Sonic Automotive, Inc.

Good morning and welcome to the Sonic Automotive First Quarter 2025 earnings conference call. This conference call is being recorded today, Thursday, April 24, 2025. Presentation materials which accompany management's discussion on the conference call can be accessed at the company's website at .SonicAutomotive.com. At this time, I would like to refer to the Safe Harbor Statement under the Private Securities and Litigation Reform Act of 1995. During this conference call, management may discuss financial projections, information or expectations about the company's products or market or otherwise make statements about the future. Such statements are forelooking and subject to a number of risks and uncertainties that could cause actual results to differ materially from the statements made. These risks and uncertainties are detailed in the company's filings with the Securities and Exchange Commission. In addition, management may discuss certain non-GAAP financial measures as defined by the Securities and Exchange Commission. Please refer to the non-GAAP reconciliation tables in the company's current report on Form 8K filed with the Securities and Exchange Commission earlier today. I would now like to introduce Mr. David Smith, Chairman and Chief Executive Officer of Sonic Automotive. Mr. Smith, you may begin your conference.

Thank you very much and good morning everyone. Welcome to the Sonic Automotive First Quarter 2025 earnings call. As you said, I'm David Smith, the company's Chairman and CEO. Joining me on today's call is our President, Jeff Dyke, our CFO, Heath Byrd and our Vice President of Investor Relations, Mr. Danny Weiland. We would like to open the call by sincerely thanking our amazing teammates for continuing to deliver a world-class guest experience for our customers. We believe our strong relationships with our teammates, our manufacturer and lending partners and our guests are key to our future success. And as always, I would like to thank them all for their support and loyalty to the Sonic Automotive team. Turning now to our first quarter results, GAAP EPS was $2.04 per share and excluding the effect of certain items as detailed in our press release this morning, adjusted EPS was $1.48 per share, a 9% increase year over year. First quarter consolidated total revenues were a first quarter record of 8% year over year while consolidated gross profit grew 6% and consolidated adjusted EBITDA increased 7%. Moving to our franchised dealership segment results, in the first quarter we generated first quarter record franchise revenues of $3.1 billion, up 9% year over year. This revenue growth was driven by an 11% increase in new retail volume and a 6% increase in fixed operations revenues. First quarter results benefited from an increase in new vehicle sales in the final days of the quarter, which we expect was the result of customers buying in advance of tariffs that went into effect on April 2nd. Our fixed operations gross profit and F&I gross profit also set first quarter records, up 7% and 9% year over year respectively. Same store new vehicle GPU was $3,089, down sequentially from the fourth quarter due to our luxury brand mix and in line with our guidance given on our last call. On the used vehicle side of the franchise business, same store used vehicle volume decreased 2% year over year driven by lower levels of late model used vehicles and consumer affordability challenges. Same store used GPU increased sequentially to $1,555 per unit. Our F&I performance continues to be a strength with same store franchised F&I GPU of $2,442 in the first quarter, up 1% sequentially and 4% year over year. The continued stability in F&I at these levels supports our view that F&I per unit will remain structurally higher than pre-pandemic levels even in a challenging consumer affordability environment. Our parts and service or fixed operations business remains strong with a 7% increase in same store fixed operations gross profit in the first quarter. This strong growth was driven in part by higher levels of warranty repairs combined with the effects of the increase in technician headcount we achieved in 2024. Turning now to the Echo Park segment, first quarter segment income was an all-time quarterly record $10.3 million and adjusted EBITDA was an all-time quarterly record of $15.8 million up 116% year over year. For the first quarter we reported Echo Park revenues of $560 million flat year over year and all-time record quarterly Echo Park gross profit of $64 million up 21% from the prior year. Echo Park segment retail unit sales volume for the quarter was approximately 18,800 units up 5% year over year. On the same market basis which excludes closed stores Echo Park revenue was up 3%, gross profit was up 19% and retail unit sales volume increased 7% year over year. Echo Park segment total gross profit per unit was an all-time quarterly record of $3,411 per unit, up $456 per unit year over year, rebounding from the temporary GPU pressure we faced in the fourth quarter as we indicated on our previous earnings call. We continue to believe that our data-driven centralized inventory management strategy is a key differentiator for Echo Park which should help to minimize disruptions from market volatility in the short term while maximizing Echo Park's long-term growth potential. When combined with the strategic adjustments we've made to our Echo Park business model we believe we are well positioned to resume disciplined long-term growth for Echo Park once used vehicle market conditions sufficiently improve. Turning now to our PowerSport segment we generated record first quarter revenues of $34.4 million, first quarter gross profit of $8.5 million, and a segment adjusted EBITDA loss of $700,000 which was in line with our expectations for a seasonally light first quarter. We are beginning to see the benefits of our investment in modernizing the PowerSport business and we remain focused on identifying operational synergies within our current network before deploying capital to expand our PowerSport footprint. Finally, turning to our balance sheet we ended the quarter with $947 million in available liquidity including $430 million in combined cash and floor plan deposits on hand. We continue to maintain a disciplined balance sheet approach with the ability to deploy capital to grow strategically as market conditions evolve. Additionally, I'm pleased to report today that our Board of Directors approved a quarterly cash dividend of $0.35 per share payable on July 15, 2025 to all stockholders of record on June 13, 2025. As you can see on page 13 in the investor presentation we released this morning we have updated or withdrawn certain items in our previous financial guidance for 2025 in light of uncertainty around the effects that the tariffs are expected to have on the automotive industry. We are working closely with our manufacturer partners to understand the tariff impact and our manufacturer production and pricing decisions and the resulting impact that tariffs may have on vehicle affordability and consumer demand. Despite these challenges our team remains focused on near-term execution and adapting to ongoing changes in the automotive retail environment and macroeconomic backdrop while making strategic decisions to maximize long-term returns. Furthermore, we remain confident that we have the right strategy and the right people and the right culture to continue to grow our business and create long-term value for our stockholders. This concludes our opening remarks and we look forward to answering any questions you may have. Thank you.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 to remove yourself from the queue. For participants using speaker equipment it may be necessary to pick up the handset before pressing the star keys. One moment please while we poll for questions. Our first question comes from the line of John Murphy with Bank of America. Please proceed with your question.

