Best of 2019: Sonic Automotive President Jeff Dyke Discusses Trends in the Auto Industry and EchoPark Expansion Plans

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On today’s show, we welcome back Jeff Dyke, President of Sonic Automotive, the fifth-largest U.S. dealership group. Jim and Jeff discuss how Sonic Automotive did as a whole for 2019, what’s on the agenda for 2020, and their big plans for expanding EchoPark.

EchoPark

[Previously aired 12/11/19]
VIDEO TRANSCRIPT: 

Jim Fitzpatrick: Hello everyone. Jim Fitzpatrick for CBT news. Thanks so much for joining us today. I’m very excited to have an old friend back on the show, Mr. Jeff Dyke. I know that you know that name and this face. He’s the president of Sonic Automotive Group. Jeff, it’s always great to talk to you.

Jeff Dyke: Jim, great to see you. Thanks for having me on the show again.

Jim Fitzpatrick: Sure. So you’re all over the press. We’re going to talk about it in a minute. Big double-page spread here in Automotive News recently in November that I want, I want to get to, but first, give us an update on Sonic. How’s Sonic Automotive doing? The number of stores and have you grown at all in 2019, or I should say the footprint and, what are things looking like?

Jeff Dyke: Yeah, so 2019 so far has been a banner year. We’re actually on pace to have a record year for the company and all kinds of different fronts which is just great. We’ve actually shrunk our footprint this year. It doesn’t mean that we’re not out looking for opportunities to buy new stores. We are all the time, but it also means that where the manufacturers asked us to spend a bunch of money on a facility and it just wasn’t a good return on investment.

Jeff Dyke: You know, we’ve sold stores, we sold our Ohio platform not too long ago. We’ve sold some stores in Florida and Texas and they made good sense for us and of course, we’re taking that capital and repurposing it into EchoPark. And EchoPark is, you know, growing like wildfire. I’m sure we’ll talk about that shortly. But, 2019 has been a fantastic year for Sonic Automotive. Our throughput through the stores is better. We’re selling more cars than we’ve ever sold, in particular on the pre-owned side. Our F&I business is good. So just across the board, we’re very pleased with where we are in 2019 and we’re looking for a great big 2020.

Jim Fitzpatrick: That’s, that’s awesome. Congratulations to you on that. You know we hear so much about these disruptors in the market place. Companies like Vroom and Carvana that are out there that are delivering cars to the front door of consumer’s homes. They do everything now on an app, and they can do the financing and in many cases where States will allow. Talk to us about your feeling about that, and is that something that you see Sonic or EchoPark getting into?

Jeff Dyke: Look, we’re big fans of Vroom, Carvana. I want them all to be very successful. Our business model is different. In EchoPark we’re not going to be delivering cars to the consumer’s doorstep, until the consumer tells us that’s what we want. Right now we have consumers coming from all over the country. We have more than 120 markets coming into our eight locations from all over the country buying cars from us. Our model is zero to four-year-old cars, keep our costs as low as we possibly can so that we can keep our price down, which drives more traffic into our stores. Then a great, great guest experience backed by our training, our playbooks and our technology.

Jeff Dyke: That’s not going to happen on the EchoPark side anytime soon, because we just don’t see the customer base there at this point. If it does and we need to pivot, we will. We’ve pivoted before with EchoPark, and it’s worked out very well for us. It doesn’t mean that the consumer won’t be able to buy the vehicle online through our applications as we move forward, but they’re going to come pick the car up from the locations that we have across the country.

Jim Fitzpatrick: Okay. Just kind of leave the Vroom business and Carvana business to those guys.

Jeff Dyke: Absolutely.

Jim Fitzpatrick: It seems to be kind of a small sliver of the market right now anyway, right?

