1998Narrativepgs02-22 auto nation

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  • 1. | AutoNation, Inc. Financial Highlights FINANCIAL HIGHLIGHTS FOR YEARS ENDED DECEMBER 31, THE 1998 1997 1996 1995 1994 (in millions, except per share data) Revenue . . . . . . . . . . . . . . . . . . .. $ 16,118.2 $ 9,177.9 $ 5,633.1 $ 4,354.5 $ 3,312.9 Income (loss) from continuing operations before extraordinary charge. . . . . . . . . . . . . . . . . . .. 334.6 64.6 (51.0) .9 29.4 Net income (loss). . . . . . . . . . . . .. 499.5 439.7 (6.7) 34.6 57.6 Basic earnings (loss) per share: Continuing operations. . . . . . . .. .74 .16 (.16) — .14 $ $ $ $ $ Discontinued operations. . . . . . .. .36 .93 .24 .13 .13 Extraordinary charge . . . . . . . . .. — — (.10) — — Net income (loss). . . . . . . . . . . . 1.10 1.09 (.02) .13 .27 $ $ $ $ $ Diluted earnings (loss) per share: Continuing operations. . . . . . . . . .71 .15 (.16) — .14 $ $ $ $ $ Discontinued operations. . . . . . . . .35 .87 .24 .13 .13 Extraordinary charge . . . . . . . . . . — — (.10) — — Net income (loss). . . . . . . . . . . . 1.06 1.02 (.02) .13 .27 $ $ $ $ $ Total assets. . . . . . . . . . . . . . . . . . . $ 13,925.8 $ 10,196.2 $ 6,567.6 $ 5,208.1 $ 3,212.6 Revenue earning vehicle debt. . . . . 4,377.9 4,172.1 3,380.4 2,961.2 1,829.2 Long-term debt, net of current maturities . . . . . . . . . . . . 555.9 306.6 325.3 251.1 165.1 Shareholders’ equity. . . . . . . . . . . . 5,424.2 3,484.3 1,419.9 789.0 427.4 See Notes 2, 4, 7, 11 and 12 of Notes to Consolidated Financial Statements for discussion of business combinations, notes payable and long-term debt, shareholders’ equity, restructuring and other charges and discontinued operations and their effect on comparability of year-to-year data. 1
  • 2. A Letter to Shareholders Dear Fellow Shareholder: we are frustrated too. Why? Because we In less than three years, believe our share price AutoNation, Inc. has deserves to be much grown from a concept higher given our out- into the nation’s largest standing results. provider of automotive retail and rental products What are we doing to and services. By nearly improve our share price? every measure, 1998 was First, we are working Harrs W .Hudson i H.W ayne Huize g na S even R. Berrard t an outstanding year for hard to ensure that the the Company. investment community understands our business plan. Second, effectively communicates our single- Revenue increased 76 percent to s we are repurchasing shares of our stock minded focus on the automotive retail $16 billion when we have appropriate opportunities. and rental businesses. Operating income increased 131 percent Last and most important, we are deliver- s Our goal now – as it has been every to $535 million ing superior financial results.We believe year since 1995 – is to create customers that these efforts ultimately will be Earnings per share grew 97 percent for life.We believe we are well on our s reflected in our share price. to $.71 way toward achieving this goal. To ensure that we are meeting our You will also notice that we have Despite our successes, there is one goals, we are dedicated to delivering changed our name from Republic measure by which 1998 was not a good solid performance in each of our lines Industries, Inc. to AutoNation, Inc. year: our share price. As one analyst said, of business. We believe the AutoNation name more “The Company remains most impressive, yet a most frustrating stock.” We agree – 2
  • 3. | AutoNation, Inc. Letter to Shareholders In the AutoNation Retail Group, our will enable us to increase store-level of unifying our retail locations under a initiatives for 1999 include: pre-tax operating margins while being single brand and a common one-price, the low-price provider to customers. no-haggle selling process. Strengthening our network of nearly 400 s franchised dealerships. AutoNation owns Securing a leadership position in Expanding strong manufacturer relation- s s many of the finest franchised automotive e-commerce. We have created the founda- ships. We believe that AutoNation’s dealerships in the nation.We will continue tion necessary to be at the forefront framework agreements and strong to implement a wide range of profit- of automotive electronic commerce. relationships with automobile manufac- building initiatives in the dealerships We sold more than $100 million worth turers provide a distinct competitive while leveraging the synergies that are of vehicles via the Internet during the advantage. In addition to our joint already in place. fourth quarter of 1998, and we expect venture with Ford Motor Company sales via e-commerce to exceed $500 in Rochester, New York, we will Increasing same-store sales. By provid- s million in 1999. seek to develop other initiatives with ing greater value and enhancing the key manufacturers. customer experience, we will sell more Expanding customer-friendly practices. s vehicles and related products and In Denver, we converted all of our fran- Improving operations at AutoNation s services at our franchised dealerships chised dealerships into a single network USA megastores. While the megastores and AutoNation USA megastores. branded “AutoNation USA.” To date, generate significant interest and our “Mile-High Project” has proven it is attention, they represent less than Expanding margins. Because of the s possible to change a century-old way of 10 percent of our total revenue. As with economies of scale we enjoy in our key doing business; customers have reacted any retail concept in the formative markets, we can reduce the costs associated enthusiastically to their purchase and ser- stages, the AutoNation USA megastore with selling vehicles and providing ser- vice experiences. Denver results rein- model must be refined in order to vices to our customers. These economies force our belief in a long-term strategy succeed. So far, consumer reaction to the 3
