Despite the announcement of suspending operations at several EchoPark locations and delivery/buy centers, Sonic Automotive is yet again reporting all-time revenue records. On this episode of Inside Automotive, host Jim Fitzpatrick is joined by Jeff Dyke, president of Sonic Automotive, to discuss the company’s latest earnings call and offer a glimpse of where the car business is headed.
Although Sonic Automotive beat its revenue record for the period, the company’s net income declined 75% year-over-year. Dyke explains that the decrease is a result of the write-down the retailer took for the closure of the EchoPark locations. “We had to make those moves…because of what’s going on in the used car environment,” he remarks. Used car prices have normalized throughout most of 2023, which made it easier for Sonic Automotive to purchase inventory, although, unfortunately, not at a pace that allowed it to sustain the number of sites it operated at the time. In June, the company made the difficult decision to close eight storefronts and 14 delivery/buy centers.
However, Dyke notes that these locations only carried 14% of EchoPark’s total volume. The closures have ultimately freed up time and money for the remaining stores. “We’ve put ourselves in a position now where we’ve got a buy team that can buy the right amount of inventory for the remaining…25 stores that we have, and that’s going to make a big difference, and we’re already seeing that in July,” he reports.
Once the market levels out, Sonic Automotive intends to scale as rapidly as possible. “We’re not backing up…” comments Dyke. The retailer’s plans include both new locations and new markets, which will help boost the brand’s recognition and competitiveness. However, he warns that the timing of such moves will depend on how quickly the new and used car market recovers from the COVID pandemic. Presently, with prices falling once more for preowned cars and inventory remaining strained for all segments, Sonic Automotive is keeping a close watch for signs of stability.
The company’s profit margins on new cars declined slightly in the second quarter. However, Dyke explains that these reductions were offset by a 12% increase in sales volume. The return of inventory, while still leaving much to be desired, allowed many dealers to push sales to new heights during the period. Sonic Automotive especially benefitted from the return of imported vehicles. “We’re expecting a stronger new car volume second half of the year than we had first half of the year, as inventories begin to improve,” he continues.
Overall, the car market has made steady progress toward a new normal. Dyke predicts that the third and fourth quarters will provide a massive improvement over the first half of the year. “As that begins to happen, we can start talking about opening up some more stores and doing some things that were more pre-COVID normal than [they are] today,” he concludes.