AutoNation 2005 Annual Report Download - page 8

Table of Contents
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 on 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. We do not directly finance our customers’ vehicle leases or purchases.
We also offer our customers various vehicle protection products, including extended service contracts, 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
protection products that our stores currently offer to customers are underwritten and administered by independent third parties, including the
vehicle manufacturers’ and distributors’ captive finance subsidiaries. We primarily sell the products on a straight commission basis;
however, we also may participate in future 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 service contracts,
are cancelled.
Our stores also provide a wide range of vehicle maintenance, repair, paint and collision repair services, including warranty work that can
be performed only at franchised dealerships and customer-pay service work.
Sales And Marketing
We retailed approximately 627,000 new and used vehicles through our stores in 2005. We sell a broad range of well-known vehicle
makes within each of our key 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 operations in certain of our key markets under
one local retail brand name, we have been able to focus our efforts on building consumer awareness of the selected local retail brand name
rather than on the individual legacy names under which our stores operated prior to their acquisition by us. We also continue to develop
newspaper, television and radio advertising campaigns that we can modify for use in multiple local markets. We expect to continue to realize
cost efficiencies with respect to advertising expenses that are not generally available to smaller retailers, due to our ability to obtain
efficiencies in developing advertising campaigns and our ability to gain volume discounts and other concessions as we increase our presence
within our key markets and operate our stores under a single retail brand name in our local markets.
We also have been able to use our significant scale to market our stores and vehicle inventory via the Internet. According to industry
analysts, the majority of new car buyers nationwide consult the Internet for new car information, which is resulting in better-informed
customers and a more efficient sales process. As part of our e-commerce marketing strategy, we are focused on (1) developing websites and
an Internet sales process that appeal to on-line automobile shoppers; (2) obtaining high visibility on the Internet through alliances with
Internet search engines, such as Google, through our own websites, and through strategic partnerships and alliances with other
e-commerce companies, including Microsoft’s MSN Autos, America Online, Edmunds, Kelley Blue Book, Yahoo! Autos and others; and
(3) developing and maintaining a cost structure that permits us to operate efficiently. In addition, under the terms of our strategic alliances and
partnerships with e-commerce companies, we have access to hundreds of thousands of customer leads, which increases our potential for
new and used vehicle sales.
Agreements with Vehicle Manufacturers
We have entered into framework agreements with most major vehicle manufacturers and distributors. These agreements, which are in
addition to the franchise agreements described in the following paragraph,
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