AUTONATION INC

Previous wording

The following discussion should be read in conjunction with Part I, including matters set forth in the “Risk Factors” section of this Form 10-K, and our Consolidated Financial Statements and notes thereto included in Part II, Item 8 of this Form 10-K. This section of this Form 10-K includes discussion of year-to-year comparisons between 2023 and 2022. Discussion of year-to-year comparisons between 2022 and 2021 can be found in “Management’s Discussion and Analysis of Financial Conditions and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

Current wording

The following discussion should be read in conjunction with Part I, including matters set forth in the “Risk Factors” section of this Form 10-K, and our Consolidated Financial Statements and notes thereto included in Part II, Item 8 of this Form 10-K. This section of this Form 10-K includes discussion of year-to-year comparisons between 2024 and 2023. Discussion of year-to-year comparisons between 2023 and 2022 (other than for AutoNation Finance, a new reportable segment, for which discussion is included herein) can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

Previous wording

AutoNation, Inc., through its subsidiaries, is one of the largest automotive retailers in the United States. As of December 31, 2023, we owned and operated 349 new vehicle franchises from 252 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 34 different new vehicle brands. The core brands of new vehicles that we sell, representing approximately 88% of the new vehicles that we sold in 2023, are manufactured by Toyota (including Lexus), Honda, Ford, General Motors, BMW, Mercedes-Benz, Stellantis, and Volkswagen (including Audi and Porsche). As of December 31, 2023, we also owned and operated 53 AutoNation-branded collision centers, 19 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 December 31, 2024, we owned and operated 325 new vehicle franchises from 243 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 31 different new vehicle brands. The core brands of new vehicles that we sell, representing approximately 88% of the new vehicles that we sold in 2024, are manufactured by Toyota (including Lexus), Honda, Ford, General Motors, BMW, Mercedes-Benz, Stellantis, and Volkswagen (including Audi and Porsche). As of December 31, 2024, we also owned and operated 52 AutoNation-branded collision centers, 24 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

We offer a diversified range of automotive products and services, including new vehicles, used vehicles, “parts and service” (also referred to as “After-Sales”), which includes automotive repair and maintenance services as well as wholesale parts and collision businesses, and automotive “finance and insurance” products (also referred to as “Customer Financial Services”), which include vehicle service and other protection products, as well as the arranging of financing for vehicle purchases through third-party finance sources. We also offer indirect financing on certain vehicles we sell through our captive finance company.

Current wording

We offer a diversified range of automotive products and services, including new vehicles, used vehicles, “parts and service” (also referred to as “After-Sales”), which includes automotive repair and maintenance services as well as wholesale parts and collision businesses, and automotive “finance and insurance” products (also referred to as “Customer Financial Services”), which include vehicle service and other protection products, as well as the arranging of financing for vehicle purchases through third-party finance sources. We also offer indirect financing through our captive auto finance company on vehicles we sell.

Previous wording

As of December 31, 2023, we had three reportable segments: Domestic, Import, and Premium Luxury. Our Domestic segment is comprised of retail automotive franchises that sell new vehicles manufactured by General Motors, Ford, and Stellantis. Our Import segment is comprised of retail automotive franchises that sell new vehicles manufactured primarily by Toyota, Honda, Hyundai, Subaru, and Nissan. Our Premium Luxury segment is comprised of retail automotive franchises that sell new vehicles manufactured primarily by Mercedes-Benz, BMW, Audi, Lexus, and Jaguar Land Rover. The franchises in each segment also sell used vehicles, parts and automotive repair and maintenance services, and automotive finance and insurance products.

Current wording

As of December 31, 2024, we had four reportable segments: Domestic, Import, Premium Luxury, and AutoNation Finance. Our Domestic segment is comprised of retail automotive franchises that sell new vehicles manufactured by Ford, General Motors, and Stellantis. Our Import segment is comprised of retail automotive franchises that sell new vehicles manufactured primarily by Toyota, Honda, Hyundai, Subaru, and Nissan. Our Premium Luxury segment is comprised of retail automotive franchises that sell new vehicles manufactured primarily by Mercedes-Benz, BMW, Lexus, Audi, and Jaguar Land Rover. The franchises in each of our Domestic, Import, and Premium Luxury segments also sell used vehicles, parts and automotive repair and maintenance services, and automotive finance and insurance products. AutoNation Finance is our captive auto finance company, which provides indirect financing to qualified retail customers on vehicles we sell.

