Autonation, Inc.: Form 10-Q for the period ended Sep 30, 2024

The following discussion should be read in conjunction with the Unaudited Condensed Consolidated Financial Statements and notes thereto included under Part I, Item 1 of this Quarterly Report on Form 10-Q. In addition, reference should be made to our audited Consolidated Financial Statements and notes thereto and related “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our most recent Annual Report on Form 10-K.

Overview

AutoNation, Inc., through its subsidiaries, is one of the largest automotive retailers in the United States. As of September 30, 2024, we owned and operated 328 new vehicle franchises from 243 stores located in the United States, predominantly in major metropolitan markets in the Sunbelt region. Our stores, which we believe include some of the most recognizable and well known in our key markets, sell 32 different new vehicle brands. The core brands of new vehicles that we sell, representing approximately 88% of the new vehicles that we sold during the nine months ended September 30, 2024, are manufactured by Toyota (including Lexus), Honda, Ford, General Motors, BMW, Mercedes-Benz, Stellantis, and Volkswagen (including Audi and Porsche). As of September 30, 2024, we also owned and operated 52 AutoNation-branded collision centers, 23 AutoNation USA used vehicle stores, 4 AutoNation-branded automotive auction operations, 3 parts distribution centers, a mobile automotive repair and maintenance business, and an auto finance company.

We offer a diversified range of automotive products and services, including new vehicles, used vehicles, “parts and service” (also referred to as “After-Sales”), which includes automotive repair and maintenance services as well as wholesale parts and collision businesses, and automotive “finance and insurance” products (also referred to as “Customer Financial Services”), which include vehicle service and other protection products, as well as the arranging of financing for vehicle purchases through third-party finance sources. We also offer indirect financing through our captive finance company on vehicles we sell. We believe that the significant scale of our operations and the quality of our managerial talent allow us to achieve efficiencies in our key markets by, among other things, leveraging the AutoNation retail brand and advertising, implementing standardized processes, and increasing productivity across all of our stores.

At September 30, 2024, we had three reportable segments: (1) Domestic, (2) Import, and (3) Premium Luxury. Our Domestic segment is comprised of retail automotive franchises that sell new vehicles manufactured by Ford, General Motors, and Stellantis. Our Import segment is comprised of retail automotive franchises that sell new vehicles manufactured primarily by Toyota, Honda, Hyundai, Subaru, and Nissan. Our Premium Luxury segment is comprised of retail automotive franchises that sell new vehicles manufactured primarily by Mercedes-Benz, BMW, Lexus, Audi, and Jaguar Land Rover. The franchises in each segment also sell used vehicles, parts and automotive repair and maintenance services, and automotive finance and insurance products.

For the nine months ended September 30, 2024, new vehicle sales accounted for 47% of our total revenue and 16% of our total gross profit. Used vehicle sales accounted for 30% of our total revenue and 9% of our total gross profit. Our parts and service operations, while comprising 18% of our total revenue, contributed 47% of our total gross profit. Our finance and insurance sales, while comprising 5% of our total revenue, contributed 28% of our total gross profit.

Market Conditions

In the third quarter of 2024, U.S. industry retail new vehicle unit sales decreased approximately 2%, as compared to the third quarter of 2023. Although still below historical levels, industry new vehicle inventory levels continued to increase during 2024 due to higher levels of manufacturer vehicle production. The increasing supply and availability of new vehicle inventory, which varies by make and model, has resulted in moderation of new vehicle unit profitability, which we expect will continue throughout 2024, but is stabilizing. Additionally, the increased availability of new vehicles and an increase in manufacturer new vehicle incentives, including low-interest financing and customer rebates, has resulted in a shift in mix from used vehicles to new vehicles. Lower new vehicle sales in recent years has also resulted in lower availability of used vehicle inventory, particularly for late model vehicles.

System Outage Due to CDK Cyber Incident

On June 19, 2024, we were notified by CDK Global (“CDK”), a third-party provider of information systems, that CDK was experiencing a cyber incident impacting its systems, including the systems necessary to support our dealer management system (“DMS”), which supports our dealership operations, including our sales, service, inventory, customer relationship management, and accounting functions (“Core Functions”). The incident resulted in outages of our DMS and Core Functions (the “CDK outage”), causing disruption and adverse impacts to our business, including our productivity. Access to our DMS and Core Functions was restored as of June 29, 2024. Certain ancillary systems and integrations, such as those that help automate ordering, scheduling, payment, sales, and reporting processes, were restored by the end of July. See “Results of Operations” below for a discussion on the financial impact to our third quarter 2024 results.

Results of Operations

During the three months ended September 30, 2024, we had net income of $185.8 million and diluted earnings per share of $4.61, as compared to net income of $243.7 million and diluted earnings per share of $5.54 during the same period in 2023.

Our total gross profit decreased 9% during the third quarter of 2024 compared to the third quarter of 2023, driven by decreases in new vehicle gross profit of 29%, used vehicle gross profit of 13%, and finance and insurance gross profit of 9%, each as compared to the third quarter of 2023, partially offset by an increase in parts and service gross profit of 2%. New vehicle gross profit was adversely impacted by a decrease in gross profit per vehicle retailed (“PVR”) resulting from increasing supply and availability of new vehicle inventory, which has resulted in moderation of margins. Used vehicle gross profit was adversely impacted by a decrease in used vehicle unit volume, particularly for mid- to higher-priced used vehicles, due in part to the shift in mix from used vehicles to new vehicles. Finance and insurance gross profit was adversely impacted by the decrease in used vehicle unit volume, an increase in retail vehicle sales financed through our captive auto finance company, and a decrease in product penetration. Parts and service results benefited primarily from increases in gross profit from warranty service. In addition, floorplan interest expense increased primarily due to higher average floorplan balances.

Our used vehicle, parts and service, and finance and insurance businesses were adversely impacted by the residual effects of the CDK outage in the third quarter of 2024. As a result of the CDK outage, we estimate earnings per share for the quarter ended September 30, 2024, were negatively impacted by approximately $0.21 per share based on internal estimates of lost income without taking into account any potential recoveries related to the incident.

Net income for the three months ended September 30, 2024, benefited from an after-tax net gain of $35.3 million related to business/property dispositions, net of asset impairments, partially offset by an after-tax net loss of $5.1 million related to changes in fair value of certain equity investments and after-tax self-insured losses of $4.3 million primarily related to hailstorms and other natural catastrophes.

Inventory Management

Our new and used vehicle inventories are stated at the lower of cost or net realizable value in our Unaudited Condensed Consolidated Balance Sheets. We monitor our vehicle inventory levels based on current economic conditions and seasonal sales trends.

Our new vehicle inventory units at September 30, 2024 and 2023, were 46,090 and 27,544, respectively. We have typically not experienced significant losses on the sale of new vehicle inventory, in part due to incentives provided by manufacturers to promote sales of new vehicles and our inventory management practices. We monitor our new vehicle inventory values as compared to net realizable values. Our new vehicle inventory was net of cumulative write-downs of $3.6 million at September 30, 2024. We had no new vehicle inventory cumulative write-downs at December 31, 2023.

We recondition the majority of used vehicles acquired for retail sale in our parts and service departments and capitalize the related costs to the used vehicle inventory. We monitor our used vehicle inventory values as compared to net realizable values. Typically, used vehicles that are not sold on a retail basis are sold at wholesale auctions. Our used vehicle inventory balance was net of cumulative write-downs of $7.2 million at September 30, 2024, and $12.2 million at December 31, 2023.

Parts, accessories, and other inventory are carried at the lower of cost or net realizable value. We estimate the amount of potentially damaged and/or excess and obsolete inventory based upon historical experience, manufacturer return policies, and industry trends. Our parts, accessories, and other inventory balance was net of cumulative write-downs of $9.2 million at September 30, 2024, and $7.8 million at December 31, 2023.

