AutoNation (AN)

      Parts and service revenue is primarily derived from repair orders for service labor and related parts paid directly by customers or via reimbursement from manufacturers and others under warranties.

      Reported parts and service revenue and gross profit for 2004 benefited from the impact of acquisitions when compared to same store performance.

      Same store parts and service revenue and gross profit increased during 2004 due to increases in customer-paid work for parts and service, attributable to the continued implementation of our service drive process, maintenance menu and service marketing program, as well as optimization of our pricing models and training programs. Parts and service was also impacted by the effect of the four major hurricanes on our stores in Florida and the Southeast during the third quarter of 2004. During the fourth quarter of 2004, we saw improvements in these markets driven by post-hurricane demand and a stronger local economy. Results in 2004 benefited from an additional service day as compared to the same period in 2003.

      Total parts and service revenue and gross profit remained relatively flat in 2003 compared to 2002. This was driven by improved pricing on customer-paid work offset by decreases in warranty repair orders, wholesale parts and our collision repair business. Significant decreases in domestic warranty repair orders offset import and luxury increases realized in 2003.

27

Table of Contents