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Republic Industries Says Soft Used Vehicle Sales Will Impact Fourth Quarter Earnings

Dec. 14, 1998

Manufacturer Incentives, Acquisition Delays Hurt Performance

FORT LAUDERDALE, Fla., Dec. 14 /PRNewswire/ -- Republic Industries, Inc. (NYSE: RII) today announced that it anticipates its fourth quarter earnings per share to be approximately $0.05 below the consensus analysts' estimate of $0.27 for the period, due to weaker than anticipated used vehicle sales in the quarter and an unanticipated delay in the closing of a number of acquisitions. The company said soft used vehicle sales in the quarter are a result of unusually aggressive financing and rebate promotions presently being offered on new vehicles by many manufacturers.

Steven R. Berrard, President and Co-CEO of Republic Industries, said, "We remain confident that Republic Industries is on track to reach the analysts' projected consensus estimate of $1.25 per share next year, which does include two full quarters of our solid waste business."

Republic Industries is expected to announce the results of its 1998 fourth quarter and full year on January 28, 1999.

Republic Industries, Inc. operates subsidiaries in the automotive retailing, automotive rental industries. The Company owns the nation's largest chain of new vehicle dealerships and is building a chain of used vehicle megastores, which it operates under the AutoNation USA brand name. Republic also owns National Car Rental System, Inc., Alamo Rent-A-Car, Inc. and CarTemps USA. The company also owns 63.9% of Republic Services, Inc. (NYSE: RSG), one of the leading providers of non-hazardous solid waste collection and disposal services in the United States.

Certain statements and information included in this release constitute "forward-looking statements" within the meaning of the Federal Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance, or achievements of the Company to be materially different from any future results, performance, or achievements expressed or implied in such forward looking statements. Additional discussion of factors that could cause actual results to differ materially from management's projections, forecasts, estimates and expectations is contained in the Company's SEC filings.

Backgrounder

(To be read in association with Republic Industries' press release of 12/14/98 entitled, "Republic Says Soft Used Vehicle Sales Will Impact Fourth Quarter Earnings"

)

Republic Industries and the Used Vehicle Market in the Fourth Quarter of 1998

Manufacturer Incentives

In the opinion of Republic Industries, the softness in used vehicle sales this quarter (Q4/98) is a result of the normal seasonal slowdown in the period, exacerbated by extremely aggressive financing and factory incentives that the manufacturers are offering on new vehicles.

While manufacturer promotions have spurred new vehicle sales, they have dramatically narrowed the spread that normally exists between new and used vehicle prices. In addition, these promotions began much earlier than usual in the model year, and have been extended to a wider range of models than is typical.

Specifically, the combination of factory rebates and incentives is now in the range of $1,000 to $1,500 per vehicle, with offers on some higher end models of as much as $5,500 in lease subsidies. At the same time, factory financing of as low as 0.9 percent has narrowed the gap between a new vehicle payment and a used vehicle payment to the point where some consumers are willing to trade a higher payment in exchange for a new rather than a used vehicle. Simply put, with the monthly "out-of-pocket" for many new models only slightly above that of a comparable late model used vehicle, many buyers are opting for new vehicles. This has had an obvious impact on used vehicle sales.

Not surprisingly, used vehicle prices have also softened, as dealers have worked to maintain the price gap and preserve the value relationship that normally exists between new and used vehicles. Recognizing this trend, Republic did take advantage of the surplus of lower cost, late model used cars to replenish its used vehicle inventory earlier in the year. But the company could not have anticipated that manufacturers would continue their incentive programs so late into the 1998 model year, nor that they would commence similar programs at the start of the 1999 model year. One result of these factors is the used vehicle volume softness that we have seen in the fourth quarter.

This set of circumstances is extremely unusual and may, in fact, be indicative of an overcapacity situation at the manufacturer level.

To cope with this situation, Republic continues to shift its used vehicle purchasing practices to older, higher-mileage vehicles that can be offered at lower retail prices, re-establishing a compelling value proposition for the used vehicle customer. As the automotive retail market enters the first quarter, an inventory of aggressively priced older model used vehicles should give Republic a strong start to the new year.

Delayed Closings

Another factor negatively impacting Republic in the quarter (Q4/98) was a delay in the closings on the acquisitions of several automotive retailers. A range of factors beyond the immediate control of Republic have led to these delays. However, each of the transactions is expected to close early in 1999.

Questions and Answers

    Q.  Why were used vehicle sales soft in the fourth quarter?

    A.  Used vehicle sales suffered largely due to the fact that auto makers
         are offering large incentives at a much earlier stage in the new
         model year than is normal.  New vehicle dealers are also offering
         factory financing at very low rates.
        These two forms of promotion have caused the value gap between new and
         used cars to narrow significantly, resulting in an oversupply of used
         vehicles.  Incentives are extremely generous right now, making it
         difficult to make profits on 1997 and 1998 used vehicle models.
        In addition, millions of vehicles are currently coming off lease.
         Most of these are two to three years old.  This has increased the
         glut of unsold vehicles and adds to the devaluation of used vehicles.

    Q.  Didn't you see these promotions coming?

    A.  We saw the heavy level of promotions staring early in 1998 and
         adjusted our inventories and purchasing plans to benefit from them.
         In June, believing that prices had decreased as far as they would, we
         decreased AutoNation's average inventory to what we felt was an
         appropriate level.
        What we did not expect -- and what no automotive retailer could have
         anticipated -- was that the factories would be offering incentives so
         early in the new model year, nor the extent to which they would offer
         such incentives.

    Q.  Will the loss cause Republic to take a write-off in the fourth
         quarter?

    A.  No.

    Q.  Are your competitors experiencing the same softness in used vehicle
         sales?

    A.  CarMax has already revised its earnings estimate lower, primarily as a
         result of softness in used vehicle sales.  AutoNation USA sells many
         more used vehicles than its competitors, so it is not unusual that
         its business would be more readily impacted by shifts in used vehicle
         market conditions.  Other, regional automotive retail groups may be
         experiencing fewer problems with softness in used vehicle sales
         because their businesses are so much smaller than Republic's
         AutoNation USA operating unit, the nation's largest chain of used
         vehicle megastores.

    Q.  This pricing problem isn't likely to 'go away,' at least not in the
         short-term.  How will Republic deal with this problem long-term?

    A.  Republic continues to refine its used vehicle purchasing practices to
         ensure that its inventory comprises the right vehicles at the right
         price.  The company's objective is to preserve a compelling price gap
         between used and new vehicles so that customers continue to enjoy
         good value when purchasing a used vehicle from an AutoNation USA used
         vehicle megastore or from any Republic franchised dealer.
        Looking forward, Republic can predict that a great many off-lease used
         vehicles will enter the market.  As Republic sources more and more of
         its used vehicles from its own dealers, the company will have a
         greater degree of control over the age, quality and price of its used
         vehicle inventory.

    Q.  What about the rest of Republic's businesses for the quarter and the
         full year?

    A.  The automotive rental and the solid waste businesses are on track to
         meet or exceed analysts' expectations in the quarter.  For the full
         year, Republic expects to report revenue of approximately
         $17.5 billion, compared with $10.3 billion last year, an increase of
         nearly 70%.  The company expects to report full-year pre-tax income
         of approximately $800 million in 1998, compared with $443 million
         last year, before restructuring and other charges, an increase of
         more than 80%.
SOURCE Republic Industries, Inc.
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