Critical Accounting Estimates

We prepare our Unaudited Condensed Consolidated Financial Statements in conformity with U.S. generally accepted accounting principles (“GAAP”), which require us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. We evaluate our estimates on an ongoing basis, and we base our estimates on historical experience and various other assumptions we believe to be reasonable. Actual outcomes could differ materially from those estimates in a manner that could have a material effect on our Unaudited Condensed Consolidated

Financial Statements. For additional discussion of our critical accounting estimates, please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our most recent Annual Report on Form 10-K.

Goodwill

Goodwill for our reporting units is tested for impairment annually as of April 30 or more frequently when events or changes in circumstances indicate that the carrying value of a reporting unit more likely than not exceeds its fair value. We may first perform a qualitative assessment to determine whether it is more likely than not that a reporting unit is impaired. When assessing goodwill for impairment, our decision to perform a qualitative assessment for an individual reporting unit is influenced by a number of factors, including the carrying value of the reporting unit’s goodwill, the significance of the excess of the reporting unit’s estimated fair value over carrying value at the last quantitative assessment date, the amount of time in between quantitative fair value assessments, macroeconomic conditions, automotive industry and market conditions, and our operating performance.

Under accounting standards, we chose to perform quantitative tests for our annual goodwill impairment testing as of April 30, 2024, and no impairment charges resulted from these quantitative tests. The quantitative goodwill impairment test is dependent on many variables used to determine the fair value of each reporting unit. See Note 13 of the Notes to Unaudited Condensed Consolidated Financial Statements for a description of the valuation method and related estimates and assumptions used in our quantitative impairment testing.

The fair values of the Domestic, Import, Premium Luxury, AutoNation Finance, and Collision Center reporting units substantially exceeded their carrying values. The fair value of the Mobile Service reporting unit, which relates to the mobile automotive repair and maintenance business we acquired in the first quarter of 2023, exceeded carrying value by approximately 25%. The key assumptions used in our estimate of fair value for our Mobile Service reporting unit included revenue growth rates to calculate projected future cash flows. As a measure of sensitivity, if the revenue growth rates decreased by 20%, the fair value would have still slightly exceeded the carrying value of the Mobile Service reporting unit. This result and discussion is not intended to address all potential outcomes that could have resulted if different assumptions had been used given the number of assumptions used in determining fair value and the degree of sensitivity to changes in such assumptions.

As of September 30, 2024, we have $222.8 million of goodwill related to the Domestic reporting unit, $519.1 million related to the Import reporting unit, $482.2 million related to the Premium Luxury reporting unit, $140.5 million related to the Mobile Service reporting unit, $78.4 million related to the AutoNation Finance reporting unit, and $4.6 million related to the Collision Centers reporting unit.

Other Intangible Assets

Our principal identifiable intangible assets are individual store rights under franchise agreements with vehicle manufacturers, which have indefinite lives and are tested for impairment annually as of April 30 or more frequently when events or changes in circumstances indicate that impairment may have occurred.

We may first perform a qualitative assessment to determine whether it is more likely than not that a franchise right asset is impaired. We elected to perform quantitative tests for our annual franchise rights impairment testing as of April 30, 2024, and no impairment charges resulted from these quantitative tests. We identified 15 stores that, while they each had franchise rights fair value in excess of or equal to carrying value, had lower relative performance compared to our total store population. We will continue to monitor these stores, as well as all stores, for events or changes in circumstances that may indicate potential impairment. The remainder of our stores had franchise rights with calculated fair values that substantially exceeded their carrying values. As of September 30, 2024, we had 82 stores with franchise rights totaling $876.2 million.

The quantitative franchise rights impairment test is dependent on many variables used to determine the fair value of each store’s franchise rights. See Note 13 of the Notes to Unaudited Condensed Consolidated Financial Statements for a description of the valuation method and related estimates and assumptions used in our quantitative impairment testing. Based on a sensitivity analysis of these estimates and assumptions, including if the fair value of each of our franchise rights had been determined to be a hypothetical 10% lower as of the valuation date of April 30, 2024, the resulting impairment charge would have been approximately $3 million. The sensitivity analysis performed, including the effect of a hypothetical 10% decrease in fair value estimates, is not intended to provide a sensitivity analysis of every potential outcome.

Reported Operating Data

Historical operating results include the results of acquired businesses from the date of acquisition.

($ in millions, except per vehicle data)

31

32

Same Store Operating Data

We have presented below our operating results on a same store basis to reflect our internal performance. The “Same Store” amounts presented below include the results of our stores for the identical months in each period presented in the comparison, commencing with the first full month in which the store was owned by us. Results from divested stores are excluded from both current and prior periods. Therefore, the amounts presented in the 2023 column may differ from the same store amounts presented for 2023 in the prior year. We believe the presentation of this information provides a meaningful comparison of period-over-period results of our operations.

($ in millions, except per vehicle data)

33

34

New Vehicle

($ in millions, except per vehicle data)

The following discussion of new vehicle results is on a same store basis. The difference between reported amounts and same store amounts in the above tables of $13.7 million and $32.0 million in new vehicle revenue and $0.4 million and $1.6 million in new vehicle gross profit for the three months ended September 30, 2024 and 2023, respectively, and $139.3 million and $105.1 million in new vehicle revenue and $6.1 million and $7.1 million in new vehicle gross profit for the nine months ended September 30, 2024 and 2023, respectively, is related to acquisition and divestiture activity.

Third Quarter 2024 compared to Third Quarter 2023

Same store new vehicle revenue was relatively flat for the three months ended September 30, 2024, as compared to the same period in 2023, due to an increase in same store unit volume offset by a decrease in same store revenue PVR. The increase in same store unit volume was due to increasing supply of new vehicle inventory, an increase in manufacturer incentives, including low-interest financing and rebates, and sustained consumer demand, partially offset by manufacturer stop sale orders on certain vehicle models.

Same store new vehicle revenue PVR decreased during the three months ended September 30, 2024, as compared to the same period in 2023, primarily due to the increasing supply and availability of new vehicle inventory, which has resulted in moderation of pricing. Same store revenue PVR was also impacted by decreases in manufacturers’ suggested retail prices.

Same store new vehicle gross profit PVR decreased during the three months ended September 30, 2024, as compared to the same period in 2023, primarily due to the increasing supply and availability of new vehicle inventory, which has resulted in moderation of margins.

First Nine Months 2024 compared to First Nine Months 2023

Same store new vehicle revenue decreased during the nine months ended September 30, 2024, as compared to the same period in 2023, due to a decrease in same store revenue PVR, partially offset by an increase in same store unit volume. Same store unit volume benefited from the increasing supply of new vehicle inventory, particularly for Import manufacturers, an increase in manufacturer incentives, including low-interest financing and rebates, and sustained consumer demand. The increase in same store unit volume was partially offset by a decrease in productivity as a result of the CDK outage, which disrupted our vehicle sales, inventory, and customer relationship management functions in the latter half of June 2024.

Same store new vehicle revenue PVR decreased during the nine months ended September 30, 2024, as compared to the same period in 2023, primarily due to increasing supply and availability of new vehicle inventory, which has resulted in moderation of pricing and margins. Same store new vehicle revenue PVR was also adversely impacted by decreases in manufacturers’ suggested retail prices and a shift in mix towards Import vehicles, which have relatively lower average selling prices.

Same store new vehicle gross profit PVR decreased during the nine months ended September 30, 2024, as compared to the same period in 2023, primarily due to increasing supply and availability of new vehicle inventory, which has resulted in moderation of margins.