Previous wording

For the year ended December 31, 2023, new vehicle sales accounted for 47% of our total revenue and 21% of our total gross profit. Used vehicle sales accounted for 30% of our total revenue and 10% of our total gross profit. Our parts and service operations, while comprising 17% of our total revenue, contributed 42% 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 year ended December 31, 2024, new vehicle sales accounted for 49% of our total revenue and 16% of our total gross profit. Used vehicle sales accounted for 29% of our total revenue and 9% of our total gross profit. Our parts and service operations, while comprising 17% 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

Full-year U.S. industry new vehicle unit sales were 15.6 million in 2023, as compared to 13.9 million in 2022, and 15.1 million in 2021. Although still below historical levels, new vehicle inventory levels continued to increase during 2023 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 margins, which we expect will continue in 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.

Current wording

Full-year U.S. industry new vehicle unit sales were 16.0 million in 2024, as compared to 15.6 million in 2023, and 13.9 million in 2022. Although still below historical levels, new vehicle inventory levels continued to increase during 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 pricing and margins, which we expect will continue in 2025. Additionally, the increased availability and affordability of new vehicles and an increase in manufacturer new vehicle incentives, including low-interest financing and customer rebates, has resulted in a shift in mix from used vehicles to new vehicles. Lower new vehicle sales in recent years has also resulted in lower availability of used vehicle inventory, particularly for late model vehicles.

Previous wording

We had net income of $1.0 billion and diluted earnings per share of $22.74 in 2023, as compared to net income of $1.4 billion and diluted earnings per share of $24.29 in 2022.

Current wording

We had net income of $692.2 million and diluted earnings per share of $16.92 in 2024, as compared to net income of $1.0 billion and diluted earnings per share of $22.74 in 2023.

Previous wording

Our total gross profit decreased 3% during 2023, as compared to 2022, driven by decreases in new vehicle gross profit of 22% and used vehicle gross profit of 8%. 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 used vehicle unit volume due in part to a decrease in market demand for used vehicles, particularly for higher-priced, nearly new vehicle inventory resulting from the increased availability of new vehicles. The decreases in gross profit were partially offset by an increase in parts and service gross profit of 13%, as compared to 2022, due to increases in gross profit from customer-pay service, warranty service, and the preparation of vehicles for sale.

Current wording

Our total gross profit decreased 7% during 2024, as compared to 2023, driven by decreases in new vehicle gross profit of 27%, used vehicle gross profit of 14%, and finance and insurance gross profit of 4%, partially offset by an increase in parts and service gross profit of 3%. 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 margins. Used vehicle gross profit was adversely impacted by a decrease in used vehicle unit volume and a shift in mix towards lower-priced entry-level vehicles, which have relatively lower average gross profit PVR. Finance and insurance gross profit was adversely impacted by an increase in retail vehicle sales financed through our captive auto finance company, which we expect will be offset by greater profitability generated by our AutoNation Finance business over time. Parts and service results benefited primarily from an increase in gross profit from warranty service and customer-pay service.

Previous wording

Our new vehicle inventory units at December 31, 2023 and 2022, were approximately 35,300 and 18,100, 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 December 31, 2023 and December 31, 2022.

Current wording

Our new vehicle inventory units at December 31, 2024 and 2023, were approximately 42,600 and 35,300, 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. Our new vehicle inventory was net of cumulative write- downs of $2.0 million at December 31, 2024. We had no new vehicle inventory cumulative write-downs at 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 $12.2 million at December 31, 2023, and $7.4 million at December 31, 2022.

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 $7.8 million at December 31, 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 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 $7.8 million at December 31, 2023, and $7.4 million at December 31, 2022.

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 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 $8.3 million at December 31, 2024, and $7.8 million at December 31, 2023.

