CHARLOTTE, N.C. -

Sonic Automotive retailed a best-ever 119,174 used vehicles last year, including record fourth-quarter used-car unit sales of 29,621, the retailer said in results released Tuesday.

And prospects for its EchoPark used-car standalone stores are pretty rosy, too.

Some of the original Colorado stores were cash-flow positive in Q4, with the initial Thornton, Colo., store profitable on a yearly basis, the dealer group said.

Sonic said it plans to open an EchoPark location in Colorado Springs, Colo., in the second quarter. The retailer aims to open least three in Texas this year and potentially as many as five or six there, chief executive Scott Smith said in Tuesday’s conference call with the investment community.

The full-year outlook on EchoPark is a $0.23 to $0.27 loss per diluted share, Smith said in a news release. Sonic executives were asked during the call when those stores might break-even.

Jeff Dyke, Sonic’s executive vice president of operations, explained that that range includes corporate overhead.  He estimates that estimates that it will take about 25 stores operating to “make that happen.”

It’s likely to take until the end of 2018 to reach that kind of store count, he said. Sonic hopes to open eight EchoPark stores in 2017, which would put its store count at 13.

“So maybe it happens the next year; for certain, the next,” Dyke said. “The great news is our original store’s profitable in Thornton. It made money for the year.  We have stores that are now cash-flow positive. We’re selling the volume.

“We think we’ve also, sort of, dialed in the right inventory mix and the number of cars that we carry on each lot, we’ve really been playing with that,” he said. “Our pricing tool is working, and working very well. How we have become a part of the community through a bunch of different organizations, in particular a lot of the public school systems and things that we’re doing, have all been a plus.”

Supply for stores

Another plus for EchoPark certainly has been the amount of used-car supply available in the market.

Mentioning the separate buying function for EchoPark, another analyst — Rick Nelson of Stephens Inc. —asked if that prevented the standalone stores from turning to the dealer network to source off-lease units.

“We can source inventory through the dealer network, no problem,” Dyke said. “There’s so much inventory out there right now, Rick, that it’s just not a problem to source inventory.”

Citing numbers from 2017, Dyke said that 34 percent to 36 percent of EchoPark cars are vehicles that they traded for or bought off consumers.

“That’s been gradually growing every quarter for us, and our goal is to get that up over 50 percent,” Dyke said. “So, plenty of inventory out there for us. We don’t do a lot of piggybacking off of the Sonic dealerships to get inventory. As a matter of fact, we really haven’t done any. But it doesn’t mean that we couldn’t. We can certainly do that if we need to open up and buy cars from that resource.”

EchoPark sold 1,330 retail units in the fourth quarter, which was a 74.1-percent year-over-year increase.  For the year, sales came in at 4,865 units, which beat 2016 figures by 50.9 percent.  Those numbers, Sonic Automotive confirmed, are included in the total used unit volumes mentioned above.

Margin disparity?

Nelson asked about the disparity in gross profit per unit during the fourth quarter, which came in at $1,162, versus consolidated same-store used-vehicle GPU, which was at $1,341.

Dyke said that buying inventory outside of Colorado and then having it shipped into the EchoPark stores in that state has an impact, so he anticipates that margins could improve with the upcoming launch into Texas.

Additionally, he points out that buying 50 percent to 60 percent of vehicles at auction may lead to “tighter” margins that would trading for those cars. At Sonic stores, he said, they’ll trade for roughly six of every 10 cars they look at, so that positively impacts margins.

“But really, our pricing system is dictating the PUR,” Dyke said. “And what we’re really looking for is the balance between the volume and the PUR, so we generate the most gross that we can, because that’s what you take to the bank.

“It doesn’t matter if your PUR is $1,300 or $1,100 or $1,700, as long as you mix it with the right volumes so you generate the most gross dollars,” he said. “And that’s what our system is doing. Just remember, at EchoPark, we price 100 percent electronically. So you don’t have an individual sitting down there; you have algorithms that are pricing that inventory for us.

“I would expect those margins to move around all year long. Our margins in February are actually better than they were in December and January. So, that’s just the system doing that, and as inventory goes up based on what we trade for and what we purchase off the street, I’d expect our margins to go up.”