  • 4. 2 Build these franchised . automotive dealerships into a national retail network. REDEFINE 3 Redefine the customer 1 Acquire the best . . experience by changing the franchised automotive BUILD sales and service processes to dealerships in the nation. better serve customers’ needs. ACQUIRE AutoNation Growth Model Our strategic model for building our automotivere a l b s n s ti uies flow a t re - t p p a . ol s h e s e l n megastores’ one-price, no-haggle selling locations.We’re confident these Leveraging the Global Odyssey s process has been very positive, but we actions will generate positive results Operating System. This state-of-the-art need to generate greater profit per loca- in 1999 and beyond. system will help improve operating tion.We are taking steps to accomplish margins through a more efficient In the AutoNation Rental Group, this by integrating megastore operations reservations system and better fleet our initiatives for 1999 include: into our existing district management utilization, enabling us to gain greater structure to lower costs, leverage vehicle Consolidating business functions at our market share.The rollout of Global s inventories and achieve economies vehicle rental operations. We anticipate Odyssey at National Car Rental will of scale.We are also adding franchised better operating results from the con- be followed by its introduction at automotive dealerships to certain solidation of common administrative Alamo Rent-A-Car. megastore locations.We believe the and back-lot functions at National Car Building the National Car Rental, s sale and service of new vehicles will Rental and Alamo Rent-A-Car. Our Alamo Rent-A-Car and CarTemps stimulate increased traffic and drive goal is to have two strong vehicle rental USA brands. Each of our three rental incremental revenue at these megastore brands, supported by a single adminis- brands has a distinct brand identity. trative organization. 4
  • 5. | AutoNation, Inc. Letter to Shareholders Attention will be focused on building We are building the first national auto- voted to sell all of the Company’s brand awareness and loyalty with motive retail brand and strengthening remaining shares of Republic Services. each company’s customer base through the recognition of our vehicle rental Proceeds from the sale will be reinvested improved marketing and customer brands. As we do so, we believe investors in the Company’s core automotive service initiatives. will recognize just how promising the retail and rental businesses and used to prospects are for AutoNation, Inc. retire debt. AutoNation’s management is dedicated to making our Company the leader in One last point: despite the Company’s A great deal of hard work remains. But the automotive retail, rental and service tireless efforts, the Internal Revenue we have assembled some of the most businesses.We are planning for contin- Service decided not to rule on our respected and talented professionals in ued growth during 1999 and are proposal to distribute the Company’s the automotive industry.We remain focusing our resources and capabilities shares of Republic Services, Inc. to focused on our mission and goals and on our core business units.The major shareholders of AutoNation, Inc. on a on building a successful customer- initiatives cited above, and the many tax-free basis.Therefore, in March 1999, focused Company.We thank you, our projects and tasks that support them, the Company’s Board of Directors shareholders and employees, for your will help us achieve shareholder value continued support. by “winning customers for life.” H.Wayne Huizenga Steven R. Berrard Harris W. Hudson Chairman and Co-Chief Executive Officer Vice Chairman Co-Chief Executive Officer March 31, 1999 5
  • 6. John H. Costello P sdn re i e t AutoNation, Ic. n J H. Costello leads the branding ohn e rt a AutoNation, Ic. f st fo n 6
  • 7. | AutoNation, Inc. The Importance of Brand The Importance of Brand The name of our company has changed In simple terms, our brand is a promise The key to accomplishing this is to from Republic Industries, Inc. to to our customers. It is a shorthand way attract, motivate and retain the best AutoNation, Inc.We believe the of saying, “You know what to expect people in the automotive industry. A AutoNation name more effectively when you do business with us.We stand powerful brand can serve this purpose. communicates our single-minded focus. behind our products and services.” Everyone at AutoNation, Inc. “owns” Republic Industries competed in very We want consumers to know that the the brand, and each of us knows that attractive, but dissimilar, businesses – AutoNation brand stands for trust, building a brand requires more than solid waste, automotive retail and innovation, value and service. Our goal advertising campaigns or exciting automotive rental.With the pending is to put our customers first, whether they promotions.The brand image is also sale of our waste division, we are buy, rent or service a vehicle with us. a reflection of how we answer the focused solely on the opportunities in We believe we have an outstanding telephone, handle customers’ service the automotive retail and rental indus- opportunity to build AutoNation into needs and greet them when they arrive tries. Our new name reflects that