AutoNation 2000 Annual Report Download - page 10

and sales areas within which only one dealer of a given vehicle line or make
operates. Under most of our framework agreements with the vehicle
manufacturers, our ability to acquire multiple dealers of a given line-make
within a particular market is limited. We are also restricted by various state
franchise laws from relocating our dealerships or establishing new dealerships
of a particular line-make within any area that is served by another dealer of
the same line-make. Accordingly, to the extent that a market has multiple
dealers of a particular line-make, as most of our key markets do with respect
to most vehicle lines we sell, we are subject to significant intra-brand
competition.
According to the National Automotive Dealers Association, Automotive News
and reports of various financial analysts, the automotive retail industry is
served by approximately 22,000 franchised automotive dealerships, approximately
56,000 independent used vehicle dealers, and individual consumers who sell used
vehicles in casual private transactions primarily through classified ads and by
word of mouth. Several other public companies are attempting to establish
national or regional automotive retail chains. Additionally, certain vehicle
manufacturers are engaged in the retail sale and service of vehicles, either
independently or in conjunction with their franchised dealers, and may do so on
an expanded basis in the future, subject to various state laws that restrict or
prohibit manufacturer ownership of dealerships.
We believe that a growing number of consumers are utilizing the Internet,
to differing degrees, in connection with the purchase of vehicles. Accordingly,
we may face increasing competitive pressures from on-line automotive websites,
including those developed by vehicle manufacturers and other dealership groups.
Consumers use the Internet to compare pricing for cars and related finance and
insurance services, which may cause price convergence and reduced margins for
new vehicles, used vehicles and related finance and insurance services.
INSURANCE AND BONDING
Our business exposes us to the risk of liabilities arising out of our
operations. Liabilities involve, for example, claims of employees, customers or
third parties for personal injury or property damage occurring in the course of
our operations. We could also be subject to fines and civil and criminal
penalties in connection with alleged violations of regulatory requirements.
The automotive retail business is also subject to substantial risk of
property loss due to the significant concentration of property values at
dealership locations. Accordingly, we have purchased liability and property
insurance subject to certain deductibles or loss retentions. We purchase
umbrella liability insurance to provide insurance in excess of our primary
insurance policies. The level of risk we retain may change in the future as
insurance market conditions or other factors affecting the economics of our
insurance
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purchasing change. Although we have, subject to certain limitations and
exclusions, substantial insurance, we cannot assure you that we will not be
exposed to uninsured or underinsured losses that could have a material adverse
effect on our business, financial condition, results of operations or cash
flows.
Provisions for retained losses and deductibles are made by charges to
expense based upon periodic evaluations of the estimated ultimate liabilities
on reported and unreported claims. The insurance companies that underwrite our
insurance require that we secure our obligation for deductible reimbursements