AutoNation (AN)

Market Conditions

Our results for 2009 reflected a challenging automotive retail market impacted by the unfavorable economic conditions in the United States, including high economic uncertainty, low consumer confidence, high unemployment, tight credit conditions, and the decline in wealth resulting from depressed housing markets. In 2009, 10.4 million new vehicles were sold in the United States. In comparison, full-year U.S. industry new vehicle sales were 13.2 million in 2008 and 16.1 million in 2007. New vehicle sales in the third quarter of 2009 benefited from the “cash for clunkers” program (discussed below) while the program ran in July and August 2009. Excluding the vehicles sold under cash for clunkers in the third quarter, the seasonally adjusted annual rate (“SAAR”) improved in the fourth quarter of 2009 as compared to the previous three quarters. While we believe that new vehicle sales will gradually improve in 2010 as compared to 2009, we also believe that the automotive retail market will remain challenging and that the annual rate of new vehicle sales will remain depressed by historical standards in 2010. In addition, we expect that the decline in new vehicle sales over the past few years, which has led to a decline in the number of recent-model-year vehicles in operation, our primary service base, may have an adverse impact on our parts and service business for the next several years.

21

Table of Contents