AutoNation (AN)

Domestic

The Domestic segment operating results included the following:

2009 compared to 2008

Domestic revenue decreased $906.4 million or 20.8% during 2009, as compared to 2008, primarily due to lower vehicle sales. For much of 2009, a reduction in the availability of customer financing, including the discontinuation or limitation of certain lease programs for domestic vehicles, and customer uncertainty surrounding the Chrysler and General Motors bankruptcies contributed to the decline in sales volume from our Domestic stores. The decrease in revenue was partially offset by an increase in the average revenue per new vehicle retailed for domestic vehicles due to a recovery in prices for large vehicles. Prices for large vehicles, including trucks and sport utility vehicles, increased as a result of higher demand for such vehicles due to lower average fuel prices and reduced volatility in fuel prices in 2009. The decrease in sales volume was also partially mitigated by the sales of vehicles under the cash for clunkers program. Although full year 2009 Domestic new vehicle sales were lower compared to the prior year, Domestic new vehicle sales increased in the fourth quarter of 2009 compared to the same period in 2008.

Domestic segment income decreased $3.6 million or 3.3% during 2009, as compared to 2008, primarily due to decreased revenues as a result of the competitive retail environment. Domestic segment income was also impacted by a decrease in finance and insurance gross profit per vehicle retailed as a result of the reduction in credit availability. Domestic segment income as a percentage of segment revenue in 2009, as compared to 2008, benefited from a mix shift toward higher margin parts and service business, a reduction in selling, general, and administrative expenses, and a reduction in floorplan interest expense.

In the second quarter of 2009, each of Chrysler and General Motors filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code. The operating results of the Chrysler and General Motors dealerships that were closed in connection with these bankruptcies were not material to our Consolidated Financial Statements. See also “Market Conditions - Chrysler and General Motors Bankruptcies” above.

2008 compared to 2007

Domestic revenue decreased $1.47 billion or 25.3% during 2008, as compared to 2007, primarily due to lower vehicle sales. The decrease in volume was more pronounced in the Domestic segment, as compared to the Import and Premium Luxury segments. As a result, the decline in revenues in the Domestic segment was much greater than the decline in the revenues of our other segments. Our Domestic stores derive a greater proportion of their revenue and earnings from sales of trucks and sport utility vehicles, and, as a result of significantly higher fuel prices during most of 2008, particularly in the third quarter, demand shifted away from those types of vehicles to smaller, more fuel-efficient cars. Additionally, a reduction in the availability of favorable customer financing from the finance captives of domestic manufacturers, including the discontinuation or limitation of certain lease programs for domestic vehicles, contributed to the decline in sales volume from our Domestic stores. The decline in Domestic parts and service business was also greater in comparison to Import and Premium Luxury due to the improved quality of domestic vehicles, fewer units in operation, and lower domestic vehicle sales volume.

Domestic segment income decreased $90.3 million or 45.3% during 2008, as compared to 2007, primarily due to decreased revenues and increased pricing pressure as a result of the competitive retail environment. Additionally, the disproportionate decline in revenues in the Domestic segment as compared to our other segments resulted in a much more significant deleveraging of the Domestic segment’s cost structure, as costs and expenses could not be reduced in proportion to the reduction in revenues.

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