focus. a unique brand that connects strong at our showrooms or rental counters. Of greater importance, our new name local entrepreneurs with a powerful In service centers, it’s about fixing symbolizes our commitment to making national presence.This can provide their vehicles right the first time, every “AutoNation” the pre-eminent brand real competitive leverage and lead to time. In rental, it’s getting customers in automotive retail, rental and service. increased revenue, greater market share into the vehicles they want and quickly Our goal is to achieve this status among and earnings growth. Our ownership on their way. customers, employees and shareholders. of some of the leading franchised Shareholders. A strong brand can make We believe there are significant advan- automotive dealerships and vehicle AutoNation an attractive investment. tages in having a strong brand: rental companies gives us an excellent Developing a strong brand position can start.The next step is to build the Customers. A strong brand can make lead to greater customer satisfaction, AutoNation brand. AutoNation a compelling first choice brand loyalty and customer retention. for our customers when they are Employees. A strong brand can also These all lead to increased revenue, considering purchasing a new or used help make AutoNation a preferred greater market share and earnings vehicle or when their vehicle requires place to work. Although we sell, rent growth, which in turn impact share- service. A strong corporate brand and service vehicles, we are essentially holder value. Our goal is to build also supports our three strong vehicle a company committed to providing a shareholder value by creating customers rental companies. superior experience for our customers. for life. AutoNation, Inc. represents our commitment to build the next great retail brand. 7
  • 8. 8
  • 9. | AutoNation, Inc. AutoNation Retail Group AutoNation Retail Group Acquire the best franchised automotive AutoNation, Inc. has a well-defined, factors include high-pressure sales tactics, dealerships. AutoNation has acquired well-financed and well-managed plan difficulty in assessing a fair price and many of the finest franchised automotive to improve the operation of two of the inconsistent service experiences.We are dealerships in some of the fastest-growing most inefficient retail segments left in working to change this generations-old markets in the United States. The objec- the United States – the $310 billion new retail model.This will not happen tive of our acquisition strategy is to be vehicle segment and the $370 billion quickly and certainly will not be easy. the leading automotive retailer in every used vehicle segment of the auto- However, we believe consumers want market in which we operate. Currently, motive industry.We are convinced that change and that AutoNation is uniquely we own dealerships in 28 markets. Americans, who rank the process of pur- positioned to provide the best automo- We will continue making acquisitions chasing a vehicle near the bottom of tive buying and ownership experiences in 1999, particularly in our existing most surveys, will turn to retail locations in the industry. markets.We are continuing to focus our that eliminate the sales hassle, improve THREE-STEP GROWTH MODEL acquisition strategy on the preeminent vehicle selection, provide value in the Our strategic model for building our franchised automotive dealerships that purchase and financing experiences and automotive retail business follows a sell the most popular vehicle brands. ensure high quality after-market service. three-step model: Build a retail network. In 1998, we AutoNation is the largest retailer of Acquire the best franchised automotive progressed to the second level of our new and used vehicles in the nation. s dealerships in the nation. strategic model – building a strong Our AutoNation Retail Group revenue retail network.We have organized our increased by 107 percent to $12.7 billion Build these franchised automotive s franchised automotive dealerships and in 1998, during which we sold 530,000 dealerships into a national retail network. AutoNation USA megastores into new and used vehicles. Redefine the customer experience by districts, and further organized market s Even though we are already the nation’s changing the sales and service processes clusters within these districts. Our largest automotive retailer, our share of to better serve customers’ needs. 10 automotive retail districts are orga- the total U.S. automotive retail market is nized to leverage the strengths of our In just over two years, we have worked only about 1.5 percent. AutoNation is franchised automotive dealerships and to execute the plan successfully, believing a relatively new company in a highly AutoNation USA megastores.We are that AutoNation’s resources and employee fragmented industry. Our growth oppor- now exploiting the combined resources talent could accomplish what has not tunity is huge. of each district to reduce costs, become been done previously in the industry.To the low-price provider and build Since automotive retail sales began succeed, we plan to: greater market share.The district struc- some 100 years ago, the process has ture leverages economies of scale in often alienated customers. Contributing advertising, inventory sharing, cross-selling and a number of other retail functions. 9
