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Letter to the SEC

VIA FACSIMILE & EDGAR

January 6, 2006

Mr. William Choi

Accounting Branch Chief

United States Securities and Exchange Commission

Division of Corporation Finance

450 Fifth Street, NW

Washington, DC 20549

    Re:

    AutoNation, Inc.

Form 10-K For the Fiscal Year Ended December 31, 2004

Filed February 24, 2005

File No. 001-13107

Dear Mr. Choi:

     The following is a response to the Commission Staff’s comment letter to AutoNation, Inc. (the
“Company”) dated December 20, 2005. Please note for the convenience of the staff we have recited
the comments in boldfaced type and provided our responses immediately thereafter.

Form 10-K for the Fiscal Year Ended December 31, 2004:

Financial Statement and Supplementary Data

Consolidated Statements of Cash Flows, page 46

    1.

    We note that floorplan financing is provided primarily by manufacturers’ captive
finance subsidiaries. Please tell us the aggregate amounts of cash inflows and cash
outflows under floorplan facilities related to vehicles that are not purchased from the
manufacturer providing the floorplan financing via its captive finance subsidiary for each
year presented. Please also tell us your basis in GAAP for classifying those cash flows as
cash flows from operating activities as opposed to financing activities. Please refer to
paragraph 23(a) of SFAS 95. Please also see AICPA TIS Section 1300.16 for further
guidance. It appears that borrowings and repayments under floorplan facilities related to
vehicles not purchased from the manufacturer providing the floorplan financing should be
classified in financing activities. Please advise.

    Although the Company believes that its presentation is consistent with the requirements of
Statement of Financial Accounting Standards No. 95, “Statement of Cash Flows” (SFAS 95) for
the reasons set forth below, we are aware that the Staff has been in conversations with
other public automotive retailer registrants and has spoken to this matter at the December
2005 AICPA National Conference on Current SEC and PCAOB Developments in Washington, D.C.
The Company understands the Staff’s concerns and as a result,
will reflect the net cash flows
for floorplan facilities with financial institutions other than the automotive
manufacturers’ captive finance subsidiaries (non-manufacturer lenders) as a component of
financing activity beginning with the Company’s 2005 Form 10-K with prior periods
reclassified to conform to the current period presentation along with appropriate footnote
disclosure. The Company believes that this approach is appropriate given the immateriality
of the change to the Company’s financial statements taken as a
whole and the Company’s conformity
with widespread industry practice that until recently had not been
questioned. The change does not impact the Company’s income
statement and related current or future trends. The
related net cash flows(used)/provided from non-manufacturer lenders were
approximately ($150 million), ($120 million) and $50
million for the years ended December 31, 2004, 2003 and 2002,
respectively. The Company believes it meets the requirements for, and will use, net reporting consistent
with paragraph 13 of SFAS 95 since the floorplan facilities are due on demand and turn
quickly, typically within several days after the related vehicle is
sold. The following disclosure will be included in the Company’s
2005 Form 10-K footnotes:

              During 2005, the Company reclassified certain amounts in the
2004 and 2003 Consolidated Statements of Cash flows from

          operating activities to financing activities as a result of recent guidance
given by the Securities and Exchange Commission.

          For the years ended
December 31, 2004 and 2003, approximately $150 million and
$120 million, respectively, were

          reclassified from operating
activities to reflect the net cash flow for floorplan facilities with
financial institutions other

          than the automotive manufacturers’
captive finance subsidiaries (non-manufacturer lenders) as a
component of financing

          activities.

    The Company’s
total vehicle floorplan payable was $2.5 billion and $2.7 billion, as of December 31, 2004
and 2003, respectively, of which approximately $80 million and
$230 million, respectively, was
outstanding from non-manufacturer lenders. The floorplan payable to non-manufacturer
lenders represents 3% and 8% of total floorplan vehicle payables and
2% and 6% of total
current liabilities as of December 31, 2004 and 2003, respectively, and will be disclosed
separately on the face of the Company’s balance sheet reported in its 2005 Form 10-K, if
material.

