Sonic Automotive suspends operations at eight EchoPark locations

Sonic Automotive announced the implementation of its plans to align the EchoPark brand with current pre-owned market conditions that are being negatively impacted by lower production of new vehicles over the past three years and historically low lease penetration and lease returns, resulting in lower availability of used vehicles and higher wholesale prices with unpredictable volatility. In accordance with this plan, Sonic has indefinitely suspended operations at eight EchoPark locations and additional related Delivery/Buy Centers which will enable Sonic to allocate more vehicles to key markets and increase capacity to address current demand in those markets. The enhancement of inventory mix at the remaining EchoPark stores, coupled with expense reductions from this action, are expected to improve EchoPark’s short-term financial performance while maintaining the foundation for the brand’s national expansion and its continuation of providing the best guest experience in automotive retail. Sonic has positioned EchoPark to quickly adjust as market conditions change. Recent data shows improvement in pre-owned wholesale pricing but Sonic expects continued volatility in the wholesale price environment into 2024. Improvements in wholesale pricing will benefit consumer affordability as well as the overall profitability of the EchoPark model. Additionally, expected new vehicle production increases over the next 12-18 months will benefit pre-owned availability and further improve both consumer affordability and EchoPark profitability. These improvements in market conditions will enable Sonic to continue the expansion of EchoPark’s geographic footprint into new markets. Sonic maintains the goal of EBITDA breakeven for the EchoPark segment by the first quarter of 2024. Sonic also maintains the goal of reaching 90% of the U.S. population with EchoPark, which was previously communicated to be achieved by 2025. Sonic now believes that the timing of achieving this goal will be predicated on how quickly the pre-owned market normalizes related to inventory availability and pricing. Currently, Sonic’s focus is on improving EchoPark’s financial performance. In conjunction with these plans, Sonic expects to record a one-time charge in the second quarter of 2023, ranging between $60 million to $80 million, all of which is non-cash except $3 million to $5 million.