Previous wording

Under accounting standards, we chose to make a qualitative evaluation about the likelihood of goodwill impairment for our annual impairment testing as of April 30, 2023 and 2022, and we determined that it was not more likely than not that the fair values of our reporting units were less than their carrying amounts. As of December 31, 2023, we have $234.5 million of goodwill related to the Domestic reporting unit, $526.6 million related to the Import reporting unit, $482.1 million related to the Premium Luxury reporting unit, $139.6 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 December 31, 2024, we have $223.4 million of goodwill related to the Domestic reporting unit, $524.3 million related to the Import reporting unit, $481.7 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 may first perform a qualitative assessment to determine whether it is more likely than not that a franchise right asset is impaired. The quantitative impairment test for franchise rights requires the comparison of the franchise rights’ estimated fair value to carrying value by store. Fair values of rights under franchise agreements are estimated using unobservable (Level 3) inputs by discounting expected future cash flows of the store. The forecasted cash flows contain inherent uncertainties, including significant estimates and assumptions related to growth rates, margins, working capital requirements, capital expenditures, and cost of capital, for which we utilize certain market participant-based assumptions, using third-party industry projections, economic projections, and other marketplace data we believe to be reasonable.

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

We elected to perform quantitative tests for our annual franchise rights impairment testing as of April 30, 2023 and 2022, and no impairment charges resulted from these quantitative tests.

Current wording

We may first perform a qualitative assessment to determine whether it is more likely than not that a franchise right asset is impaired. We elected to perform quantitative tests for our annual franchise rights impairment testing as of April 30, 2024, and no impairment charges resulted from these quantitative tests. We identified 15 stores that, while they each had franchise rights fair value in excess of or equal to carrying value, had lower relative performance compared to our total store population. We will continue to monitor these stores, as well as all stores, for events or changes in circumstances that may indicate potential impairment. The remainder of our stores had franchise rights with calculated fair values that substantially exceeded their carrying values as of April 30, 2024.

Previous wording

If the fair value of each of our franchise rights had been determined to be a hypothetical 10% lower as of the valuation date of April 30, 2023, the resulting impairment charge would have been less than $0.5 million. The effect of a hypothetical 10% decrease in fair value estimates is not intended to provide a sensitivity analysis of every potential outcome.

Current wording

The quantitative franchise rights impairment test is dependent on many variables used to determine the fair value of each store’s franchise rights. See Note 19 of the Notes to Consolidated Financial Statements for a description of the valuation method and related estimates and assumptions used in our quantitative impairment testing. Based on a sensitivity analysis of these estimates and assumptions, including if the fair value of each of our franchise rights had been determined to be a hypothetical 10% lower as of the valuation date of April 30, 2024, the resulting impairment charge would have been approximately $3 million. The sensitivity analysis performed, including the effect of a hypothetical 10% decrease in fair value estimates, is not intended to provide a sensitivity analysis of every potential outcome.

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 $195.3 million, $55.7 million, and $46.8 million in new vehicle revenue and $13.4 million, $4.8 million, and $3.6 million in new vehicle gross profit for 2023, 2022, and 2021, respectively, is related to acquisition and divestiture activity, as applicable in a given year.

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 $139.2 million, $140.1 million, and $55.7 million in new vehicle revenue and $6.0 million, $8.9 million, and $4.8 million in new vehicle gross profit for 2024, 2023, and 2022, respectively, is related to acquisition and divestiture activity, as applicable in a given year.

Previous wording

Same store new vehicle revenue increased during 2023, as compared to 2022, due to increases in same store unit volume and 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 increased during 2024, as compared to 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 the increasing supply and availability of new vehicle inventory, particularly for Import manufacturers, and sustained consumer demand. Same store unit volume also benefited from an increase in vehicle affordability, partially due to an increase in manufacturer incentives, including low-interest financing and rebates. 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

Floorplan interest rates are variable and, therefore, increase and decrease with changes in the underlying benchmark interest rates. We have had a net new vehicle inventory carrying benefit since 2020 when the Federal Reserve cut interest rates to near 0%. Additionally, over this same period, our average floorplan balances have been significantly lower than historical standards due to manufacturers’ new vehicle inventory supply constraints. With the increases in interest rates and new vehicle inventory supply, floorplan interest expense has increased, resulting in a net new vehicle inventory carrying expense for 2023. Increases to floorplan interest expense were partially offset by an increase in floorplan assistance due to an increase in the average floorplan assistance rate per unit and an increase in unit volume. If interest rates remain at their current levels or continue to increase without a corresponding increase in floorplan assistance or a decrease in average new vehicle inventory levels, we would expect that we will continue to incur a net new vehicle inventory carrying expense.

