Sonic Automotive’s immediate focus is to expand and enhance its EchoPark standalone, used-car operation and to integrate its recent acquisition, RFJ Auto Partners and its subsidiaries, into its business, said Sonic chief executive officer David Smith.

“We’re going to be disciplined on further acquisitions, but that’s not to say if a deal comes together we wouldn’t look at it,” said Smith, who made his comments during the company’s Feb. 16, conference call detailing its earnings for its fourth quarter and entire year that ended Dec. 31.

Sonic acquired RFJ Auto in December.

Headquartered in Plano, Texas, RFJ Auto had 33 locations in seven states, a portfolio of 16 automotive brands. The group is expected to generate revenues of $3.2 billion in 2022, which is incremental to Sonic’s previously stated target of generating $25 billion in total revenues by 2025, Smith said.

Sonic is headquartered in Charlotte, N.C.

EchoPark expands it reach

EchoPark stores will be within the reach of half of the U.S. population by the end of the 2022, and is on track to reach 90% population coverage by 2025, said Sonic president Jeff Dyke, who was also on the call.

Currently, EchoPark stores are within reach of 30 percent of the nation’s population, Dyke said.

“With Dino Bernacchi (EchoPark chief marketing officer) joining our team (in October) — we’re also starting our branding marketing campaign this summer,” he said.

Used-car margins are difficult now because the average retail selling price, since the onset of the pandemic, has risen from about $21,000 to about $29,000, boosting average monthly payments from $400 to $500, Dyke said.

But he noted that used-vehicle prices at auctions had eased by about $2,000 in the six-week period leading up to mid-February.

“If we can get the average retail selling price below $25,000, it really puts a lot of wind in our sails,” Dyke said. He also believes EchoPark stores that are 3- to 5-years-old will begin to become profitable toward the end of this year.

Customers want older vehicles

At customers’ requests, Sonic is considering expanding its inventory to include 5-, 6- and 7-year-old vehicles at EchoPark locations in addition to the 1- to 4-year-old vehicles it currently sells.

Dyke said the company is offering older vehicles “at a handful of stores now” but would need to work out complexities related to reconditioning in order to offer those vehicles broadly.

In late 2021, ecommerce platform, EchoPark.com, went live in select markets. The platform’s early results are positive and its F&I sales are better than expected, Smith said.

“To date, over 90 percent of the end-to-end online transactions were out-of-market sales and were completed in as little as 10 minutes,” Smith said. “We expect to roll out the new digital platform to our entire EchoPark network later this year allowing us to market our entire EchoPark inventory nationwide.”

In the quarter, EchoPark retail used unit volume rose 5.4% to 15,649 and its revenues rose 49.7% to $579.2 million year-over-year.

For the entire year, EchoPark’s revenues grew 65.3% to $2.3 billion and its retail unit sales increased 36.2% to 77,835.

In the same 12-month period, EchoPark reported pre-tax loss of $72.1 million, adjusted pre-tax loss of $65.6 million and adjusted EBITDA loss of $46.3 million.

EchoPark results also include partial month results for 11 Northwest Motorsport pre-owned vehicle stores that were included in the acquisition of RFJ Auto.

Franchise dealership results

In its fourth quarter that ended Dec. 31, Sonic’s net income from continuing operations  increased 67.5% percent  to $96.3 million compared with the fourth quarter of 2020, on revenues that rose 13.8% to $3.2 billion.

For the entire year that ended Dec. 31, Sonic’s net income from continuing operations was $348.9 million compared to a net loss of $50.7 million for the entire year in 2020. Its revenues increased 26.9% percent  to $12.4 billion for the entire year.

At Sonic’s franchise dealerships in the quarter, new unit retail sales slid 6.7% to 25,721 and its used unit retail sales dropped 8.2% to 23,397 year-over-year.

For the entire year, the company’s new retail unit sales at its franchise dealerships were up 10.8% to 103,358 and its used unit retail sales rose 3.5% to 105,457.

At Sonic’s franchise dealerships, gross profit per new unit in the fourth quarter grew 109.1% to $6,115 compared to the year-ago quarter and gross profit per used unit increased 114.2% to $2,172.

For the entire year, gross profit per new unit was rose 77.4% to $4,453 and gross profit per used unit grew 47.8% to $1,784.

New inventory still tight

Sonic Automotive wrapped up its fourth quarter with an 11-day supply of new vehicles and expects new-vehicle inventory to continue to be tight at least for the first half of the year, Dyke said.

It was “unfortunate news” that some manufacturers, “Toyota, Lexus and BMW included,” said they would cut new-vehicle allocation for February and March because of the world-wide shortage of micro-chips.

Though Dyke expects inventory levels to increase toward the end on 2022, he also said “we’re pressing very hard for (manufacturers) not to bring levels back to pre-pandemic levels,” of 60-, 70- and 80-day supplies.

“We should be selling cars at MSRP,” said Dyke. “The industry needs to get away from all this negotiating; it would make things a hell of a lot less complex. It’s much easier and brings the right value for the vehicle.”

Prior to the pandemic Sonic Automotive’s new-vehicle, front-end margins were in the “$2,000 to $2,300 range,” he said.

“That number is going to stay more at $4,000 if not higher as we move forward. I don’t see margins going back to pre-pandemic levels ever — I certainly don’t see it going back in 2022 or 2023 and that’s great.”