At the end of October, Sonic Automotive held its third-quarter earnings call with shareholders, sharing details of its performance over the period and setting expectations for the months to come. As one of the largest dealership groups in the U.S., their numbers can give helpful insights into the industry’s overall strength and the challenges lying ahead.
On this episode of Inside Automotive, host Jim Fitzpatrick is joined by Sonic Automotive President Jeff Dyke. Dyke has spent more than two decades in the retail automotive sector, with a proven track record of leading businesses to success. Since becoming the dealership group’s president in 2018, he has helped the company navigate monumental challenges such as the COVID pandemic and an industry-wide shift to electric vehicles. Now, he discusses the business’s third-quarter report and what it means for retailers across the U.S.
1. Sales continued to rise in the third quarter for Sonic Automotive, with strong numbers across its franchised, EchoPark, used retail, and powersport operations.
2. However, the dealership group’s profit margins declined, as they did for many retailers, causing earnings to drop 22% year-over-year. However, the decrease was lower than expected as the industry continues to revert back to pre-pandemic conditions.
3. Sonic Automotive expects to see fluctuations in used vehicle pricing in the months ahead. Inventory in both the new and preowned segments has yet to stabilize after COVID. Although a new normal will emerge soon, dealers will need to continue paying close attention to the market for now.
4. While Sonic Automotive has continued to add storefronts throughout the year, Dyke foresees buyout costs remaining inflated until 2024. Once prices come down, the dealership group plans to kick its acquisition efforts back into high gear.
5. While the United Auto Workers strike took a toll on OEM production and earnings, Sonic Automotive noticed only marginal impacts to its bottom line during October. Dyke expects manufacturing to make a swift recovery, further insulating dealers from potential consequences.
6. Electric vehicles remain a niche product despite their purported popularity. While the technology is here to stay, dealers will likely see OEMs walk back their original electrification goals in favor of other green-energy initiatives.
"We've always known the EchoPark model, prior to COVID, had some of the most profitable stores in the entire company. So we know the model works; the problem is that inventory ran out. We made the tough decision in June to hibernate some stores, which we did. And that allowed us and our buying team, who's just fantastic at what they do, to buy enough cars and mix for the stores that were left open. As a result, we're selling more cars with fewer stores, margins are significantly better and that's continuing on into he fourth quarter." — Jeff Dyke