Dealerships Are Far Too Valuable To Be Sold Any Other Way

May 11, 2015Washington, DC

• Buy/Sell Activity • Market Drivers• Valuation Trends • Questions

Overview of Session

Buy Sell Activity Today Lots of Participants Entering the Maze

Source: The Banks Report

Number of Transactions2013 versus 2014

2013 2014

114 Transactions

206 Transac-tions

81%

Increase

Acquisition Activity Grew 81% since 2013Buy/Sell Activity Increasing Monthly

2013 2014

21

33

9

10

Public Private

30Transactions

43Transactions

21% of the closed transactions

Number of Multi-Dealership Transactions Grew 43% Since 2013Big Deals Are Getting Even Bigger

Source: The Banks Report

Number of Multi-Dealership Transactions 2013 versus 2014

Public Company Spending More Than Doubled Through Oct. 1st 2014 Lithia Acquisition of DCH Represented 42% of Acquisition Spending in US

Source: SEC Filings

Public Dealership Group Acquisition Spending in USSince 2002

Public21%

Private79%

Private Buyers are Much More Active Today Private Buyers Are Increasingly Capable of Completing Large Transactions

Source: The Banks Report

2014 Public versus Private Dealership Buyer Activity (% of Franchises Acquired)

2006 2007 2008 2009 2010 2011 2012 2013

2022

1311

14

21

28

36

Over 3 Times More

Number of Private Groups with Greater than $1 Billion in Sales More than Tripled since 2009

Source: Automotive News

Number of Private Dealership Groups with Greater than $1B in Revenue

Auto RetailAn Incredible Rebound

Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-145M

7M

9M

11M

13M

15M

17M

0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5%

SAAR Average 10 Year Treasury Yield

Seas

onal

ly A

djus

ted

Annu

al S

ellin

g Ra

te10 Year U

S Treasury Yield M

onthly Average Yield

Auto Retail Sales are Highly Sensitive to Interest Rates SAAR is Negatively Correlated with Interest Rates

Source: Automotive News and Yahoo Finance

SAAR Versus 10-Year Treasury Yield

20002001

20022003

20042005

20062007

20082009

20102011

20122013

$0$5,000,000

$10,000,000$15,000,000$20,000,000$25,000,000$30,000,000$35,000,000$40,000,000$45,000,000

8

10

12

14

16

18

20

Annual Unit Sales SAAR

Units in m

illion Fewer Dealerships = Sales per Dealership at Record Levels Industry Healthier than Ever

Source: NADA and Automotive News

Average Revenue per Dealership versus SAAR

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014$0

$200,000

$400,000

$600,000

$800,000

$1,000,000

$1,200,000 17.4 M 16.5 M

Average Dealership Earnings at Peak LevelsEarnings Far Above 2006 Levels, When Sales Were at 17 Million Level

Source: NADA and Kerrigan Advisors Analysis

Average Dealership Earnings

Low Yield Investment EnvironmentUnlevered Dealership Returns Look Very Attractive

Source: Bloomberg, Morningstar, and Kerrigan Advisors Analysis. Analysis assumes average multiples and no improvement in earnings or leverage – working capital and assets represent 1 times earnings.

$0

$10

$20

$30

$40

$50

$60

$70

AutoNation’s Stock Price Relative to Bond Yield

Autonation 6.75% bonds with 2018 Maturity. Fixed coupon paid semi-annually

6.0 %

4.5 %

3.0 %

1.5 %

0.0 %

Bond

Yie

ld

2010 2011 2012 2013 2014

Stock Price

Volume

Cost of Capital Single Biggest Driver of Current Valuations Auto Retail Risk Low and Consolidation Opportunity High

Buyers and Sellers Ready to Make a Deal

EXTERNAL FACTORS

Industry ConditionsOEM PerformanceFinancial Markets

Domestic Economy

INTERNAL FACTORS

Current ProfitsManagement

FacilitiesSales Effectiveness

Biggest Driver of Buy/Sell Market – External Factors Internal Factors Are Irrelevant, if External Factors Aren’t Strong

