UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~June 30, 2021~~March 31, 2022

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 1-13395

SONIC AUTOMOTIVE, INC.

(Exact name of registrant as specified in its charter)

______________________________________


Delaware						56-2010790
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

4401 Colwick Road

28211

Charlotte,

North Carolina

~~(Address~~ (Address of principal executive offices)

(Zip Code)

(704) 566-2400

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Class A Common Stock, par value $0.01 per share

SAH

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☒	Accelerated filer	☐

Non-accelerated filer	☐	Smaller reporting company	☐

		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of ~~July~~April 26, ~~2021,~~2022, there were ~~29,686,573~~27,530,283 shares of the registrant’s Class A Common Stock and 12,029,375 shares of the registrant’s Class B Common Stock outstanding.

UNCERTAINTY OF FORWARD-LOOKING STATEMENTS AND INFORMATION

This ~~Quarterly Report on Form 10-Q~~report contains, and written or oral statements made from time to time by us or by our authorized officers may contain, “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements address our future objectives, plans and goals, as well as our intent, beliefs and current expectations regarding future operating performance, results and events, and can generally be identified by words such as “may,” “will,” “should,” “could,” “believe,” “expect,” “estimate,” “anticipate,” “intend,” “plan,” “foresee” and other similar words or phrases.

These forward-looking statements are based on our current estimates and assumptions and involve various risks and uncertainties. As a result, you are cautioned that these forward-looking statements are not guarantees of future performance, and that actual results could differ materially from those projected in these forward-looking statements. Factors which may cause actual results to differ materially from our projections include those risks described in “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, ~~2020 and in “Item 1A. Risk Factors” of this report~~2021 and elsewhere ~~herein,~~in this report, as well as:

•the number of new and used vehicles sold in the United States as compared to our expectations and the expectations of the market;

•our ability to generate sufficient cash flows or to obtain additional financing to fund our EchoPark expansion, capital expenditures, our share repurchase program, dividends on our common stock, acquisitions and general operating activities;

•our business and growth strategies, including, but not limited to, our EchoPark store operations;

•the reputation and financial condition of vehicle manufacturers whose brands we represent, the financial incentives vehicle manufacturers offer and their ability to design, manufacture, deliver and market their vehicles successfully;

•our relationships with manufacturers, which may affect our ability to obtain desirable new vehicle models in inventory or to complete additional acquisitions or dispositions;

•the adverse resolution of one or more significant legal proceedings against us or our franchised dealerships or EchoPark stores;

•changes in laws and regulations governing the operation of automobile franchises, accounting standards, taxation requirements and environmental laws, including any change in ~~law~~laws or regulations in response to the COVID–19 pandemic;

•changes in vehicle and parts import quotas, duties, tariffs or other restrictions, including supply shortages that could be caused by the COVID-19 pandemic, global political and economic factors, or other supply chain disruptions;

•the inability of vehicle manufacturers and their suppliers to obtain, produce and deliver vehicles or parts and accessories to meet demand at our franchised dealerships for sale and use in our parts, service and collision repair operations;

•general economic conditions in the markets in which we operate, including fluctuations in interest rates, inflation, vehicle valuations, employment levels, the level of consumer spending and consumer credit availability;

•high levels of competition in the retail automotive industry, which not only create pricing pressures on the products and services we offer, but also on businesses we may seek to acquire;

•our ability to successfully integrate ~~potential~~RFJ Auto (as defined below) and future acquisitions;

•the significant control that our principal stockholders exercise ~~significant control~~ over us and our business matters;

•the rate and timing of overall economic expansion or contraction; and

•the severity and duration of the COVID-19 pandemic and the actions taken by vehicle manufacturers, governmental authorities, businesses or consumers in response to the pandemic, including in response to a worsening or “next wave” of the pandemic as a result of new variants of the ~~Delta variant~~virus or otherwise.

These forward-looking statements speak only as of the date of this report or when made, and we undertake no obligation to revise or update these statements to reflect subsequent events or circumstances, except as required under the federal securities laws and the rules and regulations of the Securities and Exchange Commission.

SONIC AUTOMOTIVE, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE THREE ~~AND SIX~~ MONTHS ENDED ~~JUNE 30, 2021~~MARCH 31, 2022

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

SONIC AUTOMOTIVE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)
Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
(Dollars and shares in thousands, except per share amounts)
Revenues:
New vehicles $ 1,462,893 $ 900,003 $ 2,619,210 $ 1,859,492
Used vehicles 1,266,696 808,877 2,356,794 1,658,930
Wholesale vehicles 84,807 33,175 159,614 81,718
Total vehicles 2,814,396 1,742,055 5,135,618 3,600,140
Parts, service and collision repair 360,596 259,058 681,509 593,738
Finance, insurance and other, net 177,254 110,773 321,916 226,064
Total revenues 3,352,246 2,111,886 6,139,043 4,419,942
Cost of sales:
New vehicles (1,344,467) (854,617) (2,431,319) (1,768,690)
Used vehicles (1,231,943) (781,506) (2,291,171) (1,599,428)
Wholesale vehicles (80,280) (33,601) (154,240) (82,303)
Total vehicles (2,656,690) (1,669,724) (4,876,730) (3,450,421)
Parts, service and collision repair (184,748) (134,779) (350,612) (311,560)
Total cost of sales (2,841,438) (1,804,503) (5,227,342) (3,761,981)
Gross profit 510,808 307,383 911,701 657,961
Selling, general and administrative expenses (320,620) (230,359) (609,976) (512,515)
Impairment charges 0 (833) 0 (268,833)
Depreciation and amortization (24,761) (22,647) (48,448) (44,944)
Operating income (loss) 165,427 53,544 253,277 (168,331)
Other income (expense):
Interest expense, floor plan (4,329) (6,314) (9,441) (16,822)
Interest expense, other, net (10,077) (9,797) (20,363) (20,762)
Other income (expense), net 0 0 100 100
Total other income (expense) (14,406) (16,111) (29,704) (37,484)
Income (loss) from continuing operations before taxes 151,021 37,433 223,573 (205,815)
Provision for income taxes for continuing operations - benefit (expense) (37,030) (6,437) (55,893) 37,680
Income (loss) from continuing operations 113,991 30,996 167,680 (168,135)
Discontinued operations:
Income (loss) from discontinued operations before taxes (204) (289) 516 (573)
Provision for income taxes for discontinued operations - benefit (expense) 58 84 (129) 166
Income (loss) from discontinued operations (146) (205) 387 (407)
Net income (loss) $ 113,845 $ 30,791 $ 168,067 $ (168,542)
Basic earnings (loss) per common share:
Earnings (loss) per share from continuing operations $ 2.74 $ 0.72 $ 4.03 $ (3.93)
Earnings (loss) per share from discontinued operations 0 0 0.01 (0.01)
Earnings (loss) per common share $ 2.74 $ 0.72 $ 4.04 $ (3.94)
Weighted-average common shares outstanding 41,581 42,940 41,561 42,779
Diluted earnings (loss) per common share:
Earnings (loss) per share from continuing operations $ 2.63 $ 0.71 $ 3.86 $ (3.93)
Earnings (loss) per share from discontinued operations 0 0 0.01 (0.01)
Earnings (loss) per common share $ 2.63 $ 0.71 $ 3.87 $ (3.94)
Weighted-average common shares outstanding 43,424 43,575 43,483 42,779


	Three Months Ended March 31,
	2022		2021
	(Dollars and shares in millions, except per share amounts)
Revenues:
Retail new vehicles	$	1,351.3	$	1,134.0
Fleet new vehicles	148.6		22.3
Total new vehicles	1,499.9		1,156.3
Used vehicles	1,370.9		1,090.1
Wholesale vehicles	168.7		74.8
Total vehicles	3,039.5		2,321.2
Parts, service and collision repair	380.5		320.9
Finance, insurance and other, net	166.6		144.7
Total revenues	3,586.6		2,786.8
Cost of sales:
Retail new vehicles	(1,183.6)		(1,064.8)
Fleet new vehicles	(147.8)		(22.1)
Total new vehicles	(1,331.4)		(1,086.9)
Used vehicles	(1,322.7)		(1,059.2)
Wholesale vehicles	(167.3)		(73.9)
Total vehicles	(2,821.4)		(2,220.0)
Parts, service and collision repair	(193.9)		(165.9)
Total cost of sales	(3,015.3)		(2,385.9)
Gross profit	571.3		400.9
Selling, general and administrative expenses	(387.0)		(289.4)

Depreciation and amortization	(29.9)		(23.6)
Operating income	154.4		87.9
Other income (expense):
Interest expense, floor plan	(5.0)		(5.1)
Interest expense, other, net	(20.8)		(10.3)
Other income (expense), net	0.3		0.1
Total other income (expense)	(25.5)		(15.3)
Income from continuing operations before taxes	128.9		72.6
Provision for income taxes for continuing operations - benefit (expense)	(31.6)		(18.9)
Income from continuing operations	97.3		53.7
Discontinued operations:
Income (loss) from discontinued operations before taxes	—		0.7
Provision for income taxes for discontinued operations - benefit (expense)	—		(0.2)
Income (loss) from discontinued operations	—		0.5
Net income	$	97.3	$	54.2
Basic earnings per common share:
Earnings per share from continuing operations	$	2.41	$	1.29
Earnings per share from discontinued operations	—		0.02
Earnings per common share	$	2.41	$	1.31
Weighted-average common shares outstanding	40.4		41.5
Diluted earnings per common share:
Earnings per share from continuing operations	$	2.33	$	1.23
Earnings per share from discontinued operations	—		0.02
Earnings per common share	$	2.33	$	1.25
Weighted-average common shares outstanding	41.8		43.5

See notes to unaudited condensed consolidated financial statements.

SONIC AUTOMOTIVE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE OPERATIONS

(Unaudited)

Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
(Dollars in thousands)
Net income (loss) $ 113,845 $ 30,791 $ 168,067 $ (168,542)
Other comprehensive income (loss) before taxes:
Change in fair value and amortization of interest rate cap agreements 471 419 881 780
Amortization of terminated interest rate swap agreements 0 (835) 0 (1,632)
Total other comprehensive income (loss) before taxes 471 (416) 881 (852)
Provision for income tax benefit (expense) related to components of other comprehensive income (loss) (124) 161 (291) 325
Other comprehensive income (loss) 347 (255) 590 (527)
Comprehensive income (loss) $ 114,192 $ 30,536 $ 168,657 $ (169,069)


	Three Months Ended March 31,
		2022		2021
		(Dollars in millions)
Net income		$	97.3	$	54.2
Other comprehensive income (loss) before taxes:
Change in fair value and amortization of interest rate cap agreements		0.3		0.4

Total other comprehensive income (loss) before taxes		0.3		0.4
Provision for income tax benefit (expense) related to components of other comprehensive income (loss)		(0.1)		(0.2)
Other comprehensive income (loss)		0.2		0.2
Comprehensive income		$	97.5	$	54.4

See notes to unaudited condensed consolidated financial statements.

