Sonic Automotive, Inc.

Good morning and welcome to the Sonic Automotive Second Quarter 2026 Earnings Conference Call. This conference call is being recorded today, Thursday, July 30, 2026. Presentation materials which accompany management's discussion on the conference call can be accessed at the company's website at ir.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 forward-looking 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 Security and Exchange Commission. In addition, management may discuss certain non-GAAP financial measures as defined by the Security and Exchange Commission. Please refer to the non-GAAP reconciliation tables in the company's current report on form 8K filed with Securities and Exchange Commissions earlier today. I would now like to introduce Mr. David Smith, Chairman and Chief Executive Officer of Sonic Automotive. Mr. Smith, you may begin.

Thank you very much and good morning, everyone. Welcome to Sonic Automotive's second quarter 2026 earnings call. As she 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, our Echo Park Chief Operating Officer Tim Keen, our VP of Investor Relations Danny Wieland. I'd like to begin by thanking our outstanding teammates for their continued commitment to delivering a world-class guest experience. The strength of our relationships with our teammates, our guests, our manufacturer partners, and lending partners remain central to our long-term success and we appreciate their continued support of the Sonic Automotive team. Earlier this morning, Sonic Automotive reported second quarter financial results, including record second quarter total revenues of $3.9 billion, an increase of 8% from the prior year period, an all-time record quarterly gross profit of $616.2 million, up 2% year over year. Second quarter reported gap EPS was $1.79 per diluted share, Excluding the effect of certain adjustments detailed in our press release this morning, non-GAAP adjusted EPS for the second quarter was $1.82 per diluted share. Beginning with our franchised dealership segment, our stores performed well despite difficult year-over-year comparisons as a result of pre-tariff consumer demand pull forward during the second quarter of 2025. Reported revenues increased 6% to $3.3 billion, while same-store revenues increased 2% year-over-year. Reported franchised dealership segment gross profit increased 1%, while same-store gross profit decreased 3%. Halfway through the year, new vehicle gross profit per unit is tracking above the high end of our full year guidance range of $2,700 to $3,000 per unit. As a result, we have increased our full year new GPU guidance to $2,850 to $3,000 per unit, implying lower downside risk despite potential GPU compression in the third and fourth quarters as a result of ongoing tariff-driven affordability challenges. Second quarter reported new vehicle GPU was $3,024, down 11% year-over-year, and same store new vehicle GPU was $2,872, down 16% year-over-year, driven primarily by higher GPUs in the prior year period as a result of pre-tariff consumer demand. Same store new vehicle unit volume was flat year-over-year, in line with industry trends. Year to date, used vehicle gross profit per unit is also tracking at the high end of our previously communicated full year guidance range of $1,350 to $1,450. Second quarter reported used vehicle GPU was $1,399, down 12%, and same store used vehicle GPU was $1,401. down 13%. Same-store retail used vehicle volume increased 7%, driven by improving used vehicle supply and our strategic focus on increasing used vehicle volume throughput as we progress toward our long-term objective of retailing an average of 100 used retail units per dealership per month, representing approximately 25% organic volume growth potential from current levels. We believe second half used GPU may be lower than the first half of 2026 as we focus on volume throughput and total gross profit generation. Fixed operations remains a source of stable and recurring earnings, with reported gross profit increasing 6% to an all-time quarterly record of $263.8 million. On a same-store basis, Fixed operations gross profit increased 2%, driven by a 1% increase in customer pay gross profit and a 3% increase in warranty gross profit. We believe that continued affordability challenges may lead consumers to repair their current vehicles rather than replace them with newer ones. To capitalize on this potential tailwind, we are continuing to implement value pricing service offerings and service-based marketing strategies to drive share gains and support our guidance for mid-single-digit percentage growth and same-store fixed operations gross profit for the full year. F&I continued to make a very meaningful contribution to our results with reported franchise dealerships F&I gross profit increasing 2% to a second-quarter record of $147.9 million, while same-store F&I gross profit decreased 1%, driven by a 4% decrease in same store F&I per unit. Fixed operations and F&I continue to provide a stable foundation for our business, representing more than 75% of total gross profit during the second quarter. The strength of these higher margin businesses helped offset declines in new vehicle GPU and supported the overall profitability of our franchise dealership segment. Turning now to Echo Park, Second quarter revenues increased 15% to $582.9 million, and segment gross profit increased 4% to a second quarter record of $64.3 million. Echo Park retail used volume well outpaced the broader industry, increasing 17% to 19,601 units, reflecting continued