AutoNation 2003 Annual Report Download - page 7

Table of Contents
vehicles that we sold in 2003, are manufactured by Ford, General Motors, DaimlerChrysler, Toyota, Nissan, Honda and BMW.
Our stores offer a diversified range of automotive products and services, including new vehicles, used vehicles, vehicle maintenance and
repair services, vehicle parts, extended service contracts, vehicle protection products and other aftermarket products. We also arrange
financing for vehicle purchases through third-party finance sources. For a discussion of how we intend to leverage our strengths to improve
our operations, you should read the “Business Strategy” section of this document.
Each of our stores acquires new vehicles for retail sale either directly from the applicable automotive manufacturer or distributor or
through dealer trades with other stores of the same franchise. Accordingly, we depend in large part on the automotive manufacturers and
distributors to provide us with high-quality vehicles that consumers desire and to supply us with such vehicles at suitable quantities and
prices and at the right times. Our operations, particularly our sales of new vehicles, are impacted by the sales incentive programs conducted
by the automotive manufacturers to spur consumer demand for their vehicles. We generally acquire used vehicles from customer trade-ins,
at the termination of leases and, to a lesser extent, auctions and other sources. We generally recondition used vehicles acquired for retail sale
at our stores’ service facilities and capitalize costs related thereto as used vehicle inventory. Used vehicles that we do not sell at our stores
generally are sold at wholesale through auctions.
We provide a wide variety of financial products and services to our customers in a convenient manner and at competitive prices. We
arrange for our customers to finance vehicles through installment loans or leases with third-party lenders, including the vehicle
manufacturers’ and distributors’ captive finance subsidiaries, in exchange for a commission payable to us by the third-party lender.
Commissions that we receive from these third-party lenders may be subject to chargeback, in full or in part, 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. In July 2003, we sold the remainder of our finance receivables portfolio with respect to auto leases and loans that we had
underwritten and received proceeds equal to the net carrying value of the financing receivables and servicing liabilities at the close of the
transaction.
We also offer our customers various vehicle warranty and extended protection products, including extended warranties, maintenance
programs, guaranteed auto protection (known as “GAP,” this protection covers the shortfall between a customer’s loan balance and insurance
payoff in the event of a casualty), credit insurance, lease “wear and tear” insurance and theft protection products at competitive prices. The
vehicle warranty and extended protection products that our stores currently offer to customers are underwritten and administered by
independent third parties, including the vehicle manufacturers’ captive finance subsidiaries. Pursuant to our arrangements with these third-
party finance and vehicle protection product providers, we primarily sell the products on a straight commission basis; however, we may sell
the product, recognize commission and participate in future underwriting profit, if any, pursuant to a retrospective commission arrangement.
Commissions that we receive from these third-party providers may be subject to chargebacks, in full or in part, if products that we sell, such
as extended warranties, are cancelled. We establish an estimated liability for chargebacks against revenue recognized from sales of finance
and vehicle protection products during the period in which the related revenue is recognized.
Our stores also provide a wide range of parts and vehicle maintenance and repair services, including warranty work that can be
performed only at franchised dealerships and customer-pay service work. Additionally, we operate collision repair centers in most of our key
markets that provide paint and repair services. We have developed relationships with national insurance companies that establish our stores
and collision centers as preferred providers of collision repair services.
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