Puerto Rico. . . . . . . . . . . . . . . . . . . . 15Rhode Island. . . . . . . . . . . . . . . . . . . 12

Tennessee . . . . . . . . . . . . . . . . . . . . . 2

Texas . . . . . . . . . . . . . . . . . . . . . . . . 8

Virginia . . . . . . . . . . . . . . . . . . . . . . 5

Total United States . . . . . . . . . . . . 170

United Kingdom . . . . . . . . . . . . . . . . 135

Germany . . . . . . . . . . . . . . . . . . . . . . 10

Total Foreign. . . . . . . . . . . . . . . . . 145

Total Worldwide . . . . . . . . . . . . . . 315

Management. Each dealership or group of dealerships has independent operational and financial manage-ment responsible for day-to-day operations. We believe experienced local managers are better qualified to makeday-to-day decisions concerning the successful operation of a dealership and can be more responsive to ourcustomers’ needs. We seek local dealership management that not only has experience in the automotive industry,but also is familiar with the local dealership’s market. We also have regional management that oversees operationsat the individual dealerships and supports the dealerships operationally and administratively.

New Vehicle Retail Sales. In 2007, we sold 195,160 new vehicles which generated 59.1% of our retailrevenue and 30.7% of our retail gross profit. We sell over forty brands of domestic and import family, sports andpremium cars, light trucks and sport utility vehicles through 315 franchises in 18 U.S. states, Puerto Rico, the U.K.and Germany. As of February 1, 2008, we sold the following brands: Acura, Alpina, Aston Martin, Audi, BMW,Buick, Cadillac, Chevrolet, Chrysler, Dodge, Ferrari, Ford, GMC Truck, Honda, HUMMER, Hyundai, Infiniti,Jaguar, Jeep, Lamborghini, Land Rover, Lexus, Lincoln-Mercury, Lotus, Mazda, Maserati, Mercedes-Benz, MINI,Nissan, Pontiac, Porsche, Rolls Royce, Bentley, SAAB, Scion, smart, Subaru, Suzuki, Toyota, Volvo andVolkswagen.

New vehicles are typically acquired by dealerships directly from the manufacturer. We strive to maintainoutstanding relations with the automotive manufacturers, based in part on our long-term presence in the automotiveretail market, our commitment to providing premium facilities, the reputation of our management team and the

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consistent high sales volume from our dealerships. Our dealerships finance the purchase of new vehicles from themanufacturers through floor plan financing provided by various manufacturers’ captive finance companies.

Used Vehicle Retail Sales. In 2007, we sold 102,214 used vehicles, which generated 26.5% of our retailrevenue and 13.1% of our retail gross profit. We acquire used vehicles from various sources including, auctionsopen only to authorized new vehicle dealers, public auctions, trade-ins in connection with new purchases and leaseexpirations or terminations. Leased vehicles returned at the end of the lease provide us with low mileage, late modelvehicles for our used vehicle sales operations. We clean, repair and recondition all used vehicles we acquire forresale. We believe we may benefit from the opportunity to retain used vehicle retail customers as service and partscustomers. In addition, we offer for sale third-party extended service contracts on all of our used vehicles.

To improve customer confidence in our used vehicle inventory, each of our dealerships participates in allavailable manufacturer certification processes for used vehicles. If certification is obtained, the used vehicle owneris typically provided benefits and warranties similar to those offered to new vehicle owners by the applicablemanufacturer. We believe growth opportunities relating to used vehicle sales exist in part because of the availabilityof high-quality, low-mileage, late model used vehicles, along with the proliferation of manufacturer certificationprocesses for these vehicles.

We have also recently implemented additional initiatives designed to enhance our used vehicles sales. Severalof our dealerships are piloting the use of software which assists in the procurement and sales process relating to usedvehicles.

Through our scale in many markets, we have implemented closed-bid auctions that allow us to bring a largenumber of vehicles we do not intend to retail to a central market for other dealers or wholesalers to purchase. In theU.K., we also offer used vehicles for sale via an online auction. We believe these strategies have resulted in greateroperating efficiency and helped to reduce costs associated with maintaining optimal inventories.

Vehicle Finance, Extended Service and Insurance Sales. Finance and insurance sales represented 2.4% ofour retail revenue and 15.1% of our retail gross profit in 2007. At our customers’ option, our dealerships can arrangethird-party financing or leasing for our customers’ vehicle purchases. As compensation we typically receive aportion of the cost of financing or leasing paid by the customer for each transaction. While these services aregenerally non-recourse to us, we are subject to chargebacks in certain circumstances such as default under afinancing arrangement or prepayment. These chargebacks vary by finance product but typically are limited to thefee income we receive absent a breach of our agreement with the third party finance or leasing company. We providetraining to our finance and insurance personnel to help assure compliance with internal policies and procedures, aswell as applicable state regulations. We also impose limits on the amount of revenue per transaction we may receivefrom certain finance products as part of our compliance efforts.

We offer our customers various vehicle warranty and extended protection products, including extended servicecontracts, maintenance programs, guaranteed auto protection (known as “GAP,” this protection covers the shortfallbetween a customer’s loan balance and insurance payoff in the event of a casualty), lease “wear and tear” insuranceand theft protection products at competitive prices. The extended service contracts and other products that ourdealerships currently offer to customers are underwritten by independent third parties, including the vehiclemanufacturers’ captive finance subsidiaries. We also are subject to chargebacks in connection with the sale ofcertain of these products. We also offer for sale other aftermarket products, such as Sirius Satellite Radio, cellularphones, security systems and protective coatings.

Service and Parts Sales. Service and parts sales represented 11.9% of our retail revenue and 41.1% of ourretail gross profit in 2007. We generate service and parts sales for warranty and non-warranty work performed ateach of our dealerships. Our service and parts revenues have increased each year, we believe in large part due to ourincreased service capacity, coupled with the increasingly complex technology used in vehicles which makes itdifficult for independent repair facilities to maintain and repair today’s automobiles. As part of our agreements withour manufacturers, we obtain all the necessary equipment required by the manufacturer to service and maintaineach make of vehicle sold at each of our dealerships.

A goal of each of our dealerships is to make each vehicle purchaser a customer of our service and partsdepartment. Our dealerships keep detailed records of our customers’ maintenance and service histories, and many

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dealerships send reminders to customers when vehicles are due for periodic maintenance or service. Many of ourdealerships have extended evening and weekend service hours for the convenience for our customers. We alsooperate 27 collision repair centers, each of which is operated as an integral part of our dealership operations.

Internet Presence. The majority of our customers will consult the Internet for new and pre-owned auto-motive information. In order to attract customers and enhance our customer service, each of our dealershipsmaintain their own website. Our corporate website, www.penskeautomotive.com, provides a link to each of ourdealership websites allowing consumers to source information and communicate directly with our dealershipslocally.

In the U.S., all of our dealership websites are presented in common formats (except where otherwise requiredby manufacturers) which helps to minimize costs and provide a consistent image across dealerships. In addition,many automotive manufacturers’ websites provide links to our dealership websites.

Using our dealership websites, consumers can review our inventory for vehicles that meet their model andfeature requirements and price range. Our websites provide detailed information for the purchase process, includingphotos, prices, promotions, specifications, reviews, tools to schedule service appointments and financial appli-cations. We believe these features make it easier for consumers to meet all of their automotive research needs.Customers can contact dedicated Internet sales consultants on line via www.penskeautomotive.com or thedealership websites.

Non-U.S Operations. Sytner Group, our U.K. subsidiary, is one of the leading retailers of premium vehiclesin the U.K. As of February 1, 2008, Sytner operated 135 franchises, including: Alpina, Audi, Bentley, BMW,Chrysler, Dodge, Ferrari, Honda, Jaguar, Jeep, Lamborghini, Land Rover, Lexus, Maserati, Mercedes-Benz, MINI,Porsche, Rolls Royce, Saab, smart, Toyota, and Volvo. Revenues attributable to Sytner Group for the years endedDecember 31, 2007, 2006 and 2005 were $4.7 billion, $3.4 billion and $2.7 billion, respectively.

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The following is a list of all of our dealerships as of February 1, 2008:

U.S. DEALERSHIPS

ARIZONAAcura North ScottsdaleAudi of ChandlerAudi North ScottsdaleBMW North ScottsdaleJaguar North ScottsdaleJaguar ScottsdaleLand Rover North ScottsdaleLand Rover ScottsdaleLexus of ChandlerMercedes-Benz of ChandlerMINI North ScottsdalePorsche North ScottsdaleRolls-Royce ScottsdaleScottsdale Aston MartinScottsdale BentleyScottsdale Ferrari MaseratiScottsdale Lexussmart center ChandlerTempe HondaVolkswagen North ScottsdaleVolvo North Scottsdale

ARKANSASAcura of FayettevilleChevrolet/HUMMER of FayettevilleHonda of FayettevilleLanders Chevrolet HUMMERLanders Chrysler Jeep DodgeLanders Ford Lincoln MercuryToyota-Scion of Fayetteville

CALIFORNIAAcura of EscondidoAston Martin of San DiegoAudi EscondidoAudi Stevens CreekBMW of San DiegoCapitol HondaCerritos Buick Pontiac HUMMERGMCHonda Mission ValleyHonda NorthHonda of EscondidoJaguar Kearny MesaKearny Mesa AcuraKearny Mesa Toyota-ScionLexus Kearny MesaLos Gatos AcuraMarin HondaMazda of EscondidoMercedes-Benz of San DiegoPenske Cadillac HUMMER South BayPorsche of Stevens Creeksmart center San Diego

CONNECTICUTAudi of FairfieldHonda of DanburyMercedes-Benz of FairfieldPorsche of Fairfieldsmart center Fairfield

FLORIDACentral Florida Toyota-ScionPalm Beach MazdaPalm Beach SubaruPalm Beach Toyota-ScionRoyal Palm Toyota-ScionWest Palm Nissan

GEORGIAAtlanta Toyota-ScionHonda Mall of GeorgiaUnited BMW of GwinnettUnited BMW of Roswell

INDIANAPenske ChevroletPenske Honda

MICHIGANHonda BloomfieldRinke CadillacRinke Toyota-Scionsmart center BloomfieldToyota-Scion of Waterford

MINNESOTAMotorwerks BMW/MINI

NEW JERSEYAcura of TurnersvilleBMW of TurnersvilleChevrolet HUMMER Cadillac ofTurnersvilleDiFeo BMWLexus of EdisonFerrari Maserati of Central New JerseyGateway Toyota-ScionHonda of TurnersvilleHudson NissanHudson Toyota-ScionHyundai of TurnersvilleLexus of BridgewaterNissan of TurnersvilleToyota-Scion of Turnersville

NEW YORKHonda of NanuetMercedes-Benz of NanuetWestbury Toyota-Scion

NEVADAPenske Wynn Ferrari Maserati

OHIOHonda of MentorInfiniti of BedfordMercedes-Benz of Bedfordsmart center BedfordToyota-Scion of Bedford

OKLAHOMAJaguar of TulsaLincoln Mercury of TulsaUnited Ford NorthUnited Ford SouthUnited HUMMER of TulsaVolvo of Tulsa

RHODE ISLANDInskip AcuraInskip AudiInskip Autocenter (Mercedes-Benz)Inskip Bentley ProvidenceInskip BMWInskip InfinitiInskip LexusInskip MINIInskip NissanInskip PorscheInskip Volvosmart center Warwick

TENNESSEEWolfchase Toyota-Scion

TEXASBMW of AustinGoodson Honda NorthGoodson Honda WestRound Rock HondaRound Rock HyundaiRound Rock Toyota-Scionsmart center Round Rock

VIRGINIAAston Martin of Tysons CornerAudi of Tysons CornerMercedes-Benz of Tysons CornerPorsche of Tysons Cornersmart center Tysons Corner

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NON-U.S. DEALERSHIPS

UNITED KINGDOM

AudiAudi LeicesterAudi NottinghamBradford AudiGuildford AudiHarrogate AudiLeeds AudiMayfair AudiReading AudiSlough AudiVictoria Audi (After Sales)Wakefield AudiWest London Audi

BentleyBentley BirminghamBentley EdinburghBentley Manchester

BMW/MINISytner BMW/MINI CardiffSytner BMW/MINI CentralSytner BMW/MINI NewportSytner BMW/MINI SuttonSytner BMW/MINI WarleySytner Canary WharfSytner ChigwellSytner CoventrySytner Harold WoodSytner High WycombeSytner LeicesterSytner Nottingham (w/Alpina)Sytner SheffieldSytner SolihullSytner Sunningdale

Chrysler/Jeep/Dodge

Kings BristolKings Cheltenham & GloucesterKings ManchesterKings NewcastleKings SwindonKings Teesside

Ferrari/Maserati

Graypaul EdinburghGraypaul NottinghamMaranello Ferrari/Maserati

HondaRedhill Honda

Jaguar/Land RoverGuy Salmon Jaguar CoventryGuy Salmon Jaguar/Land RoverGatwickGuy Salmon Jaguar/Land RoverMaidstoneGuy Salmon Jaguar NorthamptonGuy Salmon Jaguar OxfordGuy Salmon Jaguar/Land RoverStratford- upon-AvonGuy Salmon Jaguar/Land RoverThames DittonGuy Salmon Land Rover CoventryGuy Salmon Land Rover KnutsfordGuy Salmon Land Rover LeedsGuy Salmon Land Rover PortsmouthGuy Salmon Land Rover SheffieldGuy Salmon Land Rover StockportGuy Salmon Land Rover Stratford-upon-AvonGuy Salmon Land Rover Wakefield

LamborghiniLamborghini BirminghamLamborghini Edinburgh

LexusLexus BirminghamLexus BristolLexus CardiffLexus LeicesterLexus Milton KeynesLexus Oxford

Mercedes-Benz/smartMercedes-Benz/smart of TeessideMercedes-Benz/smart of New CastleMercedes-Benz of BathMercedes-Benz of BedfordMercedes-Benz of CarlisleMercedes-Benz of Cheltenham andGloucesterMercedes-Benz of Cribbs CausewayMercedes-Benz of KetteringMercedes-Benz/smart of MiltonKeynesMercedes-Benz of NewburyMercedes-Benz of NorthamptonMercedes-Benz of Sunderland

Mercedes-Benz/smart of SwindonMercedes-Benz of Weston-Super-MareMercedes-Benz/smart of BristolMercedes-Benz/smart of Swindonsmart North East Stocktonsmart of Milton Keynes

PorschePorsche Centre EdinburghPorsche Centre GlasgowPorsche Centre Mid-SussexPorsche Centre Silverstone

Rolls-RovceRolls-Royce Motor Cars SunningdaleSytner Rolls-Royce Motor Cars

SaabOxford Saab

ToyotaToyota World BirminghamToyota World (Bridgend)Toyota World (Bristol North)Toyota World (Bristol South)Toyota World (Cardiff)Toyota World (Newport)Toyota World (Solihull)Toyota World (Tamworth)

VolvoTollbar CoventryTollbar TwickenhamTollbar Warwick

GERMANYTamsen, Bremen (Aston Martin,Bentley, Ferrari,Maserati, Rolls-Royce)Tamsen, Hamburg (Aston Martin,Ferrari, Lamborghini, Maserati, Rolls-Royce)

PUERTO RICOLexus de San JuanTriangle Chrysler, Dodge, Jeep, Hondadel OesteTriangle Chrysler, Dodge, Jeep dePonceTriangle Honda 65 de InfanteriaTriangle Honda-Suzuki de PonceTriangle Mazda de PonceTriangle Nissan del OesteTriangle Toyota-Scion de San Juan

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We also own approximately 50% of the following dealerships:

GERMANYAix Automobile (Toyota, Lexus)Audi Zentrum AachenAutohaus Augsburg (BMW(4)/MINI)Autohaus Krings (Volkswagen)Autohaus Nix (Frankfurt) (Toyota, Lexus)Autohaus Nix (Offenbach) (Toyota, Lexus)Autohaus Nix (Wachtersbach) (Toyota, Lexus)Autohaus Piper (Volkswagen)Autohaus Reisacher (Krumbach) (BMW)Autohaus Reisacher (Memmingen) (BMW, MINI)Autohaus Reisacher (Ulm) (BMW, MINI)Autohaus Reisacher (Vohringen) (BMW)J-S Auto Park Stolberg (Volkswagen)Lexus Forum FrankfortTCD (Toyota)Volkswagen Zentrum AachenWolff & Meir (Volkswagen)

MEXICOToyota de AguascalientesToyota de LindavistaToyota de Monterrey

Management Information Systems

We consolidate financial, accounting and operational data received from our U.S. dealers through a privatecommunications network. Dealership data is gathered and processed through individual dealer systems utilizing acommon dealer management system. Each dealership is allowed to tailor the operational capabilities of that systemlocally, but we require that they follow our standardized accounting procedures. Our U.S. network allows us toextract and aggregate information from the system in a consistent format to generate consolidating financial andoperational data. The system also allows us to access detailed information for each dealership individually, as agroup, or on a consolidated basis. Information we can access includes, among other things, inventory, cash, unitsales, the mix of new and used vehicle sales and sales of aftermarket products and services. Our ability to access thisdata allows us to continually analyze these dealerships’ operating results and financial position so as to identifyareas for improvement. Our technology also enables us to quickly integrate dealerships or dealership groups weacquire in the U.S.

Our foreign dealership financial, accounting and operational data is processed through dealer managementsystems provided by a number of local software providers. Financial and operational information is aggregatedfollowing U.S. policies and accounting requirements, and is reported in our U.S. reporting format to ensureconsistency of results among our worldwide operations. Similar to the U.S., the U.K. technology enables us toquickly integrate dealerships or dealership groups we acquire in the U.K.

Marketing

We believe that our marketing programs have contributed to our sales growth. Our advertising and marketingefforts are focused at the local market level, with the aim of building our retail vehicle business, as well as repeatsales and service business. We utilize many different media for our marketing activities, including newspapers,direct mail, magazines, television, radio and the Internet. We also assist our local management in running specialmarketing events to generate sales. Automobile manufacturers supplement our local and regional advertising effortsby producing large advertising campaigns to support their brands, promote attractive financing packages and drawtraffic to local area dealerships. We believe that in some instances our scale has enabled us to obtain favorable termsfrom suppliers and advertising media, and should enable us to realize continued cost savings in marketing. In aneffort to realize increased efficiencies, we are focusing on common marketing metrics and business practices acrossour dealerships, as well as negotiating enterprise arrangements for targeted marketing resources.

Agreements with Vehicle Manufacturers

Each of our dealerships operates under separate franchise agreements with the manufacturers of each brand ofvehicle sold at that dealership. These agreements contain provisions and standards governing almost every aspect of

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the dealership, including ownership, management, personnel, training, maintenance of minimum working capitaland in some cases net worth, maintenance of minimum lines of credit, advertising and marketing, facilities, signs,products and services, acquisitions of other dealerships (including restrictions on how many dealerships can beacquired or operated in any given market), maintenance of minimum amounts of insurance, achievement ofminimum customer service standards and monthly financial reporting. Typically, the dealership principal and/or theowner of a dealership may not be changed without the manufacturer’s consent.

In exchange for complying with these provisions and standards, we are granted the non-exclusive right to sellthe manufacturer’s brand of vehicles and related parts and services at our dealerships. The agreements also grant usa non-exclusive license to use each manufacturer’s trademarks, service marks and designs in connection with oursales and service of its brands at our dealerships.

Many agreements grant the manufacturer a security interest in the vehicles and/or parts sold by themanufacturer to the dealership as well as other dealership assets. Some of our franchise agreements expire aftera specified period of time, ranging from one to five years. The agreements also permit the manufacturer to terminateor not renew the agreement for a variety of causes, including failure to adequately operate the dealership, insolvencyor bankruptcy, impairment of the dealer’s reputation or financial standing, changes in the dealership’s management,owners or location without consent, sales of the dealership’s assets without consent, failure to maintain adequateworking capital or floor plan financing, changes in the dealership’s financial or other condition, failure to submitrequired information to the manufacturer on a timely basis, failure to have any permit or license necessary to operatethe dealership, and material breaches of other provisions of the agreement. In the U.S., these termination rights aresubject to applicable state franchise laws that limit a manufacturer’s right to terminate a franchise. In the U.K., weoperate without such local franchise law protection (see below “Regulation”) and we are aware of efforts by certainmanufacturers not to renew their franchise agreements with certain other retailers in the U.K.

Our agreements with manufacturers usually give the manufacturers the right, in some circumstances(including upon a merger, sale, or change of control of the company, or in some cases a material change inour business or capital structure), to acquire from us, at fair market value, the dealerships that sell the manufac-turers’ brands. For example, our agreement with General Motors Corporation provides that, upon a proposed sale of20% or more of our voting stock to any other person or entity (other than for passive investment) or anothermanufacturer, an extraordinary corporate transaction (such as a merger, reorganization or sale of a material amountof assets) or a change of control of our board of directors, General Motors has the right to acquire at fair marketvalue, all assets, properties and business of any General Motors dealership owned by us. In addition, General Motorshas a right of first refusal if we propose to sell any of our General Motors dealerships to a third party. Some of ouragreements with other major manufacturers contain provisions similar to the General Motors provisions. Some ofthe agreements also prohibit us from pledging, or impose significant limitations on our ability to pledge, the capitalstock of some of our subsidiaries to lenders.

Competition

For new vehicle sales, we compete primarily with other franchised dealers in each of our marketing areas. Wedo not have any cost advantage in purchasing new vehicles from manufacturers, and typically we rely on ourpremium facilities, advertising and merchandising, management experience, sales expertise, service reputation andthe location of our dealerships to sell new vehicles. Each of our markets may include a number of well-capitalizedcompetitors that also have extensive automobile dealership managerial experience and strong retail locations andfacilities. In addition, we compete against automotive manufacturers in some retail markets.

We compete with dealers that sell the same brands of new vehicles that we sell and with dealers that sell otherbrands of new vehicles that we do not represent in a particular market. Our new vehicle dealership competitors havefranchise agreements with the various vehicle manufacturers and, as such, generally have access to new vehicles onthe same terms as us. In recent years, automotive dealers have also faced increased competition in the sale of newvehicles from on-line purchasing services and warehouse clubs. Due to lower overhead and sales costs, thesecompanies may be willing to offer products at lower prices than franchised dealers.

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For used vehicle sales, we compete with other franchised dealers, independent used vehicle dealers, auto-mobile rental agencies, on-line purchasing services, private parties and used vehicle “superstores” for theprocurement and resale of used vehicles.

We believe that the principal competitive factors in vehicle sales are the marketing campaigns conducted bymanufacturers, the ability of dealerships to offer a wide selection of the most popular vehicles, the location ofdealerships and the quality of customer experience. Other competitive factors include customer preference forparticular brands of automobiles, pricing (including manufacturer rebates and other special offers) and warranties.We believe that our dealerships are competitive in all of these areas.

We compete with other franchised dealers to perform warranty repairs and with other automotive dealers,franchised and non-franchised service center chains, and independent garages for non-warranty repair and routinemaintenance business. We compete with other automotive dealers, service stores and auto parts retailers in our partsoperations. We believe that the principal competitive factors in parts and service sales are price, the use of factory-approved replacement parts, facility location, the familiarity with a manufacturer’s brands and models and thequality of customer service. A number of regional or national chains offer selected parts and services at prices thatmay be lower than our prices.

According to various industry sources, the automotive retail industry in the U.S. is currently served byapproximately 21,800 franchised automotive dealerships, over 50,000 independent used vehicle dealerships andindividual consumers who sell used vehicles in private transactions. Several other companies have establishednational or regional automotive retail chains. Additionally, vehicle manufacturers have historically engaged in theretail sale and service of vehicles, either independently or in conjunction with their franchised dealerships, and maydo so on an expanded basis in the future, subject to various state laws that restrict or prohibit manufacturerownership of dealerships.

We believe that a growing number of consumers are utilizing the Internet, to differing degrees, in connectionwith the purchase of vehicles. Accordingly, we may face increased pressure from on-line automotive websites,including those developed by automobile manufacturers and other dealership groups. Consumers use the Internet tocompare prices for vehicles and related services, which may result in reduced margins for new vehicles, usedvehicles and related services.

Employees and Labor Relations

As of December 31, 2007, we employed approximately 15,800 people, approximately 500 of whom werecovered by collective bargaining agreements with labor unions. We consider our relations with our employees to besatisfactory. Our policy is to motivate our key managers through, among other things, variable compensationprograms tied principally to dealership profitability and our equity incentive compensation plans. Due to ourreliance on vehicle manufacturers, we may be adversely affected by labor strikes or work stoppages at themanufacturers’ facilities.

Regulation

We operate in a highly regulated industry. A number of regulations affect our business of marketing, selling,financing and servicing automobiles. We actively make efforts to assure compliance with these regulations. Underthe laws of the jurisdictions in which we currently operate or into which we may expand, we typically must obtain alicense in order to establish, operate or relocate a dealership or operate an automotive repair service, includingdealer, sales, finance and insurance-related licenses issued by relevant authorities. These laws also regulate ourconduct of business, including our advertising, operating, financing, employment and sales practices. Other lawsand regulations include franchise laws and regulations, extensive laws and regulations applicable to new and usedmotor vehicle dealers, as well as wage-hour, anti-discrimination and other employment practices laws.

Our operations may also be subject to consumer protection laws. These laws typically require a manufactureror dealer to replace a new vehicle or accept it for a full refund within a period of time after initial purchase if thevehicle does not conform to the manufacturer’s express warranties and the dealer or manufacturer, after a

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reasonable number of attempts, is unable to correct or repair the defect. Various laws also require various writtendisclosures to be provided on new vehicles, including mileage and pricing information.

Our financing activities with customers are subject to truth-in-lending, consumer leasing equal creditopportunity and similar regulations as well as motor vehicle finance laws, installment finance laws, insurancelaws, usury laws and other installment sales laws. Some jurisdictions regulate finance fees that may be paid as aresult of vehicle sales. In recent years, private plaintiffs and state attorneys general in the U.S. have increased theirscrutiny of advertising, sales, and finance and insurance activities in the sale and leasing of motor vehicles.

In the U.S., we also benefit from the protection of numerous state dealer laws that generally provide that amanufacturer may not terminate or refuse to renew a franchise agreement unless it has first provided the dealer withwritten notice setting forth good cause and stating the grounds for termination or non-renewal. Some state dealerlaws allow dealers to file protests or petitions or to attempt to comply with the manufacturer’s criteria within thenotice period to avoid the termination or non-renewal. Europe generally does not have these laws and, as a result,our European dealerships operate without these protections.

In 2003, the European Commission approved changes to its regulatory landscape by limiting automotivemanufacturers “block exemption” to certain anti-competitive rules in regards to establishing and maintaining aretail network. The principal changes were designed to allow existing manufacturer authorized retailers to relocateor add additional facilities throughout the European Union, offer multiple brands in the same facility, allow theoperation of service facilities independent of new car sales facilities and ease restrictions on transfers of dealershipsbetween existing franchisees within the European Union. We continue to monitor the actual effects of these rulechanges for our dealerships in European Union (including the U.K.).

Environmental Matters

We are subject to a wide range of environmental laws and regulations, including those governing dischargesinto the air and water, the operation and removal of aboveground and underground storage tanks, the use, handling,storage and disposal of hazardous substances and other materials and the investigation and remediation ofcontamination. As with automotive dealerships generally, and service, parts and body shop operations in particular,our business involves the generation, use, handling and contracting for recycling or disposal of hazardous or toxicsubstances or wastes, including environmentally sensitive materials such as motor oil, waste motor oil and filters,transmission fluid, antifreeze, refrigerant, waste paint and lacquer thinner, batteries, solvents, lubricants, degreasingagents, gasoline and diesel fuels. Similar to many of our competitors, we have incurred and will continue to incur,capital and operating expenditures and other costs in complying with such laws and regulations.

Our operations involving the management of hazardous and other environmentally sensitive materials aresubject to numerous requirements. Our business also involves the operation of storage tanks containing suchmaterials. Storage tanks are subject to periodic testing, containment, upgrading and removal under applicable law.Furthermore, investigation or remediation may be necessary in the event of leaks or other discharges from current orformer underground or aboveground storage tanks. In addition, water quality protection programs govern certaindischarges from some of our operations. Similarly, certain air emissions from our operations, such as auto bodypainting, may be subject to relevant laws. Various health and safety standards also apply to our operations.

We may also have liability in connection with materials that were sent to third-party recycling, treatment,and/or disposal facilities under the U.S. Comprehensive Environmental Response, Compensation and Liability Act,or CERCLA, and comparable statutes. These statutes impose liability for investigation and remediation ofcontamination without regard to fault or the legality of the conduct that contributed to the contamination.Responsible parties under these statutes may include the owner or operator of the site where the contaminationoccurred and companies that disposed or arranged for the disposal of the hazardous substances released at thesesites.

We believe that we do not have any material environmental liabilities and that compliance with environmentallaws and regulations will not, individually or in the aggregate, have a material adverse effect on our results ofoperations, financial condition or cash flows. However, soil and groundwater contamination is known to exist atcertain of our current or former properties. Further, environmental laws and regulations are complex and subject to

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change. In addition, in connection with our acquisitions, it is possible that we will assume or become subject to newor unforeseen environmental costs or liabilities, some of which may be material. Compliance with current,amended, new or more stringent laws or regulations, stricter interpretations of existing laws or the future discoveryof environmental conditions could require additional expenditures by us, and such expenditures could be material.

Insurance

Due to the nature of the automotive retail industry, automotive retail dealerships generally require significantlevels of insurance covering a broad variety of risks. The business is subject to substantial risk of property loss due tothe significant concentration of property values at dealership locations, including vehicles and parts. Other potentialliabilities arising out of our operations involve claims by employees, customers or third parties for personal injury orproperty damage and potential fines and penalties in connection with alleged violations of regulatory requirements.

We purchase insurance, including umbrella and excess insurance policies, subject to specified deductibles andsignificant loss retentions. The level of risk we retain may change in the future as insurance market conditions orother factors affecting the economics of purchasing insurance change. We are exposed to uninsured and under-insured losses, that could have a material adverse effect on our results of operations, financial condition or cashflows. In certain instances, we post letters of credit to support our loss retentions and deductibles. We and PenskeCorporation, which is our largest stockholder, have entered into a joint insurance agreement which provides that,with respect to our joint insurance policies (which includes our property policy), available coverage with respect to aloss shall be paid to each party as stipulated in the policies. In the event of losses by us and Penske Corporation thatexceed the limit of liability for any policy or policy period, the total policy proceeds will be allocated based on theratio of premiums paid. For information regarding our relationship with Penske Corporation, see Part II — Item 7 —“Management’s Discussion and Analysis of Financial Condition and Results of Operations-Related PartyTransactions.”

Seasonality

Our business is modestly seasonal overall. Our U.S. operations generally experience higher volumes of vehiclesales in the second and third quarters of each year due in part to consumer buying trends and the introduction of newvehicle models. Also, vehicle demand, and to a lesser extent demand for service and parts, is generally lower duringthe winter months than in other seasons, particularly in regions of the U.S. where dealerships may be subject tosevere winters. Our U.K. operations generally experience higher volumes of vehicle sales in the first and thirdquarters of each year, due primarily to vehicle registration practices in the U.K. In the U.K., vehicles sold afterMarch and September of each year reflect a later date of sale, decreasing their perceived residual value.

Available Information

For selected financial information concerning our U.S. and non-U.S. revenues and assets, see Note 16 to ourconsolidated financial statements included in Item 8 of this report. Our Internet website address is www.pen-skeautomotive.com. Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K,and amendments to those reports filed or furnished pursuant to section 13(a) or 15(d) of the Exchange Act, areavailable free of charge through our website under the tab “Investor Relations” as soon as reasonably practicableafter they are electronically filed with, or furnished to, the Securities and Exchange Commission. We also makeavailable on our website copies of materials regarding our corporate governance policies and practices, includingour Corporate Governance Guidelines; our Code of Business Ethics; and the charters relating to the committees ofour Board of Directors. You also may obtain a printed copy of the foregoing materials by sending a written requestto: Investor Relations, Penske Automotive Group, Inc., 2555 Telegraph Road, Bloomfield Hills, MI 48302. Theinformation on or linked to our website is not part of this document. We plan to disclose waivers, if any, for ourexecutive officers or directors from our code of conduct on our website, www.penskeautomotive.com.

We are incorporated in the state of Delaware and began dealership operations in October 1992. We submittedto the New York Stock Exchange its required annual CEO certification in 2007 without qualification and have filedall required certifications under section 302 of the Sarbanes-Oxley Act as exhibits to this annual report onForm 10-K relating to 2007.

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Item 1A. Risk Factors

Risks Relating to Automotive Manufacturers

Automotive manufacturers exercise significant control over our operations and we depend on them inorder to operate our business.

Each of our dealerships operates under franchise agreements with automotive manufacturers or relateddistributors. We are dependent on automotive manufacturers because, without a franchise agreement, we cannotoperate a new vehicle franchise or perform manufacturer authorized service.

Manufacturers exercise a great degree of control over the operations of our dealerships. For example,manufacturers can require our dealerships to meet specified standards of appearance, require individual dealershipsto meet specified financial criteria such as maintenance of minimum net working capital and, in some cases,minimum net worth, impose minimum customer service and satisfaction standards, set standards regarding themaintenance of vehicle and parts inventories, restrict the use of manufacturers’ names and trademarks and, in manycases, must consent to the replacement of the dealership principal.

Our franchise agreements may be terminated or not renewed by automotive manufacturers for a variety ofreasons, including unapproved changes of ownership or management and other material breaches of the franchiseagreements. We have, from time to time, not been compliant with various provisions of some of our franchiseagreements. Our operations in the U.K. operate without local franchise law protection (see above “Regulation”),and we are aware of efforts by certain manufacturers not to renew their franchise agreements with certain otherretailers in the U.K. Although we believe that we will be able to renew at expiration all of our existing franchiseagreements, if any of our significant existing franchise agreements or a large number of franchise agreements arenot renewed or the terms of any such renewal are materially unfavorable to us, our results of operations, financialcondition or cash flows could be materially adversely affected. In addition, actions taken by manufacturers toexploit their bargaining position in negotiating the terms of renewals of franchise agreements or otherwise couldalso materially adversely affect our results of operations, financial condition or cash flows.

While U.S. franchise laws give us limited protection in selling a manufacturer’s product within a givengeographic area, our franchise agreements do not give us the exclusive right to sell vehicles within a given area. In2003, the European Commission approved changes to its regulatory landscape by limiting automotive manufac-turers “block exemption” to certain anti-competitive rules in regards to establishing and maintaining a retailnetwork. The principal changes were designed to allow existing manufacturer authorized retailers to relocate or addadditional facilities throughout the European Union, offer multiple brands in the same facility, allow the operationof service facilities independent of new car sales facilities and ease restrictions on transfers of dealerships betweenexisting franchisees within the European Union. While we continue to monitor the actual effects of these rulechanges for our dealerships in European Union (including the U.K.), these rules could increase competition byfacilitating the opening of additional dealerships near our dealerships. If a significant number of new dealerships areopened near our existing dealerships, our results of operations, financial condition or cash flows could be materiallyaffected.

We depend on manufacturers to provide us with a desirable mix of popular new vehicles, which tends toproduce the highest profit margins. Manufacturers generally allocate their vehicles among dealerships based on thesales history of each dealership. Our inability to obtain sufficient quantities of the most popular models, whetherdue to sales declines at our dealerships or otherwise, could materially adversely affect our results of operations,financial condition or cash flows.

Our volumes and profitability may be adversely affected if automotive manufacturers reduce or discon-tinue their incentive programs.

Our dealerships depend on the manufacturers for sales incentives, warranties and other programs that promoteand support vehicle sales at our dealerships. Some of these programs include customer rebates, dealer incentives,special financing or leasing terms and warranties. Manufacturers frequently change their incentive programs. Ifmanufacturers reduce or discontinue incentive programs, our results of operations, financial condition or cash flowscould be materially adversely affected.

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Adverse conditions affecting one or more automotive manufacturers may negatively impact our revenuesand profitability.

Our success depends on the overall success of the line of vehicles that each of our dealerships sells. As a result,our success depends to a great extent on the automotive manufacturers’ financial condition, marketing, vehicledesign, production and distribution capabilities, reputation, management and labor relations. For 2007, BMW/MINI, Toyota/Lexus brands, Honda/Acura and Daimler brands accounted for 22%, 20%, 15% and 11%, respec-tively, of our total revenues. A significant decline in the sale of new vehicles manufactured by these manufacturers,or the loss or deterioration of our relationships with one or more of these manufacturers, could materially adverselyaffect our results of operations, financial condition or cash flows. No other manufacturer accounted for more than10% of our total revenues for 2007.

Events such as labor strikes that may adversely affect a manufacturer may also materially adversely affect us,especially if these events were to interrupt the supply of vehicles or parts to us. Similarly, the delivery of vehiclesfrom manufacturers at a time later than scheduled, which may occur particularly during periods of new productintroductions, has led, and in the future could lead, to reduced sales during those periods. In addition, any event thatcauses adverse publicity involving one or more automotive manufacturers or their vehicles may materiallyadversely affect our results of operations, financial condition or cash flows.

Our failure to meet manufacturers’ consumer satisfaction requirements may adversely affect us.

Many manufacturers measure customers’ satisfaction with their sales and warranty service experiencesthrough systems that are generally known as customer satisfaction indices, or CSI. Manufacturers sometimes use adealership’s CSI scores as a factor in evaluating applications for additional dealership acquisitions. Certain of ourdealerships have had difficulty from time to time in meeting their manufacturers’ CSI standards. We may be unableto meet these standards in the future. A manufacturer may refuse to consent to a franchise acquisition by us if ourdealerships do not meet their CSI standards. This could materially adversely affect our acquisition strategy. Inaddition, because we receive payments from the manufacturers based in part on CSI scores, future payments couldbe materially reduced or eliminated if our CSI scores decline.

Automotive manufacturers impose limits on our ability to issue additional equity and on the ownership ofour common stock by third parties, which may hamper our ability to meet our financing needs.

A number of manufacturers impose restrictions on the sale and transfer of our common stock. The mostprohibitive restrictions provide that, under specified circumstances, we may be forced to sell or surrender franchises(1) if a competing automotive manufacturer acquires a 5% or greater ownership interest in us or (2) if an individualor entity that has a criminal record in connection with business dealings with any automotive manufacturer,distributor or dealer or who has been convicted of a felony acquires a 5% or greater ownership interest in us. Further,several manufacturers have the right to approve the acquisition by a third party of 20% or more of our commonstock, and a number of manufacturers continue to prohibit changes in ownership that may affect control of ourcompany.

Actions by our stockholders or prospective stockholders that would violate any of the above restrictions aregenerally outside our control. If we are unable to obtain a waiver or relief from these restrictions, we may be forcedto terminate or sell one or more franchises, which could materially adversely affect our results of operations,financial condition or cash flows. These restrictions also may prevent or deter prospective acquirers from acquiringcontrol of us and, therefore, may adversely impact the value of our common stock. These restrictions also mayimpede our ability to raise required capital or our ability to acquire dealership groups using our common stock mayalso be inhibited.

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Risks Relating to our Acquisition Strategy

Growth in our revenues and earnings depends substantially on our ability to acquire and successfullyoperate new dealerships.

While we expect to acquire new dealerships, we cannot guarantee that we will be able to identify and acquireadditional dealerships in the future. Moreover, acquisitions involve a number of risks, including:

• integrating the operations and personnel of the acquired dealerships;

• operating in new markets with which we are not familiar;

• incurring unforeseen liabilities at acquired dealerships;

• disruption to our existing business;

• failure to retain key personnel of the acquired dealerships;

• impairment of relationships with employees, manufacturers and customers; and

• incorrectly valuing acquired entities.

In addition, integrating acquired dealerships into our existing mix of dealerships may result in substantialcosts, diversion of our management resources or other operational or financial problems. Unforeseen expenses,difficulties and delays frequently encountered in connection with the integration of acquired entities and the rapidexpansion of operations could inhibit our growth, result in our failure to achieve acquisition synergies and require usto focus resources on integration rather than other more profitable areas. Acquired entities may subject us tounforeseen liabilities that we did not detect prior to completing the acquisition, or liabilities that turn out to begreater than those we had expected. These liabilities may include liabilities that arise from non-compliance withenvironmental laws by prior owners for which we, as a successor owner, will be responsible.

We may be unable to identify acquisition candidates that would result in the most successful combinations, orcomplete acquisitions on acceptable terms on a timely basis. The magnitude, timing, pricing and nature of futureacquisitions will depend upon various factors, including the availability of suitable acquisition candidates, thenegotiation of acceptable terms, our financial capabilities, the availability of skilled employees to manage theacquired companies and general economic and business conditions. Further, we may need to borrow funds tocomplete future acquisitions, which funds may not be available. Furthermore, we have sold and may in the futuresell dealerships based on numerous factors, which may impact our future revenues and earnings, particularly if wedo not make acquisitions to replace such revenues and earnings.

Manufacturers’ restrictions on acquisitions may limit our future growth.

Our future growth via acquisition of automotive dealerships will depend on our ability to obtain the requisitemanufacturer approvals. The relevant manufacturer must consent to any franchise acquisition and it may notconsent in a timely fashion or at all. In addition, under many franchise agreements or under local law, amanufacturer may have a right of first refusal to acquire a dealership that we seek to acquire.

Certain manufacturers limit the total number of their dealerships that we may own in a particular geographicarea and, in some cases, the total number of their vehicles that we may sell as a percentage of that manufacturer’soverall sales. Manufacturers may also limit the ownership of stores in contiguous markets and the dueling of afranchise with another brand. To date, we have only reached national ceilings with one manufacturer and havereached certain geographical limitations with several manufacturers. If additional manufacturers impose or expandthese types of restrictions, our acquisition strategy and results of operations, financial condition or cash flows couldbe materially adversely affected.

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Other Business Risks

Our business is susceptible to adverse economic conditions, including changes in consumer confidence,fuel prices and credit availability.

We believe that the automotive retail industry is influenced by general economic conditions and particularly byconsumer confidence, the level of personal discretionary spending, interest rates, fuel prices, weather conditions,unemployment rates and credit availability. For some finance borrowers, credit availability has recently beenrestricted as compared to prior years. If credit availability generally were to be restricted, our results of operationscould be materially adversely affected as many of our retail sales customers purchase vehicles using credit. Fuelprices are currently higher as compared to recent years. If fuel prices continue to increase, vehicle demand could beadversely affected which could materially adversely affect our results of operations. Historically, unit sales of motorvehicles, particularly new vehicles, have been cyclical, fluctuating with general economic cycles.

During economic downturns, new vehicle retail sales tend to experience periods of decline characterized byoversupply and weak demand. The automotive retail industry may experience sustained periods of decline invehicle sales in the future. Any decline or change of this type could materially adversely affect our results ofoperations, financial condition or cash flows.

Some of our operations are regionally concentrated such as those in Arizona, California, the NortheasternU.S. and the United Kingdom. Adverse regional economic and competitive conditions in these areas couldmaterially adversely affect our results of operations, financial condition or cash flows.

Substantial competition in automotive sales and services may adversely affect our profitability.