consumer demand for our strategic value proposition, Improvement in non-auction sourcing mix and strong execution by our teammates to continue to deliver an outstanding guest experience. Echo Park total gross profit per unit was $3,292, down 12% year-over-year, driven by a 21% decrease in used vehicle front GPU to $328, and an 11% decrease in F&I gross profit per unit to $2,965. Used vehicle GPU was stable sequentially, benefiting from our increased mix of non-auction source inventory. The sequential reduction in F&I gross profit per unit reflected lower service contract penetration and lower gross profit per service contract due in part to a greater mix of battery electric and higher mileage vehicles, which carry lower warranty penetration rates and profit per contract. As we have improved our mix of non-auction sourced inventory and shifted our inventory mix to provide more affordable, higher mileage vehicles to consumers, it has put some pressure on our F&I GPU while benefiting volume, consumer reach, and overall gross profit levels. Going forward, we remain focused on optimizing vehicle sourcing and inventory mix, vehicle pricing, and F&I product offerings to drive targeted levels of total GPU in the $3,100 to $3,300 per unit range for full year 2026, along with 12% to 15% used retail unit volume growth. Echo Park's segment income was $7.2 million, and adjusted EBITDA was $13.9 million, tracking within our full year guidance of $35 to $40 million in adjusted EBITDA. Included in this guidance is $8 to $12 million in incremental brand marketing expense in the fourth quarter, which we believe will support new market expansion and organic volume growth in our existing Echo Park markets. We expect to open one new Echo Park location in the Orlando market in the fourth quarter and two to four new Echo Park locations in 2027. Turning now to our power sports segment. Revenues increased 53% to a second quarter record $73.5 million, and gross profit increased 57% to a second quarter record $19.7 million. On a same-store basis, power sports revenues and gross profit each increased 13% year-over-year. Reported new retail unit volume increased 27%, while reported used retail unit volume increased 61%. On the same store basis, Powersports new retail unit volume increased 3% and used retail unit volume increased 19%. Powersports reported F&I revenue increased 75% year over year to $3.5 million with total F&I per unit up 27% to $1,125. Same store F&I revenue increased 20%, while same store F&I per unit increased 12%. Power Sports segment income increased to $2.3 million from break-even in the prior year period, and adjusted EBITDA increased 145% to $4.9 million. Our recently required Harley-Davidson dealerships in California, Florida, Georgia, and North Carolina contributed to the segment's growth and expanded our presence in several important riding markets. These locations also improve the geographic and seasonal diversification of our power sports portfolio, as evidenced by the increase in second quarter adjusted EBITDA year over year. Despite limited Sonic Playbook integration to date, these stores are already seeing returns above our expectations. This gives credence to our commitment to growing and sustaining our power sports growth strategy. We are also gearing up for the 86th annual Sturgis Motorcycle Rally starting August 7th, where we expect another strong opportunity to showcase the benefits of our expanded footprint and capitalize on one of the industry's largest retail events. Finally, turning to our balance sheet, We ended the quarter with approximately $676 million of total available liquidity resources, including approximately $294 million of cash and floor plan deposits. Our liquidity position and balance sheet capacity provide us with the flexibility to support our existing businesses, make targeted organic investments, pursue strategic acquisition opportunities, and return capital to stockholders. As we continue to execute our balanced capital allocation strategy, I'm pleased to announce that our Board of Directors approved a cash dividend of 41 cents per share, payable on October 15, 2026, for current shareholders as of September 15, 2026. We will continue to evaluate potential uses of capital based on available acquisition opportunities, relative financial returns, strategic fit, and prevailing market conditions. Our team remains focused on delivering an exceptional guest experience while executing our long-term strategy across all three operating segments and making disciplined decisions designed to enhance long-term shareholder value. This concludes our opening remarks and we look forward to answering any questions you 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 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment while we pull for questions. Thank you. Our first question is from Jeff Lick with Stevens. Please proceed with your question.

Good morning. Thanks for taking my question. Good morning. I wanted to ask about your new business. I mean, you did outperform, you know, now that we've seen everyone report. You know, you're really the only one that kind of matched the market. I'm curious just to get your thoughts on why you think that is, and then maybe if you could build on it. Not only did you match the market and outperform your peers in new, but you did so in used in that your used comp was actually better than your new comp, and used units was better than new units. So can you speak to why you're able to do that and what you're seeing and what might be different for you?