    Background and Company’s Interpretation:

    The net cash flows from non-manufacturer lenders have been historically classified as
operating cash flows in the Company’s statements of cash flows, which was consistent with
industry practice until recently. The Company interpreted literature related to cash flows
that, regardless of the source of financing used to acquire inventory, classification of all
floorplan financial activity as an operating activity was appropriate based on the
following:

Page 2 of 11

    ○

    The Company finances its new vehicle inventories through secured floorplan
facilities, primarily with automotive manufacturers’ captive finance subsidiaries.
Generally, all vehicle manufacturers have captive finance companies, which provide the
financing normally extended by a supplier in the form of accounts payable. The Company
may choose to utilize the manufacturer’s captive finance company or choose alternative
sources. The Company at times utilizes floorplan facilities other than those offered
by a manufacturer’s captive finance company for a particular franchise in order to the
reduce interest costs and streamline transaction processing in multi-franchise
dealerships. The Company’s floorplan facilities, irrespective of their source,
generally have the same characteristics and terms.

    ○

    Paragraph 23(a) of SFAS 95 defines cash flows to acquire materials for
manufacture or goods for resale as operating cash flows, “including principal
payments on accounts and both short- and long-term notes payable to suppliers for those
materials or goods”, but does not limit such payments. We have interpreted the specific
language of paragraph 23(a) reflected above as a clarification, but not as a limitation
of what may be included in operating cash flows. This would be consistent with
paragraph 21 of SFAS 95, which states that “operating activities generally involve
producing and delivering goods and providing services.” It further affirms “operating
cash flows are generally the cash effects of transactions and other events that enter
into the determination of net income.” The acquisition of new vehicles through
floorplan payables, including from non-manufacturer lenders, enters into the
determination of the Company’s net income, as the underlying activity is the purchase
of inventory, which becomes cost of sales in relatively short time periods.

    ○

    Paragraph 87 of SFAS 95 recognizes that “the most appropriate classification of
items will not always be clear. In those circumstances, the appropriate classification
generally should depend on the nature of the activity that is likely to be the
predominate source of cash flows for the item.” Furthermore, Financial Accounting
Statements Board, Concept 5, “Recognition and Measurement in Financial Statements of
Business Enterprises”, paragraph 20, emphasizes the importance of grouping information
with similar characteristics into homogeneous groups to facilitate analysis. Given that
the major terms of the floorplan financings, regardless of the source, are similar, the
Company believed that different cash flow classifications for non-manufacturer lenders
for what is essentially the same transaction is inconsistent with the intent of SFAS 95
and would make the resulting statement less useful and understandable.

Page 3 of 11

    ○

    The Company believed that the presentation of changes in floorplan facilities from
non-manufacturer lenders as a financing activity would result in recognition of the
non-cash initial acquisition of inventory, which would be inconsistent with the
underlying nature of the facilities. Additionally, the Company believed that the
purchase of inventory should not be reflected in the statement of cash flows as a direct
inflow of cash since when inventory units are shipped from the manufacturer’s facility,
the manufacturer, regardless of the source of financing used to acquire inventory,
drafts the Company’s floorplan facility automatically. The ability to draft directly
from the Company’s floorplan facilities is a requirement of our manufacturers. In the
Technical Questions and Answers of the AICPA, Section 1300 –Cash Flows, Item 16 the
response to a specific question related to the direct financing of inventory through a
finance subsidiary indicates that the acquisition of the vehicle has no cash flow
implication and is only reflected as a cash flow item upon the sale of the vehicle when
the amounts are repaid. It is silent as to whether transactions with non-manufacturer
lenders should be considered in the same manner.

    ○

    Also, it should be noted that the Company would be unaware of
situations where floorplan financing provided by a captive may be sold, securitized or others parties
allowed to participate in the financing. The Company would have no information to
indicate at what point it would need to reassess the nature of the cash flow
classification. This would also be the case if a portion or all of the captive finance
company were sold and/or spun-off to shareholders, effectively making the finance
source a non-manufacturer related entity without any change to the
Company’s floorplan financing with that entity (as is potentially occurring with General
Motors Acceptance Corp.)

Notes to Consolidated Financial Statements

Consolidated Statements of Cash Flows, page 46

    2.

    We note that you disclose cash used in discontinued operations as a separate line item.
Under the provisions of SFAS 95, all cash flows must be reported as an operating,
investing or financing activity. Please revise to identify cash flows from discontinued
operations for each category. Alternatively, you may:

    •

    Combine cash flows from discontinued operations with cash flows from continuing
operations within each category;

    •

    Identify cash flows from discontinued operations within each category; or

    •

    Identify operating cash flows from discontinued operations within the operating
category and combine investing and financing cash flows from discontinued
operations with cash flows from continuing operations within each of those
categories.