SONIC AUTOMOTIVE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


		June 30, 2021		December 31, 2020			March 31, 2022		December 31, 2021
		(Dollars in thousands)					(Dollars in millions)
ASSETS	ASSETS					ASSETS
Current Assets:	Current Assets:					Current Assets:
Cash and cash equivalents	Cash and cash equivalents	$	239,617	$	170,313	Cash and cash equivalents	$	360.2	$	299.4
Receivables, net	Receivables, net	356,850		371,666		Receivables, net	351.5		401.1
Inventories	Inventories	1,016,566		1,247,254		Inventories	1,198.1		1,261.2
Other current assets	Other current assets	106,341		93,334		Other current assets	150.8		122.4
Total current assets	Total current assets	1,719,374		1,882,567		Total current assets	2,060.6		2,084.1
Property and Equipment, net	Property and Equipment, net	1,177,928		1,120,526		Property and Equipment, net	1,488.6		1,458.8
Goodwill	Goodwill	223,398		213,977		Goodwill	423.5		416.4
Other Intangible Assets, net	Other Intangible Assets, net	68,200		64,300		Other Intangible Assets, net	486.6		480.2
Operating Right-of-Use Lease Assets	Operating Right-of-Use Lease Assets	313,941		330,322		Operating Right-of-Use Lease Assets	293.6		293.2
Finance Right-of-Use Lease Assets	Finance Right-of-Use Lease Assets	70,486		60,121		Finance Right-of-Use Lease Assets	193.7		179.9
Other Assets	Other Assets	83,018		74,180		Other Assets	59.6		62.5
Total Assets	Total Assets	$	3,656,345	$	3,745,993	Total Assets	$	5,006.2	$	4,975.1

LIABILITIES AND STOCKHOLDERS’ EQUITY	LIABILITIES AND STOCKHOLDERS’ EQUITY					LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:	Current Liabilities:					Current Liabilities:
Notes payable - floor plan - trade	Notes payable - floor plan - trade	$	32,778	$	585,225	Notes payable - floor plan - trade	$	73.8	$	89.8
Notes payable - floor plan - non-trade	Notes payable - floor plan - non-trade	1,053,325		739,019		Notes payable - floor plan - non-trade	1,122.3		1,178.6
Trade accounts payable	Trade accounts payable	146,634		105,098		Trade accounts payable	124.2		133.3
Operating short-term lease liabilities	Operating short-term lease liabilities	40,413		42,339		Operating short-term lease liabilities	37.0		36.2
Finance short-term lease liabilities	Finance short-term lease liabilities	12,920		3,515		Finance short-term lease liabilities	52.5		52.7
Accrued interest		7,365		8,496

Other accrued liabilities	Other accrued liabilities	290,686		279,477		Other accrued liabilities	406.3		350.5
Current maturities of long-term debt	Current maturities of long-term debt	51,681		68,244		Current maturities of long-term debt	53.1		50.6
Total current liabilities	Total current liabilities	1,635,802		1,831,413		Total current liabilities	1,869.2		1,891.7
Long-Term Debt	Long-Term Debt	634,712		651,823		Long-Term Debt	1,493.2		1,510.7
Other Long-Term Liabilities	Other Long-Term Liabilities	92,974		88,753		Other Long-Term Liabilities	94.1		96.0
Operating Long-Term Lease Liabilities	Operating Long-Term Lease Liabilities	281,636		296,564		Operating Long-Term Lease Liabilities	263.8		264.8
Finance Long-Term Lease Liabilities	Finance Long-Term Lease Liabilities	64,382		62,290		Finance Long-Term Lease Liabilities	150.9		135.5
Deferred Income Taxes		485		345

Commitments and Contingencies	Commitments and Contingencies	0		0		Commitments and Contingencies	0		0
Stockholders’ Equity:	Stockholders’ Equity:					Stockholders’ Equity:
Class A Convertible Preferred Stock, NaN issued		0		0
Class A Common Stock, $0.01 par value; 100,000,000 shares authorized; 66,448,546 shares issued and 29,680,414 shares outstanding at June 30, 2021; 65,607,628 shares issued and 29,797,727 shares outstanding at December 31, 2020		664		656
Class B Common Stock, $0.01 par value; 30,000,000 shares authorized; 12,029,375 shares issued and outstanding at June 30, 2021 and December 31, 2020		121		121
Class A Convertible Preferred Stock, none issued						Class A Convertible Preferred Stock, none issued	—		—
Class A Common Stock, $0.01 par value; 100,000,000 shares authorized; 67,016,735 shares issued and 28,516,272 shares outstanding at March 31, 2022; 66,501,072 shares issued and 28,692,532 shares outstanding at December 31, 2021						Class A Common Stock, $0.01 par value; 100,000,000 shares authorized; 67,016,735 shares issued and 28,516,272 shares outstanding at March 31, 2022; 66,501,072 shares issued and 28,692,532 shares outstanding at December 31, 2021	0.7		0.7
Class B Common Stock, $0.01 par value; 30,000,000 shares authorized; 12,029,375 shares issued and outstanding at March 31, 2022 and December 31, 2021						Class B Common Stock, $0.01 par value; 30,000,000 shares authorized; 12,029,375 shares issued and outstanding at March 31, 2022 and December 31, 2021	0.1		0.1
Paid-in capital	Paid-in capital	781,829		767,599		Paid-in capital	795.1		790.2
Retained earnings	Retained earnings	880,704		721,770		Retained earnings	1,138.9		1,051.7
Accumulated other comprehensive income (loss)	Accumulated other comprehensive income (loss)	(3,026)		(3,616)		Accumulated other comprehensive income (loss)	(1.1)		(1.3)
Treasury stock, at cost; 36,768,132 Class A Common Stock shares held at June 30, 2021 and 35,809,901 Class A Common Stock shares held at December 31, 2020		(713,938)		(671,725)
Treasury stock, at cost; 38,500,463 Class A Common Stock shares held at March 31, 2022 and 37,808,540 Class A Common Stock shares held at December 31, 2021						Treasury stock, at cost; 38,500,463 Class A Common Stock shares held at March 31, 2022 and 37,808,540 Class A Common Stock shares held at December 31, 2021	(798.7)		(765.0)
Total Stockholders’ Equity	Total Stockholders’ Equity	946,354		814,805		Total Stockholders’ Equity	1,135.0		1,076.4
Total Liabilities and Stockholders’ Equity	Total Liabilities and Stockholders’ Equity	$	3,656,345	$	3,745,993	Total Liabilities and Stockholders’ Equity	$	5,006.2	$	4,975.1

See notes to unaudited condensed consolidated financial statements.

SONIC AUTOMOTIVE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

Class A
Common Stock Class A
Treasury Stock Class B
Common Stock Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Stockholders’ Equity
Shares Amount Shares Amount Shares Amount
(Dollars and shares in thousands, except per share amounts)
Balance at March 31, 2020 65,199 $ 652 (34,364) $ (621,290) 12,029 $ 121 $ 758,327 $ 586,511 $ (2,334) $ 721,987
Shares awarded under stock compensation plans 405 4 — — — — (5) — — (1)
Purchases of treasury stock — — (274) (6,522) — — — — — (6,522)
Effect of cash flow hedge instruments, net of tax benefit of $161 — — — — — — — — (255) (255)
Restricted stock amortization — — — — — — 2,971 — — 2,971
Net income (loss) — — — — — — — 30,791 — 30,791
Class A dividends declared ($0.10) — — — — — — — (3,066) — (3,066)
Class B dividends declared ($0.10) — — — — — — — (1,203) — (1,203)
Balance at June 30, 2020 65,604 $ 656 (34,638) $ (627,812) 12,029 $ 121 $ 761,293 $ 613,033 $ (2,589) $ 744,702


	Class A Common Stock			Class A Treasury Stock			Class B Common Stock			Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Stockholders’ Equity
	Shares	Amount		Shares	Amount		Shares	Amount
	(Dollars and shares in millions, except per share amounts)
Balance at December 31, 2020	65.6	$	0.7	(35.8)	$	(671.7)	12.0	$	0.1	$	767.5	$	721.8	$	(3.6)	$	814.8
Shares awarded under stock compensation plans	0.4	—		—	—		—	—		—		—		—		—
Purchases of treasury stock	—	—		(1.0)	(42.2)		—	—		—		—		—		(42.2)
Effect of cash flow hedge instruments, net of tax expense of $0.2	—	—		—	—		—	—		—		—		0.2		0.2
Restricted stock amortization and stock option amortization	—	—		—	—		—	—		3.5		—		—		3.5
Net income	—	—		—	—		—	—		—		54.2		—		54.2

Class A dividends declared ($0.10 per share)	—	—		—	—		—	—		—		(2.9)		—		(2.9)
Class B dividends declared ($0.10 per share)	—	—		—	—		—	—		—		(1.2)		—		(1.2)
Balance at March 31, 2021	66.0	$	0.7	(36.8)	$	(713.9)	12.0	$	0.1	$	771.0	$	771.9	$	(3.4)	$	826.4

Class A
Common Stock Class A
Treasury Stock Class B
Common Stock Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Stockholders’ Equity
Shares Amount Shares Amount Shares Amount
(Dollars and shares in thousands, except per share amounts)
Balance at March 31, 2021 66,018 $ 660 (36,767) $ (713,892) 12,029 $ 121 $ 771,079 $ 771,864 $ (3,373) $ 826,459
Shares awarded under stock compensation plans 431 4 — — — — 6,762 — — 6,766
Purchases of treasury stock — — (1) (46) — — — — — (46)
Effect of cash flow hedge instruments, net of tax expense of $124 — — — — — — — — 347 347
Restricted stock and stock option amortization — — — — — — 3,988 — — 3,988
Net income (loss) — — — — — — — 113,845 — 113,845
Class A dividends declared ($0.12) — — — — — — — (3,562) — (3,562)
Class B dividends declared ($0.12) — — — — — — — (1,443) — (1,443)
Balance at June 30, 2021 66,449 $ 664 (36,768) $ (713,938) 12,029 $ 121 $ 781,829 $ 880,704 $ (3,026) $ 946,354


	Class A Common Stock			Class A Treasury Stock			Class B Common Stock			Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Stockholders’ Equity
	Shares	Amount		Shares	Amount		Shares	Amount
	(Dollars and shares in millions, except per share amounts)
Balance at December 31, 2021	66.5	$	0.7	(37.8)	$	(765.0)	12.0	$	0.1	$	790.2	$	1,051.7	$	(1.3)	$	1,076.4
Shares awarded under stock compensation plans	0.5	—		—	—		—	—		0.4		—		—		0.4
Purchases of treasury stock	—	—		(0.7)	(33.7)		—	—		—		—		—		(33.7)
Effect of cash flow hedge instruments, net of tax expense of $0.1	—	—		—	—		—	—		—		—		0.2		0.2
Restricted stock amortization	—	—		—	—		—	—		4.5		—		—		4.5
Net income	—	—		—	—		—	—		—		97.3		—		97.3

Class A dividends declared ($0.25 per share)	—	—		—	—		—	—		—		(7.1)		—		(7.1)
Class B dividends declared ($0.25 per share)	—	—		—	—		—	—		—		(3.0)		—		(3.0)
Balance at March 31, 2022	67.0	$	0.7	(38.5)	$	(798.7)	12.0	$	0.1	$	795.1	$	1,138.9	$	(1.1)	$	1,135.0

See notes to unaudited condensed consolidated financial statements.