Yeah, I mean, I don't know, based on brand mix, what the differences might be. I think we're a little more aggressive on our margins. We've been saying that, you know, there's going to be a margin stretch coming into the second half of the year. We pay real close attention to our day supply and making sure that we're turning inventory. So I think we were pretty darned aggressive from a margin perspective, and that helped grow the volume and really support our big F&I numbers. We strategically have higher F&I PURs, I think, than most of the rest of the group. And so when you combine that with the front end, it's a little lower in our higher F&I margins. The total gross dollars were in line with our expectations, and we really drove a great quarter, both from a new and a pre-owned perspective with that strategy.

And then just... follow-up or a shift gears to Echo Park. You made some tweaks, took the units up, GPU, total GPU down, combination of the vehicle and the finance F&I. Is there any details there? And then on advertising, you took that down by 8 million, which I guess effectively means you took your Echo Park guidance down by 8 million. My question there is if you were a private company, would you still take the advertising down?

That's interesting. Yes, we're not, this is David, we don't make decisions like that. We're doing what's best for our business long term.

Yeah.

I think that's the easy answer.

Yeah, and it would have to do, private or public, it has to do more with scheduling, getting it right before we take it out. It's a scheduling issue as well from a timing perspective.

And then, you know, the margin mix was driven basically by inventory mix. Tim can comment more, but We sold more EVs and C cars. We're working on back-end products for that, but drove great volume, up 17% for the quarter. And if you take a look at July, we're running north of 20% growth, north of 25% growth for July, which is fantastic. So all of this is kind of what we said we'd do, you know, as we began the year and work towards opening, beginning to open stores again. The volume's coming back. We've got really strong back-end numbers. even at the numbers that we're doing now with the mix change. And we'll have some new F&I products for Bev and for C cars that will help that. But we'll stabilize in that 3,100 to 3,300 range, but then we're going to sell more cars and we're proving that now. So all speed ahead from an Echo Park perspective. We're super excited about the business and with affordability issues that we see on new, I mean, we've crested $60,000, $61,000 close to from a new car price perspective, the industry's at $50,000. Our used car pricing is less than half of what a new car price is from an Echo Park perspective. That really bodes well for Echo Park over the next 12 to 18 months. It's gonna be a lot of fun to watch this brand grow.

So I guess to sum it up then, if you look at the advertising guidance or the budget coming down It maybe looks like what you're saying is, look, you know, volume really isn't our issue given what you're observing. So maybe we don't need to spend 20 million bucks in advertising and maybe we just need to spend a little more time kind of fine tuning the GPU.

Two separate things. We would expect the advertising that we're going to do, it's a timing issue. That's it. And we expect that advertising when we get to the fourth quarter to even add more to what we're doing now. So that opportunity was there all along. We were being very conservative, you know, making sure that our EBITDA was where it needed to be and just being conservative with Echo Park. The volume, you know, if you remember pre-COVID, we were selling 500 plus cars a rooftop a month. So, and now we're doing in the 350 range. You know, we've got a lot of upside opportunity in the current stores that we have. And it's just turn a little lever here and there or pull a lever here and there and we can push our volume up drastically. So, That's going to happen. You see some of our competitors doing that. And we look forward to a great second half of the year with Echo Park. We're going to see nice growth. And we're seeing it in July. And as we launch our new advertising campaign, which is really going to be special, the world's going to have a lot of fun with that. We expect to see even higher growth and build on margin from that point forward.

and Jeff, this is Heath, just to be clear, we still have our initial branding budget is 20 million. To Jeff's point, it's just timing.

Did you put Danny in some of those Echo Park ads?

Yes. You just never know. You never know what we're going to do. Yeah, this is David. I would just add that it is part of our plan. We'll have more to announce hopefully in the near future about our marketing branding plan for Echo Park, but We can tell you, you know, anecdotally, like our naming rights deal at Echo Park Speedway, when the customers, the awareness that that is generated, once customers hear about Echo Park and they see our online reviews, again, we've got the number one guest experience in the industry. And when they see that, they see the volume in our source, in our land store, for example. It's doubled. It's doubled. It's been a huge impact. So we know that... Again, we'll have further things to announce soon, but we're excited about it.

And maybe one more, one final point. This is Danny. One final point on that is with the timing, you know, we had our marketing teams very much taken a data-driven approach to how we deploy this incremental brand spend. And with the shift in the way consumers are shopping, we had some back-end work to do related to our websites in terms of being answer engine optimized for the portion of buyers that are searching via AI tools. We don't want to go out with that significant amount of brand spend, at least to our segment results, without being prepared to capitalize on it in the way that the consumers are currently shopping. So there was some front-end work, and that's what shifted the timing further back in the year from what we told you, 10 to 20 million back in February.