The automotive retail industry is highly competitive. Depending on the geographic market, we compete with:

• franchised automotive dealerships in our markets that sell the same or similar new and used vehicles that weoffer;

• private market buyers and sellers of used vehicles;

• Internet-based vehicle brokers that sell vehicles obtained from franchised dealers directly to consumers;

• vehicle rental companies that sell their used rental vehicles;

• service center chain stores; and

• independent service and repair shops.

In addition, we compete against automotive manufacturers in some retail markets, which may negatively affectour results of operations, financial condition or cash flows. Some of our competitors may have greater financial,marketing and personnel resources and lower overhead and sales costs than us. We do not have any cost advantageover other franchised automotive dealerships in purchasing new vehicles from the automotive manufacturers.

In addition to competition for vehicle sales, our dealerships compete with franchised dealerships to performwarranty repairs and with other automotive dealers, independent service center chains, independent garages andothers, for non-warranty repair, routine maintenance and parts business. A number of regional or national chainsoffer selected parts and services at prices that may be lower than our dealerships’ prices. We also compete with abroad range of financial institutions in arranging financing for our customers’ vehicle purchases.

The Internet is a significant part of the sales process in our industry. We believe that customers are using theInternet to compare pricing for cars and related finance and insurance services, which may reduce gross profitmargins for new and used cars and profits generated from the sale of finance and insurance products. Some websitesoffer vehicles for sale over the Internet without the benefit of having a dealership franchise, although they mustcurrently source their vehicles from a franchised dealer. If Internet new vehicle sales are allowed to be conductedwithout the involvement of franchised dealers, or if dealerships are able to effectively use the Internet to sell outsideof their markets, our business could be materially adversely affected. We could also be materially adversely affectedto the extent that Internet companies acquire dealerships or ally themselves with our competitors’ dealerships.

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Our distribution of the smart fortwo is a new business for us whose profitability is unproven.

We are incurring costs to develop processes, systems and strategies to distribute the smart fortwo vehicle in theU.S. and Puerto Rico. The wholesale distribution of vehicles is new to us and involves developing and successfullyimplementing processes and strategies different from that currently used in our automotive retail operations. Inconnection with this effort, our senior management has devoted substantial time and effort and we hired a team ofemployees. During 2007, the cost of these employees and efforts associated with developing the smart distributionbusiness negatively impacted our earnings. If our efforts are not successful, or we incur unforeseen costs, our resultsof operations, financial condition or cash flows may be materially adversely affected.

Our capital costs and our results of operations may be adversely affected by a rising interest rateenvironment.

We finance our purchases of new and, to a lesser extent, used vehicle inventory using floor plan financingarrangements under which we are charged interest at floating rates. In addition, we obtain capital for generalcorporate purposes, dealership acquisitions and real estate purchases and improvements under predominantlyfloating interest rate credit facilities. Therefore, excluding the potential mitigating effects from interest rate hedgingtechniques, our interest expenses will rise with increases in interest rates. Rising interest rates may also have theaffect of depressing demand in the interest rate sensitive aspects of our business, particularly new and used vehiclessales, because many of our customers finance their vehicle purchases. As a result, rising interest rates may have theaffect of simultaneously increasing our costs and reducing our revenues, which could materially adversely affectour results of operations, financial condition or cash flows.

Our substantial indebtedness may limit our ability to obtain financing for acquisitions and may requirethat a significant portion of our cash flow be used for debt service.

We have a substantial amount of indebtedness. As of December 31, 2007, we had approximately $844.6 millionof total non-floor plan debt outstanding and $1.6 billion of floor plan notes payable outstanding. In addition, wehave additional debt capacity under our credit facilities.

Our substantial debt could have important consequences. For example, it could:

• make it more difficult for us to obtain additional financing in the future for our acquisitions and operations,working capital requirements, capital expenditures, debt service or other general corporate requirements;

• require us to dedicate a substantial portion of our cash flows from operations to repay debt and relatedinterest rather than other areas of our business;

• limit our operating flexibility due to financial and other restrictive covenants, including restrictions onincurring additional debt, creating liens on our properties, making acquisitions or paying dividends;

• place us at a competitive disadvantage compared to our competitors that have less debt; and

• make us more vulnerable in the event of adverse economic or industry conditions or a downturn in ourbusiness.

Our ability to meet our debt service obligations depends on our future performance, which will be impacted bygeneral economic conditions and by financial, business and other competitive factors, many of which are beyondour control. These factors could include operating difficulties, increased operating costs, the actions of competitors,regulatory developments and delays in implementing our growth strategies. Our ability to meet our debt service andother obligations may depend on our success in implementing our business strategies. We may not be able toimplement our business strategies and the anticipated results of our strategies may not be realized.

If our business does not generate sufficient cash flow from operations or future sufficient borrowings are notavailable to us, we might not be able to service our debt or to fund our other liquidity needs. If we are unable toservice our debt, we may have to delay or cancel acquisitions, sell equity securities, sell assets or restructure orrefinance our debt. If we are unable to service our debt, we may not be able to pursue these options on a timely basis

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or on satisfactory terms or at all. In addition, the terms of our existing or future franchise agreements, agreementswith manufacturers or debt agreements may prohibit us from adopting any of these alternatives.

Our inability to raise capital, if needed, could adversely affect us.

We require substantial capital in order to acquire and renovate automotive dealerships. This capital might beraised through public or private financing, including through the issuance of debt or equity securities, sale-leaseback transactions and other sources. Availability under our credit agreements may be limited by the covenantsand conditions of those facilities. We may not be able to raise additional funds. If we raise additional funds byissuing equity securities, dilution to then existing stockholders may result.

If adequate funds are not available, we may be required to significantly curtail our acquisition and renovationprograms, which could materially and adversely affect our growth strategy.

We depend to a significant extent on our ability to finance the purchase of inventory in the form of floor planfinancing. Floor plan financing is financing from a vehicle manufacturer secured by the vehicles we sell. Ourdealerships borrow money to buy a particular vehicle from the manufacturer and pay off the floor plan financingwhen they sell the particular vehicle, paying interest during the interim period. Our floor plan financing is securedby substantially all of the assets of our automotive dealership subsidiaries. Our remaining assets are pledged tosecure our credit facilities. This may impede our ability to borrow from other sources. Most of our floor plan lendersare associated with manufacturers with whom we have franchise agreements. Consequently, the deterioration of ourrelationship with a manufacturer could adversely affect our relationship with the affiliated floor plan lender and viceversa. Any inability to obtain floor plan financing on customary terms, or the termination of our floor plan financingarrangements by our floor plan lenders, could materially adversely affect our results of operations, financialcondition or cash flows.

Shares eligible for future sale may cause the market price of our common stock to drop significantly,even if our business is doing well.

The potential for sales of substantial amounts of our common stock in the public market may have a materialadverse effect on our stock price. In addition, the amount of equity securities that we issue in connection withacquisitions and renovations could be significant resulting in dilution to you or adversely affecting our stock price.The majority of our outstanding shares are held by two shareholders, each of whom has registration rights that couldresult in a substantial number of shares being sold in the market. Moreover, these shares could be resold at any timesubject to the volume limitations under Rule 144. In addition, we also have reserved for issuance a significantnumber of shares relating to our 3.5% convertible senior subordinated notes which, if issued, may result insubstantial dilution to you or adversely effect our stock price. Finally, we have a significant amount of authorizedbut unissued shares that, if issued, could materially adversely effect our stock price.

Property loss, business interruptions or other liabilities at some of our dealerships could impact our oper-ating results.

The automotive retail business is subject to substantial risk of property loss due to the significant concentrationof property values at dealership locations, including vehicles and parts. We have historically experienced businessinterruptions at several of our dealerships due to adverse weather conditions or other extraordinary events, such aswild fires in California or hurricanes in Florida. Other potential liabilities arising out of our operations involveclaims by employees, customers or third parties for personal injury or property damage and potential fines andpenalties in connection with alleged violations of regulatory requirements. To the extent we experience futuresimilar events, our results of operations, financial condition or cash flows may be materially adversely impacted.

If we lose key personnel or are unable to attract additional qualified personnel, our business could beadversely affected.

We believe that our success depends to a significant extent upon the efforts and abilities of our executivemanagement and key employees, including, in particular, Roger S. Penske, our Chairman and Chief ExecutiveOfficer. Additionally, our business is dependent upon our ability to continue to attract and retain qualified

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personnel, such as managers, as well as retaining dealership management in connection with acquisitions. Wegenerally have not entered into employment agreements with our key personnel. The loss of the services of one ormore members of our senior management team, including, in particular, Roger S. Penske, could have a materialadverse effect on us and materially impair the efficiency and productivity of our operations. We do not have key maninsurance for any of our executive officers or key personnel. The loss of any of our key employees or the failure toattract qualified managers could have a material adverse effect on our business.

Our quarterly operating results may fluctuate due to seasonality and other factors.

The automotive industry typically experiences seasonal variations in vehicle revenues. Demand for automo-biles in the U.S. is generally lower during the winter months than in other seasons, particularly in regions of theU.S. that may have severe winters. In the U.S., a higher number of vehicle sales generally occur in the second andthird quarters of each year, due in part to consumer buying trends and the introduction of new vehicle models. Inaddition, the U.K. retail automotive industry typically experiences peak sales activity during March and Septemberof each year. This seasonality results from the perception in the United Kingdom that the resale value of a vehiclemay be determined by the date that the vehicle is registered. Because new vehicle registration periods begin onMarch 1 and September 1 each year, vehicles with comparable mileage that were registered in March may have anequivalent used vehicle value to vehicles registered in August of the same year.

Therefore, if conditions exist during these periods that depress or affect automotive sales, such as high fuelcosts, depressed economic conditions or similar adverse conditions, our revenues for the year may be dispropor-tionately adversely affected.

Our business may be adversely affected by import product restrictions and foreign trade risks that mayimpair our ability to sell foreign vehicles profitably.

A significant portion of our new vehicle business involves the sale of vehicles, vehicle parts or vehiclescomposed of parts that are manufactured outside the region in which they are sold. As a result, our operations aresubject to customary risks associated with imported merchandise, including fluctuations in the relative value ofcurrencies, import duties, exchange controls, differing tax structures, trade restrictions, transportation costs, workstoppages and general political and economic conditions in foreign countries.

The locations in which we operate may, from time to time, impose new quotas, duties, tariffs or otherrestrictions, or adjust presently prevailing quotas, duties or tariffs on imported merchandise. Any of thoseimpositions or adjustments could materially affect our operations and our ability to purchase imported vehiclesand parts at reasonable prices, which could materially adversely affect our business.

We are subject to substantial regulation, claims and legal proceedings, any of which could adverselyaffect our profitability.

A number of regulations affect our business of marketing, selling, financing, distributing and servicingautomobiles. Under the laws of states in U.S. locations in which we currently operate, we typically must obtain alicense in order to establish, operate or relocate a dealership or operate an automotive repair service, includingdealer, sales, finance and insurance-related licenses. These laws also regulate our conduct of business, including ouradvertising, operating, financing, employment and sales practices. In addition, our foreign operations are subject tosimilar regulations in their respective jurisdictions.

Our financing activities with customers are subject to truth-in-lending, consumer leasing, equal creditopportunity and similar regulations as well as motor vehicle finance laws, installment finance laws, insurancelaws, usury laws and other installment sales laws. Some jurisdictions regulate finance fees that may be paid as aresult of vehicle sales. In recent years, private plaintiffs and state attorneys general in the U.S. have increased theirscrutiny of advertising, sales, and finance and insurance activities in the sale and leasing of motor vehicles. Theseactivities have led many lenders to limit the amounts that may be charged to customers as fee income for theseactivities. If these or similar activities were significantly to restrict our ability to generate revenue from arrangingfinancing for our customers, we could be adversely affected.

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We could also be susceptible to claims or related actions if we fail to operate our business in accordance withapplicable laws. Claims arising out of actual or alleged violations of law may be asserted against us or any of ourdealers by individuals, either individually or through class actions, or by governmental entities in civil or criminalinvestigations and proceedings. Such actions may expose us to substantial monetary damages and legal defensecosts, injunctive relief and criminal and civil fines and penalties, including suspension or revocation of our licensesand franchises to conduct dealership operations.

We are involved in legal proceedings in the ordinary course of business including litigation with customersregarding our products and services, and expect to continue to be subject to claims related to our existing businessand any new business. A significant judgment against us, the loss of a significant license or permit or the impositionof a significant fine could have a material adverse effect on our business, financial condition and future prospects.

If state dealer laws in the U.S. are repealed or weakened, our dealership franchise agreements will bemore susceptible to termination, non-renewal or renegotiation.

State dealer laws in the U.S. generally provide that an automotive manufacturer may not terminate or refuse torenew a franchise agreement unless it has first provided the dealer with written notice setting forth good cause andstating the grounds for termination or non-renewal. Some state dealer laws allow dealers to file protests or petitionsor to attempt to comply with the manufacturer’s criteria within the notice period to avoid the termination or non-renewal. Though unsuccessful to date, manufacturers’ lobbying efforts may lead to the repeal or revision of statedealer laws. If dealer laws are repealed in the states in which we operate, manufacturers may be able to terminate ourfranchises without providing advance notice, an opportunity to cure, or a showing of good cause. Without theprotection of state dealer laws, it may also be more difficult for our U.S. dealerships to renew their franchiseagreements upon expiration. Jurisdictions outside the U.S. generally do not have these laws and, as a result, operatewithout these protections.

Our dealerships are subject to environmental regulations that may result in claims and liabilities whichcould be material.

We are subject to a wide range of environmental laws and regulations, including those governing dischargesinto the air and water, the operation and removal of storage tanks and the use, storage and disposal of hazardoussubstances. Our dealerships and service, parts and body shop operations in particular use, store and contract forrecycling or disposal of hazardous materials. Any non-compliance with these regulations could result in significantfines and penalties which could adversely affect our results of operations, financial condition or cash flows. Further,investigation or remediation may be necessary in the event of leaks or other discharges from current or formerunderground or aboveground storage tanks.

In the U.S., we may also have liability in connection with materials that were sent to third-party recycling,treatment, and/or disposal facilities under federal and state statutes, which impose liability for investigation andremediation of contamination without regard to fault or the legality of the conduct that contributed to thecontamination. Similar to many of our competitors, we have incurred and will continue to incur, capital andoperating expenditures and other costs in complying with such laws and regulations.

Soil and groundwater contamination is known to exist at some of our current or former properties. Inconnection with our acquisitions, it is possible that we will assume or become subject to new or unforeseenenvironmental costs or liabilities, some of which may be material. In connection with dispositions of businesses, ordispositions previously made by companies we acquire, we may retain exposure for environmental costs andliabilities, some of which may be material. Environmental laws and regulations are complex and subject to change.Compliance with new or more stringent laws or regulations, stricter interpretations of existing laws or the futurediscovery of environmental conditions could require additional expenditures by us which could materiallyadversely affect our results of operations, financial condition or cash flows.

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Our principal stockholders have substantial influence over us and may make decisions with which youdisagree.

Penske Corporation through various affiliates beneficially owns 39% of our outstanding common stock. Inaddition, Penske Corporation and its affiliates have entered into a stockholders agreement with our second largeststockholder, Mitsui & Co., Ltd. and one of its affiliates, pursuant to which they have agreed to vote together as to theelection of our directors. Collectively, these two groups beneficially own 55% of our outstanding stock. As a result,these persons have the ability to control the composition of our board of directors and therefore they may be able tocontrol the direction of our affairs and business.

This concentration of ownership, as well as various provisions contained in our agreements with manufac-turers, our certificate of incorporation and bylaws and the Delaware General Corporation Law, could have the affectof discouraging, delaying or preventing a change in control of us or unsolicited acquisition proposals. Theseprovisions include the stock ownership limits imposed by various manufacturers and our ability to issue “blankcheck” preferred stock and the “interested stockholder” provisions of Section 203 of the Delaware GeneralCorporation Law.

Some of our directors and officers may have conflicts of interest with respect to certain related partytransactions and other business interests.

Some of our executive officers also hold executive positions at other companies affiliated with our largeststockholder. Roger S. Penske, our Chairman and Chief Executive Officer, is also Chairman and Chief ExecutiveOfficer of Penske Corporation, a diversified transportation services company. Robert H. Kurnick, Jr., our ViceChairman and a director, is also President of Penske Corporation and Hiroshi Ishikawa, our Executive VicePresident — International Business Development and a director, serves in a similar capacity for Penske Corpo-ration. Much of the compensation of these officers is paid by Penske Corporation and not by us, and while theseofficers have historically devoted a substantial amount of their time to our matters, these officers are not required tospend any specific amount of time on our matters. In addition, one of our directors, Richard J. Peters and ourPresident, Roger Penske, Jr., each serves as a director of Penske Corporation. In addition, Penske Corporation ownsPenske Motor Group, a privately held automotive dealership company with operations in southern California.Periodically, we have sold real property and improvements to AGR, a wholly owned subsidiary of PenskeCorporation, which we have then leased. Due to their relationships with these related entities, Messrs. Ishikawa,Kurnick, Penske, Penske, Jr., and Peters may have a conflict of interest in making any decision related totransactions between their related entities and us, or with respect to allocations of corporate opportunities.

Our operations outside the U.S. subject us to foreign currency translation risk and exposure to changesin exchange rates.

In recent years, between 30% and 40% of our revenues have been generated outside the U.S., predominately inthe United Kingdom. As a result, we are exposed to the risks involved in foreign operations, including:

• changes in international tax laws and treaties, including increases of withholding and other taxes onremittances and other payments by subsidiaries;

• tariffs, trade barriers, and restrictions on the transfer of funds between nations;

• changes in international governmental regulations;

• the impact of local economic and political conditions;

• the impact of European Commission regulation and the relationship between the United Kingdom andcontinental Europe; and

• increased competition and the impact from limited franchise protection in Europe.

If our operations outside the U.S. fail to perform as expected, we will be adversely impacted. In addition, ourresults of operations and financial position are reported in local currency and are then translated into U.S. dollars atthe applicable foreign currency exchange rate for inclusion in our consolidated financial statements. As exchange

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rates fluctuate, particularly between the U.S. and U.K., our results of operations as reported in U.S. dollars willfluctuate. For example, if the U.S. dollar were to strengthen against the U.K. pound, one of the results would be thatour U.K. results of operations would translate into less U.S. dollar reported results.

Item 1B. Unresolved Staff Comments

Not Applicable.

Item 2. Properties

We have historically structured our operations so as to minimize our ownership of real property. As a result, welease or sublease substantially all of our dealerships and other facilities. These leases are generally for a period ofbetween five and 20 years, and are typically structured to include renewal options for an additional five to ten yearsat our election. We lease office space in Bloomfield Hills, Michigan, Secaucus, New Jersey, Leicester, England andStuttgart, Germany for our administrative headquarters and other corporate related activities. We believe that ourfacilities are sufficient for our needs and are in good repair.

Item 3. Legal Proceedings

We are involved in litigation which may involve issues with customers, employment related matters, classaction claims, purported class action claims and claims brought by governmental authorities. We are not a party toany legal proceedings, including class action lawsuits that, individually or in the aggregate, are reasonably expectedto have a material adverse effect on our results of operations, financial condition or cash flows. However, the resultsof these matters cannot be predicted with certainty, and an unfavorable resolution of one or more of these matterscould have a material adverse effect on our results of operations, financial condition or cash flows.

Item 4. Submission of Matters to a Vote of Security-Holders

No matter was submitted to a vote of our security holders during the fourth quarter of the year endedDecember 31, 2007.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchase ofEquity Securities

Our common stock is traded on the New York Stock Exchange under the symbol “PAG”. As of February 15,2008, there were approximately 250 holders of record of our common stock.

The following table shows the high and low per share sales prices of our common stock as reported on the NewYork Stock Exchange Composite Tape for each quarter of 2007 and 2006, as well as the per share dividends paid ineach quarter.

High Low Dividend

2006:

First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $22.61 $18.63 $0.06

Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22.33 19.77 0.07

Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23.90 19.73 0.07

Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24.46 22.27 0.07

2007:

First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $24.62 $20.17 $0.07

Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22.51 19.39 0.07

Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22.92 18.81 0.07

Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22.57 17.33 0.09

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Dividends. Future quarterly or other cash dividends will depend upon our earnings, capital requirements,financial condition, restrictions in any existing indebtedness and other factors considered relevant by the Board ofDirectors. Our U.S. credit agreement and the indenture governing our 7.75% senior subordinated notes each containcertain limitations on our ability to pay dividends. See Item 7. “Management’s Discussion and Analysis of FinancialCondition and Results of Operations — Liquidity and Capital Resources.” We are a holding company whose assetsconsist primarily of the direct or indirect ownership of the capital stock of our operating subsidiaries. Consequently,our ability to pay dividends is dependent upon the earnings of our subsidiaries and their ability to distribute earningsand other advances and payments to us. In addition, pursuant to the automobile franchise agreements to which ourdealerships are subject, all dealerships are required to maintain a certain amount of working capital or net worth,which could limit our subsidiaries’ ability to pay us dividends.

SHARE INVESTMENT PERFORMANCE

The following graph compares the cumulative total stockholder returns on our common stock based on aninvestment of $100 on December 31, 2002 and the close of the market on December 31 of each year thereafteragainst (i) the Standard & Poor’s 500 Index and (ii) an industry/peer group consisting of Asbury Automotive Group,Inc., AutoNation, Inc., Group 1 Automotive, Inc., Lithia Motors Inc. and Sonic Automotive Inc. The graph alsoassumes the reinvestment of all dividends.

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*Among Penske Automotive Group, Inc., The S&P 500 Index

And A Peer Group

0

100

200

300

400

500

12/0712/0612/0512/0412/0312/02

Penske Automotive Group, Inc.

S&P 500

Peer Group

* $100 invested on 12/31/02 in stock or index-including reinvestment of dividends. Fiscal year endingDecember 31.

12/02 12/03 12/04 12/05 12/06 12/07

Cumulative Total Return

Penske Automotive Group, Inc. 100.00 251.99 241.75 316.49 394.92 296.65

S&P 500 100.00 128.68 142.69 149.70 173.34 182.87

Peer Group 100.00 151.67 153.45 169.42 186.75 124.00

Item 6. Selected Financial Data

The following table sets forth our selected historical consolidated financial and other data as of and for each ofthe five years in the period ended December 31, 2007, which has been derived from our audited consolidatedfinancial statements. During the periods presented, we made a number of acquisitions, each of which has been

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accounted for using the purchase method of accounting. Accordingly, our financial statements include the results ofoperations of acquired dealerships from the date of acquisition. As a result of the acquisitions, our period to periodresults of operations vary depending on the dates of the acquisitions. Accordingly, this selected financial data is notnecessarily indicative of our future results. During the periods presented, we also sold certain dealerships whichhave been treated as discontinued operations in accordance with Statement of Financial Accounting Standards(“SFAS”) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. You should read this selectedconsolidated financial data in conjunction with our audited consolidated financial statements and related footnotesincluded elsewhere in this report.

2007(1) 2006 2005(2) 2004(3) 2003(4)As of and for the Years Ended December 31,

(In millions, except per share data)

Consolidated Statement of Income Data:

Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . $12,957.7 $11,126.7 $9,552.9 $8,395.5 $7,005.7

Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,925.2 $ 1,684.3 $1,453.0 $1,251.8 $1,034.0

Income from continuing operations beforecumulative effect of accounting change . . . . . $ 127.8 $ 132.2 $ 118.5 $ 108.7 $ 77.7

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 127.7 $ 124.7 $ 119.0 $ 111.7 $ 82.9

Diluted earnings per share from continuingoperations . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.35 $ 1.40 $ 1.26 $ 1.19 $ 0.94

Diluted earnings per share . . . . . . . . . . . . . . . . . $ 1.35 $ 1.32 $ 1.27 $ 1.22 $ 1.00

Shares used in computing diluted share data . . . . 94.6 94.2 93.9 91.2 82.9

Balance Sheet Data:

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,668.6 $ 4,469.8 $3,594.2 $3,532.8 $3,144.2

Floor plan notes payable . . . . . . . . . . . . . . . . . . $ 1,552.9 $ 1,169.5 $1,084.0 $1,033.0 $ 889.2

Total debt (excluding floor plan notes payable). . $ 844.6 $ 1,182.1 $ 580.2 $ 586.3 $ 651.7

Total stockholders’ equity . . . . . . . . . . . . . . . . . $ 1,421.5 $ 1,295.7 $1,145.7 $1,075.0 $ 828.4

Cash dividends per share . . . . . . . . . . . . . . . . . . $ 0.30 $ 0.27 $ 0.23 $ 0.21 $ 0.05

(1) Includes charges of $18.6 million ($12.3 million after-tax), or $0.13 per share, relating to the redemption of the$300.0 million aggregate amount of 9.625% Senior Subordinated Notes and $6.3 million ($4.5 million after-tax), or $0.05 per share, relating to impairment losses.

(2) Includes $8.2 million ($5.2 million after-tax), or $0.06 per share, of earnings attributable to the sale of all theremaining variable profits relating to the pool of extended service contracts sold at our dealerships from 2001through 2005.

(3) Includes an $11.5 million ($7.2 million after tax), or $0.08 per share, gain resulting from the sale of aninvestment and an $8.4 million ($5.3 million after tax), or $0.06 per share, gain resulting from a refund of U.K.consumption taxes. These gains were offset in part by non-cash charges of $7.8 million ($4.9 million after tax),or $0.05 per share, principally in connection with the planned relocation of certain U.K. franchises as part of ourongoing facility enhancement program.

(4) Includes a $5.1 million charge ($3.1 million after tax), or $0.04 per share, from the cumulative effect of anaccounting change relating to the adoption of Emerging Issues Task Force (“EITF”) Issue No. 02-16,Accounting by a Customer (Including a Reseller) for Cash Consideration Received from a Vendor.

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

This Management’s Discussion and Analysis of Financial Condition and Results of Operations containsforward-looking statements that involve risks and uncertainties. Our actual results may differ materially from thosediscussed in the forward-looking statements as a result of various factors, including those discussed in “Item 1A.Risk Factors.” We have acquired a number of dealerships since inception. Our financial statements include theresults of operations of acquired dealerships from the date of acquisition. This Management’s Discussion andAnalysis of Financial Condition and Results of Operations has been updated to reflect the revision of our financialstatements for entities which have been treated as discontinued operations through December 31, 2007 inaccordance with Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairmentor Disposal of Long-Lived Assets”, revised to reflect the June 1, 2006 two-for-one split of our voting common stockin the form of a stock dividend, and restated for our adoption of Staff Accounting Bulletin (“SAB”) No. 108“Considering the Effects of Prior Year Misstatements When Quantifying Misstatements in Current Year FinancialStatements.”

Overview

On July 2, 2007, we changed our corporate name from “United Auto Group, Inc.” to “Penske AutomotiveGroup, Inc.” We are the second largest automotive retailer headquartered in the U.S. as measured by total revenues.As of December 31, 2007, we owned and operated 162 franchises in the U.S. and 145 franchises outside of the U.S.,primarily in the United Kingdom. We offer a full range of vehicle brands with 94% of our total revenue in 2007generated from non-U.S. brands and with sales relating to premium brands, such as Audi, BMW, Cadillac andPorsche, representing 65% of our total revenue.

Each of our dealerships offers a wide selection of new and used vehicles for sale. In addition to selling new andused vehicles, we offer a full range of maintenance and repair services, and we facilitate the placement of third-partyfinance and insurance products, third-party extended service contracts and replacement and aftermarket automotiveproducts. Beginning in 2007, our wholly-owned subsidiary, smart USA Distributor, LLC, became the exclusivedistributor of the smart fortwo vehicle in the U.S. and Puerto Rico.

New and used vehicle revenues include sales to retail customers and to leasing companies providing consumerautomobile leasing. We generate finance and insurance revenues from sales of third-party extended servicecontracts, sales of third-party insurance policies, fees for facilitating the sale of third-party finance and leasecontracts and the sale of certain other products. Service and parts revenues include fees paid for repair, maintenanceand collision services, the sale of replacement parts and the sale of aftermarket accessories.

smart USA Distributor, LLC, a wholly owned subsidiary, is the exclusive distributor of the smart fortwovehicle in U.S. and Puerto Rico. The smart fortwo is manufactured by Mercedes-Benz Cars and is a Daimler brand.This technologically advanced vehicle achieves 40-plus miles per gallon on the highway and is an ultra-lowemissions vehicle as certified by the State of California Air Resources Board. Though launched in the U.S. in 2008,more than 850,000 fortwo vehicles have previously been sold outside the U.S. As distributor, smart USA isresponsible for developing and maintaining a smart vehicle dealership network throughout the U.S. and PuertoRico.

smart USA has certified a network of 68 smart dealerships in 31 states, most of which have received therequisite licensing and other required approvals and are actively selling vehicles. Additional dealerships areexpected to commence retailing vehicles during 2008 upon completion of their facilities and obtaining licensingapproval. Of the 74 dealerships currently planned in the U.S., eight are owned and operated by us. The smart fortwooffers three different versions, the Pure, Passion and Cabriolet with base prices ranging from $11,600 to $16,600.We currently expect to distribute at least 20,000 smart fortwo vehicles in 2008.

We and Sirius Satellite Radio Inc. (“Sirius”) have agreed to jointly promote Sirius Satellite Radio service.Pursuant to the terms of our arrangement with Sirius, our dealerships in the U.S. endeavor to order a significantpercentage of eligible vehicles with a factory installed Sirius radio. We and Sirius have also agreed to jointly marketthe Sirius service under a best efforts arrangement through January 4, 2009. Our costs relating to such marketinginitiatives are expensed as incurred. As compensation for our efforts, we received warrants to purchase ten million

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shares of Sirius common stock at $2.392 per share in 2004 that are being earned ratably on an annual basis throughJanuary 2009. We earned warrants to purchase two million shares in each of 2005, 2006 and 2007. We measure thefair value of the warrants earned ratably on the date they are earned as there are no significant disincentives for non-performance. Since we can reasonably estimate the number of warrants that will be earned pursuant to the ratableschedule, the estimated fair value (based on current fair value) of these warrants is being recognized ratably duringeach annual period.

Through December 31, 2007, we also had the right to earn additional warrants to purchase Sirius commonstock at $2.392 per share based upon the sale of certain units of specified brands. We earned warrants for 189,300,1,269,700 and 522,400 shares during the years ended December 31, 2007, 2006 and 2005, respectively. Since wecould not reasonably estimate the number of warrants that were earned subject to the sale of units, the fair value ofthese warrants was recognized when they were earned. The value of Sirius stock has been and is expected to besubject to significant fluctuations, which may result in variability in the amount we earn under this arrangement.The warrants may be cancelled upon the termination of our arrangement.

Our gross profit tends to vary with the mix of revenues we derive from the sale of new vehicles, used vehicles,finance and insurance products, and service and parts. Our gross profit generally varies across product lines, withvehicle sales usually resulting in lower gross profit margins and our other revenues resulting in higher gross profitmargins. Factors such as customer demand, general economic conditions, seasonality, weather, credit availability,fuel prices and manufacturers’ advertising and incentives may impact the mix of our revenues, and thereforeinfluence our gross profit margin.

Our selling expenses consist of advertising and compensation for sales personnel, including commissions andrelated bonuses. General and administrative expenses include compensation for administration, finance, legal andgeneral management personnel, rent, insurance, utilities and other outside services. A significant portion of ourselling expenses are variable, and we believe a significant portion of our general and administrative expenses aresubject to our control, allowing us to adjust them over time to reflect economic trends.

Floor plan interest expense relates to financing incurred in connection with the acquisition of new and usedvehicle inventories which is secured by those vehicles. Other interest expense consists of interest charges on all ofour interest-bearing debt, other than interest relating to floor plan financing.

The future success of our business will likely be dependent on, among other things, our ability to consummateand integrate acquisitions, our ability to increase sales of higher margin products, especially service and partsservices, and our ability to realize returns on our significant capital investment in new and upgraded dealerships. See“Item 1A-Risk Factors.”

Critical Accounting Policies and Estimates

The preparation of financial statements in accordance with accounting principles generally accepted in theUnited States of America requires the application of accounting policies that often involve making estimates andemploying judgments. Such judgments influence the assets, liabilities, revenues and expenses recognized in ourfinancial statements. Management, on an ongoing basis, reviews these estimates and assumptions. Managementmay determine that modifications in assumptions and estimates are required, which may result in a material changein our results of operations or financial position.

The following are the accounting policies applied in the preparation of our financial statements thatmanagement believes are most dependent upon the use of estimates and assumptions.

Revenue Recognition

Vehicle, Parts and Service Sales

We record revenue when vehicles are delivered and title has passed to the customer, when vehicle service orrepair work is performed and when parts are delivered to our customers. Sales promotions that we offer to customersare accounted for as a reduction of revenues at the time of sale. Rebates and other incentives offered directly to us bymanufacturers are recognized as a reduction of cost of sales. Reimbursement of qualified advertising expenses are

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treated as a reduction of selling, general and administrative expenses. The amounts received under variousmanufacturer rebate and incentive programs are based on the attainment of program objectives, and such earningsare recognized either upon the sale of the vehicle for which the award was received, or upon attainment of theparticular program goals if not associated with individual vehicles. During the year ended December 31, 2007, 2006and 2005, we earned $350.4 million, $271.6 million and $215.8 million, respectively, of rebates, incentives andreimbursements from manufacturers, of which $344.0 million, $265.0 million and $208.4 million was recorded as areduction of cost of sales.

Finance and Insurance Sales

Subsequent to the sale of a vehicle to a customer, we sell our installment sale contracts to various financialinstitutions on a non-recourse basis to mitigate the risk of default. We receive a commission from the lender equal toeither the difference between the interest rate charged to the customer and the interest rate set by the financinginstitution or a flat fee. We also receive commissions for facilitating the sale of various third-party insuranceproducts to customers, including credit and life insurance policies and extended service contracts. These com-missions are recorded as revenue at the time the customer enters into the contract. In the case of finance contracts, acustomer may prepay or fail to pay their contract, thereby terminating the contract. Customers may also terminateextended service contracts and other insurance products, which are fully paid at purchase, and become eligible forrefunds of unused premiums. In these circumstances, a portion of the commissions we received may be chargedback to us based on the terms of the contracts. The revenue we record relating to these transactions is net of anestimate of the amount of chargebacks we will be required to pay. Our estimate is based upon our historicalexperience with similar contracts, including the impact of refinance and default rates on retail finance contracts andcancellation rates on extended service contracts and other insurance products. Aggregate reserves relating tochargeback activity were $19.4 million and $16.9 million as of December 31, 2007 and 2006, respectively. Changesin reserve estimates relate primarily to an increase in the amount of revenues subject to chargeback.

Intangible Assets

Our principal intangible assets relate to our franchise agreements with vehicle manufacturers, which representthe estimated value of franchises acquired in business combinations, and goodwill, which represents the excess ofcost over the fair value of tangible and identified intangible assets acquired in business combinations. We believethe franchise value of our dealerships has an indefinite useful life based on the following facts:

• Automotive retailing is a mature industry and is based on franchise agreements with the vehiclemanufacturers;

• There are no known changes or events that would alter the automotive retailing franchise environment;

• Certain franchise agreement terms are indefinite;

• Franchise agreements that have limited terms have historically been renewed without substantial cost; and

• Our history shows that manufacturers have not terminated our franchise agreements.

Impairment Testing

Franchise value impairment is assessed as of October 1 every year through a comparison of the carryingamounts of our franchises with their estimated fair values. An indicator of impairment exists if the carrying value ofa franchise exceeds its estimated fair value and an impairment loss may be recognized equal to that excess. We alsoevaluate our franchises in connection with the annual impairment testing to determine whether events andcircumstances continue to support our assessment that the franchise has an indefinite life.

Goodwill impairment is assessed at the reporting unit level as of October 1 every year and upon the occurrenceof an indicator of impairment. An indicator of impairment exists if the carrying amount of the reporting unitincluding goodwill is determined to exceed its estimated fair value. If an indication of impairment exists, theimpairment is measured by comparing the implied fair value of the reporting unit goodwill with the carrying amountof that goodwill and an impairment loss may be recognized equal to that excess.

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The fair values of franchise value and goodwill are determined using a discounted cash flow approach, whichincludes assumptions that include revenue and profitability growth, franchise profit margins, residual values and ourcost of capital. If future events and circumstances cause significant changes in the assumptions underlying ouranalysis and result in a reduction of our estimates of fair value, we may incur an impairment charge.

Investments

Investments include marketable securities and investments in businesses accounted for under the equitymethod. A majority of our investments are in joint venture relationships that are more fully described in “JointVenture Relationships” below. Such joint venture relationships are accounted for under the equity method, pursuantto which we record our proportionate share of the joint venture’s income each period.

The net book value of our investments was $64.4 million and $65.5 million as of December 31, 2007 and 2006,respectively. Investments for which there is not a liquid, actively traded market are reviewed periodically bymanagement for indicators of impairment. If an indicator of impairment was identified, management wouldestimate the fair value of the investment using a discounted cash flow approach, which would include assumptionsrelating to revenue and profitability growth, profit margins, residual values and our cost of capital. Declines ininvestment values that are deemed to be other than temporary may result in an impairment charge reducing theinvestments’ carrying value to fair value. During 2007, we recorded an adjustment to the carrying value of ourinvestment in Internet Brands to recognize an other than temporary impairment of $3.4 million which becameapparent upon their initial public offering.

Investments in marketable securities held by us are typically classified as available for sale and are stated at fairvalue on our balance sheet with unrealized gains and losses included in other comprehensive income, a separatecomponent of stockholders’ equity. Declines in investment values that are deemed to be other than temporary wouldbe an indicator of impairment and may result in an impairment charge reducing the investments’ carrying value tofair value.

Self-Insurance

We retain risk relating to certain of our general liability insurance, workers’ compensation insurance, autophysical damage insurance, property insurance, employment practices liability insurance, director’s and officersinsurance and employee medical benefits in the U.S.. As a result, we are likely to be responsible for a majority of theclaims and losses incurred under these programs. The amount of risk we retain varies by program, and, for certainexposures, we have pre-determined maximum loss limits for certain individual claims and/or insurance periods.Losses, if any, above the pre-determined loss limits are paid by third-party insurance carriers. Our estimate of futurelosses is prepared by management using our historical loss experience and industry-based development factors.Aggregate reserves relating to retained risk were $12.8 million and $13.4 million as of December 31, 2007 and2006, respectively. Changes in the reserve estimate during 2007 relate primarily to changes in loss experience.

Income Taxes

Tax regulations may require items to be included in our tax return at different times than the items are reflectedin our financial statements. Some of these differences are permanent, such as expenses that are not deductible on ourtax return, and some are timing differences, such as the timing of depreciation expense. Timing differences createdeferred tax assets and liabilities. Deferred tax assets generally represent items that will be used as a tax deductionor credit in our tax return in future years which we have already recorded in our financial statements. Deferred taxliabilities generally represent deductions taken on our tax return that have not yet been recognized as expense in ourfinancial statements. We establish valuation allowances for our deferred tax assets if the amount of expected futuretaxable income is not likely to allow for the use of the deduction or credit. Avaluation allowance of $2.3 million hasbeen recorded relating to state net operating loss and credit carryforwards in the U.S. based on our determinationthat it is more likely than not that they will not be utilized.

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Classification of Franchises in Continuing and Discontinued Operations

We classify the results of our operations in our consolidated financial statements based on the provisions ofStatement of Financial Accounting Standards (SFAS) No. 144 which requires judgment in determining whether afranchise will be reported within continuing or discontinued operations. Such judgments include whether afranchise will be sold or terminated, the period required to complete the disposition, and the likelihood of changes toa plan for sale. If we determine that a franchise should be either reclassified from continuing operations todiscontinued operations or from discontinued operations to continuing operations, our consolidated financialstatements for prior periods are revised to reflect such reclassification.

New Accounting Pronouncements

SFAS No. 157, “Fair Value Measurements” defines fair value, establishes a framework for measuring fairvalue in generally accepted accounting principles, and expands disclosure requirements relating to fair valuemeasurements. The FASB provided a one year deferral of the provisions of this pronouncement for non-financialassets and liabilities, however, the relevant provisions of SFAS 157 required by SFAS 159 must be adopted asoriginally scheduled. SFAS 157 thus becomes effective for our non-financial assets and liabilities on January 1,2009. We will continue to evaluate the impact of those elements of this pronouncement.

SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities Including an Amendmentof FASB Statement No. 115” permits entities to choose to measure many financial instruments and certain otheritems at fair value and consequently report unrealized gains and losses on such items in earnings. Since we will notelect the fair value option with respect to any of our current financial assets or financial liabilities when theprovisions of this pronouncement become effective for us on January 1, 2008, there will be no impact upon theadoption.

SFAS No. 141(R) “Business Combinations” requires almost all assets acquired and liabilities assumed to berecorded at fair value as of the acquisition date, liabilities related to contingent consideration to be remeasured atfair value in each subsequent reporting period and all acquisition costs in pre-acquisition periods to be expensed.The pronouncement also clarifies the accounting under various scenarios such as step purchases or where the fairvalue of assets and liabilities acquired exceeds the consideration. SFAS 141(R) will be effective for us on January 1,2009. We are currently evaluating the impact of this pronouncement.

SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements an Amendment of ARBNo. 51” clarifies that a noncontrolling interest in a subsidiary must be measured at fair value and classified as aseparate component of equity. This pronouncement also outlines the accounting for changes in a parent’s ownershipin a subsidiary. SFAS 160 will be effective for us on January 1, 2009. We are currently evaluating the impact of thispronouncement.

Results of Operations

The following tables present comparative financial data relating to our operating performance in the aggregateand on a “same-store” basis. Dealership results are included in same-store comparisons when we have consolidatedthe acquired entity during the entirety of both periods being compared. As an example, if a dealership was acquiredon January 15, 2006, the results of the acquired entity would be included in annual same-store comparisonsbeginning with the year ended December 31, 2008 and in quarterly same-store comparisons beginning with thequarter ended June 30, 2007.

2007 compared to 2006 and 2006 compared to 2005 (in millions, except unit and per unit amounts)

Our results for the year ended December 31, 2007 include charges of $18.6 million ($12.3 million after-tax)relating to the redemption of the $300.0 million aggregate principal amount of 9.625% Senior Subordinated Notesand $6.3 million ($4.5 million after-tax) relating to impairment losses. In addition, our results for the year endedDecember 31, 2005 include $8.2 million ($5.2 million after-tax), or $0.06 per share, of earnings attributable to thesale of all the remaining variable profits relating to the pool of extended service contracts sold at our dealershipsfrom 2001 through 2005.