~~SONIC AUTOMOTIVE, INC.~~

~~CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY~~

~~(Unaudited)~~

Class A
Common Stock Class A
Treasury Stock Class B
Common Stock Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Stockholders’ Equity
Shares Amount Shares Amount Shares Amount
(Dollars and shares in thousands, except per share amounts)
Balance at December 31, 2019 64,734 $ 647 (33,629) $ (600,004) 12,029 $ 121 $ 755,904 $ 790,158 $ (2,062) $ 944,764
Shares awarded under stock compensation plans 870 9 — — — — (8) — — 1
Purchases of treasury stock — — (1,009) (27,808) — — — — — (27,808)
Effect of cash flow hedge instruments, net of tax benefit of $325 — — — — — — — — (527) (527)
Restricted stock amortization — — — — — — 5,397 — — 5,397
Net income (loss) — — — — — — — (168,542) — (168,542)
Class A dividends declared ($0.20) — — — — — — — (6,177) — (6,177)
Class B dividends declared ($0.20) — — — — — — — (2,406) — (2,406)
Balance at June 30, 2020 65,604 $ 656 (34,638) $ (627,812) 12,029 $ 121 $ 761,293 $ 613,033 $ (2,589) $ 744,702

Class A
Common Stock Class A
Treasury Stock Class B
Common Stock Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Stockholders’ Equity
Shares Amount Shares Amount Shares Amount
(Dollars and shares in thousands, except per share amounts)
Balance at December 31, 2020 65,608 $ 656 (35,810) $ (671,725) 12,029 $ 121 $ 767,599 $ 721,770 $ (3,616) $ 814,805
Shares awarded under stock compensation plans 841 8 — — — — 6,757 — — 6,765
Purchases of treasury stock — — (958) (42,213) — — — — — (42,213)
Effect of cash flow hedge instruments, net of tax expense of $291 — — — — — — — — 590 590
Restricted stock and stock option amortization — — — — — — 7,473 — — 7,473
Net income (loss) — — — — — — — 168,067 — 168,067
Class A dividends declared ($0.22) — — — — — — — (6,499) — (6,499)
Class B dividends declared ($0.22) — — — — — — — (2,634) — (2,634)
Balance at June 30, 2021 66,449 $ 664 (36,768) $ (713,938) 12,029 $ 121 $ 781,829 $ 880,704 $ (3,026) $ 946,354

~~See notes to unaudited condensed consolidated financial statements.~~

SONIC AUTOMOTIVE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


		Six Months Ended June 30,					Three Months Ended March 31,
		2021		2020			2022		2021
		(Dollars in thousands)					(Dollars in millions)
CASH FLOWS FROM OPERATING ACTIVITIES:	CASH FLOWS FROM OPERATING ACTIVITIES:					CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)		$	168,067	$	(168,542)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Net income						Net income	$	97.3	$	54.2
Adjustments to reconcile net income (loss) to net cash provided by operating activities:						Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization of property and equipment	Depreciation and amortization of property and equipment	45,392		43,462		Depreciation and amortization of property and equipment	27.0		22.2
Provision for bad debt expense		348		345

Debt issuance cost amortization	Debt issuance cost amortization	1,658		1,182		Debt issuance cost amortization	1.1		0.8

Stock-based compensation expense	Stock-based compensation expense	7,473		5,397		Stock-based compensation expense	4.5		3.5
Deferred income taxes	Deferred income taxes	(5,962)		(60,035)		Deferred income taxes	(3.2)		(2.9)
Net distributions from equity investee		(262)		465
Asset impairment charges		0		268,833
Loss (gain) on disposal of dealerships and property and equipment		(490)		2,364

Other						Other	(0.2)		0.4
Changes in assets and liabilities that relate to operations:	Changes in assets and liabilities that relate to operations:					Changes in assets and liabilities that relate to operations:
Receivables	Receivables	14,467		139,305		Receivables	53.4		(1.9)
Inventories	Inventories	240,233		341,340		Inventories	72.2		16.5
Other assets	Other assets	10,514		(45,013)		Other assets	(11.8)		9.6
Notes payable - floor plan – trade	Notes payable - floor plan – trade	(552,447)		(257,660)		Notes payable - floor plan – trade	(16.0)		(46.5)
Trade accounts payable and other liabilities	Trade accounts payable and other liabilities	36,351		(43,695)		Trade accounts payable and other liabilities	28.2		34.4
Total adjustments	Total adjustments	(202,725)		396,290		Total adjustments	155.2		36.1
Net cash provided by (used in) operating activities		(34,658)		227,748
Net cash provided by operating activities						Net cash provided by operating activities	252.5		90.3
CASH FLOWS FROM INVESTING ACTIVITIES:	CASH FLOWS FROM INVESTING ACTIVITIES:					CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of businesses, net of cash acquired		(28,595)		0
Purchases of businesses, net of cash acquired						Purchases of businesses, net of cash acquired	(28.4)		(8.8)
Purchases of land, property and equipment	Purchases of land, property and equipment	(105,091)		(61,733)		Purchases of land, property and equipment	(58.8)		(67.7)
Proceeds from sales of property and equipment	Proceeds from sales of property and equipment	739		163		Proceeds from sales of property and equipment	6.9		0.9
Proceeds from sales of dealerships		3,798		(886)
Net cash provided by (used in) investing activities		(129,149)		(62,456)

Net cash used in investing activities						Net cash used in investing activities	(80.3)		(75.6)
CASH FLOWS FROM FINANCING ACTIVITIES:	CASH FLOWS FROM FINANCING ACTIVITIES:					CASH FLOWS FROM FINANCING ACTIVITIES:
Net (repayments) borrowings on notes payable - floor plan - non-trade		314,306		(64,121)
Net repayments on notes payable - floor plan - non-trade						Net repayments on notes payable - floor plan - non-trade	(56.3)		(51.5)
Borrowings on revolving credit facilities	Borrowings on revolving credit facilities	4,906		460,916		Borrowings on revolving credit facilities	—		4.9
Repayments on revolving credit facilities	Repayments on revolving credit facilities	(4,906)		(460,916)		Repayments on revolving credit facilities	—		(4.9)
Proceeds from issuance of long-term debt		0		53,135

Debt issuance costs	Debt issuance costs	(4,638)		(1,252)		Debt issuance costs	(0.2)		—
Principal payments and repurchase of long-term debt		(30,693)		(10,423)
Principal payments of long-term debt						Principal payments of long-term debt	(15.8)		(9.0)
Principal payments of long-term lease liabilities	Principal payments of long-term lease liabilities	(2,106)		(19,620)		Principal payments of long-term lease liabilities	(0.9)		(0.9)
Purchases of treasury stock	Purchases of treasury stock	(42,213)		(27,808)		Purchases of treasury stock	(33.7)		(42.2)

Issuance of shares under stock compensation plans	Issuance of shares under stock compensation plans	6,765		1		Issuance of shares under stock compensation plans	0.4		—
Dividends paid	Dividends paid	(8,310)		(8,583)		Dividends paid	(4.9)		(4.2)
Net cash provided by (used in) financing activities		233,111		(78,671)
Net cash used in financing activities						Net cash used in financing activities	(111.4)		(107.8)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	69,304		86,621		NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	60.8		(93.1)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR	CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR	170,313		29,103		CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR	299.4		170.3
CASH AND CASH EQUIVALENTS, END OF PERIOD	CASH AND CASH EQUIVALENTS, END OF PERIOD	$	239,617	$	115,724	CASH AND CASH EQUIVALENTS, END OF PERIOD	$	360.2	$	77.2

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:	SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:					SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid (received) during the period for:	Cash paid (received) during the period for:					Cash paid (received) during the period for:
Interest, including amount capitalized	Interest, including amount capitalized	$	29,635	$	34,939	Interest, including amount capitalized	$	10.7	$	19.1
Income taxes	Income taxes	$	54,377	$	79	Income taxes	$	0.1	$	(0.4)

See notes to unaudited condensed consolidated financial statements.

SONIC AUTOMOTIVE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies

Basis of Presentation – The accompanying unaudited condensed consolidated financial statements of Sonic Automotive, Inc. and its wholly owned subsidiaries (“Sonic,” the “Company,” “we,” “us” or “our”) for the three ~~and six~~ months ended ~~June 30,~~March 31, 2022 and 2021 ~~and 2020~~ are unaudited and have been prepared in accordance with ~~U.S.~~accounting principles generally accepted ~~accounting principles~~in the United States (the “U.S.”) (“~~U.S.~~ GAAP”) for interim financial information and applicable rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The accompanying unaudited condensed consolidated financial statements reflect, in the opinion of management, all material normal, recurring adjustments necessary to fairly state the financial position, results of operations and cash flows for the periods presented. The operating results for interim periods are not necessarily indicative of the results to be expected for the entire fiscal year or future interim periods, because the first quarter historically has contributed less operating profit than the second and third quarters, while the fourth quarter historically has contributed the highest operating profit of any quarter. Additionally, the ongoing COVID-19 pandemic could impact earnings for the remainder of 2021 and beyond. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes thereto included in Sonic’s Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021.

COVID-19 – The COVID-19 pandemic ~~began~~ negatively ~~impacting~~impacted the global economy beginning in the first quarter of ~~2020.~~2020 and continued to affect the global economy and supply chain. The impact on the economy initially affected both consumer demand and supply of manufactured goods as many countries around the world and states and municipalities in the ~~United States (the “U.S.”)~~U.S. mandated restrictions on citizen movements (i.e., shelter-in-place or stay-at-home orders) or on in-person retail trade or manufacturing activities at physical locations. As a result, many businesses curtailed operations and furloughed or terminated employees. In the U.S., the federal government passed several relief measures, including the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and the Families First Coronavirus Response Act, in an attempt to provide short-term relief to families and businesses as a result of the

The economic ~~impacts of the COVID-19 pandemic.~~

~~This broader economic backdrop resulting~~impact from the COVID-19 pandemic ~~had~~continues to impact our business. The global automotive supply chain has been significantly disrupted during the pandemic, primarily related to the production of semiconductors and other components that are used in many modern automobiles, in addition to workforce-related production delays and stoppages. As a ~~direct impact on~~result, automobile manufacturing is operating at lower than usual production levels, reducing the amount of new vehicle and certain parts inventory available to our ~~business~~dealerships. These inventory constraints, coupled with strong consumer demand and ~~operations beginning in March 2020~~elevated levels of consumer savings, have led to low new and ~~continuing through~~used vehicle inventory and a high new and used vehicle pricing environment, which drove lower retail new vehicle unit sales volumes across the ~~date of this report.~~ industry.

As a result of the pandemic and related shelter-in-place or stay-at-home orders, we transitioned many of our teammates to remote work arrangements. In situations where a teammate’s role did not permit remote work (e.g., service repair technicians), we implemented staggered work hours, social distancing and other safety measures to promote the health and safety of our teammates and guests. As a result of the systems and infrastructure we had in place prior to the pandemic, we were largely able to maintain our back-office operations, ~~and~~ financial reporting and internal control processes with minimal disruption or changes in the effectiveness of such ~~operations and~~ processes.

All of our store operations were impacted by the COVID-19 pandemic to varying degrees. During parts of the first half of 2020, the majority of our stores were not permitted to conduct retail sales of new and used vehicles at our physical locations. Those locations could offer virtual sales transactions with “contactless” delivery to customers but experienced lower consumer demand as a result of the initial onset of the pandemic and state and local governmental restrictions on business and consumer activities. Due to the critical nature of automotive repair, our fixed operations were deemed “essential” by governmental agencies and have largely been able to continue to conduct business so far, while adjusting operations to comply with state and local standards for safety and social distancing to promote the health and safety of our teammates and guests. As of ~~June 30, 2021, most of such restrictions had been relaxed; however,~~March 31, 2022, our stores remain subject to both external and self-imposed health and safety policies and practices that may affect the way we sell vehicles and interact with our guests in the future. ~~These~~State and local governmental restrictions on consumer and business activity may be tightened again if conditions ~~relating~~related to the pandemic worsen as a result of future coronavirus variants.

The automotive supply chain has been disrupted during the pandemic, primarily related to the production of semiconductors that are used in many components of modern automobiles. As a result, automobile manufacturing is operating at lower than expected production levels, reducing the amount of new vehicle and certain parts inventory available to our dealerships. These inventory constraints, coupled with strong consumer demand, have led to a low new vehicle inventory and a high vehicle pricing environment. While we believe that inventory levels should improve during the second half of 2021, there is a risk that vehicle and parts inventory levels remain at a low level or worsen, which could adversely impact our revenues and other financial results.