Well, thanks for taking my questions, and congrats. It's definitely standout results.

Thanks a lot. Thank you. Thank you.

Thank you. Our next question is from Alex Perry with Bank of America. Please proceed with your question.

Hi, thanks for taking my questions here. I guess just to follow up on Echo Park, you spoke a bit about the share gains, and it's great to see, I guess, How are you gaining market share there versus some of your used-only peers? Something changed around the pricing strategy. You mentioned some shifts in the advertising strategy. Should we expect those share gains to continue? Thanks.

Yeah, this is Tim Keen. Really, the only shift was carrying more inventory and being conscious of us being in a value position with cheaper inventory. which is what drove our mix change and allowed us to drive the volume.

This is Jeff. As we set up against the new car pricing that's out there right now and this affordability issue continues, you're going to see used car growth really, really go. We're getting back now to used car pricing being one half that of the new car price that's out there. That's when the used car business really fires and that's what's happening. It's happening naturally, and we're forcing it even more from an Echo Park perspective. When you combine all that, it's just amazing the energy you get from a volume perspective. We're seeing that. I think you saw it at a couple other competitors and then some others. I'd made some comments about going for gross. I don't understand that a little bit right now from a PR perspective because inventory is coming back. Off-lease cars are coming. You've got a lot of off-lease BEV cars. in the market where the manufacturers kind of absorb some of the depreciation. We're taking advantage of that. Just missed out a little bit on back-end products with that. I think Bev was 15% or almost 15% of our overall volume in the second quarter at Echo Park. That's way up from what it normally was running. And so we took advantage of that, had a bigger reach for our customer base, expanded our customer base, and now we said we need to add some products for Bev. We'll do that. But very, very focused on our pricing and the level of inventory we're carrying. And when you combine all that, it's amazing what's happening. And it's going to continue to happen through the rest of the year. Like I said, if you look at July, we're having a blast and we're plus 25% the last year or something like that right now.

And one more point on that auction sourcing mix. In the first quarter, we were 32% non-auction sourced. We were up 10 full points to 42% of our sales were non-auction sourced during the second quarter. So significant gains there. and to Jeff's point, the way that we're attacking that with the non-auction miscs is going to what consumers are looking for from higher mileage, more affordable vehicles. EVs, off-lease and used EVs are very hot right now. Both of those were growing 40-60% quarter over quarter in terms of their share of Echo Park's mix. So we've got to fine-tune a little bit the F&I component and the relative GPUs, but it's supporting the volume and it's supporting growth of the awareness of Echo Park's brand and the reach that we have. That's all really, really helpful.

Thank you for that. I guess just to follow up on parts and service. So, you know, the same store comps, I guess, moderated a bit against fairly difficult compares, you know, pretty consistent with what we've seen across the peer group. You know, is there anything structural driving that moderation? You know, what supports return to sort of mid-single digit growth? And then, Do you think there's an affordability challenge out there in parts and service where pricing sort of needs to come down at all? Or do you think it was more of a one-off thing? Thanks.

No, I think that there 100% is a pricing issue. I mean, when you think about it, customers who buy new cars, as an industry average, only half of them are coming back to new car dealers to service their cars. The opportunity in fixed operations is huge. And that's why we're focused on value pricing. We've got five op codes right now per store that we're really focused on from a value pricing perspective. That's going to grow. We need to get our pricing in line as an industry from a fixed operations perspective, and we're working really hard on that. But there is an affordability issue there, and there's an affordability issue on the price of a new car. And when you add all that together, that's why I think you see some wobbleness in fixed operations growth. and growing only 2%. There's way more there, way more meat on the bone. And that's a huge focus for us as we move forward. And if customers are gonna stay in cars longer, I mean, the average customer is financing their car, 70% of our customers are financing their car for 72 months or longer. So if that's gonna be the case and customers are gonna drive new cars longer, there's gonna be huge upside from a fixed operations perspective We've got to get our costs and our pricing in line for our customers to bring more customers into the service drive. We are absolutely focused on doing that. We've increased the number of bays that we have. We've increased the number of technicians we have. And, you know, quite honestly, the numbers that we're seeing out there is not good enough. There's a wobble in the second quarter. I'm not sure, you know, if it's the war, what's causing it. But just across the board, low single-digit numbers and fixed operations, not acceptable. We need to be you know, mid to upper single digit and maybe even double digit growth as we go forward. And it's something that we're very, very focused on. It's a great question.

Thank you. All incredibly helpful. Best of luck going forward.

