AUTONATION INC

Previous wording

AutoNation, Inc., through its subsidiaries, is one of the largest automotive retailers in the United States. As of March 31, 2024, we owned and operated 347 new vehicle franchises from 251 stores located in the United States, predominantly in major metropolitan markets in the Sunbelt region. Our stores, which we believe include some of the most recognizable and well known in our key markets, sell 32 different new vehicle brands. The core brands of new vehicles that we sell, representing approximately 88% of the new vehicles that we sold during the three months ended March 31, 2024, are manufactured by Toyota (including Lexus), Honda, Ford, General Motors, BMW, Mercedes-Benz, Stellantis, and Volkswagen (including Audi and Porsche). As of March 31, 2024, we also owned and operated 52 AutoNation-branded collision centers, 23 AutoNation USA used vehicle stores, 4 AutoNation-branded automotive auction operations, 3 parts distribution centers, a mobile automotive repair and maintenance business, and an auto finance company.

Current wording

AutoNation, Inc., through its subsidiaries, is one of the largest automotive retailers in the United States. As of June 30, 2024, we owned and operated 347 new vehicle franchises from 251 stores located in the United States, predominantly in major metropolitan markets in the Sunbelt region. Our stores, which we believe include some of the most recognizable and well known in our key markets, sell 32 different new vehicle brands. The core brands of new vehicles that we sell, representing approximately 88% of the new vehicles that we sold during the six months ended June 30, 2024, are manufactured by Toyota (including Lexus), Honda, Ford, General Motors, BMW, Mercedes-Benz, Stellantis, and Volkswagen (including Audi and Porsche). As of June 30, 2024, we also owned and operated 52 AutoNation-branded collision centers, 23 AutoNation USA used vehicle stores, 4 AutoNation-branded automotive auction operations, 3 parts distribution centers, a mobile automotive repair and maintenance business, and an auto finance company.

Previous wording

For the three months ended March 31, 2024, new vehicle sales accounted for 46% of our total revenue and 16% of our total gross profit. Used vehicle sales accounted for 31% of our total revenue and 9% of our total gross profit. Our parts and service operations, while comprising 18% of our total revenue, contributed 46% of our total gross profit. Our finance and insurance sales, while comprising 5% of our total revenue, contributed 28% of our total gross profit.

Current wording

For the six months ended June 30, 2024, new vehicle sales accounted for 47% of our total revenue and 16% of our total gross profit. Used vehicle sales accounted for 30% of our total revenue and 9% of our total gross profit. Our parts and service operations, while comprising 18% of our total revenue, contributed 46% of our total gross profit. Our finance and insurance sales, while comprising 5% of our total revenue, contributed 28% of our total gross profit.

Previous wording

In the first quarter of 2024, U.S. industry retail new vehicle unit sales increased approximately 5% as compared to the first quarter of 2023. Although still below historical levels, new vehicle inventory levels continued to increase during the first quarter of 2024 due to higher levels of manufacturer vehicle production. The increasing supply and availability of new vehicle inventory, which varies by make and model, has resulted in moderation of new vehicle unit profitability, which we expect will continue throughout 2024. Additionally, the increased availability of new vehicles and an increase in manufacturer new vehicle incentives, including low-interest financing and customer rebates, has adversely impacted market demand for used vehicles, particularly for higher-priced, nearly new vehicle inventory, and stabilization of used vehicle value trends, as compared to the prior year period, has resulted in moderation of used vehicle unit profitability.

Current wording

Although still below historical levels, new vehicle inventory levels continued to increase during the second quarter of 2024 due to higher levels of manufacturer vehicle production. The increasing supply and availability of new vehicle inventory, which varies by make and model, has resulted in moderation of new vehicle unit profitability, which we expect will continue throughout 2024. Additionally, the increased availability of new vehicles and an increase in manufacturer new vehicle incentives, including low-interest financing and customer rebates, has adversely impacted market demand for used vehicles, particularly for higher-priced, nearly new vehicle inventory, and stabilization of used vehicle value trends, as compared to the prior year period, has resulted in moderation of industry used vehicle unit profitability.

Previous wording

During the three months ended March 31, 2024, we had net income of $190.1 million and diluted earnings per share of $4.49, as compared to net income of $288.7 million and diluted earnings per share of $6.07 during the same period in 2023.