Current wording

The net new vehicle inventory carrying expense increased in 2024, as compared to 2023, due to an increase in floorplan interest expense, partially offset by an increase in floorplan assistance. Floorplan interest expense increased primarily due to higher average floorplan balances. Floorplan assistance increased due to higher new vehicle unit sales and an increase in the average floorplan assistance rate per unit. Floorplan interest rates are variable and, therefore, increase and decrease with changes in the underlying benchmark interest rates. From the first quarter of 2020, when the Federal Reserve cut interest rates to near 0%, up until the third quarter of 2023, we had a net new vehicle inventory carrying benefit. Additionally, over this same period, our average vehicle floorplan balances were significantly lower than historical standards due to manufacturers’ new vehicle inventory supply constraints. With the increases in new vehicle inventory supply and interest rates, floorplan interest expense has increased significantly. If interest rates remain at their current levels or increase without a corresponding increase in floorplan assistance or a decrease in average new vehicle inventory levels, we would expect that we will continue to incur a net new vehicle inventory carrying expense.

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 $253.9 million, $61.3 million, and $34.7 million in retail used vehicle revenue and $16.0 million, $2.2 million, and $2.3 million in retail used vehicle gross profit for 2023, 2022, and 2021, respectively, is related to acquisition and divestiture activity, as well as the opening of AutoNation USA stores, as applicable in a given year.

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 $250.6 million, $144.0 million, and $61.3 million in retail used vehicle revenue and $11.1 million, $8.1 million, and $2.2 million in retail used vehicle gross profit for 2024, 2023, and 2022, respectively, is related to acquisition and divestiture activity, as well as the opening of AutoNation USA used vehicle stores, as applicable in a given year.

Previous wording

Same store retail used vehicle revenue decreased during 2023, as compared to 2022, 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 as a result of increasing supply of new vehicle inventory, an increase in manufacturer new vehicle incentives including low-interest financing and customer rebates, and moderation of new vehicle pricing. 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 2024, as compared to 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 the result of the shift in mix from used vehicles to new vehicles due in part to lower availability and levels of late model used vehicles, as well as increasing supply of new vehicle inventory, an increase in manufacturer new vehicle incentives, and moderation of new vehicle pricing. In addition, same store unit volume was adversely impacted by the CDK outage, which resulted in a decrease in productivity from the disruption to our vehicle sales, inventory, and customer relationship management functions in the latter half of June 2024 and less than optimal levels and mix of used vehicle inventory at the start of the third quarter of 2024.

Previous wording

Same store revenue PVR decreased during 2023, as compared to 2022, primarily due to a shift in mix towards lower-priced entry-level vehicles.

Current wording

Same store used vehicle revenue PVR and gross profit PVR decreased during 2024, as compared to 2023, primarily due to a shift in mix towards lower-priced entry-level vehicles, which have relatively lower average selling prices and gross profit PVR.

Previous wording

Parts and service revenue is primarily derived from vehicle repairs paid directly by customers or via reimbursement from manufacturers and others under warranty programs, as well as from wholesale parts sales, collision services, and the preparation of vehicles for sale.

Current wording

Parts and service revenue is primarily derived from vehicle repairs and maintenance paid directly by customers or via reimbursement from manufacturers and others under warranty programs, as well as from wholesale parts sales, the preparation of vehicles for sale, and collision services.

Previous wording

The following discussion of parts and service is on a same store basis. The difference between reported amounts and same store amounts in the above tables of $101.9 million, $27.3 million, and $62.0 million in parts and service revenue and $41.4 million, $17.9 million, and $25.6 million in parts and service gross profit for 2023, 2022, and 2021, respectively, is related to acquisition and divestiture activity, as well as the opening of AutoNation USA stores, as applicable in a given year.