Thank you so much.

Thank you. Our next question is from Chris Pierce with Needham and Company. Please proceed with your question.

Hey, guys. Good morning. At Echo Park, can you carry this much inventory? I guess, you know, days of sale is up, I think, 15% year over year. Is the pricing environment, does that help you carry this inventory, or is it more your updated sourcing? Like, is this sort of a new normal, or does the environment play a role in kind of what we saw in 2Q from inventory and unit growth?

Yeah, it's really both, and it's sustainable going forward for sure.

Your day supply is a little higher than normal right now, but we saw an opportunity to buy more cars off the street. We're selling more cars, as you can see. We're having a big old July. We expect that to carry on for the rest of the year. Day supply is going to drop as we move into September and October. That's just normal seasonality. But we told you earlier, we pushed inventory up because we know there's some opportunities from a volume perspective, and we've done that, and Great opportunity for us to grow.

This is David. I think it's important to note that our existing footprint of Echo Park stores, we have a lot more capacity that we can sell out of those existing stores. It's close to double what we're selling now. The room that we have and how we're built, we have some sales people selling 50 cars a month individually.

Okay, and then thank you for that. You know, there's more devs coming off lease for the next multiple years. Should we think about, and you know, I think Danny said this stat that only 15% of Echo Park was EV. I mean, should this sort of be a new sort of normal for F&I? I know you kind of guided where you guided, but the figure we saw in 2Q, could it, is it possible it could move lower as more EV comes offline, online? Like, what's the right way to think about that?

From a margin perspective?

Yeah, from F&I retail dollars per vehicle.

Yeah, no, I mean, we're kind of in the ballpark where we'll be. I don't think it goes any lower. It could go higher because we're working on products to add that we can sell on that particular type of vehicle. So I don't expect it to go any lower. No, no, no.

Go ahead. You're not as familiar with selling so many EVs, so a tax might be artificially low in this beginning period. Is that sort of a realistic expectation?

Yeah, I think the industry is that way. We've got a lot of off-lease BEVs coming back now. Manufacturers have done a great job absorbing some of that depreciation. We're going to see that until, I think, the end of next year when it kind of maybe levels off or the middle of the following year. We don't have as many beds being sold now, obviously. So there's going to be an up and then a down. But then we have more off-lease cars coming back from a combustion perspective and a hybrid perspective. So that'll be a big help and a big boost. It's going to be good for the used car business over the next couple of years, I think, from a lease return perspective. And we'll work out the margin with products on the back end. It just, you know, we sold more this quarter and we'll sell more in the coming quarters and we'll add some F&I products to support that.

And some of it on the F&I, on the warrants attached with BEVs is a little bit of a disconnect in our sales approach historically with more hybrid and ice-based unit volume at Echo Park, as well as consumer perception that EVs have less repair risk or less repair cost. And in fact, we're actually seeing that EVs are the highest dollars per repair on average in the industry. Some of that's because it's new technology. Some of it's because you've got more wholesale replacement of parts as opposed to individual components. But there's a bit of an opportunity just to educate the consumer, too, when you look at some of the data on EV maintenance and repair costs relative to hybrid and ICE, that it's not quite as low cost as it seems, at least for the interim.

Okay. And just lastly, judging on your reaction to Jeff's question here, and I kind of scoff at this one too, but I'm just kind of curious. You're growing 17, 25 in July with no advertising. You've got easy comps in the second half. Like why push that button now? Why not push the store opening button or why not just kind of let it run through until you need to hit the gas on that?

We're going to do both because we can grow even more and we can grow margin. The more our guests know who we are, Echo Parks are often the unknowns. in the markets that we do business in. And so we think there's a margin play there for us, a front-end margin play. And we've got a lot more volume to get. It's there for us to go get. And we can back off if we need to, if we see we've made the investment and it's not coming. But we've worked really hard to get this brand ready to roll. As David said earlier, our guest experience is unmatched. And we're very excited about that opportunity We're going to start growing and grow the brand. We've made that commitment. We've been telling y'all that this is coming for a better part of a year now. And we're ready. We're healthy. We're ready to go. We're in shape. And we'll see. I'm not scoffing at it, but I'm very excited about it.

And to David's earlier point, I just want to reiterate, because I think it's really important. We objectively have the best experience. We objectively have the lowest cost possible. and for the same or better quality of vehicle. The only thing we're missing is you don't know about us. If you know about us, those are the three things that customers are looking for and the brand is going to create that awareness.