New Vehicle Inventory Carrying Benefit (Expense)

The following table details net new vehicle inventory carrying benefit (expense), consisting of new vehicle floorplan interest expense, net of floorplan assistance earned (amounts received from manufacturers specifically to support store financing of new vehicle inventory). Floorplan assistance is accounted for as a component of new vehicle gross profit in accordance with GAAP.

($ in millions)

Third Quarter 2024 compared to Third Quarter 2023

The net new vehicle inventory carrying expense increased during the three months ended September 30, 2024, as compared to the same period in 2023, due to an increase in floorplan interest expense, partially offset by an increase in floorplan assistance. Floorplan interest expense increased primarily due to higher average floorplan balances. Floorplan assistance increased primarily due to an increase in the average floorplan assistance rate per unit.

First Nine Months 2024 compared to First Nine Months 2023

During the nine months ended September 30, 2024, we had a net new vehicle inventory carrying expense of $55.8 million, compared to a net new vehicle inventory carrying benefit of $3.0 million for the same period in 2023. Floorplan interest rates are variable and, therefore, increase and decrease with changes in the underlying benchmark interest rates. Up until the third quarter of 2023, since the first quarter of 2020, when the Federal Reserve cut interest rates to near 0%, we had a net new vehicle inventory carrying benefit. Additionally, over this same period, our average floorplan balances were significantly lower than historical standards due to manufacturers’ new vehicle inventory supply constraints. With the increases in new vehicle inventory supply and interest rates, floorplan interest expense has increased, resulting in a net new vehicle inventory carrying expense for the nine months ended September 30, 2024. If interest rates remain at their current levels or increase without a corresponding increase in floorplan assistance or a decrease in average new vehicle inventory levels, we would expect that we will continue to incur a net new vehicle inventory carrying expense.

Used Vehicle

($ in millions, except per vehicle data)

The following discussion of used vehicle results is on a same store basis. The difference between reported amounts and same store amounts in the above tables of $60.0 million and $38.3 million in total used vehicle revenue and $1.0 million and $1.6 million in total used vehicle gross profit for the three months ended September 30, 2024 and 2023, respectively, and $245.3 million and $123.3 million in total used vehicle revenue and $7.1 million and $6.4 million in total used vehicle gross profit for the nine months ended September 30, 2024 and 2023, respectively, is related to acquisition and divestiture activity, as well as the opening of AutoNation USA stores.

Third Quarter 2024 compared to Third Quarter 2023

Same store retail used vehicle revenue decreased during the three months ended September 30, 2024, as compared to the same period in 2023, due to a decrease in same store unit volume and a decrease in same store revenue PVR. The decrease in same store unit volume, particularly for mid- to higher-priced used vehicles, is resulting from the shift in mix from used vehicles to new vehicles due in part to lower availability and levels of late model used vehicles, as well as increasing supply of new vehicle inventory, an increase in manufacturer new vehicle incentives including low-interest financing and customer rebates, and moderation of new vehicle pricing. In addition, the pace of our used vehicle inventory turnover was adversely impacted by the CDK outage, resulting in less than optimal levels and mix of used vehicle inventory at the start of the third quarter of 2024 and an adverse impact on used vehicle unit volume during the third quarter of 2024.

Same store used vehicle revenue PVR and gross profit PVR decreased during the three months ended September 30, 2024, as compared to the same period in 2023, primarily due to a shift in mix towards lower-priced entry-level vehicles, which have lower average selling prices and gross profit PVR. In addition, gross profit PVR was adversely impacted by less than optimal levels and mix of used vehicle inventory at the start of the third quarter as a result of the CDK outage.

First Nine Months 2024 compared to First Nine Months 2023

Same store retail used vehicle revenue decreased during the nine months ended September 30, 2024, as compared to the same period in 2023, due to a decrease in same store unit volume and a decrease in same store revenue PVR. The decrease in same store unit volume, particularly for mid- to higher-priced used vehicles, is due in part to the shift in mix from used vehicles to new vehicles. In addition, same store unit volume was adversely impacted by the CDK outage, which resulted in a decrease in productivity from the disruption to our vehicle sales, inventory, and customer relationship management functions in the latter half of June 2024 and less than optimal levels and mix of used vehicle inventory at the start of the third quarter of 2024.

Same store used vehicle revenue PVR and gross profit PVR decreased during the nine months ended September 30, 2024, as compared to the same period in 2023, primarily due to a shift in mix towards lower-priced entry-level vehicles, which have lower average selling prices and gross profit PVR.

Parts and Service

($ in millions)

Parts and service revenue is primarily derived from vehicle repairs paid directly by customers or via reimbursement from manufacturers and others under warranty programs, as well as from wholesale parts sales, the preparation of vehicles for sale, and collision services.

The following discussion of parts and service results is on a same store basis. The difference between reported amounts and same store amounts in the above tables of $19.4 million and $35.2 million in parts and service revenue and $7.6 million and $12.7 million in parts and service gross profit for the three months ended September 30, 2024 and 2023, respectively, and $107.5 million and $105.8 million in parts and service revenue and $43.3 million and $37.4 million in parts and service gross profit for the nine months ended September 30, 2024 and 2023, respectively, is related to acquisition and divestiture activity, as well as the opening of AutoNation USA stores.

Third Quarter 2024 compared to Third Quarter 2023

During the three months ended September 30, 2024, same store parts and service revenue increased compared to the same period in 2023, primarily due to increases in revenue associated with warranty service of $30.0 million and customer-pay service of $10.3 million, partially offset by smaller decreases in revenue associated with internal service, collision, and wholesale parts sales.

During the three months ended September 30, 2024, same store parts and service gross profit increased compared to the same period in 2023, primarily due to increases in gross profit associated with warranty service of $20.7 million and customer-pay service of $1.7 million, partially offset by smaller decreases in gross profit associated with internal service, collision, and wholesale parts sales.

Warranty service revenue and gross profit benefited from improved parts and labor rates, an increase in repair order volume, and higher value repair orders. Customer-pay service revenue and gross profit benefited from higher value repair orders. Repair order volume was adversely impacted by the CDK outage as certain ancillary systems and integrations were not fully restored until the end of July 2024.

First Nine Months 2024 compared to First Nine Months 2023

During the nine months ended September 30, 2024, same store parts and service revenue increased compared to the same period in 2023, primarily due to increases in revenue associated with warranty service of $60.0 million, customer-pay service of $23.0 million, and the preparation of vehicles for sale of $16.6 million, partially offset by a decrease in revenue associated with wholesale parts sales of $21.9 million.

During the nine months ended September 30, 2024, same store parts and service gross profit increased compared to the same period in 2023, primarily due to increases in gross profit associated with warranty service of $43.5 million and the preparation of vehicles for sale of $11.3 million, partially offset by a decrease in wholesale parts sales of $6.9 million.

Parts and service revenue and gross profit associated with warranty service and the preparation of vehicles for sale benefited from higher value repair orders and improved margin. Customer-pay revenue increased due to higher value repair orders. The increases in parts and service revenue and gross profit were partially offset by the CDK outage, which disrupted our sales and service processes, resulting in a decrease in repair order volume and parts sales.

Finance and Insurance

($ in millions, except per vehicle data)

Revenue on finance and insurance products represents commissions earned by us primarily for the placement of: (i) loans and leases with financial institutions in connection with customer vehicle purchases financed, (ii) vehicle service contracts with third-party providers, and (iii) other vehicle protection products with third-party providers. We sell these products on a commission basis, and we also participate in the future underwriting profit on certain products pursuant to retrospective commission arrangements with the issuers of those products.