Jeff Dyke: Yes. It doesn’t mean that we won’t be positioned to do that as we need to in the future. But for right now, the niche that we have in that zero to four year market in handling, but we’ve got more than we can handle as it is, in terms of traffic coming in, and we’re opening up facilities. We took a long time to get this model right. And so now as we move into 20, you’ll see us really expand our footprint. We’re opening in Long Beach, California this month

Jeff Dyke: And we’ve got Atlanta getting ready to come online. We’ve got Tampa coming online in the first half of next year. And then there’ll be others as we move forward. We’re going to make sure we have the right footprint across the country to grow this brand as a national brand, and to offer the consumers the experience, the guest experience that we offer today out of those eight locations.

Jim Fitzpatrick: I would imagine F&I plays a big role in the bottom line profitability of EchoPark. Right? Talk to us a little bit about the F&I process, and then their earning potential on the back end of these deals. Is it as strong as it is on the new car side?

Jeff Dyke: Yeah, if not stronger.

Jim Fitzpatrick: Okay.

Jeff Dyke: Just because we sell our cars at such a low price, there’s a lot of room there for adding warranties and products to the sale-

Jim Fitzpatrick: Okay.

Jeff Dyke: – and yeah, that’s a big chunk of our profitability on the sale. There’s plenty of room there, the performance is excellent, and we don’t see any downside there. Plenty of up-side as we move through.

Jim Fitzpatrick: Do you have a separate F&I set up or is it where one person handles the entire transaction?

Jeff Dyke: Our technology allows one person to hire the entire transaction. The average EchoPark sales associate, or what we call an experience guide, sells about 20 cars per month, which is well above national average.

Jim Fitzpatrick: Yeah.

Jeff Dyke: And it’s that technology that we built, the proprietary technology that we built that allows them to do that, and they complete the entire transaction on their own.

Jim Fitzpatrick: Yeah. You know, I’ve known you for a long time. I think the viewers know that as well, and I respect the job that you’re doing, but man, you talk so passionately, so much more passionately about EchoPark than you do your new car franchises. What are we to draw from that?

Jeff Dyke: Yeah, Well, look. At the end of the day, it doesn’t mean that I’m not passionate about the new car business, because we are. We’ve got a great business. It allowed us to build EchoPark, but EchoPark is our growth engine, and we’re driving a lot of volume, getting a lot of notoriety for what we’ve done at EchoPark. But my heart’s on the new car side too, so we have both of them. But you’ve known me for a long time, I started out in the pre owned business.

Jim Fitzpatrick: Yeah.

Jeff Dyke: It’s my passion, it’s our company’s passion. It’s sort of the roots here and in EchoPark, it’s a lot of fun. We’re having a heck of a time, selling a lot of cars, and so it’s hard not to get excited about having something that’s growing this quickly, and we’re doing it profitably and that’s very, very important here.

Jim Fitzpatrick: Right.

Jeff Dyke: We’re not selling a bunch of cars and losing a bunch of money-

Jim Fitzpatrick: Right.

Jeff Dyke: – with no end in sight. And so we got profitable this year. EchoPark’s going to have a nice profit, and as we open up stores, there’s going to be a little bit of drag as we move forward for opening a store. But that’s okay because that main unit of stores will be able to produce enough profit to keep us rolling profits.

Jim Fitzpatrick: Is it conceivable that if we had this interview 10 years from now, you’d have way more EchoPark stores than you would new car franchises, just because the control is really in your hands?

Jeff Dyke: Yeah. I don’t know that we would have more stores, but we’re certainly going to have more volume.

Jim Fitzpatrick: Okay.

Jeff Dyke: EchoPark will be bigger than the new franchise business as we move forward. There’s just more opportunity. Look, there are 45 million cars being sold in this country. There’s lots of inventory, there’s tons of opportunity, and it’s so fragmented.

Jim Fitzpatrick: Right.

Jeff Dyke: When you look at [inaudible 00:05:26], maybe 4% of the business, if they’re the biggest guy on the block. And so there’s just so much opportunity. So yeah, it’s going to be a bigger part of this business, but it doesn’t mean that we’re not growing our franchise business. We’re having our best new car franchise year ever.