Source: NADA

Average Dealership Estimated ValueEstimated Blue Sky Value 2004 2014Average Pre-Tax Earnings Per NADA $0.6 M $1.1 MBlue Sky Multiple 3.50x 4.50x

Est. Blue Sky Value Plus Working Capital and Assets (1) $2.5 M $6.2 M

Estimated Property ValueEstimated Dealership Rent Expense $0.3 M $0.4 M

Est. Property Value (2) $3.7 M $5.7 M

Estimated Total Value $6.2 M $11.9 M

(1) Includes working capital and assets equal to 1.0x dealership earnings

(2) Assumes property valued at a 9% cap rate in 2004 and 7.5% cap rate

Value of Average Dealership Group

2004 2014

$18.6 M

$35.6 M

91% Increase

Assumes 3 dealerships per group

Values Have Risen ConsiderablyThe Average Deal is A Big Deal

2006 2014

$43.3 M

$117.2 M$80.3 M

$107.9 M

Blue Sky Value Property Value

Average Blue Sky and Property Values Automotive News No. 11- 125 Dealership Groups

$123.6 M

$225.1 M

Values Have Risen ConsiderablyThe Larger Groups’ Average Value Estimated at $225M

Source: Automotive News 2014 Top 125 Dealership Group List

Estimated Number of Acquisitions by the Public Dealership Groups Valued Above $50 Million

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

5

2

5 5

23

13

12

1

1

22

1

Estimated Transactions between $50M and $100M Est. Transactions Greater than $100M

36 in 11 years – average less than 4 per year

Publics’ Ability to Make Large Acquisitions LimitedOnly 36 since 2004

Source: SEC Public Filings and Kerrigan Advisors Analysis

Public Companies’ Capital AllocationYTD 3Q 2014

Public Alternative Investments

AutoNation AutoNation Direct Stock buybacks Branded F&I products

Penske Commercial truck dealerships International investments

Group 1 International investments

Sonic Used car platform One-Sonic-One platform Captive finance company

Asbury Used car platform

Publics Have Options for Their Capital and Limits on Acquisitions Stock Buy Backs, International Investments, New Business Ventures

Source: SEC Filings

“This is just the beginning for Berkshire Hathaway Automotive.”

Warren Buffet, October 2nd, CNBC

New Capital Investors Meet Dealers Need for Exit OptionsCharacteristics of Auto Retail Ideal for Private Equity

Six Publicly-Traded Dealerships

Top 20 Dealership Grps Top 125 Dealership Grps

5.0%

8.0%

16.4%

Dealership Market Share

83.6% of dealerships ownedBy small groups and individuals

Highly Fragmented Industry - A Lot of Room for ConsolidationTremendous Opportunity to Grow Through Acquisition

Source: Automotive News

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

24.3%

30.7%27.6%

25.1% 24.3% 23.5% 22.7% 22.0%

12.4%

18.0%

24.8%28.0% 27.8% 29.0%

Average Dealership Return on Equity

24.8%

Industry Consistently Produces VERY High Return on EquityHighly Attractive to Outside Capital

Source: NADA

High Net Worth

- Evergreen capital

- Entrepreneurial- Owner operator

or partner with management

Family Office

- Evergreen capital

- Professional management

- Partner with management

Private Equity

- Short-term capital

- Professional management

- Partner with management

Public Conglomerate

Leucadia National Corporation

- Evergreen capital

- Professional management

- Partner with existing dealers

Overview of New Entrants Characteristics of Auto Retail Ideal for Private Equity

Analysis assumes working capital and assets represent 1 times earnings.

Required Growth in Pre-Tax Earnings Year 1Pre-Tax ROI # 3% 25% 50% 100%

10% ## 9.3x 11.5x 14.0x 19.0x15% ## 5.9x 7.3x 9.0x 12.3x20% ## 4.2x 5.3x 6.5x 9.0x25% ## 3.1x 4.0x 5.0x 7.0x

Private EquityHigh Net Worth Investors, Family Office,

Public Conglomerates

Returns Meet Private Equity and Family Office ExpectationsFamily Office Versus Private Equity

Kerrigan Advisors Blue Sky Multiples – Fourth Quarter 2014 Top Volume Franchises Command Higher Multiples