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Total Retail Data

Total Retail Data 2007 2006 Change % Change 2006 2005 Change % Change

2007 vs. 2006 2006 vs. 2005

Total retail unit sales . . . . . . . . . . . . . . . . . . 297,374 269,806 27,568 10.2% 269,806 241,454 28,352 11.7%

Total same-store retail unit sales . . . . . . . . . . . 262,021 254,998 7,023 2.8% 237,317 234,840 2,477 1.1%

Total retail sales revenue . . . . . . . . . . . . . . . . $11,861.3 $10,192.2 $1,669.1 16.4% $10,192.2 $ 8,778.1 $1,414.1 16.1%

Total same-store retail sales revenue . . . . . . . . $10,303.3 $ 9,545.0 $ 758.3 7.9% $ 8,968.1 $ 8,596.9 $ 371.2 4.3%

Total retail gross profit . . . . . . . . . . . . . . . . . $ 1,922.7 $ 1,680.7 $ 242.0 14.4% $ 1,680.7 $ 1,452.2 $ 228.5 15.7%

Total same-store retail gross profit . . . . . . . . . $ 1,691.2 $ 1,585.8 $ 105.4 6.6% $ 1,488.0 $ 1,423.8 $ 64.2 4.5%

Total retail gross margin . . . . . . . . . . . . . . . . 16.2% 16.5% (0.3)% (1.8)% 16.5% 16.5% 0.0% 0.0%

Total same-store retail gross margin . . . . . . . . 16.4% 16.6% (0.2)% (1.2)% 16.6% 16.6% 0.0% 0.0%

Units

Retail data includes retail new vehicle, retail used vehicle, finance and insurance and service and partstransactions. Retail unit sales of vehicles increased by 27,568, or 10.2%, from 2006 to 2007 and increased by28,352, or 11.7%, from 2005 to 2006. The increase from 2006 to 2007 is due to a 20,545 unit increase from netdealership acquisitions during the year, coupled with a 7,023, or 2.8%, increase in same-store retail unit sales. Theincrease from 2005 to 2006 is due to a 25,875 unit increase from net dealership acquisitions during the year, coupledwith a 2,477, or 1.1%, increase in same-store retail unit sales. The same-store increase from 2006 to 2007 was drivenby increases in our premium brands in the U.K. and domestic brands in the U.S. and U.K. The same-store increasefrom 2005 to 2006 was driven by an increase in our premium and volume foreign brands in the U.S., offsetsomewhat by a decrease in premium and volume foreign brands in the U.K. and decreases in domestic brands in theU.S.

Revenues

Retail sales revenue increased $1.7 billion, or 16.4%, from 2006 to 2007 and increased $1.4 billion, or 16.1%,from 2005 to 2006. The increase from 2006 to 2007 is due to a $758.3 million, or 7.9%, increase in same-storerevenues, coupled with a $910.8 million increase from net dealership acquisitions during the year. The same-storerevenue increase is due to: (1) a $1,736, or 5.1%, increase in average new vehicle revenue per unit, which increasedrevenue by $302.3 million, (2) a $1,692, or 6.0%, increase in average used vehicle revenue per unit, which increasedrevenue by $136.7 million, (3) an $85.3 million, or 7.4%, increase in service and parts revenues, (4) a $58, or 6.2%,increase in average finance and insurance revenue per unit, which increased revenue by $14.7 million, and (5) the2.8% increase in retail unit sales, which increased revenue by $219.3 million. The increase from 2005 to 2006 is dueto a $371.2 million, or 4.3%, increase in same-store revenues coupled with a $1,042.9 million increase from netdealership acquisitions during the year. The same-store revenue increase is due to: (1) a $763, or 2.3%, increase inaverage new vehicle revenue per unit, which increased revenue by $123.4 million, (2) a $1,425, or 5.3%, increase inaverage used vehicle revenue per unit, which increased revenue by $103.8 million, (3) a $72.8 million, or 7.3%,increase in service and parts revenues, and (4) the 1.1% increase in retail unit sales, which increased revenue by$72.6 million, partially offset by a $6, or 0.6%, decrease in average finance and insurance revenue per unit, whichdecreased revenue by $1.4 million.

Gross Profit

Retail gross profit increased $242.0 million, or 14.4%, from 2006 to 2007 and increased $228.5 million, or15.7%, from 2005 to 2006. The increase from 2006 to 2007 is due to a $105.4 million, or 6.6%, increase in same-store gross profit, coupled with a $136.6 million increase from net dealership acquisitions during the year. Thesame-store gross profit increase is due to: (1) a $26, or 0.9%, increase in average gross profit per new vehicleretailed, which increased gross profit by $4.5 million, (2) a $39, or 1.6%, increase in average gross profit per usedvehicle retailed, which increased gross profit by $3.2 million, (3) a $58, or 6.2%, increase in average finance andinsurance revenue per unit, which increased gross profit by $14.8 million, (4) a $58.4 million, or 9.1%, increase inservice and parts gross profit, and (5) the 2.8% increase in retail unit sales, which increased gross profit by$24.5 million. The increase in retail gross profit from 2005 to 2006 is due to a $64.2 million, or 4.5%, increase in

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same-store gross profit, coupled with a $164.3 million increase from net dealership acquisitions during the year. Thesame-store gross profit increase is due to: (1) a $26, or 0.9%, increase in average gross profit per new vehicleretailed, which increased gross profit by $4.2 million, (2) an $82, or 3.4%, increase in average gross profit per usedvehicle retailed, which increased gross profit by $6.0 million, (3) a $47.0 million, or 8.6%, increase in service andparts gross profit, and (4) the 1.1%, increase in retail unit sales, which increased gross profit by $8.4 million,partially offset by a $6, or 0.6%, decrease in average finance and insurance revenue per unit, which decreasedrevenue by $1.4 million

New Vehicle Data

New Vehicle Data 2007 2006 Change % Change 2006 2005 Change % Change

2007 vs. 2006 2006 vs. 2005

New retail unit sales . . . . . . . . . . . . . . . . . . . . 195,160 181,544 13,616 7.5% 181,544 166,209 15,335 9.2%

Same-store new retail unit sales . . . . . . . . . . . . . 174,759 174,188 571 0.3% 161,864 161,900 (36) (0.0)%

New retail sales revenue . . . . . . . . . . . . . . . . . . $ 7,008.1 $ 6,185.9 $ 822.2 13.3% $ 6,185.9 $ 5,511.1 $ 674.8 12.2%

Same-store new retail sales revenue . . . . . . . . . . . $ 6,205.0 $ 5,882.3 $ 322.7 5.5% $ 5,522.3 $ 5,399.9 $ 122.4 2.3%

New retail sales revenue per unit . . . . . . . . . . . . $ 35,909 $ 34,074 $ 1,835 5.4% $ 34,074 $ 33,158 $ 916 2.8%

Same-store new retail sales revenue per unit . . . . . $ 35,506 $ 33,770 $ 1,736 5.1% $ 34,117 $ 33,354 $ 763 2.3%

Gross profit — new . . . . . . . . . . . . . . . . . . . . . $ 591.0 $ 541.7 $ 49.3 9.1% $ 541.7 $ 486.4 $ 55.3 11.4%

Same-store gross profit — new . . . . . . . . . . . . . . $ 519.9 $ 513.7 $ 6.2 1.2% $ 482.2 $ 478.0 $ 4.2 0.9%

Average gross profit per new vehicle retailed. . . . . $ 3,028 $ 2,984 $ 44 1.5% $ 2,984 $ 2,926 $ 58 2.0%

Same-store average gross profit per new vehicleretailed. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,975 $ 2,949 $ 26 0.9% $ 2,979 $ 2,953 $ 26 0.9%

Gross margin% — new . . . . . . . . . . . . . . . . . . . 8.4% 8.8% (0.4)% (4.5)% 8.8% 8.8% 0.0% 0.0%

Same-store gross margin% — new. . . . . . . . . . . . 8.4% 8.7% (0.3)% (3.4)% 8.7% 8.9% (0.2)% (2.2%)

Units

Retail unit sales of new vehicles increased 13,616 units, or 7.5%, from 2006 to 2007, and increased15,335 units, or 9.2%, from 2005 to 2006. The increase from 2006 to 2007 is due to a 13,045 unit increase fromnet dealership acquisitions during the year coupled with an 571 unit, or 0.3%, increase in same-store new retail unitsales. The same-store increase from 2006 to 2007 was driven by increases in our premium brands in the U.K., offsetsomewhat by a decrease in volume foreign brands in the U.K. and decreases in premium and volume foreign brandsin the U.S. The increase from 2005 to 2006 is due to a 15,371 unit increase from net dealership acquisitions duringthe year as same-store new retail unit sales were flat. The flat same-store new retail unit sales were a result ofincreases in premium and volume foreign brands in the U.S., offset by a decrease in our domestic brands in theU.S. and in premium and volume foreign brands in the U.K.

Revenues

New vehicle retail sales revenue increased $822.2 million, or 13.3%, from 2006 to 2007 and increased$674.8 million, or 12.2%, from 2005 to 2006. The increase from 2006 to 2007 is due to a $322.7 million, or 5.5%,increase in same-store revenues, coupled with a $499.5 million increase from net dealership acquisitions during theyear. The same-store revenue increase is due primarily to a $1,736, or 5.1%, increase in comparative average sellingprice per unit which increased revenue by $302.4 million, coupled with the 0.3% increase in new retail unit saleswhich increased revenue by $20.3 million. The increase from 2005 to 2006 is due to a $122.4 million, or 2.3%,increase in same-store revenues, coupled with a $552.4 million increase from net dealership acquisitions during theyear. The same-store revenue increase is due to a $763, or 2.3%, increase in comparative average selling price perunit.

Gross Profit

Retail gross profit from new vehicle sales increased $49.3 million, or 9.1%, from 2006 to 2007, and increased$55.3 million, or 11.4%, from 2005 to 2006. The increase from 2006 to 2007 is due to a $6.2 million, or 1.2%,increase in same-store gross profit, coupled with a $43.1 million increase from net dealership acquisitions during

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the year. The same-store retail gross profit increase is due to a $26, or 0.9%, increase in average gross profit per newvehicle retailed, which increased gross profit by $4.5 million, coupled with the 0.3% increase in new retail unitsales, which increase gross profit by $1.7 million. The increase in retail gross profit from 2005 to 2006 is due to a$4.2 million, or 0.9%, increase in same-store gross profit, coupled with a $51.1 million increase from net dealershipacquisitions during the year. The same-store retail gross profit increase is due to a $26, or 0.9%, increase in averagegross profit per new vehicle retailed.

Used Vehicle Data

Used Vehicle Data 2007 2006 Change % Change 2006 2005 Change % Change

2007 vs. 2006 2006 vs. 2005

Used retail unit sales . . . . . . . . . . . . . . . . . . . . . 102,214 88,262 13,952 15.8% 88,262 75,245 13,017 17.3%

Same-store used retail unit sales . . . . . . . . . . . . . . 87,262 80,810 6,452 8.0% 75,453 72,940 2,513 3.4%

Used retail sales revenue . . . . . . . . . . . . . . . . . . . $ 3,149.1 $2,531.0 $ 618.1 24.4% $2,531.0 $2,015.7 $ 515.3 25.6%

Same-store used retail sales revenue . . . . . . . . . . . $ 2,597.7 $2,268.9 $ 328.8 14.5% $2,145.4 $1,970.1 $ 175.3 8.9%

Used retail sales revenue per unit . . . . . . . . . . . . . $ 30,809 $ 28,676 $ 2,133 7.4% $ 28,676 $ 26,788 $ 1,888 7.0%

Same-store used retail sales revenue per unit . . . . . . $ 29,769 $ 28,077 $ 1,692 6.0% $ 28,434 $ 27,009 $ 1,425 5.3%

Gross profit — used . . . . . . . . . . . . . . . . . . . . . . $ 251.1 $ 214.3 $ 36.8 17.2% $ 214.3 $ 179.0 $ 35.3 19.7%

Same-store gross profit — used . . . . . . . . . . . . . . . $ 216.0 $ 196.9 $ 19.1 9.7% $ 186.8 $ 174.6 $ 12.2 7.0%

Average gross profit per used vehicle retailed . . . . . $ 2,457 $ 2,427 $ 30 1.2% $ 2,427 $ 2,379 $ 48 2.0%

Same-store average gross profit per used vehicleretailed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,476 $ 2,437 $ 39 1.6% $ 2,475 $ 2,393 $ 82 3.4%

Gross margin % — used . . . . . . . . . . . . . . . . . . . 8.0% 8.5% (0.5)% (5.9)% 8.5% 8.9% (0.4)% (4.5)%

Same-store gross margin % — used . . . . . . . . . . . 8.3% 8.7% (0.4)% (4.6)% 8.7% 8.9% (0.2)% (2.2%)

Units

Retail unit sales of used vehicles increased 13,952 units, or 15.8%, from 2006 to 2007 and increased13,017 units, or 17.3%, from 2005 to 2006. The increase from 2006 to 2007 is due to a 6,452 unit, or 8.0%, increasein same-store used retail unit sales, coupled with a 7,500 unit increase from net dealership acquisitions during theyear. The increase from 2005 to 2006 is due to a 2,513 unit, or 3.4%, increase in same-store used retail unit salescoupled with a 10,504 unit increase from net dealership acquisitions during the year. The same-store increase in2007 versus 2006 was driven primarily by increases in our premium and volume foreign brands in the U.S. and U.K.The same-store increase in 2006 versus 2005 was driven primarily by increases in our premium brands in theU.S. and U.K. offset somewhat by decreases in our domestic brands in the U.S. and U.K.

Revenues

Used vehicle retail sales revenue increased $618.1 million, or 24.4%, from 2006 to 2007 and increased$515.3 million, or 25.6%, from 2005 to 2006. The increase from 2006 to 2007 is due to a $328.8 million, or 14.5%,increase in same-store revenues, coupled with a $289.3 million increase from net dealership acquisitions during theyear. The same-store revenue increase is due primarily to a $1,692, or 6.0%, increase in comparative average sellingprice per vehicle, which increased revenue by $136.7 million, coupled with the 8.0% increase in retail unit sales,which increased revenue by $192.1 million. The increase from 2005 to 2006 is due to a $175.3 million, or 8.9%,increase in same-store revenues, coupled with a $340.0 million increase from net dealership acquisitions during theyear. The same-store revenue increase is due to a $1,425, or 5.3%, increase in comparative average selling price perunit, which increased revenue by $103.9 million, coupled with the 3.4% increase in retail unit sales, which increasedrevenue by $71.4 million.

Gross Profit

Retail gross profit from used vehicle sales increased $36.8 million, or 17.2%, from 2006 to 2007 and increased$35.3 million, or 19.7%, from 2005 to 2006. The increase from 2006 to 2007 is due to a $19.1 million, or 9.7%,increase in same-store gross profit, coupled with a $17.7 million increase from net dealership acquisitions duringthe year. The same-store gross profit increase from 2006 to 2007 is due to a $39, or 1.6%, increase in average gross

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profit per used vehicle retailed, which increased gross profit by $3.2 million, coupled with the 8.0% increase in usedretail unit sales, which increased gross profit by $15.9 million. The increase in gross margin from 2006 to 2007included increases in our U.S. and U.K. premium brands and U.S. volume foreign and domestic brands. The same-store increase in retail gross profit from 2005 to 2006 is due to a $12.2 million, or 7.0%, increase in same-store grossprofit, coupled with a $23.1 million increase from net dealership acquisitions during the year. The same-store grossprofit increase is due to an $82, or 3.4%, increase in average gross profit per used vehicle retailed, which increasedgross profit by $6.0 million, coupled with the 3.4% increase in used retail unit sales, which increased gross profit by$6.2 million. The increase in gross margin from 2005 to 2006 included increases in our U.S. and U.K. premiumbrands, offset somewhat by decreases in our U.S. and U.K. domestic brands.

Finance and Insurance Data

Finance and Insurance Data 2007 2006 Change % Change 2006 2005 Change % Change

2007 vs. 2006 2006 vs. 2005

Total retail unit sales . . . . . . . . . . . . . . . . . . . . 297,374 269,806 27,568 10.2% 269,806 241,454 28,352 11.7%

Total same-store retail unit sales . . . . . . . . . . . . . 262,021 254,998 7,023 2.8% 237,317 234,840 2,477 1.1%

Finance and insurance revenue . . . . . . . . . . . . . . $ 290.1 $ 246.4 $ 43.7 17.7% $ 246.4 $ 227.5 $ 18.9 8.3%

Same-store finance and insurance revenue . . . . . . $ 258.3 $ 236.7 $ 21.6 9.1% $ 223.8 $ 223.0 $ 0.8 0.4%

Finance and insurance revenue per unit . . . . . . . . $ 976 $ 913 $ 63 6.9% $ 913 $ 943 $ (30) (3.2)%

Same-store finance and insurance revenueper unit . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 986 $ 928 $ 58 6.2% $ 943 $ 949 $ (6) (0.6%)

Finance and insurance revenue increased $43.7 million, or 17.7%, from 2006 to 2007 and increased$18.9 million, or 8.3%, from 2005 to 2006. The increase from 2006 to 2007 is due to a $21.6 million, or9.1%, increase in same-store revenues, coupled with a $22.1 million increase from net dealership acquisitionsduring the year. The same-store revenue increase is due to the 2.8% increase in retail unit sales, which increasedrevenue by $6.9 million, coupled with a $58, or 6.2%, increase in comparative average finance and insurancerevenue per unit, which increased revenue by $14.7 million. The $58 increase in comparative average finance andinsurance revenue per unit is due primarily to increased sales penetration of certain products, particularly in theU.K. The increase from 2005 to 2006 is due to an $0.8 million, or 0.4%, increase in same-store revenues, coupledwith an $18.1 million increase from net dealership acquisitions during the year. The same-store revenue increase isthe result of the 1.1% increase in retail unit sales, which increased revenue by $2.3 million, offset by a $6, or 0.6%,decrease in comparative average finance and insurance revenue per unit, which decreased revenue by $1.5 million.The $6 decrease in comparative average finance and insurance revenue per unit is due to a reduction in averagefinance and insurance revenue per unit from our Sirius Satellite Radio promotion arrangement and the 2005 sale ofall the remaining variable profits relating to a pool of extended service contracts sold at the company’s dealershipsfrom 2001 through 2005, offset somewhat by an increase in comparative average finance and insurance revenue perunit due primarily to increased sales penetration of certain products.

Service and Parts Data

Service and Parts Data 2007 2006 Change % Change 2006 2005 Change % Change

2007 vs. 2006 2006 vs. 2005

Service and parts revenue. . . . . . . . . . . . $1,414.0 $1,228.9 $185.1 15.1% $1,228.9 $1,023.9 $205.0 20.0%

Same-store service and parts revenue . . . . $1,242.3 $1,157.0 $ 85.3 7.4% $1,076.7 $1,003.9 $ 72.8 7.3%

Gross profit . . . . . . . . . . . . . . . . . . . . . $ 790.4 $ 678.4 $112.0 16.5% $ 678.4 $ 559.3 $119.1 21.3%

Same-store gross profit . . . . . . . . . . . . . $ 696.9 $ 638.5 $ 58.4 9.1% $ 595.2 $ 548.2 $ 47.0 8.6%

Gross margin . . . . . . . . . . . . . . . . . . . . 55.9% 55.2% 0.7% 1.3% 55.2% 54.6% 0.6% 1.1%

Same-store gross margin . . . . . . . . . . . . 56.1% 55.2% 0.9% 1.6% 55.3% 54.6% 0.7% 1.3%

Revenues

Service and parts revenue increased $185.1 million, or 15.1%, from 2006 to 2007 and increased $205.0 million,or 20.0%, from 2005 to 2006. The increase from 2006 to 2007 is due to an $85.3 million, or 7.4%, increase in same-store revenues, coupled with a $99.8 million increase from net dealership acquisitions during the year. The increase

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from 2005 to 2006 is due to a $72.8 million, or 7.3%, increase in same-store revenues, coupled with a $132.2 millionincrease from net dealership acquisitions during the year. We believe that our service and parts business is beingpositively impacted by the growth in total retail unit sales at our dealerships in recent years and capacity increases inour service and parts operations resulting from our facility improvement and expansion programs.

Gross Profit

Service and parts gross profit increased $112.0 million, or 16.5%, from 2006 to 2007 and increased$119.1 million, or 21.3%, from 2005 to 2006. The increase from 2006 to 2007 is due to a $58.4 million, or9.1%, increase in same-store gross profit, coupled with a $53.6 million increase from net dealership acquisitionsduring the year. The same-store gross profit increase is due to the $85.3 million, or 7.4%, increase in revenues,which increased gross profit by $47.8 million, and a 1.6% increase in gross margin percentage, which increasedgross profit by $10.6 million. The increase from 2005 to 2006 is due to a $47.0 million, or 8.6%, increase in same-store gross profit, coupled with a $72.1 million increase from net dealership acquisitions during the year. The same-store gross profit increase is due to the $72.8 million, or 7.3%, increase in revenues, which increased gross profit by$40.1 million, and a 1.3% increase in gross margin percentage, which increased gross profit by $6.9 million.

Selling, General and Administrative

Selling, general and administrative (“SG&A”) expenses increased $194.6 million, or 14.6%, from 2006 to2007 and increased $201.2 million, or 17.7%, from 2005 to 2006. The aggregate increase from 2006 to 2007 is dueto an $84.0 million, or 6.7%, increase in same-store SG&A expenses, coupled with a $110.6 million increase fromnet dealership acquisitions during the year. The aggregate increase in SG&A expenses from 2005 to 2006 is due to a$59.9 million, or 5.4%, increase in same-store SG&A expenses, coupled with a $141.3 million increase from netdealership acquisitions during the year. The increase in same-store SG&A expenses is due in large part to(1) increased variable selling expenses, including increases in variable compensation, as a result of the 6.6% and4.5% increase in retail gross profit over the prior year in 2007 and 2006, respectively, (2) increased rent and relatedcosts in both years due in part to our facility improvement and expansion program and (3) increased advertising andpromotion caused by the overall competitiveness of the retail vehicle market. SG&A expenses as a percentage oftotal revenue were 11.8%, 12.0% and 11.9% in 2007, 2006 and 2005, respectively, and as a percentage of grossprofit were 79.6%, 79.4% and 78.2% in 2007, 2006 and 2005, respectively.

Depreciation and Amortization

Depreciation and amortization increased $7.8 million, or 18.1%, from 2006 to 2007 and increased $5.8 million,or 15.5%, from 2005 to 2006. The increase from 2006 to 2007 is due to a $5.2 million, or 12.7%, increase in same-store depreciation and amortization, coupled with a $2.6 million increase from net dealership acquisitions duringthe year. The increase from 2005 to 2006 is due to a $3.5 million increase from net dealership acquisitions during theyear, coupled with a $2.3 million, or 6.3%, increase in same-store depreciation and amortization. The same-storeincreases in both periods are due in large part to our facility improvement and expansion program.

Floor Plan Interest Expense

Floor plan interest expense increased $14.9 million, or 25.0%, from 2006 to 2007 and increased $13.5 million,or 29.3%, from 2005 to 2006. The increase from 2006 to 2007 is due to an $8.1 million, or 14.3%, increase in same-store floor plan interest expense, coupled with a $6.8 million increase from net dealership acquisitions during theyear. The increase from 2005 to 2006 is due to an $8.0 million, or 17.6%, increase in same-store floor plan interestexpense, coupled with a $5.5 million increase from net dealership acquisitions during the year. Floor plan interestexpense was negatively impacted in 2007 by an increase in our average floor plan notes outstanding. Floor planinterest expense was negatively impacted in 2006 by an increase in our weighted average borrowing rate dueprimarily to increases in the applicable benchmark rates of our revolving floor plan arrangements.

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Other Interest Expense

Other interest expense increased $7.1 million, or 14.4%, from 2006 to 2007 and increased $0.2 million, or0.3%, from 2005 to 2006. The increase from 2006 to 2007 is due to an increase in average total outstandingindebtedness in 2007 compared to 2006, offset by a decrease in our weighted average borrowing rate. The decreasein our weighted average borrowing rate was due primarily to the issuance of $375.0 million of 7.75% SeniorSubordinated Notes on December 7, 2006 which was used to redeem our 9.625% Senior Subordinated Notes inMarch 2007. The increase from 2005 to 2006 is due to an increase in average total outstanding indebtedness in 2006compared to 2005, offset by a decrease in our weighted average borrowing rate. The decrease in our weightedaverage borrowing rate was due primarily to the issuance of $375.0 million of 3.5% Convertible Senior Subor-dinated Notes on January 31, 2006 the proceeds of which were used to repay higher-rate debt under our creditagreement.

Income Taxes

Income taxes decreased $1.6 million, or 2.3%, from 2006 to 2007 and increased $0.4 million, or 0.6%, from2005 to 2006. The decrease from 2006 to 2007 is due primarily to a decrease in pre-tax income. Our effectiveincome tax rate in 2007 benefited from an increase in the relative proportion of our U.K. operations, which are taxedat a lower rate, but was higher on a comparative basis to the prior year due to tax savings from certain tax planninginitiatives that benefited the prior year. The increase from 2005 to 2006 is due primarily to an increase in pre-taxincome being more than offset by a reduction in our effective income tax rate due to an increase in the relativecontribution to earnings of our U.K. operations, which are taxed at a lower rate, and tax savings from certain taxplanning initiatives.

Liquidity and Capital Resources

Our cash requirements are primarily for working capital, inventory financing, the acquisition of newdealerships, the improvement and expansion of existing facilities, the construction of new facilities, and dividends.Historically, these cash requirements have been met through cash flow from operations, borrowings under our creditagreements and floor plan arrangements, the issuance of debt securities, sale-leaseback transactions and theissuance of equity securities. As of December 31, 2007, we had working capital of $205.6 million, including$10.9 million of cash, available to fund our operations and capital commitments. In addition, we had $250.0 millionand £68.8 million ($136.7 million) available for borrowing under our U.S. credit agreement and our U.K. creditagreement, respectively, each of which is discussed below.

We paid the following dividends in 2006 and 2007:

Per Share Dividends

2006 : First Quarter $0.06 2007: First Quarter $0.07

Second Quarter 0.07 Second Quarter 0.07

Third Quarter 0.07 Third Quarter 0.07

Fourth Quarter 0.07 Fourth Quarter 0.09

We have also declared a cash dividend on our common stock of $0.09 cents per share payable on March 3, 2008to shareholders of record on February 11, 2008. Future quarterly or other cash dividends will depend upon ourearnings, capital requirements, financial condition, restrictions on any then existing indebtedness and other factorsconsidered relevant by our Board of Directors.

We have expanded our retail automotive operations primarily through organic growth and through theacquisition of retail automotive dealerships. In addition, one of our subsidiaries is the exclusive distributor of smartfortwo vehicles in the U.S. and Puerto Rico. We believe that cash flow from operations and our existing capitalresources, including the liquidity provided by our credit agreements and floor plan financing arrangements, will besufficient to fund our operations and commitments for at least the next twelve months. To the extent we pursueadditional significant acquisitions, other expansion opportunities, or refinance existing debt, we may need to raiseadditional capital either through the public or private issuance of equity or debt securities or through additionalborrowings, which sources of funds may not necessarily be available on terms acceptable to us, if at all.

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Our board of directors has approved a stock repurchase program for up to $150 million of our outstandingcommon stock. We may, from time to time as market conditions warrant, purchase our outstanding common stockthrough open market purchases, in privately negotiated transactions and other means. We currently intend to fundany repurchases through cash flow from operations and borrowings under our U.S. credit facility. The decision tomake stock repurchases will be based on such factors as the market price of our common stock versus our view of itsintrinsic value, the potential impact on our capital structure and the expected return on competing uses of capitalsuch as strategic store acquisitions and capital investments in our current businesses, as well as any then-existinglimits imposed by our finance agreements.

Inventory Financing

We finance substantially all of our new and a portion of our used vehicle inventories under revolving floor planarrangements with various lenders. In the U.S., the floor plan arrangements are due on demand; however, we aregenerally not required to make loan principal repayments prior to the sale of the vehicles financed. We typicallymake monthly interest payments on the amount financed. In the U.K., substantially all of our floor planarrangements are payable on demand or have an original maturity of 90 days or less and we are generally requiredto repay floor plan advances at the earlier of the sale of the vehicles financed or the stated maturity. The floor planagreements grant a security interest in substantially all of the assets of our dealership subsidiaries. Interest ratesunder the floor plan arrangements are variable and increase or decrease based on changes in various benchmarks.We receive non-refundable credits from certain of our vehicle manufacturers, which are treated as a reduction ofcost of sales as vehicles are sold.

U.S. Credit Agreement

We are party to a credit agreement with DCFS USA LLC and Toyota Motor Credit Corporation, as amended,which provides for up to $250.0 million of borrowing capacity for working capital, acquisitions, capital expen-ditures, investments and for other general corporate purposes, including $10.0 million of availability for letters ofcredit, through September 30, 2010. The revolving loans bear interest at defined London Interbank Offered Rate(“LIBOR”) plus 1.75%.

The U.S. credit agreement is fully and unconditionally guaranteed on a joint and several basis by our domesticsubsidiaries and contains a number of significant covenants that, among other things, restrict our ability to disposeof assets, incur additional indebtedness, repay other indebtedness, pay dividends, create liens on assets, makeinvestments or acquisitions and engage in mergers or consolidations. We are also required to comply with specifiedfinancial and other tests and ratios, each as defined in the U.S. credit agreement, including: a ratio of current assetsto current liabilities, a fixed charge coverage ratio, a ratio of debt to stockholders’ equity, a ratio of debt to earningsbefore interest, taxes, depreciation and amortization (“EBITDA”), a ratio of domestic debt to domestic EBITDA,and a measurement of stockholders’ equity. A breach of these requirements would give rise to certain remediesunder the agreement, the most severe of which is the termination of the agreement and acceleration of the amountsowed. As of December 31, 2007, we were in compliance with all covenants under the U.S. credit agreement, and webelieve we will remain in compliance with such covenants for the foreseeable future. In making such determination,we have considered the current margin of compliance with the covenants and our expected future results ofoperations, working capital requirements, acquisitions, capital expenditures and investments. See “ForwardLooking Statements”.

The U.S. credit agreement also contains typical events of default, including change of control, non-payment ofobligations and cross-defaults to our other material indebtedness. Substantially all of our domestic assets notpledged as security under floor plan arrangements are subject to security interests granted to lenders under theU.S. credit agreement. Other than $0.5 million of outstanding letters of credit, no amounts were outstanding underthe U.S. credit agreement as of December 31, 2007.

U.K. Credit Agreement

Our subsidiaries in the U.K. are party to an agreement with the Royal Bank of Scotland plc, as agent forNational Westminster Bank plc, which provides for a multi-option credit agreement, a fixed rate credit agreement

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and a seasonally adjusted overdraft line of credit to be used to finance acquisitions, working capital, and generalcorporate purposes. The U.K. credit agreement provides for (1) up to £70.0 million in revolving loans throughAugust 31, 2011, which have an original maturity of 90 days or less and bear interest between defined LIBOR plus0.65% and defined LIBOR plus 1.25%, (2) a £30.0 million funded term loan which bears interest between 5.94%and 6.54% and is payable ratably in quarterly intervals through June 30, 2011, and (3) a seasonally adjustedoverdraft line of credit for up to £30.0 million that bears interest at the Bank of England Base Rate plus 1.00% andmatures on August 31, 2011.

The U.K. credit agreement is fully and unconditionally guaranteed on a joint and several basis by our U.K.subsidiaries, and contains a number of significant covenants that, among other things, restrict the ability of our U.K.subsidiaries to pay dividends, dispose of assets, incur additional indebtedness, repay other indebtedness, create lienson assets, make investments or acquisitions and engage in mergers or consolidations. In addition, our U.K.subsidiaries are required to comply with specified ratios and tests, each as defined in the U.K. credit agreement,including: a ratio of earnings before interest and taxes plus rental payments to interest plus rental payments (asdefined), a measurement of maximum capital expenditures, and a debt to EBITDA ratio (as defined). A breach ofthese requirements would give rise to certain remedies under the agreement, the most severe of which is thetermination of the agreement and acceleration of the amounts owed. As of December 31, 2007, we were incompliance with all covenants under the U.K. credit agreement, and we believe we will remain in compliance withsuch covenants for the foreseeable future. In making such determination, we have considered the current margin ofcompliance with the covenants and our expected future results of operations, working capital requirements,acquisitions, capital expenditures and investments in the U.K. See “Forward Looking Statements”.

The U.K. credit agreement also contains typical events of default, including change of control and non-payment of obligations and cross-defaults to other material indebtedness of our U.K. subsidiaries. Substantially allof our U.K. subsidiaries’ assets not pledged as security under floor plan arrangements are subject to securityinterests granted to lenders under the U.K. credit agreement. As of December 31, 2007, outstanding loans under theU.K. credit agreement amounted £45.9 million ($91.3 million).

7.75% Senior Subordinated Notes

On December 7, 2006 we issued $375.0 million aggregate principal amount of 7.75% Senior SubordinatedNotes due 2016 (the “7.75% Notes”). The 7.75% Notes are unsecured senior subordinated notes and are subordinateto all existing and future senior debt, including debt under our credit agreements and floor plan indebtedness. The7.75% Notes are guaranteed by substantially all wholly-owned domestic subsidiaries on a senior subordinated basis.We can redeem all or some of the 7.75% Notes at our option beginning in December 2011 at specified redemptionprices, or prior to December 2011 at 100% of the principal amount of the notes plus an applicable “make-whole”premium, as defined. In addition, we may redeem up to 40% of the 7.75% Notes at specified redemption pricesusing the proceeds of certain equity offerings before December 15, 2009. Upon certain sales of assets or specifickinds of changes of control, we are required to make an offer to purchase the 7.75% Notes. The 7.75% Notes alsocontain customary negative covenants and events of default. As of December 31, 2007, we were in compliance withall negative covenants and there were no events of default.

Senior Subordinated Convertible Notes

On January 31, 2006, we issued $375.0 million aggregate principal amount of 3.50% Senior SubordinatedConvertible Notes due 2026 (the “Convertible Notes”). The Convertible Notes mature on April 1, 2026, unlessearlier converted, redeemed or purchased by us. The Convertible Notes are unsecured senior subordinatedobligations and are guaranteed on an unsecured senior subordinated basis by substantially all of our whollyowned domestic subsidiaries. The Convertible Notes also contain customary negative covenants and events ofdefault. As of December 31, 2007, we were in compliance with all negative covenants and there were no events ofdefault.

Holders of the convertible notes may convert them based on a conversion rate of 42.2052 shares of ourcommon stock per $1,000 principal amount of the Convertible Notes (which is equal to an initial conversion price ofapproximately $23.69 per share), subject to adjustment, only under the following circumstances: (1) in any

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quarterly period commencing after March 31, 2006, if the closing price of our common stock for twenty of the lastthirty trading days in the prior quarter exceeds $28.43 (subject to adjustment), (2) for specified periods, if the tradingprice of the Convertible Notes falls below specific thresholds, (3) if the Convertible Notes are called for redemption,(4) if specified distributions to holders of our common stock are made or specified corporate transactions occur,(5) if a fundamental change (as defined) occurs, or (6) during the ten trading days prior to, but excluding, thematurity date.

Upon conversion of the Convertible Notes, for each $1,000 principal amount of the Convertible Notes, a holderwill receive an amount in cash, in lieu of shares of our common stock, equal to the lesser of (i) $1,000 or (ii) theconversion value, determined in the manner set forth in the indenture covering the Convertible Notes, of the numberof shares of common stock equal to the conversion rate. If the conversion value exceeds $1,000, we will also deliver,at our election, cash, common stock or a combination of cash and common stock with respect to the remaining valuedeliverable upon conversion.

In the event of a conversion due to a change of control on or before April 6, 2011, we will pay, to the extentdescribed in the indenture, a make-whole premium by increasing the conversion rate applicable to such ConvertibleNotes. In addition, we will pay contingent interest in cash, commencing with any six-month period from April 1 toSeptember 30 and from October 1 to March 31, beginning on April 1, 2011, if the average trading price of aConvertible Note for the five trading days ending on the third trading day immediately preceding the first day of thatsix-month period equals 120% or more of the principal amount of the Convertible Note.

On or after April 6, 2011, we may redeem the Convertible Notes, in whole at any time or in part from time totime, for cash at a redemption price of 100% of the principal amount of the Convertible Notes to be redeemed, plusany accrued and unpaid interest to the applicable redemption date. Holders of the Convertible Notes may require usto purchase all or a portion of their Convertible Notes for cash on April 1, 2011, April 1, 2016 or April 1, 2021 at apurchase price equal to 100% of the principal amount of the Convertible Notes to be purchased, plus accrued andunpaid interest, if any, to the applicable purchase date.

9.625% Senior Subordinated Notes

In March 2007, we redeemed our outstanding $300.0 million aggregate principal amount of 9.625% seniorsubordinated notes due 2012 (the “9.625% Notes”). The 9.625% Notes were unsecured senior subordinated notesand were subordinate to all existing senior debt, including debt under our credit agreements and floor planindebtedness. We incurred an $18.6 million pre-tax charge in connection with the redemption, consisting of a$14.4 million redemption premium and the write-off of $4.2 million of unamortized deferred financing costs.

Share Repurchase

On January 26, 2006, we repurchased 1.0 million shares of our outstanding common stock for $19.0 million, or$18.96 per share. These shares and all other shares held as treasury stock were retired during the second quarter of2007.

Interest Rate Swaps

In January 2008, we entered into new three year interest rate swap agreements pursuant to which the LIBORportion of $300.0 million of our U.S. floating rate floor plan debt was fixed at 3.67%. This arrangement is in effectthrough January 2011. We may terminate this arrangement at any time, subject to the settlement at that time of thefair value of the swap arrangement. The swap is designated as a cash flow hedge of future interest payments ofLIBOR based U.S. floor plan borrowings.

We were party to an interest rate swap agreement that expired in January 2008 pursuant to which a notional$200.0 million of our U.S. floating rate debt was exchanged for fixed rate debt. The swap was designated as a cashflow hedge of future interest payments of LIBOR based U.S. floor plan borrowings. As of December 31, 2007, weexpect approximately $0.02 million associated with the swap to be recognized as a reduction of interest expense inJanuary of 2008.

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Other Financing Arrangements

We have in the past and expect in the future to enter into significant sale-leaseback transactions to financecertain property acquisitions and capital expenditures, pursuant to which we sell property and/or leaseholdimprovements to third-parties and agree to lease those assets back for a certain period of time. Such sales generateproceeds which vary from period to period.

Off-Balance Sheet Arrangements — 3.5% Convertible Senior Subordinated Notes due 2026

The Convertible Notes are convertible into shares of our common stock, at the option of the holder, based oncertain conditions described above. Certain of these conditions are linked to the market value of our common stock.This type of financing arrangement was selected by us in order to achieve a more favorable interest rate (as opposedto other forms of available financing). Since we or the holders of the Convertible Notes can redeem these notes onApril 2011, a conversion or a redemption of these notes is likely to occur in 2011. Such redemption conversion willinclude cash for the principal amount of the Convertible Notes then outstanding plus an amount payable in eithercash or stock, at our option, depending on the trading price of our common stock.

Cash Flows

Cash and cash equivalents increased by $5.5 million during the year ended December 31, 2006, and decreasedby $2.3 and $9.2 million during the years ended December 31, 2007 and 2005, respectively. The major componentsof these changes are discussed below.

Cash Flows from Continuing Operating Activities

Cash provided by operating activities was $310.1 million, $116.1 million and $169.8 million during the yearsended December 31, 2007, 2006 and 2005, respectively. Cash flows from operating activities include net incomeadjusted for non-cash items and the effects of changes in working capital.

We finance substantially all of our new and a portion of our used vehicle inventories under revolving floor plannotes payable with various lenders. In accordance with the guidance under SFAS No. 95, “Statement of CashFlows”, we report all cash flows arising in connection with floor plan notes payable to the manufacturer of aparticular new vehicle as an operating activity in our statement of cash flows and all cash flows arising in connectionwith floor plan notes payable to a party other than the manufacturer of a particular new vehicle and all floor plannotes payable relating to pre-owned vehicles as a financing activity in our statement of cash flows. However, webelieve that changes in aggregate floor plan liabilities are typically linked to changes in vehicle inventory and,therefore, are an integral part of understanding changes in our working capital and operating cash flow. As a result,we have presented the following reconciliation of cash flow from operating activities as reported in our condensedconsolidated statement of cash flows as if all changes in vehicle floor plan were classified as an operating activityfor informational purposes:

2007 2006 2005

Year Ended December 31,

Net cash from operating activities as reported . . . . . . . . . . . . . . . . . . . . . . . . . . . $310.1 $116.1 $169.8

Floor plan notes payable — non-trade as reported . . . . . . . . . . . . . . . . . . . . . . . . 193.5 (54.4) 14.9

Net cash from operating activities including all floor plan notes payable . . . . . . . $503.6 $ 61.7 $184.7

Cash Flows from Continuing Investing Activities

Cash used in investing activities was $228.4 million, $488.0 million and $223.2 million during the years endedDecember 31, 2007, 2006 and 2005, respectively. Cash flows from investing activities consist primarily of cash usedfor capital expenditures, proceeds from sale-leaseback transactions and net expenditures for dealership acquisi-tions. Capital expenditures were $195.0 million, $224.0 million and $216.1 million during the years endedDecember 31, 2007, 2006 and 2005, respectively. Capital expenditures relate primarily to improvements to ourexisting dealership facilities and the construction of new facilities. Proceeds from sale-leaseback transactions were$131.8 million, $106.2 million and $118.5 million during the years ended December 31, 2007, 2006 and 2005,

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respectively. Cash used in business acquisitions, net of cash acquired, was $180.7 million, $370.2 million and$125.6 million during the years ended December 31, 2007, 2006 and 2005, respectively, and included repayments ofseller’s floor plan notes payable of $51.9 million, $113.4 million and $44.7 million, respectively. The year endedDecember 31, 2007 also includes $15.5 million of proceeds of other investing activities.

Cash Flows from Continuing Financing Activities

Cash provided by financing activities was $441.2 million and $1.1 million during the years ended Decem-ber 31, 2006 and 2005, respectively, and cash used in financing activities was $180.9 million during the year endedDecember 31, 2007. Cash flows from financing activities include borrowings and repayments of long-term debt, netborrowings or repayments of floor plan notes payable non-trade, proceeds from the issuance of common stock,including proceeds from the exercise of stock options, repurchases of common stock and dividends. During the yearended December 31, 2006 we issued $750.0 million of subordinated debt and we paid $17.2 million of financingcosts. Proceeds of the $750.0 million of subordinated debt issuance were used to repurchase one million shares ofour common stock and to repay debt. This activity, combined with borrowing to fund acquisition and other liquidityrequirements, resulted in net repayments of long-term debt of $211.1 million during the year ended December 31,2006 and allowed us to redeem our 9.625% Notes in early 2007 for $314.4 million, including redemption premiumof $14.4 million. In addition to these activities, we had other net repayments of long-term debt of $34.2 million and$2.4 million during the years ended December 31, 2007 and 2005, respectively. We had net borrowings of floor plannotes payable non-trade of $193.5 and $14.9 million during the years ended December 31, 2007 and 2005,respectively, and net repayments of floor plan notes payable non-trade of $54.4 million during the year endedDecember 31, 2006. During the years ended December 31, 2007, 2006 and 2005, we received proceeds of$2.6 million, $18.1 million and $4.7 million, respectively, from exercises of options for common stock. During theyears ended December 31, 2007, 2006 and 2005, we paid $28.4 million, $25.2 million and $20.8 million,respectively, of cash dividends to our stockholders.

Cash Flows from Discontinued Operations

Cash flows relating to discontinued operations are not currently considered, nor are they expected to beconsidered material to our liquidity or our capital resources. Management does not believe that there is anysignificant past, present or upcoming cash transactions relating to discontinued operations.

