AutoNation 2001 Annual Report Download - page 8

if loans that we arrange are defaulted or prepaid or upon other specified
circumstances. However, our exposure to loss in connection with arranging
third-party financing generally is limited to the commissions that we receive.
Since our mid-1999 exit from the vehicle lease underwriting business and our
December 2001 exit from the retail auto loan underwriting business, we have not
directly financed our customers' vehicle leases or purchases. We had finance
receivables and related assets of approximately $175.7 million at December 31,
2001, however, with respect to auto leases and loans that we previously
underwrote. For a further discussion of the risks to which we are subject with
respect to our prior auto loan and lease underwriting activities, you should
refer to the "Risk Factors" section of this document.
We also offer our customers various vehicle protection products, such as
extended service contracts, vehicle protection and maintenance programs, and
insurance products. The products that we offer include products that are sold
and administered by independent third parties, including the vehicle
manufacturers' captive finance subsidiaries. Pursuant to our arrangements with
these third-party finance and insurance product providers, we either sell the
products on a straight commission basis or we sell the product, recognize
commission and assume some or all of the underwriting risk through reinsurance
agreements by our captive insurance subsidiaries. Accordingly, we are subject to
the risk that claims under reinsured extended warranty and credit insurance
products may exceed related reserves, which could have a material adverse effect
on our business, results of operations, financial condition, cash flows and
prospects.
SALES AND MARKETING
We retailed approximately 712,000 new and used vehicles through our
dealerships in 2001. We sell a broad range of well-known vehicle makes within
each of our markets.
Our marketing efforts focus on mass marketing and targeted marketing in our
local markets and are designed to build our business with a broad base of
repeat, referral and new customers. We engage in marketing and advertising
primarily through newspapers, radio, television, direct mail and outdoor
billboards in our local markets. As we have consolidated our dealership
operations in certain of our key markets under one local retail brand name in
conjunction with our trademarks, we have been able to focus our efforts on
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building consumer awareness of the selected local retail brand name rather than
on the individual legacy names under which our dealerships operated prior to
their acquisition by us. We also have begun to develop newspaper, television and
radio advertising campaigns that we can modify for use in multiple local
markets, which we expect to result in advertising cost savings and efficiencies
that are not generally available to smaller retailers. We expect to continue to
realize cost savings and efficiencies with respect to advertising expenses, due
to our ability to obtain efficiencies in developing advertising campaigns and
due to our ability to gain volume discounts and other concessions as we increase
our presence within our key markets and consolidate our dealerships under a
single retail brand name in our local markets.
We have also been able to use our significant scale to market our
dealerships and vehicle inventory via the Internet. According to industry
analysts, the majority of new car buyers nationwide will consult the Internet
for new car information, which is expected to result in better-informed
customers and a more efficient sales process. Our Internet operations focus on
generating customer leads through AutoNation.com and our dealership websites. We
also have entered into lead referral agreements pursuant to which we purchase
customer leads generated by various third-party websites, including Microsoft's
MSN Carpoint, America Online, Edmunds, Kelley Blue Book, NADA Guides and other
sources. We use Compass, our proprietary Internet-based lead management software
tool, to respond to, track and provide customer leads to our dealerships for
fulfillment. We also have lead referral agreements with independent dealerships
pursuant to which we distribute customer leads that we cannot fulfill within our
dealership network.