AutoNation 2007 Annual Report Download - page 14

Table of Contents
stores represented over 27% of our new vehicle revenue in 2007. We are subject to a concentration of risk in the event of financial distress,
including potential bankruptcy, of a major vehicle manufacturer such as Ford or General Motors. In the event of such a bankruptcy, among
other things, (i) the manufacturer could attempt to terminate all or certain of our franchises, and we may not receive adequate compensation for
them, (ii) we may not be able to collect some or all of our significant receivables that are due from such manufacturers and we may be subject to
preference claims relating to payments made by manufacturers prior to bankruptcy, (iii) we may not be able to obtain financing for our new
vehicle inventory, or arrange financing for our customers for their vehicle purchases and leases, with the manufacturer’s captive finance
subsidiary, which may cause us to finance our new vehicle inventory, and arrange financing for our customers, with alternate finance sources
on less favorable terms, and (iv) consumer demand for their products could be materially adversely affected. These events may result in a
partial or complete write-down of our goodwill, intangible franchise rights with respect to any terminated franchises, and/or receivables due from
such manufacturers and adversely impact our results of operations. In addition, vehicle manufacturers may be adversely impacted by economic
downturns or recessions, significant declines in the sales of their new vehicles, increases in interest rates, declines in their credit ratings, labor
strikes or similar disruptions (including within their major suppliers), supply shortages or rising raw material costs, rising employee benefit
costs, adverse publicity that may reduce consumer demand for their products (including due to bankruptcy), product defects, vehicle recall
campaigns, litigation, poor product mix or unappealing vehicle design, governmental laws and regulations, or other adverse events. Vehicle
manufacturers are subject to federally mandated corporate average fuel economy standards, which will increase substantially as a result of
legislation passed in 2007. California and other states, in an effort to reduce greenhouse gases, have enacted, or proposed to enact, automotive
emissions standards through legislation or regulations that, pending the outcome of certain legal challenges and/or federal legislative or regulatory
action, could significantly increase fuel economy requirements in those states. Significant increases in fuel economy requirements or automotive
emissions standards could materially adversely affect the ability of the manufacturers to produce and for us to sell, at affordable prices, the
vehicles in demand by consumers, particularly larger vehicles, which represent a significant portion of our business. These and other risks
could materially adversely affect any manufacturer and impact its ability to profitably design, market, produce, or distribute new vehicles,
which in turn could materially adversely affect our ability to obtain or finance our new desired vehicle inventories, our ability to take advantage
of manufacturer financial assistance programs, our ability to collect in full or on a timely basis our manufacturer warranty and other
receivables, and/or our ability to obtain other goods and services provided by the impacted manufacturer. Our business, results of operations,
financial condition, shareholders’ equity, cash flows, and prospects could be materially adversely affected as a result of any event that has a
material adverse effect on the vehicle manufacturers or distributors who are our primary franchisors.
Our new vehicle sales are impacted by the consumer incentive and marketing programs of vehicle manufacturers.
Most vehicle manufacturers from time to time have established various incentive and marketing programs designed to spur consumer
demand for their vehicles. In addition, certain manufacturers offer extended product warranties or free service programs to consumers. From
time to time, manufacturers modify and discontinue these dealer assistance and consumer incentive and marketing programs, which could have
a significant adverse effect on our new vehicle and aftermarket product sales, consolidated results of operations, and cash flows.
Natural disasters and adverse weather events can disrupt our business.
Our stores are concentrated in states and regions in the United States, including primarily Florida, Texas, and California, in which actual
or threatened natural disasters and severe weather events (such as hurricanes, earthquakes, fires, landslides, and hail storms) may disrupt our
store operations, which may adversely impact our business, results of operations, financial condition, and cash flows. In addition to business
interruption, the automotive retailing business is subject to substantial risk of property loss due to the significant concentration of property
values at store locations. Although we have, subject to certain deductibles, limitations, and exclusions, substantial insurance, we cannot assure
you that we will not be exposed to uninsured or
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