AutoNation 2001 Annual Report Download - page 28

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n.m. -- Percentages are not meaningful.
Total revenue was $20.0 billion, $20.6 billion and $20.1 billion for the
years ended December 31, 2001, 2000 and 1999, respectively. Gross margins were
$2.9 billion, $2.8 billion and $2.8 billion for the years ended December 31,
2001, 2000 and 1999, respectively. The primary components of these changes are
described below.
New vehicle revenue decreased 3.9% to $12.0 billion in 2001 compared to
2000 due to a decrease in volume of 7.2% partially offset by an increase in
average revenue per unit of 3.3%. On a same store basis, new vehicle revenue
decreased 4.5%. On a same store basis, our new vehicle sales were primarily
affected during 2001 by the lower demand experienced in the domestic product
lines. New vehicle sales came to a near standstill directly following the
terrorist attacks of September 11, 2001. The introduction of significant
manufacturer incentives greatly increased the pace of new vehicle sales during
the final three months of 2001. We expect retail sales of new vehicles in the
United States during 2002 to decrease by an estimated five to ten percent
compared to 2001 on a unit basis. However, the level of retail sales of new
vehicles during 2002 is very difficult to predict, as evidenced by various
industry experts predicting a wide range of sales level decreases during 2002 as
compared to 2001, and is likely to be significantly impacted by vehicle
manufacturers'
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willingness to continue significant incentive programs. A significant change in
new vehicle sales levels in the United States during 2002 as compared to our
expectations could cause our actual earnings results to differ from our
projected results. In 2000, new vehicle sales were strong until the fourth
quarter when new vehicle demand dramatically slowed. New vehicle sales in 2000
were also impacted by a modest decrease in same store unit sales.
New vehicle gross margin reflects the net result of the sales price from
the sale of a vehicle less the cost of acquisition, including vehicle net
carrying costs (floorplan interest expense net of floorplan assistance -- see
Note 1, Summary of Significant Accounting Policies, of the Notes to Consolidated
Financial Statements). Driven by the revenue decrease, new vehicle gross margin
decreased 2.3% to $837.9 million in 2001 compared to 2000. However, on a
percentage basis, new vehicle gross margin improved 10 basis points to 7.0% in
2001 compared to 2000 in part due to our inventory management activities which
resulted in manufacturers' floorplan assistance in excess of floorplan interest
expense. While we expect floorplan interest rates to increase in 2002 compared
to 2001, we believe its effect will be largely mitigated by increases in
floorplan interest assistance which is also interest rate sensitive. Gross
margin in 2000 increased 2.2% compared to 1999 as a result of higher average
revenue per unit and acquisitions and divestitures.
Used vehicle revenue increased .6% to $3.9 billion in 2001 compared to
2000. On a same store basis, revenue increased 2.1%, attributable to higher
volume of 2.9% partially offset by .8% lower average revenue per unit. Despite
the increase in revenue, used vehicle gross margin decreased 2.5% to $426.5
million in 2001 compared to 2000. Gross margin decreased .7% on a same store
basis in 2001 compared to 2000. The gross margin compression of 30 basis points
to 11.0% resulted from our focus during 2001 on reducing inventory levels as
part of our inventory management initiative and the increase in used vehicles we
took as trade-ins as a result of the increase in new vehicle sales at the end of
2001. Due to an uncertain wholesale market, we chose to retail our used vehicle
inventory whenever possible, which resulted in lower used vehicle gross margins.
The margin compression was partially offset by continued improvements due to the
implementation of our used vehicle best practices. Decreases in used vehicle
revenue and gross margin amounts in 2000 are the result of a decrease in units
retailed from 315,000 in 1999 to 255,000 in 2000 which largely resulted from the
closure of our used vehicle megastores. In addition, the used vehicle market was