Current wording

During the three months ended June 30, 2024, we had net income of $130.2 million and diluted earnings per share of $3.20, as compared to net income of $272.5 million and diluted earnings per share of $6.02 during the same period in 2023.

Previous wording

New vehicle gross profit was adversely impacted by a decrease in gross profit per vehicle retailed (“PVR”) resulting from increasing supply and availability of new vehicle inventory, which has resulted in moderation of pricing and margins. Used vehicle gross profit was adversely impacted by a decrease in gross profit PVR primarily due to stabilization of used vehicle value trends, as compared to the prior year period, as well as certain actions we took in the beginning of the first quarter of 2024 to better align used vehicle inventory with market demand and achieve a more optimal inventory supply. The decreases in gross profit were partially offset by an increase in parts and service gross profit of 8.7%, as compared to the first quarter of 2023. Parts and service results benefited primarily from increases in gross profit from the preparation of vehicles for sale, warranty service, and customer-pay service. Floorplan interest expense increased due to higher average floorplan balances and higher average interest rates.

Current wording

New vehicle gross profit was also adversely impacted by a decrease in gross profit per vehicle retailed (“PVR”) resulting from increasing supply and availability of new vehicle inventory, which has moderated pricing and margins. Used vehicle gross profit was also adversely impacted by a decrease in gross profit PVR primarily due to a shift in mix towards lower-priced entry-level vehicles, which have lower average gross profit PVR. Finance and insurance gross profit PVR was also adversely impacted by an increase in retail vehicle sales financed through our captive auto finance company and a decrease in product penetration. Excluding the impact from the CDK outage, our parts and service results benefited primarily from increases in gross profit associated with warranty service and customer-pay service.

Previous wording

Our new vehicle inventory units at March 31, 2024 and 2023, were 38,185 and 21,176, respectively. We have typically not experienced significant losses on the sale of new vehicle inventory, in part due to incentives provided by manufacturers to promote sales of new vehicles and our inventory management practices. We monitor our new vehicle inventory values as compared to net realizable values. We had no new vehicle inventory write-downs at March 31, 2024 and December 31, 2023.

Current wording

Our new vehicle inventory units at June 30, 2024 and 2023, were 47,095 and 23,659, respectively. We have typically not experienced significant losses on the sale of new vehicle inventory, in part due to incentives provided by manufacturers to promote sales of new vehicles and our inventory management practices. We monitor our new vehicle inventory values as compared to net realizable values. We had no new vehicle inventory cumulative write-downs at June 30, 2024, and December 31, 2023.

Previous wording

We recondition the majority of used vehicles acquired for retail sale in our parts and service departments and capitalize the related costs to the used vehicle inventory. We monitor our used vehicle inventory values as compared to net realizable values. Typically, used vehicles that are not sold on a retail basis are sold at wholesale auctions. Our used vehicle inventory balance was net of cumulative write-downs of $6.5 million at March 31, 2024, and $12.2 million at December 31, 2023.

Current wording

We recondition the majority of used vehicles acquired for retail sale in our parts and service departments and capitalize the related costs to the used vehicle inventory. We monitor our used vehicle inventory values as compared to net realizable values. Typically, used vehicles that are not sold on a retail basis are sold at wholesale auctions. Our used vehicle inventory balance was net of cumulative write-downs of $6.7 million at June 30, 2024, and $12.2 million at December 31, 2023.

Previous wording

Parts, accessories, and other inventory are carried at the lower of cost or net realizable value. We estimate the amount of potentially damaged and/or excess and obsolete inventory based upon historical experience, manufacturer return policies, and industry trends. Our parts, accessories, and other inventory balance was net of cumulative write-downs of $7.9 million at March 31, 2024, and $7.8 million at December 31, 2023.

Current wording

Parts, accessories, and other inventory are carried at the lower of cost or net realizable value. We estimate the amount of potentially damaged and/or excess and obsolete inventory based upon historical experience, manufacturer return policies, and industry trends. Our parts, accessories, and other inventory balance was net of cumulative write-downs of $8.6 million at June 30, 2024, and $7.8 million at December 31, 2023.

Previous wording

We may first perform a qualitative assessment to determine whether it is more likely than not that a reporting unit is impaired. When assessing goodwill for impairment, our decision to perform a qualitative assessment for an individual reporting unit is influenced by a number of factors, including the carrying value of the reporting unit’s goodwill, the significance of the excess of the reporting unit’s estimated fair value over carrying value at the last quantitative assessment date, the amount of time in between quantitative fair value assessments, macroeconomic conditions, automotive industry and market conditions, and our operating performance.