As we continue to grow our AutoNation Finance business and increase our finance penetration rates associated with vehicles sold through our stores, we expect that income related to arranging customer financing will shift to AutoNation Finance and that the resulting decrease in finance and insurance gross profit will be offset by greater profitability generated by our AutoNation Finance business. Interest income on financing provided through AutoNation Finance is recognized over the contractual term of the related loans. See “Corporate and Other” for additional information related to AutoNation Finance.

The following discussion of finance and insurance results is on a same store basis. The difference between reported amounts and same store amounts in finance and insurance revenue and gross profit in the above tables of $6.7 million and $4.7 million for the three months ended September 30, 2024 and 2023, respectively, and $29.7 million and $16.3 million for the nine months ended September 30, 2024 and 2023, respectively, is related to acquisition and divestiture activity, as well as the opening of AutoNation USA stores.

Third Quarter 2024 compared to Third Quarter 2023

Same store finance and insurance revenue and gross profit decreased during the three months ended September 30, 2024, as compared to the same period in 2023, due to decreases in finance and insurance gross profit PVR and used vehicle unit volume. Finance and insurance gross profit PVR was adversely impacted by an increase in retail vehicle sales financed through our captive auto finance company and a decrease in product penetration. Product penetration was adversely impacted by the CDK outage as certain ancillary systems and integrations related to the finance and insurance sales process were not fully restored until mid-July 2024.

First Nine Months 2024 compared to First Nine Months 2023

Same store finance and insurance revenue and gross profit decreased during the nine months ended September 30, 2024, as compared to the same period in 2023, due to a decrease in finance and insurance gross profit PVR and a decrease in used vehicle unit volume, partially offset by an increase in new vehicle unit volume. Finance and insurance gross profit PVR was adversely impacted by an increase in retail vehicle sales financed through our captive auto finance company, a decrease in product penetration, and a decrease in gross profit associated with arranging customer financing. In addition, finance and insurance gross profit was adversely impacted by the CDK outage, which disrupted our finance and insurance sales process including our ability to offer certain products.

Segment Results

In the following table of financial data, revenue and segment income of our reportable segments are reconciled to consolidated revenue and consolidated operating income, respectively. The following discussions of segment results are on a reported basis.

($ in millions)

41

Domestic

The Domestic segment operating results included the following:

($ in millions)

Third Quarter 2024 compared to Third Quarter 2023

Domestic revenue decreased during the three months ended September 30, 2024, as compared to the same period in 2023, primarily due to decreases in new and used vehicle revenue. New vehicle revenue decreased largely due to the continued moderation of pricing resulting from the increasing supply of new vehicle inventory. Used vehicle revenue was adversely impacted by a decrease in unit volume due to the shift in mix from used vehicles to new vehicles, and a decrease in revenue PVR due to the shift in mix towards lower-priced entry-level used vehicles, which have lower average selling prices. Domestic revenue was also adversely impacted by the divestitures we completed in the third quarter of 2024, as well as the residual effects of the CDK outage.

Domestic segment income decreased during the three months ended September 30, 2024, as compared to the same period in 2023, primarily due to decreases in new vehicle gross profit, finance and insurance gross profit, and used vehicle gross profit, as well as an increase in floorplan interest expense. New vehicle gross profit was adversely impacted by a decrease in new vehicle gross profit PVR due to continued moderation of margins resulting from the increasing supply of new vehicle inventory. Finance and insurance gross profit was adversely impacted by the decrease in used vehicle unit volume and a decrease in finance and insurance gross profit PVR, which was adversely impacted by an increase in retail vehicle sales financed through our captive auto finance company and a decrease in product penetration. Used vehicle gross profit decreased primarily due to a decrease in same store unit volume, particularly for mid- to higher-priced used vehicles, due in part to the shift in mix from used vehicles to new vehicles. The decreases in Domestic segment income were partially offset by a decrease in SG&A expenses, which benefited from the divestitures we completed in the third quarter of 2024.

First Nine Months 2024 compared to First Nine Months 2023

Domestic revenue decreased during the nine months ended September 30, 2024, as compared to the same period in 2023, primarily due to decreases in new and used vehicle revenue. New vehicle revenue decreased largely due to the continued moderation of pricing resulting from the increasing supply of new vehicle inventory. Used vehicle revenue was adversely impacted by a decrease in unit volume due to a shift in mix from used vehicles to new vehicles, and a decrease in revenue PVR due to a shift in mix towards lower-priced entry-level vehicles, which have lower average selling prices. Domestic revenue was also adversely impacted by the CDK outage, which disrupted our vehicle sales, inventory, and customer relationship management functions in the latter half of June 2024, and the residual effects of the CDK outage in the third quarter of 2024.

Domestic segment income decreased during the nine months ended September 30, 2024, as compared to the same period in 2023, primarily due to decreases in new vehicle gross profit, finance and insurance gross profit, and used vehicle gross profit. New vehicle gross profit was adversely impacted by continued moderation of margins resulting from the increasing supply of new vehicle inventory. Finance and insurance gross profit was adversely impacted by an increase in retail vehicle sales financed through our captive auto finance company and a decrease in product penetration. Used vehicle gross profit was adversely impacted by a shift in mix towards lower-priced entry-level vehicles, which have a lower average gross profit PVR, and a decrease in used vehicle unit volume due in part to the shift in mix from used vehicles to new vehicles. Domestic segment income was also adversely impacted by decreases in gross profit resulting from the CDK outage.

Import

The Import segment operating results included the following:

($ in millions)

Third Quarter 2024 compared to Third Quarter 2023

Import revenue decreased during the three months ended September 30, 2024, as compared to the same period in 2023, primarily due to a decrease in used vehicle unit volume, largely due to the shift in mix from used vehicles to new vehicles, and a decrease in used vehicle revenue PVR due to the shift in mix towards lower-priced entry-level used vehicles, which have lower average selling prices. These decreases were partially offset by an increase in new vehicle unit volume due to the increasing supply of new vehicle inventory and sustained consumer demand, partially offset by manufacturer stop sale orders on certain vehicle models. Import revenue was also adversely impacted by the residual effects of the CDK outage.

Import segment income decreased during the three months ended September 30, 2024, as compared to the same period in 2023, primarily due to decreases in new vehicle gross profit and finance and insurance gross profit. New vehicle gross profit was adversely impacted by continued moderation of margins resulting from the increasing supply of new vehicle inventory. The decrease in finance and insurance gross profit was primarily due to the decrease in used vehicle unit volume and a decrease in finance and insurance gross profit PVR, which was adversely impacted by an increase in retail vehicle sales financed through our captive auto finance company and a decrease in product penetration.

First Nine Months 2024 compared to First Nine Months 2023

Import revenue increased during the nine months ended September 30, 2024, as compared to the same period in 2023, primarily due to an increase in new vehicle revenue, partially offset by a decrease in used vehicle revenue. New vehicle revenue benefited from an increase in new vehicle unit volume due to the increasing supply of new vehicle inventory and sustained consumer demand. Used vehicle revenue was adversely impacted by a decrease in used vehicle unit volume due to the shift in mix from used vehicles to new vehicles, and a decrease in used vehicle revenue PVR due to the shift in mix towards lower-priced entry-level used vehicles, which have lower average selling prices. Import revenue was also adversely impacted by the CDK outage, which disrupted our vehicle sales, inventory, and customer relationship management functions in the latter half of June 2024, and the residual effects of the CDK outage in the third quarter of 2024.