Good morning guys. I just wanted to ask a first question around the obvious on tariffs and just maybe from three specific angles if you could comment as best you know right now. First, what kind of commentary are you getting from your factory partners? Second, as you think about the pull forward in March and early April, what you're seeing outside of your stores and maybe inside of your stores on pricing and GPUs because it seems like you've necessarily taken advantage of stuff there yet but there's certainly stories of other folks. And then third, what kind of impact do you think the uncertainty has around M&A activity and pricing?

It's Jeff John. From a manufacturer's perspective this is all balls in the air right now. No one really knows. Parts are coming in from out of the country on American made cars. And so for us it's just steady as she goes. You know we had a great first quarter. We think we're going to have a great second quarter. And you know we believe based on conversation with the manufacturers over the next 90 days that things will settle down. You know is there going to be a price increase? Maybe but we don't see it as being a 25 percent price increase and we've had price increases before and we faced a lot tougher situations than this and you know the industry is Teflon from my perspective. We can we'll battle our way through this and so you know we just are not watching the news. We're putting our head down. We're going to work. We're very focused on executing our playbooks, our processes and we think those results showed up in the first quarter and you know we'll see what happens in the coming months ahead but I'm not and our team is not too concerned that we won't have you know solid resolution over the next 90 days or so and I think the manufacturers will end up participating if the tariffs come along in some sort of cost cutting measure to help with MSRP pricing. Maybe the dealers and the consumers have to participate a little bit not sure yet and hopefully the governments will come along and get a hold of this but at the end of the day it's not some massive concerns. In terms of M&A it hasn't really made a huge difference at this point. We've got a lot of discussions going on. Certainly it's come up. If anything maybe it's we're buying a little bit of time just to kind of see what happens over the next 90 days before we finalize some transactions but no big changes there from our perspective.

And John this is David. I think one thing to mention about pricing because I think you alluded to it is that some dealers out there are I think taking advantage of the situation and taking advantage of customers and we're definitely not doing that. We have the highest guest satisfaction we've ever had and we want to keep it that way and we're doing more market pricing and not gouging our customers.