It's not a quarterly play for us. That's just not how we look at this business. We're not trying to bump numbers one quarter after another. It's a long-term, educated... seasoned executive team, and we're going to take that and put that to work for us over time. And we've been building and investing in Echo Park for a long time. It's now time to grow.

Thank you very much.

Thank you.

Thank you. Our next question is from Brett Jordan with Jefferies. Please proceed with your question.

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

Hey, Patrick. Sure.

As you look across your segments today, where are you seeing the best valuations and opportunity for investments? Power sports seem to be the primary M&A focus this quarter, but how does that pipeline compare to franchise vehicles?

You know, this is David. It's really fantastic because of our team and what a great job we've been doing with the market share and guest experience, and we're green with our manufacturers. So we're seeing more opportunities than ever. to grow both in franchise and in the power sports. Certainly the valuations in power sports are very interesting, very compelling, and we're super excited about the performance of our power sports team. I think we'll be hopefully announcing some things here in the coming quarters, but there's no shortage of

really fantastic high-quality opportunities both in power sports and franchise Jeff, this is Jeff, the most I've seen in my career it's amazing from a franchise and power sports perspective the opportunities that are out there and great quality deals great brands and brands that we excel in and so we're working on a lot of them right now and as David said You know, stay tuned because there are more opportunities coming.

And this is Heath. A couple of interesting things. If you look at Powersports, you know, they traded a different multiple, a smaller multiple than the franchise. And there's so much opportunity. We said at the beginning how we could change the used business in Powersports and fixed ops. And it's great seeing that it's working just like we thought. And the F&I piece, we have a ton of opportunity. There are competitors that are double opportunities. are F&I GPUs. So that is becoming a really, you get it for lower multiples and there's a lot more opportunity for improvement. So that's fantastic. But the beautiful thing about Sonic is the diversification, to your point. We've got opportunities in the franchise. We've got unlimited growth opportunities with Echo Park. And now that we've sort of formalized our playbooks in power sports, That is a very attractive segment to grow in as well. And I think our diversification is something that's very attractive.

Got it. Very helpful. And then on the franchise vehicle side, were there any notable regional call-ups this quarter? No.

There's nothing. I mean, it's a smooth operation. Everything was fine. I mean, the big thing is affordability, like I said earlier. One in five customer payments now are above $1,000 a monthly payment, approaching $800 a month, a monthly payment on a new car as an industry. This is just too high. And so something's got to give here. In the meantime, we'll take it. We'll sell a lot of used cars and enjoy the 16 SAR that's out there. But the big surprise continues to be what the tariffs have done to affordability. kind of across the board. And I think at some point we're going to have to address, the industry is going to have to address it. The manufacturers are going to have to address it. The cars are getting too expensive.

Great. That's all for us. Thanks, guys.

Thank you.

Thank you. Our next question is from Rajat Gupta from J.P. Morgan. Please proceed with your questions.

Great, thanks for taking the question. I wanted to follow up on, you know, parts and service. You know, we've seen, you know, some slowing in the growth rates, you know, even some negative gross profit growth, you know, from some of your peers. I understand, like, warranty comps got tougher this quarter, but I'm curious, like, if anything's just shifted more recently in the market backdrop in general? You know, either be it affordability or just the car park shifting, it just seems a little sudden in terms of the shift in growth there. And to your point, you're still guiding to mid-single-digit growth for the year. So it's curious, like, what's going to drive the acceleration in the second half?

Well, I mean, we're staying aggressive on our pricing, and hopefully that's going to drive more and more RO counts. and customers through our service drive. I agree with you. If you look just across the board at the industry and everybody who's reported, there's a wobble and fixed in Q2. And it really makes no sense. It shouldn't be that way. And so, you know, I think there's tons of opportunity in the car park that's out there. We are focused on mid single digit to upper single digit growth. And anything less than that, like I said earlier, is just not acceptable. There's just too much opportunity. There's something happened. I can't tell you that it was the news and the war or gas prices really fluctuating all over the place. That could be a player. But the overall opportunity has not changed. It's big. Warranty comes and goes. It actually can be detrimental to a service department if you have too much warranty because the service writer's Pay attention to that. It's easy money and they don't sell and do the job they need to do from a customer pay perspective. So that's something that we're very focused on in our service drives, very focused on putting the right offers out there and keeping our costs down so that there's plenty of margin there so we can bring our customers in and they're not going to the mom and pop service centers all over towns. And so it's a big focus for us, but to put my finger on one individual thing, I think you've heard it from everybody. It's just not there.