Jim Fitzpatrick: Wow.

Jeff Dyke: When you look at how the mix it’s just fantastic on both sides of the business, and I’m excited to be leading both of them, and growing both of them.

Jim Fitzpatrick: Sure.

Jeff Dyke: We’ve got great teams on both sides. But I do believe if you look 10 years down the road, early on EchoPark sort of code name was project tree truck, because we thought and we believe that EchoPark will be bigger than the new car franchise business as we move forward.

Jim Fitzpatrick: And you’ve got so much more control over overseeing that through, right? I mean, you’re not at the mercy of a manufacturer that may give you an open point, or you may have to do a buy-sell that costs you a gazillion dollars, right? I mean, you can open up these stores like McDonald’s franchises after a while.

Jeff Dyke: You have to build facilities, and you have to do things that there’s no sense in the return on investment.

Jim Fitzpatrick: Right.

Jeff Dyke: That’s why we sold stores this year in some cases. And with EchoPark, it’s all up to us. I mean everything is under our control, and when it’s under our control, if something goes wrong, it’s our fault.

Jim Fitzpatrick: Right.

Jeff Dyke: And there’s a lot to share across all the public, and all the big private caps when it comes to how manufacturers handle those dealers. We just don’t have that issue on the pre-owned side. It gives us a lot of flexibility at EchoPark and we’re taking advantage of that.

Jim Fitzpatrick: Sure. Talk to us a little bit about the manpower. Many dealers still struggle with getting in good qualified candidates to run their stores and to sell their product. Talk to us a little bit about that, because I know you’ve done a phenomenal job in attracting good people into your organization that can learn, can pick up quickly, and will stay with the company. What’s your special sauce there?

Jeff Dyke: Yeah, without giving too much away. I mean we do boast some of the lowest turnover in the industry, and at EchoPark we virtually have no turnover.

Jim Fitzpatrick: Wow.

Jeff Dyke: It’s very, very low. I attribute that to, first of all, we’re only open five days a week. We’re closed on Sunday, so we’ve got great work schedule for all our associates. Two, our technology allows our associates to sell lots of cars, so we need less people and they make more money.

Jim Fitzpatrick: Okay.

Jeff Dyke: So they can make a great living. They work in a wonderful environment.

Jim Fitzpatrick: Right.

Jeff Dyke: We have great leadership leading those people. So it’s a great recipe for having a longterm career and we’re growing. Right now all of our leadership is coming from within. We don’t have to go to the outside to find leaders and everybody sees that. It’s just feeding off of each other and it makes it a lot of fun.

Jim Fitzpatrick: Do you look for people that have not been in the auto industry, the traditional auto industry to bring on, or how does that work?

Jeff Dyke: Yeah, we do.

Jim Fitzpatrick: Yeah.

Jeff Dyke: We’re hiring people from all over everywhere, in all kinds of different walks of life, and really what we’re looking for is the passion, the personality. Do those things fit what we’re trying to do at EchoPark and our culture?

Jim Fitzpatrick: Right.

Jeff Dyke: If they do, great, they’re a perfect fit. They could be the best new car salesman, the best used car salesman on the franchise side in the world, but if they don’t fit our culture, they just don’t go to work for us.

Jim Fitzpatrick: Right.

Jeff Dyke: We do a lot of testing, and spend a lot of time training, and a lot of time training before we open a store. It’s very important to us to hire the right people to fit, it fits our culture. I don’t mean that that would fit the Sonic culture, but at EchoPark a very certain profile for that culture.

Jim Fitzpatrick: What are some of your challenges in growing a division like EchoPark? Is it vehicles? Is it people? Is it getting these places built quick enough?

Jeff Dyke: Oh it’s human capital.

Jim Fitzpatrick: Yeah.