Contractual Payment Obligations

The table below sets forth our best estimates as to the amounts and timing of future payments relating to ourmost significant contractual obligations as of December 31, 2007. The information in the table reflects futureunconditional payments and is based upon, among other things, the terms of any relevant agreements. Future events,including acquisitions, divestitures, entering into new operating lease agreements, the amount of borrowings orrepayments under our credit agreements and floor plan arrangements and purchases or refinancing of our securities,could cause actual payments to differ significantly from these amounts. See “Section 1A — Risk Factors.”

TotalLess than

1 year 1 to 3 years 3 to 5 yearsMore than

5 years

Floorplan Notes Payable(A) . . . . . . . . . . . . . . . $1,552.9 $1,552.9 $ — $ — $ —

Long Term Debt Obligations(B) . . . . . . . . . . . . 844.6 14.5 28.2 49.4 752.5

Operating Lease Commitments . . . . . . . . . . . . . 4,772.4 167.6 328.1 321.6 3,955.1

Purchase Obligations . . . . . . . . . . . . . . . . . . . . 189.5 189.5 — — —

Scheduled Interest Payments(B)(C) . . . . . . . . . . 495.7 42.2 84.4 84.4 284.7

Other Long Term Liabilities(D) . . . . . . . . . . . . 48.5 8.1 — — 40.4$7,903.6 $ 1974.8 $440.7 $455.4 $5,032.7

(A) Floor plan notes payable are revolving financing arrangements. Payments are generally made as requiredpursuant to the floor plan borrowing agreements discussed above under “Inventory Financing”.

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(B) Interest and principal repayments under our $375.0 million of 3.5% senior subordinated notes due 2026 arereflected in the table above, however, at our option, certain of these amounts may be settled by in shares ofcommon stock. While these notes are not due until 2026, in 2011 the holders may require us to purchase all or aportion of their notes for cash. This acceleration of ultimate repayment is not reflected in the table above, nor isany optional redemption on our part.

(C) Estimates of future variable rate interest payments under floorplan notes payable and our credit agreements areexcluded. See “Inventory Financing,” “U.S. Credit Agreement”, and “U.K. Credit Agreement” above for adiscussion of such variable rates.

(D) Includes uncertain tax positions. Due to the subjective nature of our uncertain tax positions, we are unable tomake reasonably reliable estimates of the timing of payments arising in connection with the unrecognized taxbenefits. We have thus classified this as “More than 5 years.”

We expect that the amounts above will be funded through cash flow from operations. In the case of balloonpayments at the end of the terms of our debt instruments, we expect to be able to refinance such instruments in thenormal course of business.

Commitments

We are party to a joint venture with respect to our Honda of Mentor dealership in Ohio. We are required torepurchase our partner’s interest in this joint venture in July 2008. We expect this payment to be approximately$4.9 million.

Related Party Transactions

Stockholders Agreement

Roger S. Penske, our Chairman of the Board and Chief Executive Officer, is also Chairman of the Board andChief Executive Officer of Penske Corporation, and through entities affiliated with Penske Corporation, our largeststockholder owning approximately 40% of our outstanding common stock. Mitsui & Co., Ltd. and Mitsui & Co.(USA), Inc. (collectively, “Mitsui”) own approximately 16% of our outstanding common stock. Mitsui, PenskeCorporation and certain other affiliates of Penske Corporation are parties to a stockholders agreement pursuant towhich the Penske affiliated companies agreed to vote their shares for one director who is a representative of Mitsui.In turn, Mitsui agreed to vote their shares for up to fourteen directors voted for by the Penske affiliated companies.This agreement terminates in March 2014, upon the mutual consent of the parties, or when either party no longerowns any of our common stock.

Other Related Party Interests and Transactions

Several of our directors and officers are affiliated with Penske Corporation or related entities. Roger S. Penskeis also a managing member of Penske Capital Partners and Transportation Resource Partners, each organizationsthat undertake investments in transportation-related industries. Richard J. Peters, one of our directors, is a managingdirector of Transportation Resource Partners. Mr. Peters and Roger S. Penske, Jr., our President, are each directorsof Penske Corporation. Eustace W. Mita and Lucio A. Noto (two of our directors) are investors in TransportationResource Partners. One of our directors, Hiroshi Ishikawa, serves as our Executive Vice President — InternationalBusiness Development and serves in a similar capacity for Penske Corporation. Robert H. Kurnick, Jr., our ViceChairman and a director, is also the President and a director of Penske Corporation.

We are currently a tenant under a number of non-cancelable lease agreements with Automotive Group Realty,LLC and its subsidiaries (together “AGR”), which are subsidiaries of Penske Corporation. From time to time, wemay sell AGR real property and improvements that are subsequently leased by AGR to us. In addition, we maypurchase real property or improvements from AGR. Each of these transactions is valued at a price that isindependently confirmed. We sometimes pay to and/or receive fees from Penske Corporation and its affiliates forservices rendered in the normal course of business, or to reimburse payments made to third parties on each others’behalf. These transactions and those relating to AGR mentioned above, are reviewed periodically by our AuditCommittee and reflect the provider’s cost or an amount mutually agreed upon by both parties.

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We and Penske Corporation have entered into a joint insurance agreement which provides that, with respect toour joint insurance policies (which includes our property policy), available coverage with respect to a loss shall bepaid to each party as stipulated in the policies. In the event of losses by us and Penske Corporation that exceed thelimit of liability for any policy or policy period, the total policy proceeds shall be allocated based on the ratio ofpremiums paid.

We have entered into joint ventures with certain related parties as more fully discussed below.

Joint Venture Relationships

From time to time, we enter into joint venture relationships in the ordinary course of business, through whichwe acquire dealerships together with other investors. We may provide these dealerships with working capital andother debt financing at costs that are based on our incremental borrowing rate. As of December 31, 2007, our jointventure relationships were as follows:

Location DealershipsOwnership

Interest

Fairfield, Connecticut . . . . Audi, Mercedes-Benz, Porsche, smart 90.00%(A)(B)

Edison, New Jersey . . . . . Ferrari, Maserati 70.00%(B)

Tysons Corner, Virginia . . Aston Martin, Audi, Mercedes-Benz, Porsche, smart 90.00%(B)(C)

Las Vegas, Nevada . . . . . . Ferrari, Maserati 50.00%(D)

Mentor, Ohio . . . . . . . . . . Honda 75.00%(B)

Munich, Germany . . . . . . BMW, MINI 50.00%(D)

Frankfurt, Germany . . . . . Lexus, Toyota 50.00%(D)

Aachen, Germany. . . . . . . Audi, Lexus, Toyota, Volkswagen 50.00%(D)

Mexico . . . . . . . . . . . . . . Toyota 48.70%(D)

Mexico . . . . . . . . . . . . . . Toyota 45.00%(D)

(A) An entity controlled by one of our directors, Lucio A. Noto (the “Investor”), owns an 10.0% interest in this jointventure, which entitles the Investor to 20% of the operating profits of the dealerships owned by the jointventure. In addition, the Investor has an option to purchase up to a 20% interest in the joint venture for specifiedamounts.

(B) Entity is consolidated in our financial statements.

(C) Roger S. Penske, Jr. owns a 10% interest in this joint venture.

(D) Entity is accounted for using the equity method of accounting.

Cyclicality

Unit sales of motor vehicles, particularly new vehicles, historically have been cyclical, fluctuating with generaleconomic cycles. During economic downturns, the automotive retailing industry tends to experience periods ofdecline and recession similar to those experienced by the general economy. We believe that the industry isinfluenced by general economic conditions and particularly by consumer confidence, the level of personaldiscretionary spending, fuel prices, interest rates and credit availability.

Seasonality

Our business is modestly seasonal overall. Our U.S. operations generally experience higher volumes of vehiclesales in the second and third quarters of each year due in part to consumer buying trends and the introduction of newvehicle models. Also, vehicle demand, and to a lesser extent demand for service and parts, is generally lower duringthe winter months than in other seasons, particularly in regions of the U.S. where dealerships may be subject tosevere winters. Our U.K. operations generally experience higher volumes of vehicle sales in the first and thirdquarters of each year, due primarily to vehicle registration practices in the U.K. In the U.K., vehicles sold afterMarch and September of each year reflect a later date of sale, decreasing their perceived residual value.

47

Effects of Inflation

We believe that inflation rates over the last few years have not had a significant impact on revenues orprofitability. We do not expect inflation to have any near-term material effects on the sale of our products andservices, however, we cannot be sure there will be no such effect in the future.

We finance substantially all of our inventory through various revolving floor plan arrangements with interestrates that vary based on various benchmarks. Such rates have historically increased during periods of increasinginflation.

Forward-Looking Statements

This annual report on Form 10-K contains “forward-looking statements”. Forward-looking statementsgenerally can be identified by the use of terms such as “may,” “will,” “should,” “expect,” “anticipate,” “believe,”“intend,” “plan,” “estimate,” “predict,” “potential,” “forecast,” “continue” or variations of such terms, or the use ofthese terms in the negative. Forward-looking statements include statements regarding our current plans, forecasts,estimates, beliefs or expectations, including, without limitation, statements with respect to:

• our future financial performance;

• future acquisitions;

• future capital expenditures;

• our ability to obtain cost savings and synergies;

• our ability to respond to economic cycles;

• trends in the automotive retail industry and in the general economy in the various countries in which weoperate dealerships;

• our ability to access the remaining availability under our credit agreements;

• our liquidity;

• interest rates;

• trends affecting our future financial condition or results of operations; and

• our business strategy.

Forward-looking statements involve known and unknown risks and uncertainties and are not assurances offuture performance. Actual results may differ materially from anticipated results due to a variety of factors,including the factors identified under “Item 1A. — Risk Factors”. Important factors that could cause actual resultsto differ materially from our expectations include those mentioned in “Item 1A. — Risk Factors” such as thefollowing:

• the ability of automobile manufacturers to exercise significant control over our operations, since we dependon them in order to operate our business;

• because we depend on the success and popularity of the brands we sell, adverse conditions affecting one ormore automobile manufacturers may negatively impact our revenues and profitability;

• we may not be able to satisfy our capital requirements for acquisitions, dealership renovation projects orfinancing the purchase of our inventory;

• our failure to meet a manufacturer’s consumer satisfaction requirements may adversely affect our ability toacquire new dealerships, our ability to obtain incentive payments from manufacturers and our profitability;

• our business and the automotive retail industry in general are susceptible to adverse economic conditions,including changes in interest rates, consumer confidence, fuel prices and credit availability;

• substantial competition in automotive sales and services may adversely affect our profitability;

48

• if we lose key personnel, especially our Chief Executive Officer, or are unable to attract additional qualifiedpersonnel, our business could be adversely affected;

• because most customers finance the cost of purchasing a vehicle, increased interest rates in the U.S. or theU.K. may adversely affect our vehicle sales;

• our business may be adversely affected by import product restrictions and foreign trade risks that may impairour ability to sell foreign vehicles profitably;

• our automobile dealerships are subject to substantial regulation which may adversely affect our profitability;

• if state dealer laws in the U.S. are repealed or weakened, our U.S. automotive dealerships may be subject toincreased competition and may be more susceptible to termination, non-renewal or renegotiation of theirfranchise agreements;

• our U.K. dealerships are not afforded the same legal franchise protections as those in the U.S. so we could besubject to additional competition from other local dealerships in the U.K.;

• our automotive dealerships are subject to environmental regulations that may result in claims and liabilities;

• our dealership operations may be affected by severe weather or other periodic business interruptions;

• our principal stockholders have substantial influence over us and may make decisions with which otherstockholders may disagree;

• some of our directors and officers may have conflicts of interest with respect to certain related partytransactions and other business interests;

• our level of indebtedness may limit our ability to obtain financing for acquisitions and may require that asignificant portion of our cash flow be used for debt service;

• we may be involved in legal proceedings that could have a material adverse effect on our business;

• our operations outside of the U.S. subject our profitability to fluctuations relating to changes in foreigncurrency valuations especially as between the U.S. dollar and British pound;

In addition:

• the price of our common stock is subject to substantial fluctuation, which may be unrelated to ourperformance; and

• shares eligible for future sale, or issuable under the terms of our convertible notes, may cause the marketprice of our common stock to drop significantly, even if our business is doing well.

We urge you to carefully consider these risk factors in evaluating all forward-looking statements regarding ourbusiness. Readers of this report are cautioned not to place undue reliance on the forward-looking statementscontained in this report. All forward-looking statements attributable to us are qualified in their entirety by thiscautionary statement. Except to the extent required by the federal securities laws and the Securities and ExchangeCommission’s rules and regulations, we have no intention or obligation to update publicly any forward-lookingstatements whether as a result of new information, future events or otherwise.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Interest Rates. We are exposed to market risk from changes in interest rates on a significant portion of ouroutstanding indebtedness. Certain balances under our credit agreements bear interest at variable rates based on amargin over defined benchmarks. Based on the amount outstanding as of December 31, 2007, a 100 basis pointchange in interest rates would result in an approximate $0.2 million change to our annual interest expense.

Similarly, amounts outstanding under floor plan financing arrangements bear interest at a variable rate basedon a margin over defined benchmarks. We continually evaluate our exposure to interest rate fluctuations and followestablished policies and procedures to implement strategies designed to manage the amount of variable rateindebtedness outstanding at any point in time in an effort to mitigate the effect of interest rate fluctuations on our

49

earnings and cash flows. We are currently party to swap agreements pursuant to which a notional $300.0 million ofour floating rate floor plan debt was exchanged for fixed rate debt through January 2011. Based on an average of theaggregate amounts outstanding under our floor plan financing arrangements subject to variable interest paymentsduring the year ended December 31, 2007, a 100 basis point change in interest rates would result in an approximate$12.5 million change to our annual interest expense.

Interest rate fluctuations affect the fair market value of our swaps and fixed rate debt, including the7.75% Notes, the Convertible Notes and certain seller financed promissory notes, but, with respect to such fixedrate debt instruments, do not impact our earnings or cash flows.

Foreign Currency Exchange Rates. As of December 31, 2007, we had dealership operations in the U.K. andGermany. In each of these markets, the local currency is the functional currency. Due to the limited number of crossborder transactions we are party to and our intent to remain permanently invested in these foreign markets, we donot hedge against foreign currency fluctuations. In the event our operations change or we change our intent withrespect to the investment in any of our international operations, we would expect to implement strategies designedto manage those risks in an effort to mitigate the effect of foreign currency fluctuations on our earnings and cashflows. A ten percent change in average exchange rates versus the U.S. Dollar would have resulted in an approximate$487.6 million change to our revenues for the year ended December 31, 2007.

In common with other automotive retailers, we purchase certain of our new vehicle and parts inventories fromforeign manufacturers. Although we purchase the majority of our inventories in the local functional currency, ourbusiness is subject to certain risks, including, but not limited to, differing economic conditions, changes in politicalclimate, differing tax structures, other regulations and restrictions and foreign exchange rate volatility which mayinfluence such manufacturers’ ability to provide their products at competitive prices in the local jurisdictions. Ourfuture results could be materially and adversely impacted by changes in these or other factors.

Item 8. Financial Statements and Supplementary Data

The consolidated financial statements listed in the accompanying Index to Consolidated Financial Statementsare incorporated by reference into this Item 8.

Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Under the supervision and with the participation of our management, including the principal executive andfinancial officers, we conducted an evaluation of the effectiveness of our disclosure controls and procedures (assuch term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the“Exchange Act”)), as of the end of the period covered by this report. Our disclosure controls and procedures aredesigned to ensure that information required to be disclosed by us in the reports we file under the Exchange Act isrecorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, andthat such information is accumulated and communicated to management, including our principal executive andfinancial officers, to allow timely discussions regarding required disclosure.

Based upon this evaluation, and as discussed in our report, the Company’s principal executive and financialofficers concluded that our disclosure controls and procedures were effective as of the end of the period covered bythis report. In addition, we maintain internal controls designed to provide us with the information required foraccounting and financial reporting purposes. There were no changes in our internal control over financial reportingthat occurred during our fourth quarter of 2007 that materially affected, or are reasonably likely to materially affect,our internal control over financial reporting.

Item 9B. Other Information

Not applicable.

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PART III

Except as set forth below, the information required by Items 10 through 14 is included in the Company’sdefinitive proxy statement under the captions “Election of Directors,” “Executive Officers,” “CompensationDiscussion and Analysis,” (“CD&A”) “Executive and Directors Compensation”, “Security Ownership of CertainBeneficial Owners and Management,” “Independent Registered Public Accounting Firms,” “Related Party Trans-actions,” “Other Matters” and “Our Corporate Governance.” Such information is incorporated herein by reference.

Securities Authorized for Issuance Under Equity Compensation Plans.

The following table provides details regarding the shares of common stock issuable upon the exercise ofoutstanding options, warrants and rights granted under our equity compensation plans (including individual equitycompensation arrangements) as of December 31, 2007.

Plan Category

Number of securities tobe issued upon exerciseof outstanding options,

warrants and rights(A)

Weighted-averageexercise price of

outstandingoptions, warrants

And rights(B)

Number of securities remainingavailable for future issuanceunder equity compensationplans (excluding securitiesreflected in column (A))

(C)

Equity compensation plans approvedby security holders . . . . . . . . . . . . . . 385,780 9.11 2,630,117

Equity compensation plans notapproved by security holders . . . . . . 0 — —

Total . . . . . . . . . . . . . . . . . . . . . . . . . . 385,780 9.11 2,630,117

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PART IV

Item 15. Exhibits and Financial Statement Schedules

(1) Financial Statements

The consolidated financial statements listed in the accompanying Index to Consolidated Financial Statementsare filed as part of this Annual Report on Form 10-K.

(2) Financial Statement Schedule — Schedule II — Valuation and Qualifying Accounts following the Con-solidated Financial Statements is filed as part of this Annual Report on Form 10-K.

(3) Exhibits — See the Index of Exhibits following the signature page for the exhibits to this Annual Reporton Form 10-K.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on February 25,2008.

PENSKE AUTOMOTIVE GROUP, INC.

By: /s/ ROBERT T. O’SHAUGHNESSY

Robert T. O’ShaughnessyChief Financial Officer

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INDEX OF EXHIBITS

Each management contract or compensatory plan or arrangement is identified with an asterisk.

3.1 Certificate of Incorporation (incorporated by reference to exhibit 3.2 to our Form 8-K filed on July 2,2007).

3.2 Bylaws (incorporated by reference to exhibit 3.1 to our Form 8-K filed on December 7, 2007).

4.1.1 Indenture regarding our 3.5% senior subordinated convertible notes due 2026, dated January 31, 2006,by and among us, as Issuer, the subsidiary guarantors named therein and The Bank of New YorkTrust Company, N.A., as trustee (incorporated by reference to exhibit 4.1 to our Form 8-K filedFebruary 2, 2006).

4.1.2 Amended and Restated Supplemental Indenture regarding our 3.5% senior subordinated convertiblenotes due 2026 dated as of February 21, 2008, among us, as Issuer, and certain of our domesticsubsidiaries, as Guarantors, and The Bank of New York Trust Company, N.A., as trustee.

4.2.1 Indenture regarding our 7.75% senior subordinated notes due 2016 dated December 7, 2006, by andamong us as Issuer, the subsidiary guarantors named therein and The Bank of New York Trust Company,N.A., as trustee (incorporated by reference to exhibit 4.1 to our current report on Form 8-K filed onDecember 12, 2006).

4.2.2 Amended and Restated Supplemental Indenture regarding 7.75% Senior Subordinated Notes due 2016dated February 21, 2008, among us, as Issuer, and certain of our domestic subsidiaries, as Guarantors,and Bank of New York Trust Company, N.A., as trustee.

4.3.1 Second Amended and Restated Credit Agreement, dated as of September 8, 2004, among us,DaimlerChrysler Financial Services Americas LLC and Toyota Motor Credit Corporation(incorporated by reference to our September 8, 2004 Form 8-K).

4.3.2 Second Amended and Restated Security Agreement dated as of September 8, 2004 among us,DaimlerChrysler Financial Services Americas LLC and Toyota Motor Credit Corporation(incorporated by reference to Exhibit 10.2 to our September 8, 2004 Form 8-K).

4.3.3 First amendment dated April 18, 2006 to the Second Amended and Restated Credit Agreement datedSeptember 8, 2004 by and among us, DaimlerChrysler Financial Services Americas LLC and ToyotaMotor Credit Corporation (incorporated by reference from exhibit 4.1 to our 8-K filed April 18, 2006).

4.3.4 Second amendment dated May 9, 2006 to the Second Amended and Restated Credit Agreement datedSeptember 8, 2004 by and among us, DaimlerChrysler Financial Services Americas LLC and ToyotaMotor Credit Corporation (incorporated by reference from exhibit 4.4 to our 10-Q filed May 10, 2006).

4.3.5 Third amendment dated August 8, 2006 to the Second Amended and Restated Credit Agreement datedSeptember 8, 2004 by and among us, DaimlerChrysler Financial Services Americas LLC and ToyotaMotor Credit Corporation (incorporated by reference to exhibit 4.1 to our Form 10-Q filed on August 9,2006).

4.3.6 Fourth Amendment dated December 19, 2007 to the Second Amended and Restated Credit Agreementdated September 8, 2004 by and among us, DaimlerChrysler Financial Services Americas LLC andToyota Motor Credit Corporation (incorporated by reference to exhibit 4.1 to our Form 8-K filedDecember 21, 2007.)

4.5.1 Multi-Option Credit Agreement dated as of August 31, 2006 between Sytner Group Limited and TheRoyal Bank of Scotland, plc, as agent for National Westminster Bank Plc. (incorporated by reference toexhibit 4.1 to our Form 8-K filed on September 5, 2006).

4.5.2 Fixed Rate Credit Agreement dated as of August 31, 2006 between Sytner Group Limited and The RoyalBank of Scotland, plc, as agent for National Westminster Bank Plc. (incorporated by reference toexhibit 4.2 to our Form 8-K filed on September 5, 2006).

4.5.3 Seasonally Adjusted Overdraft Agreement dated as of August 31, 2006 between Sytner Group Limitedand The Royal Bank of Scotland, plc, as agent for National Westminster Bank Plc. (incorporated byreference to exhibit 4.3 to our Form 8-K filed on September 5, 2006).

10.1 Form of Dealer Agreement with Honda Automobile Division, American Honda Motor Co.(incorporated by reference to exhibit 10.2.3 to our 2001 Form 10-K).

10.2 Form of Car Center Agreement with BMW of North America, Inc. (incorporated by reference toexhibit 10.2.5 to our 2001 Form 10-K).

54

10.3 Form of SAV Center Agreement with BMW of North America, Inc. (incorporated by reference toexhibit 10.2.6 to our 2001 Form 10-K).

10.4 Form of Dealership Agreement with BMW (GB) Limited

10.5 Form of Dealer Agreement with Toyota Motor Company (incorporated by reference to exhibit 10.2.7 toour 2001 Form 10-K).

10.6 Form of Mercedes-Benz USA, Inc. Passenger and Car Retailer Agreement (incorporated by reference toexhibit 10.2.11 to our Form 10-Q for the quarter ended March 31, 2000).

10.7 Form of Mercedes-Benz USA, Inc. Light Truck Retailer Agreement (incorporated by reference toexhibit 10.2.12 to our Form 10-Q for the quarter ended March 31, 2000).

10.8 Distributor Agreement dated October 31, 2006 between smart gmbh and smart USA Distributor LLC**

*10.9 Amended and Restated Penske Automotive Group, Inc. 2002 Equity Compensation Plan.

*10.10 Form of Restricted Stock Agreement (incorporated by reference to exhibit 10.3 to our Form 10-Q for thequarter ended June 30, 2003).

*10.11 Amended and Restated Penske Automotive Group, Inc. Non-Employee Director Compensation Plan.

*10.12 Penske Automotive Group, Inc. Management Incentive Plan.

10.13.1 First Amended and Restated Limited Liability Company Agreement dated April 1, 2003 between UAGConnecticut I, LLC and Noto Holdings, LLC (incorporated by reference to exhibit 10.3 to our Form 10-Qfiled May 15, 2003).

10.13.2 Letter Agreement dated April 1, 2003 among UAG Connecticut I, LLC, Noto Holdings, LLC and theother parties named therein (incorporated by reference to exhibit 10.4 to our Form 10-Q filed May 15,2003.

10.13.3 Letter Agreement dated April 1, 2003 between UAG Connecticut I, LLC and Noto Holdings, LLC(incorporated by reference to exhibit 10.5 to our Form 10-Q filed May 15, 2003).

10.14 Registration Rights Agreement among us and Penske Automotive Holdings Corp. dated as ofDecember 22, 2000 (incorporated by reference to exhibit 10.26.1 to our Form 10-K filed February 6,2002.

10.15 Second Amended and Restated Registration Rights Agreement among us, Mitsui & Co., Ltd. andMitsui & Co. (U.S.A.), Inc. dated as of March 26, 2004 (incorporated by reference to the exhibit 10.2 toour March 26, 2004 Form 8-K).

10.16 Letter Agreement among Penske Corporation, Penske Capital Partners, L.L.C., Penske AutomotiveHoldings Corp., International Motor Cars Group I, L.L.C., Mitsui & Co., Ltd. and Mitsui & Co.(U.S.A.), Inc. dated April 4, 2003 (incorporated by reference to exhibit 5 to the Schedule 13D filed byMitsui on April 10, 2003).

10.17 Purchase Agreement by and between Mitsui & Co., Ltd., Mitsui & Co. (U.S.A.), Inc., InternationalMotor Cars Group I, L.L.C., International Motor Cars Group II, L.L.C., Penske Corporation, PenskeAutomotive Holdings Corp, and Penske Automotive Group, Inc. (incorporated by reference toexhibit 10.1 to our Form 8-K filed on February 17, 2004).

10.18 HBL, LLC Limited Liability Company Agreement dated December 31, 2001, between H.B.L.Holdings, Inc. and Roger S. Penske, Jr. (incorporated by reference to exhibit 10.28.1 to registrationstatement no. 333-82264 filed February 6, 2002).

10.19 Stockholders Agreement among International Motor Cars Group II, L.L.C., Penske AutomotiveHoldings Corp., Penske Corporation and Mitsui & Co., Ltd. and Mitsui & Co. (USA), Inc. dated asof March 26, 2004 (incorporated by reference to exhibit 10.1 to our March 26, 2004 Form 8-K).

10.20 VMC Holding Corporation Stockholders’ Agreement dated April 28, 2005 among VMC HoldingCorporation, U.S., Transportation Resource Partners, LP., Penske Truck Leasing Co. LLP., and OpusVentures General Partners Limited (incorporated by reference to exhibit 10.1 to our Form 10-Q filed onMay 5, 2005).

10.21 Management Services Agreement dated April 28, 2005 among VMC Acquisition Corporation,Transportation Resource Advisors LLC., Penske Truck Leasing Co. L.P. and Opus Ventures GeneralPartner Limited (incorporated by reference to exhibit 10.1 to our Form 10-Q filed on May 5, 2005).

10.22 Joint Insurance Agreement dated August 7, 2006 between us and Penske Corporation (incorporated byreference to exhibit 10.1 to our Form 10-Q filed August 9, 2006).

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12 Computation of Ratio of Earnings to Fixed Charges.

21 Subsidiary List

23.1 Consent of Deloitte & Touche LLP.

23.2 Consent of KPMG Audit Plc.

31.1 Rule 13(a)-14(a)/15(d)-14(a) Certification.

31.2 Rule 13(a)-14(a)/15(d)-14(a) Certification.

32 Section 1350 Certifications.

* Compensatory plans or contracts

** Portions of this exhibit have been omitted and filed separately with the SEC pursuant to a request forconfidential treatment.

56

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

PENSKE AUTOMOTIVE GROUP, INCAs of December 31, 2007 and 2006 and For the Years Ended

December 31, 2007, 2006 and 2005

Management Reports on Internal Control Over Financial Reporting. . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2

Reports of Independent Registered Public Accounting Firms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-3

Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-7

Consolidated Statements of Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-8

Consolidated Statements of Stockholders’ Equity and Comprehensive Income . . . . . . . . . . . . . . . . . . . . F-9

Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-10

Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-11

F-1

MANAGEMENT REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The management of Penske Automotive Group, Inc. and subsidiaries (the “Company”) is responsible forestablishing and maintaining adequate internal control over financial reporting. The Company’s internal controlsystem was designed to provide reasonable assurance to the Company’s management and board of directors that theCompany’s internal control over financial reporting provides reasonable assurance regarding the reliability offinancial reporting and the preparation and presentation of financial statements for external purposes in accordancewith accounting principles generally accepted in the United States of America.

All internal control systems, no matter how well designed, have inherent limitations. Therefore, even thosesystems determined to be effective can provide only reasonable assurance with respect to financial statementpreparation and presentation.

Management assessed the effectiveness of the Company’s internal control over financial reporting as ofDecember 31, 2007. In making this assessment, it used the criteria set forth by the Committee of SponsoringOrganizations of the Treadway Commission in Internal Control — Integrated Framework. Based on our assessmentwe believe that, as of December 31, 2007, the Company’s internal control over financial reporting is effective basedon those criteria.

The Company’s independent registered public accounting firm that audited the consolidated financialstatements included in the Company’s Annual Report on Form 10-K has issued an audit report on the effectivenessof the Company’s internal control over financial reporting. This report appears on page F-3.

Penske Automotive Group, Inc.February 25, 2008

MANAGEMENT REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The management of UAG UK Holdings Limited and subsidiaries (the “Company”) is responsible forestablishing and maintaining adequate internal control over financial reporting. The Company’s internal controlsystem was designed to provide reasonable assurance to the Company’s management and board of directors that theCompany’s internal control over financial reporting provides reasonable assurance regarding the reliability offinancial reporting and the preparation and presentation of financial statements for external purposes in accordancewith accounting principles generally accepted in the United States of America.

All internal control systems, no matter how well designed, have inherent limitations. Therefore, even thosesystems determined to be effective can provide only reasonable assurance with respect to financial statementpreparation and presentation.

Management assessed the effectiveness of the Company’s internal control over financial reporting as ofDecember 31, 2007. In making this assessment, it used the criteria set forth by the Committee of SponsoringOrganizations of the Treadway Commission in Internal Control — Integrated Framework. Based on our assessmentwe believe that, as of December 31, 2007, the Company’s internal control over financial reporting is effective basedon those criteria.

The Company’s independent registered public accounting firm that audited the consolidated financialstatements of UAG UK Holdings Limited has issued an audit report on the effectiveness of the Company’sinternal control over financial reporting. This report appears on page F-5.

UAG UK Holdings LimitedFebruary 25, 2008

F-2

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of Penske Automotive Group, Inc.Bloomfield Hills, Michigan

We have audited the accompanying consolidated balance sheets of Penske Automotive Group, Inc. andsubsidiaries (the “Company”) as of December 31, 2007 and 2006, and the related consolidated statements ofincome, stockholders’ equity and comprehensive income (loss), and cash flows for each of the three years in theperiod ended December 31, 2007. Our audits also included the financial statement schedule listed in the Index atItem 15. We also have audited the Company’s internal control over financial reporting as of December 31, 2007based on criteria established in the Internal Control — Integrated Framework issued by the Committee ofSponsoring Organizations of the Treadway Commission. The Company’s management is responsible for thesefinancial statements and financial statement schedule, for maintaining effective internal control over financialreporting, and for its assessment of the effectiveness of internal control over financial reporting, included in theaccompanying Management Report on Internal Control over Financial Reporting. Our responsibility is to expressan opinion on these financial statements and financial statement schedule and an opinion on the Company’s internalcontrol over financial reporting based on our audits. We did not audit the financial statements or the effectiveness ofinternal control over financial reporting of UAG UK Holdings Limited and subsidiaries (a consolidated subsidiary),which statements reflect total assets constituting 32% and 31% of consolidated total assets as of December 31, 2007and 2006, respectively, and total revenues constituting 36%, 31%, and 29% of consolidated total revenues andincome from continuing operations constituting 48%, 37% and 32% of consolidated income from continuingoperations for the years ended December 31, 2007, 2006, and 2005, respectively. Those statements and theeffectiveness of UAG UK Holdings Limited and subsidiaries’ internal control over financial reporting were auditedby other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts and tothe effectiveness of UAG UK Holdings Limited and subsidiaries’ internal control over financial reporting is basedsolely on the report of the other auditors.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance aboutwhether the financial statements are free of material misstatement and whether effective internal control overfinancial reporting was maintained in all material respects. Our audits of the financial statements includedexamining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessingthe accounting principles used and significant estimates made by management, and evaluating the overall financialstatement presentation. Our audit of internal control over financial reporting included obtaining an understanding ofinternal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating thedesign and operating effectiveness of internal control based on the assessed risk. Our audits also includedperforming such other procedures as we considered necessary in the circumstances. We believe that our auditsand the report of the other auditors provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed by, or under the supervision of, thecompany’s principal executive and principal financial officers, or persons performing similar functions, andeffected by the company’s board of directors, management, and other personnel to provide reasonable assuranceregarding the reliability of financial reporting and the preparation of financial statements for external purposes inaccordance with generally accepted accounting principles. A company’s internal control over financial reportingincludes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonableassurance that transactions are recorded as necessary to permit preparation of financial statements in accordancewith generally accepted accounting principles and that receipts and expenditures of the company are being madeonly in accordance with authorizations of management and directors of the company; and (3) provide reasonableassurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’sassets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility ofcollusion or improper management override of controls, material misstatements due to error or fraud may not beprevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal

F-3

control over financial reporting to future periods are subject to the risk that the controls may become inadequatebecause of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, based on our audits and the report of the other auditors, such consolidated financial statementspresent fairly, in all material respects, the financial position of the Company at December 31, 2007 and 2006, andthe results of its operations and their cash flows for each of the three years in the period ended December 31, 2007, inconformity with accounting principles generally accepted in the United States of America. Also, in our opinion,based on our audits and (as to the amounts included for UAG UK Holdings Limited and subsidiaries) the report ofthe other auditors, such financial statement schedule, when considered in relation to the basic consolidated financialstatements taken as a whole, presents fairly, in all material respects, the information set forth therein. Also, in ouropinion, based on our audit and the report of the other auditors, the Company maintained, in all material respects,effective internal control over financial reporting as of December 31, 2007, based on the criteria established inInternal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the TreadwayCommission.

As discussed in Note 1 to the consolidated financial statements, effective January 1, 2006, the Companyelected application of Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatementswhen Quantifying Misstatements in Current Year Financial Statements”.

/s/ Deloitte & Touche LLPDetroit, MichiganFebruary 25, 2008

F-4

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and StockholdersUAG UK Holdings Limited:

We have audited the accompanying consolidated balance sheets of UAG UK Holdings Limited and subsid-iaries (the “Company”) as of December 31, 2007 and 2006, and the related consolidated statements of income,stockholders’ equity and comprehensive income, and cash flows for each of the years in the three-year period endedDecember 31, 2007. In connection with our audits of the consolidated financial statements, we also have audited therelated financial statement schedule. We also have audited UAG UK Holdings Limited’s internal control overfinancial reporting as of December 31, 2007, based on criteria established in Internal Control — IntegratedFramework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). TheCompany’s management is responsible for these consolidated financial statements and financial statementschedule, for maintaining effective internal control over financial reporting, and for its assessment of theeffectiveness of internal control over financial reporting, included in the accompanying Management Report onInternal Control over Financial Reporting. Our responsibility is to express an opinion on these consolidatedfinancial statements and financial statement schedule and an opinion on the Company’s internal control overfinancial reporting based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board(United States). Those standards require that we plan and perform the audits to obtain reasonable assurance aboutwhether the financial statements are free of material misstatement and whether effective internal control overfinancial reporting was maintained in all material respects. Our audits of the consolidated financial statementsincluded examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements,assessing the accounting principles used and significant estimates made by management, and evaluating the overallfinancial statement presentation. Our audit of internal control over financial reporting included obtaining anunderstanding of internal control over financial reporting, assessing the risk that a material weakness exists, andtesting and evaluating the design and operating effectiveness of internal control based on the assessed risk. Ouraudits also included performing such other procedures as we considered necessary in the circumstances. We believethat our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assuranceregarding the reliability of financial reporting and the preparation of financial statements for external purposes inaccordance with generally accepted accounting principles. A company’s internal control over financial reportingincludes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonableassurance that transactions are recorded as necessary to permit preparation of financial statements in accordancewith generally accepted accounting principles, and that receipts and expenditures of the company are being madeonly in accordance with authorizations of management and directors of the company; and (3) provide reasonableassurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’sassets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detectmisstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk thatcontrols may become inadequate because of changes in conditions, or that the degree of compliance with thepolicies or procedures may deteriorate.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects,the financial position of the Company as of December 31, 2007 and 2006, and the results of its operations and itscash flows for each of the years in the three-year period ended December 31, 2007, in conformity with accountingprinciples generally accepted in the United States of America. Also in our opinion, the related financial statementschedule, when considered in relation to the basic consolidated financial statements taken as a whole, presentsfairly, in all material respects, the information set forth therein. Also in our opinion, the Company maintained, in allmaterial respects, effective internal control over financial reporting as of December 31, 2007, based on criteria

F-5

established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations ofthe Treadway Commission.

As discussed in Note 1 to the consolidated financial statements, effective January 1, 2006, the Companyelected application of Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatementswhen Quantifying Misstatements in Current Year Financial Statements”.

/s/ KPMG Audit Plc

Birmingham, United KingdomFebruary 25, 2008

F-6

PENSKE AUTOMOTIVE GROUP, INC.

CONSOLIDATED BALANCE SHEETS

2007 2006December 31,

(In thousands, exceptper share amounts)

ASSETSCash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,895 $ 13,147Accounts receivable, net of allowance for doubtful accounts of $2,949 and $2,735,

as of December 31, 2007 and 2006, respectively . . . . . . . . . . . . . . . . . . . . . . . . 449,278 465,579Inventories, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,688,286 1,506,237Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66,312 71,398Assets held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86,838 193,026

Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,301,609 2,249,387Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 618,491 592,718Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,424,853 1,274,410Franchise value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 238,706 243,635Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84,894 109,652

Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,668,553 $4,469,802

LIABILITIES AND STOCKHOLDERS’ EQUITYFloor plan notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,074,820 $ 872,906Floor plan notes payable — non-trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 478,077 296,580Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 268,214 298,066Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 212,601 213,957Current portion of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,522 13,385Liabilities held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47,805 56,972

Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,096,039 1,751,866Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 830,106 1,168,666Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 320,949 253,617

Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,247,094 3,174,149Commitments and contingent liabilitiesStockholders’ EquityPreferred Stock, $0.0001 par value; 100 shares authorized; none issued and

outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — —Common Stock, $0.0001 par value, 240,000 shares authorized; 95,020 shares

issued and outstanding at December 31, 2007; 94,468 shares issued andoutstanding at December 31, 2006. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 9

Non-voting Common Stock, $0.0001 par value, 7,125 shares authorized; noneissued and outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — —

Class C Common Stock, $0.0001 par value, 20,000 shares authorized; none issuedand outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — —

Additional paid-in-capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 733,896 768,794Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 587,566 492,704Accumulated other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99,988 79,379Treasury stock, at cost; 0 and 5,306 shares at December 31, 2007 and 2006,

respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (45,233)

Total Stockholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,421,459 1,295,653

Total Liabilities and Stockholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,668,553 $4,469,802

See Notes to Consolidated Financial Statements.

F-7

PENSKE AUTOMOTIVE GROUP, INC.

CONSOLIDATED STATEMENTS OF INCOME

2007 2006 2005Year Ended December 31,

(In thousands, except per share amounts)

Revenue:New vehicle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,008,071 $ 6,185,880 $5,511,081Used vehicle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,149,145 2,531,001 2,015,657Finance and insurance, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . 290,144 246,448 227,487Service and parts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,413,986 1,228,876 1,023,853Fleet and wholesale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,096,393 934,514 774,860

Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,957,739 11,126,719 9,552,938

Cost of sales:New vehicle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,417,064 5,644,220 5,024,711Used vehicle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,898,051 2,316,748 1,836,663Service and parts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 623,585 550,520 464,490Fleet and wholesale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,093,830 930,967 774,086

Total cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,032,530 9,442,455 8,099,950

Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,925,209 1,684,264 1,452,988Selling, general and administrative expenses . . . . . . . . . . . . . . 1,531,628 1,337,019 1,135,814Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . 50,957 43,164 37,362

Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 342,624 304,081 279,812Floor plan interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (74,749) (59,806) (46,266)Other interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (56,245) (49,174) (49,004)Equity in earnings of affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,084 8,201 4,271Loss on debt redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (18,634) — —

Income from continuing operations before income taxes andminority interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 197,080 203,302 188,813

Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (67,310) (68,906) (68,504)Minority interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,972) (2,172) (1,814)

Income from continuing operations . . . . . . . . . . . . . . . . . . . . . 127,798 132,224 118,495(Loss) income from discontinued operations, net of tax . . . . . . . . (59) (7,523) 478

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 127,739 $ 124,701 $ 118,973

Basic earnings per share:Continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.36 $ 1.42 $ 1.28Discontinued operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.00) (0.08) 0.01Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.36 $ 1.34 $ 1.28Shares used in determining basic earnings per share . . . . . . . . . 94,104 93,393 92,832

Diluted earnings per share:Continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.35 $ 1.40 $ 1.26Discontinued operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.00) (0.08) 0.01Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.35 $ 1.32 $ 1.27Shares used in determining diluted earnings per share . . . . . . . 94,558 94,178 93,932Cash dividends per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.30 $ 0.27 $ 0.23

See Notes to Consolidated Financial Statements.

F-8

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F-9

PENSKE AUTOMOTIVE GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

2007 2006 2005

Year Ended December 31,

(In thousands)

Operating Activities:Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 127,739 $ 124,701 $ 118,973Adjustments to reconcile net income to net cash from continuing operating

activities:Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,957 43,164 37,362Undistributed earnings of equity method investments . . . . . . . . . . . . . . . . . . . . (4,084) (7,951) (4,271)Loss (Income) from discontinued operations, net of tax . . . . . . . . . . . . . . . . . . 59 7,523 (478)Loss on debt redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,634 — —Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,744 29,947 17,381Minority interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,972 2,172 1,814Changes in operating assets and liabilities:Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,668 (49,198) (59,462)Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (140,613) (213,665) 23,154Floor plan notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 209,556 139,874 25,555Accounts payable and accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (29,221) 54,229 (19,099)Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,664 (14,719) 28,889

Net cash from continuing operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . 310,075 116,077 169,818

Investing Activities:Purchase of equipment and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (194,954) (223,967) (216,125)Proceeds from sale-leaseback transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131,793 106,167 118,470Dealership acquisitions, net, including repayment of sellers floor plan notes

payable of $51,904, $113,386 and $44,745, respectively . . . . . . . . . . . . . . . . . . (180,721) (370,231) (125,579)Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,518 — —

Net cash from continuing investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . (228,364) (488,031) (223,234)

Financing Activities:Proceeds from borrowings under U.S. Credit Agreement . . . . . . . . . . . . . . . . . . . 426,900 441,500 195,000Repayments under U.S. Credit Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (426,900) (713,500) (177,800)Issuance of subordinated debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 750,000 —Net (repayments) borrowings of other long-term debt . . . . . . . . . . . . . . . . . . . . . (34,190) 60,928 (14,844)Net borrowings (repayments) of floor plan notes payable — non-trade . . . . . . . . . . 193,537 (54,395) 14,900Payment of deferred financing costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (17,210) —Redemption 95⁄8% Senior Subordinated Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . (314,439) — —Proceeds from exercises of common stock including excess tax benefit . . . . . . . . . 2,614 18,069 4,674Repurchase of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (18,955) —Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (28,447) (25,215) (20,844)

Net cash from continuing financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . (180,925) 441,222 1,086

Discontinued operations:Net cash from discontinued operating activities . . . . . . . . . . . . . . . . . . . . . . . . 10,587 (64,009) (14,461)Net cash from discontinued investing activities . . . . . . . . . . . . . . . . . . . . . . . . 69,969 56,023 70,950Net cash from discontinued financing activities . . . . . . . . . . . . . . . . . . . . . . . . 16,406 (55,784) (13,381)

Net cash from discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96,962 (63,770) 43,108

Net change in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,252) 5,498 (9,222)Cash and cash equivalents, beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . 13,147 7,649 16,871

Cash and cash equivalents, end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,895 $ 13,147 $ 7,649

Supplemental disclosures of cash flow information:Cash paid for:

Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 138,941 $ 105,787 $ 98,815Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,054 35,230 37,461

Seller financed/assumed debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,992 64,168 5,300

See Notes to Consolidated Financial Statements.