I appreciate the balanced view. Maybe just one quick second one on fixed ops. I know you guys were a little slow on headcount hiring last year. Just curious if there's any update there and what kind of opportunity you think there is to ramp up that hiring process and really the sales are a lot higher.

Yes, Jeff. Look at the end of the day since last March we fired 345 incremental technicians in the organization and that's made a huge difference for us in terms of fixed ops. So we'll continue to hire as we grow through the year. We've got capacity with open stalls and bays for those technicians that we're hiring and it's been a huge focus for us as you know since the end of the first quarter last year when we sort of put our stake in the ground and changed our culture and our fixed operations departments to focus on bringing in more technicians as a part of our culture and driving our growth and I think the results have proven that in the last four or five quarters.

We've had a number of stores where we're opportunistically growing our service. We're building new stalls, adding stalls so there's definitely an opportunity to grow.

Agree. As a quick reminder on that, John, we added about a third of those headcount in the last two months of last year and so we're still really trying to get those newly hired or newer hired technicians to full productivity so there's still some runway there and right now with the additional warranty and recall activity we're seeing there's a lot of volume running through the service lanes so as we go forward and get those technicians fully productive we'll be better able to balance the customer pay and warranty side of the business as long as these warranty tailwinds persist.

Super helpful. Just one follow up on that. I mean if you think about the opportunity, is a lot of it volume or because you're in the high class, you have the high class problem of too much demand that you might see door rates inch up a bit?

I mean we're looking at our door rates on a quarterly basis, John. That's something that's been ongoing forever. No, the demand, the volume is there. There's just plenty of volume from a fixed perspective and we're taking advantage of that and there are more techs to be hired and our culture's taken over. We're not having to push so hard to hire techs. The culture's taken over and our teams are out bringing in techs and they see the results. It's made a big, big difference and again that's been a year in the making of really changing our store level culture from a fixed operations perspective to get us to where we are and as David and Danny said, there's a lot of upside there.

So fair to say

volume

and price, right, opportunity? Yes.

Yeah. Okay. Just at one point, John, and speaking of tariff impact, service is one of those areas where we can pass that along to the consumer so that's another opportunity. We think if there are tariff issues, people are making a buy versus repair decision that can help that and we can pass along the tariff increase to the consumer.

Love the whole team tagging in there. I appreciate all the answers. Thank you,

guys.

Yes, sir.

Thank you. Our next question comes from the line of Brett Jordan with Jeffreys. Please proceed with your question.

Hey, good morning, guys. This is Patrick Buckley on for Brett. Thanks for taking our questions.

Morning.

On the use side, could you talk a bit more about what the GPU trajectory looks like from here? I guess it's Q1 above the 25 outlook. When should we start modeling in contraction and what's driving that?

It's just sort of an unknown right now based on what's going on with the tariffs. If nothing changes and things are steady as she goes, the margins that you saw in the first quarter should hold true on the franchise side throughout the end of the year. And Echo Parks margins are growing. We're buying a larger percentage of our cars off the street. We've moved from 20 to 25 percent up to 30 to as high as 35 percent of the cars now on a weekly basis coming from street purchases. That's making a big difference in our front margins. And that really helped out in March of the first quarter and it's carrying over into April. And that's a change for us. So, our front-end margins are improving there and we expect that to continue.

Great. Thank you. And then I guess on BEVs, have you seen any changes year to date with the current administration and just a little shakeup as far as mandates? And I guess what's the current outlook there on inventory versus demand? Yes,

it's dropping. We have less supply. Everything positive there. The thing is that now inventory levels are beginning to get closer to matching what consumer demand is. And that's where it should be.

The demand is lining up with... With the

inventory levels, right. And so, we're applauding that. We're having to carry less inventory. It doesn't turn as fast. We think the manufacturers are coming around. And that's the new administration that's supporting that. And that's a big applause from this

team. And you can see in the front-end GPUs, we had a headwind of around 350. And the full year of 2024 is down to 200 in Q1. So, aligning that inventory to demand is helping reduce that headwind in EV GPU.

And we think some of our manufacture partners are doing a great job with offering vehicles that... Where it's really... Speaking of customer demand, the customer gets to select their drivetrain. And that strategy is a great strategy. So, if they want an electric vehicle, they can choose an electric one. Or if they want an ICE, they can choose that. We like that strategy.