  • 10. A New Concept in Retail Sales The launch of Denve’s“Mile-High Project” was r ah g p i t o 1 9 . ih on f 98 The pro e t b j c rought our 17 Denve r franchised automotive dealerships together under a single brand name:AutoNation USA. The dealerships conve e t a o e p i e, rt d o n - r c n-agesligp o h g l e l n rocess and implemented many o the customer- r e d iiitves popularized f f i n ly ntai i o r AutoNation USA megastore. nu s At the same time,t e d a e s i s j i e h elrhp ond frc s t d l ve a p o e o e i r owerful brand name adve i rts- igmsaei ti g n e s g n h s rowing marke The re u t ? t. sls AutoNation USA “ We ve experienced a tremendous improvement ’ ia n ware e s fo t e b a d a d a s g i a t ns r h r n n i n fic n i c a e i s l s a t e d a e s i s s s M ke n re s n a e t h e l r h p ,” ay i Maroone,P s d n o t e AutoNation Retail re i e t f h Group. “Customers are e t u i s i a o t t e nhsatc bu h AutoNation buying and ownership experience. ” E g t we k a t r t e l u c o t e a ve i ih e s f e h a n h f h d rt s- ig 73 percent of consumers polled said they n, intended to shop at AutoNation when considering ave i l p rchase.Asked to identify an automotive hce u r t i e i D nve e a l r n e r,more than 40 percent named AutoNation – re u t four times gre t r t a fo sls ae hn r a other automotivere a l r,i c u i g t o e who ny tie n l d n h s have been adve i i g i t e m r tfo ye r . rt s n n h a ke r a s “ Wer a x o s t s e t e e k n s o re u t ’ e n i u o e h s i d f sls in other markes Maroone say. t,” s Michael E. Maroone P sdn re i e t AutoNation Retail Group 10
  • 11. AutoNation employe s t ke g a p i e i e a re t r d n p resenting we l m i t i e , s o l s n ve i l s l - a n a n d p t e s ew h c e to our customers. Jh E o n lway (center) discusses the import n e o ac f customer satisfaction with two s l s a s c a e . ae soits
  • 12. | AutoNation, Inc. AutoNation Retail Group FRANCHISED AUTOMOTIVE DEALERSHIPS Our districts are led by some of the In this highly competitive business, we best retailers in the automotive industry – will succeed as the low-price provider – During 1998, AutoNation acquired entrepreneurs who joined AutoNation delivering every product and service our 181 franchised automotive dealerships, to help lead the transformation of auto- customers require at the lowest possible and since the beginning of 1999, motive retail.The district structure price. Not only are we making the we have acquired seven more.We supports the franchised automotive purchase and service experiences more now own over 380 franchised auto- dealerships and AutoNation megastores customer focused, we are bringing motive dealerships representing 39 and places the day-to-day decision value-added benefits to our customers. manufacturer brands. making authority in the local market, Redefine the customer experience. In For the year, we improved our store-level close to the customer. each of our districts, we are focused on pre-tax operating margins to an industry- The district structure also provides oppor- utilizing a network of stores to increase leading 3.8 percent from 2.9 percent in tunities for our franchised automotive revenue, build greater market share, grow 1997.We believe there are still tremen- dealerships to share best practices.We are earnings and deliver superior customer dous opportunities to further expand also sharing people, vehicle and parts service. In our Denver district, we are also pre-tax margins in 1999 and beyond. inventories, service and collision assign- focused on the third part of the strategy – Our dealers are excited about their roles ments and administrative operations.We redefining the customer experience. in the biggest opportunity in automotive are increasing pre-tax operating margins Through initiatives such as the one-price, retail – distinguishing AutoNation from as a result. In fact, many of our dealers no-haggle, customer-focused network competitors by redefining the sales, ser- have pre-tax operating margins twice that of dealerships, AutoNation has changed vice and ownership experiences.Together, of the average dealer in the industry. forever the automotive retail experience we have ambitious goals for maximizing for customers in Denver. our opportunities. e-commerce The Internet has become an integral part o t e ve i l b y n p c s for many f h h c e u i g ro e s consumers. A d j s a o r go l i t b t e l a i g a t m t vere a l r i o r n ut s u a s o e h edn uooi tie n u markes we a s i t n t b t e l a i g o - i e re a l r. meet that gol we h t, l o n e d o e h e d n n l n t i e To a, ave developed websites at each of our franchised automotive dealerships and we have c a e a p p i t ry s s e t m n g I t r e l a s o a n t o a b s s Consumers re t d ro r e a ytm o aae nent ed n ainl ai. uigorstscne s n u i e a xecute a compre e s ve e e t n c t a s c i n i c u i g i n- h n i l c ro i r n a t o , n l d n nve t ry s a n n , p i e,p m n c l u a i n , fin n i g a d d l ve s h d l n . o c n i g r c ay e t a c l t o s a c n n e i ry c e u i g AutoNation has developed an e-commerc s l s fo e o s e i l t a n d e a e rc f p c a ly r i e Internet Sales Consultants based at each of the Companys franchised automotive ’ d a e s i s a d AutoNation USA megastore.These consultants use “Compass,”a elrhp n s p p i t ry s f w re p ro r e a o t a rogram, t t a k a d s rv c I t r e s l s l a s Compass o r c n e ie nent ae ed. c n a e a I t r e S l s C n u t n by p g r a s o a a i q i i re e ve. a l rt n n e n t a e o s l a t a e s o n s n n u ry s c i d Ta al h t l ows rap d response times to e-commerc i q i i s U ni t e I t r e l a - i e n u r e . lke h n e n t e d g n r t r , we “ n t e l a f eeaos ow ” h e d rom the moment the pro p c i b ye c i k o t s e t ve u r l c s n o o e o o r s t s until the moment a ve i l i p rc a e . n f u ie hce s u h s d L o i g forward AutoNation intends to introduce a series of e-commerc okn , e H. Scott Barre t t i n a i n a m d a keeping the Company i t e fo f n o t i e c t n n ov t o s i e t n h rero t f h s x i i g Sno Vc P sdn e i r i e re i e t r ti c a n l eal h n e . Iformation Technology n 12