Page 4 of 11

    Cash flows used in discontinued operations for the years ended December 31, 2004, 2003 and
2002 totaled $21.1 million, $4.7 million and $8.4 million, respectively, all of which were
used in cash flows from operations. Future filings will disclose cash flows from
discontinued operations for each category.

    3.

    We note your disclosure in Note 18 on page 67 that you reclassified certain amounts,
including certain items related to your former loan underwriting business, from investing
activities to operating activities. Please tell us the items and their amounts
reclassified for each year presented. Please also tell us why the adjustments were
characterized as reclassifications as opposed to error corrections in accordance with
paragraph 36 of APB 20.

    Collections of installment loans receivable and other items related to the wind-down of
this business totaling $27.0 million and $86.7 million for the years ended December 31,
2003 and 2002, respectively, and $52.4 million related to proceeds from the sale of the
Company’s finance receivable portfolio in 2003 were reclassified from investing activities
to operating activities in the Company’s 2004 Form 10-K as a result of SEC guidance posted
on the Commission’s website titled, “Sample Letter Sent to Registrants Related to the
Statement of Cash Flows,” related to long-term customer receivables. Other amounts reclassified were not material and were
reclassified for conformity. The changes had no income statement impact and were not
material to the Company’s cash flows. Neither the corrected nor the original cash flow
presentation masked a change in earnings or other trends, failed to meet analysts’
consensus expectations, affected the Company’s compliance with any loan covenants or other
contractual requirements, had an effect on management’s compensation or involved
concealment of an unlawful transaction. Additionally, the guidance indicated that the
Staff would not object to disclosures related to the reclassification that do not reference
a correction of an error provided that the following criteria were met:

    1.

    Correctly present the consolidated statements of cash flows for all
periods presented;

Effective with the December 31, 2004 financial statements, the Company
classified cash flows related to installment loan receivables for 2003 and 2002
within the operating cash flow section on page 46 of the 2004 Form 10-K.

    2.

    Indicate that management’s decision to change the classification of
the cash flow effects of long-term customer receivables, including sales-type
lease receivables, stemmed from concerns raised by the staff of the Securities
and Exchange Commission about the previous presentation;

The Company’s disclosure in Note 18 of the 2004 Form 10-K on page 67 indicated
that the reclassification is the result of recent guidance issued by the SEC.

    3.

    Include prominent disclosure that:

    a.

    Describes how the accounting for these transactions
was historically reflected in the consolidated statements of cash flows,
including an explicit statement that no cash was received by the company
on a consolidated basis when the sale was made to the customer;

Page 5 of 11

Not applicable – the amounts in the cash flows represent actual cash
flows. There were no financing originations in the years presented in
the Form 10-K once the Company ceased underwriting new loans as of
December 2001.

    b.

    States that the consolidated statements of cash flows
has been adjusted to reflect the fact that there was no cash received by
the consolidated entity upon the sale of inventory, resulting in the
elimination of the effects of the intercompany transactions, and to
properly classify cash receipts from the sale of inventory as operating
activities;

Not applicable – the amounts in the cash flows represent actual cash
flows. As noted above, there were no financing originations in the
years presented in the Form 10-K.

    c.

    Includes a reconciliation of the amount previously
presented for the affected line items to the amount currently presented
for each period;

The amount of the proceeds is clearly disclosed in financial statements
on page 46 of the 2004 Form 10-K so that total transparency exists
relative to the cash flows discussed.

    d.

    Discusses the effect of these transactions in the
liquidity and cash flow section of MD&A.

Discussion of the impact for 2003 and 2002 was included in the cash flow
section of the MD&A on page 33. There was no impact for 2004 or future
periods and therefore, no discussion was included in the liquidity
section of the MD&A.

Note 1. Summary of Significant Accounting Policies:

Basis of Presentation, page 47

    4.

    Please tell us in detail how you determined that the company has only one reportable
segment under the guidance in SFAS 131. In doing so, tell us each component of the company
that has been identified as an operating segment as defined in paragraph 10 of SFAS 131.
Please also tell us why it is appropriate to aggregate identified operating segments