Current wording

Goodwill for our reporting units is tested for impairment annually as of April 30 or more frequently when events or changes in circumstances indicate that the carrying value of a reporting unit more likely than not exceeds its fair value. We may first perform a qualitative assessment to determine whether it is more likely than not that a reporting unit is impaired. When assessing goodwill for impairment, our decision to perform a qualitative assessment for an individual reporting unit is influenced by a number of factors, including the carrying value of the reporting unit’s goodwill, the significance of the excess of the reporting unit’s estimated fair value over carrying value at the last quantitative assessment date, the amount of time in between quantitative fair value assessments, macroeconomic conditions, automotive industry and market conditions, and our operating performance.

Previous wording

As of March 31, 2024, we have $225.0 million of goodwill related to the Domestic reporting unit, $524.1 million related to the Import reporting unit, $482.1 million related to the Premium Luxury reporting unit, $140.5 million related to the Mobile Service reporting unit, $78.4 million related to the AutoNation Finance reporting unit, and $4.6 million related to the Collision Centers reporting unit.

Current wording

As of June 30, 2024, we have $219.8 million of goodwill related to the Domestic reporting unit, $524.0 million related to the Import reporting unit, $482.1 million related to the Premium Luxury reporting unit, $140.5 million related to the Mobile Service reporting unit, $78.4 million related to the AutoNation Finance reporting unit, and $4.6 million related to the Collision Centers reporting unit.

Previous wording

Our principal identifiable intangible assets are individual store rights under franchise agreements with vehicle manufacturers, which have indefinite lives and are tested for impairment annually as of April 30 or more frequently when events or changes in circumstances indicate that impairment may have occurred. We are scheduled to complete our annual impairment test of our franchise rights as of April 30, 2024.

Current wording

Our principal identifiable intangible assets are individual store rights under franchise agreements with vehicle manufacturers, which have indefinite lives and are tested for impairment annually as of April 30 or more frequently when events or changes in circumstances indicate that impairment may have occurred.

Previous wording

The following discussion of new vehicle results is on a same store basis. The difference between reported amounts and same store amounts in the above tables of $42.1 million and $4.4 million in new vehicle revenue and $1.5 million and $0.2 million in new vehicle gross profit for the three months ended March 31, 2024 and 2023, respectively, is related to acquisition and divestiture activity.

Current wording

The following discussion of new vehicle results is on a same store basis. The difference between reported amounts and same store amounts in the above tables of $26.7 million and $5.9 million in new vehicle revenue and $0.9 million and $0.2 million in new vehicle gross profit for the three months ended June 30, 2024 and 2023, respectively, and $68.9 million and $10.3 million in new vehicle revenue and $2.4 million and $0.4 million in new vehicle gross profit for the six months ended June 30, 2024 and 2023, respectively, is related to acquisition and divestiture activity.

Previous wording

Same store new vehicle revenue and gross profit PVR decreased during the three months ended March 31, 2024, as compared to the same period in 2023, primarily due to increasing supply and availability of new vehicle inventory and sustained consumer demand, which has resulted in moderation of pricing and margins, as well as a shift in mix towards Import vehicles that have relatively lower average selling prices and gross profit PVR.

Current wording

Same store new vehicle revenue PVR and gross profit PVR decreased during the three months ended June 30, 2024, as compared to the same period in 2023, primarily due to the increasing supply and availability of new vehicle inventory and sustained consumer demand, which has resulted in moderation of pricing and margins. Same store new vehicle revenue PVR and gross profit PVR were also adversely impacted by a shift in mix towards Import vehicles, which have relatively lower average selling prices and gross profit PVR.

Previous wording

Same store new vehicle revenue increased during the three months ended March 31, 2024, as compared to the same period in 2023, due to an increase in same store unit volume, partially offset by a decrease in same store revenue PVR. Same store unit volume benefited from increasing supply of new vehicle inventory, particularly for Import manufacturers, an increase in manufacturer incentives, including low-interest financing and rebates, and sustained consumer demand.