Great. That's all from us. Thanks, guys. Thank you.

Thank you. Our next question comes from the line of Jeff Lick with Stevens, Inc. Please proceed with your question.

Good morning, gentlemen. Thanks for taking our question. The first one is... I wonder if you could break down the warranty work... So, some parts worked a little bit as it relates to warranty customer pay. I know you're getting into it a little bit, but just the... You know, what the metrics were in terms of warranty growth as it relates to the comp and customer pay.

Yeah, about 40% warranty growth in the first quarter versus 2% to 3% customer pay growth. That's not a mix we like at all. It's an adjustment that we're making. We need to, you know, a lot more focus on getting our CP customers through the lanes and pushing the warranty work out a little bit. And those are adjustments that you'll see us make in the second quarter. That's just too big of a differentiator in the mix between warranty and customer pay for our liking. And there's a lot of warranty work out there. That can't be helped. But we need to adjust in terms of that mix coming through our lanes.

And we think it's a great sign of our team, you may want to mention that, that they already highlighted and noticed that. You know, it wasn't like that was just noticed. Yeah, the

team towards the end of the first quarter is saying, look, this is just not the mix of revenue coming through the service drive is not the mix we like. We need to start making some adjustments and those adjustments are being made. And we've got the technician head count now to handle that, and that's growing. So put all that together and we think we can pivot pretty quickly in how that mix is coming through the service drive in the second quarter.

Is there evidence or do you have ways to track, you know, kind of the occurrence of crowding out customer pay because of the warranty? I mean, do you see yourself, you know, even inadvertently turning away customer pay jobs in favor of warranty?

Not intentionally, but it's common sense. I mean, if you've got that much warranty coming through, it's easier work, it's higher margin, it's, you know, everybody's taking the licks at that. And it's just it's not the right way to run the shop. You need to load the shop differently. We know that just a lot of warranty hit us all at the same time. And, you know, service writer can take a warranty job in technician can flip it and get another one real quick because there's another one standing in line. And so we're not doing the additional service requests and the things I think from a playbook perspective that we should do. We've got to slow down and execute at a higher level. It's great to have the warranty work has certainly played a big role in our in our quarter from a fixed perspective. But we can do a better job in making sure that we're balancing customer pay and fix the right customer pay and warranty the right way and loading the shop appropriately. And we're making those changes.

And I would say it's more, you know, rather than saying turning customers away, it's more scheduling properly.

And just a quick one on Echo Park. If you and this is kind of just a hypothetical, if you think about a tariff scenario where let's just say the SAR does go down, you know, pick your number a million units, a million and a half because prices rise. And obviously that's going to come at the franchise dealers. There'll be less trade ins where franchise dealers tend to get more of their supply through trade ins. You know, I'm just curious. I could see either way how this could affect Echo Park. Obviously Echo Park is the whole premise is it's a value proposition. When you think about the puts and takes of all the different dynamics in terms of, you know, less stuff going through the auction lane and that and whatnot. Do you do you guys view a tariff scenario as beneficial to Echo Park or would it be a headwind?

Well, we've seen this video before, right? I mean, we played this out in 20 and 21 and 22 with COVID and we're prepared for it. That's why you're seeing us buy a lot more cars off the street. We think we can push that up even higher, maybe the 40 to 45 percent level. This just turning knobs. We are really in shape for something like this where I would say that we were not when COVID hit. And so it could have been a headwind if this was 2020, but we don't look at it like that now. We're very prepared and just had an amazing first quarter with Echo Park. We look to have another one in the second quarter. April's showing up that way. So, you know, in prices at the auctions are already up over a thousand dollars a car from what we're seeing in buying. But margins are continuing to grow volume solid. So I don't see it being a big problem.

Also, we're you know, if you think about it, we've noticed that especially in our mature markets, you know, as you may have heard on our previous call, you know, our Echo Park stores have the number one reputation dot com scores in the industry. So we're seeing where a lot of repeat customers, their friends and family coming to Echo Park and those those people, as you've seen our grosses going up, people are identifying Echo Park and saying we want to go there and buy a car and just choosing to go there first. And we're seeing that in our in our numbers. So I think that, you know, our team will adapt. So probably this go up. I still think that customers will pay for that amazing guest experience.