Yeah, I think it's important to note, Rajat, this is David, that our marketing team, we're also taking steps to reach out to both our existing customers and potential new customers to change the perception that the franchise dealer has higher pricing. And as we're adjusting our pricing, I think it's key to make sure that people know it. And so we're taking those steps to drive our business.

One more point. This is Danny. I mean, we're getting to the point where our average vehicle coming through our service lanes is about five years old. Mid-26 is with the five-year lapping of the sudden decline in new vehicle SAR that we saw starting in May, June of 2021. You ran a 13.7 million SAR kind of for that period, then it jumped up in the mid-14s, then jumped back up into the 15s. So, you know, not attributing that necessarily to what we've seen in this slowdown, but as we look ahead, That car park that's in its return to dealer service life is going to continue to grow over the next two to three years. And so, you know, some of the things strategically with pricing and marketing that we're doing should help us get back to that mid-single-digit growth rate as we go forward, notwithstanding whatever happens with the warranty tailwinds.

Understood. That's great, Connor. And then just following up on EcoPark, Yes, the mix headwinds is understood very well with respect to the impact. But there was no price action that you had to take to drive the growth. It was just pure mix.

We're already cheap enough, Rajat. We didn't need to take any price action, none whatsoever. So a little mix change there, but no.

And the FTC guidelines, you know, which has led to a lot of like, you know, independent dealers, you know, just raise their prices, you know, add the full fee. Has that had any kind of impact, you know, to your traffic, to your conversion? I'm just curious if there was any benefit or not to the business from that.

This is Heath. From my perspective, I do believe that the only thing that changed, because we're compliant and we'll maintain that, the only thing that's unique, certain markets, some dealers may not be compliant. So it impacts our ability to compete on a price perspective. And so we're hoping that the FTC will stand behind this and ensure that everyone's compliant and will follow up on are the whistleblowers that are identifying these that are not. But that's the biggest change is if everyone was on and compliant, it's business as usual. It's certain markets where you've got competitors that are not fully compliant. And at least for now, it doesn't appear that the FTC has followed up on those individuals.

Understood. But you didn't have any pricing benefit because some of the independents, they raise prices. Did it give you an ability to maybe The opposite happened.

We're in compliance, but like he was saying, there's a lot of dealers out there that are not, and they're still advertising one thing, and then when you get to the store, it's a different price, and that's not in line with the FTC rules, and that's causing some wobbling. But now the third-party lead providers are making adjustments, and that's a big deal. because if they're not going to allow you to advertise and they're going to hold you accountable, then everybody's got to play by the same rules. And that's going to all work itself out over what I would think would be the remainder of this year. So you might have a little bit of noise, but overall it didn't affect our business at Sonic.

Thanks for all the color and good luck. Thank you.

Thank you.

Thank you. Our next question is from John Babcock with Barclays. Please proceed with your question.

Hey, thanks for taking my questions. I guess just quickly following up on the parts and service side of things, as you're trying to chase some of that next opportunity, do you think there's going to have any impact on margins? And if not, or if it does, I guess, actually, are there opportunities, I guess, for you to kind of take out costs, kind of keep these parts and service margins as strong as they are?

This is Jeff. I don't think it's going to have any impact on margin. I think we're going to continue. There's just so much opportunity out there because so much of the car park doesn't come back to a new car dealer because, as David was saying earlier, they really don't understand our pricing. The great technology, the great technicians, we're getting that word out. That's going to drive more customers to our service drives, and I'm not expecting any margin erosion. I'm expecting a lot of gross growth. And I think as long as customers are going to stay in cars longer, which is where all the indications are of that's beginning to happen, then, you know, our fixed operations business should skyrocket. There should be a lot of opportunity there for us to continue to grow and, you know, not have what we saw happening across the industry in the second quarter. I think we'll all adjust to that and continue our normalized growth.

And this is Heath. Just one add there is... I do believe there's an opportunity to take out expense in fixed ops with some of the AI development that we're doing. That's one of our main areas that we think can create efficiency and faster throughput, which will give us the ability to service more, make more gross, and take costs out of it.

I guess next question I had, one of your peers is trialing out virtual F&I. I was just curious, is that something you guys have looked at? Is it something that is interesting? Is it difficult to execute? Any color on that would be helpful.

