EchoPark Automotive is moving from the “Petri dish” to “significant growth mode,” says its president Jeff Dyke, who holds the same position with parent company Sonic Automotive.
Sonic’s standalone used-car store chain, which is now profitable and expected to break $1 billion in revenue this year, will likely open another location in 2019, something it previously had not planned to do this year, but now intends to given the progress EchoPark has made.
That addition would bring the total EchoPark store count to nine. The store count is likely to climb to 10 to 12 locations in 2020.
“It all just began to come together in the first quarter for us. We’ve been working really hard at it, and praise to the team: They’ve done a very good job,” Dyke said during Sonic’s first-quarter earnings call in late April.
“And now, like (Sonic and EchoPark CEO) David (Smith) said in his opening, we can move from sort of our Petri dish stage, if you will, and figuring everything out, to now into a pretty significant growth mode as we move forward in 2019 and ’20.”
Sonic is not alone in this expansion. For example, Penske Automotive Group, which has 14 used-vehicle supercenters in the U.S. and U.K., plans to open four more in the second half of the year. Two will be in the U.S., two in the U.K.
In the States, Penske has one store under construction near Wilmington, Del., and is under contract with an existing store in a shopping center in New Jersey. The latter location would likely take four to five months to refurbish, chairman Roger Penske said during the group’s earnings call in April.
And the expansion isn’t just brick-and-mortar.
“In the next few months, our U.S. used supercenters will launch a new digital experience allowing customers to select a vehicle for purchase, appraise trades, obtain financing and securely upload lender requirements, electronically sign documents and schedule an express pickup or home delivery,” Penske said during the call.
“Also, later this year, our UK franchised dealerships are expected to launch a digital dealership platform for used vehicles that will provide 100% online functionality.”
Next moves for EchoPark
Going back to Sonic, it has targeted Los Angeles, Atlanta and Florida as the next spots for EchoPark. The plan is to start with one store per market as it expands, rather than expanding by adding multiple stores per market.
During the call, executives referenced the initial Dallas location, which was in the center of the city, but Sonic moved it 33 miles away to a former AutoNation mega-store facility and was able to essentially double the sales volume, Dyke said.
When they open in LA, Sonic plans to utilize an existing facility that the company already has on the franchised side of the business.
Sonic has found a facility in Atlanta, as well, and aims to have that EchoPark store open in the first quarter of next year.
“And then we’ll see which markets are going to come after that … we’re begging for an opportunity to go down to Florida and attack that market,” Dyke said. “So, we’ll see how it goes, but so far so good. We’re very excited about where we’re at.”
Interestingly enough, folks will travel to buy cars from EchoPark stores.
There are eight locations, but EchoPark is selling into 121 markets, CEO David Smith pointed out during the call. Many customers will visit the EchoPark website, set up the deal online and then pick up the car in store — with some even flying in to pick up the the car in person.
In fact, EchoPark has sold 35 cars into the Santa Fe, N.M., market this year, Dyke said. Its closest store to Santa Fe is in Colorado Springs, Colo., which is about a five-hour drive away.
During the call, executives were asked about the potential for home delivery for EchoPark. Dyke said there were no plans, as of now.
“If you go on to our EchoPark websites and you read what we do and what our model is, we sort of try to figure out what we’re not going to do. I know that sounds kind of ass-backwards, but at the end of the day, it keeps our costs really low,” Dyke said. “And by operating in a really low SG&A environment, it lets us wade further out and reduce our pricing. So we look every day on how much cheaper we can sell a car. And by doing that, we drive more and more traffic.
“We have so much traffic coming to the EchoPark stores right now, our opportunity is, let’s see what we can do to take advantage of all the traffic that’s coming into us now from all over the country.”
Smith added: “We listen to our guests. And our customers really enjoy — they like going on our website, EchoPark.com, and then they enjoy coming to the store and going through the experience and actually putting their hand on the vehicle they’re going to buy.”
Progress of existing locations
Of the current locations, the Dallas location is the most mature at this point,
“The thing is, every month we wake up, and it keeps selling more and more cars. We sold 1,600 cars out of that store in March and made over $2 million in profit,” Dyke said. “And our market share in zero to 5-year-old cars is double-digit, I think, in March. We keep growing our share. We’ve grown from 4.5% to 5% share up to a double-digit share.”
The Thornton, Colo., store in the Denver area is the second-most mature, selling more than 800 used cars a month and having made close to $600,000 in March, Dyke said.
And both of those locations continued that success, if not improved upon it, in April, he said. And even the newer ones are making big strides.
The Charlotte, N.C., store, which opened in the fall was profitable in its first full month. In March, it moved over 400 units and made close to $300,000. Likewise, the Houston store, which opened in December, sold between 460-470 used vehicles in March and broke even.
The time it takes for EchoPark stores to become profitable has also shortened. It had been eight months to a year, now it is less than six months, Dyke said.
Smith points out that in the early days, they were building greenfield facilities for these EchoPark stores. Now, Sonic is utilizing existing big-box stores, which reduces the time and cost it takes to open these locations.
In fact, Smith said the Dallas store was bought for less than half of what it cost to build the facility, which was vacant at time of purchase.
The Houston store, Dyke added, was previously a Ford store of Sonic’s.
Opening these stores for much less money is helping push profitability at EchoPark, as is the experience they’ve gleaned from running the stores and the inventory management and pricing algorithms, which are starting to pay off in terms of investment.
Changes to sourcing technique
One area where Sonic is looking to have a bit more room for profitability is on the sourcing side. Ninety percent of EchoPark vehicles are sourced at auction, with the rest being sourced through the CarCash app or off-the-street purchases.
Management was asked by an analyst if there was significant difference in upfront or total GPU per unit between inventory sourced at auction and inventory sourced from consumers.
“It’s why we want to buy more cars off the street,” Dyke said. “We certainly will make more money, if you miss out on the transportation fees and a lot of other fees that we get when you buy at auction.
“So the more we can shift that mix, the higher the front-end margin will be from an EchoPark perspective,” Dyke said.
He later added: “There’s nothing but upside the more that mix changes.”
Likewise, Penske is trying to add more street purchases to its used-vehicle supercenter inventory mix.
“You’ve heard that, I think, from everyone — certainly CarMax has done a real good job of that in the past,” Penske said. “I think we’re all going to accelerate that, because those cars seem to bring a little more margin.”
Impact on franchised used
Going back to the Sonic call, executives were asked whether the group’s franchised dealerships’ used-car operations were being impacted by EchoPark. Not in the least.
“That’s what’s so great about the used-car business,” Dyke said. “It’s so fragmented. There’s so much business out there that, for example, in our Denver market, we just continue to sell more and more and more cars, and yet our new-car stores in Denver, they’re having record years, too.
“And so, it has had zero impact, whether it’s the Houston market, whether it’s Charlotte, none of our stores have gone backwards in volume,” Dyke said. “As a matter of fact, it was a record volume first quarter for us this year on the franchised side, and in the markets where we have EchoPark stores. So, there’s been no degradation whatsoever.”