Sonic Automotive, one of the largest dealership groups in the U.S., is closing eight EchoPark used-vehicle stores in response to supply and demand pressures, as revealed in a press release published Thursday, June 22.
Sonic Automotive did not disclose which of its EchoPark locations it planned to terminate but did note plans to end operations at additional delivery-buy storefronts as well. The company expects to record a one-time charge ranging between $60 million to $80 million, all of which is non-cash except $3 million to $5 million.
Like other used-vehicle dealers, EchoPark has struggled to navigate shifts in consumer behavior since the start of the COVID pandemic. Renewed manufacturer production has taken consumers away from the pre-owned market, while high interest rates and rising car prices have led many owners to hold off on their next purchase, creating an unfavorable mix of low supply, low demand and expensive products. Sonic Automotive said the store closures would free inventory for use in more profitable areas.
Launched in 2014, EchoPark has generally prioritized volume over margins, often selling used vehicles under market values. Sonic Automotive has struggled to generate profit from the brand, even though the business continues to expand throughout the U.S. EchoPark sold 19,980 preowned units in the first quarter, a gain of 34%, but ultimately lost $46.8 million on the segment. Last year, the dealership group also reversed course on a potential initial public offering for the EchoPark brand over fund-raising concerns, choosing instead to keep the company as subsidiary.
However, while the news is significant given the number of stores and the popularity of the two brands, neither EchoPark nor Sonic Automotive are likely to feel desperate as both are still seeing growth. True, the new and used vehicle markets are undeniably bottlenecked by an ongoing affordability crisis and disruptive global events. But, as evidenced by a tidal wave of optimistic financial reports in the first quarter, the car business has emerged from the COVID pandemic mostly unscathed.
Note: this article was updated for accuracy on June 26, 2023.