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Asbury Automotive operates within the highly attractive industry of automotive retailing. The characteristics of automotive retailing are very compelling and, within the industry itself, Asbury is an established company that is well positioned for growth. The Company was strategically built on the premise of starting with the best ingredients – the right brands, markets and dealers. It’s a solid foundation – building on that foundation with a sound strategy and operating model will determine our success in the future. Attractive Industry Dynamics Automotive retailing is a huge industry, with total annual revenues of approximately $1 trillion in the United States. Yet it remains much more fragmented than other major retail categories, as the combined market share of the top 10 companies is still well under 10 percent. Automotive retailing offers relatively steady profit streams throughout various economic cycles. Over the last 25 years, the industry’s profits have proven far more resilient and consistent than earnings of U.S. automobile manufacturers. Asbury itself has achieved steady growth in revenues and gross profit over the last five years. 
This consistency is driven primarily by the multiple income streams the dealerships provide, including both new and used car sales, high-margin parts and service operations, and commissions on the sale of third-party finance and insurance products. In 2003, Asbury’s vehicle sales accounted for 86 percent of revenues but only 43 percent of gross profit. In addition, Asbury has a largely incentive-based, variable cost structure that can be adjusted in response to fluctuations in vehicle sales.
Premier Brands in Growing Markets
During 2005, approximately 75 percent of Asbury’s new vehicle unit sales were from luxury and mid-line import automobiles versus 41 percent for the industry as a whole. These brands, which have been gaining market share for the last 20 years, are generally more profitable than mid-line domestic and value brands, generate greater customer loyalty and repeat purchases, and will benefit from a relatively full new product pipeline over the next few years. For Asbury, this should translate to faster growth, higher margins and less vulnerability to economic downturns.
Proven Business Model, Prudent Acquisition Strategy
Asbury plans to continue growing through a balanced mix of organic growth and acquisitions. With its product mix weighted towards luxury and mid-line import brands, Asbury is positioned to generate solid organic revenue growth in the years ahead. The Company also has opportunities to improve same-store profitability through its focus on higher-margin parts and service operations, as well as finance and insurance offerings.
Asbury’s most important acquisition criteria are brand mix and geographic location, with a focus on mainly “tuck-in” opportunities as well as a few selected new markets featuring strong demographics. By leveraging the strength of our existing regions’ infrastructure and local reputation, we have been able to notably improve performance at these acquired locations. | 