  • 13. AUTONATION USA MEGASTORES The Company opened nine AutoNation USA megastores during 1998 and acquired Driver’s Mart Worldwide, Inc., the franchisor of eight Driver’s Mart used vehicle locations which were subsequently rebranded AutoNation USA.The total number of megastores at the end of 1998 was 42.Three more have been opened in 1999, bringing the total to 45 megastores in 13 states. AutoNation USA megastores’ 1998 revenue increased to $1.3 billion, from $638 million in 1997. However, we are not pleased because the megastores were only profitable during one quarter of 1998. The megastore business concept is only a little over two years old. From the very beginning we knew that to be successful in the long Kevin P.W e t a l sfl run, the megastores would need to be continually refined, based on P sdn re i e t changing marketplace conditions and research findings.That is what AutoNation Financial Serv c s ie we have been doing and are continuing to do today. We believe that the megastores will ultimately be a financial success. AutoNation Financial Serv c s ( N S i t e ie AF) s h To that end, we are modifying the concept in order to generate higher c tve finance companyo AutoNation, Ic. api f n, sales and service volumes and to increase earnings. At the same time, and i d d c t d e c u i ly t p i i g finan- s e i a e x l s ve o rov d n we will preserve the retail experience customers have said they ca p il roducts and services to customers of prefer overwhelmingly. AutoNation’s franchised automotive d a e s i s elrhp and megastore. I 1 9 , isfirtfl ye r o s n 9 8 t s ul a f During 1999, a number of the megastore sites will be reconfigured o e a i n , ANFS had nearly 62,000 customers prtos to add franchised automotive dealerships.We believe franchised adams $ blini mngdast. n lot 1 ilo n aae ses dealerships, selling new vehicles and providing service on some of The fin n i l s rvices segment is a major aca e the finest automotive real estate sites in the nation, will be successful. profit center in the automotive i d s ry n u t .Ove r 75 percent of customers elect to finance their The reconfiguration process will continue into 2000. ve i l p rc a e a t e d a e s i h c e u h s t h e l r h p.ANFS s g i i n fi- In addition, we integrated the franchised dealerships and megastores c n ly enhances the Companys p at ’ rofit b l t by aiiy in our retail districts and have made significant strides in adjusting r t i i g q a i y ve i l financing opport n t e eann ult hce uiis w t i AutoNation. ANFS also support t e ihn sh our inventory to the dynamics of today’s changing marketplace.We ove a l m s i n o re a n n c s o e s fo lfe rl iso f t i i g u t m r r i are further coordinating the vehicle supply chain and consolidating tro g i s i n ai fin n i g p h u h t n ovtve a c n rograms. the inventories of our franchised dealerships and megastores into a The range of ANFS products includes Financial Services shared-sourcing operation. r ti a d l a e fin n i g secondary customer eal n e s acn, rfe a p e rr l rograms, ve i l p h c e rotection and Other actions include ongoing standardization of store processes to maintenance programs and insurance pro u t . dcs utilize best practices and additional training programs for store general Hav n i s own in-house finance company al ig t lows managers and their management teams. AutoNation to maintain the quality and consis- t n y o t e fin n i l p ec f h a c a roducts and processes ofe d i i s n t f re n t e work of automotiverealr. ties W t i s fo u e c u i ly o AutoNation i h t c s x l s ve n r t i e s ANFS concentrates its effo s o ealr, rt n improv n s rv c t rough technology t s a e ig e ie h .I s t t - o - h - rt e e t n c c d t ap l c t o s s e f t e a l c ro i re i p i a i n y t m al s re a l r t e e t n c l enter customer low t i e s o l c ro i a ly c d t ap l c t o s a d t re e veresponses in re i p i a i n n o c i minu e . ANFS is also expanding its serv c s t ts ie o i c u e I t r e a t r a i sfor customers. n l d n e n t l e n t ve 13
  • 14. | AutoNation, Inc. AutoNation Retail Group Skeptics may say these actions suggest and customer-friendly service demon- In addition to improvements in sales and that the megastore concept does not strates that the AutoNation USA brand service volumes, we are also measuring work.We disagree. Research shows is based on a powerful value proposition. our success in Denver by improving that the concept has been embraced customer satisfaction scores. Improved But the Mile-High Project is more by customers. Once they experience customer satisfaction scores are a leading than just a one-price, no-haggle sales the benefits of one-price, no-haggle indicator that we are creating greater process. Our Denver dealerships feature shopping, the vast majority of customers customer loyalty. common sales, service and operating surveyed say they will return and buy practices. Our dealers instituted identical Our Denver business model should another vehicle from AutoNation USA. vehicle guarantees, consistent service allow us to drive vehicle unit sales vol- That’s why we developed the AutoNation processes, uniform pricing and hours ume and reduce our fixed costs, leading USA megastores.We re-engineered the of operation, standardized