Current wording

Same store new vehicle revenue decreased during the six months ended June 30, 2024, as compared to the same period in 2023, due to a decrease in same store revenue PVR, partially offset by an increase in same store unit volume. Same store unit volume benefited from the increasing supply of new vehicle inventory, particularly for Import manufacturers, an increase in manufacturer incentives, including low-interest financing and rebates, and sustained consumer demand. The increase in same store unit volume was partially offset by a decrease in productivity as a result of the CDK outage, which disrupted our vehicle sales, inventory, and customer relationship management functions in the latter half of June 2024.

Previous wording

During the three months ended March 31, 2024, we had a net new vehicle inventory carrying expense of $14.7 million compared to a net new vehicle inventory carrying benefit of $3.9 million for the same period in 2023.

Current wording

During the three months ended June 30, 2024, we had a net new vehicle inventory carrying expense of $20.7 million, compared to a net new vehicle inventory carrying benefit of $2.8 million for the same period in 2023.

Previous wording

The following discussion of used vehicle results is on a same store basis. The difference between reported amounts and same store amounts in the above tables of $70.3 million and $7.0 million in total used vehicle revenue and $2.8 million and $0.2 million in total used vehicle gross profit for the three months ended March 31, 2024 and 2023, respectively, is related to acquisition and divestiture activity, as well as the opening of AutoNation USA stores.

Current wording

The following discussion of used vehicle results is on a same store basis. The difference between reported amounts and same store amounts in the above tables of $61.0 million and $6.5 million in total used vehicle revenue and $1.5 million and $0.4 million in total used vehicle gross profit for the three months ended June 30, 2024 and 2023, respectively, and $131.4 million and $13.5 million in total used vehicle revenue and $4.3 million and $0.7 million in total used vehicle gross profit for the six months ended June 30, 2024 and 2023, respectively, is related to acquisition and divestiture activity, as well as the opening of AutoNation USA stores.

Previous wording

Same store retail used vehicle revenue decreased during the three months ended March 31, 2024, as compared to the same period in 2023, due to a decrease in same store revenue PVR and a decrease in same store unit volume. The decrease in same store unit volume, particularly for mid- to higher-priced used vehicles, is due in part to the shift in mix from used vehicles to new vehicles. In addition, used vehicle unit volume was adversely impacted by lower availability of lower-priced used vehicles.

Current wording

Same store retail used vehicle revenue decreased during the six months ended June 30, 2024, as compared to the same period in 2023, due to a decrease in same store unit volume and a decrease in same store revenue PVR. The decrease in same store unit volume, particularly for mid- to higher-priced used vehicles, is due in part to the shift in mix from used vehicles to new vehicles. In addition, same store unit volume was adversely impacted by a decrease in productivity as a result of the CDK outage, which disrupted our vehicle sales, inventory, and customer relationship management functions.

Previous wording

The following discussion of parts and service results is on a same store basis. The difference between reported amounts and same store amounts in the above tables of $16.5 million and $4.0 million in parts and service revenue and $8.5 million and $2.1 million in parts and service gross profit for the three months ended March 31, 2024 and 2023, respectively, is related to acquisition and divestiture activity, as well as the opening of AutoNation USA stores.

Current wording

The following discussion of parts and service results is on a same store basis. The difference between reported amounts and same store amounts in the above tables of $11.4 million and $3.2 million in parts and service revenue and $6.6 million and $1.5 million in parts and service gross profit for the three months ended June 30, 2024 and 2023, respectively, and $28.2 million and $7.2 million in parts and service revenue and $15.3 million and $3.5 million in parts and service gross profit for the six months ended June 30, 2024 and 2023, respectively, is related to acquisition and divestiture activity, as well as the opening of AutoNation USA stores.

Previous wording

During the three months ended March 31, 2024, same store parts and service revenue increased compared to the same period in 2023, primarily due to increases in revenue associated with the preparation of vehicles for sale of $33.9 million, warranty service of $19.6 million, and customer-pay service of $18.2 million.

Current wording

During the six months ended June 30, 2024, same store parts and service revenue increased compared to the same period in 2023, primarily due to increases in revenue associated with warranty service of $30.7 million and the preparation of vehicles for sale of $19.7 million, partially offset by a decrease in revenue associated with wholesale parts sales of $22.3 million.