The ongoing effects of the COVID-19 pandemic continue to evolve. While we currently expect to see continued economic recovery in the remainder of the fiscal year ending December 31, 2021, the ongoing pandemic may cause changes in consumer behaviors, including a potential reduction in consumer spending for vehicles and automotive repairs, especially if the pandemic worsens or the regulatory environment changes in response to the pandemic. This may lead to increased asset

~~SONIC AUTOMOTIVE, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

recovery and valuation risks, such as impairment of additional indefinite lived intangible assets. In addition, uncertainties in the global economy may negatively impact our suppliers and other business partners, which may interrupt our vehicle and parts inventory supply chain and require other changes to our operations. These and other COVID-related factors may adversely impact our revenues, operating income and earnings per share financial measures.

Recent Accounting Pronouncements – In March 2020, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2020-04, “Reference Rate Reform (Accounting Standards Codification (“ASC”) Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” ASU 2020-04 provides optional guidance for a limited period of time to ease the potential accounting impact associated with transitioning away from reference rates that are expected to be discontinued, such as the London InterBank Offered Rate (“LIBOR”). The amendments in this ASU apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued. The amendments in ASU 2020-04 could be adopted beginning January 1, 2020 and are effective through December 31, 2022. In January 2021, the FASB issued ASU 2021-01 which clarifies that certain optional expedients and exceptions in ASC Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. We do not currently have any contracts that have been modified, amended or renegotiated to accommodate a transition to a new reference rate, but we will continue to evaluate any such modifications or amendments to our contracts to determine the applicability of this standard on our ~~unaudited condensed~~ consolidated financial statements and related financial statement disclosures.

Principles of Consolidation – All of our dealership and non-dealership subsidiaries are wholly owned and consolidated in the accompanying unaudited condensed consolidated financial statements, except for one 50%-owned dealership that is accounted for under the equity method. All material intercompany balances and transactions have been eliminated in the accompanying unaudited condensed consolidated financial statements.

SONIC AUTOMOTIVE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Revenue Recognition – Revenue is recognized when a customer obtains control of promised goods or services and in an amount that reflects the consideration that the entity expects to receive in exchange for those goods or services. ASC Topic 606, “Revenue from Contracts with Customers,” applies a five-step model that includes: (1) identifying the contract(s) with the customer; (2) identifying the performance obligation(s) in the contract(s); (3) determining the transaction price; (4) allocating the transaction price to the performance obligation(s) in the contract(s); and (5) recognizing revenue as the performance obligation(s) are satisfied. The standard also requires disclosure of the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. We do not include the cost of obtaining contracts within the related revenue streams since we elected the practical expedient to expense the costs to obtain a contract when incurred.

Management has evaluated our established business processes, revenue transaction streams and accounting policies, and identified our material revenue streams to be: (1) the sale of new vehicles; (2) the sale of used vehicles to retail customers; (3) the sale of wholesale used vehicles at third-party auctions; (4) the arrangement of vehicle financing and the sale of service, warranty and other insurance contracts; and (5) the performance of vehicle maintenance and repair services and the sale of related parts and accessories. Generally, performance ~~conditions~~obligations are satisfied when the associated vehicle is either delivered ~~or returned~~ to a customer and customer acceptance has occurred, or over time as the maintenance and repair services are ~~performed.~~performed, or at the time of wholesale and retail parts sales. We do not have any revenue streams with significant financing components as payments are typically received within a short period of time following completion of the performance obligation(s).

Retrospective finance and insurance revenues (“F&I retro revenues”) are recognized when the product contract has been executed with the end customer and the transaction price is estimated each reporting period based on the expected value method using historical and projected data. F&I retro revenues can vary based on a variety of factors, including number of contracts and history of cancellations and claims. Accordingly, we utilize this historical and projected data to constrain the consideration to the extent that it is probable that a significant reversal in the amount of cumulative revenue will not occur when the uncertainty associated with the variable consideration is subsequently resolved.

We record revenue when vehicles are delivered to customers, ~~when~~as vehicle service work is performed and when parts are delivered. Conditions for completing a sale include having an agreement with the customer, including pricing, and it being probable that the proceeds from the sale will be collected.

The accompanying unaudited condensed consolidated balance sheets as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021 include approximately ~~$22.0~~$24.4 million and ~~$21.7~~$34.9 million, respectively, related to contract assets from F&I retro revenues ~~recognition.~~recognition, which are recorded in Receivables, net. Changes in contract assets from December 31, ~~2020~~2021 to ~~June 30, 2021~~March 31, 2022 were primarily due to ordinary business activity, including the receipt of cash for amounts earned and recognized in prior periods. Please refer to Note 1, “Description of Business and Summary of Significant Accounting Policies,” to the consolidated financial statements in Sonic’s Annual Report on Form 10-K for the year ended December 31, ~~2020~~2021 for further discussion of our revenue recognition policies and processes.

~~Income Taxes –~~ The overall effective tax rate from continuing operations was 24.5% and 25.0% for the three and six months ended June 30, 2021, respectively, and 17.2% and 18.3% for the three and six months ended June 30, 2020,

~~SONIC AUTOMOTIVE, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

respectively. Income tax expense for the three months ended June 30, 2021 includes a $1.3 million discrete benefit related to vested or exercised stock compensation awards. Income tax expense for the six months ended June 30, 2021 includes a $2.8 million discrete benefit related to vested or exercised stock compensation awards. Income tax benefit for the three months ended June 30, 2020 includes a $3.4 million discrete benefit related to the favorable resolution of certain tax matters and other adjustments, offset partially by a $0.3 million discrete charge related to vested or exercised stock compensation awards. Income tax benefit for the six months ended June 30, 2020 includes a $55.8 million benefit, including the effect of non-deductible amounts, related to the $268.0 million goodwill impairment charge recognized in such quarter, a $0.2 million discrete benefit related to vested or exercised stock compensation awards and a $0.2 million discrete benefit related to the favorable resolution a of certain tax matter, offset partially by a $1.4 million discrete charge related to changes in uncertain tax positions. Sonic’s effective tax rate varies from year to year based on the level of taxable income, the distribution of taxable income between states in which the Company operates and other tax adjustments.

Earnings Per Share – The calculation of diluted earnings per share considers the potential dilutive effect of restricted stock units, restricted stock awards and stock options granted under Sonic’s stock compensation plans (and any non-forfeitable dividends paid on such awards).

2. Business Acquisitions and Dispositions

We acquired 2 ~~businesses to be included in our EchoPark segment~~franchised dealership locations during the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 for aan aggregate gross purchase price (including inventory acquired and subsequently funded by floor plan notes payable) of approximately ~~$28.6~~$28.4 million, including the impact of the RFJ Acquisition post-close adjustment. Of this amount, $13.7 million was related to the acquisition of the two franchised dealerships. The allocation of the $13.7 million aggregate gross purchase price for the acquisitions completed during the three months ended March 31, 2022 included inventory of $4.9 million, property and equipment of $0.1 million, franchise assets of $6.4 million, goodwill of $1.3 million, other assets of $1.1 million and other liabilities of $0.1 million. We did not acquire any businesses during the ~~six~~three months ended ~~June 30, 2020.~~

~~We disposed of 1 luxury franchised dealership during the six months ended June 30, 2021 that generated net cash of approximately $3.8 million.~~March 31, 2021. We did not dispose of any ~~dealerships~~businesses during the ~~six~~three months ended ~~June 30, 2020. We terminated 1 luxury franchised dealership during~~March 31, 2022 and 2021.

RFJ Acquisition

On December 6, 2021 (the “Closing Date”), Sonic completed the ~~six months~~acquisition of RFJ Auto Partners, Inc. and its subsidiaries (collectively, “RFJ Auto”). On the Closing Date, RFJ Auto became a direct, wholly owned subsidiary of Sonic (the “RFJ Acquisition”). The RFJ Acquisition was $964.9 million, including a customary post-close adjustment of $14.7 million. The post-close adjustment consisted of additional acquired inventory of $4.3 million, other assets of $3.4 million, goodwill of $1.1 million, and a reduction in other liabilities of $5.9 million.

For further discussion of the RFJ Acquisition, see Note 2, “Business Acquisitions and Dispositions,” to the consolidated financial statements in our Annual Report on Form 10-K for the year ended ~~June 30, 2020.~~December 31, 2021.

SONIC AUTOMOTIVE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

3. Inventories

Inventories consist of the following:


		June 30, 2021		December 31, 2020			March 31, 2022		December 31, 2021
		(In thousands)					(In millions)
New vehicles	New vehicles	$	243,366	$	648,448	New vehicles	$	278.2	$	273.1
Used vehicles	Used vehicles	593,964		413,209		Used vehicles	730.8		807.2
Service loaners	Service loaners	119,996		128,531		Service loaners	112.5		106.3
Parts, accessories and other	Parts, accessories and other	59,240		57,066		Parts, accessories and other	76.6		74.6
Net inventories	Net inventories	$	1,016,566	$	1,247,254	Net inventories	$	1,198.1	$	1,261.2

4. Property and Equipment

Property and equipment, net consists of the following:


		June 30, 2021		December 31, 2020			March 31, 2022		December 31, 2021
		(In thousands)					(In millions)
Land	Land	$	378,511	$	375,297	Land	$	451.2	$	447.4
Building and improvements		1,079,078		1,028,016
Buildings and improvements						Buildings and improvements	1,278.1		1,240.5
Furniture, fixtures and equipment	Furniture, fixtures and equipment	406,408		365,222		Furniture, fixtures and equipment	470.1		451.2
Construction in progress	Construction in progress	43,428		34,767		Construction in progress	57.9		68.1
Total, at cost	Total, at cost	1,907,425		1,803,302		Total, at cost	2,257.3		2,207.2
Less accumulated depreciation	Less accumulated depreciation	(717,565)		(673,082)		Less accumulated depreciation	(768.7)		(746.2)
Subtotal	Subtotal	1,189,860		1,130,220		Subtotal	1,488.6		1,461.0
Less assets held for sale (1)	Less assets held for sale (1)	(11,932)		(9,694)		Less assets held for sale (1)	—		(2.2)
Property and equipment, net	Property and equipment, net	$	1,177,928	$	1,120,526	Property and equipment, net	$	1,488.6	$	1,458.8

(1)Classified in other current assets in the accompanying unaudited condensed consolidated balance sheets.

In the three and six months ended June 30, 2021, capital expenditures were approximately $37.4 million and $105.1 million, respectively, and in the three and six months ended June 30, 2020, capital expenditures were approximately $41.9 million and $61.7 million, respectively. Capital expenditures in all periods were primarily related to real estate acquisitions,

~~SONIC AUTOMOTIVE, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

construction of new franchised dealerships and EchoPark stores, building improvements and equipment purchased for use in our franchised dealerships and EchoPark stores. Assets held for sale as of ~~June 30, 2021 and~~ December 31, ~~2020~~2021 consists of real property not currently used in operations that we expect to dispose of in the next 12 months.

There were 0no fixed asset impairment charges for the ~~six~~three months ended ~~June 30,~~March 31, 2022 and March 31, 2021. ~~Impairment charges for the six months ended June 30, 2020 were approximately $0.8 million, related to the abandonment of certain construction projects.~~

5. Goodwill and Intangible Assets

The ~~carrying amount of goodwill was approximately $223.4 million and $214.0 million as of June 30, 2021 and December 31, 2020, respectively. The~~changes in the carrying amount of goodwill for ~~our franchised dealership reporting unit was approximately $147.1 million and $147.3 million as of June 30, 2021~~March 31, 2022 and December 31, 2020, respectively. The carrying amount of goodwill for our EchoPark reporting unit was approximately $76.3 million and $66.7 million as of June 30, 2021 and December 31, 2020, respectively. The total carrying amount of goodwill is net2021.