training for to increased revenue, greater market entire automotive sales process to put all employees, a consolidated customer share and earnings growth. the customer in control.This process service call center and a consolidated ROCHESTER AUTO COLLECTION has to do with trust, innovation, value Internet site.We also coordinated all During 1998, the Company formed a and service.That’s the AutoNation USA dealership operations under a single joint venture with Ford Motor Company megastore way, and it’s not changing – district management structure. to operate its Ford and Lincoln-Mercury it’s expanding. Other innovations include touch-screen dealership network in Rochester, New kiosks that allow customers to browse MILE-HIGH PROJECT York. Ford owns 51 percent of the joint Denver-wide inventories, appraisals for In Denver, our franchised automotive venture; AutoNation owns the remaining trade-ins that are valid at all our Denver dealerships set out to redefine the 49 percent.We oversee the management locations, a menu-driven finance and customer experience, the third step of of the retail operations of the joint insurance selling system and a three-day, our strategic model.The dealers took venture dealerships, which collectively 150-mile refund policy on all vehicles. many of the customer-friendly innova- have been rebranded as the Rochester tions that we piloted in our megastores Auto Collection. Customers have reacted enthusiastically and applied them to our franchised to Denver initiatives such as our launch We are proud to be Ford’s partner in this dealerships in Denver. of a “fix it fast or it’s free” guarantee on endeavor.The Rochester Auto Collection scheduled light maintenance and the We launched the AutoNation USA retail provides AutoNation an opportunity to offer of a guarantee on repair work for brand in Denver in December 1998. showcase our capabilities and our retail 12 months or 12,000 miles. At the same time, the sales and service model, which is based on providing a processes of the 17 franchised dealerships positive customer experience. AutoNation And by advertising under a single brand were transformed, significantly enhanc- also has the opportunity to work with name, we have developed significant ing the customer experience. Ford to build a network of similarly brand awareness of AutoNation USA in franchised retailers in a single market, an Denver.We are further developing our To date, we have seen a substantial experience which will also benefit the brand through our Internet site which increase in customer traffic and con- Company in other markets. had over 100,000 visitor sessions in its sumer reaction has been very positive. first two months of operation.The site Our one-price, no-haggle sales process provides consumers access to information regarding the inventory of 3,500 vehicles available at our Denver dealerships. 14
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  • 16. | AutoNation, Inc. AutoNation Rental Gro p u AutoNation Rental Group Automotive rental is a $24 billion The AutoNation Rental Group’s revenue EuroDollar was absorbed by National global industry: $16 billion in the U.S. increased 13 percent to $3.5 billion in Car Rental, and Spirit Rent-A-Car and and $8 billion internationally. In the 1998.The Group operated an average Snappy Car Rental were rebranded as U.S., the business and leisure segments worldwide fleet of 330,000 vehicles, one CarTemps USA. each represent 40 percent of the industry, of the largest in the industry. The Company believes it now has a with local/replacement making up the AutoNation began competing in unique opportunity to achieve superior remaining 20 percent. the industry through its acquisitions returns with two of the strongest AutoNation’s automotive rental busi- of National Car Rental and Alamo brands in the daily vehicle rental indus- nesses serve both the daily rental and the Rent-A-Car.The Company further try and a strong competitor in the local/replacement segments of the mar- strengthened its market position local/replacement industry. National Car ketplace.The daily rental needs of both through subsequent acquisitions Rental is known for catering to the business and leisure travelers are served of Value Rent-A-Car and Eurodollar needs of the business traveler, and Alamo by the National Car Rental and Alamo Rent-A-Car. Rent-A-Car is recognized for offering Rent-A-Car brands from a network the best value to the price-sensitive The Company expanded into the of on-airport and near-airport locations leisure customer. CarTemps USA is the local/replacement segment with its across the United States and the world. second-largest competitor in local/ acquisitions of Spirit Rent-A-Car and The CarTemps USA brand serves the replacement rentals, the fastest-growing Snappy Car Rental. Subsequently, Alamo domestic local/replacement marketplace, vehicle rental industry segment. Rent-A-Car absorbed the Value brand, operating in nearly 400 locations throughout the United States. Global Odyssey System The continu n i t g a i n o a m n s r t ve p i g n e r t o f d i i t a i rocesses at National Car Rental and Alamo Rent-A-Car will be enhanced by the implementation of common information technology s s e s y t m .The most signific n o t e e s s e s i t e AutoNation Rental at f hs ytm s h Gro p n u ’s ew,s a e o - h - rt Global Odyssey S s e . tt-ftea ytm The Global Odyssey System is now operating at National Car Rental, and con- ve s o h s b g n a Alamo Rent-A-Car,w t t e go l o f l i t g a i n by t e e d o rin a eu t ih h a f ul nerto hnf 1999. Once Global Odyssey is the common platform for both brands, t e AutoNation h Rental Gro p c n l u a everage technology t i p o m rove s n r i s i fleet management. yege n Accord n t B b B i g , P s d n o N t o a C r R n a , Global Odyssey a s i g o o r g s re i e t f a i n l a e t l lo contro s s c c re b s n s p c s e a re e a i n , r n a a d re u n p l uh o u i e s ro e s s s s rv t o s e t l n t r rocesses and fle t maintenance. system i a s d s g e t p e The s l o e i n d o rovide more complete cus- Robert L Briggs . t m r i formation than any o h r s s e i t e i d s ry oe n te ytm n h nut . P sdn re i e t National Car Rental 16