Current wording

The following discussion of parts and service is on a same store basis. The difference between reported amounts and same store amounts in the above tables of $111.1 million, $140.7 million, and $27.3 million in parts and service revenue and $45.7 million, $49.9 million, and $17.9 million in parts and service gross profit for 2024, 2023, and 2022, respectively, is related to acquisition and divestiture activity, as well as the opening of AutoNation USA used vehicle stores, as applicable in a given year.

Previous wording

During 2023, same store parts and service revenue increased compared to the same period in 2022, primarily due to increases in revenue associated with customer-pay service of $157.6 million, the preparation of vehicles for sale of $84.3 million, and warranty service of $67.0 million.

Current wording

Same store parts and service revenue increased during 2024, as compared to 2023, primarily due to increases in revenue associated with warranty service of $95.3 million and customer-pay service of $40.1 million, partially offset by a decrease in wholesale parts sales of $27.8 million.

Previous wording

During 2023, same store parts and service gross profit increased compared to the same period in 2022, primarily due to increases in gross profit associated with customer-pay service of $94.0 million, warranty service of $50.3 million, and the preparation of vehicles for sale of $42.6 million. Revenue and gross profit associated with customer-pay service benefited from higher value repair orders. Warranty service revenue and gross profit benefited from higher value repair orders and improved parts and labor rates. Revenue and gross profit associated with the preparation of vehicles for sale benefited from higher value repair orders and an increase in repair order volume.

Current wording

Parts and service revenue and gross profit associated with warranty service benefited from improved parts and labor rates, an increase in repair order volume, and higher value repair orders. Customer-pay revenue and gross profit benefited from higher value repair orders. 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

Revenue on finance and insurance products represents commissions earned by us for the placement of: (i) loans and leases with financial institutions in connection with customer vehicle purchases financed, (ii) vehicle service contracts with third-party providers, and (iii) other vehicle protection products with third-party providers. We sell these products on a commission basis, and we also participate in the future underwriting profit on certain products pursuant to retrospective commission arrangements with the issuers of those products.

Current wording

Revenue on finance and insurance products represents commissions earned by us for the placement of: (i) loans and leases with third-party financial institutions in connection with customer vehicle purchases financed, (ii) vehicle service contracts with third-party providers, and (iii) other vehicle protection products with third-party providers. We sell these products on a commission basis, and we also participate in the future underwriting profit on certain products pursuant to retrospective commission arrangements with the issuers of those products.

Previous wording

As we continue to grow our AutoNation Finance business and increase our finance penetration rates associated with vehicles sold through our stores, we expect that income related to arranging customer financing will shift to AutoNation Finance. See “Corporate and Other” for additional information related to AutoNation Finance.

Current wording

As we continue to grow our AutoNation Finance business and increase our finance penetration rates associated with vehicles sold through our stores, we expect that income related to arranging customer financing will shift to AutoNation Finance and that the resulting decrease in finance and insurance gross profit will be offset by greater profitability generated by our AutoNation Finance business. Interest income on financing provided through AutoNation Finance is recognized over the contractual term of the related loans. See “AutoNation Finance” for additional information.

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 $33.3 million, $7.1 million, and $3.8 million for 2023, 2022, and 2021, respectively, is related to acquisition and divestiture activity, as well as the opening of AutoNation USA stores, as applicable in a given year.

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 $33.2 million, $20.7 million, and $7.1 million for 2024, 2023, and 2022, respectively, is related to acquisition and divestiture activity, as well as the opening of AutoNation USA used vehicle stores, as applicable in a given year.

Previous wording

Same store finance and insurance revenue and gross profit decreased during 2023, as compared to 2022, due to a decrease in used vehicle unit volume, partially offset by increases in new vehicle unit volume and finance and insurance gross profit PVR. The increase in finance and insurance gross profit PVR was primarily due to an increase in product penetration and a shift in mix from used vehicles to new vehicles, which typically generate a higher average finance and insurance gross profit PVR. The increases in finance and insurance gross profit PVR were partially offset by a decrease in gross profit per transaction associated with arranging customer financing and a decrease in finance penetration.