	March 31, 2022		December 31, 2021
	(In millions)
Carrying Amount of Goodwill:
Franchised Dealerships Segment	$	219.8	213.5
EchoPark Segment	203.7		202.9
Total goodwill (1)	$	423.5	$	416.4

(1)Net of accumulated impairment losses of ~~approximately $1.1 billion as of both June 30, 2021 and December 31, 2020.~~ $1.1 billion.

The carrying amount of indefinite lived franchise assets was approximately ~~$68.2~~$486.6 million and ~~$64.3~~$480.2 million ~~as of June 30, 2021 and December 31, 2020, respectively.~~

Pursuant to the applicable accounting pronouncements, we were required to evaluate the recoverability of our long-lived assets at the end of the first quarter of 2020 as a result of the effects of the COVID-19 pandemic on our operations and market value. Based on this evaluation, we determined the carrying value of our franchised dealership reporting unit goodwill was greater than the fair value of the reporting unit. Accordingly, we recorded a non-cash goodwill impairment charge of $268.0 million and a corresponding income tax benefit of $55.8 million to reduce the carrying value to fair value as of March 31, ~~2020.~~2022 and December 31, 2021, respectively. We did not record any impairment charges ~~for the~~ as of~~three and six months ended June 30,~~ March 31, 2022 or December 31, 2021.

SONIC AUTOMOTIVE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

6. Long-Term Debt

Long-term debt consists of the following:


		June 30, 2021		December 31, 2020			March 31, 2022		December 31, 2021
		(In thousands)					(In millions)
2021 Revolving Credit Facility (1)	2021 Revolving Credit Facility (1)	$	0	$	0	2021 Revolving Credit Facility (1)	$	—	$	—

6.125% Senior Subordinated Notes due 2027		250,000		250,000

4.625% Senior Notes due 2029 (the “4.625% Notes”)						4.625% Senior Notes due 2029 (the “4.625% Notes”)	650.0		650.0
4.875% Senior Notes due 2031 (the “4.875% Notes”)						4.875% Senior Notes due 2031 (the “4.875% Notes”)	500.0		500.0
2019 Mortgage Facility (2)	2019 Mortgage Facility (2)	95,452		100,906		2019 Mortgage Facility (2)	87.3		90.0
Mortgage notes to finance companies - fixed rate, bearing interest from 2.41% to 7.03%		204,746		212,135
Mortgage notes to finance companies - fixed rate, bearing interest from 2.05% to 7.03%						Mortgage notes to finance companies - fixed rate, bearing interest from 2.05% to 7.03%	202.5		213.4
Mortgage notes to finance companies - variable rate, bearing interest at 1.50 to 2.90 percentage points above one-month or three-month LIBOR	Mortgage notes to finance companies - variable rate, bearing interest at 1.50 to 2.90 percentage points above one-month or three-month LIBOR	147,038		164,889		Mortgage notes to finance companies - variable rate, bearing interest at 1.50 to 2.90 percentage points above one-month or three-month LIBOR	130.5		132.8

Subtotal	Subtotal	$	697,236	$	727,930	Subtotal	$	1,570.3	$	1,586.2
Debt issuance costs	Debt issuance costs	(10,843)		(7,863)		Debt issuance costs	(24.0)		(24.9)
Total debt	Total debt	686,393		720,067		Total debt	1,546.3		1,561.3
Less current maturities	Less current maturities	(51,681)		(68,244)		Less current maturities	(53.1)		(50.6)
Long-term debt	Long-term debt	$	634,712	$	651,823	Long-term debt	$	1,493.2	$	1,510.7

(1)The interest rate on the 2021 Revolving Credit Facility (as defined below) was 100 ~~and 150~~ basis points above LIBOR at ~~June 30, 2021~~both March 31, 2022 and December 31, ~~2020.~~2021.

(2)The interest rate on the 2019 Mortgage Facility (as defined below) was 150 basis points above LIBOR at both ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020.~~2021.

2021 Credit Facilities

On April 14, 2021, we entered into an amended and restated syndicated revolving credit facility (the “2021 Revolving Credit Facility”) and amended and restated syndicated new and used vehicle floor plan credit facilities (the “2021 Floor Plan Facilities” and, together with the 2021 Revolving Credit Facility, the “2021 Credit Facilities”). The amendment and restatement of the 2021 Credit Facilities extended the scheduled maturity dates to April 14, ~~2025, increased availability~~2025. On October 8, 2021, we entered into an amendment to the 2021 Credit Facilities (the “Credit Facility Amendment”) to, among other things: (1) increase the aggregate commitments under the 2021 Revolving Credit Facility ~~by $4.5~~to the lesser of $350.0 million (which may be increased at the Company’s option up to $400.0 million upon satisfaction of certain conditions) and ~~increased availability under~~the applicable revolving borrowing base, and the 2021 Floor Plan Facilities ~~by $584.0 million, among other things.~~to $2.6 billion (which, under certain conditions, may be increased at the Company’s option up to $2.85 billion that may be allocated between the new vehicle revolving floor plan facility and the used vehicle revolving floor plan facility that comprise the 2021 Floor Plan Facilities Plan Facility as the Company requests, with no more than 40% of the aggregate commitments allocated to the commitments under the used vehicle floor plan facility); and (2) permit the issuance of the 4.625% Notes and the 4.875% Notes.

~~SONIC AUTOMOTIVE, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~Availability~~As amended, availability under the 2021 Revolving Credit Facility is calculated as the lesser of ~~$250.0~~$350.0 million or a borrowing base calculated based on certain eligible assets, less the aggregate face amount of any outstanding letters of credit under the 2021 Revolving Credit Facility (the ~~“2021~~"2021 Revolving Borrowing ~~Base”~~Base"). The 2021 Revolving Credit Facility may be ~~increased~~increase at our option up to ~~$300.0~~$400.0 million upon satisfaction of certain conditions. As of ~~June 30, 2021,~~March 31, 2022, the 2021 Revolving Borrowing Base was approximately ~~$236.6~~$286.5 million based on balances as of such date. As of ~~June 30, 2021,~~March 31, 2022, we had 0 outstanding borrowings and approximately ~~$12.3~~$12.5 million in outstanding letters of credit under the 2021 Revolving Credit Facility, resulting in ~~$224.3~~$274.0 million remaining borrowing availability under the 2021 Revolving Credit Facility.

The 2021 Floor Plan Facilities are comprised of a new vehicle revolving floor plan facility (as amended, the “2021 New Vehicle Floor Plan Facility”) and a used vehicle revolving floor plan facility (as amended, the “2021 Used Vehicle Floor Plan Facility”), subject to a borrowing base, in a combined amount of up to $1.55 billion. We may, under certain conditions, request an increase in the 2021 Floor Plan Facilities to a maximum borrowing limit of up to $1.8 billion, which shall be allocated between the 2021 New Vehicle Floor Plan Facility and the 2021 Used Vehicle Floor Plan Facility as we request, with no more than 40% of the aggregate commitments allocated to the commitments under the 2021 Used Vehicle Floor Plan Facility. OutstandingOur obligations under the 2021 ~~Floor Plan~~Credit Facilities are guaranteed by us and certain of our subsidiaries and are secured by a pledge of substantially all of our and our subsidiaries’ assets. As of the dates presented in the accompanying unaudited condensed consolidated financial statements, the amounts outstanding under the 2021 Credit Facilities bear interest at variable rates based on specified percentages above LIBOR.

We have agreed under the 2021 Credit Facilities not to pledge any assets to any third parties (other than those explicitly allowed to be pledged by the amended terms of the 2021 Credit Facilities), including other lenders, subject to certain stated exceptions, including floor plan financing arrangements. In addition, the 2021 Credit Facilities contain certain negative covenants, including covenants which could restrict or prohibit indebtedness, liens, the payment of dividends, capital expenditures and material dispositions and acquisitions of assets, as well as other customary covenants and default provisions. Specifically, the 2021 Credit Facilities permit quarterly cash dividends on our Class A and Class B Common Stock up to ~~$0.12~~$0.25 per share so long as no Event of Default (as defined in the 2021 Credit Facilities) has

SONIC AUTOMOTIVE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

occurred and is continuing and provided that we remain in compliance with all financial covenants under the 2021 Credit Facilities.

~~6.125%~~

4.625%Notes

On ~~March 10, 2017,~~October 27, 2021, we issued ~~$250.0~~$650.0 million in aggregate principal amount of ~~unsecured senior subordinated 6.125%~~4.625% Notes, ~~due 2027 (the “6.125% Notes”)~~ which will mature on ~~March~~November 15, ~~2027.~~ 2029. Sonic used the net proceeds from the issuance of the 4.625% Notes to fund the RFJ Acquisition and to repay existing debt.

The ~~6.125%~~4.625% Notes were issued ~~at a price~~under an Indenture, dated as of ~~100.0% of~~October 27, 2021 (the “2029 Indenture”), by and among the ~~principal amount thereof. Balances outstanding under~~Company, certain subsidiary guarantors named therein (collectively, the ~~6.125%~~"Guarantors") and U.S. Bank National Association, as trustee (the “trustee”). The 4.625% Notes are unconditionally guaranteed, jointly and severally, on a senior unsecured basis initially by all of ~~our~~the Company's operating domestic ~~operating~~ subsidiaries. ~~These guarantees are full and unconditional and joint and several. The parent company has no independent assets or operations.~~ The non-domestic operating subsidiary that is not a guarantor is considered minor. Under certain circumstances set forth in the 2029 Indenture, the guarantees of the certain subsidiaries of the Company comprising the EchoPark Business (as defined in the 2029 Indenture) may be released. The 2029 Indenture also provides substantial flexibility for the Company to enter into fundamental transactions involving the EchoPark Business. The 2029 Indenture provides that interest on the 4.625% Notes will be ~~minor.~~

payable semi-annually in arrears on May 15 and November 15 of each year beginning May 15, 2022. The 2029 Indenture also contains other restrictive covenants and default provisions common for an issue of senior notes of this nature. The 4.625% Notes are redeemable by the Company under certain circumstances. For further discussion of the ~~6.125%~~4.625% Notes, see Note 6, “Long-Term Debt,” to the consolidated financial statements in Sonic’s Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021.

4.875% Notes

On October 27, 2021, we issued $500.0 million in aggregate principal amount of 4.875% Notes, which will mature on November 15, 2031. Sonic used the net proceeds from the issuance of the 4.875% Notes to fund the RFJ Acquisition and to repay existing debt.

The 4.875% Notes were issued under an Indenture, dated as of October 27, 2021 (the “2031 Indenture”), by and among the Company, the Guarantors and the trustee. The 4.875% Notes are unconditionally guaranteed, jointly and severally, on a senior unsecured basis initially by all of the Company's operating domestic subsidiaries. The non-domestic operating subsidiary that is not a guarantor is considered minor. Under certain circumstances set forth in the 2031 Indenture, the guarantees of the certain subsidiaries of the Company comprising the EchoPark Business (as defined in the 2031 Indenture) may be released. The 2031 Indenture also provides substantial flexibility for the Company to enter into fundamental transactions involving the Echo-Park Business. The 2031 Indenture provides that interest on the 4.875% Notes will be payable semi-annually in arrears on May 15 and November 15 of each year beginning May 15, 2022. The 2031 Indenture also contains other restrictive covenants and default provisions common for an issue of senior notes of this nature. The 4.875% Notes are redeemable by the Company under certain circumstances. For further discussion of the 4.875% Notes, see Note 6, “Long-Term Debt,” to the consolidated financial statements in Sonic’s Annual Report on Form 10-K for the year ended December 31, 2021.

2019 Mortgage Facility

On November 22, 2019, we entered into a delayed draw-term loan credit agreement, which is scheduled to mature on November 22, 2024 (the “2019 Mortgage Facility”). On October 11, 2021, we entered into an amendment to the 2019 Mortgage Facility to permit the issuance of the 4.625% Notes and the 4.875% Notes.

