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Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with Part I, including matters set forth in the “Risk Factors” section of this Form 10-K, and our
Consolidated Financial Statements and notes thereto included in Part II, Item 8 of this Form 10-K.
Except to the extent that differences among reportable segments are material to an understanding of our business taken as a whole, we present the
discussion in Management’s Discussion and Analysis of Financial Condition and Results of Operations on a consolidated basis.

AutoNation, Inc., through its subsidiaries, is the largest automotive retailer in the United States. As of December 31, 2015, we owned and operated 342
new vehicle franchises from 254 stores located in the United States, predominantly in major metropolitan markets in the Sunbelt region. Our stores, which we
believe include some of the most recognizable and well known in our key markets, sell 35 different new vehicle brands. The core brands of new vehicles that
we sell, representing approximately 95% of the new vehicles sold in 2015, are manufactured by Toyota (including Lexus), Ford, Honda, Nissan, General
Motors, Mercedes-Benz, FCA US (formerly Chrysler), BMW, and Volkswagen (including Audi and Porsche).
We offer a diversified range of automotive products and services, including new vehicles, used vehicles, “parts and service,” which includes automotive
repair and maintenance services as well as wholesale parts and collision businesses, and automotive “finance and insurance” products, which include vehicle
service and other protection products, as well as the arranging of financing for vehicle purchases through third-party finance sources.
As of December 31, 2015, we had three reportable segments: Domestic, Import, and Premium Luxury. Our Domestic segment is comprised of retail
automotive franchises that sell new vehicles manufactured by General Motors, Ford, and FCA US (formerly Chrysler). Our Import segment is comprised of
retail automotive franchises that sell new vehicles manufactured primarily by Toyota, Honda, and Nissan. Our Premium Luxury segment is comprised of retail
automotive franchises that sell new vehicles manufactured primarily by Mercedes-Benz, BMW, Lexus, and Audi. The franchises in each segment also sell
used vehicles, parts and automotive repair and maintenance services, and automotive finance and insurance products.

Full-year U.S. industry new vehicle unit sales were 17.5 million in 2015, as compared to 16.5 million in 2014 and 15.6 million in 2013. In 2015, new
vehicle industry sales were driven in part by replacement demand. Based on industry data, the average age of cars and trucks in the United States is at a record
high of 11.6 years compared to an average age of 9.8 years during the period from 2002 to 2007. Attractive product offerings from manufacturers, continued
access to affordable credit, and lower average fuel prices were also supportive of a strong unit sales environment.
While we anticipate that full-year U.S. industry new vehicle unit sales will remain above 17 million in 2016, we expect that in 2016 the industry selling
rate will be relatively flat as compared to 2015. However, actual sales may materially differ. As discussed below in “Results of Operations,” in 2015, our new
and used vehicle gross profit on a per vehicle retailed (“PVR”) basis were compressed due to higher inventory levels in certain vehicle models, changes in
manufacturer incentive programs, and a competitive automotive retail environment. If new vehicle production exceeds the new vehicle industry selling rate
in 2016, our new and used vehicle gross profit PVRs could continue to be adversely impacted by excess supply, as well as changes in incentive, marketing,
and other programs put in place by the vehicle manufacturers.
After several years of decline, the number of recent-model-year vehicles in operation is growing due to increases in the annual rate of new vehicle sales in
the United States since 2009. The growth in that portion of our service base, together with our customer retention efforts, has benefited the customer-pay
service and warranty components of our parts and service business, and we believe that it will continue to benefit those components for the next several years.
While the number of older vehicles in operation has declined in recent years and is expected to continue to decline over the next few years, we believe that
overall our parts and service business will benefit from the mix shift in our service base toward
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