Jeff Dyke: I mean, at the end of the day it’s having the right number of leaders ready to go. That’s what slows us down, right? Is you’ve got to have the right number of leaders. I can go buy property, build buildings, I’ve got access to capital. None of those things are an issue. We’ve got plenty of access to inventory. All of that is a non-issue. But having the training, the leadership, growing those people from within, and having them ready to go, carrying them on your books while you’re ready to open a new store, you’ve got a future store coming a year and a half down the road that we might have plan and getting that team up and running. That’s the trick. That’s the secret sauce, I believe we’ve got that figured out, and certainly the next four or five, six stores, our leaders are picked out. We’re ready to go.

Jeff Dyke: Now we’re in the mindset of, okay, what about seven, eight, nine, 10 11, 12 store coming along? What are we going to do there? Who are those people going to be? If there’s a drawback, getting those people trained and ready to go is our most important critical focus item that we have.

Jim Fitzpatrick: Sure. When you go into a market, who do you see as your competitor for an EchoPark operation?

Jeff Dyke: Yeah.

Jim Fitzpatrick: Is it the traditional new car franchises that are selling used cars or is it a CarMax, or maybe one of the other publicly traded companies used car operations?

Jeff Dyke: Yeah, that’s a great question Jim. At the end of the day it’s new car franchise and those public or big pre-owned franchise. It’s both. Because we’re selling zero to four year old cars, it’s a nearly new vehicle, so we’re competing against new car dealerships. Some cases our own new car dealerships, we haven’t hurt them.

Jim Fitzpatrick: Yeah.

Jeff Dyke: I mean markets that we’ve been in, because we measure that. But certainly they’re a competitive set for us that we go against.

Jim Fitzpatrick: And will EchoPark service all makes and models of cars if they haven’t purchased the car there? Is the service part of this an element?

Jeff Dyke: No it’s not.

Jim Fitzpatrick: Okay.

Jeff Dyke: We don’t do any service work whatsoever on vehicles.

Jim Fitzpatrick: Okay.

Jeff Dyke: That’s part of our mix, and part of what we do to keep our costs down.

Jim Fitzpatrick: Okay.

Jeff Dyke: You just add complexity when you add all of that in. We sell cars-

Jim Fitzpatrick: Okay.

Jeff Dyke: We sell F&I products.

Jim Fitzpatrick: Are you at least doing the recon there or is that done elsewhere?

Jeff Dyke: No, no, no. We do the recon onsite at each location.

Jim Fitzpatrick: What are the future plans? What are we looking at if we stretch out five years. What’s the EchoPark footprint look like?

Jeff Dyke: Yeah, well, we’ll see. I’m going to tell you that we’ve got a couple of stores planned here for the next six to eight months, and we’ll see how those ramp up, and then we’ll see what holds the future for 21, 22.

Jim Fitzpatrick: Sure.

Jeff Dyke: You can bet your bottom dollar, it has something to do with a lot of growth.

Jim Fitzpatrick: Hey, talk to us before I let you go about the CarCash app.

Jeff Dyke: Yeah, so that’s a lot of fun. We’re just starting to, not a lot to say yet. I mean the app is fantastic. You go download it on the app store, play around with it. We’re just starting to play with it here in the Charlotte market, our Fort Mill Ford store, and we’re going to roll out a test market in San Antonio under an EchoPark app, which is the same technology and start buying cars off the street there. We know we need to increase the number of cars we’re selling through trades and buys off the street. It’s something now that we have our footprint and we’re rolling, we can turn our attention to, and I would bet you that if we talk again a year from now, the CarCash and the EchoPark app that comes along, will be playing a big role in supplying us inventory as we move forward.

Jim Fitzpatrick: Well, the hardest working man in the auto industry, Mr.Jeff Dyke, president of Sonic automotive. I want to thank you once again for joining us on CBT. It’s always a pleasure, and our viewers always get a ton out of it. I know because I get the emails. Thanks again. I really appreciate it, and best of luck to you in 2020.

Jeff Dyke: Much appreciate Jim. Love doing the show. Look forward to our next visit.

CBT automotive network. The number one most-watched network in retail automotive. This has been a JBF Business Media Production.

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