Import segment income decreased during the nine months ended September 30, 2024, as compared to the same period in 2023, primarily due to a decrease in new vehicle gross profit PVR due to continued moderation of margins resulting from the increasing supply of new vehicle inventory, and a decrease in finance and insurance gross profit PVR primarily due to an increase in retail vehicle sales financed through our captive auto finance company and a decrease in product penetration. In addition, Import segment income was adversely impacted by an increase in SG&A expenses, largely due to the acquisitions we completed in 2023 and the one-time compensation paid to commission-based associates during the CDK outage, as well as decreases in gross profit resulting from the CDK outage. The decreases in Import segment were partially offset by increases in parts and service revenue associated with the preparation of vehicles for sale and warranty service.

Premium Luxury

The Premium Luxury segment operating results included the following:

($ in millions)

Third Quarter 2024 compared to Third Quarter 2023

Premium Luxury revenue decreased during the three months ended September 30, 2024, as compared to the same period in 2023, primarily due to a decrease in used vehicle unit volume due to the shift in mix from used vehicles to new vehicles, and a decrease in used vehicle revenue PVR due to the shift in mix towards lower-priced entry-level used vehicles, which have lower average selling prices. The decreases in Premium Luxury revenue were offset by an increase in parts and service revenue associated with warranty and customer-pay service. Premium Luxury revenue was also adversely impacted by the residual effects of the CDK outage.

Premium Luxury segment income decreased during the three months ended September 30, 2024, as compared to the same period in 2023, primarily due to a decrease in new vehicle gross profit due to continued moderation of margins resulting from the increasing supply of new vehicle inventory, and an increase in floorplan interest expense due to higher average vehicle floorplan balances.

First Nine Months 2024 compared to First Nine Months 2023

Premium Luxury revenue decreased slightly during the nine months ended September 30, 2024, as compared to the same period in 2023, primarily due to decreases in new and used vehicle revenue. New vehicle revenue was adversely impacted by the continued moderation of pricing resulting from the increasing supply and availability of new vehicle inventory. Used vehicle revenue was adversely impacted by a decrease in unit volume due to the shift in mix from used vehicles to new vehicles, and a decrease in revenue PVR due to the shift in mix towards lower-priced entry-level used vehicles, which have lower average selling prices. Premium Luxury revenue was also adversely impacted by the CDK outage, which disrupted our vehicle sales, inventory, and customer relationship management functions in the latter half of June 2024, and the residual effects of the CDK outage in the third quarter of 2024.

Premium Luxury segment income decreased during the nine months ended September 30, 2024, as compared to the same period in 2023, primarily due to decreases in new vehicle gross profit and used vehicle gross profit. New vehicle gross profit was adversely impacted by a decrease in new vehicle gross profit PVR due to continued moderation of margins resulting from the increasing supply of new vehicle inventory. Used vehicle gross profit was adversely impacted by a shift in mix towards lower-priced entry-level vehicles, which have a lower average gross profit PVR. Premium Luxury segment income was also adversely impacted by decreases in gross profit resulting from the CDK outage.

Corporate and other

Corporate and other results included the following:

($ in millions)

“Corporate and other” is comprised of our non-franchised businesses, all of which do not meet the quantitative thresholds for reportable segments, as well as unallocated corporate overhead expenses and other income items. As of September 30, 2024, our non-franchised businesses included 52 AutoNation-branded collision centers, 23 AutoNation USA used vehicle stores, 4 AutoNation-branded automotive auction operations, 3 parts distribution centers, a mobile automotive repair and maintenance business, referred to as AutoNation Mobile Service, and an auto finance company, referred to as AutoNation Finance.

Revenue from “Corporate and other” increased for the three and nine months ended September 30, 2024, as compared to the same period in 2023, primarily due to newly opened AutoNation USA stores, partially offset by a decrease in revenue from collision centers.

The loss from “Corporate and other” decreased for the three months ended September 30, 2024, as compared to the same period in 2023, primarily due to an increase in net gains on business/property dispositions, net of asset impairments, partially offset by an increase in deferred compensation obligations as a result of changes in market performance of the underlying investments. The loss from “Corporate and other” decreased for the nine months ended September 30, 2024, as compared to the same period in 2023, primarily due to an increase in net gains on business/property dispositions, net of asset impairments, and a decrease in self-insured losses related to hailstorms and other natural catastrophes, partially offset by an increase in deferred compensation obligations as a result of changes in market performance of the underlying investments.

AutoNation Finance

AutoNation Finance, our captive auto finance company, provides indirect financing to qualified retail customers on vehicles we sell. This business provides us an opportunity to extend our relationship with the customer beyond the vehicle sale and participate in the customer’s entire vehicle ownership cycle. As a result, we are able to diversify our sources of income and create a low-volatility earnings stream, generate additional profits, cash flows, and sales, and increase customer retention. AutoNation Finance operating results include the interest and fee income generated by auto loans receivable less the interest expense associated with the debt issued to fund these receivables, a provision for estimated credit losses on the auto loans receivable originated or acquired, direct expenses, and gains or losses on the sale of loans receivable. Interest income on auto loans receivable is recognized over the contractual term of the related loans.

In September 2023, we discontinued acquiring installment contracts from third-party independent dealers. We plan to continue to increase finance penetration rates for retail vehicle sales through our stores, which we expect will favorably impact the operating results of our auto finance business over time. AutoNation Finance results are included in Other (Income) Expense, Net in our Unaudited Condensed Consolidated Statements of Income. See Notes 5 and 8 of the Notes to Unaudited Condensed Consolidated Financial Statements for more information on auto loans receivable, the related allowance for credit losses, and the related debt of our auto finance company.

Selling, General, and Administrative Expenses

Our Selling, General, and Administrative (“SG&A”) expenses consist primarily of compensation, including store and corporate salaries, commissions, and incentive-based compensation, as well as advertising (net of reimbursement-based manufacturer advertising rebates), and store and corporate overhead expenses, which include occupancy costs, outside service costs, information technology expenses, transportation-related costs for parts and service customers, legal, accounting, and professional services, and general corporate expenses. The following table presents the major components of our SG&A expenses.

($ in millions)

Third Quarter 2024 compared to Third Quarter 2023

SG&A expenses decreased during the three months ended September 30, 2024, as compared to the same period in 2023, primarily due to a decrease in performance-driven compensation expense and divestitures. These decreases were partially offset by an increase in deferred compensation obligations of $11.9 million as a result of changes in market performance of the underlying investments and newly opened stores. As a percentage of total gross profit, SG&A expenses increased to 68.6% during the three months ended September 30, 2024, from 63.3% in the same period in 2023, due to the moderation of gross profit, as well as the decrease in gross profit resulting from residual effects of the CDK outage.

First Nine Months 2024 compared to First Nine Months 2023

SG&A expenses decreased slightly during the nine months ended September 30, 2024, as compared to the same period in 2023, primarily due to a decrease in performance-driven compensation expense partly resulting from the CDK outage, which disrupted our sales and service processes, a decrease in self-insured losses related to hailstorms and other natural catastrophes, and divested stores. The decreases in SG&A expenses were partially offset by certain one-time compensation of approximately $43 million paid to commission-based associates to ensure business continuity as a result of the CDK outage, acquisitions and newly opened stores, an increase in advertising expenses to support vehicle sales, an increase in transportation-related costs for parts and service customers, and an increase in deferred compensation obligations of $10.0 million as a result of changes in market performance of the underlying investments. As a percentage of total gross profit, SG&A expenses increased to 68.6% during the nine months ended September 30, 2024, from 62.4% in the same period in 2023, primarily due to moderation of gross profit, as well as the decrease in gross profit resulting from the CDK outage and the one-time compensation paid to commission-based associates during this period.

Other (Income) Expense, Net (Operating)

Other (Income) Expense, Net includes gains associated with business/property divestitures, legal settlements, and asset impairments, among other items, and the results of our captive auto finance company, including net interest margin, the provision for expected credit losses, direct expenses, and gains or losses on the sale of loans receivable. See “Segment Results - Corporate and other” above and Notes 5 and 8 of the Notes to Unaudited Condensed Consolidated Financial Statements for more information about our auto finance company.