Previous wording

During the three months ended March 31, 2024, same store parts and service gross profit increased compared to the same period in 2023, primarily due to increases in gross profit associated with the preparation of vehicles for sale of $17.0 million, warranty service of $14.4 million, and customer-pay service of $7.7 million. Revenue and gross profit associated with the preparation of vehicles for sale benefited from an increase in vehicle unit volume and higher value repair orders. Warranty service revenue and gross profit benefited from higher value repair orders and improved parts and labor rates, partially offset by a decrease in repair order volume. Customer-pay service revenue and gross profit benefited from higher value repair orders.

Current wording

Parts and service revenue and gross profit associated with warranty service and the preparation of vehicles for sale benefited from higher value repair orders. Parts and service gross profit associated with warranty service also benefited from improved parts and labor rates. The increases in parts and service revenue and gross profit were partially offset by the CDK outage, which disrupted our sales and service processes, resulting in a decrease in repair order volume and parts sales.

Previous wording

The following discussion of finance and insurance results is on a same store basis. The difference between reported amounts and same store amounts in finance and insurance revenue and gross profit in the above tables of $8.6 million and $0.6 million for the three months ended March 31, 2024 and 2023, respectively, is related to acquisition and divestiture activity, as well as the opening of AutoNation USA stores.

Current wording

The following discussion of finance and insurance results is on a same store basis. The difference between reported amounts and same store amounts in finance and insurance revenue and gross profit in the above tables of $7.1 million and $0.7 million for the three months ended June 30, 2024 and 2023, respectively, and $15.7 million and $1.3 million for the six months ended June 30, 2024 and 2023, respectively, is related to acquisition and divestiture activity, as well as the opening of AutoNation USA stores.

Previous wording

Same store finance and insurance revenue and gross profit decreased slightly during the three months ended March 31, 2024, as compared to the same period in 2023, due to decreases in finance and insurance gross profit PVR and used vehicle unit volume, partially offset by an increase in new vehicle unit volume. The decrease in finance and insurance gross profit PVR was primarily due to an increase in retail vehicle sales financed through our captive auto finance company. In addition, finance and insurance gross profit PVR was adversely impacted by a decrease in amount financed per transaction and a decrease in gross profit per transaction associated with arranging customer financing through third-party finance sources primarily due to the higher interest rate environment. The decreases in finance and insurance gross profit PVR were partially offset by an increase in product penetration.

Current wording

Same store finance and insurance revenue and gross profit decreased during the six months ended June 30, 2024, as compared to the same period in 2023, due to a decrease in finance and insurance gross profit PVR and a decrease in used vehicle unit volume, partially offset by an increase in new vehicle unit volume. Finance and insurance gross profit PVR was adversely impacted by an increase in retail vehicle sales financed through our captive auto finance company and a decrease in product penetration. In addition, finance and insurance gross profit was adversely impacted by the CDK outage, which disrupted our finance and insurance sales process including our ability to offer certain products.

Previous wording

Import revenue increased during the three months ended March 31, 2024, as compared to the same period in 2023, primarily due to an increase in new vehicle unit volume due to the increasing supply of new vehicle inventory and sustained consumer demand. Import revenue also benefited from the acquisitions we completed in 2023.

Current wording

Import revenue increased during the three months ended June 30, 2024, as compared to the same period in 2023, primarily due to an increase in new vehicle unit volume due to the increasing supply of new vehicle inventory and sustained consumer demand. Import revenue also benefited from the acquisitions we completed in 2023. The increases in Import revenue were partially offset by a decrease in used vehicle revenue PVR due to a shift in mix towards lower-priced entry-level vehicles, as well as a decrease in new and used vehicle unit volume during the CDK outage, which disrupted our vehicle sales, inventory, and customer relationship management functions in the latter half of June 2024.

Previous wording

Import segment income decreased during the three months ended March 31, 2024, as compared to the same period in 2023, primarily due to decreases in new and used vehicle gross profit PVR. New vehicle gross profit PVR was adversely impacted by continued moderation of pricing and margins resulting from the increasing supply of new vehicle inventory. Used vehicle gross profit PVR was adversely impacted by stabilization of used vehicle value trends, as well as certain actions we took in the beginning of the first quarter of 2024 to better align used vehicle inventory with market demand and achieve a more optimal inventory supply. Import segment income was also adversely impacted by an increase in SG&A expenses, largely driven by the acquisitions we completed in 2023. Decreases in segment income were partially offset by an increase in parts and service gross profit associated with the preparation of vehicles for sale.