F-10

PENSKE AUTOMOTIVE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In thousands, except per share amounts)

1. Organization and Summary of Significant Accounting Policies

Business Overview and Concentrations

Penske Automotive Group, Inc. (the “Company”) is engaged in the sale of new and used motor vehicles andrelated products and services, including vehicle service, parts, collision repair, finance and lease contracts, third-party insurance products and other aftermarket products. The Company operates dealerships under franchiseagreements with a number of automotive manufacturers. In accordance with individual franchise agreements, eachdealership is subject to certain rights and restrictions typical of the industry. The ability of the manufacturers toinfluence the operations of the dealerships, or the loss of a franchise agreement, could have a material impact on theCompany’s operating results, financial position or cash flows. For the year ended December 31, 2007, BMW/MINIaccounted for 22% of the Company’s total revenues, Toyota/Lexus brands accounted for 20%, Honda/Acuraaccounted for 15% and Daimler brands accounted for 11%. No other manufacturer accounted for more than 10% ofour total revenue. At December 31, 2007 and 2006, the Company had receivables from manufacturers of $89,551and $89,480, respectively. In addition, a large portion of the Company’s contracts in transit are due frommanufacturers’ captive finance subsidiaries. In 2007, the Company established a wholly-owned subsidiary, smartUSA Distributor LLC, which is the exclusive distributor of the smart fortwo vehicle in the U.S. and Puerto Rico.

Basis of Presentation

The consolidated financial statements include all majority-owned subsidiaries. Investments in affiliatedcompanies, typically representing an ownership interest in the voting stock of the affiliate of between 20% and 50%,are stated at cost of acquisition plus the Company’s equity in undistributed net income since acquisition. Allsignificant intercompany accounts and transactions have been eliminated in consolidation.

The consolidated financial statements have been updated for entities that have been treated as discontinuedoperations through December 31, 2007 in accordance with Statement of Financial Accounting Standards (“SFAS”)No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets.

In September 2006, the SEC released Staff Accounting Bulletin No. 108, “Considering the Effects of PriorYear Misstatements When Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”), whichpermits the Company to adjust for the cumulative effect of prior period immaterial errors in the carrying amount ofassets and liabilities as of the beginning of the current fiscal year, with an offsetting adjustment to the openingbalance of retained earnings in the year of adoption. SAB 108 requires the adjustment of any prior quarterlyfinancial statements within the fiscal year of adoption for the effects of such errors on the quarters when theinformation is next presented. Such adjustments do not require previously filed reports with the SEC to be amended.SAB 108 was effective for the Company for the fiscal year ending December 31, 2006. As a result, the Companyadjusted its opening retained earnings for fiscal 2006 and its financial results for the first three quarters of fiscal2006 to correct errors related to operating leases with scheduled rent increases which were not accounted for on astraight line basis over the rental period. The errors, which were previously determined to be immaterial on aquantitative and qualitative basis under the Company’s assessment methodology for each individual period,impacted net income by $804 during the year ended December 31, 2005. A summary of the amounts of the errorsfollows:

2006

Cumulative effect on stockholders’ equity as of January 1, . . . . . . . . . . . . . . . . . . . . . . . . $(10,792)

Effect on:

Net income for the three months ended March 31, . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (138)

Net income for the three months ended June 30, . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (143)

Net income for the three months ended September 30, . . . . . . . . . . . . . . . . . . . . . . . . . $ (143)

F-11

Results for the year ended December 31, 2007 include charges of $18,634 ($12,300 after-tax) relating to theredemption of the $300.0 million aggregate principal amount of 9.625% Senior Subordinated Notes and $6,267($4,500 after tax) relating to impairment losses. Results for the year ended December 31, 2005 include $8,163($5,200 after-tax) of earnings attributable to the sale of all the remaining variable profits relating to the pool ofextended service contracts sold at the Company’s dealerships from 2001 through 2005.

Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in theUnited States of America requires management to make estimates and assumptions that affect the reported amountsof assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, andthe reported amounts of revenues and expenses during the reporting period. Actual results could differ from thoseestimates. The accounts requiring the use of significant estimates include accounts receivable, inventories, incometaxes, intangible assets and certain reserves.

Cash and Cash Equivalents

Cash and cash equivalents include all highly-liquid investments that have an original maturity of three monthsor less at the date of purchase.

Contracts in Transit

Contracts in transit represent receivables from unrelated finance companies for the portion of the vehiclepurchase price financed by customers through sources arranged by the Company. Contracts in transit, included inaccounts receivable, net in the Company’s consolidated balance sheets, amounted to $182,443 and $181,683 as ofDecember 31, 2007 and 2006, respectively.

Inventory Valuation

Inventories are stated at the lower of cost or market. Cost for new and used vehicle inventories is determinedusing the specific identification method. Cost for parts and accessories are based on factory list prices.

Property and Equipment

Property and equipment are recorded at cost and depreciated over estimated useful lives using the straight-linemethod. Useful lives for purposes of computing depreciation for assets, other than leasehold improvements, arebetween 3 and 15 years. Leasehold improvements and equipment under capital lease are depreciated over theshorter of the term of the lease or the estimated useful life of the asset.

Expenditures relating to recurring repair and maintenance are expensed as incurred. Expenditures thatincrease the useful life or substantially increase the serviceability of an existing asset are capitalized. Whenequipment is sold or otherwise disposed of, the cost and related accumulated depreciation are removed from thebalance sheet, with any resulting gain or loss being reflected in income.

Income Taxes

Tax regulations may require items to be included in our tax return at different times than the items are reflectedin our financial statements. Some of these differences are permanent, such as expenses that are not deductible onour tax return, and some are timing differences, such as the timing of depreciation expense. Timing differencescreate deferred tax assets and liabilities. Deferred tax assets generally represent items that will be used as a taxdeduction or credit in our tax return in future years which we have already recorded in our financial statements.Deferred tax liabilities generally represent deductions taken on our tax return that have not yet been recognized as

F-12

PENSKE AUTOMOTIVE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In thousands, except per share amounts) — (Continued)

expense in our financial statements. We establish valuation allowances for our deferred tax assets if the amount ofexpected future taxable income is not more likely than not to allow for the use of the deduction or credit.

Intangible Assets

Our principal intangible assets relate to our franchise agreements with vehicle manufacturers, which representthe estimated value of franchises acquired in business combinations, and goodwill, which represents the excess ofcost over the fair value of tangible and identified intangible assets acquired with business combinations. Intangibleassets are required to be amortized over their estimated useful lives. We believe the franchise values of ourdealerships have an indefinite useful life based on the following facts:

• Automotive retailing is a mature industry and is based on franchise agreements with the vehiclemanufacturers;

• There are no known changes or events that would alter the automotive retailing franchise environment;

• Certain franchise agreement terms are indefinite;

• Franchise agreements that have limited terms have historically been renewed without substantialcost; and

• Our history shows that manufacturers have not terminated franchise agreements.

The following is a summary of the changes in the carrying amount of goodwill and franchise value during theyears ended December 31, 2007 and 2006:

GoodwillFranchise

Value

Balance — December 31, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,023,215 $186,336

Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 217,249 47,832

Foreign currency translation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,946 9,467

Balance — December 31, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,274,410 $243,635

Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104,846 41,917

Deletions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (10,254) (1,224)

Reclassifications. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49,248 (49,248)

Foreign currency translation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,603 3,626

Balance — December 31, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,424,853 $238,706

As of December 31, 2007 and 2006, approximately $652,584 and $648,334, respectively, of the Company’sgoodwill is deductible for tax purposes. The Company has established deferred tax liabilities related to thetemporary differences arising from such tax deductible goodwill. During 2007, the Company recorded a reclas-sification between goodwill and franchise value to correct an immaterial error in the carrying value of franchisevalue recorded in connection with certain business combination transactions between 2002 and 2006.

Impairment Testing

Franchise value impairment is assessed as of October 1 every year through a comparison of its carryingamounts with its estimated fair values. An indicator of impairment exists if the carrying value of a franchise exceedsits estimated fair value and an impairment loss may be recognized up to that excess. We also evaluate our franchisesin connection with the annual impairment testing to determine whether events and circumstances continue tosupport our assessment that the franchise has an indefinite life. Goodwill impairment is assessed at the reporting

F-13

PENSKE AUTOMOTIVE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In thousands, except per share amounts) — (Continued)

unit level as of October 1 every year and upon the occurrence of an indicator of impairment. An indicator ofimpairment exists if the carrying amount of the reporting unit including goodwill is determined to exceed itsestimated fair value. If an indication of goodwill impairment exists, the impairment is measured by comparing theestimated fair value of its reporting unit goodwill with its carrying amount and an impairment loss may berecognized up to that excess.

The fair values of franchise value and goodwill are determined using a discounted cash flow approach, whichincludes assumptions that include revenue and profitability growth, franchise profit margins, residual values andour cost of capital. If future events and circumstances cause significant changes in the assumptions underlying ouranalysis and result in a reduction of our estimates of fair value, we may incur an impairment charge.

Investments

Investments include marketable securities and investments in businesses accounted for under the equitymethod. The majority of the Company’s investments are in joint venture relationships. Such joint venturerelationships are accounted for under the equity method, pursuant to which the Company records its proportionateshare of the joint ventures’ income each period.

Investments for which there is not a liquid, actively traded market are reviewed periodically by managementfor indicators of impairment. If an indicator of impairment was identified, management would estimate the fairvalue of the investment using a discounted cash flow approach, which would include assumptions relating torevenue and profitability growth, profit margins, residual values and our cost of capital. Declines in investmentvalues that are deemed to be other than temporary may result in an impairment charge reducing the investments’carrying value to fair value. During 2007, the Company recorded an adjustment to the carrying value of itsinvestment in Internet Brands to recognize an other than temporary impairment of $3,360 which became apparentupon their initial public offering.

The Company and Sirius Satellite Radio Inc. (“Sirius”) have agreed to jointly promote Sirius Satellite Radioservice. Pursuant to the terms of the arrangement with Sirius, the Company’s dealerships in the U.S. endeavor toorder a significant percentage of eligible vehicles with a factory installed Sirius radio. The Company and Siriushave also agreed to jointly market the Sirius service under a best efforts arrangement through January 4, 2009. TheCompany’s costs relating to such marketing initiatives are expensed as incurred. As compensation for its efforts, theCompany received warrants to purchase shares of Sirius common stock in 2004 that are being earned ratably on anannual basis through January 2009. The Company measures the fair value of the warrants earned ratably on the datethey are earned as there are no significant disincentives for non-performance. Since the Company can reasonablyestimate the number of warrants being earned pursuant to the ratable schedule, the estimated fair value (based oncurrent fair value) of these warrants is being recognized ratably during each annual period.

The Company also received the right to earn additional warrants to purchase Sirius common stock based uponthe sale of certain units of specified vehicle brands through December 31, 2007. Since the Company could notreasonably estimate the number of warrants earned subject to the sale of units, the fair value of these warrants wasrecognized when they were earned.

As of December 31, 2007, the Company had $1,318 of investments in Sirius common stock and warrants topurchase common stock that were classified as trading securities for which unrealized gains and losses have beenincluded in earnings. The value of Sirius stock has been and is expected to be subject to significant fluctuations,which may result in variability in the amount the Company earns under this arrangement. The warrants may becancelled upon the termination of the arrangement.

The remaining marketable securities held by us are classified as available for sale and are stated at fair value onour balance sheet with unrealized gains and losses included in other comprehensive income (loss), a separatecomponent of stockholders’ equity. A decline in the value of an investment that is deemed to be other than

F-14

PENSKE AUTOMOTIVE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In thousands, except per share amounts) — (Continued)

temporary would be an indicator of impairment and may result in an impairment charge reducing the investment’scarrying value to fair value.

Foreign Currency Translation

For all foreign operations, the functional currency is the local currency. The revenue and expense accounts ofthe Company’s foreign operations are translated into U.S. dollars using the average exchange rates that prevailedduring the period. Assets and liabilities of foreign operations are translated into U.S. dollars using period endexchange rates. Cumulative translation adjustments relating to foreign functional currency assets and liabilities arerecorded in accumulated other comprehensive income, a separate component of stockholders’ equity.

Fair Value of Financial Instruments

Financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, debt, floorplan notes payable, and interest rate swaps used to hedge future cash flows. Other than our subordinated notes, thecarrying amount of all significant financial instruments approximates fair value due either to length of maturity orthe existence of variable interest rates that approximate prevailing market rates. A summary of the fair value of thesubordinated notes and interest rate swap, based on quoted market data, follows:

December 31,2007

December 31,2006

$375,000, 7.75% Senior Subordinated Notes due 2016 . . . . . . . . . . . . . $361,875 $375,468

$375,000, 3.5% Senior Subordinated Convertible Notes due 2026 . . . . . 373,650 433,125

Interest rate swap. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 176 1,369

$300,000, 9.625% Senior Subordinated Notes due 2012 . . . . . . . . . . . . — 316,050

Revenue Recognition

Vehicle, Parts and Service Sales

The Company records revenue when vehicles are delivered and title has passed to the customer, when vehicleservice or repair work is completed and when parts are delivered to our customers. Sales promotions that we offer tocustomers are accounted for as a reduction of revenues at the time of sale. Rebates and other incentives offereddirectly to us by manufacturers are recognized as a reduction of cost of sales. Reimbursement of qualifiedadvertising expenses are treated as a reduction of selling, general and administrative expenses. The amountsreceived under various manufacturer rebate and incentive programs are based on the attainment of programobjectives, and such earnings are recognized either upon the sale of the vehicle for which the award is received, orupon attainment of the particular program goals if not associated with individual vehicles.

Finance and Insurance Sales

Subsequent to the sale of a vehicle to a customer, the Company sells its credit sale contracts to various financialinstitutions on a non-recourse basis to mitigate the risk of default. The Company receives a commission from thelender equal to either the difference between the interest rate charged to the customer and the interest rate set by thefinancing institution or a flat fee. The Company also receives commissions for facilitating the sale of various third-party insurance products to customers, including credit and life insurance policies and extended service contracts.These commissions are recorded as revenue at the time the customer enters into the contract. In the case of financecontracts, a customer may prepay or fail to pay their contract, thereby terminating the contract. Customers may alsoterminate extended service contracts and other insurance products, which are fully paid at purchase, and becomeeligible for refunds of unused premiums. In these circumstances, a portion of the commissions the Companyreceived may be charged back based on the terms of the contracts. The revenue the Company records relating to

F-15

PENSKE AUTOMOTIVE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In thousands, except per share amounts) — (Continued)

these transactions is net of an estimate of the amount of chargebacks the Company will be required to pay. TheCompany’s estimate is based upon the Company’s historical experience with similar contracts, including the impactof refinance and default rates on retail finance contracts and cancellation rates on extended service contracts andother insurance products.

Defined Contribution Plans

The Company sponsors a number of defined contribution plans covering a significant majority of theCompany’s employees. Company contributions to such plans are discretionary and are based on the level ofcompensation and contributions by plan participants. The Company incurred expense of $11,053, $9,596 and$8,315 relating to such plans during the years ended December 31, 2007, 2006 and 2005, respectively.

Advertising

Advertising costs are expensed as incurred or when such advertising takes place. The Company incurred netadvertising costs of $88,472, $85,104 and $73,506 during the years ended December 31, 2007, 2006 and 2005,respectively. Qualified advertising expenditures reimbursed by manufacturers, which are treated as a reduction ofadvertising expense, were $15,545, $6,955 and $7,168 during the years ended December 31, 2007, 2006 and 2005,respectively.

Self Insurance

We retain risk relating to certain of our general liability insurance, workers’ compensation insurance, autophysical damage insurance, property insurance, employment practices liability insurance, directors and officersinsurance and employee medical benefits in the U.S. As a result, we are likely to be responsible for a majority of theclaims and losses incurred under these programs. The amount of risk we retain varies by program, and, for certainexposures, we have pre-determined maximum loss limits for certain individual claims and/or insurance periods.Losses, if any, above the pre-determined exposure limits are paid by third-party insurance carriers. Our estimate offuture losses is prepared by management using our historical loss experience and industry-based developmentfactors.

Earnings Per Share

Basic earnings per share is computed using net income and the weighted average shares of voting commonstock outstanding. Diluted earnings per share is computed using net income and the weighted average shares ofvoting common stock outstanding, adjusted for the dilutive effect of stock options and restricted stock. Areconciliation of the number of shares used in the calculation of basic and diluted earnings per share for theyears ended December 31, 2007, 2006 and 2005 follows:

2007 2006 2005Year Ended December 31,

Weighted average number of common shares outstanding. . . . . . . . . . . 94,104 93,393 92,832

Effect of stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 193 425 820

Effect of restricted stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 261 360 280

Weighted average number of common shares outstanding, includingeffect of dilutive securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94,558 94,178 93,932

In addition, the Company has senior subordinated convertible notes outstanding which, under certaincircumstances discussed in Note 8, may be converted to voting common stock. As of December 31, 2007 and

F-16

PENSKE AUTOMOTIVE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In thousands, except per share amounts) — (Continued)

2006, no shares related to the senior subordinated convertible notes were included in the calculation of dilutedearnings per share because the effect of such securities was not dilutive.

Hedging

SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended and interpreted,establishes accounting and reporting standards for derivative instruments, including certain derivative instrumentsembedded in other contracts, and for hedging activities. Under SFAS No. 133, all derivatives, whether designated inhedging relationships or not, are required to be recorded on the balance sheet at fair value. SFAS No. 133 definesrequirements for designation and documentation of hedging relationships, as well as ongoing effectivenessassessments, which must be met in order to qualify for hedge accounting. For a derivative that does not qualifyas a hedge, changes in fair value are recorded in earnings immediately. If the derivative is designated in a fair-valuehedge, the changes in the fair value of the derivative and the hedged item are recorded in earnings. If the derivative isdesignated in a cash-flow hedge, effective changes in the fair value of the derivative are recorded in accumulatedother comprehensive income (loss), a separate component of stockholders’ equity, and recorded in the incomestatement only when the hedged item affects earnings. Changes in the fair value of the derivative attributable tohedge ineffectiveness are recorded in earnings immediately.

Stock-Based Compensation

The Company elected to adopt SFAS No. 123(R), “Share-Based Payment,” as amended and interpreted,effective July 1, 2005. The Company utilized the modified prospective method approach, pursuant to which theCompany has recorded compensation expense for all awards granted after July 1, 2005 based on their fair value.The Company’s share-based payments have generally been in the form of “non-vested shares,” the fair value ofwhich are measured as if they were vested and issued on the grant date.

Prior to July 1, 2005, the Company accounted for stock-based compensation using the intrinsic value methodpursuant to Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees.”During that time, the Company followed the disclosure only provisions of SFAS No. 123, “Accounting for StockBased Compensation,” as interpreted and amended. As a result, no compensation expense was recorded withrespect to option grants. Had the Company elected to recognize compensation expense for option grants using thefair value method prior to July 1, 2005, the effect on net income and basic and diluted earnings per share would nothave been material for the year ended December 31, 2005. See footnote 13 for a detailed description of theCompany’s stock compensation plans.

New Accounting Pronouncements

SFAS No. 157, “Fair Value Measurements” defines fair value, establishes a framework for measuring fairvalue in generally accepted accounting principles, and expands disclosure requirements relating to fair valuemeasurements. The FASB provided a one year deferral of the provisions of this pronouncement for non-financialassets and liabilities, however, the relevant provisions of SFAS 157 required by SFAS 159 must be adopted asoriginally scheduled. SFAS 157 thus becomes effective for our non-financial assets and liabilities on January 1,2009. We will continue to evaluate the impact of those elements of this pronouncement.

SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities Including an Amendmentof FASB Statement No. 115” permits entities to choose to measure many financial instruments and certain otheritems at fair value and consequently report unrealized gains and losses on such items in earnings. Since we will notelect the fair value option with respect to any of our current financial assets or financial liabilities when theprovisions of this pronouncement become effective for us on January 1, 2008, there will be no impact upon theadoption.

F-17

PENSKE AUTOMOTIVE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In thousands, except per share amounts) — (Continued)

SFAS No. 141(R) “Business Combinations” requires almost all assets acquired and liabilities assumed to berecorded at fair value as of the acquisition date, liabilities related to contingent consideration to be remeasured atfair value in each subsequent reporting period and all acquisition costs in pre-acquisition periods to be expensed.The pronouncement also clarifies the accounting under various scenarios such as step purchases or where the fairvalue of assets and liabilities acquired exceeds the consideration. SFAS 141(R) will be effective for us on January 1,2009. We are currently evaluating the impact of this pronouncement.

SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements an Amendment of ARBNo. 51” clarifies that a noncontrolling interest in a subsidiary must be measured at fair value and classified as aseparate component of equity. This pronouncement also outlines the accounting for changes in a parent’s ownershipin a subsidiary. SFAS 160 will be effective for us on January 1, 2009. We are currently evaluating the impact of thispronouncement.

2. Equity Method Investees

The Company’s investments in companies that are accounted for on the equity method consist of thefollowing: the Jacobs Group (50%), the Nix Group (50%), the Reisacher Group (50%), Penske Wynn FerrariMaserati (50%), Toyota de Monterrey (48.7%), Toyota de Aguascalientes (45%), QEK Global Solutions (22.5%),National Powersports (9.4%) and Fleetwash (7%). All of these operations except QEK, Fleetwash and NationalPowersports are engaged in the sale and servicing of automobiles. QEK is an automotive fleet managementcompany, Fleetwash provides vehicle fleet washing services and National Powersports provides auction services tothe motorcycle, ATV and other recreational vehicle market. The Company’s investment in entities accounted forunder the equity method amounted to $64,384 and $65,470 at December 31, 2007 and 2006, respectively.

The combined results of operations and financial position of the Company’s equity basis investments aresummarized as follows:

Condensed income statement information:

2007 2006 2005Year Ended December 31,

Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,074,144 $927,158 $859,324

Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 199,033 172,089 163,942

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,079 17,372 9,532

Equity in net income of affiliates . . . . . . . . . . . . . . . . . . . . . . 4,084 8,201 4,271

Condensed balance sheet information:

December 31,2007

December 31,2006

Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $318,965 $203,409

Noncurrent assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 284,184 245,647

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $603,149 $449,056

Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $305,607 $202,666

Noncurrent liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124,368 73,638

Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173,174 172,752

Total liabilities and equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $603,149 $449,056

F-18

PENSKE AUTOMOTIVE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In thousands, except per share amounts) — (Continued)

3. Business Combinations

The Company acquired eleven and fifty four franchises during 2007 and 2006, respectively. The Company’sfinancial statements include the results of operations of the acquired dealerships from the date of acquisition.Purchase price allocations may be subject to final adjustment. Of the total amount allocated to intangible assets,approximately $4,250 and $98,000 is deductible for tax purposes as of December 31, 2007 and 2006, respectively.A summary of the aggregate purchase price allocations in each year follows:

2007 2006December 31,

Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 16,198 $ 24,171

Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68,449 165,504

Other current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,979 20,197

Property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,152 70,983

Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104,846 214,749

Franchise value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41,917 47,832

Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,921 13,813

Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (19,219) (99,060)

Non-current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (44,530) (23,790)

Total purchase price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 183,713 434,399

Seller financed/assumed debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,992) (64,168)

Cash used in dealership acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $180,721 $370,231

The following unaudited consolidated pro forma results of operations of the Company for the years endedDecember 31, 2007 and 2006 give effect to acquisitions consummated during 2007 and 2006 as if they had occurredon January 1, 2006.

2007 2006December 31,

Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $13,193,063 $12,141,566

Income from continuing operations. . . . . . . . . . . . . . . . . . . . . . . . . . . 129,218 135,168

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129,159 127,645

Income from continuing operations per diluted common share. . . . . . . 1.37 1.44

Net income per diluted common share . . . . . . . . . . . . . . . . . . . . . . . . $ 1.37 $ 1.36

4. Discontinued Operations

The Company accounts for dispositions as discontinued operations when it is evident that the operations andcash flows of a franchise being disposed of will be eliminated from on-going operations and that the Company willnot have any significant continuing involvement in its operations. In reaching the determination as to whether thecash flows of a dealership will be eliminated from ongoing operations, the Company considers whether it is likelythat customers will migrate to similar franchises that it owns in the same geographic market. The Company’sconsideration includes an evaluation of the brands sold at other dealerships it operates in the market and theirproximity to the disposed dealership. When the Company disposes of franchises, it typically does not havecontinuing brand representation in that market. If the franchise being disposed of is located in a complex ofCompany owned dealerships, the Company does not treat the disposition as a discontinued operation if theCompany believes that the cash flows previously generated by the disposed franchise will be replaced by expanded

F-19

PENSKE AUTOMOTIVE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In thousands, except per share amounts) — (Continued)

operations of the remaining franchises. Combined financial information regarding dealerships accounted for asdiscontinued operations follows:

2007 2006 2005Year Ended December 31,

Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $490,875 $983,133 $1,432,104

Pre-tax income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,250) (6,205) (3,832)

Gain (loss) on disposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,044 (3,917) 6,988

December 31,2007

December 31,2006

Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $47,502 $120,528

Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39,336 72,498

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $86,838 $193,026

Floor plan notes payable (including non-trade) . . . . . . . . . . . . . . . . . . . $37,556 $ 32,099

Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,249 24,873

Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $47,805 $ 56,972

In December 2007, the Company reclassified a group of dealerships previously reported as held for sale as heldand used. The Company reduced the carrying value of the assets in this group of dealerships by $2,907 ofdepreciation expense deferred pursuant to SFAS No. 144 which has been included in selling, general andadministrative expenses. Combined financial information regarding dealerships returned to held and used statusfollows:

2007 2006 2005Year Ended December 31,

Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $239,737 $180,041 $196,471

Pre-tax income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,840 2,081 (361)

Carrying value adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,907) — —

5. Inventories

Inventories consisted of the following:

December 31,2007

December 31,2006

New vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,224,414 $1,069,140

Used vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 379,986 359,629

Parts, accessories and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83,886 77,468

Total inventories, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,688,286 $1,506,237

The Company receives non-refundable credits from certain of its vehicle manufacturers that reduce cost ofsales when the vehicles are sold. Such credits amounted to $31,555, $30,097 and $27,437 during the years endedDecember 31, 2007, 2006 and 2005, respectively.

F-20

PENSKE AUTOMOTIVE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In thousands, except per share amounts) — (Continued)

6. Property and Equipment

Property and equipment consisted of the following:

2007 2006December 31,

Buildings and leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 529,689 $ 489,365

Furniture, fixtures and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 293,653 268,857

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 823,342 758,222

Less: Accumulated depreciation and amortization . . . . . . . . . . . . . . . . . . . (204,851) (165,504)

Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 618,491 $ 592,718

As of December 31, 2007 and 2006, approximately $5,170 and $2,199, respectively, of capitalized interest isincluded in buildings and leasehold improvements and is being amortized over the useful life of the related assets.

7. Floor Plan Notes Payable — Trade and Non-trade

The Company finances substantially all of its new and a portion of its used vehicle inventories under revolvingfloor plan arrangements with various lenders. In the U.S., the floor plan arrangements are due on demand; however,the Company is generally not required to repay floor plan advances prior to the sale of the vehicles that have beenfinanced. The Company typically makes monthly interest payments on the amount financed. Outside of the U.S.,substantially all of the floor plan arrangements are payable on demand or have an original maturity of 90 days orless and the Company is generally required to repay floor plan advances at the earlier of the sale of the vehicles thathave been financed or the stated maturity. All of the floor plan agreements grant a security interest in substantiallyall of the assets of the Company’s dealership subsidiaries. Interest rates under the floor plan arrangements arevariable and increase or decrease based on changes in the prime rate, defined LIBOR or Euro Interbank Offer Rate.The weighted average interest rate on floor plan borrowings, including the effect of the interest rate swap discussedin Note 9, was 5.2%, 6.1% and 5.4% for the years ended December 31, 2007, 2006 and 2005, respectively. TheCompany classifies floor plan notes payable to a party other than the manufacturer of a particular new vehicle, andall floor plan notes payable relating to pre-owned vehicles, as floor plan notes payable — non-trade on itsconsolidated balance sheets and classifies related cash flows as a financing activity on its consolidated statements ofcash flows.

8. Long-Term Debt

Long-term debt consisted of the following:

December 31,2007

December 31,2006

U.S. Credit Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ — $ —

U.K. Credit Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91,265 117,544

9.625% Senior Subordinated Notes due 2012 . . . . . . . . . . . . . . . . . . . . — 300,000

7.75% Senior Subordinated Notes due 2016 . . . . . . . . . . . . . . . . . . . . . 375,000 375,000

3.5% Senior Subordinated Convertible Notes due 2026 . . . . . . . . . . . . . 375,000 375,000

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,363 14,507

Total long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 844,628 1,182,051

Less: current portion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (14,522) (13,385)

Net long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $830,106 $1,168,666

F-21

PENSKE AUTOMOTIVE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In thousands, except per share amounts) — (Continued)

Scheduled maturities of long-term debt for each of the next five years and thereafter are as follows:

2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 14,522

2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,151

2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,129

2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49,295

2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113

2013 and thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 752,418

Total long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $844,628

U.S. Credit Agreement

The Company is party to a credit agreement with DCFS USA LLC and Toyota Motor Credit Corporation, asamended (the “U.S. Credit Agreement”), which provides for up to $250,000 of borrowing capacity for workingcapital, acquisitions, capital expenditures, investments and for other general corporate purposes, and for anadditional $10,000 of availability for letters of credit, through September 30, 2010. The revolving loans bearinterest at defined LIBOR plus 1.75%.

The U.S. Credit Agreement is fully and unconditionally guaranteed on a joint and several basis by theCompany’s domestic subsidiaries and contains a number of significant covenants that, among other things, restrictthe Company’s ability to dispose of assets, incur additional indebtedness, repay other indebtedness, pay dividends,create liens on assets, make investments or acquisitions and engage in mergers or consolidations. The Company isalso required to comply with specified financial and other tests and ratios, each as defined in the U.S. CreditAgreement, including: a ratio of current assets to current liabilities, a fixed charge coverage ratio, a ratio of debt tostockholders’ equity, a ratio of debt to earnings before interest, taxes, depreciation and amortization (“EBITDA”), aratio of domestic debt to domestic EBITDA, and a measurement of stockholders’ equity. A breach of theserequirements would give rise to certain remedies under the agreement, the most severe of which is the terminationof the agreement and acceleration of the amounts owed. As of December 31, 2007, the Company was in compliancewith all covenants under the U.S. Credit Agreement.

The U.S. Credit Agreement also contains typical events of default, including change of control, non-paymentof obligations and cross-defaults to the Company’s other material indebtedness. Substantially all of the Company’sdomestic assets not pledged as security under floor plan arrangements are subject to security interests granted tolenders under the U.S. Credit Agreement. Other than $500 of letters of credit 2007, no other amounts wereoutstanding under this facility as of December 31, 2007.

U.K. Credit Agreement

The Company’s subsidiaries in the U.K. (the “U.K. Subsidiaries”) are party to an agreement with the RoyalBank of Scotland plc, as agent for National Westminster Bank plc, which provides for a multi-option creditagreement, a fixed rate credit agreement and a seasonally adjusted overdraft line of credit (collectively, the “U.K.Credit Agreement”) to be used to finance acquisitions, working capital, and general corporate purposes. The U.K.Credit Agreement provides for (1) up to £70,000 in revolving loans through August 31, 2011, which have anoriginal maturity of 90 days or less and bear interest between defined LIBOR plus 0.65% and defined LIBOR plus1.25%, (2) a £30,000 funded term loan which bears interest between 5.94% and 6.54% and is payable ratably inquarterly intervals through June 30, 2011, and (3) a seasonally adjusted overdraft line of credit for up to £30,000that bears interest at the Bank of England Base Rate plus 1.00% and matures on August 31, 2011.

The U.K. Credit Agreement is fully and unconditionally guaranteed on a joint and several basis by the U.K.Subsidiaries, and contains a number of significant covenants that, among other things, restrict the ability of the U.K.

F-22

PENSKE AUTOMOTIVE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In thousands, except per share amounts) — (Continued)

Subsidiaries to pay dividends, dispose of assets, incur additional indebtedness, repay other indebtedness, createliens on assets, make investments or acquisitions and engage in mergers or consolidations. In addition, the U.K.Subsidiaries are required to comply with specified ratios and tests, each as defined in the U.K. Credit Agreement,including: a ratio of earnings before interest and taxes plus rental payments to interest plus rental payments (asdefined), a measurement of maximum capital expenditures, and a debt to EBITDA ratio (as defined). A breach ofthese requirements would give rise to certain remedies under the agreement, the most severe of which is thetermination of the agreement and acceleration of the amounts owed. As of December 31, 2007, the Company was incompliance with all covenants under the U.K. Credit Agreement.

The U.K. Credit Agreement also contains typical events of default, including change of control and non-payment of obligations and cross-defaults to other material indebtedness of the U.K. Subsidiaries. Substantially allof the U.K. Subsidiaries’ assets not pledged as security under floor plan arrangements are subject to securityinterests granted to lenders under the U.K. Credit Agreement. As of December 31, 2007, outstanding loans underthe U.K. Credit Agreement amounted to £45,931 ($91,265).

7.75% Senior Subordinated Notes

On December 7, 2006, the Company issued $375,000 aggregate principal amount of 7.75% senior subor-dinated notes (the “7.75% Notes”) due 2016. The 7.75% Notes are unsecured senior subordinated notes and aresubordinate to all existing and future senior debt, including debt under the Company’s credit agreements and floorplan indebtedness. The 7.75% Notes are guaranteed by substantially all wholly-owned domestic subsidiaries on asenior subordinated basis. Those guarantees are full and unconditional and joint and several. The Company canredeem all or some of the 7.75% Notes at its option beginning in December 2011 at specified redemption prices, orprior to December 2011 at 100% of the principal amount of the notes plus an applicable “make-whole” premium, asdefined. In addition, the Company may redeem up to 40% of the 7.75% Notes at specified redemption prices usingthe proceeds of certain equity offerings before December 15, 2009. Upon certain sales of assets or specific kinds ofchanges of control the Company is required to make an offer to purchase the 7.75% Notes. The 7.75% Notes alsocontain customary negative covenants and events of default. As of December 31, 2007, the Company was incompliance with all negative covenants and there were no events of default.

Senior Subordinated Convertible Notes

On January 31, 2006, the Company issued $375,000 aggregate principal amount of 3.50% senior subordinatedconvertible notes due 2026 (the “Convertible Notes”). The Convertible Notes mature on April 1, 2026, unlessearlier converted, redeemed or purchased by the Company. The Convertible Notes are unsecured senior subor-dinated obligations and are guaranteed on an unsecured senior subordinated basis by substantially all of theCompany’s wholly owned domestic subsidiaries. Those guarantees are full and unconditional and joint and several.The Convertible Notes also contain customary negative covenants and events of default. As of December 31, 2007,the Company was in compliance with all negative covenants and there were no events of default.

Holders of the convertible notes may convert them based on a conversion rate of 42.2052 shares of commonstock per $1,000 principal amount of the Convertible Notes (which is equal to an initial conversion price ofapproximately $23.69 per share), subject to adjustment, only under the following circumstances: (1) in anyquarterly period commencing after March 31, 2006, if the closing price of the common stock for twenty of the lastthirty trading days in the prior quarter exceeds $28.43 (subject to adjustment), (2) for specified periods, if thetrading price of the Convertible Notes falls below specific thresholds, (3) if the Convertible Notes are called forredemption, (4) if specified distributions to holders of the common stock are made or specified corporatetransactions occur, (5) if a fundamental change (as defined) occurs, or (6) during the ten trading days prior to,but excluding, the maturity date.

F-23

PENSKE AUTOMOTIVE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In thousands, except per share amounts) — (Continued)

Upon conversion of the Convertible Notes, for each $1,000 principal amount of the Convertible Notes, a holderwill receive an amount in cash, in lieu of shares of the Company’s common stock, equal to the lesser of (i) $1,000 or(ii) the conversion value, determined in the manner set forth in the related indenture covering the Convertible Notes,of the number of shares of common stock equal to the conversion rate. If the conversion value exceeds $1,000, theCompany will also deliver, at its election, cash, common stock or a combination of cash and common stock withrespect to the remaining value deliverable upon conversion.

In the event of a conversion due to a change of control on or before April 6, 2011, the Company will pay, to theextent described in the indenture, a make-whole premium by increasing the conversion rate applicable to suchConvertible Notes. In addition, the Company will pay contingent interest in cash, commencing with any six-monthperiod from April 1 to September 30 and from October 1 to March 31, beginning on April 1, 2011, if the averagetrading price of a Convertible Note for the five trading days ending on the third trading day immediately precedingthe first day of that six-month period equals 120% or more of the principal amount of the Convertible Note.

On or after April 6, 2011, the Company may redeem the Convertible Notes, in whole at any time or in part fromtime to time, for cash at a redemption price of 100% of the principal amount of the Convertible Notes to beredeemed, plus any accrued and unpaid interest to the applicable redemption date. Holders of the Convertible Notesmay require the Company to purchase all or a portion of their Convertible Notes for cash on each of April 1, 2011,April 1, 2016 and April 1, 2021 at a purchase price equal to 100% of the principal amount of the Convertible Notesto be purchased, plus accrued and unpaid interest, if any, to the applicable purchase date.

9.625% Senior Subordinated Notes

In March 2007, the Company redeemed its $300,000 aggregate principal amount of 9.625% senior subor-dinated notes due 2012 (the “9.625% Notes”) at a price of 104.813%. The 9.625% Notes were unsecured seniorsubordinated notes and were subordinate to all existing senior debt, including debt under the Company’s creditagreements and floor plan indebtedness. The Company incurred an $18,634 pre-tax charge in connection with theredemption, consisting of a $14,439 redemption premium and the write-off of $4,195 of unamortized deferredfinancing costs.

9. Interest Rate Swaps

The Company was party to an interest rate swap agreement through January 2008, pursuant to which a notional$200,000 of its U.S. floating rate debt was exchanged for fixed rate debt. The swap was designated as a cash flowhedge of future interest payments of the LIBOR based U.S. floor plan borrowings. During the year endedDecember 31, 2007, the swap reduced the weighted average interest rate on floor plan borrowings by approximately0.1%. As of December 31, 2007, the Company expects approximately $19 associated with the swap to berecognized as a reduction of interest expense in January of 2008.

In January 2008, we entered into new three year interest rate swap agreements pursuant to which the LIBORportion of $300.0 million of our U.S. floating rate floor plan debt was fixed at 3.67%. Under this arrangement, wewill receive from or pay to, the counterparty the difference between the LIBOR interest cost for $300.0 million, and3.67%. This arrangement is in effect through January 2011 or earlier termination of the arrangement. We mayterminate this arrangement at any time, subject to the settlement at that time of the future value of the swaparrangement. The swap is designated as a cash flow hedge of future interest payments of LIBOR based U.S. floorplan borrowings.

10. Off-Balance Sheet Arrangements

The Convertible Notes are convertible into shares of the Company’s common stock, at the option of the holder,as described in Note 8. Certain of these conditions are linked to the market value of the common stock. This type of

F-24

PENSKE AUTOMOTIVE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In thousands, except per share amounts) — (Continued)

financing arrangement was selected in order to achieve a more favorable interest rate (as opposed to other forms ofavailable financing). Since the Company or the holders of the Convertible Notes can redeem these notes on or afterApril, 2011, a conversion or a redemption of these notes is likely to occur in 2011. The repayment will include cashfor the principal amount of the Convertible Notes then outstanding plus an amount payable in either cash or stock, atthe Company’s option, depending on the trading price of the common stock.

11. Commitments and Contingent Liabilities

The Company is involved in litigation which may relate to issues with customers, employment related matters,class action claims, purported class action claims, and claims brought by governmental authorities. As ofDecember 31, 2007, the Company is not party to any legal proceedings, including class action lawsuits to whichit is a party, that, individually or in the aggregate, are reasonably expected to have a material adverse effect on theCompany’s results of operations, financial condition or cash flows. However, the results of these matters cannot bepredicted with certainty, and an unfavorable resolution of one or more of these matters could have a materialadverse effect on the Company’s results of operations, financial condition or cash flows.

The Company is party to a joint venture agreement with respect to one of the Company’s franchises pursuant towhich the Company is required to repurchase its partner’s interest in July 2008. The Company expects this paymentto be approximately $4.9 million.

The Company leases the majority of its dealership facilities and corporate offices under non-cancelableoperating lease agreements with expiration dates through 2062, including all option periods available to theCompany. The Company’s lease arrangements typically allow for a base term with options for extension in theCompany’s favor and include escalation clauses tied to the Consumer Price Index.

Minimum future rental payments required under non-cancelable operating leases in effect as of December 31,2007 are as follows:

2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 167,640

2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165,159

2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162,914

2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161,755

2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159,834

2013 and thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,955,085

$4,772,387

Rent expense for the years ended December 31, 2007, 2006 and 2005 amounted to $152,267, $132,569 and$106,892, respectively. A number of the dealership leases are with former owners who continue to operate thedealerships as employees of the Company or with other affiliated entities. Of the total rental payments, $455,$9,860 and $10,200, respectively, were made to related parties during 2007, 2006, and 2005, respectively (SeeNote 12).

12. Related Party Transactions

The Company currently is a tenant under a number of non-cancelable lease agreements with AutomotiveGroup Realty, LLC and its subsidiaries (together “AGR”), which are subsidiaries of Penske Corporation. During theyears ended December 31, 2007, 2006 and 2005, the Company paid $455, $4,160 and $4,700, respectively, to AGRunder these lease agreements. From time to time, we may sell AGR real property and improvements that aresubsequently leased by AGR to us. In addition, we may purchase real property or improvements from AGR. Each ofthese transactions is valued at a price that is independently confirmed. During the years ended December 31, 2006

F-25

PENSKE AUTOMOTIVE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In thousands, except per share amounts) — (Continued)

and 2005, the Company sold AGR real property and/or improvements for $132 and $43,874, respectively, whichwere subsequently leased by AGR to the Company. There were no gains or losses associated with such sales. Duringthe year ended December 31, 2006, the Company purchased $25,630 of real property and improvements from AGR.There were no purchase or sale transactions with AGR in 2007. The Company is also currently a tenant under anumber of non-cancelable lease agreements with former owners who continue to operate the dealerships asemployees of the Company or with other affiliated entities.