During the three months ended September 30, 2024, we recognized $55.3 million related to business/property divestitures, which were partially offset by asset impairments of $7.8 million.

Non-Operating Income (Expense)

Floorplan Interest Expense

Floorplan interest rates are variable and, therefore, increase and decrease with changes in the underlying benchmark interest rates.

Third Quarter 2024 compared to Third Quarter 2023

Floorplan interest expense was $60.5 million for the three months ended September 30, 2024, compared to $38.3 million for the same period in 2023. The increase in floorplan interest expense of $22.2 million was primarily the result of higher average vehicle floorplan balances.

First Nine Months 2024 compared to First Nine Months 2023

Floorplan interest expense was $163.8 million for the nine months ended September 30, 2024, compared to $98.2 million for the same period in 2023. The increase in floorplan interest expense of $65.6 million was the result of higher average vehicle floorplan balances and higher average interest rates.

Interest Expense

Other interest expense includes the interest related to non-vehicle long-term debt, commercial paper, and finance lease obligations.

Third Quarter 2024 compared to Third Quarter 2023

Other interest expense was $44.9 million for the three months ended September 30, 2024, compared to $48.8 million for the same period in 2023. The decrease in interest expense of $3.9 million was driven by lower average interest rates and lower average debt balances.

First Nine Months 2024 compared to First Nine Months 2023

Other interest expense was $136.3 million for the nine months ended September 30, 2024, compared to $135.9 million for the same period in 2023. The increase in interest expense of $0.4 million was driven by higher average debt balances, partially offset by lower interest rates.

Other Income (Loss), Net

We recognized a net gain of $8.4 million and a net loss of $4.2 million for the three months ended September 30, 2024 and 2023, respectively, and a net gain of $16.1 million and $4.9 million for the nine months ended September 30, 2024 and 2023, respectively, related to changes in the cash surrender value of corporate-owned life insurance (“COLI”) for deferred compensation plan participants as a result of changes in market performance of the underlying investments. Gains and losses related to the COLI are substantially offset by corresponding increases and decreases, respectively, in the deferred compensation obligations, which are reflected in SG&A expenses.

We recorded unrealized losses of $6.7 million and $1.0 million for the three months ended September 30, 2024 and 2023, respectively, and unrealized losses of $8.5 million and $2.3 million for the nine months ended September 30, 2024 and 2023, respectively, related to the change in fair value of the underlying securities of our minority equity investments. During the period that we hold our minority equity investments, unrealized gains and losses will be recorded as the fair market values of securities with readily determinable fair values change over time, or as observable price changes are identified for securities without readily determinable fair values. See Note 13 of the Notes to Unaudited Condensed Consolidated Financial Statements for more information.

Income Tax Provision

Income taxes are provided based upon our anticipated underlying annual blended federal and state income tax rates adjusted, as necessary, for any discrete tax matters occurring during the period. As we operate in various states, our effective tax rate is also dependent upon our geographic revenue mix.

Our effective income tax rate was 24.9% for the three months ended September 30, 2024, and 25.6% for the three months ended September 30, 2023. Our effective income tax rate was 25.0% for the nine months ended September 30, 2024, and 25.0% for the nine months ended September 30, 2023.

Discontinued Operations

Results from discontinued operations, net of income taxes, for the nine months ended September 30, 2023, were primarily related to a gain on the sale of real estate in the first quarter of 2023 associated with a store that was closed prior to January 1, 2014. Upon the sale of this real estate, we have no remaining discontinued operations.

Liquidity and Capital Resources

We manage our liquidity to ensure access to sufficient funding at acceptable costs to fund our ongoing operating requirements and future capital expenditures while continuing to meet our financial obligations. We believe that our cash and cash equivalents, funds generated through operations, and amounts available under our revolving credit facility, commercial paper program, secured used vehicle floorplan facilities, and non-recourse warehouse facilities will be sufficient to fund our working capital requirements, fund the origination of auto loans receivable, service our debt, pay our tax obligations and commitments and contingencies, and meet any seasonal operating requirements for the foreseeable future. Depending on market conditions, we may from time to time issue debt, including in private or public offerings, to augment our liquidity, to reduce our cost of capital, or for general corporate purposes.

Available Liquidity Resources

We had the following sources of liquidity available:

(In millions)

(1) At September 30, 2024, we had $0.8 million of letters of credit outstanding. In addition, we use the revolving credit facility under our credit agreement as a liquidity backstop for borrowings under our commercial paper program. We had $350.0 million of commercial paper notes outstanding at September 30, 2024. See Note 8 of the Notes to Unaudited Condensed Consolidated Financial Statements for more information.

(2) As limited by the maximum consolidated leverage ratio in our credit agreement.

(3) Based on the eligible used vehicle inventory that could have been pledged as collateral. See Note 6 of the Notes to Unaudited Condensed Consolidated Financial Statements for more information.

(4) Based on the eligible auto loans receivable that have been pledged as collateral. See Note 8 of the Notes to Unaudited Condensed Consolidated Financial Statements for more information.

In the ordinary course of business, we are required to post performance and surety bonds, letters of credit, and/or cash deposits as financial guarantees of our performance primarily relating to insurance matters. At September 30, 2024, surety bonds, letters of credit, and cash deposits totaled $122.2 million, of which $0.8 million were letters of credit. We do not currently provide cash collateral for outstanding letters of credit.

In February 2022, we filed an automatic shelf registration statement with the SEC that enables us to offer for sale, from time to time and as the capital markets permit, an unspecified amount of common stock, preferred stock, debt securities, warrants, subscription rights, depositary shares, stock purchase contracts, and units.

In addition, we own a significant portion of our new vehicle franchise store locations and other locations associated with our non-franchised businesses, as well as other properties. At September 30, 2024, these properties had a net book value of $2.8 billion. None of these properties are mortgaged or encumbered.

Capital Allocation

Our capital allocation strategy is focused on growing long-term value per share. We invest capital in our business to maintain and upgrade our existing facilities and to build new facilities for existing franchises and new AutoNation USA used vehicle stores, as well as for other strategic and technology initiatives. We also deploy capital opportunistically to complete acquisitions or investments, build facilities for newly awarded franchises, and/or repurchase our common stock and/or debt. Our capital allocation decisions are 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 market price of our debt, the potential impact on our capital structure, our ability to complete acquisitions that meet our market and vehicle brand criteria and/or return on investment threshold, and limitations set forth in our debt agreements.

Share Repurchases

Our Board of Directors from time to time authorizes the repurchase of shares of our common stock up to a certain monetary limit. A summary of shares repurchased under our stock repurchase program authorized by our Board of Directors follows:

(In millions, except share and per share data)

As of September 30, 2024, $965.1 million remained available under our stock repurchase limit authorized by our Board of Directors.

The decision to repurchase shares at any given point in time is based on factors such as the market price of our common stock versus our view of its intrinsic value, the potential impact on our capital structure (including compliance with our maximum leverage ratio and other financial covenants in our debt agreements as well as our available liquidity), and the expected return on competing uses of capital such as acquisitions or investments, capital investments in our current businesses, or repurchases of our debt.

Capital Expenditures

The following table sets forth information regarding our capital expenditures:

(In millions)

We continue to expand our AutoNation USA used vehicle stores. The expansion may be impacted by a number of variables, including customer adoption, market conditions, availability of used vehicle inventory, availability and cost of building supplies and materials, and our ability to identify, acquire, and build out suitable locations in a timely manner.