Under the 2019 Mortgage Facility, Sonic has a maximum borrowing limit of $112.2 million, which varies based on the appraised value of the collateral underlying the 2019 Mortgage Facility. The amount available for borrowing under the 2019 Mortgage Facility is subject to compliance with a borrowing base. The borrowing base is calculated based on 75% of the appraised value of certain eligible real estate designated by Sonic and owned by certain of our subsidiaries. Based on balances as of ~~June 30, 2021,~~March 31, 2022, we had approximately ~~$95.5~~$87.3 million of outstanding borrowings under the 2019 Mortgage Facility, resulting in total remaining borrowing availability of approximately ~~$16.7~~$24.9 million under the 2019 Mortgage Facility.

Amounts outstanding under the 2019 Mortgage Facility bear interest at (1) a specified rate above LIBOR (as defined in the 2019 Mortgage Facility), ranging from 1.50% to 2.75% per annum according to a performance-based pricing grid determined by the Company’s Consolidated Total Lease Adjusted Leverage Ratio (as defined in the 2019 Mortgage Facility) as of the last day of the immediately preceding fiscal quarter (the “Performance Grid”); or (2) a specified rate above the Base Rate (as defined in the 2019 Mortgage Facility), ranging from 0.50% to 1.75% per annum according to the Performance Grid.

For further discussion of the 2019 Mortgage Facility, see Note 6, “Long-Term Debt,” to the consolidated financial statements in Sonic’s Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021.

1110

SONIC AUTOMOTIVE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Mortgage Notes to Finance Companies

As of ~~June 30, 2021,~~March 31, 2022, the weighted-average interest rate of our other outstanding mortgage notes (excluding the 2019 Mortgage Facility) was ~~3.54%~~3.62% and the total outstanding mortgage principal balance of these notes (excluding the 2019 Mortgage Facility) was approximately ~~$351.8~~$333.0 million. These mortgage notes require monthly payments of principal and interest through their respective maturities, are secured by the underlying properties and contain certain cross-default provisions. Maturity dates for these mortgage notes range between ~~2021~~2022 and 2033.

~~2020 Line of Credit Facility~~

On June 23, 2020, we entered into a line of credit agreement with Ally Bank (the “2020 Line of Credit Facility”) which was scheduled to mature on June 22, 2021. On June 21, 2021, we extended the maturity date of the 2020 Line of Credit Facility to June 19, 2022.0Covenants

The 2020 Line of Credit Facility has borrowing availability of up to $54.1 million which can be used for general corporate purposes. The amount available for borrowing under the 2020 Line of Credit Facility is ~~directly tied to the appraised value of certain real estate properties of the Company, which are used as collateral for any funds drawn under the 2020 Line of Credit Facility. As of~~ June 30, 2021 and December 31, 2020, we had 0 outstanding borrowings under the 2020 Line of Credit Facility, resulting in $54.1 million remaining borrowing availability under the 2020 Line of Credit Facility.

The 2020 Line of Credit Facility contains usual and customary representations and warranties, and usual and customary affirmative and negative covenants, including covenants which could restrict or prohibit indebtedness, liens, the payment of dividends and other restricted payments, capital expenditures and material dispositions and acquisitions of assets, as well as other customary covenants and default provisions. Specifically, the 2020 Line of Credit Facility permits quarterly cash dividends on our Class A and Class B Common Stock up to $0.12 per share so long as no Event of Default (as defined in the 2020 Line of Credit Facility) has occurred and is continuing and provided that we remain in compliance with all financial covenants under the 2020 Line of Credit Facility.

~~Covenants~~

We have agreed under the 2021 Credit Facilities and the 2019 Mortgage ~~Facility and the 2020 Line of Credit~~ Facility not to pledge any assets to any third parties (other than those explicitly allowed to be pledged by the amended terms of the 2021 Credit Facilities and the 2019 Mortgage ~~Facility and the 2020 Line of Credit~~ Facility), including other lenders, subject to certain stated exceptions, including floor plan financing arrangements. In addition, the 2021 Credit Facilities and the 2019 Mortgage ~~Facility and the 2020 Line of Credit~~ Facility contain certain negative covenants, including certain covenants which could restrict or prohibit indebtedness, liens, the payment of dividends and other restricted payments, capital expenditures and material dispositions and acquisitions of assets, as well as other customary covenants and default provisions.

We were in compliance with the financial covenants under the 2021 Credit Facilities and the 2019 Mortgage Facility ~~and the 2020 Line of Credit Facility~~ as of ~~June 30, 2021.~~March 31, 2022. Financial covenants include required specified ratios (as each is defined in the 2021 Credit Facilities and the 2019 Mortgage ~~Facility and the 2020 Line of Credit~~ Facility) of:


		Covenant				Covenant
		Minimum Consolidated Liquidity Ratio	Minimum Consolidated Fixed Charge Coverage Ratio	Maximum Consolidated Total Lease Adjusted Leverage Ratio		Minimum Consolidated Liquidity Ratio	Minimum Consolidated Fixed Charge Coverage Ratio	Maximum Consolidated Total Lease Adjusted Leverage Ratio
Required ratio	Required ratio	1.05	1.20	5.75	Required ratio	1.05	1.20	5.75
June 30, 2021 actual		1.19	2.21	1.34
March 31, 2022 actual					March 31, 2022 actual	1.26	2.66	2.11

The 2021 Credit Facilities and the 2019 Mortgage ~~Facility and the 2020 Line of Credit~~ Facility contain events of default, including cross defaults to other material indebtedness, change of control events and other events of default customary for syndicated commercial credit facilities. Upon the future occurrence of an event of default, we could be required to immediately repay all outstanding amounts under the 2021 Credit Facilities and the 2019 Mortgage ~~Facility and the 2020 Line of Credit~~ Facility.

After giving effect to the applicable restrictions on the payment of dividends under our debt agreements, as of ~~June 30, 2021,~~March 31, 2022, we had approximately ~~$348.9~~$413.0 million of net income and retained earnings free of such restrictions. We were in compliance with all restrictive covenants under our debt agreements as of ~~June 30, 2021.~~March 31, 2022.

In addition, many of our facility leases are governed by a guarantee agreement between the landlord and us that contains financial and operating covenants. The financial covenants under the guarantee agreement are identical to those under the 2021

~~SONIC AUTOMOTIVE, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

Credit Facilities and the 2019 Mortgage ~~Facility and the 2020 Line of Credit~~ Facility with the exception of one additional financial covenant related to the ratio of EBTDAR to Rent (as defined in the guarantee agreement) with a required ratio of no less than 1.50 to 1.00. As of ~~June 30, 2021,~~March 31, 2022, the ratio was ~~10.05~~13.22 to 1.00.

7. Commitments and Contingencies

~~Legal~~Guarantees and ~~Other Proceedings~~Indemnifications

In accordance with the ~~ordinary course~~terms of ~~business,~~ our operating lease agreements, our dealership subsidiaries, acting as lessees, generally agree to indemnify the lessor from certain exposure arising as a result of the use of the leased premises, including environmental exposure and repairs to leased property upon termination of the lease. In addition, we have generally agreed to indemnify the lessor in the event of a breach of the lease by the lessee.

In connection with dealership dispositions and facility relocations, certain of our subsidiaries have assigned or sublet to the buyer their interests in real property leases associated with such dealerships. In general, the subsidiaries retain responsibility for the performance of certain obligations under such leases, including rent payments and repairs to leased property upon termination of the lease, to the extent that the assignee or the sublessee does not perform. In the event an assignee or a sublessee does not perform its obligations, Sonic remains liable for such obligations.

SONIC AUTOMOTIVE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

exposure resulting from the breach of representations or warranties made in accordance with the agreements. While our exposure with respect to environmental remediation and repairs is difficult to quantify, we did not have any exposure as of March 31, 2022 and had exposure of $4.0 million at December 31, 2021. These indemnifications typically expire within a period of one to three years following the date of sale. The estimated fair value of these indemnifications was not material and the amount recorded for this contingency was not significant at March 31, 2022.

We also guarantee the floor plan commitments of our 50%-owned joint venture, and the amount of such guarantee was approximately $4.3 million at both March 31, 2022 and December 31, 2021.

Legal Matters

Sonic is involved, and expects to continue to be involved, in various legal and administrative proceedings arising out of the conduct of its business, including regulatory investigations and private civil actions brought by plaintiffs purporting to represent a potential class or for which a class has been certified. Although Sonic vigorously defends itself in all legal and administrative proceedings, the outcomes of pending and future proceedings arising out of the conduct of Sonic’s business, including litigation with customers, employment-related lawsuits, contractual disputes, class actions, purported class actions and actions brought by governmental authorities, cannot be predicted with certainty. An unfavorable resolution of one or more of these matters could have a material adverse effect on Sonic’s business, financial condition, results of operations, cash flows or prospects. ~~When we believe that a loss is probable~~

Included in other accrued liabilities and ~~reasonably estimable, we make an accrual for our estimated probable losses. Such reserves are presently immaterial, both individually and~~other long-term liabilities in the ~~aggregate. Other than~~accompanying unaudited condensed consolidated balance sheet as of March 31, 2022 and December 31, 2021 were approximately $1.6 million and $0.3 million, respectively, in reserves that Sonic was holding for pending proceedings. Except as reflected in ~~our recognized~~such reserves, Sonic is currently unable to estimate a range of reasonably possible loss, or a range of reasonably possible loss in excess of the amount accrued, for pending proceedings.

~~Guarantees and Indemnification Obligations~~

In accordance with the terms of our operating lease agreements, our dealership subsidiaries, acting as lessees, generally agree to indemnify the lessor from certain exposure arising as a result of the use of the leased premises, including environmental exposure and repairs to leased property upon termination of the lease. In addition, we have generally agreed to indemnify the lessor in the event of a breach of the lease by the lessee.

In connection with dealership dispositions and facility relocations, certain of our subsidiaries have assigned or sublet to the buyer their interests in real property leases associated with such dealerships or facilities. In general, the subsidiaries retain responsibility for the performance of certain obligations under such leases, including rent payments and repairs to leased property upon termination of the lease, to the extent that the assignee or sublessee does not perform. In the event an assignee or a sublessee does not perform its obligations, Sonic remains liable for such obligations.

In accordance with the terms of agreements entered into for the sale of our dealerships, we generally agree to indemnify the buyer from certain liabilities and costs arising subsequent to the date of sale, including environmental exposure and exposure resulting from the breach of representations or warranties made in accordance with the agreements. While our exposure with respect to environmental remediation and repairs is difficult to quantify, our maximum exposure associated with these general indemnifications was approximately $4.0 million and $25.0 million at June 30, 2021 and December 31, 2020, respectively. These indemnifications typically expire within a period of ~~one~~ ~~to three years following the date of sale. The estimated fair value of these indemnifications was not material and the amount recorded for this contingency was not significant at June 30, 2021.~~

~~We also guarantee the floor plan commitments of our 50%-owned joint venture. The amount of such guarantee was approximately $4.3 million at both June 30, 2021 and December 31, 2020.~~

~~SONIC AUTOMOTIVE, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

8. Fair Value Measurements

Assets and liabilities recorded at fair value in the accompanying unaudited condensed consolidated balance sheets as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021 were as follows:


		Fair Value Based on Significant Other Observable Inputs (Level 2)					Fair Value Based on Significant Other Observable Inputs (Level 2)
		June 30, 2021		December 31, 2020			March 31, 2022		December 31, 2021
		(In thousands)					(In millions)
Assets:	Assets:					Assets:
Cash surrender value of life insurance policies (1)	Cash surrender value of life insurance policies (1)	$	37,928	$	35,739	Cash surrender value of life insurance policies (1)	$	38.5	$	39.5

Total assets	Total assets	$	37,928	$	35,739	Total assets	$	38.5	$	39.5

Liabilities:	Liabilities:					Liabilities:

Deferred compensation plan (2)	Deferred compensation plan (2)	$	22,784	$	20,685	Deferred compensation plan (2)	$	23.5	$	24.4
Total liabilities	Total liabilities	$	22,784	$	20,685	Total liabilities	$	23.5	$	24.4

(1)Included in other assets in the accompanying unaudited condensed consolidated balance sheets.