The Company sometimes pays to and/or receives fees from Penske Corporation and its affiliates for servicesrendered in the normal course of business, or to reimburse payments made to third parties on each others’ behalf.These transactions and those relating to AGR mentioned above, reflect the provider’s cost or an amount mutuallyagreed upon by both parties. During the years ended December 31, 2007, 2006 and 2005, Penske Corporation andits affiliates billed the Company $3,989, $5,396 and $6,108, respectively, and the Company billed PenskeCorporation and its affiliates $105, $223 and $96 , respectively, for such services. As of December 31, 2007and 2006, the Company had $4 and $10 of receivables from and $358 and $824 of payables to Penske Corporationand its subsidiaries, respectively.

The Company and Penske Corporation have entered into a joint insurance agreement which provides that, withrespect to joint insurance policies (which includes the Company’s property policy), available coverage with respectto a loss shall be paid to each party as stipulated in the policies. In the event of losses by the Company and PenskeCorporation that exceed the limit of liability for any policy or policy period, the total policy proceeds shall beallocated based on the ratio of premiums paid.

From time to time the Company enters into joint venture relationships in the ordinary course of business,pursuant to which it acquires dealerships together with other investors. The Company may also provide theseventures with working capital and other debt financing at costs that are based on the Company’s incrementalborrowing rate. As of December 31, 2007, the Company’s joint venture relationships are as follows:

Location DealershipsOwnership

Interest

Fairfield, Connecticut . . . . . . Mercedes-Benz, Audi, Porsche, smart 90.00%(A)(B)

Edison, New Jersey . . . . . . . . Ferrari, Maserati 70.00%(B)

Tysons Corner, Virginia . . . . . Aston Martin, Audi, Mercedes-Benz, Porsche, smart 90.00%(B)(C)

Las Vegas, Nevada . . . . . . . . Ferrari, Maserati 50.00%(D)

Mentor, Ohio . . . . . . . . . . . . Honda 75.00%(B)Munich, Germany . . . . . . . . . BMW, MINI 50.00%(D)

Frankfurt, Germany . . . . . . . . Lexus, Toyota 50.00%(D)

Achen, Germany . . . . . . . . . . Audi, Lexus, Toyota, Volkswagen 50.00%(D)

Mexico . . . . . . . . . . . . . . . . . Toyota 48.70%(D)

Mexico . . . . . . . . . . . . . . . . . Toyota 45.00%(D)

(A) An entity controlled by one of the Company’s directors (the “Investor”), owns an 10.0% interest in this jointventure which entitles the Investor to 20% of the operating profits of the joint venture. In addition, the Investorhas an option to purchase up to a 20% interest in the joint venture for specified amounts.

(B) Entity is consolidated in the Company’s financial statements.

(C) Roger S. Penske, Jr. owns a 10% interest in this joint venture.

(D) Entity is accounted for using the equity method of accounting.

F-26

PENSKE AUTOMOTIVE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In thousands, except per share amounts) — (Continued)

13. Stock-Based Compensation

Key employees, outside directors, consultants and advisors of the Company are eligible to receive stock-basedcompensation pursuant to the terms of the Company’s 2002 Equity Compensation Plan (the “Plan”). The Planoriginally allowed for the issuance of 4,200 shares for stock options, stock appreciation rights, restricted stock,restricted stock units, performance shares and other awards. As of December 31, 2007, 2,630 shares of commonstock were available for grant under the Plan. Compensation expense related to the Plan was $5,045, $3,610, and$3,217 during the years ended December 31, 2007, 2006 and 2005, respectively.

Restricted Stock

During 2007, 2006 and 2005, the Company granted 269, 245 and 362 shares, respectively, of restrictedcommon stock at no cost to participants under the Plan. The restricted stock entitles the participants to vote theirrespective shares and receive dividends. The shares are subject to forfeiture and are non-transferable, whichrestrictions generally lapse over a four year period from the grant date. The grant date quoted market price of theunderlying common stock is amortized to expense over the restriction period. As of December 31, 2007, there was$9,240 of total unrecognized compensation cost related to the restricted stock. That cost is expected to berecognized over the next 3.5 years.

Presented below is a summary of the status of the Company’s restricted stock as of December 31, 2006 andchanges during the year ended December 31, 2007:

SharesWeighted Average

Grant-Date Fair Value Intrinsic Value

January 1, 2007. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 674 $17.38 $15,900Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 269 21.54

Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (211) 16.73

Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (27) 18.25

December 31, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . 705 $19.24 $12,300

Stock Options

The Company granted options to purchase 30 shares of common stock to participants under the Plan during2005. The options generally vested over a three year period and had a maximum term of ten years. The Companydid not grant any options to purchase shares of common stock during either 2007 or 2006. The fair value of eachgrant was calculated with the following weighted average assumptions:

Expected dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.3%

Risk free interest rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.00%

Expected life . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.0 years

Expected volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33.00%

The weighted average fair value of options granted was $9.35 per share for the year ended December 31, 2005.

F-27

PENSKE AUTOMOTIVE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In thousands, except per share amounts) — (Continued)

Presented below is a summary of the status of stock options held by participants during 2007, 2006 and 2005:

Stock Options Shares

WeightedAverageExercise

Price Shares

WeightedAverageExercise

Price Shares

WeightedAverageExercise

Price

2007 2006 2005

Options outstanding at beginning of year . . . . . . . . . . 733 $8.40 1,406 $8.20 1,884 $ 8.17

Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — — — 30 14.86

Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 205 7.30 673 7.98 469 8.56

Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142 8.05 — — 39 8.14

Options outstanding at end of year . . . . . . . . . . . . . . 386 $9.11 733 $8.40 1,406 $ 8.20

The following table summarizes the status of stock options outstanding and exercisable for the year endedDecember 31, 2007:

Range of Exercise Prices

StockOptions

Outstanding

WeightedAverage

RemainingContractual Life

WeightedAverageExercise

Price

StockOptions

Exercisable

WeightedAverageExercise

Price

$3 to $6. . . . . . . . . . . . . . . . . . . . . . . . . . . 96 3.1 $ 4.80 96 $ 4.80

6 to 16 . . . . . . . . . . . . . . . . . . . . . . . . . . . 290 4.2 10.53 290 10.53

386 386

During 2006, options to purchase 800 shares of common stock with an exercise price of $5.00 per share wereexercised that were issued outside of the Plan in 1999. As of December 31, 2007, no options issued outside of thePlan were outstanding.

14. Stockholders’ Equity

Accumulated Other Comprehensive Income

The components of accumulated other comprehensive income, net of tax, follow:

CurrencyTranslation Other

AccumulatedOther

ComprehensiveIncome

Balance at December 31, 2004 . . . . . . . . . . . . . . . . . . . . . . . $ 64,349 $(6,886) $ 57,463

Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (39,473) 3,840 (35,633)

Balance at December 31, 2005 . . . . . . . . . . . . . . . . . . . . . . . 24,876 (3,046) 21,830

Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53,420 4,129 57,549

Balance at December 31, 2006 . . . . . . . . . . . . . . . . . . . . . . . 78,296 1,083 79,379

Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,648 7,961 20,609

Balance at December 31, 2007 . . . . . . . . . . . . . . . . . . . . . . . $ 90,944 $ 9,044 $ 99,988

Other Transactions

On January 26, 2006, the Company repurchased 1,000 shares of our outstanding common stock for $18,960, or$18.96 per share.

F-28

PENSKE AUTOMOTIVE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In thousands, except per share amounts) — (Continued)

15. Income Taxes

The income tax provision relating to income from continuing operations consisted of the following:

2007 2006 2005Year Ended December 31,

Current:

Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $10,254 $15,812 $22,420

State and local . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,961 4,092 4,515

Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,351 19,055 24,188

Total current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,566 38,959 51,123

Deferred:

Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,729 22,617 17,321

State and local . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,937 2,903 3,283Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,078 4,427 (3,223)

Total deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,744 29,947 17,381

Income tax provision relating to continuing operations . . . . . . . . . . $67,310 $68,906 $68,504

The income tax provision relating to income from continuing operations varied from the U.S. federal statutoryincome tax rate due to the following:

2007 2006 2005Year Ended December 31,

Income tax provision relating to continuing operations at federalstatutory rate of 35% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $68,976 $71,143 $66,088

State and local income taxes, net of federal benefit . . . . . . . . . . . . 4,358 3,873 4,928

Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,553) (6,671) (3,961)

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,471) 561 1,449

Income tax provision relating to continuing operations . . . . . . . . . . $67,310 $68,906 $68,504

F-29

PENSKE AUTOMOTIVE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In thousands, except per share amounts) — (Continued)

The components of deferred tax assets and liabilities at December 31, 2007 and 2006 were as follows:

2007 2006

Deferred Tax AssetsAccrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 29,424 $ 34,603Net operating loss carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,154 8,615Interest rate swap . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 384 1,929Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,508 6,209

Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43,470 51,356Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,337) (3,943)

Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41,133 47,413

Deferred Tax LiabilitiesDepreciation and amortization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (189,595) (135,411)Partnership investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (16,412) (16,379)Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (16,253) (7,484)

Total deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (222,260) (159,274)

Net deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(181,127) $(111,861)

During 2007, the Company corrected an immaterial error in deferred tax liabilities to correctly reflect the taxeffect of franchise value.

FASB Interpretation (“FIN”) No. 48 “ Accounting for Uncertainty in Income Taxes” clarifies the accountingfor uncertain tax positions, prescribing a minimum recognition threshold a tax position is required to meet beforebeing recognized, and providing guidance on the derecognition, measurement, classification and disclosure relatingto income taxes. The Company adopted FIN No. 48 as of January 1, 2007, pursuant to which the Company recordeda $4,430 increase in the liability for unrecognized tax benefits, which was accounted for as a reduction to theJanuary 1, 2007 balance of retained earnings.

The movement in uncertain tax positions for the year ended December 31, 2007 was as follows

Uncertain tax positions — January 1, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $39,339Gross increase — tax position in prior periods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,087Gross decrease — tax position in prior periods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (498)Gross increase — current period tax position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 433Settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,872)Lapse in statute of limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,156)

Uncertain tax positions — December 31, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $43,333

The portion of the total amount of uncertain tax positions that, if recognized, would impact the effective taxrate was $25,777. The Company has elected to include interest and penalties in its income tax expense. The totalinterest and penalties included within uncertain tax positions at December 31, 2007 was $7,947. We do not expect asignificant change to the amount of uncertain tax positions within the next twelve months. The Company’sU.S. federal returns remain open to examination from 2004 through 2006. Various foreign and U.S. statesjurisdictions are open from 2002 through 2006.

The Company does not provide for U.S. taxes relating to the undistributed earnings or losses of its foreignsubsidiaries. Income from continuing operations before income taxes of foreign subsidiaries (which subsidiaries arepredominately in the United Kingdom) was $103,395 $84,635 and $70,468 during the years ended December 31,

F-30

PENSKE AUTOMOTIVE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In thousands, except per share amounts) — (Continued)

2007, 2006 and 2005, respectively. It is the Company’s belief that such earnings will be indefinitely reinvested inthe companies that produced them. At December 31, 2007, the Company has not provided U.S. federal incometaxes on a total of $373,306 of earnings of individual foreign subsidiaries. If these earnings were remitted asdividends, the Company would be subject to U.S. income taxes and certain foreign withholding taxes.

At December 31, 2007, the Company has $97,768 of state net operating loss carryforwards in the U.S. thatexpire at various dates through 2026, U.S. state credit carryforwards of $1,526 that will not expire, a U.K. netoperating loss carryforward of $8,653 that will not expire, and a U.K. capital loss of $2,361 that will not expire.During 2006, a German net operating loss of $1,865 was fully utilized.

A valuation allowance of $2,308 has been recorded against the state net operating loss carryforwards in theU.S. and a valuation allowance of $29 has been recorded against the U.S. state credit carryforwards. In 2006, avaluation allowance of $692 was removed due to the utilization of a German net operating loss.

The Company has classified its tax reserves as a long term obligation on the basis that management does notexpect to make any payments relating to those reserves within the next twelve months.

16. Segment Information

The Company has two reportable operating segments as defined in SFAS No. 131, “Disclosures AboutSegments of an Enterprise and Related Information”: (i) Retail and (ii) Distribution. The Company’s operations areorganized by management by line of business and geography. The Retail segment includes all automotivedealerships, regardless of geography, and includes all departments relevant to the operation of the dealerships.We believe the dealership operations included in the Retail segment are one reportable segment as their operations(i) have similar economic characteristics (all are automotive dealerships having similar margins), (ii) offer similarproducts and services (all sell new and used vehicles, service, parts and third-party finance and insurance products),(iii) have similar target markets and customers (generally individuals) and (iv) have similar distribution andmarketing practices (all distribute products and services through dealership facilities that market to customers insimilar fashions.) The Distribution segment includes the distribution of smart vehicles, parts and accessories in theU.S. and Puerto Rico. The accounting policies of both segments are the same and are described in Note 1. AtDecember 31, 2007, the Distribution segment’s financial position and results of operations are immaterial due to thefact that the smart distribution business was being developed during 2007. Vehicles will be distributed in 2008, atwhich time the Company will disclose additional information about the Distribution segment. During 2007, theCompany incurred $5,458 of expenses relating to the establishment of the Distribution segment and has $5,189invested in the Distribution segment as of December 31, 2007.

The following table presents certain data by geographic area:

2007 2006 2005Year Ended December 31,

Sales to external customers:

United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,081,687 $ 7,526,115 $6,703,764

Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,876,052 3,600,604 2,849,174

Total sales to external customers . . . . . . . . . . . . . . . . . $12,957,739 $11,126,719 $9,552,938

Long-lived assets, net:

United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 460,493 $ 466,193

Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 242,892 236,177

Total long-lived assets . . . . . . . . . . . . . . . . . . . . . . . . . $ 703,385 $ 702,370

F-31

PENSKE AUTOMOTIVE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In thousands, except per share amounts) — (Continued)

The Company’s foreign operations are predominantly based in the United Kingdom.

17. Summary of Quarterly Financial Data (Unaudited)First

QuarterSecondQuarter

ThirdQuarter

FourthQuarter

2007(1)(2)(3)Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,092,938 $3,377,978 $3,405,685 $3,081,138

Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 463,847 494,579 502,825 463,958

Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,582 40,349 43,400 29,408

Diluted earnings per share. . . . . . . . . . . . . . . . . . . $ 0.15 $ 0.43 $ 0.46 $ 0.31

FirstQuarter

SecondQuarter

ThirdQuarter

FourthQuarter

2006(1)(2)(4)Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,521,439 $2,802,717 $2,941,790 $2,860,773

Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 393,139 423,025 438,941 429,159

Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,955 36,693 33,730 30,323

Diluted earnings per share. . . . . . . . . . . . . . . . . . . $ 0.25 $ 0.39 $ 0.36 $ 0.32

(1) As discussed in Note 4, the Company has treated the operations of certain entities as discontinued operations.The results for all periods have been restated to reflect such treatment.

(2) Per share amounts are calculated independently for each of the quarters presented. The sum of the quarters maynot equal the full year per share amounts due to rounding.

(3) Results for the year ended December 31, 2007 include charges of $18,634 ($12,300 after-tax) relating to theredemption of $300.0 million aggregate principal amount of 9.625% Senior Subordinated Notes during the firstquarter and $6,267 ($4,500 after tax) relating to impairment losses during the fourth quarter.

(4) As discussed in Note 1, the Company adjusted its financial results for the first three quarters of fiscal 2006 inaccordance with SAB 108.

F-32

PENSKE AUTOMOTIVE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In thousands, except per share amounts) — (Continued)

18. Condensed Consolidating Financial Information

The following tables include condensed consolidating financial information as of December 31, 2007 and2006 and for the years ended December 31, 2007, 2006, and 2005 for Penske Automotive Group, Inc.’s (as theissuer of the Convertible Notes and the 7.75% Notes), guarantor subsidiaries and non-guarantor subsidiaries(primarily representing foreign entities). The condensed consolidating financial information includes certainallocations of balance sheet, income statement and cash flow items which are not necessarily indicative of thefinancial position, results of operations or cash flows of these entities on a stand-alone basis. The 2006 and 2005condensed consolidating financial statements have been restated for an immaterial error relating to the presentationof long-term debt.

CONDENSED CONSOLIDATING BALANCE SHEETDecember 31, 2007

TotalCompany Eliminations

PenskeAutomotiveGroup, Inc.

GuarantorSubsidiaries

Non-Guarantor

Subsidiaries(In Thousands)

Cash and cash equivalents . . . . . . . . . . . . . $ 10,895 $ — $ — $ — $ 10,895

Accounts receivable, net . . . . . . . . . . . . . . 449,278 (210,645) 210,945 289,939 159,039

Inventories, net . . . . . . . . . . . . . . . . . . . . . 1,688,286 — — 924,632 763,654

Other current assets . . . . . . . . . . . . . . . . . 66,312 — 3,849 27,958 34,505

Assets held for sale . . . . . . . . . . . . . . . . . 86,838 — — 75,861 10,977

Total current assets . . . . . . . . . . . . . . . . . . 2,301,609 (210,645) 214,794 1,318,390 979,070

Property and equipment, net . . . . . . . . . . . 618,491 — 4,617 345,087 268,787

Intangible assets . . . . . . . . . . . . . . . . . . . . 1,663,559 — — 1,062,014 601,545

Other assets . . . . . . . . . . . . . . . . . . . . . . . 84,894 (1,951,050) 1,956,788 12,395 66,761

Total assets. . . . . . . . . . . . . . . . . . . . . . . . $4,668,553 $(2,161,695) $2,176,199 $2,737,886 $1,916,163

Floor plan notes payable . . . . . . . . . . . . . . $1,074,820 $ — $ — $ 569,259 $ 505,561

Floor plan notes payable — non-trade . . . . 478,077 — — 293,269 184,808

Accounts payable . . . . . . . . . . . . . . . . . . . 268,214 — 4,550 96,562 167,102

Accrued expenses . . . . . . . . . . . . . . . . . . . 212,601 (210,645) 190 64,037 359,019

Current portion of long-term debt . . . . . . . 14,522 — — 496 14,026

Liabilities held for sale . . . . . . . . . . . . . . . 47,805 — — 34,112 13,693

Total current liabilities . . . . . . . . . . . . . . . 2,096,039 (210,645) 4,740 1,057,735 1,244,209

Long-term debt. . . . . . . . . . . . . . . . . . . . . 830,106 (237,616) 750,000 2,548 315,174

Other long-term liabilities . . . . . . . . . . . . . 320,949 — — 288,647 32,302

Total liabilities . . . . . . . . . . . . . . . . . . . . . 3,247,094 (448,261) 754,740 1,348,930 1,591,685

Total stockholders’ equity . . . . . . . . . . . . . 1,421,459 (1,713,434) 1,421,459 1,388,956 324,478

Total liabilities and stockholders’ equity . . $4,668,553 $(2,161,695) $2,176,199 $2,737,886 $1,916,163

F-33

PENSKE AUTOMOTIVE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In thousands, except per share amounts) — (Continued)

CONDENSED CONSOLIDATING BALANCE SHEETDecember 31, 2006

TotalCompany Eliminations

PenskeAutomotiveGroup, Inc.

GuarantorSubsidiaries

Non-Guarantor

Subsidiaries(In Thousands)

Cash and cash equivalents . . . . . . . . . . . . . $ 13,147 $ — $ — $ 2,419 $ 10,728

Accounts receivable, net . . . . . . . . . . . . . . 465,579 (200,621) 200,621 291,202 174,377

Inventories, net . . . . . . . . . . . . . . . . . . . . . 1,506,237 — — 773,146 733,091

Other current assets . . . . . . . . . . . . . . . . . 71,398 — 9,426 23,328 38,644

Assets held for sale . . . . . . . . . . . . . . . . . 193,026 — — 178,079 14,947

Total current assets . . . . . . . . . . . . . . . . . . 2,249,387 (200,621) 210,047 1,268,174 971,787

Property and equipment, net . . . . . . . . . . . 592,718 — 3,824 329,008 259,886

Intangible assets . . . . . . . . . . . . . . . . . . . . 1,518,045 — — 954,120 563,925

Other assets . . . . . . . . . . . . . . . . . . . . . . . 109,652 (2,128,710) 2,134,547 42,341 61,474

Total assets. . . . . . . . . . . . . . . . . . . . . . . . $4,469,802 $(2,329,331) $2,348,418 $2,593,643 $1,857,072

Floor plan notes payable . . . . . . . . . . . . . . $ 872,906 $ — $ — $ 414,648 $ 458,258

Floor plan notes payable — non-trade . . . . 296,580 — — 102,810 193,770

Accounts payable . . . . . . . . . . . . . . . . . . . 298,066 — 2,738 99,802 195,526

Accrued expenses . . . . . . . . . . . . . . . . . . . 213,957 (200,621) 27 97,803 316,748Current portion of long-term debt . . . . . . . 13,385 — — 3,057 10,328

Liabilities held for sale . . . . . . . . . . . . . . . 56,972 — — 37,979 18,993

Total current liabilities . . . . . . . . . . . . . . . 1,751,866 (200,621) 2,765 756,099 1,193,623

Long-term debt. . . . . . . . . . . . . . . . . . . . . 1,168,666 (259,706) 1,050,000 931 377,441

Other long-term liabilities . . . . . . . . . . . . . 253,617 — — 238,258 15,359

Total liabilities . . . . . . . . . . . . . . . . . . . . . 3,174,149 (460,327) 1,052,765 995,288 1,586,423

Total stockholders’ equity . . . . . . . . . . . . . 1,295,653 (1,869,004) 1,295,653 1,598,355 270,649

Total liabilities and stockholders’ equity . . $4,469,802 $(2,329,331) $2,348,418 $2,593,643 $1,857,072

F-34

PENSKE AUTOMOTIVE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In thousands, except per share amounts) — (Continued)

CONDENSED CONSOLIDATING STATEMENT OF INCOMEYear Ended December 31, 2007

TotalCompany Eliminations

PenskeAutomotiveGroup, Inc.

GuarantorSubsidiaries

Non-Guarantor

Subsidiaries(In Thousands)

Revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . $12,957,739 $ — $ — $7,223,492 $5,734,247

Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . 11,032,530 — — 6,113,259 4,919,271

Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . 1,925,209 — — 1,110,233 814,976

Selling, general, and administrative expenses . . . 1,531,628 — 16,529 883,150 631,949

Depreciation and amortization . . . . . . . . . . . . . 50,957 — 1,166 26,993 22,798

Operating income (loss) . . . . . . . . . . . . . . . . . 342,624 — (17,695) 200,090 160,229

Floor plan interest expense . . . . . . . . . . . . . . . (74,749) — — (43,589) (31,160)

Other interest expense . . . . . . . . . . . . . . . . . . . (56,245) — (31,509) — (24,736)

Equity in earnings of affiliates . . . . . . . . . . . . . 4,084 — — — 4,084

Loss on Debt Redemption . . . . . . . . . . . . . . . . (18,634) — (18,634) — —

Equity in earnings of subsidiaries . . . . . . . . . . . — (262,946) 262,946 — —

Income (loss) from continuing operations beforeincome taxes and minority interests . . . . . . . . 197,080 (262,946) 195,108 156,501 108,417

Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . (67,310) 90,713 (67,310) (56,474) (34,239)

Minority interests . . . . . . . . . . . . . . . . . . . . . . (1,972) — — — (1,972)

Income (loss) from continuing operations . . . . . 127,798 (172,233) 127,798 100,027 72,206

Loss from discontinued operations, net of tax . . (59) 59 (59) (212) 153

Net income (loss) . . . . . . . . . . . . . . . . . . . . . . $ 127,739 $(172,174) $127,739 $ 99,815 $ 72,359

F-35

PENSKE AUTOMOTIVE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In thousands, except per share amounts) — (Continued)

CONDENSED CONSOLIDATING STATEMENT OF INCOMEYear Ended December 31, 2006

TotalCompany Eliminations

PenskeAutomotiveGroup, Inc.

GuarantorSubsidiaries

Non-Guarantor

Subsidiaries(In Thousands)

Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $11,126,719 $ — $ — $6,675,232 $4,451,487

Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,442,455 — — 5,639,766 3,802,689

Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,684,264 — — 1,035,466 648,798

Selling, general, and administrative expenses . . . . . . 1,337,019 — 15,153 813,317 508,549

Depreciation and amortization . . . . . . . . . . . . . . . . 43,164 — 1,427 23,632 18,105

Operating income (loss) . . . . . . . . . . . . . . . . . . . . . 304,081 — (16,580) 198,517 122,144

Floor plan interest expense . . . . . . . . . . . . . . . . . . . (59,806) — — (39,056) (20,750)

Other interest expense . . . . . . . . . . . . . . . . . . . . . . (49,174) — (29,624) — (19,550)

Equity in earnings of affiliates . . . . . . . . . . . . . . . . 8,201 — — — 8,201

Equity in earnings of subsidiaries . . . . . . . . . . . . . . — (247,334) 247,334 — —

Income (loss) from continuing operations beforeincome taxes and minority interests . . . . . . . . . . . 203,302 (247,334) 201,130 159,461 90,045

Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . (68,906) 84,735 (68,906) (56,314) (28,421)

Minority interests . . . . . . . . . . . . . . . . . . . . . . . . . (2,172) — — — (2,172)

Income (loss) from continuing operations . . . . . . . . . 132,224 (162,599) 132,224 103,147 59,452

Loss from discontinued operations, net of tax . . . . . . (7,523) 7,523 (7,523) (6,284) (1,239)

Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . $ 124,701 $(155,076) $124,701 $ 96,863 $ 58,213

F-36

PENSKE AUTOMOTIVE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In thousands, except per share amounts) — (Continued)

CONDENSED CONSOLIDATING STATEMENT OF INCOMEYear Ended December 31, 2005

TotalCompany Eliminations

PenskeAutomotiveGroup, Inc.

GuarantorSubsidiaries

Non-Guarantor

Subsidiaries(In Thousands)

Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . $9,552,938 $ — $ — $5,884,845 $3,668,093

Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . 8,099,950 — — 4,972,544 3,127,406

Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,452,988 — — 912,301 540,687

Selling, general, and administrative expenses . . . . 1,135,814 — 14,128 698,418 423,268

Depreciation and amortization . . . . . . . . . . . . . . 37,362 — 1,438 21,147 14,777

Operating income (loss) . . . . . . . . . . . . . . . . . . 279,812 — (15,566) 192,736 102,642

Floor plan interest expense . . . . . . . . . . . . . . . . (46,266) — — (29,671) (16,595)

Other interest expense . . . . . . . . . . . . . . . . . . . (49,004) — (30,549) — (18,455)

Equity in earnings of affiliates . . . . . . . . . . . . . . 4,271 — — — 4,271

Equity in earnings of subsidiaries . . . . . . . . . . . . — (233,114) 233,114 — —

Income (loss) from continuing operations beforeincome taxes and minority interests . . . . . . . . 188,813 (233,114) 186,999 163,065 71,863

Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . (68,504) 85,397 (68,504) (62,464) (22,933)

Minority interests . . . . . . . . . . . . . . . . . . . . . . . (1,814) — — — (1,814)

Income (loss) from continuing operations . . . . . . 118,495 (147,717) 118,495 100,601 47,116

Income (loss) from discontinued operations, netof tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 478 (478) 478 1,179 (701)

Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . $ 118,973 $(148,195) $118,973 $ 101,780 $ 46,415

F-37

PENSKE AUTOMOTIVE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In thousands, except per share amounts) — (Continued)

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWSYear Ended December 31, 2007

TotalCompany

PenskeAutomotiveGroup, Inc.

GuarantorSubsidiaries

Non-Guarantor

Subsidiaries(In Thousands)

Net cash from continuing operating activities . . . . . . . . . $ 310,075 $ 7,634 $ 124,942 $177,499

Investing Activities:

Purchase of equipment and improvements . . . . . . . . . . . (194,954) (1,959) (104,268) (88,727)

Proceeds from sale — leaseback transactions . . . . . . . . . 131,793 — 67,351 64,442

Dealership acquisitions, net . . . . . . . . . . . . . . . . . . . . . . (180,721) — (121,025) (59,696)

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,518 8,764 — 6,754

Net cash from continuing investing activities . . . . . . . . . (228,364) 6,805 (157,942) (77,227)

Financing Activities:

Net borrowings (repayments) of long-term debt . . . . . . . (34,190) 325,833 (287,212) (72,811)

Redemption of 95⁄8% Senior Subordinated Debt. . . . . . . . (314,439) (314,439) — —

Floor plan notes payable — non-trade. . . . . . . . . . . . . . . 193,537 — 202,499 (8,962)

Proceeds from exercise of common stock includingexcess tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,614 2,614 — —

Distributions from (to) parent . . . . . . . . . . . . . . . . . . . . . — — 17,002 (17,002)

Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (28,447) (28,447) — —

Net cash from continuing financing activities . . . . . . . . . (180,925) (14,439) (67,711) (98,775)

Net cash from discontinued operations . . . . . . . . . . . . . . 96,962 — 98,292 (1,330)

Net change in cash and cash equivalents . . . . . . . . . . . . . (2,252) — (2,419) 167

Cash and cash equivalents, beginning of period. . . . . . . . 13,147 — 2,419 10,728

Cash and cash equivalents, end of period . . . . . . . . . . . . $ 10,895 $ — $ — $ 10,895

F-38

PENSKE AUTOMOTIVE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In thousands, except per share amounts) — (Continued)

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWSYear Ended December 31, 2006

TotalCompany

PenskeAutomotiveGroup, Inc.

GuarantorSubsidiaries

Non-Guarantor

Subsidiaries(In Thousands)

Net cash from continuing operating activities . . . . . . . . . $ 116,077 $ 954 $ 110,769 $ 4,354

Investing Activities:

Purchase of equipment and improvements . . . . . . . . . . . (223,967) (954) (54,347) (168,666)

Proceeds from sale — leaseback transactions . . . . . . . . . 106,167 — 26,447 79,720

Dealership acquisitions, net . . . . . . . . . . . . . . . . . . . . . . (370,231) — (136,160) (234,071)

Net cash from continuing investing activities . . . . . . . . . (488,031) (954) (164,060) (323,017)

Financing Activities:

Net borrowings (repayments) of long-term debt . . . . . . . (211,072) (706,689) 338,869 156,748

Issuance of subordinated debt. . . . . . . . . . . . . . . . . . . . . 750,000 750,000 — —

Floor plan notes payable — non-trade. . . . . . . . . . . . . . . (54,395) — (224,022) 169,627

Payment of deferred financing costs . . . . . . . . . . . . . . . . (17,210) (17,210) — —

Proceeds from exercise of common stock includingexcess tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,069 18,069 — —

Repurchase of common stock . . . . . . . . . . . . . . . . . . . . . (18,955) (18,955) — —

Distributions from (to) parent . . . . . . . . . . . . . . . . . . . . . — — 5,144 (5,144)

Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (25,215) (25,215) — —

Net cash from continuing financing activities . . . . . . . . . 441,222 — 119,991 321,231

Net cash from discontinued operations . . . . . . . . . . . . . . (63,770) — (65,183) 1,413

Net change in cash and cash equivalents . . . . . . . . . . . . . 5,498 — 1,517 3,981

Cash and cash equivalents, beginning of period. . . . . . . . 7,649 — 902 6,747

Cash and cash equivalents, end of period . . . . . . . . . . . . $ 13,147 $ — $ 2,419 $ 10,728

F-39

PENSKE AUTOMOTIVE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In thousands, except per share amounts) — (Continued)

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWSYear Ended December 31, 2005

TotalCompany

PenskeAutomotiveGroup, Inc.

GuarantorSubsidiaries

Non-Guarantor

Subsidiaries(In Thousands)

Net cash from continuing operating activities . . . . . . . . . $ 169,818 $(17,389) $ 143,760 $ 43,447

Investing Activities:

Purchase of equipment and improvements . . . . . . . . . . . . (216,125) (1,947) (132,165) (82,013)

Proceeds from sale — leaseback transactions. . . . . . . . . . 118,470 — 65,620 52,850

Dealership acquisitions, net . . . . . . . . . . . . . . . . . . . . . . (125,579) — (103,045) (22,534)

Net cash from continuing investing activities . . . . . . . . . (223,234) (1,947) (169,590) (51,697)

Financing Activities:

Net borrowings (repayments) of long-term debt. . . . . . . . 2,356 16,170 (138) (13,676)

Floor plan notes payable — non-trade . . . . . . . . . . . . . . . 14,900 — 1,910 12,990

Proceeds from exercise of common stock includingexcess tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,674 4,674 — —

Distributions from (to) parent . . . . . . . . . . . . . . . . . . . . . — — (3,718) 3,718

Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (20,844) (20,844) — —

Net cash from continuing financing activities . . . . . . . . . 1,086 — (1,946) 3,032

Net cash from discontinued operations . . . . . . . . . . . . . . 43,108 — 35,354 7,754

Net change in cash and cash equivalents . . . . . . . . . . . . . (9,222) (19,336) 7,578 2,536

Cash and cash equivalents, beginning of period . . . . . . . . 16,871 19,336 (6,676) 4,211

Cash and cash equivalents, end of period . . . . . . . . . . . . $ 7,649 $ — $ 902 $ 6,747

F-40

PENSKE AUTOMOTIVE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In thousands, except per share amounts) — (Continued)

Schedule II

PENSKE AUTOMOTIVE GROUP, INC.

VALUATION AND QUALIFYING ACCOUNTS

Description

Balance atBeginning

of Year Additions

Deductions,Recoveries& Other

Balanceat Endof Year

(In Thousands)

Year Ended December 31, 2007Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . 2,735 1,855 (1,641) 2,949

Tax valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,943 725 (2,331) 2,337

Year Ended December 31, 2006Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . 3,710 1,494 (2,469) 2,735

Tax valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,119 1,456 (1,632) 3,943

Year Ended December 31, 2005Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . 3,286 2,689 (2,265) 3,710

Tax valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,080 3,190 (151) 4,119

F-41

Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

I, Roger S. Penske, certify that:

1. I have reviewed this annual report on Form 10-K/A of Penske Automotive Group, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to statea material fact necessary to make the statements made, in light of the circumstances under which such statementswere made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report,fairly present in all material respects the financial condition, results of operations and cash flows of the registrant asof, and for, the periods presented in this annual report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosurecontrols and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control overfinancial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and proceduresto be designed under our supervision, to ensure that material information relating to the registrant, including itsconsolidated subsidiaries, is made known to us by others within those entities, particularly during the period inwhich this report is being prepared; and

b) Designed such internal control over financial reporting, or caused such internal control over financialreporting to be designed under our supervision, to provide reasonable assurance regarding the reliability offinancial reporting and the preparation of financial statements for external purposes in accordance withgenerally accepted accounting principles; and

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in thisreport our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of theperiod covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting thatoccurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of anannual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internalcontrol over financial reporting.

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation ofinternal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board ofdirectors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control overfinancial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have asignificant role in the registrant’s internal control over financial reporting.

/s/ ROGER S. PENSKE

Roger S. PenskeTitle: Chief Executive Officer

February 25, 2008

Exhibit 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

I, Robert T. O’Shaughnessy, certify that:

1. I have reviewed this annual report on Form 10-K/A of Penske Automotive Group, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to statea material fact necessary to make the statements made, in light of the circumstances under which such statementswere made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this report,fairly present in all material respects the financial condition, results of operations and cash flows of the registrant asof, and for, the periods presented in this annual report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosurecontrols and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control overfinancial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and proceduresto be designed under our supervision, to ensure that material information relating to the registrant, including itsconsolidated subsidiaries, is made known to us by others within those entities, particularly during the period inwhich this report is being prepared; and

b) Designed such internal control over financial reporting, or caused such internal control over financialreporting to be designed under our supervision, to provide reasonable assurance regarding the reliability offinancial reporting and the preparation of financial statements for external purposes in accordance withgenerally accepted accounting principles; and

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in thisreport our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of theperiod covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting thatoccurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of anannual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internalcontrol over financial reporting.

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation ofinternal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board ofdirectors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control overfinancial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have asignificant role in the registrant’s internal control over financial reporting.

/s/ ROBERT T. O’SHAUGHNESSY

Robert T. O’ShaughnessyChief Financial Officer

February 25, 2008

Exhibit 32

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the annual report of Penske Automotive Group, Inc. (the “Company”) on Form 10-K/A forthe year ended December 31, 2007, as filed with the Securities and Exchange Commission on the date hereof (the“Report”), we, Roger S. Penske and Robert T. O’Shaughnessy, Principal Executive Officer and Principal FinancialOfficer, respectively, of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant toSection 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities ExchangeAct of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financialcondition and results of operations of the Company.

/s/ ROGER S. PENSKE

Roger S. PenskeChief Executive Officer

February 25, 2008

/s/ ROBERT T. O’SHAUGHNESSY

Robert T. O’ShaughnessyChief Financial Officer

February 25, 2008

A signed original of this written statement required by Section 906 has been provided to Penske AutomotiveGroup, Inc. and will be retained by Penske Automotive Group, Inc. and furnished to the Securities and ExchangeCommission or its staff upon request.

Dear Fellow Stockholder:

You are invited to attend the annual meeting of stockholders of PenskeAutomotive Group, Inc. to be held at 8:00 a.m., Pacific Daylight Time on May 1,2008, at Wynn Las Vegas, the site of Penske Wynn Ferrari Maserati, one of ourpremier automotive dealerships. Wynn Las Vegas is located at 3131 Las VegasBoulevard South, Las Vegas, Nevada.

The accompanying Notice of Annual Meeting and Proxy Statementdescribe the specific matters to be voted upon at the meeting. The annualmeeting provides an excellent opportunity for stockholders to become betteracquainted with Penske Automotive Group and its directors and officers, and Ihope that you will attend.

Whether or not you plan to attend, we ask that you cast your vote as soon aspossible. This will assure your shares are represented at the meeting. Thankyou for your continued support of Penske Automotive Group.

Sincerely,

ROGER S. PENSKE

Chairman of the Board andChief Executive Officer

Bloomfield Hills, MichiganMarch 11, 2008

NOTICE OF ANNUAL MEETING OF STOCKHOLDERSNOTICE OF INTERNET AVAILABILITY OF PROXY MATERIALS

May 1, 2008We will hold our annual meeting of stockholders at 8:00 a.m., Pacific

Daylight Time on May 1, 2008, at Wynn Las Vegas, the site of Penske WynnFerrari Maserati, one of our premier automotive dealerships. Wynn Las Vegas islocated at 3131 Las Vegas Boulevard South, Las Vegas, Nevada. The agendaitems for approval at the meeting consist of:

(1) the election of twelve directors to serve until the next annual meet-ing of stockholders, or until their successors are duly elected andqualified; and

(2) the transaction of such other business as may properly comebefore the meeting.

Stockholders of record as of March 10, 2008 can vote at the annualmeeting and any postponements or adjournments of the annual meeting.We will make available for inspection a list of holders of our common stockas of the record date during business hours from April 15, 2008 through May 1,2008 at our principal executive offices, located at 2555 Telegraph Road,Bloomfield Hills, Michigan 48302. This proxy statement and the enclosed proxycard are first being distributed on or about March 11, 2008.

Your vote is very important. Please complete, date and sign the enclosedproxy card and return it promptly in the enclosed postage prepaid envelope orotherwise cast your vote. Your prompt voting will ensure a quorum. You may revokeyour proxy and vote personally on all matters brought before the annual meeting.

Important Notice Regarding the Availability of Proxy Materials for theAnnual Meeting of Stockholders to be Held on May 1, 2008

The proxy statement and 2007 annual report to stockholders are availableat www.penskeautomotive.com/investorrelations.aspx.

By Order of the Board of Directors,

SHANE M. SPRADLIN

Senior Vice President, General Counseland Secretary

Bloomfield Hills, MichiganMarch 11, 2008

TABLE OF CONTENTS

Page

2 Procedural Questions about the Meeting3 Proposal 1 — Election of Directors6 Our Corporate Governance

10 Executive Officers10 Compensation Committee Report11 Compensation Discussion and Analysis18 Executive and Director Compensation24 Security Ownership of Certain Beneficial Owners and Management26 Audit Committee Report27 Independent Registered Public Accounting Firms28 Related Party Transactions31 Other Matters

PROCEDURAL QUESTIONS ABOUT THE MEETINGQ. What am I voting on?A. Proposal 1: Election of twelve directors to serve until the next annual meeting of stock-

holders, or until their successors are duly elected and qualified.Q. Who can vote?A. Our stockholders as of the close of business on the record date, March 10, 2008, can vote

at the annual meeting. Each share of our common stock gets one vote. Votes may not becumulated. As of March 10, 2008, there were 95,372,559 shares of our common stockoutstanding.

Q. How do I vote before the meeting?A. By completing, signing and returning the enclosed proxy card in the enclosed envelope.Q. May I vote at the meeting?A. You may vote at the meeting if you attend in person. If you hold your shares through an

account with a bank or broker, you must obtain a legal proxy from the bank or broker inorder to vote at the meeting. Even if you plan to attend the meeting, we encourage you tovote your shares by proxy.

Q. Can I change my mind after I vote?A. You may change your vote at any time before the polls close at the meeting by (1) signing

another proxy card with a later date and returning it to us prior to the meeting, (2) voting atthe meeting if you are a registered stockholder or have obtained a legal proxy from yourbank or broker or (3) sending a notice to our Corporate Secretary prior to the meetingstating that you are revoking your proxy.

Q. What if I return my proxy card but do not provide voting instructions?A. Proxies that are signed and returned but do not contain instructions will be voted (1) FOR

the election of the twelve nominees for director, and in accordance with the best judgmentof the named proxies on any other matters properly brought before the meeting.

Q. Will my shares be voted if I do not provide my proxy instruction form?A. If you are a registered stockholder and do not provide a proxy, you must attend the meeting

in order to vote your shares. If you hold shares through an account with a bank or broker,your shares may be voted even if you do not provide voting instructions on your instructionform. Brokers have the authority under New York Stock Exchange rules to vote shares forwhich their customers do not provide voting instructions on certain “routine” matters suchas the election of directors.

Q. May stockholders ask questions at the meeting?A. Yes. Our representatives will answer stockholders’ questions of general interest at the end

of the meeting. In order to give a greater number of stockholders an opportunity to askquestions, individuals or groups may be allowed to ask only one question and repetitive orfollow-up questions may not be permitted.

Q. How many votes must be present to hold the meeting?A. Your shares are counted as present at the meeting if you attend the meeting and vote in

person or if you properly return a proxy card. In order for us to conduct our meeting, amajority of our outstanding shares of common stock as of March 10, 2008 must be presentin person or by proxy at the meeting (47,686,280). This is referred to as a quorum.Abstentions and broker non-votes will be counted for purposes of establishing a quorumat the meeting.

Q. How many votes are needed to approve the proposal?A. Regarding proposal 1, the twelve nominees receiving the highest number of “For” votes will

be elected as directors. This number is called a plurality. Shares not voted, whether bymarking “Abstain” on the proxy card or otherwise, will have no impact on the election ofdirectors.