  • 17. Serving the Leisure Traveler Alamo Rent-A-Car commissioned a compre e s ve hni s u y o t e l i u t avel marke p a e i 1 9 t b t e t d f h e s re r tlc n 98 o etr understand the unique needs of the leisurere t r.Using ne t e s u y, h t d Alamo Rent-A-Car examined how i c u dt ol sre g h n i s l a e s i ro e i t e l i u t ave s g e t t n t e t e d r h p l n h e s re r l e m n . Accord n t K ren Beard P s d n o Alamo ig o a , re i e t f Rent-A-Car,key l c t o s w l b remodeled to better oain il e s rve t e l i u t ave e e h e s re r l r.The ve i l m x av i a l w l h c e i albe il also be modifie t i c u e ve i l s t a l i u t ave e s d o nld h c e h t e s re r l r p fe re r,such as conve ils minivans and sportuiiy rtbe, tlt ve i l s Changing rooms, c i d p ay a a, r s rooms hce. h l l res e t equipped with baby-changing stations and sundry s l s ae Karen L. Beard sain wl b a e. t t o s i l e dd d P sdn re i e t Alamo Rent-A-Car NATIONAL CAR RENTAL At the same time, we will reduce new offices, with approximately 100 AND ALAMO RENT-A-CAR: TWO STRONG operating costs by having a single planned for 1999, including expanding BRANDS/ONE ORGANIZATION overhead structure, a shared fleet and its presence within AutoNation’s franchised common information technology. dealership and megastore network. Within North America, the Company intends to maximize the benefits of the CARTEMPS USA INTERNATIONAL brand equity that both National Car The CarTemps USA brand was launched The AutoNation Rental Group com- Rental and Alamo Rent-A-Car enjoy, in January 1998 by consolidating the petes in the international market under while realizing significant economies of former Spirit Rent-A-Car, Snappy Car both the National Car Rental and scale through the consolidation of certain Rental and the local/replacement divi- Alamo Rent-A-Car brands, with the overlapping administrative and back-lot sion of Alamo Rent-A-Car. Locations of majority of its overseas revenue generated functions. In order to consolidate these the three rental companies and adminis- in the United Kingdom. During 1998, functions, the Company formed the trative activities were consolidated. By the Company aggressively pursued the North American Rental Group to man- the end of 1998, CarTemps had opened consolidation of operations under the age both companies. 62 additional new local/replacement common management of the Inter- The North American Rental Group’s rental locations, bringing the total num- national Rental Group organization. individual business units – National Car ber of CarTemps USA locations to 388 The International Group re-launched Rental and Alamo Rent-A-Car – are in 40 states. the EuroDollar vehicle rental business responsible for brand performance and under the National Car Rental brand, CarTemps USA is a strong strategic all activities directly affecting the customer integrated management of Alamo growth vehicle for the AutoNation and airport relations. Rent-A-Car and EuroDollar and Rental Group. After less than two years consolidated their vehicle fleets. Because National Car Rental and of operation, CarTemps USA is already Strategically, the international market Alamo Rent-A-Car enjoy distinct brand a strong number two in the local/ should provide opportunities for identities, a “two brands, supported by a replacement rental category and is increased revenue and earnings growth common organization” business strategy actively marketing itself as the logical into the foreseeable future. will be used to leverage the strengths alternative to the industry leader. of each. CarTemps USA is aggressively opening 17
  • 18. National Car Rental and Alamo Rent-A-Car buses J f reyJ Pa l ef . rel a in constant motion at airport a re s round the P sdn re i e t United States – and around the wo l – d l ve i g rd ei rn Nort American Rental Group h tave e s t a d f r l r o n rom their re t l ve i l s n a hce. William E. Lobeck P sdn re i e t CarTemps USA is building a netwo k o o fic s r ffe AutoNation Rental Group nationwide to serve c s o e s i t e l c l utmr n h oa/ replacement segment of the ve i l re t l i d s ry hce n a n u t . 18
  • 19. A New View on Vehicle Rental Services AutoNation’s t re ve i l rental companies h e hce hg ave rown ove t e p s ye r,a d t e r r h at a n hi brands h ave b e s rengthened to compete en t moreefe t ve y i t e r re p c i markes. f c i l n h i s e t ve t As AutoNation Rental Group Pre i e t sdn William E Lobeck planned fo f t re g t , . r u u row h he determined that it wo l b v t l t s a u d e i a o h re resources and systems acro s t e b a d . s h rns To a s s i i p e e t n t i , Jfrey P re s i t n m l m n i g h s ef all was appointed Pre i e t o t e n ly s d n f h ew formed Nort American Rental Group in 1998. h Formerly P s d n o N t o a C r R n a , re i e t f a i n l a e t l AutoNation Rental Group P re l w s o e o t e d i i g fo a l a n f h r v n rces behind National Car Rental’s s c e s i re e t ye r . ucs n c n as Hsn msini t la teitgain