Current wording

Import segment income decreased during the six months ended June 30, 2024, as compared to the same period in 2023, primarily due to a decrease in new vehicle gross profit PVR due to continued moderation of margins resulting from the increasing supply of new vehicle inventory. In addition, Import segment income was adversely impacted by an increase in SG&A expenses, largely due to the acquisitions we completed in 2023 and the one-time compensation paid to commission-based associates during the CDK outage, as well as decreases in gross profit resulting from the CDK outage.

Previous wording

Premium Luxury revenue decreased during the three months ended March 31, 2024, as compared to the same period in 2023, primarily due to decreases in new vehicle unit volume and new vehicle revenue PVR. New vehicle unit volume was adversely impacted by lower availability of higher demand vehicle models in certain markets. New vehicle revenue PVR was adversely impacted by continued moderation of pricing resulting from the increasing supply of new vehicle inventory. Decreases in Premium Luxury revenue from vehicle sales were partially offset by an increase in parts and service revenue associated with customer-pay service and the preparation of vehicles for sale.

Current wording

Premium Luxury revenue decreased slightly during the six months ended June 30, 2024, as compared to the same period in 2023, primarily due to a decrease in new vehicle revenue and used vehicle revenue due to a decrease in productivity as a result of the CDK outage, which disrupted our vehicle sales, inventory, and customer relationship management functions in the latter half of June 2024. In addition, new vehicle revenue was adversely impacted by lower availability of higher demand vehicle models in certain markets. Decreases in revenue were partially offset by an increase in parts and service revenue associated with warranty service and customer-pay service.

Previous wording

“Corporate and other” is comprised of our non-franchised businesses, all of which do not meet the quantitative thresholds for reportable segments, as well as unallocated corporate overhead expenses and other income items. As of March 31, 2024, we had 52 AutoNation-branded collision centers, 23 AutoNation USA stores, 4 AutoNation-branded automotive auction operations, 3 parts distribution centers, a mobile automotive repair and maintenance business, referred to as AutoNation Mobile Service, and an auto finance company, referred to as AutoNation Finance.

Current wording

“Corporate and other” is comprised of our non-franchised businesses, all of which do not meet the quantitative thresholds for reportable segments, as well as unallocated corporate overhead expenses and other income items. As of June 30, 2024, our non-franchised businesses included 52 AutoNation-branded collision centers, 23 AutoNation USA used vehicle stores, 4 AutoNation-branded automotive auction operations, 3 parts distribution centers, a mobile automotive repair and maintenance business, referred to as AutoNation Mobile Service, and an auto finance company, referred to as AutoNation Finance.

Previous wording

Revenue from “Corporate and other” increased for the three months ended March 31, 2024, as compared to the same periods in 2023, primarily due to newly opened AutoNation USA stores and increases in revenue from parts distribution centers and automotive auction operations.

Current wording

Revenue from “Corporate and other” increased for the three and six months ended June 30, 2024, as compared to the same period in 2023, primarily due to newly opened AutoNation USA stores, partially offset by a decrease in revenue from collision centers.

Previous wording

In September 2023, we discontinued acquiring installment contracts from third-party independent dealers. We plan to continue to increase finance penetration rates for retail vehicle sales through our stores, which we expect will favorably impact the operating results of our auto finance business over time. AutoNation Finance results are included in Other Expense, Net in our Unaudited Condensed Consolidated Statements of Income. See Notes 5 and 8 of the Notes to Unaudited Condensed Consolidated Financial Statements for more information on auto loans receivable, the related allowance for credit losses, and the related debt of our auto finance company.

Current wording

In September 2023, we discontinued acquiring installment contracts from third-party independent dealers. We plan to continue to increase finance penetration rates for retail vehicle sales through our stores, which we expect will favorably impact the operating results of our auto finance business over time. AutoNation Finance results are included in Other (Income) Expense, Net in our Unaudited Condensed Consolidated Statements of Income. See Notes 5 and 8 of the Notes to Unaudited Condensed Consolidated Financial Statements for more information on auto loans receivable, the related allowance for credit losses, and the related debt of our auto finance company.