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PROPOSAL 1 — ELECTION OF DIRECTORSProposal 1 to be voted on at the annual meeting is the election of the following twelve

director nominees, each of whom is recommended by our Nominating and Corporate Gov-ernance Committee and Board of Directors. If elected, each of these nominees will serve aone-year term and will be subject to re-election at next year’s annual meeting. Pursuant to astockholders agreement, certain of our stockholders affiliated with Roger S. Penske andMitsui & Co., Ltd. have agreed to vote together to elect members of our Board of Directors.See “Related Party Transactions” for a description of this stockholders agreement.

Our Board of Directors Recommends a Vote “FOR” Each of The Following Nominees:

John D. Barr —CEO, Papa Murphy’sInternational, Inc.

Mr. Barr, 60, has served as a director since December 2002.Mr. Barr has been the Chief Executive Officer of Papa Murphy’sInternational, Inc., a take-and-bake pizza chain, since April2005 and its Vice Chairman since July 2004. From 1999 untilApril 2004, Mr. Barr served as President and Chief ExecutiveOfficer of Automotive Performance Industries, a vehicle trans-portation service provider. Prior thereto, Mr. Barr was Presidentand Chief Operating Officer, as well as a member of the Boardof Directors, of the Quaker State Corporation from June 1995to 1999. Prior to joining Quaker State, Mr. Barr spent 25 yearswith The Valvoline Company, a subsidiary of Ashland, Inc.,where he was President and Chief Executive Officer from1987 to 1995. Mr. Barr is a director of Clean Harbors, Inc.,James Hardie Industries, NV and UST, Inc.

Michael R. Eisenson —Managing Director andCEO of CharlesbankCapital Partners, L.L.C

Mr. Eisenson, 52, has served as a director since December1993. He is a Managing Director and CEO of CharlesbankCapital Partners LLC, a private investment firm and the suc-cessor to Harvard Private Capital Group, Inc., which he joinedin 1986. Mr. Eisenson is also a director of Animal Health Inter-national, Inc. and Catlin Group Limited, as well as a number ofprivate companies.

Hiroshi Ishikawa —Executive Vice President —International BusinessDevelopment of PenskeAutomotive Group, Inc.

Mr. Ishikawa, 45, has served as a director since May 2004 andour Executive Vice President — International Business Devel-opment since June 2004. Previously, Mr. Ishikawa served asthe President of Mitsui Automotive North America, Inc. fromJune 2003 to May 2004. From October 2001 to May 2003,Mr. Ishikawa served as Vice President, Secretary & Treasurerfor Mitsui Automotive North America, Inc.

Robert H. Kurnick, Jr. —Vice Chairman of PenskeAutomotive Group

Mr. Kurnick, Jr., 46, has served as our Vice Chairman sinceMarch 8, 2006 and a director since May 3, 2006. From February2000 until March 2006, Mr. Kurnick served as our ExecutiveVice President and General Counsel. He also serves as Pres-ident and a director of Penske Corporation, which he joined in1995. We previously announced that Mr. Kurnick will assumethe position of President effective April 1, 2008.

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William J. Lovejoy —Manager of Lovejoy &Associates

Mr. Lovejoy, 67, has served as a director since March 2004.Since September 2003, Mr. Lovejoy has served as Manager ofLovejoy & Associates, an automotive consulting firm. FromJanuary 2000 until December 2002, Mr. Lovejoy served asGroup Vice President, North American vehicle sales, serviceand marketing for General Motors Corporation. From 1994until December 1999, Mr. Lovejoy served as Vice Presidentof General Motors service and parts operation. From 1962 until1992, Mr. Lovejoy served in various capacities for GeneralMotors Acceptance Corporation (”GMAC”) and ultimatelyPresident of GMAC in 1990.

Kimberly J. McWaters —CEO of Universal TechnicalInstitute, Inc.

Ms. McWaters, 43, has served as a director since December2004. Since October 2003, Ms. McWaters has served as CEO ofUniversal Technical Institute, Inc. (“UTI”), a nationwide providerof technical educational training for individuals seeking careersas professional automotive technicians. Since February 2000,Ms. McWaters has served as President of UTI. From 1984 until2000, Ms. McWaters held several positions at UTI including vicepresident of marketing and vice president of sales andmarketing.

Eustace W. Mita —Chairman of AchristavestProperties, LLC

Mr. Mita, 53, has served as a director since August 1999. SinceOctober 2002, Mr. Mita has been chairman of AchristavestProperties, LLC, a developer of waterfront properties in NewJersey, Maryland, Massachusetts and Pennsylvania, andChairman of Mita Management, L.L.P., a closely held companywith interests in the automotive and real estate industries. Priorthereto, Mr. Mita served as President and Chief ExecutiveOfficer of HAC Group, LLC, an automobile training and con-sulting company with operations in nineteen countries, whichwas acquired by The Reynolds and Reynolds Company in2000. In 1984, Mr. Mita founded Mita Leasing, a unique con-cept in automotive retailing and leasing. Mr. Mita is also afounding director of First Republic Bank.

Lucio A. Noto —Retired Vice Chairman ofExxonMobil Corporation

Mr. Noto, 69, has served as a director since March 2001.Mr. Noto retired as Vice Chairman of ExxonMobil Corporationin January 2001, a position he had held since the merger ofExxon and Mobil companies in November 1999. Before themerger, Mr. Notowas Chairman and CEO of Mobil Corporation,where he had been employed since 1962. Mr. Noto is a man-aging partner of Midstream Partners LLC, an investment com-pany specializing in energy and transportation projects. He isalso a director of International Business Machines Corpora-tion, the Altria Group, Inc., Shinsei Bank, Stem Cell Innova-tions, Inc. and the Commercial International Bank of Egypt.Mr. Noto is a member of the Temasek Technologies (Singapore)International Advisory Counsel.

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Roger S. Penske —Chairman of the Board andCEO of Penske AutomotiveGroup

Mr. Penske, 71, has served as our Chairman and CEO since May1999. Mr. Penske has also been Chairmanof the Board and CEOof Penske Corporation since 1969. Penske Corporation is aprivately owned diversified transportation services companythat holds, through its subsidiaries, interests in a number ofbusinesses. Mr. Penske has also been Chairman of the Board ofPenske Truck Leasing Corporation since 1982. Mr. Penskeserves as a member of the Boards of Directors of GeneralElectric Company, Universal Technical Institute and InternetBrands, Inc. Mr. Penske also is Chairman of the DowntownDetroit Partnership and a director of Detroit Renaissance.

Richard J. Peters —Managing Director ofTransportation ResourcePartners, LP

Mr. Peters, 60, has served as a director since May 1999. SinceJanuary 2003, Mr. Peters has been a Managing Director ofTransportation Resource Partners (”TRP”). From January 2000to December 2002, Mr. Peters was President of PenskeCorporation. Since 1997, Mr. Peters has also served asPresident and CEO of R.J. Peters & Company, LLC, a privateinvestment company. Mr. Peters has been a member of theBoard of Directors of Penske Corporation since 1990 andserves as a member of the Board of Directors of variousTRP portfolio companies.

Ronald G. Steinhart —Retired Chairman andCEO, Commercial BankingGroup, Bank OneCorporation

Mr. Steinhart, 67, has served as a director since March 2001.Mr. Steinhart served as Chairman and CEO, Commercial Bank-ing Group, of Bank One Corporation from December 1996 untilhis retirement in January 2000. From January 1995 toDecember 1996, Mr. Steinhart was Chairman and CEO of BankOne, Texas, N.A. Mr. Steinhart joined Bank One in connectionwith its merger with Team Bank, which he founded in 1988.Mr. Steinhart also serves as a director of Animal Health Inter-national, Inc., Penson Worldwide, Inc., Texas Industries Inc.,and as a Trustee of the MFS/Compass Group of mutual funds.

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H. Brian Thompson —Executive Chairman of GlobalTelecom & Technology

Mr. Thompson, 68, has served as a Director since March 2002.Mr. Thompson is Executive Chairman of Global Telecom &Technology (GTT), a worldwide multi-network telecommuni-cations operator. He also heads his own private equity invest-ment and advisory firm, Universal Telecommunications, Inc., inVienna, Virginia. Mr. Thompson served as Chairman and CEOof Global TeleSystems Group, Inc. from March 1999 throughSeptember 2000 and from 1991 to 1998, he served as Chair-man and CEO of LCI International. Subsequent to the June1998 merger of LCI with Qwest Communications InternationalInc., Mr. Thompson became Vice Chairman of the Board forQwest until his resignation in December 1998. In 1999,Mr. Thompson was Chairman of the Irish telephone company,Telecom Eirann, and Executive Vice President of MCI Com-munications Corporation from 1981 to 1990. Mr. Thompsoncurrently serves as a member of the Board of Directors ofAxcelis Technologies, Inc., ICO Global Communications (Hold-ings) Limited, and Sonus Networks, Inc.

OUR CORPORATE GOVERNANCE

2007 DIRECTORS BOD Audit

Compensation &ManagementDevelopment

Nominating &Corporate

Governance Executive

John D. Barr . . . . . . . . . . . . . . . . . . . X XMichael R. Eisenson . . . . . . . . . . . . X X XHiroshi Ishikawa . . . . . . . . . . . . . . . . XRobert H. Kurnick, Jr. . . . . . . . . . . . XWilliam J. Lovejoy . . . . . . . . . . . . . . . X XKimberly J. McWaters . . . . . . . . . . . X XEustace W. Mita . . . . . . . . . . . . . . . . X X XLucio A. Noto . . . . . . . . . . . . . . . . . . X XRoger S. Penske. . . . . . . . . . . . . . . . X XRichard J. Peters . . . . . . . . . . . . . . . X XRonald G. Steinhart . . . . . . . . . . . . . X XH. Brian Thompson . . . . . . . . . . . . . X X XNo. of Meetings 2007 . . . . . . . . . .. . 7 8 6 2 0

Our Board of Directors has four standing committees: the Audit Committee, the Com-pensation and Management Development Committee, the Nominating and Corporate Gover-nance Committee and the Executive Committee. The Board of Directors approved a charter foreach of the Audit, Compensation and Management Development, and Nominating and Cor-porate Governance committees, which charters are available on our website, www.penskeau-tomotive.com under the tab “Corporate Governance” or in print (see “Corporate GovernanceGuidelines” below). The principal responsibilities of each committee are described below.Collectively, our directors attended over 90% of our board and committee meetings in 2007and the only director who did not attend 75% of these meetings was Mr. Noto, who attended71% of our Board meetings. All of our directors are encouraged to attend the annual meetingand all did attend the annual meeting in 2007.

Audit Committee. The purpose of this committee is to assist the Board of Directors infulfilling its oversight responsibility relating to (1) the integrity of our financial statements and

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financial reportingprocess and our systems of internal accountingand financial controls; (2) theperformance of the internal audit function; (3) the engagement of the Company’s independentregistered public accounting firms and the evaluation of their qualifications, independence andperformance; (4) the annual independent audit of our financial statements, and (5) the fulfill-ment of the other responsibilities set out in the Audit Committee charter. The Board of Directorshas confirmed that all members of the Audit Committee are “independent” and “financiallyliterate” under the New York Stock Exchange rules and applicable law, and each is an “auditcommittee financial expert,” as that term is defined in Securities and Exchange Commissionrules. Mr. Steinhart serves on the audit committee of three other public companies. In 2008, theBoard determined that Mr. Steinhart’s simultaneous service on four public company auditcommittees would not impair his ability to effectively serve as a member of our auditcommittee.

Compensation and Management Development Committee. The purpose of this com-mittee is to assist the Board of Directors in discharging its responsibility relating to compen-sation of our directors, executive officers and such other employees as this committee maydetermine, succession planning and related matters. Each committee member is independentunder the New York Stock Exchange guidelines and our guidelines for director independence.

Nominating and Corporate Governance Committee. The purpose of this committee isto identify individuals qualified to become members of the Board of Directors, to recommendDirector nominees for each annual meeting of stockholders and nominees for election to fill anyvacancies on the Board of Directors and to address related matters. This committee alsodevelops and recommends to the Board of Directors corporate governance principles and isresponsible for leading the annual review of our corporate governance policies and the Boardof Directors’ performance. Each committee member is independent under the New York StockExchange guidelines and our guidelines for director independence.

Executive Committee. Our Executive Committee’s primary function is to assist ourBoard of Directors by acting upon matters when the Board of Directors is not in session.The Executive Committee has the full power and authority of the Board of Directors, except tothe extent limited by law or our certificate of incorporation or bylaws.

Corporate Governance Guidelines. The Nominating and Corporate Governance Com-mittee also makes recommendations concerning our corporate governance guidelines, whichare posted on our website, www.penskeautomotive.com, under the tab “Corporate Gover-nance.” These guidelines, and the other documents referenced in this section, are also avail-able in print without charge to any stockholder who requests them by calling our investorrelations department at 248-648-2500 or 866-715-5289.

Lead Director. One of our governance principles is that we have an independent “LeadDirector,” who is responsible for coordinating the activities of the other outside Directors,including the establishment of the agenda for executive sessions of the outside Directors, andwho shall preside at their meetings. These sessions generally occur as part of each Boardmeeting and include, at least annually, a session comprised of only our independent directors.Our Lead Director is currently H. Brian Thompson. He may be contacted by leaving a messageat the following telephone number: 800-469-1634. All messages will be reviewed by ourCorporate Secretary’s office and all (other than frivolous messages) will be forwarded to theLead Director. Any written communications to the Board of Directors may be sent care of theCorporate Secretary to our principal executive office. These communications (other thanfrivolous messages) will also be forwarded to the Lead Director.

Code of Conduct. We have also adopted a Code of Business Conduct and Ethics,applicable to all of our employees and directors, which is posted on our website at www.pen-skeautomotive.com under the tab “Corporate Governance” and is available in print (see

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“Corporate Governance Guidelines” above). We plan to disclose waivers, if any, for our exec-utive officers or directors from the code on our website, www.penskeautomotive.com.

Director Independence. A majority of our Board of Directors is independent and each ofthe members of our audit, compensation and nominating committees is independent. TheBoard of Directors has determined that Ms. McWaters and Messrs. Barr, Eisenson, Lovejoy,Mita, Steinhart and Thompson are each independent in accordance with the listing require-ments of the New York Stock Exchange, as well as with the more stringent requirements of ourguidelines for independent directors found in our corporate governance guidelines which areavailable on our website www.penskeautomotive.com and are set forth below. As required byNew York Stock Exchange rules, our Board of Directors made an affirmative determination as toeach independent director that no material relationship exists which, in the opinion of theBoard of Directors, would interfere with the exercise of independent judgment in carrying outthe responsibilities of a director. In making these determinations, the Board of Directorsreviewed and discussed information provided by the directors and us with regard to eachdirector’s business and personal activities as they may relate to us and our management.

For a director to be considered independent under our corporate governance guidelines,the Board of Directors must determine that the director does not have any direct or indirectmaterial relationship with us (including any parent or subsidiary in a consolidated group withus). In addition to applying these guidelines, the Board of Directors considers relevant factsand circumstances in making an independence determination, and not merely from thestandpoint of the director, but also from that of persons or organizations with which the directorhas an affiliation. With respect to our independent directors, the Board considered the trans-actions, relationships and arrangements described under “Related Party Transactions” in itsindependence determination, as well as any direct or indirect co-investments with Transpor-tation Resource Partners, an affiliate of Penske Corporation, which co-investments do notinvolve the Company.

Under our guidelines, a director will not be independent if:

1. the director is employed by us, or an immediate family member is one of ourexecutive officers;

2. the director receives any direct compensation from us, other than director fees andforms of deferred compensation for prior service (provided such compensation isnot contingent in any way on continued service);

3. the director is affiliated with or employed by our independent registered publicaccounting firms (or internal auditors), or an immediate family member is affiliatedwith or employed in a professional capacity by our independent registered publicaccounting firms (or internal auditors); or

4. an executive officer of ours serves on the compensation committee of the board ofdirectors of a company that employs the director or an immediate family member asan executive officer.

A director also will not be independent if, at the time of the independence determination,the director is an executive officer or employee, or if an immediate family member is anexecutive officer, of another company that does business with us and the sales by thatcompany to us or purchases by that company from us, in any single fiscal year during theevaluation period, are more than the greater of one percent of the annual revenues of thatcompany or $1 million. Furthermore, a director will not be independent if, at the time of theindependence determination, the director is an executive officer or employee, or an immediatefamily member is an executive officer, of another company that is indebted to us, or to which weare indebted, and the total amount of either company’s indebtedness to the other at the end ofthe last completed fiscal year is more than one percent of the other company’s total

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consolidated assets. Finally, a director will not be independent if, at the time of the indepen-dence determination, the director serves as an officer, director or trustee of a charitableorganization, and our charitable contributions to the organization are more than the greaterof $250,000 or one percent of that organization’s total annual charitable receipts during its lastcompleted fiscal year.

Under the New York Stock Exchange rules, if a company is “controlled,” it need not have amajority of independent directors or solely independent compensation or nominating com-mittees. We are a “controlled company” because more than 50% of the voting power for theelection of directors is collectively held by Penske Corporation, Mitsui & Co. and their affiliates.These entities are considered a group due to the provisions of the stockholders agreementbetween these parties described under “Related Party Transactions.” Even though we are a“controlled company,” we are fully compliant with the New York Stock Exchange rules for non-controlled companies. A majority of our Board of Directors is independent and each of ournominating, audit and compensation committees is comprised solely of independentdirectors.

Director Nominees. The Nominating and Corporate Governance Committee believesthat director candidates should have certain minimum qualifications, including having personalintegrity, loyalty to Penske Automotive and concern for its success and welfare, willingness toapply sound and independent business judgment and time available for Penske Automotivematters. Experience in at least one of the following is also desired: high level of leadershipexperience in business or administration, breadth of knowledge concerning issues affectingPenske Automotive, willingness to contribute special competence to board activities, accom-plishments within the director’s respective field, and experience reading and understandingfinancial statements. The Nominating and Corporate Governance Committee retains the rightto modify these qualifications from time to time.

The Nominating and Corporate Governance Committee’s process for identifying andevaluating nominees is as follows: in the case of incumbent directors whose terms of officeare set to expire, the committee reviews such directors’ overall service to Penske Automotiveduring their term. In the case of new director candidates, the committee uses its network ofcontacts to compile potential candidates, but may also engage, if it deems appropriate, aprofessional search firm. The committee considers whether the nominee would be indepen-dent and meets with each candidate individually to discuss and consider his or her qualifica-tions and, if approved, recommends the candidate to the Board.

The Nominating and Corporate Governance Committee will consider director candidatesrecommended by stockholders. Stockholder proposals for nominees should be addressed toour Corporate Secretary, Penske Automotive Group, 2555 Telegraph Road, Bloomfield Hills, MI48302, and must comply with the procedures outlined below. The committee’s evaluation ofstockholder-proposed candidates will be the same as for any other candidates.

Stockholders who wish to recommend individuals for consideration by the committee tobecome nominees for election to the Board may do so by submitting a written recommendationto our Corporate Secretary. Submissions must include sufficient biographical informationconcerning the recommended individual, including age, employment history with employernames and a description of the employer’s business, whether such individual can read andunderstand basic financial statements and a list of board memberships and other affiliations ofthe nominee. The submission must be accompanied by a written consent of the individual tostand for election and serve if elected by the stockholders, a statement of any relationshipsbetween the person recommended and the person submitting the recommendation, a state-ment of any relationships between the candidate and any automotive retailer, manufacturer orsupplier and proof of ownership by the person submitting the recommendation of 500 shares ofour common stock for one year. Recommendations received by November 10, 2008, will be

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considered for nomination at the 2009 annual meeting of stockholders. Recommendationsreceived after November 10, 2008 will be considered for nomination at the 2010 annualmeeting of stockholders.

Compensation Committee Interlocks and Insider Participation. During 2007, theCompensation and Management Development Committee was comprised of H. Brian Thompson(Chairman), Eustace Mita and William Lovejoy. As more fully discussed under “Related PartyTransactions,” Mr. Mita is an investor in Transportation Resource Partners, which is affiliated withPenske Corporation. In addition, Mr. Mita’s son was formerly employed by us as a regionalmanager for which hewas compensated $316,000 in 2007, which compensation is commensuratewith his peers’.

EXECUTIVE OFFICERS

Our executive officers are elected by the Board of Directors and hold office until theirsuccessors have been duly elected and qualified or until their earlier resignation or removalfrom office. Brief biographies of Messrs. Kurnick and Penske are set forth above. Brief biog-raphies of our other executive officers are provided below.

Roger Penske, Jr., 48, has served as our President since January 3, 2007. From July 2003to January 2007, he served as our Executive Vice President — East Operations and fromJanuary 2001 to July 2003 he served as our President — Mid-Atlantic Region. Mr. Penske, Jr.serves as a member of the Board of Directors of Penske Corporation and is the son of ourChairman and Chief Executive Officer. We previously announced Mr. Penske, Jr.’s departurefrom our company effective March 31, 2008.

Robert T. O’Shaughnessy, 42, has served as our Executive Vice President and ChiefFinancial Officer since January 3, 2007. From July 2005 until January 2007, he served as SeniorVice President — Finance. From August 1999 until July 2005, he served as our Vice Presidentand Controller. Prior to joining us in May 1997 as Assistant Controller, Mr. O’Shaughnessy was asenior manager for Ernst & Young LLP, an accounting and financial advisory services firm,which he joined in 1987.

Calvin Sharp, 56, has served as our Executive Vice President — Human Resources sinceJuly 1, 2007. Mr. Sharp served as Senior Vice President — Human Resources for our EasternRegion from October 2003 to July 2007. From 1988 to 2003, Mr. Sharp served in numerouspositions with Detroit Diesel Corporation, culminating in his appointment as Senior VicePresident — Human Resources. From 1974 to 1988, Mr. Sharp held various positions in HumanResources Management with General Motors.

COMPENSATION COMMITTEE REPORT

The CompensationandManagementDevelopmentCommitteeof the Board ofDirectors,whichwe will refer to as the “compensation committee” or “committee”, has reviewed and discussed theCompensationDiscussionand Analysis set forthbelow withmanagement.Based on this reviewandthese discussions with management, the committee has recommended to our Board of Directorsthat the Compensation Disclosure and Analysis be included in this proxy statement.

The Compensation & ManagementDevelopment Committee of the Board of Directors

H. Brian Thompson (Chairman)William J. LovejoyEustace W. Mita

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COMPENSATION DISCUSSION AND ANALYSIS (“CD&A”)

I. General Information

Our Compensation Committee. Our compensation committee is comprised of threeindependent directors, as determined by our Board of Directors pursuant to the listing require-ments of the New York Stock Exchange, as well as the more stringent requirements of ourcorporate governance guidelines. See “Our Corporate Governance — Director Independence”for a discussion of these independence requirements. Our committee’s primary responsibil-ities are to:

• Determine all elements of our executive officers’ compensation;

• Review and recommend compensation for other members of senior management;

• Review and recommend our compensation and benefit policies for our employeesgenerally;

• Administer our equity incentive plans;

• Make recommendations to the Board of Directors with respect to directorcompensation; and

• Review our management progression and succession plans.

These responsibilities are set out in the committee’s charter which you can find on ourwebsite www.penskeautomotive.com. This charter is reviewed annually by our corporategovernance committee and Board of Directors. The compensation committee retains theauthority to delegate its duties to a subcommittee, though it did not do so in 2007. Proposedcommittee meeting agendas are prepared by management and sent to the committee prior toevery meeting along with material for committee review. The final agenda for each meeting isdetermined by the committee chairman. The committee met six times during 2007, and eachmeeting is typically concluded with an executive session including only the committeemembers.

Outside Advisors and Consultants. Our compensation committee has the authority tohire outside consultants and advisors at their discretion, and it has full access to any of ouremployees. While it may do so in the future, neither the committee nor company managementhas retained any outside consultants to assist them in fulfilling their duties in the past severalyears.

Role of Executive Officers. The committee relies on our senior management to assist infulfilling many of its duties, in particular our Executive Vice President — Human Resources andChief Executive Officer, each of whom attend part of most committee meetings. These exec-utives make recommendations concerning our compensation policies generally, certain spe-cific elements of compensation for senior management (such as restricted stock awards andbonuses) as well as report to the committee as to company personnel and developments. OurChief Executive Officer also makes specific compensation recommendations concerning ourother executive officers and certain other employees. Our Chief Executive Officer does notparticipate in determining his own compensation except as noted below under “Chief Exec-utive Officer Compensation”.

II. Compensation Philosophy

Our compensation program is designed to motivate and reward our executive officers andother key employees to enhance long-term stockholder value and to attract and retain thehighest quality executive and key employee talent available. We believe our executive

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compensation should be aligned with increasing the value of our common stock and promotingour key strategies, values and long term financial and operational objectives.

Our compensation program has evolved over time. At several times during each year, theprogram is reviewed in whole or in part with respect to various factors, including: competitivebenchmarking; the tax and accounting treatment of certain elements of employee compen-sation; and recent trends regarding executive compensation. We evaluate the effectiveness ofour program generally based on our ability to motivate our executives to deliver superiorcompany wide performance and to retain them on a cost-effective basis.

The majority of our executive and employee compensation is payable in cash in the short-term, and is comprised principally of salary and cash bonuses, which we believe is typicalwithin our industry. We use cash compensation as the majority of our compensation becausewe believe it provides the most flexibility for our employees and it is less dilutive to existingstockholders than equity compensation. The committee also recognizes that stock prices mayalso reflect factors other than long-term performance, such as general economic conditionsand varying attitudes among investors toward the stock market in general and toward retailcompanies specifically. However, we also provide long-term compensation in the form ofrestricted stock awards for certain employees. Our restricted stock program awards typicallyvest over four years, with 70% of any award vesting in the third and fourthyears. We believe thislong term compensation helps to align management’s goals with those of our other stock-holders and provides a long-term retention inducement for our key employees, as discussedbelow under the heading “Restricted Stock.”

We do not have any required stock ownership guidelines for our employees. We monitorthe stock ownership of our key executives and believe the weighted vesting of our restrictedstock awards will contribute to our executive officers holding a significant equity position in ourcompany.

Determination of Amounts. The committee reviews and determines all aspects ofcompensation for our executive officers. In making decisions regarding non-CEO compen-sation, the committee receives input from our Chief Executive Officer. The committee reviewsannual salary adjustments with a view toward maintaining external compensation competi-tiveness. External competitiveness is benchmarked against each of the other publicly tradedautomotive retailers. We are the second largest publicly traded automotive retailer and the onlyone with international operations. While we benchmark our compensation, we do not target aspecific quartile of pay for our executive officers as compared to our peers as we believe eachof our executive officer’s circumstances and challenges is unique to the individual and we baseour compensation accordingly.

Management Incentive Plan. Section 162(m) of the Internal Revenue Code of 1986, asamended, generally imposes a $1 million per year ceiling on the tax-deductibility of remuner-ation paid to any one of the named executive officers of a public company (except for the chieffinancial officer), unless the remuneration is treated as performance-based or is otherwiseexempt from the provisions of Section 162(m). We have designed our Management IncentivePlan, which was approved by our stockholders in 2004, to provide for the payment of perfor-mance-based compensation that is qualified within the meaning of Section 162(m) of theInternal Revenue Code.

We expect to continue to issue awards under the Management Incentive Plan for our ChiefExecutive Officer, as well as any other officers for whom we believe this plan would provide akey motivation to advance specific annual objectives of the Company, while also maximizingthe tax deductibility of our compensation expense. For any awards under the ManagementIncentive Plan, the compensation committee reserves negative discretion to reduce (but notincrease) the payout under the award. While the committee intends to maximize the tax-efficiency of its compensation programs generally, it retains flexibility in the manner in which it

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awards compensation to act in our best interests, including awarding compensation that maynot be tax deductible.

III. Our Compensation Program

Our compensation program primarily consists of four elements:

• base salary;

• annual cash bonus payment;

• restricted stock awards; and

• employee health care and other benefits, such as the use of a company vehicle.

Base Salary. We pay base salary to set a baseline level of compensation for all seniormanagement. The salary levels for our executive officers are determined by scope of jobresponsibility, experience, individual performance, historical salary levels and the benchmark-ing information discussed earlier under “Determination of Amounts.” The committee approvessalary levels for executive officers and certain key employees in order to maintain externalcompensation competitiveness using the benchmarks noted above, and to reflect the perfor-mance of those employees in the prior year and to reflect any change in the employee’s level ofresponsibility within the organization. The committee also considers our achievement ofcorporate objectives and general economic factors.

Annual Bonus Payments. Each member of our senior management is also eligible toreceive an annual discretionary bonus payment. In 2007, our Chief Executive Officer andPresident received only the amounts resulting from their performance based awards describedbelow under “Chief Executive Officer Compensation” and “President Compensation.” We payannual bonuses to provide an incentive for future performance and as a reward for perfor-mance during the prior year. Discretionary bonus payments are determined in varying degreesbased on three criteria:

• Evaluation of an individual’s performance in the prior year;

• Evaluation of the annual performance of an individual’s business unit; and

• Company-wide performance and the attainment of corporate objectives in the prior year.

Since the annual bonus is based in part on our company-wide performance, we believe theannual bonus also focuses employees on our corporate goals designed to increase stock-holder value.

Restricted Stock. The committee believes that the interests of senior managementshould be closely aligned with those of our stockholders. Therefore, each member of seniormanagement is eligible to receive an incentive equity award because we believe equity grantseffectively align management’s goals with those of our other stockholders. In 2007 restrictedstock granted to our Chief Executive Officer and President resulted solely from their perfor-mance based awards described below under “Chief Executive Officer Compensation” and“President Compensation.”

In 2007 and 2008, we issued incentive compensation to our senior management team inthe form of restricted stock under our 2002 Equity Compensation Plan. Our restricted stockgrants for management typically vest over four years at a rate of 15%,15%, 20% and 50% perannum, respectively. These shares are subject to forfeiture in the event the executive departsfrom the Company. We believe vesting the majority of the awards in the third and fourth yearsprovides a longer-term incentive and more closely aligns the incentives for management withthe interests of our long-term stockholders. We employ this form of compensation in partbecause many of our initiatives may take several years to show benefits, such as building

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premium facilities. These initiatives may be costly in the short-term, but we believe they willprovide benefits for years to come. We also believe that weighted vesting of these awardsprovides an additional incentive to retain our valuable employees due to the value that may becreated over time. Our restricted stock awards are designed to mirror our other outstandingstock and thus enable the recipients to vote with our other stockholders and receive dividends.

Restricted stock grants are generally discretionary (other than those awarded to our ChiefExecutive Officer or others under our Management Incentive Plan discussed above), and arebased upon a guideline range that takes into account the responsibilities of executive officersand other key employees whose contributions and skills are important to our long-termsuccess. In 2007, the committee granted approximately 250,000 shares of restricted stockto employees (representing about 0.26% of our current outstanding equity), some of whichhave reverted back to us as employees have departed from our company. These amountsinclude the restricted stock granted to our Chief Executive Officer in lieu of any cash bonus.From time-to-time, the committee also approves special equity awards based on an employ-ee’s outstanding contributions, commencement of employment or other factors.

Other Compensation. We may provide our employees with selected other benefits orperquisites in order to attract and retain highly skilled employees. All of our employees areentitled to a number of benefits such as company contributions toward health and welfarebenefits, company matching under our 401(k) plan, and company-sponsored life insurance.Our corporate employees are also entitled to a company-sponsored lunch. We believe thesebenefits manifest our concern for our employees and provide an inducement and retentionadvantage. With respect to health and welfare benefits, the committee believes that ouremployees should receive a meaningful benefit package commensurate with those of otherautomotive retailers, recognizing the increasing cost of those benefits in recent years.

As we are an automotive retailer, our senior management is typically provided the use of acompany vehicle, company-sponsored automobile insurance, and a tax gross-up relating tothese amounts. We typically contribute a monthly allowance toward a lease payment for acompany vehicle selected by the employee. The vehicle must be leased from one of ourdealerships and the allowance is based on an employee’s position within our company. In somecircumstances, we purchase a vehicle outright if we believe this will be more cost effective overthe life of the vehicle’s use. We have valued the use of company vehicles in the followingdisclosure tables based on the value of our lease payments or, in situations where we havepurchased a vehicle or provided a “demonstrator” vehicle, on IRS guidelines. We also pay formaintenance and repairs on the vehicles, which costs are included in those tables. Similar toany company providing its products to employees, we provide these vehicles as an induce-ment and retention benefit.

From time to time, we may adopt other benefits for our senior management, such aspayment for a country club membership or tax gross-ups for certain items. We review thesebenefits on a case-by-case basis and believe, if limited in scope, such benefits can provide anincentive to long term performance and help retain our valuable employees. The value of theseother types of perquisites are quantified based on our cost.

Other Forms of Compensation. The committee has also reviewed various other forms ofexecutive compensation for our management, such as stock options and supplemental retire-ment plans. Currently, the committee is of the view that salary, bonus and restricted stockawards should provide the principal components of management compensation and thatthese forms of compensation best align management’s goals with those of our stockholders.Therefore, after review, the committee has determined not to issue or grant stockoptions, allowfor deferred compensation in the form of a deferral of salary or bonus, or any retirement benefit(other than under our defined contribution plans that are available to all qualified employees).

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The committee considers the advisability of these additional types of compensation period-ically and retains the flexibility to implement other forms of compensation in the future.

No Employment Agreements, Change of Control and Severance Compensation. Noneof our current executive officers have been provided an employment agreement, nor are theyentitled to any severance compensation or compensation upon a change of control, except as setforth below under “President Compensation.” We believe our mix of short-term and long-termcompensation provides a retention incentive that makes an employment contract unnecessary,while providing us maximum flexibility with respect to managing our executive officers. Our lack ofpre-arranged severance compensation is consistent with our performance based compensationphilosophy, and provides us the flexibility to enter into a post-employment arrangement with anemployee based on the circumstances existing upon departure. We have entered into consultingagreements with our departing senior management on a case-by-case basis, as we believe it maybe important to have continuing access to these employee’s institutional knowledge base andguidance. In these events, we have typically obtained a non-compete agreement with theseindividuals.

With respect to a change in control, none of our current executive officers have beenguaranteed any change of control payments. However, our outstanding equity awards providethat, in the event of a change of control, the compensation committee has the discretion toaccelerate, vest or rollover any outstanding equity awards.

IV. 2007 Compensation

2007 compensation is noted in the tables following this section. In reviewing individualcompensation, the committee employs a form of “tally sheet” designed to capture all elementsof compensation.

Chief Executive Officer Compensation. In determining the compensation of Mr. Penske,the committee considered the company performance noted below, and also reviewed the CEOcompensation and the financial performance of our peer companies. The committee alsoconsidered Mr. Penske’s previous year’s compensation. Based on their review, the committeeproposed an increase in Mr. Penske’s base salary in 2007. However, for the third consecutiveyear, Mr. Penske declined the salary increase in order to align a greater percentage of hiscompensation with company performance and the value of our common stock. Therefore, thecommittee maintained Mr. Penske’s base salary at $750,000 in 2007. In February 2008,Mr. Penske’s salary was increased to $1.0 million retroactive to January 1, 2008.

In 2008, the committee awarded Mr. Penske 89,267 shares of restricted stock valued at$1.68 million based on the closing price on the New York Stock Exchange on the date ofapproval ($18.82). These shares vest over a four year period at a rate of 15%,15%, 20% and50% with the final vesting in June 2012, subject to forfeiture in the event Mr. Penske departsfrom the Company. These shares resulted from a performance based award which had beengranted to Mr. Penske in March of 2007 under our Management Incentive Plan discussedabove. The maximum potential amount Mr. Penske could have earned pursuant to this awardwas $3.0 million, though the committee reserved discretion to reduce (but not increase) thepayout under these awards. Mr. Penske achieved 56% of the performance metrics noted

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below, which entitled Mr. Penske to the $1.68 million. The specific 2007 performance objec-tives and related performance were as follows:

Objective Result % of award Achievement

• return on equity of 11%. . . . . . . . . . . . . . . . . . . . . . . . 9.7% 8% 0%• same store retail sales revenue increase of 3%. . . . . 8.1% 8% 8%• acquisition of annualized revenue of $250 million . . . $450 8% 8%• employee turnover below 31% . . . . . . . . . . . . . . . . . . 30.8% 8% 8%• same store service and parts revenue increase of

8% or more . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.4% 8% 0%• customer satisfaction scores exceed manufacturer

objectives at 80% of our franchises . . . . . . . . . . . . . . Exceeds 8% 8%• gross margin greater than 15.25% . . . . . . . . . . . . . . . 14.9% 8% 0%• debt to capitalization below 41% . . . . . . . . . . . . . . . . 37% 8% 8%• no material weaknesses in our internal controls . . . . None 8% 8%• new car inventory less than 60 days supply . . . . . . . . 59 days 8% 8%

and used car inventory less than 45 days supply . . . . 43 days• earnings per share from continuing operations at

least $1.40 per share . . . . . . . . . . . . . . . . . . . . . . . . . . $1.33 10% 0%(1)

• common stock price appreciation of 10% . . . . . . . . . (18)% 10% 0%Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% 56%

(1) In March 2007, we redeemed $300 million of our 9.625% Senior Subordinated notes resulting in a$0.13 cent cost per share. Absent this item, this objective would have been satisfied.

In March 2008, the committee established a similar award for Mr. Penske with respect to2008 with a maximum potential payout of $3.0 million in the form of a restricted stock grant. Theperformance objectives for 2008 are as follows:

Objective % of award

• return on equity of 11%(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11%• same store retail sales revenue increase of 3% (50% attainment), 4% (75%

attainment) and 5% (100% attainment)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12%• acquisition of gross annualized revenue of $300 million . . . . . . . . . . . . . . . . . . . 10%• employee turnover at or below 32% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10%• operating margin above 2.7% (50% attainment) and 3% (100%

attainment)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10%• customer satisfaction scores exceed manufacturer objectives at 80% of our

franchises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10%• no material weaknesses in our internal controls . . . . . . . . . . . . . . . . . . . . . . . . . 8%• new car inventory less than 59 days supply and used car inventory less than

43 days supply . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8%• earnings per share from continuing operations at least $1.67 per share(1) . . . . 11%• common stock price performance to exceed the Standard & Poor’s 500 Index

during 2008. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10%

100%

(1) This performance target shall exclude any items of gain, loss or expense determined to be extraor-dinary or unusual in nature or infrequent in occurrence, or related to discontinued operations or achange in accounting principles or other regulations, provided that such items are specificallyidentified, quantified and disclosed in any public earnings release with respect to the period.

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(2) This performance target shall exclude the impact of identifiable changes due solely to changes inforeign exchange rates.

President Compensation. At the beginning of 2007, Roger S. Penske, Jr., was promotedfrom Executive Vice President — Eastern Operations to President. Subsequent to this promo-tion, Mr. Penske retained direct oversight responsibility for our U.S. East operations. For thatreason, Mr. Penske, Jr.’s bonus and restricted stock award was based on specific objectivesrelating to the performance of our U.S. East operations. We believe tying Mr. Penske, Jr.’scompensation to the performance of the East region served as an incentive to Mr. Penske, Jr.with regard to that area’s performance, while his accumulated restricted stock represented akey incentive for company-wide performance.

Specifically, Mr. Penske, Jr. was paid a cash bonus paid in March 2008 of $547,946 whichwas based on a percentage of actual 2007 East region pre-tax earnings, as adjusted to excludegains and losses attributable to the sale or shutdown of dealerships in the East region in 2007(as these losses did not reflect operating performance). The payment levels were set inadvance as compared to our internal budget. If our East region pre-tax earnings were below$42.0 million, Mr. Penske, Jr. was to receive no bonus. If our East region pre-tax earnings werein excess of $42.0 million, Mr. Penske, Jr. was to receive one percent of East region pre-taxearnings and, for pre-tax earnings in excess of $55.0 million, he was to receive two percent ofthe excess above $55.0 million.

Mr. Penske, Jr. also received a performance based award in March of 2007 under ourManagement Incentive Plan discussed above. The maximum potential amount Mr. Penske, Jr.could have earned pursuant to this awardwas $300,000 in the form of a restricted stock grant in2008, though the committee reserved discretion to reduce (but not increase) the payout underthis award. Mr. Penske, Jr. achieved 10% of the performance metrics noted below with respectto that performance based award, which entitled Mr. Penske, Jr. to a $30,000 restricted stockaward. As a result, in 2008, the committee awarded Mr. Penske, Jr.1,594 shares of restrictedstock valued at $30,000 based on the closing price on the New York Stock Exchange on thedate of approval ($18.82). These shares vest over a four year period at a rate of 15%,15%, 20%and 50% with the final vesting in June 2012. The metrics noted below were designed to driveincremental improvement over the prior year and may not necessarily compare to similarlytitled consolidated results. The specific 2007 performance objectives related to the perfor-mance of the East region and were as follows:

East Region Objective Result % of award Achievement

• same store gross profit increase of 12.2%. . . . . . . . . 4.6% 20% 0%• same store service and parts gross profit increase

of 8.2% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.2% 20% 0%• personnel compensation as a% of gross profit no

more than 45.4%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46.5% 20% 0%• selling, general and administrative expense as a%

of gross profit of no more than 84.9% . . . . . . . . . . . . 89.4% 20% 0%• employee turnover of no more than 35% . . . . . . . . . . 36% 10% 0%• customer satisfaction scores exceed manufacturer

objectives at 80% of our East region franchises . . . . Exceeds 10% 10%

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% 10%

On February 29, 2008, we announced that Mr. Penske, Jr. will be departing from ourCompany effective March 31, 2008. In connection with his departure, we approved the vestingof Mr. Penske, Jr.’s outstanding restricted stock at that time. For the 2008 period throughMarch 31, 2008, Mr. Penske will continue to receive his current salary and a bonus based on theEast region pre-tax earnings as compared to our internal budget as described above for 2007.

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Other Executive Officer Compensation. Each of our other executive officers receivedthe stock awards and bonuses set forth in the tables below. Messrs. Kurnick, O’Shaughnessyand Sharp also received 11,000,11,000 and 2,500 restricted shares, respectively, vesting overfour years at a rate of 15%,15%, 20% and 50%. These amounts were determined based on theprinciples set forth above. Mr. Kurnick, our Vice Chairman, is also the President of PenskeCorporation and he receives a substantial amount of total compensation from Penske Cor-poration, our controlling stockholder. While Mr. Kurnick devotes a substantial amount of timeand effort to our company, his total compensation paid by us does reflect that he devotesefforts to Penske Corporation. Mr. Kurnick did not receive a cash bonus in 2008 relating to 2007for this reason.

EXECUTIVE AND DIRECTOR COMPENSATION

The following table contains information concerning 2007 annual and long-term compen-sation for our Chief Executive Officer, Chief Financial Officer and each of our three other mosthighly compensated executive officers during 2007, collectively referred to as the “namedexecutive officers.”

