AutoNation 2006 Annual Report Download - page 9

Table of Contents
our stores by individuals or governmental entities and may expose us to significant damages or other penalties, including revocation or
suspension of our licenses to conduct store operations and fines.
Our operations are subject to the National Traffic and Motor Vehicle Safety Act, Federal Motor Vehicle Safety Standards
promulgated by the United States Department of Transportation and the rules and regulations of various state motor vehicle regulatory
agencies. The imported automobiles we purchase are subject to United States customs duties and, in the ordinary course of our business
we may, from time to time, be subject to claims for duties, penalties, liquidated damages or other charges.
Environmental, Health and Safety Laws and Regulations
Our operations involve the use, handling, storage and contracting for recycling and/or disposal of materials such as motor oil and
filters, transmission fluids, antifreeze, refrigerants, paints, thinners, batteries, cleaning products, lubricants, degreasing agents, tires and
fuel. Consequently, our business is subject to a complex variety of federal, state and local requirements that regulate the environment and
public health and safety.
Most of our stores utilize aboveground storage tanks, and to a lesser extent underground storage tanks, primarily for petroleum-
based products. Storage tanks are subject to periodic testing, containment, upgrading and removal under the Resource Conservation and
Recovery Act and its state law counterparts. Clean-up or other remedial action may be necessary in the event of leaks or other discharges
from storage tanks or other sources. In addition, water quality protection programs under the federal Water Pollution Control Act
(commonly known as the Clean Water Act), the Safe Drinking Water Act and comparable state and local programs govern certain
discharges from some of our operations. Similarly, certain air emissions from operations such as auto body painting may be subject to
the federal Clean Air Act and related state and local laws. Certain health and safety standards promulgated by the Occupational Safety
and Health Administration of the United States Department of Labor and related state agencies also apply.
Some of our stores are parties to proceedings under the Comprehensive Environmental Response, Compensation, and Liability Act,
or CERCLA, typically in connection with materials that were sent to former recycling, treatment and/or disposal facilities owned and
operated by independent businesses. The remediation or clean-up of facilities where the release of a regulated hazardous substance
occurred is required under CERCLA and other laws.
We incur significant costs to comply with applicable environmental, health and safety laws and regulations in the ordinary course of
our business. We do not anticipate, however, that the costs of such compliance will have a material adverse effect on our business, results
of operations, cash flows or financial condition, although such outcome is possible given the nature of our operations and the extensive
environmental, public health and safety regulatory framework. We do not have any material known environmental commitments or
contingencies.
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We operate in a highly competitive industry. We believe that the principal competitive factors in the automotive retailing business are
location, service, price and selection. Each of our markets includes a large number of well-capitalized competitors that have extensive
automobile store managerial experience and strong retail locations and facilities. According to the National Automotive Dealers Association,
Manheim Auctions and reports of various industry analysts, the automotive retail industry is served by approximately 21,500 franchised
automotive dealerships and approximately 45,000 independent used vehicle dealers. Several other public companies operate numerous
automotive retail stores on a national or regional basis. We are subject to competition from dealers that sell the same brands of new
vehicles that we sell and from dealers that sell other brands of new vehicles that we do not represent in a particular market. Our new
vehicle store competitors have franchise agreements with the various vehicle manufacturers and, as such, generally have access to new
vehicles on the same terms as us. Additionally, we are subject to competition in the automotive retailing business from private market
buyers and sellers of used vehicles.
In general, the vehicle manufacturers have designated specific marketing and sales areas within which only one dealer of a given
vehicle brand may operate. Under most of our framework agreements with the vehicle manufacturers, our ability to acquire multiple
dealers of a given brand within a particular market is limited. We are
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