AutoNation 2015 Annual Report Download - page 25

Table of Contents
newer vehicles. During 2015, the warranty component of our parts and service business also continued to benefit from elevated manufacturer recall activity.
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We had net income from continuing operations of $443.7 million and diluted earnings per share of $3.90 in 2015, as compared to net income from
continuing operations of $419.8 million and diluted earnings per share of $3.53 in 2014, and net income from continuing operations of $375.8 million and
diluted earnings per share of $3.05 in 2013.
For the year ended December 31, 2015, new vehicle sales accounted for approximately 57% of our total revenue, and approximately 21% of our total gross
profit. Used vehicle sales accounted for approximately 23% of our total revenue, and approximately 11% of our total gross profit. Our parts and service and
finance and insurance operations, while comprising approximately 19% of total revenue, contributed approximately 68% of our gross profit.
Our retail new vehicle unit sales increased 7% in 2015, as compared to 2014. While attractive product offerings from manufacturers, continued access to
affordable credit, and lower average fuel prices were supportive of a strong selling environment, higher inventory levels in certain vehicle models, changes in
manufacturer incentive programs, and a competitive automotive retail environment adversely impacted new and used vehicle gross profit PVR, particularly
in the Premium Luxury segment. New and used vehicle gross profit PVR compression was partially offset by continued strength in finance and insurance
gross profit PVR. During the fourth quarter of 2015, our new and used vehicle gross profit PVRs each decreased more than $200, as compared to the same
period in 2014, with declines in all three of our segments, but particularly in our Premium Luxury segment.
As a percentage of total gross profit, selling, general, and administrative (“SG&A”) expenses in 2015 decreased slightly compared to 2014. However, due
to gross profit pressure in the fourth quarter of 2015, SG&A as a percentage of gross profit did not benefit from the normal seasonal strength in Premium
Luxury vehicle sales. We are taking steps to align our costs, inventory, and pricing in response to the current market conditions.
In September 2015, Volkswagen issued a stop-sale order on 2015 vehicles equipped with certain diesel engines that do not meet certain state and/or
federal clean air standards and has also withdrawn its application to U.S. regulators to certify certain 2016 diesel engine vehicles. Volkswagen has not yet
proposed a solution to fix the impacted vehicles that has been accepted by U.S. regulators. We owned seven Volkswagen stores with approximately 400
vehicles subject to the stop-sale order at December 31, 2015. New vehicle unit sales from our Volkswagen stores represented less than 1% of our total
consolidated new vehicle unit sales for the year ended December 31, 2015. See Note 16 of the Notes to Consolidated Financial Statements for more
information regarding our Volkswagen franchises, including a discussion of non-cash impairment charges recorded to reduce the carrying values of the
Volkswagen franchise rights to their estimated fair values.
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We have invested and will continue to invest in the AutoNation retail brand with the goals of enhancing our customer satisfaction and expanding our
market share. We continue to make significant investments to build a seamless, end-to-end customer experience in our stores and through our digital
channels and to improve our ability to generate business through those channels. A portion of the expenses associated with these strategic initiatives have
been and will be capitalized and amortized over future periods.
During 2015, we launched the sale of an AutoNation-branded extended service contract, the AutoNation Vehicle Protection Plan (the “AutoNation VPP”),
in our Domestic and Import stores. We expect that finance and insurance revenue and gross profit will benefit from sales of the AutoNation VPP.
In 2015, we implemented a policy not to retail any new or used vehicle that has an open safety recall. We generally expect to receive the parts necessary
to repair vehicles under an open safety recall within a short timeframe, and therefore do not expect our open safety recall policy to have a material adverse
impact on the value of our used vehicle inventory. As noted below under “Inventory Management,” we record estimated losses on used vehicle inventory,
and our open safety recall policy did not have a material impact on the amount recorded as of December 31, 2015.
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