And that's just the sort of thing, obviously sourcing to go up. But if your demand goes up and your value proposition goes up, even, you know, your prices could go up, but your value proposition relative to the alternative could actually wide. That's what I was trying to get at is 100 percent. We

saw we saw that at the end of March and we're seeing it in April. And. We're still going to be. Marketplace, even if our prices are a thousand dollars higher, everybody else is going to be a lot higher, including our own franchise stores. It's just the difference in the model. And we really have that dialed in, in particular around the inventory management, the day supply, how fast we're moving inventory through the system. We're not going to be 20 to 22, 23 day supply on lot. We're turning those cars in 12 days just as fast as they can go. And we don't inventories not sitting inside. Just if you can turn the fastest and

we have a great education. Education.

Data between what we saw in 21 through 23 versus what you. I'm. I'm.

So. The truck. The option that actually has to change on the retail side for the right to hold it. And we know these are not necessarily. The. All. Proof. We can.

We were a lot smarter and more nimble than we were even 2436 months ago.

415 cars are rooftop and march every store profitable and the big Echo Park stores among the most profitable that we had in the company. So we we've got it dialed in. And now the question is, can we get inventory to stabilize a little bit? Because once we do that, we can start opening some stores and we're hopeful that towards the end of the year, the beginning of next year, we can start announcing, hey, we're going to we're going to bring a strategy that shows you how we're going to grow the footprint of Echo Park.

And it's worth mentioning that our new Echo Park store in Houston, for example, we've gotten speaking of things we've learned as we open that store. And I think November, I mean, it went off like very efficiently. We've got a mature team in there and they did 400 plus cars like in their second month.

Yeah, and have been profitable since day one. So which is just a great sign.

Awesome. Well, thank you very much and best of luck in Q2.

Thanks

so much.

Thank you.

Take care. Bye bye. Thank you. Our next question comes from the line of Raj Gupta with JP Morgan. Please proceed with your question.

Great. Sorry, I have just one more follow up on Echo Park here. The first quarter results obviously pretty strong here. It looks like you did take up your full year guidance, but maybe, you know, it seems a bit conservative in context of how strong the first quarter was. It looks like you feel good about the Echo Park retail GPU, the F&I, you know, maintain your unit guidance. I'm curious, like, why isn't the guidance higher than the range you provided based on the first quarter start?

I think it's a good question.

We've taken the guidance up further.

Sorry, I think like there might be some issues with my line, but I'll try again. We heard your question. Oh, you did? Okay, great. Can you hear us? It broke up like in the response, but I can check the transcript. Maybe it's on my line, but I'm not sure I'll apply for it. It's like others have caught it, but if you want to repeat the answer, that's fine.

That's no problem. We said you sound like our board of directors yesterday in our board meeting asking the exact same questions, and look, the tariffs are playing a role in our forecast there. We'll get a lot more. We can get more aggressive if things play out the way we think they're going to from a tariff perspective and they turn positive, but we need to be conservative there, So we don't get out ahead of ourselves. if things do get tighter from a used car pricing perspective. And so further adjustments as we get into announcing the second quarter, if things play out the way we think from a tariff perspective.

Understood, understood, that's helpful. And then just on SG&A, one of the things you've noticed in your print and some of the peers that have reported, we did see a little more delaveraging in the first quarter than maybe at least what I had been expecting and maybe some other investors might've been expecting. Some of your peers talked about some weather headwinds in January, February, a couple lower selling days that might've caused that. I was curious if there's anything you would wanna call out on the SG&A, if the leverage was in line with their expectations or was it worse or better? And also, have there been any pay plan or commission type adjustments within the workforce that's maybe driving the SG&A higher and which could be more sticky? So just wanting to unpack all of this a little bit if possible, that's all I have, thanks.

I could just mention that this is David, from our kickoff to the year, we had a big focus on SG&A and expenses and throughout the company in our annual meeting and we think that that's taking effect as you see it in the numbers.

Yeah, I was just gonna mention, there are a few things that our first quarter one times, we had some compensation that was just for the first quarter that would be driving that up, but there's nothing that's material. There hasn't been any changes to pay plans that would've caused that. It's really just your first quarter things that we clean up in the first quarter, such as payroll taxes or higher, et cetera, but nothing systematic that is gonna be going through the next three quarters of the year.

