AutoNation (AN)

Business Strategy

As a specialty retailer, our business model is focused on developing and maintaining satisfied relationships with our customers. The foundation of our business model is operational excellence. We pursue the following strategies to achieve our targeted level of operational excellence:

Our strategies are supported by our use of information technology. We use the Internet to develop and acquire customer leads and referrals, and we leverage information technology to enhance our customer relationships.

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A key component of our long-term strategy is to maximize the return on investment generated by the use of cash flow that our business generates. We expect to use our cash flow to make capital investments in our business, to complete dealership acquisitions, and to repurchase our common stock and/or debt. Our capital allocation decisions will be based on factors such as the expected rate of return on our investment, the market price of our common stock versus our view of its intrinsic value, the potential impact on our capital structure, our ability to complete dealership acquisitions that meet our market and brand criteria and return on investment threshold, and limitations set forth in our debt agreements.

Since 1999, our acquisition and divestiture program has been designed to improve our store portfolio by focusing our store mix more towards import and premium luxury brands. In 1999, approximately 60% of our new vehicle revenue was attributable to our domestic franchises, while approximately 40% was attributable to import and premium luxury franchises. In 2009, approximately 71% of our new vehicle revenue was generated by import and premium luxury franchises and approximately 29% was generated by domestic franchises. While we will continue to look for acquisition opportunities that meet our market and brand criteria and return on investment threshold and will seek to improve our store portfolio by selling underperforming stores, we do not expect further significant shifts in our overall store mix in 2010. As part of our capital allocation strategy, we do expect to increase our capital expenditures in 2010, primarily to improve our store facilities. For additional information regarding our capital allocation strategy, please refer to “Liquidity and Capital Resources – Capital Allocation” in Part II, Item 7 of this Form 10-K.