Previous wording

SG&A expenses increased slightly during the three months ended March 31, 2024, as compared to the same period in 2023, primarily due to acquisitions and newly opened stores, an increase in advertising expenses to support our used vehicle internal sourcing strategy and growth in our new non-franchised businesses, and an increase in transportation-related costs for parts and service customers. These increases in SG&A expenses were partially offset by a decrease in performance-driven compensation expense. As a percentage of total gross profit, SG&A expenses increased to 66.2% during the three months ended March 31, 2024, from 60.8% in the same period in 2023, due to the moderation of gross profit and increases in SG&A expenses as described above.

Current wording

SG&A expenses decreased slightly during the six months ended June 30, 2024, as compared to the same period in 2023, primarily due to a decrease in performance-driven compensation expense partly resulting from the CDK outage, which disrupted our sales and service processes. This decrease was partially offset by certain one-time compensation of approximately $43 million paid to commission-based associates to ensure business continuity as a result of the CDK outage. The prior year period also reflects self-insured losses of $16.5 million related to hailstorms and other natural catastrophes. Decreases in SG&A were partially offset by acquisitions and newly opened stores, an increase in advertising expenses to support our vehicle and after-sales businesses, as well as growth in our new non-franchised businesses, and an increase in transportation-related costs for parts and service customers. As a percentage of total gross profit, SG&A expenses increased to 68.6% during the six months ended June 30, 2024, from 62.0% in the same period in 2023, primarily due to moderation of gross profit and increases in SG&A expenses, as well as the decrease in gross profit resulting from the CDK outage and the one-time compensation paid to commission-based associates during this period.

Previous wording

Other Expense, Net includes the gains associated with property divestitures and asset impairments, among other items and the results of our captive auto finance company, including net interest margin, the provision for expected credit losses, and direct expenses. See “Segment Results - Corporate and other” above and Notes 5 and 8 of the Notes to Unaudited Condensed Consolidated Financial Statements for more information about our auto finance company.

Current wording

Other (Income) Expense, Net includes gains associated with property divestitures, legal settlements, and asset impairments, among other items, and the results of our captive auto finance company, including net interest margin, the provision for expected credit losses, and direct expenses. See “Segment Results - Corporate and other” above and Notes 5 and 8 of the Notes to Unaudited Condensed Consolidated Financial Statements for more information about our auto finance company.

Previous wording

Floorplan interest expense was $49.4 million for the three months ended March 31, 2024, compared to $27.1 million for the same period in 2023. The increase in floorplan interest expense of $22.3 million was the result of higher average vehicle floorplan balances and higher average interest rates.

Current wording

Floorplan interest expense was $53.9 million for the three months ended June 30, 2024, compared to $32.8 million for the same period in 2023. The increase in floorplan interest expense of $21.1 million was the result of higher average vehicle floorplan balances and higher average interest rates.

Previous wording

Interest expense includes the interest related to non-vehicle long-term debt and finance lease obligations. Other interest expense was $44.6 million for the three months ended March 31, 2024, compared to $41.1 million for the same period in 2023. The increase in interest expense of $3.5 million was driven by higher average interest rates and higher average debt balances.

Current wording

Other interest expense was $46.8 million for the three months ended June 30, 2024, compared to $46.0 million for the same period in 2023. The increase in interest expense of $0.8 million was driven by higher average interest rates.

Previous wording

We recognized a net gain of $7.3 million and $4.7 million for the three months ended March 31, 2024 and 2023, respectively, related to changes in the cash surrender value of corporate-owned life insurance (“COLI”) for deferred compensation plan participants as a result of changes in market performance of the underlying investments. Gains and losses related to the COLI are substantially offset by corresponding increases and decreases, respectively, in the deferred compensation obligations, which are reflected in SG&A expenses.

Current wording

We recognized a net gain of $0.4 million and $4.4 million for the three months ended June 30, 2024 and 2023, respectively, and a net gain of $7.7 million and $9.1 million for the six months ended June 30, 2024 and 2023, respectively, related to changes in the cash surrender value of corporate-owned life insurance (“COLI”) for deferred compensation plan participants as a result of changes in market performance of the underlying investments. Gains and losses related to the COLI are substantially offset by corresponding increases and decreases, respectively, in the deferred compensation obligations, which are reflected in SG&A expenses.

Previous wording

We recorded unrealized losses of $0.4 million and $1.1 million for the three months ended March 31, 2024 and 2023, respectively, related to the change in fair value of the underlying securities of our minority equity investments. During the period that we hold our minority equity investments, unrealized gains and losses will be recorded as the fair market values of securities with readily determinable fair values change over time, or as observable price changes are identified for securities without readily determinable fair values. See Note 13 of the Notes to Unaudited Condensed Consolidated Financial Statements for more information.