(2)Included in other long-term liabilities in the accompanying unaudited condensed consolidated balance sheets.

There were 0no instances during the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 which required a fair value measurement of assets ordinarily measured at fair value on a non-recurring basis. These assets will be evaluated as of the annual valuation assessment date of October 1, ~~2021~~2022 or as events or changes in circumstances require.

As of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, the fair values of Sonic’s financial instruments, including receivables, notes receivable from finance contracts, notes payable – floor plan, trade accounts payable, borrowings under the revolving credit facilities and certain mortgage notes, approximated their carrying values due either to length of maturity or existence of variable interest rates that approximate prevailing market rates.

SONIC AUTOMOTIVE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

As of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, the fair value and carrying value of Sonic’s significant fixed rate long-term debt were as follows:

June 30, 2021 December 31, 2020
Fair Value Carrying Value Fair Value Carrying Value
(In thousands)
6.125% Notes (1) $ 261,875 $ 250,000 $ 263,438 $ 250,000


	March 31, 2022				December 31, 2021
	Fair Value		Carrying Value		Fair Value		Carrying Value
	(In millions)

4.875% Notes (1)	$	443.8	$	500.0	$	504.8	$	500.0
4.625% Notes (1)	$	580.1	$	650.0	$	655.9	$	650.0

(1)As determined by market quotations from similar securities as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively (Level 2).

For further discussion of Sonic’s fair value measurements, see Note 11, “Fair Value Measurements,” to the consolidated financial statements in Sonic’s Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021.

9. ~~Accumulated Other Comprehensive Income (Loss)~~

The changes in accumulated other comprehensive income (loss) related to our cash flow hedges and defined benefit pension plan for the three and six months ended June 30, 2021 are presently immaterial, both individually and in the aggregate.

For further discussion of Sonic’s accumulated other comprehensive income (loss), see Note 13, “Accumulated Other Comprehensive Income (Loss),” to the consolidated financial statements in Sonic’s Annual Report on Form 10-K for the year ended December 31, 2020. For further discussion of Sonic’s defined benefit pension plan, see Note 10, “Employee Benefit Plans,” to the consolidated financial statements in Sonic’s Annual Report on Form 10-K for the year ended December 31, 2020.

~~10.~~ Segment Information

As of ~~June 30, 2021,~~March 31, 2022, Sonic had 2 operating segments: (1) retail automotive franchises that sell new vehicles and buy and sell used vehicles, sell replacement parts, perform vehicle maintenance, warranty and repair services, and arrange finance and insurance products (the “Franchised Dealerships Segment”); and (2) pre-owned vehicle specialty retail locations that provide guests an opportunity to search our nationwide inventory, purchase a pre-owned vehicle, select finance and insurance products and sell their current vehicle to us (the “EchoPark Segment”). Sonic has determined that its operating segments also represent its reportable segments.

~~SONIC AUTOMOTIVE, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

The reportable segments identified above are the business activities of Sonic for which discrete financial information is available and for which operating results are regularly reviewed by Sonic’s chief operating decision maker to assess operating performance and allocate resources. Sonic’s chief operating decision maker is a group of three individuals consisting of: (1) the Company’s Chief Executive Officer; (2) the Company’s President; and (3) the Company’s Chief Financial Officer.

SONIC AUTOMOTIVE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Reportable segment financial information for the three ~~and six~~ months ended ~~June 30,~~March 31, 2022 and 2021 ~~and 2020~~ were as follows:
Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
(In thousands)
Segment Revenues:
Franchised Dealerships Segment revenues:
New vehicles $ 1,461,984 $ 900,003 $ 2,618,301 $ 1,859,492
Used vehicles 761,524 535,699 1,423,059 1,102,587
Wholesale vehicles 62,956 28,509 119,160 70,948
Parts, service and collision repair 346,118 251,998 654,194 576,499
Finance, insurance and other, net 124,060 80,401 221,586 163,429
Franchised Dealerships Segment revenues $ 2,756,642 $ 1,796,610 $ 5,036,300 $ 3,772,955
EchoPark Segment revenues:
New vehicles $ 909 $ 0 $ 909 $ 0
Used vehicles 505,172 273,178 933,735 556,343
Wholesale vehicles 21,851 4,666 40,454 10,770
Parts, service and collision repair 14,478 7,060 27,315 17,239
Finance, insurance and other, net 53,194 30,372 100,330 62,635
EchoPark Segment revenues $ 595,604 $ 315,276 $ 1,102,743 $ 646,987
Total consolidated revenues $ 3,352,246 $ 2,111,886 $ 6,139,043 $ 4,419,942

Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
(In thousands, except unit data)
Segment Income (Loss) (1):
Franchised Dealerships Segment $ 165,415 $ 35,689 $ 235,957 $ 58,346
EchoPark Segment (14,394) 2,577 (12,384) 4,672
Total segment income (loss) $ 151,021 $ 38,266 $ 223,573 $ 63,018
Impairment charges (2) 0 (833) 0 (268,833)
Income (loss) from continuing operations before taxes $ 151,021 $ 37,433 $ 223,573 $ (205,815)
Retail New and Used Vehicle Unit Sales Volume:
Franchised Dealerships Segment 59,038 43,864 110,632 91,626
EchoPark Segment 21,275 13,207 40,945 27,193
Total retail new and used vehicle unit sales volume 80,313 57,071 151,577 118,819


	Three Months Ended March 31,
	2022		2021
	(In millions)
Segment Revenues:
Franchised Dealerships Segment revenues:
Retail new vehicles	$	1,345.7	$	1,134.0
Fleet new vehicles	148.6		22.3
Total new vehicles	1,494.3		1,156.3
Used vehicles	853.7		661.5
Wholesale vehicles	106.3		56.2
Parts, service and collision repair	380.5		308.1
Finance, insurance and other, net	126.5		97.6
Franchised Dealerships Segment revenues	$	2,961.3	2279.7

EchoPark Segment revenues:
Retail new vehicles	$	5.6	—
Used vehicles	517.2		441.4
Wholesale vehicles	62.4		18.6

Finance, insurance and other, net	40.1		47.1
EchoPark Segment revenues	$	625.3	$	507.1

Total consolidated revenues	$	3,586.6	$	2,786.8


	Three Months Ended March 31,
	2022		2021
	(In millions)
Segment Income (Loss) (1):
Franchised Dealerships Segment	$	163.8	$	70.6
EchoPark Segment	(34.9)		2.0


Income from continuing operations before taxes	$	128.9	$	72.6

(1)Segment income (loss) for each segment is defined as income (loss) from continuing operations before taxes and impairment charges.


	Three Months Ended March 31,
	2022		2021
	(In millions)
Depreciation and Amortization:
Franchised Dealerships Segment	$	24.9	$	20.4
EchoPark Segment	5.0		3.2
Total depreciation and amortization	$	29.9	$	23.6

~~(2)~~
For the three months ended June 30, 2020, the above amount includes a pre-tax impairment charge of approximately $0.8 million related to the abandonment of certain construction projects. For the six months ended June 30, 2020, the above amount includes a pre-tax impairment charge of approximately $268.0 million related to adjustments in fair value of goodwill for the Franchised Dealerships Segment as a result of the economic disruptions due to the worldwide spread of COVID-19 which had adversely affected our business, as well as a pre-tax impairment charge of approximately $0.8 million related to the abandonment of certain construction projects.


	Three Months Ended March 31,
	2022		2021
	(In millions)
Floor Plan Interest Expense:
Franchised Dealerships Segment	$	3.3	$	4.1
EchoPark Segment	1.7		1.0
Total floor plan interest expense	$	5.0	$	5.1

1514

SONIC AUTOMOTIVE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended March 31,
		2021		2020		2021		2020			2022		2021
		(In thousands)									(In millions)
Impairment Charges:
Interest Expense, Other, Net:										Interest Expense, Other, Net:
Franchised Dealerships Segment	Franchised Dealerships Segment	$	0	$	833	$	0	$	268,833	Franchised Dealerships Segment	$	20.0	$	10.0
EchoPark Segment	EchoPark Segment	0		0		0		0		EchoPark Segment	0.8		0.3
Total impairment charges		$	0	$	833	$	0	$	268,833
Total interest expense, other, net										Total interest expense, other, net	$	20.8	$	10.3


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended March 31,
		2021		2020		2021		2020			2022		2021
		(In thousands)									(In millions)
Depreciation and Amortization:
Capital Expenditures:										Capital Expenditures:
Franchised Dealerships Segment	Franchised Dealerships Segment	$	20,616	$	19,895	$	40,992	$	39,484	Franchised Dealerships Segment	$	30.2	$	46.2
EchoPark Segment	EchoPark Segment	4,145		2,752		7,456		5,460		EchoPark Segment	28.6		21.5
Total depreciation and amortization		$	24,761	$	22,647	$	48,448	$	44,944
Total capital expenditures										Total capital expenditures	$	58.8	$	67.7


	March 31, 2022		December 31, 2021
	(In millions)
Assets:
Franchised Dealerships Segment	$	3,986.9	$	3,934.9
EchoPark Segment	659.1		740.6
Corporate and other:
Cash and cash equivalents	360.2		299.4


Other corporate assets	—		0.2
Total assets	$	5,006.2	$	4,975.1

Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
(In thousands)
Floor Plan Interest Expense:
Franchised Dealerships Segment $ 3,155 $ 5,675 $ 7,271 $ 15,283
EchoPark Segment 1,174 639 2,170 1,539
Total floor plan interest expense $ 4,329 $ 6,314 $ 9,441 $ 16,822

10. Subsequent Events

Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
(In thousands)
Interest Expense, Other, Net:
Franchised Dealerships Segment $ 9,723 $ 9,556 $ 19,682 $ 20,156
EchoPark Segment 354 241 681 606
Total interest expense, other, net $ 10,077 $ 9,797 $ 20,363 $ 20,762

Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
(In thousands)
Capital Expenditures:
Franchised Dealerships Segment $ 25,506 $ 35,388 $ 71,677 $ 52,637
EchoPark Segment 11,923 6,540 33,414 9,096
Total capital expenditures $ 37,429 $ 41,928 $ 105,091 $ 61,733

June 30, 2021 December 31, 2020
(In thousands)
Assets:
Franchised Dealerships Segment assets $ 2,742,475 $ 3,096,811
EchoPark Segment assets 674,253 478,869
Corporate and other:
Cash and cash equivalents 239,617 170,313
Other corporate assets 0 0
Total assets $ 3,656,345 $ 3,745,993

1615

SONIC AUTOMOTIVE, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and related notes thereto, ~~and “Item 1A. Risk Factors” in this report,~~ as well as the consolidated financial statements and related notes thereto, “Item 1A. Risk Factors” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” ~~appearing~~included in our Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021.

Unless otherwise noted, we present the discussion in this Management’s Discussion and Analysis of Financial Condition and Results of Operations on a consolidated basis. To the extent that we believe a discussion of the differences among reportable segments will enhance a reader’s understanding of our financial condition, cash flows and other changes in financial condition and results of operations, the differences are discussed separately.

