AutoNation 2003 Annual Report Download - page 9

Table of Contents
in connection with their operations, and they also impose numerous operational requirements and restrictions relating to inventory levels,
working capital levels, the sales process, marketing and branding, showroom and service facilities and signage, personnel, changes in
management and monthly financial reporting, among other things. The contractual terms of our stores’ franchise agreements provide for
various durations, ranging from one year to no expiration date, and in certain cases manufacturers have undertaken to renew such
franchises upon expiration so long as the store is in compliance with the terms of the agreement. We generally expect our franchise
agreements to survive for the foreseeable future and, when the agreements do not have indefinite terms, anticipate routine renewals of the
agreements without substantial cost or modification. Our stores’ franchise agreements provide for termination of the agreement by the
manufacturer or non-renewal for a variety of causes (including performance deficiencies in such areas as sales volume, sales effectiveness
and customer satisfaction). However, in general, the states in which we operate have automotive dealership franchise laws that provide that,
notwithstanding the terms of any franchise agreement, it is unlawful for a manufacturer to terminate or not renew a franchise unless “good
cause” exists. It generally is difficult for a manufacturer to terminate, or not renew, a franchise under these laws, which were designed to
protect dealers. In addition, in our experience and historically in the automotive retail industry, dealership franchise agreements are rarely
involuntarily terminated or not renewed by the manufacturer. From time to time, certain manufacturers assert sales and customer
satisfaction performance deficiencies under the terms of our framework and franchise agreements at a limited number of our stores. We
generally work with these manufacturers to address the asserted performance issues. For a further discussion, please refer to the risk factor
captioned “We are subject to restrictions imposed by, and significant influence from, vehicle manufacturers that may adversely impact
our business, financial condition, results of operations, cash flows and prospects, including our ability to acquire additional stores” in
the “Risk Factors; Forward Looking Statements May Prove Inaccurate” section of this document.
Regulations
Automotive and Other Laws and Regulations
We operate in a highly regulated industry. A number of state and federal laws and regulations affect our business. In every state in which
we operate, we must obtain various licenses in order to operate our businesses, including dealer, sales and finance and insurance licenses
issued by state regulatory authorities. Numerous laws and regulations govern our conduct of business, including those relating to our sales,
operations, financing, insurance, advertising and employment practices. These laws and regulations include state franchise laws and
regulations, consumer protection laws and other extensive laws and regulations applicable to new and used motor vehicle dealers, as well as
a variety of other laws and regulations. These laws also include federal and state wage-hour, anti-discrimination and other employment
practices laws.
Our financing activities with customers are subject to federal truth-in-lending, consumer leasing and equal credit opportunity laws and
regulations as well as state and local motor vehicle finance laws, installment finance laws, usury laws and other installment sales laws and
regulations. Some states regulate finance fees and charges that may be paid as a result of vehicle sales. Claims arising out of actual or
alleged violations of law may be asserted against us or 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,
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