Current wording

Same store finance and insurance revenue and gross profit decreased during 2024, as compared to 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. Finance and insurance gross profit PVR was adversely impacted by an increase in retail vehicle sales financed through our captive auto finance company, as well as a decrease in product penetration, driven in part by the CDK outage, which disrupted our finance and insurance sales process including our ability to offer certain products. The decreases in finance and insurance gross profit PVR were partially offset by higher realized margins on certain vehicle protection products.

Previous wording

Domestic segment income decreased during 2023, as compared to 2022, primarily due to decreases in new vehicle gross profit and finance and insurance gross profit. New vehicle gross profit was adversely impacted by continued moderation of pricing and margins resulting from the increasing supply of new vehicle inventory. Finance and insurance gross profit was adversely impacted by the decrease in used vehicle unit volume. Domestic segment income was also adversely impacted by an increase in floorplan interest expense. Decreases in segment income were partially offset by increases in parts and service gross profit associated with customer-pay service and warranty service.

Current wording

Domestic segment income decreased during 2024, as compared to 2023, primarily due to decreases in new vehicle gross profit, used vehicle gross profit, and finance and insurance gross profit. New vehicle gross profit was adversely impacted by continued moderation of margins resulting from the increasing supply and availability of new vehicle inventory. Used vehicle gross profit was adversely impacted by a shift in mix towards lower-priced entry-level vehicles, which have a relatively lower average gross profit PVR, and a decrease in used vehicle unit volume due in part to the shift in mix from used vehicles to new vehicles. Finance and insurance gross profit was adversely impacted by the decrease in used vehicle unit volume and an increase in retail vehicle sales financed through our captive auto finance company. Domestic segment income was also adversely impacted by decreases in gross profit resulting from the CDK outage.

Previous wording

Import segment income decreased during 2023, as compared to 2022, primarily due to decreases in new vehicle gross profit PVR, which was adversely impacted by continued moderation of pricing and margins resulting from the increasing supply of new vehicle inventory. Import segment income was also adversely impacted by an increase in SG&A expenses, largely driven by the acquisitions we completed in 2022 and 2023, and an increase in floorplan interest expense. Decreases in segment income were partially offset by an increase in new vehicle unit volume and an increase in parts and service gross profit associated with customer-pay service and the preparation of vehicles for sale.

Current wording

Import segment income decreased during 2024, as compared to 2023, primarily due to a decrease in new vehicle gross profit PVR due to continued moderation of margins resulting from the increasing supply and availability of new vehicle inventory. 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 2023, as compared to 2022, primarily due to a decrease in used vehicle unit volume, due in part to a shift in mix from used vehicles to new vehicles and lower availability of lower-priced used vehicles, and a decrease in used vehicle revenue PVR, primarily due to a shift in mix towards lower-priced entry-level vehicles. Decreases in Premium Luxury revenue were partially offset by an increase in new vehicle revenue PVR, which benefited from increases in MSRP, an increase in new vehicle unit volume, primarily due to increasing supply of new vehicle inventory and sustained consumer demand, and an increase in parts and service revenue associated with customer-pay service and warranty service.

Current wording

Premium Luxury revenue decreased during 2024, as compared to 2023, primarily due to decreases in new and used vehicle revenue. New vehicle revenue was adversely impacted by the continued moderation of pricing resulting from the increasing supply and availability of new vehicle inventory. Used vehicle revenue was adversely impacted by a decrease in unit volume due to the shift in mix from used vehicles to new vehicles, and a decrease in revenue PVR due to the shift in mix towards lower-priced entry-level used vehicles, which have relatively lower average selling prices. Premium Luxury revenue was also adversely impacted by the CDK outage, which disrupted our vehicle sales, inventory, and customer relationship management functions in the latter half of June 2024, and its residual effects in the third quarter of 2024. The decreases in Premium Luxury revenue were partially offset by increases in parts and service revenue associated with warranty service and customer-pay service.

Previous wording

Premium Luxury segment income decreased during 2023, as compared to 2022, primarily due to a decrease in new vehicle gross profit PVR, which was adversely impacted by continued moderation of pricing and margins resulting from the increasing supply of new vehicle inventory. Premium Luxury segment income was also adversely impacted by increases in floorplan interest and SG&A expenses. Decreases in Premium Luxury segment income were partially offset by increases in parts and service gross profit associated with customer-pay service and warranty service.