2007 Summary Compensation Table

Name and Principal Position YearSalary

($)Bonus

($)

StockAwards

($)(1)

All OtherCompensation

($)Total

($)

Roger S. Penske . . . . . . . . . . . . 2007 $ 750,000 — $1,459,063 $ 25,000(2) $2,234,063(3)Chief Executive Officer 2006 $ 750,000 — $ 393,878 — $1,143,878

Robert T. O’Shaughnessy . . . . . . 2007 $ 565,000 $235,000 $ 173,538 $ 42,376(4) $1,015,914Chief Financial Officer 2006 $ 515,000 $200,000 $ 130,851 $141,046 $ 986,897

Roger S. Penske, Jr. . . . . . . . . . 2007 $1,075,000 $547,946 $ 98,820 $ 53,963(5) $1,775,729President

Calvin C. Sharp . . . . . . . . . . . . . 2007 $ 320,000 $135,000 $ 30,940 $ 18,670(6) $ 504,610Executive Vice President —Human Resources

Robert H. Kurnick, Jr. . . . . . . . . 2007 375,000 $ — $ 145,073 $ 20,596(7) $ 540,669Vice Chairman 2006 $ 350,000 — $ 103,655 $ 14,346 $ 468,001

(1) These amounts represent the amount of compensation expense we recorded in 2007 in connectionwith restricted stock awards granted under our 2002 Equity Compensation Plan, which amounts weredetermined in accordance with FAS 123R as discussed in footnotes 1 and 13 to our consolidatedfinancial statements filed in our annual report on Form 10-K on February 25, 2008.

(2) Reflects $25,000 in matching charitable donations pursuant to our director charitable matchingprogram (see below “Director Compensation — Charitable Donation Matching Program”) and spousaltravel on corporateaircraft in conjunctionwith corporate travel. For a discussion of our methodology invaluing these items, see “CD&A — Other Compensation”.

(3) In March 2007, Mr. Penske received an equity incentive plan-based award in the form of an awardpayable upon achievement of 2007 performance targets. The maximum total award for this grant was$3.0 million, payable in restricted stock. Of the $3.0 million potentially payable to Mr. Penske, theactual amount paid to Mr. Penske under this award was 89,267 shares of restricted stock vesting overfour years at a rate of 15%,15%, 20% and 50%, valued at $1.68 million, based upon the New York StockExchange closing price on the grant date of the award ($18.82). See the narrative discussion followingthis table for further discussion of this award.

(4) Represents the use of company vehicles and related automobile insurance, payments for a countryclub membership (though this membership is used for personal and business purposes), matchingfunds under our company-wide 401(k) plan, company-sponsored life insurance, company-sponsoredlunch program and a tax allowance of $13,597. For a discussion of our methodology in valuing theseitems, see “CD&A — Other Compensation”.

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(5) $27,545 represents the use of company vehicles and related automobile insurance, $15,141 repre-sents a tax allowance and the remainder represents payments for a country club membership (thoughthis membership is used for personal and business purposes), spousal travel on corporate aircraft inconjunction with corporate travel, matching funds under our company-wide 401(k) plan, company-sponsored life insurance, and company-sponsored lunch program. For a discussion of our method-ology in valuing these items, see “CD&A — Other Compensation”

(6) Represents the use of Company vehicles and related automobile insurance, matching funds underour Company 401(k) plan, company-sponsored life insurance, company-sponsored lunch programand a tax allowance of $725. For a discussion of our methodology in valuing these items, see “CD&A —Other Compensation”

(7) Represents the use of Company vehicles and related automobile insurance, Company sponsored lifeinsurance, and a tax allowance of $5,927. For a discussion of our methodology in valuing these items,see “CD&A — Other Compensation.”

Grants of Plan-Based Awards in 2007

Name Grant DateThreshold

($)Target

($)Maximum

($)Threshold

($)Maximum

($)

All otherAwards:

Number ofShares of

Stock or Units(#)

Grant DateFair Valueof StockAwards

($)

Estimated FuturePayouts Under

Non-Equity IncentivePlan Awards

Estimated FuturePayouts Under

Equity IncentivePlan Awards

Roger S. Penske . . . . . . . . . . . . . . . . . 3/1/2007 78,886(1) 1,700,000(1)Chief Executive Officer 3/1/2007 — 3,000,000(2)

Robert T. O’Shaughnessy . . . . . . . . . . . 3/1/2007 10,000 215,500Chief Financial Officer

Roger S. Penske, Jr. . . . . . . . . . . . . . . 3/1/2007 — 6,000(3) 129,300(3)President 3/1/2007 300,000(3)

3/1/2007 (4) (4) (4)Calvin C. Sharp . . . . . . . . . . . . . . . . . . 3/1/2007 2,000 43,100

Executive Vice President — HumanResources

Robert H. Kurnick, Jr., . . . . . . . . . . . . . . 3/1/2007 10,000 215,500Vice Chairman

(1) This represents the shares of restricted stock issued to Mr. Penske in March 2007 resulting from hisattainment of goals outlined in his 2006 incentive award. Note that this table reflects two years ofawards to Mr. Penske: the 2006 award actually received in 2007 and the total potential award for 2007,paid in 2008.

(2) See the following narrative discussion for an explanation of this award.

(3) Note that this table reflects two years of equity awards to Mr. Penske, Jr., the restricted stock awardactually received in 2007 and the total potential award for 2007, paid in 2008. See the followingnarrative discussion for an explanation of the $300,000 equity incentive plan award.

(4) Mr. Penske, Jr. was awarded a bonus of $547,946 in 2008 resulting from a “non-equity incentive planaward” granted in March 2007. As described in more detail in the following narrative discussion,Mr. Penske Jr.’s bonus for 2007 was based on a percentage of the pre-tax earnings of our East region,and therefore no threshold, target or maximum amount is applicable to this award.

Narrative Discussion of Summary Compensation Table and Plan Based Awards

Mr. Penske’s Performance Based Award. The amounts set forth in the two precedingtables reflect payments and awards to our named executive officers based on the principlesand descriptions discussed under “Compensation Discussion and Analysis.” Mr. Penskereceived a performance based award in 2007. The award was issued under our ManagementIncentive Plan and was based on performance targets to be achieved in 2007. A maximumpotential payout of $3.0 million in the form of shares of restricted stock was available under theaward. The payment of the award in 2008 was $1.68 million in the form of 89,267 shares ofrestricted common stock vesting over four years at a rate of 15%,15%, 20% and 50% valued on

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the date of grant of the restricted stock award. The objective performance targets of Mr. Pen-ske’s award are described in the “CD&A — Chief Executive Officer Compensation.”

Mr. Penske, Jr.’s Awards. Mr. Penske, Jr. received a performance based award in 2007 issuedunder our Management Incentive Plan and based on performance targets to be achieved in 2007.A maximum potential payout of $300,000 in the form of shares of restricted stock was availableunder the award. The payment of the award in 2008 was $30,000 in the form of 1,594 shares ofrestricted common stock vestingover four years at a rate of 15%,15%, 20% and 50% valued on thedate of grant of the restricted stock award. The objective performance targets of Mr. Penske Jr.’saward are described in the “CD&A — President Compensation.”

Mr. Penske, Jr.’s 2007 cash bonus paid in March 2008 was $547,946, which was based on apercentage of actual 2007 East region pre-tax earnings, as adjusted to exclude gains andlosses attributable to the sale or shutdown of dealerships in the East region in 2007 (as theselosses did not reflect operating performance). The payment levels were set in advance ascompared to our internal budget as discussed above under “CD&A-President Compensation.”

Other Restricted Stock Awards. The other equity awards noted in the table were eachissued to our named executive officers as part of an annual grant of restricted stock pursuant tothe terms of the 2002 Equity Compensation Plan. These awards vest annually over four years ata rate of 15%,15%, 20% and 50% and are issued based on principles described in the “CD&A —Restricted Stock.”

Outstanding Equity Awards at 2007 Year-End

Name

Number of SecuritiesUnderlying Unexercised

Options Exercisable(#)

OptionExercise

Price

OptionExpiration

Date

Number of Shares orUnits of Stock That

Have Not Vested(#)

Market Value ofShares or Units ofStock That Have

Not Vested(1)

Option Awards Stock Awards

Roger S. Penske, . . . . . . . . . . . . 241,006(2) $4,207,965Chief Executive Officer

Robert T. O’Shaughnessy . . . . . . 5,000 $10.48 2/22/12Chief Financial Officer 34,100(3) $ 595,386

Roger S. Penske, Jr.. . . . . . . . . . 10,000 $10.48 2/22/12President 19,894(4) $ 347,349

Calvin C. Sharp . . . . . . . . . . . . . 6,100(5) $ 106,506Executive Vice President —Human Resources

Robert H. Kurnick, Jr., . . . . . . . . . 28,500(6) $ 497,610Vice Chairman

(1) Market value is based upon the closing price of our common stock on December 31, 2007 ($17.46).

(2) These amounts include the restricted stock issued in 2008 to Mr. Penske as a result of his performancebased equity award with respect to 2007. These restricted shares vest as follows:June 1, 2008 — 33,720 June 1, 2010 — 52,240 June 1, 2012 — 44,633June 1, 2009 — 53,116 June 1, 2011 — 57,297

(3) The restricted shares vest as follows:

June 1, 2008 — 8,900 June 1, 2010 — 5,000

June 1, 2009 — 15,200 June 1, 2011 — 5,000

(4) These amounts include the restricted stock issued in 2008 to Mr. Penske, Jr. as a result of hisperformance based equity award with respect to 2007. In connection with Mr. Penske, Jr.’s anticipateddeparture from our Company on March 31, 2008, we have approved the vesting of these shares at thattime. The originally scheduled vest of these shares was:

June 1, 2008 — 6,000 June 1, 2010 — 4,439 June 1, 2012 — 797

June 1, 2009 — 5,339 June 1, 2011 — 3,319

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(5) The restricted shares vest as follows:

June 1, 2008 — 2,000 June 1, 2010 — 1,400

June 1, 2009 — 1,700 June 1, 2011 — 1,000

(6) The restricted shares vest as follows:

June 1, 2008 — 8,000 June 1, 2010 — 7,000

June 1, 2009 — 8,500 June 1, 2011 — 5,000

Option Exercises and Stock Vested

Name

Numberof Shares

Acquired onExercise (#)

ValueRealized on

Exercise

Numberof Shares

Acquired onVesting (#)

ValueRealized

on Vesting(1)

Option Awards Stock Awards

Roger S. Penske . . . . . . . . . . . . . . . . . . — — 15,521 $349,067Chief Executive Officer

Robert T. O’Shaughnessy. . . . . . . . . . . . — — 5,250 $118,073Chief Financial Officer

Roger S. Penske, Jr. . . . . . . . . . . . . . . . — — 3,000 $ 67,470President

Calvin C. Sharp . . . . . . . . . . . . . . . . . . . — — 1,000 $ 22,490Executive Vice President — HumanResources

Robert H. Kurnick, Jr. . . . . . . . . . . . . . . — — 4,200 $ 94,458Vice Chairman

(1) The value is based upon the closing price of our common stock on the vest date.

Pension Benefits and Nonqualified Deferred Compensation

We do not offer our executives any pension plans or nonqualified deferred compensationplans.

Potential Termination Payments

None of our named executive officers is employed under an employment agreement andnone have any contractual severance or termination payments.

Director Compensation

The Board of Directors believes that its members should receive a mix of cash and equitycompensation, with the option to receive all compensation in the form of equity. The Board ofDirectors approves changes to director compensation only upon the recommendation of thecompensation committee, which is composed solely of independent directors. Only directorswho are not our paid employees, who we call “outside directors,” are eligible for directorcompensation, unless otherwise noted.

Annual Fee and Restricted Stock Award. Each outside director receives an annual feeof $40,000, except for audit committee members, who receive $45,000. These fees arepayable, at the option of each outside director, in cash or common stock valued on the dateof receipt (generally in March of the year subsequent to service). For 2007 service, our outsidedirectors also received an annual grant of 4,000 shares of restricted stock during the firstquarter of 2008. These restricted shares vest on the one-year anniversary of the date of grant.Our Board of Directors has changed the equity compensation they are entitled to receive in2009 relating to 2008 service from restricted stock to stock.

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Option to Defer Receipt until Termination of Board Service. Under our Non-EmployeeDirector Compensation Plan, the annual fee and restricted stock awards may be deferred ineither the form of cash (for the annual fee) and/or deferred stock. Each deferred stock unit isequal in value to a share of common stock and ultimately paid in cash after a director retires.These stock units do not have voting rights, but do generate dividend equivalents in the form ofadditional stock units which are credited to the director’s account on the date dividends arepaid. All fees deferred in cash are held in our general funds and interest on such deferred fees iscredited to the director’s account at the then current U.S. 90-day Treasury bill rate on aquarterly basis.

Charitable Donation Matching Program. All directors are also eligible to participate in acharitable matching gift program. Under this program, we will match up to $25,000 per year incontributions by each director to institutions qualified as tax-exempt organizations under501(c)(3) of the Internal Revenue Code and other institutions approved at the discretion ofmanagement. We may decline to match any contribution to an institution with goals that areincompatible with ours, or due to conflicts with our director independence policy. This programis not available for matching of political contributions. While the contributions are directed byour directors, we retain the tax deduction for these contributions.

Other Amounts. As part of our director continuing education program, each director iseligible to be reimbursed by us for the cost and expenses relating to one education seminar peryear. These amounts are excluded from the table below. Each outside director also is entitled tothe use of a vehicle, as well as the cost of routine maintenance and repairs and company-sponsored automobile insurance relating to that vehicle. All directors are also entitled toreimbursement for their reasonable out-of-pocket expenses in connection with their travelto, and attendance at, meetings of the Board of Directors or its committees. Because weexpect attendance at all meetings, and a substantial portion of the Board of Directors’ work isdone outside of formal meetings, we do not pay meeting fees.

Director Compensation Table

Our directors who are also our employees (Messrs. Kurnick, Ishikawa, and Penske) receiveno additional cash compensation for serving as directors, though they are eligible for thecharitable matching program noted above.

NameFees Earned orPaid in Cash(1)

StockAwards(2)

All OtherCompensation Total

John D. Barr . . . . . . . . . . . . . . . . . . . . . $45,000 $30,437(3) $26,664(3) $102,101Michael R. Eisenson . . . . . . . . . . . . . . $45,000(1) $30,437(4) $44,654(4) $120,091William J. Lovejoy . . . . . . . . . . . . . . . . $40,000(1) $29,685(5) $35,248(5) $104,933Kimberly J. McWaters . . . . . . . . . . . . . $40,000 $29,685(6) $31,597(6) $101,282Eustace W. Mita . . . . . . . . . . . . . . . . . . $40,000 $30,437(7) $47,037(7) $117,474Lucio A. Noto . . . . . . . . . . . . . . . . . . . . $40,000(1) $30,437(8) $39,481(8) $109,918Richard J. Peters . . . . . . . . . . . . . . . . . $40,000 $29,685(9) $34,441(9) $104,126Ronald G. Steinhart . . . . . . . . . . . . . . . $45,000 $30,437(10) $36,364(10) $111,801H. Brian Thompson . . . . . . . . . . . . . . . $40,000(1) $30,437(11) $71,050(11) $141,487

(1) We pay our directors in the year subsequent to service. Unless otherwise noted, this column reflectsthe fees earned in 2007, though these fees were paid in 2008. Messrs. Eisenson, Lovejoy and Notoelected to receive equity in lieu of a cash fee for 2007. Mr. Thompson elected to receive equity for50% of his fee.

(2) These amounts represent the amount of compensation expense we recorded in 2007 in connectionwith restricted stock awards granted under our 2002 Equity Compensation Plan, which amounts

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were determined in accordance with FAS 123R as discussed in footnotes 1 and 13 to our consol-idated financial statements filed in our annual report on Form 10-K on February 25, 2008.

(3) Mr. Barr had 666 shares of unvested restricted stock and 8,070.53 deferred stock units outstandingat December 31, 2007, including the award earned in 2007.“All Other Compensation” reflects $26,664for the use of a Company vehicle and related insurance, and spousal travel on corporate aircraft inconjunction with corporate travel. The grant date fair value of the 2,000 deferred stock units grantedto Mr. Barr on March 2, 2007 was $42,680.

(4) Mr. Eisenson had 3,999 shares of unvested restricted stock outstanding at December 31, 2007,including the award earned in 2007.“All Other Compensation” reflects the use of a Company vehicleand related insurance and $25,000 in matching of charitable donations. The grant date fair value ofthe 2,000 shares of restricted stock and the 1,944 shares of stock granted to Mr. Eisenson on March 2,2007 was $87,680.

(5) Mr. Lovejoy had 666 shares of unvested restricted stock and 16,854.29 deferred stock units out-standing at December 31, 2007, including the award earned in 2007. “All Other Compensation”reflects the use of a Company vehicle and related insurance and $25,000 in matching of charitabledonations. The grant date fair value of the 3,728 deferred stock units granted to Mr. Lovejoy onMarch 2, 2007 was $79,555.

(6) Ms. McWaters had 3,999 shares of unvested restricted stock outstanding at December 31, 2007,including the award earned in 2007.“All Other Compensation” reflects the use of a Company vehicleand related insurance. The grant date fair value of the 2,000 shares of restricted stock granted toMs. McWaters on March 2, 2007 was $42,680.

(7) Mr. Mita had 3,999 shares of unvested restricted stock outstanding at December 31, 2007, includingthe award earned in 2007. “All Other Compensation” reflects the use of a Company vehicle andrelated insurance, $25,000 in matching of charitable donations and spousal travel on corporateaircraft in conjunction with corporate travel. The grant date fair value of the 2,000 shares of restrictedstock granted to Mr. Mita on March 2, 2007 was $42,680.

(8) Mr. Noto had 666 shares of unvested restricted stock and 19,847.6 deferred stock units outstandingat December 31, 2007, including the award earned in 2007.“All Other Compensation” reflects the useof a Company vehicle and related insurance and $25,000 in matching of charitable donations. Thegrant date fair value of the 3,728 deferred stock units granted to Mr. Noto on March 2, 2007 was$79,555.

(9) Mr. Peters had 3,999 shares of unvested restricted stock outstanding at December 31, 2007,including the award earned in 2007.“All Other Compensation” reflects the use of a Company vehicleand related insurance and $25,000 in matching of charitable donations. The grant date fair value ofthe 2,000 shares of restricted stock granted to Mr. Peters on March 2, 2007 was $42,680.

(10) Mr. Steinhart had 3,999 shares of unvested restricted stock outstanding at December 31, 2007,including the award earned in 2007.“All Other Compensation” reflects the use of a Company vehicleand related insurance and $25,000 in matching of charitable donations. The grant date fair value ofthe 2,000 shares of restricted stock granted to Mr. Steinhart on March 2, 2007 was $42,680.

(11) Mr. Thompson had 3,999 shares of unvested restricted stock outstanding at December 31, 2007,including the award earned in 2007.“All Other Compensation” reflects $46,050 for use of a Companyvehicle and related insurance and $25,000 in matching of charitable donations. The grant date fairvalue of the 2,000 shares of restricted stock and the 864 shares of stock granted to Mr. Thompson onMarch 2, 2007 was $61,118.

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SECURITY OWNERSHIP OF CERTAINBENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information with respect to the beneficial ownership of ourcommon stock as of March 10, 2008 by (1) each person known to us to own more than fivepercent of our common stock, (2) each of our directors, (3) each of our named executive officersand (4) all of our directors and executive officers as a group.

Beneficial ownership is determined in accordance with the rules of the SEC and includesvoting and investment power with respect to shares including shares of restricted, butunvested stock. The percentage of ownership is based on 95,372,559 shares of our commonstock outstanding on March 10, 2008. Unless otherwise indicated in a footnote, each personidentified in the table below has sole voting and dispositive power with respect to the commonstock beneficially owned by that person and none of the shares are pledged as security.

Beneficial Owner Number Percent

Shares BeneficiallyOwned(1)

Penske Corporation(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,952,864 38.7%2555 Telegraph RoadBloomfield Hills, MI 48302-0954

Mitsui(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,559,217 16.3%2-1, Ohtemachi 1-chome, Chiyoda-kuTokyo, Japan

Baron Capital Group, Inc.(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,473,724 9.9%767 Fifth AvenueNew York, NY 10153

Barclays Global Investors, NA(5) . . . . . . . . . . . . . . . . . . . . . . . 6,212,891 6.5%145 Fremont St.San Francisco, CA 91405

Dimension Fund Advisors LP(6) . . . . . . . . . . . . . . . . . . . . . . . . 5,157,450 5.4%1294 Ocean Avenue,11th FloorSanta Monica, CA 90401

John D. Barr(7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,000 *Michael R. Eisenson . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,477 *Hiroshi Ishikawa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,000 *Robert H. Kurnick, Jr.(8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94,292 *William J. Lovejoy(9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,000 *Robert T. O’Shaughnessy(10) . . . . . . . . . . . . . . . . . . . . . . . . . . 63,628 *Kimberly J. McWaters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,924 *Eustace W. Mita(11) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,021,693 1.1%Lucio A. Noto(12) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,664 *Roger S. Penske(13) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,678,534 39.5%Roger S. Penske, Jr.(14) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76,055 *Richard J. Peters(15) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110,760 *Ronald G. Steinhart . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,500 *H. Brian Thompson. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39,984 *Calvin C. Sharp . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,040 *All directors and executive officers as a group (16 persons). . 39,045,439 40.9%

* Less than 1%

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(1) Pursuant to the regulations of the SEC, shares are deemed to be “beneficially owned” by a person ifsuch person directly or indirectly has or shares the power to vote or dispose of such shares. Eachperson is deemed to be the beneficial owner of securities which may be acquired within sixty daysthrough the exercise of options, warrants, and rights, if any, and such securities are deemed to beoutstanding for the purpose of computing the percentage of the class beneficially owned by suchperson.

(2) Penske Corporation is the beneficial owner of 36,112,044 shares of common stock, of which it hasshared power to vote and dispose together with a wholly owned subsidiary. Penske Corporation alsohas shared voting power over 840,820 shares under voting agreements. Penske Corporation alsohas the right to vote the shares owned by the Mitsui entities (see note 3) under certain circumstancesdiscussed under “Certain Relationships and Related Party Transactions.” If these shares weredeemed to be beneficially owned by Penske Corporation, its beneficial ownership would be52,512,081 shares or 55.0%.

(3) Represents 3,111,444 shares held by Mitsui & Co., (U.S.A.), Inc. and 12,447,773 shares held by Mitsui &Co., Ltd.

(4) As reported on Schedule 13G as of December 31, 2007 and filed with the SEC February 12, 2008.

(5) As reported on Schedule 13G as of December 31, 2007 and filed with the SEC on February 6, 2008.

(6) As reported on Schedule 13G as of December 31, 2007 and filed with the SEC February 6, 2008.

(7) Mr. Barr also owns 8,090.75 deferred stock units which vest following his retirement from our Boardof Directors.

(8) Mr. Kurnick has shared voting power with respect to 31,292 of these shares.

(9) Mr. Lovejoy also owns 16,907.31 deferred stock units which vest following his retirement from ourBoard of Directors.

(10) Includes 5,000 shares issuable upon the exercise of options.

(11) 620,000 of these shares are pledged under a line of credit.

(12) Mr. Noto also owns 19,915.49 deferred stock units which vest following his retirement from our Boardof Directors.

(13) Includes the 36,952,864 shares deemed to be beneficially owned by Penske Corporation and64,550 shares deemed to be beneficially owned by Penske Capital Partners, L.L.C., all of whichshares Mr. Penske may be deemed to have shared voting and dispositive power. Mr. Penske is themanaging member of Penske Capital Partners and the Chairman and Chief Executive Officer ofPenske Corporation. 64,500 of the shares deemed owned by Penske Capital Partners are pledged assecurity to Penske Corporation. Mr. Penske disclaims beneficial ownership of the shares beneficiallyowned by Penske Capital and Penske Corporation, except to the extent of his pecuniary interesttherein. Penske Corporation also has the right to vote the shares owned by the Mitsui entities (seenote 3) under certain circumstances discussed under “Certain Relationships and Related PartyTransactions.” If these shares were deemed to be beneficially owned by Mr. Penske, his beneficialownership would be 53,237,751 shares or 55.8%.

(14) Includes 10,000 shares issuable upon the exercise of options. Mr. Penske, Jr. has shared votingpower with respect to 44,090 of these shares.

(15) Mr. Peters has shared voting power with respect to these shares.

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AUDIT COMMITTEE REPORTThe Audit Committee of the Board of Directors is responsible for providing independent,

objective oversight of our accounting functions and internal controls. The Audit Committeeacts under a written charter adopted and approved by the Board of Directors. The AuditCommittee is comprised only of independent directors as set forth in the listing requirementsof the New York Stock Exchange, the more stringent requirements of our corporate governanceguidelines and the Securities and Exchange Commission’s additional independence require-ments. In addition, our Board of Directors has determined that each of our committee membersis an “audit committee financial expert,” as defined by Securities and Exchange Commissionrules. In accordance with the Audit Committee charter, the Audit Committee has the soleauthority to retain and terminate our independent registered public accounting firms and isresponsible for recommending to the Board of Directors that our financial statements beincluded in our annual report on Form 10-K.

The Audit Committee took a number of steps in making this recommendation for our 2007annual report. First, the Audit Committee discussed with our independent registered publicaccounting firms those matters required to be discussed by Statement on Auditing StandardsNo. 61, including information regarding the scope and results of their audits. These commu-nications and discussions are intended to assist the Audit Committee in overseeing thefinancial reporting and disclosure process. Second, the Audit Committee discussed withthe independent registered public accounting firms their independence and received lettersand written disclosures from the independent registered public accounting firms required byIndependence Standards Board Standard No.1. These discussions and disclosures assistedthe Audit Committee in evaluating such independence. Finally, the Audit Committee reviewedand discussed the annual audited financial statements with our management and the inde-pendent registered public accounting firms in advance of the public release of operatingresults, and before the filing of our annual and quarterly reports with the Securities andExchange Commission.

Based on the foregoing, as well as on the review and discussions referred to above, andsuch other matters deemed relevant and appropriate by the Audit Committee, the AuditCommittee recommended to the Board of Directors that our audited financial statementsbe included in our 2007 annual report on Form 10-K as filed with the SEC on February 25, 2008.

The Audit Committee of theBoard of Directors

Michael R. Eisenson (Chairman)John D. BarrRonald G. Steinhart

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INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS

Deloitte & Touche LLP, the member firms of Deloitte Touche Tohmatsu, and their respectiveaffiliates (collectively referred to as “Deloitte”) will audit our consolidated financial statementsfor 2008 and perform other services. In 2007, Deloitte did not audit certain of our subsidiarieswhich own certain of our international operations and their opinions, insofar as they relate tothose operations, are based solely on the reports of the independent auditor of those oper-ations, KPMG Audit PLC (“KPMG”). This arrangement will continue in 2008. We refer to Deloitteand KPMG collectively as our independent registered public accounting firms. We paid theindependent registered public accounting firms the following fees for the enumerated servicesin 2006 and 2007, all of which services were approved by our Audit Committee.

Audit Fees. Audit Fees in the table below include the aggregate fees for professionalservices rendered by the independent registered public accounting firms in connection withthe audits of our consolidated financial statements, including the audits of management’sassessment of internal control over financial reporting included in our annual report onForm 10-K, reviews of the consolidated condensed financial statements included in ourquarterly reports on Form 10-Q, and other services normally provided in connection withstatutory or regulatory engagements.

Audit Related Fees. Audit Related Fees in the table below include the aggregate fees forprofessional services rendered by the independent registered public accounting firms inconnection with registration statements, acquisition due diligence, their assurance servicesrelated to benefit plans and accounting research and consultation.

Tax Fees. Tax Fees in the table below include aggregate fees for professional servicesrendered by the independent registered public accounting firms in connection with tax com-pliance, planning and advice.

All Other Fees. All Other Fees in the table below include aggregate fees for all otherservices rendered by the independent registered public accounting firms. These fees relatedprimarily to employee benefit plan advisory services.

2007 2006 2007 2006Deloitte KPMG

Audit Fees . . . . . . . . . . . . . . . . . . . . . . . $1,204,000 $1,265,000 $538,000 $645,500Audit Related Fees . . . . . . . . . . . . . . . . 85,000 227,000 117,000 118,000Tax Fees

Tax Compliance . . . . . . . . . . . . . . . . . — — — —Other Tax Fees . . . . . . . . . . . . . . . . . . 270,000 148,000 —

270,000 148,000 — —All Other Fees . . . . . . . . . . . . . . . . . . . . — 16,000 283,500 199,000

Total Fees. . . . . . . . . . . . . . . . . . . . . . . . $1,559,000 $1,656,000 $938,500 $962,500

The Audit Committee has considered the nature of the above-listed services provided bythe independent registered public accounting firms and determined that they are compatiblewith their provision of independent audit services. The Audit Committee has discussed theseservices with the independent registered public accounting firms and management anddetermined that they are permitted under the Code of Professional Conduct of the AmericanInstitute of Certified Public Accountants and the auditor independence requirements of theSecurities and Exchange Commission.

Pre-approval Policy. The Audit Committee has adopted a policy requiring pre-approval ofaudit and non-audit services provided by the independent registered public accounting firms.The primary purpose of this policy is to ensure that we engage our public accountants only to

27

provide audit and non-audit services with a view toward maintaining independence. The AuditCommittee is required to pre-approve all services relating to work performed for us by ourindependent registered public accounting firms and related fees. The Audit Committee mustalso approve fees incurred for pre-approved services that are in excess of the approvedamount prior to payment. Pre-approval of audit and non-audit services may be given at anytime up to a year before commencement of the specified service. Engagement of the inde-pendent registered public accounting firms and their fees for the annual audit must beapproved by the entire Audit Committee. The Chairman of the Audit Committee may inde-pendently approve services if the estimated fee for the service is less than 10% of the totalestimated audit fee, or if the excess fees for pre-approved services are less than 20% of theapproved fees for that service; provided, however, that no such pre-approval may be grantedwith respect to any service prohibited by applicable law or that otherwise appears reasonablylikely to compromise the independent registered public accounting firms’ independence. Anypre-approval granted pursuant to this delegation of authority is reviewed with the AuditCommittee at its next regularly scheduled meeting. Our independent registered publicaccounting firms are prohibited from performing any service prohibited by applicable law.

It is anticipated that a representative of Deloitte will be present at the annual meeting withthe opportunity to make a statement and to answer appropriate questions.

RELATED PARTY TRANSACTIONS

Our Board of Directors has adopted a written policy with respect to the approval of relatedparty transactions. Under the policy, related party transactions over $5,000 are to be approvedby a majority of either the members of our Audit Committee or our disinterested Boardmembers. At each regularly scheduled meeting, our Audit Committee reviews any proposednew related party transactions for approval and reviews the status of previously approvedtransactions. The disinterested members of our Board of Directors typically review newmaterial transactions for approval. Each of the transactions noted below was approved byour Board of Directors or Audit Committee pursuant to this policy.

Entities affiliated with Roger S. Penske, our Chairman of the Board and Chief ExecutiveOfficer, are parties to a stockholders agreement described below. Mr. Penske is also Chairmanof the Board and Chief Executive Officer of Penske Corporation, and, through entities affiliatedwith Penske Corporation, our largest stockholder. The parties to the stockholders agreementare International Motor Cars Group, II, L.L.C. (“IMCGII”), Mitsui & Co., Ltd., Mitsui & Co, (USA),Inc. (collectively, “Mitsui”), Penske Corporation and Penske Automotive Holdings Corp. Werefer to IMCGII, Penske Corporation and Penske Automotive Holdings Corp. as the Penskeaffiliated companies.

In connectionwith a sale of shares of our common stock to Mitsui in March 2004, Mitsui andthe Penske affiliated companies agreed to certain “standstill” provisions. Until termination ofthe stockholders agreement discussed below, among other things and with some exceptions,the parties have agreed not to acquire or seek to acquire any of our capital stock or assets,enter into or propose business combinations involving us, participate in a proxy contest withrespect to us or initiate or propose any stockholder proposals with respect to us. Notwith-standing the prior sentence, the purchase agreement permits (1) any transaction approved byeither a majority of disinterested members of our Board of Directors or a majority of ourdisinterested stockholders, (2) in the case of Mitsui, the acquisition of securities if, after givingeffect to such acquisition, its beneficial ownership in us is less than or equal to 49%, (3) in thecase of the Penske affiliated companies, the acquisition of securities if, after giving effect tosuch acquisition, their aggregate beneficial ownership in us is less than or equal to 65%, and(4) the acquisition of securities resulting from equity grants by the Board of Directors toindividuals for compensatory purposes.

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We have also agreed to grant Mitsui the right to an observer to our Board of Directors aslong as it owns at least 2.5% of our outstanding common stock, and the right to have anappointee designated as a senior vice president of Penske Automotive, as long as it owns atleast 10% of our outstanding common stock. Mr. Hiroshi Ishikawa, one of our directors, hasbeen appointed as our Executive Vice President — International Business Development. Wealso agreed not to take any action that would restrict the ability of a stockholder to propose,nominate or vote for any person as a director of us, subject to specified limitations.

Stockholders Agreement. Simultaneously with this purchase, Mitsui and the Penskeaffiliated companies entered into a stockholders agreement. Under this stockholders agree-ment, the Penske affiliated companies agreed to vote their shares for one director who is arepresentative of Mitsui. In turn, Mitsui agreed to vote its shares for up to fourteen directorsvoted for by the Penske affiliated companies. In addition, the Penske affiliated companiesagreed that if they transfer any of our shares of common stock, Mitsui would be entitled to “tagalong” by transferring a pro rata amount of its shares upon similar terms and conditions, subjectto certain limitations. This agreement terminates on its tenth anniversary, upon the mutualconsent of the parties or when either party no longer owns any of our common stock.

Registration Rights Agreements. We have granted the Penske affiliated companiesregistration rights. Pursuant to our agreements, the Penske affiliated companies each mayrequire us on three occasions to register all or part of our common stock held by them, subjectto specified limitations. They are also entitled to request inclusion of all or any part of theircommon stock in any registration of securities by us on Forms S-1 or S-3 under the SecuritiesAct of 1933, as amended (the “Securities Act”). In connection with the purchase of shares byMitsui discussed above, we have granted registration rights to Mitsui. Under our agreement,Mitsui may require us on two occasions to register all or part of its common stock, subject tospecified limitations. Mitsui also is entitled to request inclusion of all or any part of its commonstock in any registration of securities by us on Forms S-1 or S-3 under the Securities Act.

Other Related Party Interests. Several of our directors and officers are affiliated withPenske Corporation or related entities. Mr. Penske is a managing member of TransportationResource Partners, an organization that undertakes investments in transportation-relatedindustries. Richard J. Peters, one of our directors, is a director of Penske Corporation and amanaging director of Transportation Resource Partners. Robert H. Kurnick, Jr., our Vice Chair-man and a director, is also the President and a director of Penske Corporation. Mr. Ishikawa,one of our directors, serves as our Executive Vice President — International Business Devel-opment and in a similar capacity for Penske Corporation. Our President, Roger S. Penske, Jr.,also serves as a director of Penske Corporation and is the son of our Chairman and ChiefExecutive Officer. These employees or directors receive salary, bonus or other compensationfrom Penske Corporation or its affiliates unrelated to their service at Penske Automotive. Ourdirectors, Eustace W. Mita and Lucio A. Noto are each investors in Transportation ResourcesPartners.

Other Transactions. From time to time, we pay and/or receive fees from Penske Cor-poration and its affiliates for services rendered in the normal course of business, includingrents paid to Automotive Group Realty, LLC (“AGR”), as described below, payments to thirdparties by Penske Corporation on our behalf which we then reimburse them, payments to thirdparties made by us on behalf of Penske Corporation which they then reimburse to us, andpayments relating to the use of aircraft from Penske Jet, Inc. These transactions are reviewedquarterly by our Audit Committee and reflect the provider’s cost or an amount mutually agreedupon by both parties. Aggregate payments relating to such transactions amounted to $3.9 mil-lion paid by us and $0.2 million received by us in 2007, excluding the payments to AGRdiscussed below.

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We are currently a tenant under a number of non-cancelable lease agreements with AGRand its subsidiaries. AGR is a wholly owned subsidiary of Penske Corporation. The aggregateamount paid by us to AGR in 2007 under these leases was $0.5 million. The aggregate amountof all contractual payments from us to AGR under these leases from January 2008 throughtermination in 2014 is $2.3 million, with an additional $3.9 million due in the event we exercisedall of our optional extensions under the leases through 2024.

We and Penske Corporation have entered into a joint insurance agreement which providesthat, with respect to our joint insurance policies (which includes our property policy), availablecoverage with respect to a loss shall be paid to each party as stipulated in the policies. In theevent of losses by us and Penske Corporation that exceed the limit of liability for any policy orpolicy period, the total policy proceeds will be allocated based on the ratio of premiums paid.

We have continuing investments in three companies controlled by TransportationResource Partners (“TRP”), an organization discussed above: a provider of outsourced vehiclemanagement solutions (“QEK”), a mobile vehicle washing company and an auctioneer ofpowersport vehicles. In 2007, we paid QEK approximately $0.3 million, relating principallyto the preparation and delivery of new vehicles in the U.K., and we received from QEK$0.1 million of management fees and $4.5 million as part of a pro rata dividend to itsstockholders.

We are also party to an operating agreement with Roger S. Penske, Jr. relating to his 10%ownership investment in one of our subsidiaries, HBL, LLC, which is a holding company for fiveof our franchises in Virginia. From time to time, we provide HBL with working capital and otherdebt financing. In addition, we make periodic pro rata distributions from HBL pursuant to whichMr. Penske, Jr. was paid approximately $1.0 million in 2007. In connection with the appointmentof our subsidiary, smart USA Distributor, LLC as exclusive distributor for the smart fortwovehicles, in 2007 we appointed HBL as a smart franchisee. We also appointed Penske MotorGroup, a California based automotive retailer separate from us but also controlled by PenskeCorporation and a subsidiary of UAG Connecticut I, which is affiliated with one of our directorsas discussed below, as smart franchisees.

Our officers, directors and their affiliates periodically purchase, lease or sell vehicles fromour dealerships on fair market terms. Additionally, we hire automotive technicians who havegraduated from Universal Technical Institute (“UTI”), a provider of technical education, whoseChief Executive Officer is Kimberly McWaters, one of our directors. We make no payments toUTI for these graduates and hire them on the same terms as other employers. UTI provided$36,500 of technician training services to us in 2007.

In 2007, we employed the son of Eustace Mita, one of our directors, and the son-in-law ofPaul Walters, our former Executive Vice President — Human Resources, as general or regionalmanagers, for which they were compensated $316,000 and $261,000, respectively. The com-pensation of these individuals was commensurate with their peers’. Mr. Mita’s son is no longeremployed by us. For 2007, Mr. Ishikawa received total compensation from us of approximately$168,800 in his capacity as Executive Vice President — International Business Development, aswell as 2,500 shares of restricted stock with a grant date fair value of $53,900.

An entity controlled by one of our directors, Lucio A. Noto (the “Investor”), owns a 10%interest in one of our subsidiaries, UAG Connecticut I, LLC (“UAG Connecticut I”), whichentitles the Investor to 20% of the operating profits of UAG Connecticut I. From time to time, weprovide UAG Connecticut I with working capital and other debt financing. In addition, we makeperiodic pro rata distributions from UAG Connecticut I pursuant to which the Investor was paidapproximately $1.4 million during 2007. In addition, the Investor paid us approximately $0.5 mil-lion in 2007 pursuant to its option to purchase up to a 20% interest in UAG Connecticut I.

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OTHER MATTERSSection 16(a) Beneficial Ownership Reporting Compliance. Section 16(a) of the Secu-

rities Exchange Act of 1934 requires our executive officers and directors and persons whobeneficially own more than 10% of our common stock to file initial reports of ownership andreports of changes of ownership with the SEC. To our knowledge, based solely on our review ofthe Section 16(a) forms furnished to us and representations from our executive officers,directors and greater than 10% beneficial owners, all Section 16(a) reports were timely filedin 2007.

Stockholder Nominations and Proposals for 2009. We must receive any proposalssubmitted pursuant to Rule 14(a)-8 of the proxy rules of the Securities and Exchange Com-mission (SEC) intended to be presented to stockholders at our 2009 annual meeting ofstockholders at our principal executive offices at 2555 Telegraph Road, Bloomfield Hills,Michigan 48302-0954 for inclusion in the proxy statement by November 10, 2008. Theseproposals must also meet other requirements of the rules of the SEC relating to stockholderproposals. Stockholders who intend to present an item of business at the annual meeting ofstockholders in 2009 (other than a proposal submitted for inclusion in our proxy statement)must follow the procedures set forth in our bylaws and provide us notice of the business nolater than January 31, 2009.

Proxy Information. We do not anticipate that there will be presented at the annualmeeting any business other than as discussed in the above proposals and the Board ofDirectors is not aware of any other matters that might properly be presented for action atthe meeting. If any other business should properly come before the annual meeting, thepersons named on the enclosed proxy card will have discretionary authority to vote all proxiesin accordance with their best judgment.

Proxies in the form enclosed are solicited by or on behalf of our Board of Directors. We willbear the cost of this solicitation. In addition to the solicitation of the proxies by use of the mails,some of our officers and regular employees, without extra remuneration, may solicit proxiespersonally, or by telephone or otherwise. In addition, we will make arrangements with broker-age houses and other custodians, nominees and fiduciaries to forward proxies and proxymaterial to their principals, and we will reimburse them for their expenses in forwardingsoliciting materials, which are not expected to exceed an aggregate of $10,000.

It is important that proxies be returned promptly. Therefore, you are urged to sign, date andreturn the enclosed proxy card in the accompanying stamped and addressed envelope assoon as possible.

We will provide without charge to each of our stockholders, on the written request of suchstockholder, a copy of our Form 10-K for the year ended December 31, 2007 and any of theother documents referenced herein. Copies can be obtained from Penske AutomotiveGroup, Inc., Investor Relations, 2555 Telegraph Road, Bloomfield Hills, Michigan48302-0954 (248-648-2500) or (866-715-5289).

Dated: March 11, 2008

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W O R L D - C L A S S F A C I L I T I E S

Inskip MINI

Audi Chandler

Maranello Ferrari Maserati

Inskip Mercedes-Benz

BMW of Turnersville

Royal Palm Toyota Scion

INTERNATIONAL

REVENUE MIX

Puerto Rico 15 Franchises

UNITED STATES

Puerto Rico 15 Franchises

United States 155 Franchises

United Kingdom135 Franchises

m Germany10 Franchises

4 Joint Ventures

Mexico3 Franchises

1 Joint Venture

States with PAG Dealerships

Premium47%

Volume Foreign45%

Premium94%

Volume Foreign

4%Fororei

444444444%444%

Domestic2%

Domestic8%

h e l l o U S A — h e r e I a m

smart USA Headquarters and Retail Site — Bloomfi eld Hills, Michigan

■ 74 U.S. Dealerships planned in 2008

■ Over 30,000 Reservations

■ smart 1 Customer Care Center

■ First Deliveries in January 2008

Penske Automotive — the exclusive distributor of the smart® fortwo in the USA

PENSKE AUTOMOTIVE GROUP, INC.

2555 TELEGRAPH ROAD, BLOOMFIELD HILLS, MI 48302-0954

WWW.PENSKEAUTOMOTIVE.COM

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