Kerrigan Advisors Blue Sky Multiples – Fourth Quarter 2014 Top Luxury Multiples Have Few Limits

* Note: Jaguar would command the lower multiples and Land Rover would command the higher

Mercedes-Benz BMW Audi Lexus Porsche

366339

283

235

189

Number of Franchises

Compares to over3,000+ Chevrolet and 3,000+ Ford franchises

Limited Supply of Luxury Franchises Results in Incredible Values Economics 101

Source: Automotive News

Source: SEC Filings and Kerrigan Advisors Analysis – apply 7.5% cap rate to real estate holdings

Estimated Public Company Blue Sky Multiples Q1 2015

Average Private Company Multiples: 5x

Public Blue Sky Multiples Reflect Liquidity Premium Average Private Multiple ~50% of Public Multiples

Source: The Banks Report

AUTOMOTIVE FY2014 MULTIPLES AUTOMOTIVE FY2014 MULTIPLES

($ in millions) TotalMarket Cap (as of 3/31/15) $20,226Net Assets (1,202) Est. Blue Sky 19,024

Operating Income 2,505 Rent Adjustment (536) FY Adjusted EBIT $1,969Blue Sky Multiple 9.7x

LowUnit Sales

Per Dealership

High Blue Sky

Multiples

LowBlue SkyMultiples

HighUnit Sales

Per Dealership

Profits Driven by Franchise

Profits Driven by Operator

ManufacturerMoody's Credit

RatingCredit Rating Description

Toyota/Lexus Aa3 Very High QualityHonda A1 High QualityBMW A2 High Quality

Mercedes A3 High QualityVW/Porsche/Audi A3 High Quality

Nissan A3 High QualityHyundai/Kia Baa1 Medium Quality

GM Baa1 Medium QualityFord Baa3 Medium Quality

Chrysler B1 Speculative

Manufacturer’s Financial Strength – A Factor that Drives Blue Sky Value The Higher the Credit Rating, The Higher the Multiple

Source: Moody’s and Kerrigan Advisors

Average Blue Sky Multiple

AdjustedBlue Sky Multiple

Earnings Growth Expectations

Buyer Demand

Real EstateMarket Vehicle

Preference

Higher Multiple

Lower Multiple

LowGrowth

LowDemand

High Rent/Building Project

FranchiseUnsuitable

FranchiseHighly

Suitable

HighGrowth

HighDemand

Low Rent/Image

Drivers of Franchise Multiple Variability Four Key Factors

2010 2011 2012 2013 2014 2015E 2016E10

11

12

13

14

15

16

17

18

11.6M

12.8M

14.4M

15.5M

16.5M17M 17.4M

Annual Vehicle Sales Sales Growth Rate

FON

12%

10%

13%

8%

6%

4%

1%

Annual Auto Sales and % Growth

Return to 17.4 Million Sales Means Slower Future Growth Sales Rebound Near Completion?

Source: Automotive News and Kerrigan Advisors Analysis/Estimates

Change in Average Dealership Pre-Tax Earnings Year over Year

Dealership Earnings Growth is Slowing Indicator Valuations Reaching Peak Levels

Source: NADA

Public Dealership Groups’ Average P/E Multiple

26% Decline

22.2x

16.5x

Public P/E Multiples Down 26% Since 2010 Leading Indicator for Private Multiples?

Source: Yahoo Finance

March

Dec 0

9

Mar

10

Jul 1

0

Oct

10

Jan

11

Apr 1

1

Jul 1

1

Oct

11

Jan

12

Apr 1

2

Jul 1

2

Oct

12

Jan

13

Apr 1

3

Jul 1

3

Oct

13

Jan

14

Apr 1

4

Jul 1

4

Oct

14

Jan

15

Apr 1

580

130

180

230

280

330

380

430

480

S&P 500 Public Auto Dealerships

Public Dealership Stock Index Compared to the S&P

4x higher

Public Dealership Stocks Outperform the S&P 500 Wall Street Thinks Auto Retail is a Great Investment

Source: Yahoo Finance

+341.1%

+84.4%

A Premier Advisor to Sellers of High Value Dealerships