Current wording

Premium Luxury segment income decreased during 2024, as compared to 2023, primarily due to a decrease in new vehicle gross profit. New vehicle gross profit was adversely impacted by a decrease in new vehicle gross profit PVR due to continued moderation of margins resulting from the increasing supply and availability of new vehicle inventory. Premium Luxury segment income was also adversely impacted by an increase in floorplan interest expense and decreases in gross profit resulting from the CDK outage.

Previous wording

AutoNation Finance, our captive auto finance company, provides financing to qualified retail customers on certain vehicles we sell. AutoNation Finance operating results include the interest and fee income generated by auto loans receivable less the interest expense associated with the debt issued to fund these receivables, a provision for estimated credit losses on the auto loans receivable originated or acquired, direct expenses, and gains or losses on the sale of loans receivable. Interest income on auto loans receivable is recognized over the contractual term of the related loans.

Current wording

ANF income (loss) includes the interest and fee income generated by auto loans receivable less the interest expense associated with the debt issued or used to fund these receivables, a provision for estimated credit losses on the auto loans receivable originated or acquired, direct expenses, and gains or losses on the sale of auto loans receivable. Interest income on auto loans receivable is recognized over the contractual term of the related loans. ANF income (loss) does not include amortization of intercompany discounts or intercompany dealer participation fees. The following table presents the components of ANF income (loss):

Previous wording

Other (Income) Expense, Net includes the gains or losses associated with business/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, direct expenses, and gains or losses on the sale of loans receivable. See “Segment Results - Corporate and other” above and Notes 5 and 10 of the Notes to Consolidated Financial Statements for more information about our auto finance company.

Current wording

Other Income, Net includes the gains or losses associated with business/property divestitures, legal settlements, and asset impairments, among other items.

Previous wording

Floorplan interest expense was $144.7 million in 2023 and $41.4 million in 2022. The increase in floorplan interest expense of $103.3 million in 2023, as compared to 2022, was the result of higher average interest rates and higher average vehicle floorplan balances.

Current wording

Floorplan interest expense was $218.9 million in 2024 and $144.7 million in 2023. The increase in floorplan interest expense of $74.2 million in 2024, as compared to 2023, was primarily due to higher average vehicle floorplan balances.

Previous wording

Interest expense includes the interest related to non-vehicle long-term debt and finance lease obligations. Other interest expense was $181.4 million in 2023 compared to $134.9 million in 2022. The increase in interest expense of $46.5 million was driven by higher average interest rates and higher average debt balances.

Current wording

Other interest expense includes the interest related to non-vehicle long-term debt, commercial paper, and finance lease obligations. Other interest expense was $179.7 million in 2024 compared to $181.4 million in 2023. The decrease in interest expense of $1.7 million was driven by lower average interest rates, partially offset by higher average debt balances.

Previous wording

During 2023 and 2022, we recognized a net gain of $16.4 million and a net loss of $19.4 million, 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

During 2024 and 2023, we recognized net gains of $14.5 million and $16.4 million, 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

During 2023 and 2022, we recorded a unrealized gain of $5.2 million and $2.9 million, 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 19 of the Notes to Consolidated Financial Statements for more information.

Current wording

During 2024 and 2023, we recorded a net unrealized loss of $7.0 million and a net unrealized gain of $5.2 million, 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 19 of the Notes to Consolidated Financial Statements for more information.

Previous wording

Income taxes are provided based upon our anticipated underlying annual blended federal and state income tax rates, adjusted, as necessary, for any discrete tax matters occurring during the period. As we operate in various states, our effective tax rate is also dependent upon our geographic revenue mix. Our effective income tax rate was 24.4% in 2023 and 24.9% in 2022.

Current wording

Income taxes are provided based upon our anticipated underlying annual blended federal and state income tax rates, adjusted, as necessary, for any discrete tax matters occurring during the period. As we operate in various states, our effective tax rate is also dependent upon our geographic revenue mix. Our effective income tax rate was 24.5% in 2024 and 24.4% in 2023.