That's helpful clarification. Thanks a lot and good luck.

And maybe one final point on that, we reaffirmed our full year consolidated company, SG&A Target in the low 70 range and so there's gonna be some puts and takes as to what comes from the franchise and what comes from Echo Park as we go through the year and obviously depending on how the tariff situation plays out on demand and volume. Volume's the big driver of sales compensation, the variable compensation piece, but overall we're still in line with what we anticipated for the year through the first three months.

Yeah and I think this is Heath, I think it's interesting to point out that this quarter Echo Park's 16 days percent of growth was lower than the franchise and that just shows you as the volume and the growth increases, you have more money that flows to the bottom line quicker because of the fixed expense structure that we have at Echo Park.

Got it, got it, that makes sense. Thanks for flagging that. All right, great, thanks again and good luck. Thank you, John. Thank you.

Thank you. Our next question comes from the line of Daniela Hageon with Morgan Stanley. Please proceed with your question.

Hi, thanks, well more on Echo Park and apologies if you answered this earlier, I also had some connection issues but you mentioned anticipating an increase in used pricing, uplift to demand as a result of tariffs with newer used vehicle supply still tight even with the mitigating factors like diversifying resourcing and off lease incrementally improving the next year or so, do you see opportunity moving into older used vehicles to meet some affordability concerns as well? I

mean, we did that during COVID, Daniela, this is Jeff, we did it during COVID. It's a small percentage, it's 10 to 15% of the overall volume, maybe even less at times and sure, we would flex that way if we need to. We haven't seen a need to do that yet and remember we reduced the number of stores that we had so we're down to 17 Echo Park stores, we can buy enough inventory to support those stores both off the street and trades and through the auction lanes. So I'm not too concerned about getting inventory, we'll watch pricing and adjust the mixed accordingly but if we need to, no question, we can increase the percentage of five, six, seven, eight, nine, 10 year old vehicles. It just adds complexity to the business when you do that, recon times take longer, there's just a lot of complexities and we're trying to stay away from that because complexity is not part of the Echo Park model but it's certainly something that we have the capability of doing and we did during the COVID years.

I hear you, thanks. Thank

you. Thank you. Our next question comes from the line of Michael Ward with City Research, please proceed with your question.

Michael?

And Michael, are you there? Your line is

currently

on. Sorry about that.

Am I good?

You're good.

Yeah, sorry about that. One thing we haven't touched on is that if we get these price increases for tariffs, you get a corresponding increase in the residual values of vehicles coming off lease, particularly at the luxury end, the import luxury end. How fast do those residual values adjust?

I mean, they will adjust quickly Michael but we're still dealing with the lack of lease returns from lack of lease sales in the- That was my

next question, yeah. Do you have any line of sight on that? When does that start to turn the other way?

Next year, you'll start to see- Yeah, an adjustment, but not in this calendar year, no way.

So if anything, some of those vehicles coming off lease this year at the lower supply, you'll get a pretty big increase in the residual that should help on the CPO side and offset

where trade is.

It

can, yes, it can.

Okay, to help mitigate it, okay. All right, and then one last thing on Echo Park. You kind of alluded to that, the timing of considering reopening some of the locations could be at the end of the year. If you do, it sounds like you're in showroom traffic has picked up, you're certainly, your costs are in line and some of the other things. If necessary, can that be accelerated or are you still just gonna wait and see before you turn the keys back on?

Yeah, I can tell you that we are, our team is, as Jeff mentioned earlier, we've learned a lot from the pandemic and how to open stores and when to open stores. And I think you're gonna see that in the future quarters, that if our performance continues the way it did in this quarter, you're gonna see us opening some stores. And we found that we can very efficiently open them, like the one in Stafford, for example, which by the way was that particular location, Jeff Dyke was a general manager at that location back in the day. First name job, wow. Great, but we got, once we acquired that location, from the time we did to opening was a very short period of time and it was off to the races, as I mentioned earlier in the call, within a couple of months, we're selling over 400 cars out of that location. So once we get ramped up and get going, again, you're gonna see, we're able to do it very quickly.

