AutoNation 2007 Annual Report Download - page 15

Table of Contents
underinsured losses that could have a material adverse effect on our business, financial condition, results of operations, or cash flows.
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.
Vehicle manufacturers and distributors with whom we hold franchises have significant influence over the operations of our stores. The
terms and conditions of our framework, franchise, and related agreements and the manufacturers’ interests and objectives may, in certain
circumstances, conflict with our interests and objectives. For example, manufacturers can set performance standards with respect to sales
volume, sales effectiveness, and customer satisfaction, and can influence our ability to acquire additional stores, the naming and marketing of
our stores, the operations of our e-commerce sites, our selection of store management, the condition of our store facilities, product stocking and
advertising spending levels, and the level at which we capitalize our stores. Manufacturers may also have certain rights to restrict our ability to
provide guaranties of our operating companies, pledges of the capital stock of our subsidiaries, and liens on our assets, which could adversely
impact our ability to obtain financing for our business and operations on favorable terms or at desired levels. From time to time, we are
precluded under agreements with certain manufacturers from acquiring additional franchises, or subject to other adverse actions, to the extent we
are not meeting certain performance criteria at our existing stores (with respect to matters such as sales volume, sales effectiveness, and customer
satisfaction) until our performance improves in accordance with the agreements, subject to applicable state franchise laws.
Manufacturers also have the right to establish new franchises or relocate existing franchises, subject to applicable state franchise laws. The
establishment or relocation of franchises in our markets could have a material adverse effect on the financial condition, results of operations,
cash flows, and prospects of our stores in the market in which the franchise action is taken.
Our framework, franchise, and related agreements also grant the manufacturer the right to terminate or compel us to sell our franchise for a
variety of reasons (including uncured performance deficiencies, any unapproved change of ownership or management, or any unapproved
transfer of franchise rights or impairment of financial standing or failure to meet capital requirements), subject to applicable state franchise
laws. From time to time, certain major manufacturers assert sales and customer satisfaction performance deficiencies under the terms of our
framework and franchise agreements. Additionally, our framework agreements contain restrictions regarding a change in control, which may be
outside of our control. While we believe that we will be able to renew all of our franchise agreements, we cannot guarantee that all of our
franchise agreements will be renewed or that the terms of the renewals will be favorable to us. We cannot assure you that our stores will be able to
comply with manufacturers’ sales, customer satisfaction performance, and other requirements in the future, which may affect our ability to
acquire new stores or renew our franchise agreements, or subject us to other adverse actions, including termination or compelled sale of a
franchise, any of which could have a material adverse effect on our financial condition, results of operations, cash flows, and prospects.
Furthermore, we rely on the protection of state franchise laws in the states in which we operate and if those laws are repealed or weakened, our
framework and related agreements may become more susceptible to termination, non-renewal, or renegotiation.
In addition, we have granted certain manufacturers the right to acquire, at fair market value, our automotive dealerships franchised by that
manufacturer in specified circumstances in the event of our default under the indenture for our senior unsecured notes or the amended credit
agreement for our revolving credit facility and term loan facility.
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