Acquisitions and Divestitures

We did not purchase any stores during the nine months ended September 30, 2024. During the nine months ended September 30, 2023, we acquired RepairSmith, a mobile solution for automotive repair and maintenance, which we renamed AutoNation Mobile Service, and we also purchased one Domestic store, five Import stores, and one Premium Luxury store.

During the three and nine months ended September 30, 2024, we divested seven Domestic stores and one Import store. We did not divest any stores during the nine months ended September 30, 2023.

(In millions)

We regularly review our store portfolio and may acquire or divest stores to optimize our operations and footprint. We typically utilize proceeds related to asset sales, including business and real estate divestitures, to fund our capital investments and strategic initiatives or for other general corporate purposes.

Debt

The following table sets forth our non-vehicle long-term debt, as of September 30, 2024, and December 31, 2023.

Our 3.5% Senior Notes due 2024 will mature on November 15, 2024, and were, therefore, reclassified to current during the fourth quarter of 2023.

We had commercial paper notes outstanding of $350.0 million at September 30, 2024, and $440.0 million at December 31, 2023.

We had non-recourse debt under our warehouse facilities of $616.5 million at September 30, 2024, and $209.4 million at December 31, 2023, and non-recourse debt under term securitizations of consolidated variable interest entities (“VIEs”) of $29.9 million at September 30, 2024, and $50.5 million at December 31, 2023.

A downgrade in our credit ratings could negatively impact the interest rate payable on our 3.5% Senior Notes, 4.5% Senior Notes, 3.8% Senior Notes, and 4.75% Senior Notes and could negatively impact our ability to issue, or the interest rates for, commercial paper notes. Additionally, an increase in our leverage ratio could negatively impact the interest rates charged for borrowings under our revolving credit facility.

See Note 8 of the Notes to Unaudited Condensed Consolidated Financial Statements for more information on our non-vehicle long-term debt, commercial paper, and non-recourse debt.

Restrictions and Covenants

Our amended and restated credit agreement and the indentures for our senior unsecured notes contain customary covenants that place restrictions on us, including our ability to incur additional or guarantee other indebtedness, to create liens or other encumbrances, to engage in sale and leaseback transactions, to sell (or otherwise dispose of) assets, and to merge or consolidate with other entities. Our failure to comply with the covenants contained in our amended and restated credit agreement and the indentures for our senior unsecured notes could result in the acceleration of other indebtedness of AutoNation.

Under our amended and restated credit agreement, we are required to remain in compliance with a maximum leverage ratio and a minimum interest coverage ratio. The leverage ratio is a contractually defined amount principally reflecting non-vehicle debt divided by a measure of earnings. The interest coverage ratio is a contractually defined amount reflecting a measure of earnings divided by certain interest expense principally associated with vehicle floorplan payable and non-vehicle debt. The specific terms of the leverage and interest coverage ratios can be found in our amended and restated credit agreement, which is filed with our Quarterly Report on Form 10-Q for the quarter ended June 30, 2023.

As of September 30, 2024, we were in compliance with the covenants under our credit agreement and the indentures for our senior unsecured notes. At September 30, 2024, our leverage and interest coverage ratios were as follows:

Vehicle Floorplan Payable

The components of vehicle floorplan payable are as follows:

(In millions)

Vehicle floorplan facilities are due on demand, but in the case of new vehicle inventories, are generally paid within several business days after the related vehicles are sold. Vehicle floorplan facilities are primarily collateralized by vehicle inventories and related receivables. See Note 6 of the Notes to Unaudited Condensed Consolidated Financial Statements for more information on our vehicle floorplan payable.

Cash Flows

The following table summarizes the changes in our cash provided by (used in) operating, investing, and financing activities:

(In millions)

Cash Flows from Operating Activities

Our primary sources of operating cash flows result from the sale of vehicles, finance and insurance products, and parts and automotive repair and maintenance services, proceeds from vehicle floorplan payable-trade, and collections on auto loans receivable for vehicles sold through our stores. Our primary uses of cash from operating activities are payments of vehicle floorplan payable-trade, purchases of inventory, personnel-related expenditures, originations of loans receivable for vehicles sold through our stores, and payments related to taxes and leased properties.

Net cash provided by operating activities decreased during the nine months ended September 30, 2024, as compared to the same period in 2023, primarily due to an increase in originations of loans receivable for vehicles sold through our stores and a decrease in earnings, partially offset by a decrease in working capital requirements.

Cash Flows from Investing Activities

Net cash flows from investing activities consist primarily of cash used in capital additions and activity from business acquisitions, business divestitures, property dispositions, originations of and collections on auto loans receivable acquired through third-party dealers, and other transactions. In September 2023, we discontinued acquiring installment contracts from third-party dealers.

We will make facility and infrastructure upgrades and improvements from time to time as we identify projects that are required to maintain our current business or that we expect to provide us with acceptable rates of return.

Net cash used in investing activities decreased during the nine months ended September 30, 2024, as compared to the same period in 2023, primarily due to an increase in cash received from divestitures, a decrease in cash used for acquisitions, and a decrease in originations of loans receivable acquired through third-party dealers, partially offset by a decrease in proceeds from the sale of auto loans receivable and a decrease in collections on auto loans receivable acquired through third-party dealers.

Cash Flows from Financing Activities

Net cash flows from financing activities primarily include repurchases of common stock, debt activity, and changes in vehicle floorplan payable-non-trade.

During the nine months ended September 30, 2024, we borrowed $1.0 billion and repaid $635.0 million under our non-recourse debt facilities. During the nine months ended September 30, 2023, we borrowed $151.6 million and repaid $232.1 million under our non-recourse debt facilities.

Cash flows from financing activities include changes in commercial paper notes outstanding totaling net payments of $90.0 million and net proceeds of $300.0 million during the nine months ended September 30, 2024 and 2023, respectively.

During the nine months ended September 30, 2024, we repurchased 2.2 million shares of common stock for an aggregate purchase price of $355.6 million (average purchase price per share of $159.34), excluding the excise tax imposed under the Inflation Reduction Act. During the nine months ended September 30, 2023, we repurchased 5.3 million shares of common stock for an aggregate purchase price of $712.4 million (average purchase price per share of $135.38), excluding the excise tax imposed under the Inflation Reduction Act.

Cash flows from financing activities include changes in vehicle floorplan payable-non-trade totaling net payments of $24.0 million and net proceeds of $260.4 million during the nine months ended September 30, 2024 and 2023, respectively.

Forward-Looking Statements

Our business, financial condition, results of operations, cash flows, and prospects, and the prevailing market price and performance of our common stock may be adversely affected by a number of factors, including the matters discussed below. Certain statements and information set forth in this Quarterly Report on Form 10-Q, including, without limitation, statements regarding our strategic initiatives, partnerships, or investments, including AutoNation Finance, , statements regarding our expectations for the future performance of our business and the automotive retail industry, including during the remainder of 2024, statements regarding the impact of the CDK outage on our business and the availability of insurance or other sources of recovery, as well as other written or oral statements made from time to time by us or by our authorized executive officers on our behalf that describe our objectives, goals, or plans, constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical fact, including statements that describe our objectives, plans or goals are, or may be deemed to be, forward-looking statements. Words such as “anticipate,” “expect,” “estimate,” “intend,” “goal,” “target,” “project,” “plan,” “believe,” “continue,” “may,” “will,” “could,” and variations of such words and similar expressions are intended to identify such forward-looking statements. Our forward-looking statements reflect our current expectations concerning future results and events, and they involve known and unknown risks, uncertainties and other factors that are difficult to predict and may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by these statements. These forward-looking statements speak only as of the date of this report, and we undertake no obligation to revise or update these statements to reflect subsequent events or circumstances. The risks, uncertainties, and other factors that our stockholders and prospective investors should consider include, but are not limited to, the following:

• The automotive retail industry is sensitive to changing economic conditions and various other factors, including, but not limited to, unemployment levels, consumer confidence, fuel prices, interest rates, and tariffs. Our business and results of operations are substantially dependent on new and used vehicle sales levels in the United States and in our particular geographic markets, as well as the gross profit margins that we can achieve on our sales of vehicles, all of which are very difficult to predict.
• Our new vehicle sales are impacted by the incentive, marketing, and other programs of vehicle manufacturers.
• We are dependent upon the success and continued financial viability of the vehicle manufacturers and distributors with which we hold franchises. In addition, we rely on various third-party suppliers for key products and services.
• We are subject to restrictions imposed by, and significant influence from, vehicle manufacturers that may adversely impact our business, financial condition, results of operations, cash flows, and prospects, including our ability to acquire additional stores.
• We are investing significantly in various strategic initiatives, including the planned expansion of our AutoNation USA stores, our AutoNation Finance business, and our AutoNation Mobile Service business, and if they are not successful, we will have incurred significant expenses without the benefit of improved financial results.
• If we are not able to maintain and enhance our retail brands and reputation or to attract consumers to our own digital channels, or if events occur that damage our retail brands, reputation, or sales channels, our business and financial results may be harmed.
• We are subject to various risks associated with originating and servicing auto finance loans through indirect lending to customers, any of which could have an adverse effect on our business.
• New laws, regulations, or governmental policies in response to climate change, including fuel economy and greenhouse gas emission standards, or changes to existing standards, could adversely impact our business, results of operations, financial condition, cash flow, and prospects.
• We are subject to numerous legal and administrative proceedings, which, if the outcomes are adverse to us, could materially adversely affect our business, results of operations, financial condition, cash flows, and prospects.
• Our operations are subject to extensive governmental laws and regulations. If we are found to be in purported violation of or subject to liabilities under any of these laws or regulations, or if new laws or regulations are enacted that adversely affect our operations, our business, operating results, and prospects could suffer.
• We depend on information technology for our business and are subject to risks related to cybersecurity threats and incidents, including those affecting our third-party suppliers and other service providers. A failure of our information systems or any cybersecurity breaches or unauthorized disclosure of confidential information could have a material adverse effect on our business, disrupt our business, and adversely impact our reputation and results of operations.
• Our debt agreements contain certain financial ratios and other restrictions on our ability to conduct our business, and our substantial indebtedness could adversely affect our financial condition and operations and prevent us from fulfilling our debt service obligations.
• We are subject to interest rate risk in connection with our vehicle floorplan payables, revolving credit facility, commercial paper program, and warehouse facilities that could have a material adverse effect on our profitability.
• Goodwill and other intangible assets comprise a significant portion of our total assets. We must test our goodwill and other intangible assets for impairment at least annually, which could result in a material, non-cash write-down of goodwill or franchise rights and could have a material adverse impact on our results of operations and shareholders’ equity.
• Our minority equity investments with readily determinable fair values are required to be measured at fair value each reporting period, which could adversely impact our results of operations and financial condition. The carrying value of our minority equity investment that does not have a readily determinable fair value is required to be adjusted for observable price changes or impairments, both of which could adversely impact our results of operations and financial condition.
• Our largest stockholders, as a result of their ownership stakes in us, may have the ability to exert substantial influence over actions to be taken or approved by our stockholders. In addition, future share repurchases and fluctuations in the levels of ownership of our largest stockholders could impact the volume of trading, liquidity, and market price of our common stock.
• Natural disasters and adverse weather events, including the effects of climate change, can disrupt our business.

Please refer to our most recent Annual Report on Form 10-K for additional discussion of the foregoing risks. These forward-looking statements speak only as of the date of this report, and we undertake no obligation to update any forward-looking statements to reflect subsequent events or circumstances.

Additional Information

Investors and others should note that we announce material financial information using our company website (www.autonation.com (http://www.autonation.com)), our investor relations website (investors.autonation.com), SEC filings, press releases, public conference calls, and webcasts. Information about AutoNation, its business, and its results of operations may also be announced by posts on AutoNation’s X feed (www.x.com/autonation (http://www.x.com/autonation)).

The information that we post on our websites and social media channels could be deemed to be material information. As a result, we encourage investors, the media, and others interested in AutoNation to review the information that we post on those websites and social media channels. Our social media channels may be updated from time to time on our investor relations website. The information on or accessible through our websites and social media channels is not incorporated by reference in this Quarterly Report on Form 10-Q.

Interest Rate Risk

We have market risk exposure on various instruments that are based on variable interest rates. Interest rate derivatives may be used to hedge a portion of our variable rate debt, when appropriate, based on market conditions.

We had $3.8 billion of variable rate vehicle floorplan payable at September 30, 2024, and $3.4 billion at December 31, 2023. Based on these amounts, a 100 basis point change in interest rates would result in an approximate change to our annual floorplan interest expense of $38.1 million at September 30, 2024, and $33.8 million at December 31, 2023. Our exposure to changes in interest rates with respect to total vehicle floorplan payable is partially mitigated by manufacturers’ floorplan assistance, which in some cases is based on variable interest rates.

We had $350.0 million of commercial paper notes outstanding at September 30, 2024, and $440.0 million at December 31, 2023. Based on the amount outstanding, a 100 basis point change in interest rates would result in an approximate change to our annual interest expense of $3.5 million at September 30, 2024, and $4.4 million at December 31, 2023.

Our fixed rate senior unsecured notes totaled $3.2 billion and had a fair value of $3.1 billion as of September 30, 2024, and totaled $3.2 billion and had a fair value of $3.0 billion as of December 31, 2023.

As of September 30, 2024, all auto loans receivable outstanding were fixed-rate installment contracts. Financing for these receivables was achieved primarily through both variable- and fixed-rate non-recourse debt. Non-recourse debt includes warehouse facilities and asset-backed term securitizations. Borrowings under the warehouse facilities are variable-rate debt and are secured by the related auto loans receivable. Certain auto loans receivable were funded through term securitizations, which issued notes payable that accrue interest at fixed rates, and are also secured by the related auto loans receivable.

Equity Price Risk

We are subject to equity price risk with respect to minority equity investments. Certain of our equity investments have readily determinable fair values. During the period that we hold these equity investments, unrealized gains and losses will be recorded as the fair market value of the securities change over time. The fair value of these equity investments was $18.5 million at September 30, 2024, and $22.8 million at December 31, 2023. A hypothetical 10% change in the equity prices of these securities with readily determinable fair values would result in an approximate change to gain or loss of $1.9 million at September 30, 2024, and $2.3 million at December 31, 2023. We also have minority equity investments without a readily determinable fair value. These equity investments are measured using a measurement alternative as permitted by accounting standards and were initially recorded at cost, to be subsequently adjusted for observable price changes. During the period that we hold these investments, unrealized gains and losses may be recorded if we identify observable price changes in orderly transactions for the identical or a similar investment of the same issuer. The carrying amount of our equity investments without a readily determinable fair value was $49.8 million at September 30, 2024, and $56.7 million at December 31, 2023. A hypothetical 10% observable price change for these equity investments would result in an approximate change to gain or loss of $5.0 million at September 30, 2024, and $5.7 million at December 31, 2023. The selected 10% hypothetical change in equity prices is not intended to reflect a best or worst case scenario, as equity price changes could be smaller or larger due to the nature of equity markets.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report on Form 10-Q.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 or 15d-15 under the Exchange Act that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

In addition to the information set forth in this Form 10-Q, you should carefully consider the risk factors discussed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2023 and in Part II, Item 1A of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2024, which could materially affect our business, financial condition, or future results.