i ew i s o s o e d h n e r t o e rt o t e National Car R n a a d Alamo f sfh fo etl n Rent-A-Car brands. Together,Lobeck, P re l a d t e e t re a l n h ni AutoNation Rental Group are b i d n ulig systems t a w l reduce the Gro p i s ht il u ’s nvet- mn i i e t n nventory while maximizing reve e nu a d ve i l u a e r t s I a i i n t e n h c e s g a e . n dd t o , h Group has made improve fleet management d a p i r t The Global Odyssey S s e w l r o i y. ytm il a s ic l o n rease the Gro p p u ’s rofitblt aiiy. S r t g c l ,Nort American markes t a e i a ly h t wl p il rovide modest reve e gnu rowth into the fre e a l f t re.B t when coupled with o sebe uu u, efic e c e re l z d t rough curr n a d f t re f inis aie h et n uu i t g a i n e fo n e r t o f rts and benefit a h eve s ci d tro g t e u e o i c a i g s p i t c t d h u h h s f n re s n ly o h s i a e r nue management techniques, t e g eve h rowth o operating margins and profit s o l f s hud outpace reve e g t . nu row h Reve e a d e r i g g t i t e nu n a n n s row h n h AutoNation Rental Group will come prima- r fo p i i g i c a e t a s c i n , t e i r m r c n , n re s d r n a t o s h ly frt e penetration of CarTemps USA u hr i t t e l c l replacement marke a d n o h oa/ tn frt e expansion in international markes u hr t. 19
  • 20. Alamo Rent-A-Car serv c ie rp snai s a s s c s o e s e re e t t ve s i t u t m r t g t o t e r w a Ls o e n h i ay t o A g l s I t r a i n l Airport nee nentoa . An Internet Sales Consultant asss a c s o e i u i g a sit utmr n sn n i - t re kiosk in Denve nso r. A fin n e a d i s r n e s e i l s ac n nuac pcait e p a n AutoNation Financial xlis S rv c s fin n i g o t o s t a e ie’ a c n p i n o customer at Gene Evans Fo , rd Union City,GA. a
  • 21. Customers fo L fe | AutoNation, Inc. ri Customers for Life AutoNation doesn’t claim to have To address these concerns, AutoNation customer relationship.We want the started the change in automotive retail. is delivering a new proposition to the initial vehicle sale to be just the start Over the past 20 years, that change has vehicle-buying public.We’re approaching of a relationship filled with many addi- been influenced by many other retail automotive retail from the same premise tional transactions. Customer satisfaction categories and the development of such that has proven to be successful in other and customer loyalty are the key com- companies as WalMart, Home Depot, retail categories: treat customers fairly, ponents of this strategy. Staples, Best Buy and Blockbuster.These give them good value and they will Our customers for life philosophy is companies all offer consumer-friendly return time and time again. also part of the fabric of our automotive shopping environments with large There is an old retail adage – we have rental business. Repeat rentals happen selections at value prices. many customers, but we serve them only when the customer has been But AutoNation is a pioneer in the auto- one at a time.We believe in that adage. treated properly and feels that he or motive retail category.We believe automotive A little over two years ago, we launched she is valued. retail must respond to the idea that the an automotive retail business based What are the potential benefits customers’ needs come first. on the concept that customers should for AutoNation of our customers be treated the way we would like to be The automotive retail segment is ripe for life philosophy? treated.We applied this concept to auto- for change.The market is highly motive retail and rental. And in just over Greater market share s fragmented and there is no national two years, we can count more than two automotive retail brand. Increased revenue s million customers who have purchased What AutoNation is setting in motion or rented vehicles from us. Earnings growth s is no less than a shift in the balance When you listen to customers, and Improved customer satisfaction s of power in favor of the consumer. when you look at the business through and retention Research indicates that consumers the customers’ eyes, you naturally think definitely believe the automotive retail Lower customer acquisition costs s about how it feels to buy the product ... experience can and must improve: not how to sell it. AutoNation is working Increased customer referral s Most consumers dislike negotiating to improve the image of the automotive opportunities s the price of a vehicle. retail business, selling more vehicles, AutoNation is dedicated to the generating more revenue and creating The majority of those who buy from premise that it’s better to build a s customers for life as we put more franchised automotive dealerships customer for a lifetime than it is emphasis on the buying and ownership never return to the dealership for to sell to a customer one time. experiences and less on the selling expe- service or any other reason. rience.The bottom line is that customers We will succeed by staying focused Many consumers still buy used vehicles don’t want to be sold.They want help on this premise. s through the classified ads rather than to buy what they need. from dealerships. At traditional dealerships, the objective is to “close the sale.” At AutoNation, our objective is to develop a lifelong 21
  • 22. 23 39 40 41 43 67 42 Management’s Consolidated Consolidated Consolidated Notes to Report of Independent Consolidated Discussion and Balance Sheets Statements of Statements of Consolidated Certfie P b i i d ulc Statements of Analyi ss Operations Sa hles Eut h re o d r ’ q i y FnnilSaeet iaca ttmns Accountants Cash Flows 1998 Financial Review 22