Current wording

We recorded unrealized losses of $1.4 million and $0.2 million for the three months ended June 30, 2024 and 2023, respectively, and unrealized losses of $1.8 million and $1.3 million for the six months ended June 30, 2024 and 2023, respectively, related to the change in fair value of the underlying securities of our minority equity investments. During the period that we hold our minority equity investments, unrealized gains and losses will be recorded as the fair market values of securities with readily determinable fair values change over time, or as observable price changes are identified for securities without readily determinable fair values. See Note 13 of the Notes to Unaudited Condensed Consolidated Financial Statements for more information.

Previous wording

Our effective income tax rate was 25.0% for the three months ended March 31, 2024, and 24.3% for the three months ended March 31, 2023.

Current wording

Our effective income tax rate was 25.3% for the three months ended June 30, 2024, and 25.3% for the three months ended June 30, 2023. Our effective income tax rate was 25.1% for the six months ended June 30, 2024, and 24.8% for the six months ended June 30, 2023.

Previous wording

Results from discontinued operations, net of income taxes, for the three months ended March 31, 2023, were primarily related to a gain on the sale of real estate in the first quarter of 2023 associated with a store that was closed prior to January 1, 2014. Upon the sale of this real estate, we have no remaining discontinued operations.

Current wording

Results from discontinued operations, net of income taxes, for the six months ended June 30, 2023, were primarily related to a gain on the sale of real estate in the first quarter of 2023 associated with a store that was closed prior to January 1, 2014. Upon the sale of this real estate, we have no remaining discontinued operations.

Previous wording

(1) At March 31, 2024, we had $0.8 million of letters of credit outstanding. In addition, we use the revolving credit facility under our credit agreement as a liquidity backstop for borrowings under our commercial paper program. We had $285.0 million of commercial paper notes outstanding at March 31, 2024. See Note 8 of the Notes to Unaudited Condensed Consolidated Financial Statements for more information.

Current wording

(1) At June 30, 2024, we had $0.8 million of letters of credit outstanding. In addition, we use the revolving credit facility under our credit agreement as a liquidity backstop for borrowings under our commercial paper program. We had $425.0 million of commercial paper notes outstanding at June 30, 2024. See Note 8 of the Notes to Unaudited Condensed Consolidated Financial Statements for more information.

Previous wording

In the ordinary course of business, we are required to post performance and surety bonds, letters of credit, and/or cash deposits as financial guarantees of our performance primarily relating to insurance matters. At March 31, 2024, surety bonds, letters of credit, and cash deposits totaled $119.3 million, of which $0.8 million were letters of credit. We do not currently provide cash collateral for outstanding letters of credit.

Current wording

In the ordinary course of business, we are required to post performance and surety bonds, letters of credit, and/or cash deposits as financial guarantees of our performance primarily relating to insurance matters. At June 30, 2024, surety bonds, letters of credit, and cash deposits totaled $121.8 million, of which $0.8 million were letters of credit. We do not currently provide cash collateral for outstanding letters of credit.

Previous wording

At March 31, 2024, we owned approximately 79% of our new vehicle franchise store locations with a net book value of $2.4 billion, as well as other properties associated with our collision centers, AutoNation USA used vehicle stores, parts distribution centers, auction operations, and other excess properties with a net book value of $718.0 million. None of these properties are mortgaged or encumbered.

Current wording

In addition, we own a significant portion of our new vehicle franchise store locations and other locations associated with our non-franchised businesses, as well as other properties. At June 30, 2024, these properties had a net book value of $2.8 billion. None of these properties are mortgaged or encumbered.

Previous wording

We continue to expand our AutoNation USA used vehicle stores. The planned expansion may be impacted by a number of variables, including customer adoption, market conditions, availability of used vehicle inventory, availability and cost of building supplies and materials, and our ability to identify, acquire, and build out suitable locations in a timely manner.

Current wording

We continue to expand our AutoNation USA used vehicle stores. The expansion may be impacted by a number of variables, including customer adoption, market conditions, availability of used vehicle inventory, availability and cost of building supplies and materials, and our ability to identify, acquire, and build out suitable locations in a timely manner.