We're not looking at it or haven't. I get the idea. We're watching them. When you look at our GPU for F&I, it's amongst the one or two. in terms of our performance. We're very happy with that performance. If there's some major cost savings there, Group 1's working on that, and we'll let them lead the charge there. There was a group out of Brazil once that does this that we visited with that does all their F&I really out of one office. So maybe there's some opportunity there. It's an idea. It's been around for a little bit. A lot of other things we're focused on. and areas where we can take expense out of this business. And we do such a good job in F&I. We don't need a wobble there right now. That's one of our stalwarts, that and our fixed operations business. And what we've been able to show now in terms of our growth, our ability to grow the volume, I'll let somebody else be first there. And if there's an opportunity, we can certainly jump on the bandwagon.

Okay, and then just one more for you on the Echo Park side of things, just to fill up the whole cup here. It does sound like you adjusted the cadence of store openings a little bit. How much of that is related to just generally getting the construction work done and getting the site ready versus maybe demand or also your view on inventory build? Any thoughts there to share?

Sure, this is Tim Keen. It's 100% driven by timing of construction. Nothing else is holding us back.

Thank you. As a reminder, if you...

Go ahead, sorry.

Okay. As a reminder, if you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our next question is from Rob Saltzman with UBS. Please proceed with your question.

Hey team, thanks for the questions today. Your peers have been highlighting difficulties in sourcing used vehicles over the course of Q2. Have you been experiencing similar difficulties like competitiveness within the auction channel? And if so, how are you working around it? Nice to see the increase in customer sourced vehicles, but any details around that competitive environment on the sourcing side would be super helpful.

This is Jeff. I don't think it's been any more competitive than it has been the last four or five quarters. I mean, it's super competitive in the auction lanes. You're paying up when you buy cars there. That's why you need to trade for more. Buy more cars out of your service drives. We're doing that. Do a better job of sharing inventory between the companies. Buying cars out of our buy centers that we're working on across the country. And you're seeing that effort as our percentage of cars off the street are growing and buy cars are growing versus auction cars. But I don't see it being any more competitive. What I do see is a lot more off-lease cars from a BEV perspective are coming back, which is great. And more off-lease cars are going to start coming back as we move out of this year and into next year. So inventory abundance, that's probably too strong of a word. More inventory is going to be available for us as we move forward. And I think that's why you're seeing some that really understand the pre-owned business start to really grow. and you're seeing those double digit gross or high single digit growth because there is more inventory available out there and we can go get it. And that's making a big difference there.

Guys, I just want to follow up for me. How can you address the parts and service price competitiveness perception? Is there an opportunity in your view for the OEMs to offer lower price placement parts? make your guy's job easier? I know Ford's been out there saying that that's an opportunity for them. So is that something you're working on? How do you change that price competitive misperception in the service space? Thanks.

This is Jeff. 100% we are. And it's not just the manufacturer. I want to make that straight. They need to do a better job of keeping their costs in line from a parts perspective. But also, we as retailers, and in particular our stores, need to do a great job of understanding The pricing that's going on within the marketplace. AI is allowing us to do that, and we're spending a lot of time and energy driving more information into our dealerships' hands so that we make great pricing decisions on a daily basis with fixed operations items that we're selling in our stores. So that's an important function and something that we're paying a lot of attention to. Then, as David said earlier, we've got to market that. We have to educate the consumer that, wow, we do have these amazing facilities. They're not rat traps. We've got great technicians. We've got great pricing. We've got manufacturer certified trained technicians. And why would you not service your car in a dealership? Why do 50% of the customers as an industry, why do they not come back and service their car at a dealership? It's pricing. That's the answer. and we're fixing that and then now perception. And so you gotta combine those two things. We're doing a much better job of that but we'll do an even better job as we go forward. We educate our stores, we educate ourselves on how we market that information and do exactly as you just said, that's changing the perception that we're overpriced. And it isn't a perception, it's a fact. We are overpriced and we're working on fixing that and driving a lot more market share into our service drivers. Do a great job. Our general managers across the industry do a great job giving cars away. But for some reason, the hours that we sell in the service department are like gold bars. And we need to do a much better job of understanding that pricing and then driving more customers into our service drives, maintaining great margin and great gross, and growing the heck out of the customers. Half of the car park out there doesn't use an auto dealership, and we need to bring them back into our stores. Should be 70%, 80% if you start calculating that math. and you look at the upside, it's just infinite. And so, as you can tell, I'm very passionate about this topic. It's something that I'm talking to our team about ad agnosium and something that we're gonna take advantage of as we move forward.

Thanks so much, team. Appreciate it.

You bet. Thank you.

This now concludes our question and answer session. I would like to turn the floor back over to David Smith for closing comments.

Well, thank you all for your time and your questions and we will talk to you next quarter. Thank you.

Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. Please disconnect your lines and have a wonderful day.