Interest Rate Swaps

9 Months Ended

Sep. 30, 2011

Interest Rate Swaps [Abstract]

Interest Rate Swaps

8. Interest Rate Swaps

The Company periodically uses interest rate swaps to manage interest rate risk associated with the Company’s variable rate floor plan debt. The Company is party to forward-starting interest rate swap agreements beginning January 2012 and maturing December 2014 pursuant to which the LIBOR portion of $300,000 of the Company’s floating rate floor plan debt is fixed at a rate of 2.135% and $100,000 of the Company’s floating rate floor plan debt is fixed at a rate of 1.55%. The Company may terminate these agreements at any time, subject to the settlement of the then current fair value of the swap arrangements.

The Company used Level 2 inputs to estimate the fair value of the interest rate swap agreements. As of September 30, 2011, the fair value of the swaps designated as hedging instruments was estimated to be a net liability of $15,157.

During 2010 and through January 2011, the Company was party to interest rate swap agreements pursuant to which the LIBOR portion of $300,000 of the Company’s floating rate floor plan debt was fixed at 3.67%. During the nine months ended September 30, 2011, there was no hedge ineffectiveness recorded in the Company’s income statement and the impact of the swaps on the weighted average interest rate of the Company’s floor plan borrowings was insignificant. During the nine months ended September 30, 2010, the Company recognized a net gain in accumulated other comprehensive income (loss) of $3,643 related to the effective portion of the interest rate swap agreements designated as hedging instruments, and reclassified $6,482 of the existing derivative losses from accumulated other comprehensive income (loss) into floor plan interest expense. Additionally, during the nine months ended September 30, 2010, the swaps increased the weighted average interest rate on the Company’s floor plan borrowings by approximately 0.8%.