This is Jeff, we've got obviously properties, facilities that we own that are ready to go, things that we can go pull the trigger on. There needs to be some stability here. Yeah, the United Swindon. Yeah, God, it's just, we were laughing the other day, it's just keep throwing it at us, we're Teflon, we can handle anything. And so this is tariffs, what the hell, who cares? I mean, we'll just get the rest. Yeah, that's right. It's old half of the autos. It's honestly an important message, I think for the street and our team, is to understand we've got a lot of leather on our skins. We've been through this before, we've seen a lot of curve balls thrown at us. It'd be nice to have a year or two of just straight, let's go sell some cars and service some cars and have some great guest experience and build the great technologies, but we'll deal with it and we seem to always find the rose here in the garden and we'll do that again with this little gig that we're facing. So we'll see, it's gonna be a fun year. We're gonna sell a lot of cars, Echo Park's gonna do great, but a few bumps in the road, so to speak.

And our Echo Park Chief Operating Officer, Tim Keen, is not here with us today because his daughter's getting married this weekend, but we can tell you that Tim has been on the road looking at potential locations recently that we're really excited about. So we'll have more on that in the future.

Sounds like you planned it out properly back when you made those decisions.

So we did it back.

Yeah, so give you the flexibility. Thank you.

Thanks, Mike. Thanks.

Thank you. And as a reminder, if anyone has any questions, you may press star one on your telephone keypad to join the queue and ask a question. Our next question comes from the line of Chris Pierce with Needham and Company. Please proceed with your question.

Hey, good morning, everyone. Morning. Can you just walk me through, I think the question was asked earlier on, use vehicle GPU. I just wanna make sure I understand the assumptions when I look at first quarter, recent history, and then the guidance. Is it that because prices might go up and you still wanna move units, yourselves in the industry will take a lower GPU or is there something I'm missing? I just wanna make sure I understand the puts and takes there.

Meaning GPU or margin percentage from a franchise. Dollar GPU. Yeah, a dollar GPU from a franchise perspective. That's something crazy happens with the tariffs. We ought to be in the same ballpark that we're in now. I think we're at 1500 and something. We've been operating for years now in the 14 to 1600 range. And somewhere in that 1500 range, we're gonna be from a franchise perspective, I don't see that really changing. And then, but I do see Echo Parks front end margin getting better historically because of the percentage of cars that we're buying off the street and we're trading for versus the percentage of cars the mix is changing that we're getting from the auction. That's now a 70, 30 mix, a 65, 35 mix. It was an 80, 20 mix. And just by definition, if you're buying cars off the street, you're gonna have better margin. And

this is the one thing to add, I think the disconnect here is one of the big issues is you have seasonality. And so as we go through the years, I mean, through the quarters, you're gonna have certain quarters that are historically lower. And so you're gonna end up, like we said, between that 1300 and 1500 range.

Okay, and then just lastly, one on Echo Park F&I per retail vehicle. If I look at the number of this quarter and then look at the guidance, I mean, is there seasonality based on the type of customer you see in the first quarter that takes a higher percentage of warranty or pay the higher interest rates so you can sell off the loan at a higher amount? I just wanna understand, because it looks like the per vehicle number comes down through the rest of the year to get to the guidance at Echo Park.

Yeah, honestly, we're probably being conservative there. We're executing at a really high level from a warranty penetration perspective. We've done some cost work on what we're paying for warranties and managing that better. That's flowing in other products. Those are flowing to the bottom line. So our F&I performance is just stronger. And I would project that it's gonna continue to be stronger.

Okay, and just to clarify that, you're saying that you're seeing price advantages from your third-party warranty providers, and that's flowing through? We're seeing price

advantages from moves that we've made with our third-party warranty providers that's flowing through to the bottom line, yes.

Okay, okay, perfect. That's everything for me.

Again, it's also important to emphasize again that our team, our Echo Park team, is delivering the number one guest experience in the industry. So there's no doubt that that's reflecting in the numbers.

Perfect.

Thank you.

Thank you. And we have reached the end of the question and answer session. I would like to turn the floor back to David Smith for closing remarks.

Thank you, everyone. We'll speak with you next quarter. Have a great day. Thank you.

Thank you. This concludes today's conference. You may disconnect your lines, and we thank you for your participation.

Have a great day.