Unless otherwise noted, all discussion of increases or decreases are for the three ~~and six~~ months ended ~~June 30, 2021~~March 31, 2022 compared to the three ~~and six~~ months ended ~~June 30, 2020.~~March 31, 2021. The three months ended March 31, 2022 were the first full quarterly period to include the results of the locations acquired in the RFJ Auto Acquisition. The following discussion of Franchised Dealerships Segment new vehicles, used vehicles, wholesale vehicles, parts, service and collision repair, and finance, insurance and other, net, is on a same store basis, except where otherwise noted. All currently operating franchised dealership stores are included within the same store group as of the first full month following the first anniversary of the store’s opening or acquisition. All currently operating EchoPark stores in a local geographic market are included within the same market group as of the first full month following the first anniversary of the market’s opening.

Overview

We are one of the largest automotive retailers in the U.S. (as measured by reported total revenue). As a result of the way we manage our business, we had two reportable segments as of ~~June 30, 2021:~~March 31, 2022: (1) the Franchised Dealerships Segment and (2) the EchoPark Segment. For management and operational reporting purposes, we group certain businesses together that share management and inventory (principally used vehicles) into “stores.” As of ~~June 30, 2021,~~March 31, 2022, we operated 84111 stores in the Franchised Dealerships Segment and 2547 stores in the EchoPark Segment. The Franchised Dealerships Segment consists of 95142 new vehicle franchises (representing 2129 different brands of cars and light trucks) and 1417 collision repair centers in 1218 states. As of March 31, 2022, we operated 47 EchoPark stores in 19 states, including 11 Northwest Motorsport pre-owned vehicle stores acquired in the RFJ Acquisition in December 2021. Under our current EchoPark growth plan, we plan to open 25 additional EchoPark stores annually through 2025 as we build out a nationwide EchoPark distribution network expected to reach 90% of the U.S. population by 2025.

The Franchised Dealerships Segment provides comprehensive services, including (1) sales of both new and used cars and light trucks; (2) sales of replacement parts and performance of vehicle maintenance, manufacturer warranty repairs, and paint and collision repair services (collectively, “Fixed Operations”); and (3) arrangement of extended warranties, service contracts, financing, insurance and other aftermarket products (collectively, “finance and insurance” or “F&I”) for our guests. The EchoPark Segment sells used cars and light trucks and arranges F&I product sales for our guests in pre-owned vehicle specialty retail locations. Our EchoPark business generally operates independently from our franchised dealerships business (except for certain shared back-office functions and corporate overhead costs). Sales operations for EchoPark began in the fourth quarter of 2014, and, as of June 30, 2021, we operated 25 EchoPark stores in 12 states. During 2020, we announced an accelerated EchoPark growth plan in which we plan to open 25 additional EchoPark stores annually from 2021 to 2025 as we build out an expected 140-plus point nationwide EchoPark distribution network by 2025, which we expect will allow EchoPark to reach 90% of the U.S. population by that time.

Executive Summary

Results in the three and six months ended June 30, 2021 benefit from a favorable comparison to the prior year period, where the onset of the COVID-19 pandemic caused significant disruption to our industry and business. Retail Automotive Industry Performance

The U.S. retail automotive industry’s total new vehicle (retail and fleet combined) seasonally adjusted annual rate of sales (“SAAR”) ~~increased 50.4% and 28.8%, in~~was approximately 14.2 million for the three ~~and six~~ months ended ~~June 30, 2021, respectively,~~March 31, 2022, a decrease 16.0%, compared to ~~17.0~~16.9 million vehicles ~~in both periods, compared to 11.3 million and 13.2 million vehicles in~~for the three ~~and six~~ months ended ~~June 30, 2020, respectively,~~March 31, 2021, according to data from Bloomberg Finance L.P., provided by Stephens Inc. For ~~2021,~~2022, analysts’ industry expectation for the ~~total~~ new vehicle SAAR ranges from 14.5 million vehicles ~~(flat~~(a 3.3% decrease compared to ~~2020)~~2021) to 16.0 million vehicles (an increase of ~~10.3%~~6.7% compared to ~~2020)~~2021). We estimate the ~~2021 total~~2022 new vehicle SAAR will be between 15.0 million vehicles (flat compared to 2021) and 15.5 million vehicles (an increase of ~~6.9%~~3.3% compared to ~~2020) and 16.0 million vehicles (an increase of 10.3% compared to 2020)~~2021). The ongoing effects of the COVID-19 pandemic, availability of new and used vehicle inventory, interest rates, changes in consumer confidence, availability of consumer financing, ~~interest rates, additional federal relief spending by the U.S government,~~ manufacturer inventory production levels, incentive levels from automotive manufacturers or shifts in such levels, ~~availability of new and used vehicle inventory,~~ or timing of consumer demand as a result of natural disasters or other unforeseen circumstances could cause the actual ~~2021~~2022 total new vehicle SAAR to vary from our expectation. For example, a material portion of our revenue is generated from our stores in Texas, nearly all of which were affected by the extreme winter weather and related power outages experienced in February 2021.expectations. Many factors, including brand and geographic concentrations

~~SONIC AUTOMOTIVE, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

as well as the industry sales mix between retail and fleet new vehicle unit sales volume, have caused our past results to differ from the industry’s overall trend. Our new vehicle sales strategy

SONIC AUTOMOTIVE, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

focuses on our retail new vehicle sales (as opposed to fleet new vehicle sales) and, as a result, we believe it is appropriate to compare our retail new vehicle unit sales volume to the retail new vehicle SAAR (which excludes fleet new vehicle sales). According to the Power Information Network (“PIN”) from J.D. Power, industry retail new vehicle SAAR was ~~15.6~~12.7 million vehicles for the three months ended ~~June 30, 2021, an increase~~March 31, 2022, a decrease of ~~50.0%~~11.2% from ~~10.4 million vehicles in the prior year period, and 15.0 million vehicles for the six months ended June 30, 2021, an increase of 36.4% from 11.0~~14.3 million vehicles in the prior year period.

Impact of COVID-19 and Supply Chain Disruptions

The ongoing effects of the COVID-19 pandemic continue to evolve. While we currently expect to see continued economic growth in 2022, a change of circumstances in the general economy or the course of the pandemic may cause changes in consumer behaviors, including a potential reduction in consumer spending for vehicles and automotive repairs, particularly if the pandemic worsens or interest rates continue to rise. This may lead to increased asset recovery and valuation risks, such as impairment of additional indefinite lived intangible assets. In addition, uncertainties in the global economy have negatively impacted our suppliers and other business partners, which may interrupt our vehicle and parts inventory supply chain and require other changes to our operations. We have also seen a tightening in the supply of new and used vehicles due, in part, to the COVID-19 pandemic, which is likely to continue in 2022. These and other factors may adversely impact our revenues, operating income and earnings per share financial measures.

In addition, the global automotive supply chain has been significantly disrupted during the pandemic, primarily related to the production of semiconductors and other components that are used in ~~many components of~~ modern ~~automobiles.~~automobiles, in addition to workforce-related production delays and stoppages. As a result, automobile manufacturing is operating at lower than ~~expected~~usual production levels, reducing the amount of new vehicle and certain parts inventory available to our dealerships. These inventory constraints, coupled with strong consumer demand and elevated levels of consumer savings, have led to low ~~levels of~~ new vehicle inventory asand a high new and used vehicle pricing environment, which drove lower retail new vehicle unit sales volume in the first quarter of ~~June 30, 2021.~~2022. While we believe that new vehicle and parts production levels should begin to improve in the first half of 2022, there is a risk that new vehicle and certain parts inventory levels remain at a low level or worsen, which could cause actual 2022 new vehicle SAAR to vary from our expectations.

Franchised Dealerships Segment

As a result of the acquisition, disposition, termination or closure of ~~several~~ franchised ~~dealerships subsequent to January 1, 2020,~~dealership stores in 2021, including the RFJ Acquisition in December 2021, the change in consolidated reported amounts from period to period may not be indicative of the current or future operational or financial performance of our current group of operating stores.

~~New~~Retail new vehicle revenue ~~increased 63.7% and 42.0%~~decreased 1.9% during the three ~~and six~~ months ended ~~June 30, 2021, respectively,~~March 31, 2022, primarily driven by a ~~55.3% and 33.6% increase~~14.5% decrease in retail new vehicle unit sales ~~volume, respectively. New~~volume. Retail new vehicle gross profit increased ~~166.4% and 108.8%~~100.4% during the three ~~and six~~ months ended ~~June 30, 2021, respectively,~~March 31, 2022, due to ~~higher~~a 14.8% increase in retail new vehicle ~~unit sales volume and a 71.5% and 56.2% increase in~~average selling prices. Retail new vehicle gross profit per unit ~~respectively, as a result of higher average selling prices. New vehicle gross profit per unit~~ increased ~~$1,595~~$3,899 per unit, or ~~71.5%~~134.4%, to ~~$3,827~~$6,799 per unit induring the three months ended ~~June 30, 2021, and increased $1,218 per unit, or 56.2%, to $3,385 per unit in the six months ended June 30, 2021,~~March 31, 2022, due primarily to higher average selling prices due in part to inventory shortages in certain makes and models as a result of vehicle manufacturer supply chain disruptions and production ~~delays during the COVID-19 pandemic. As a result of the new vehicle inventory shortages, our new vehicle inventories are at historic lows.~~delays. Many of ~~the~~our new vehicles are being pre-ordered and delivered to customers shortly after the vehicles arrive at our ~~stores, As~~stores. On a trailing quarter cost of ~~June 30, 2021,~~sales basis, our Franchised Dealerships Segment days’ supply of new vehicle inventory was 15 days as of March 31, 2022 compared to ~~a days’ supply of inventory~~43 days as of ~~June 30, 2020 of 64 days. The third quarter of 2021 could face volume pressures if availability continues to decline.~~March 31, 2021.

Retail used vehicle revenue increased ~~43.3% and 30.3%~~9.7% during the three ~~and six~~ months ended ~~June 30, 2021, respectively,~~March 31, 2022, driven by ~~a 20.5% and 13.1% increase in retail used vehicle unit sales volume, respectively, and~~ higher average selling prices. Retail used vehicle gross profit increased ~~96.7% and 40.8%~~13.6% during the three ~~and six~~ months ended ~~June 30, 2021, respectively,~~March 31, 2022, due to ~~higher retail used vehicle unit sales volume and~~ an increase in retail used vehicle gross profit per ~~unit of 63.3% and 24.5%, respectively.~~unit. Retail used vehicle gross profit per unit increased ~~$715~~$455 per unit, or ~~63.3%~~35.7%, to ~~$1,844~~$1,728 per unit during the three months ended ~~June 30, 2021, and increased $292 per unit, or 24.5%,~~March 31, 2022, due primarily to ~~$1,486 per unit during the six months ended June 30, 2021, as a result of~~ higher average selling prices due in part to shortages of new vehicle inventory. Wholesale vehicle gross profit ~~improved~~decreased by approximately ~~$4.5 million and $5.3~~$1.2 million in the three ~~and six~~ months ended ~~June 30, 2021, respectively,~~March 31, 2022, due primarily to a ~~57.6% and 44.8% increase~~$180 per unit, or 163.6%, decrease in ~~average~~ wholesale vehicle ~~revenue~~gross profit per ~~unit, respectively, as a result of increased demand in the wholesale auction market as a result of new vehicle inventory shortages.~~unit. In the past, we have focused on maintaining used vehicle inventory days’ supply in the 30- to 35-day range, which may fluctuate seasonally, in order to limit our exposure to market pricing volatility. ~~Our reported franchised dealerships~~On a trailing quarter cost of sales basis, our Franchised Dealerships Segment used vehicle inventory days’ supply was approximately 3133 and 2527 days as of ~~June 30,~~March 31, 2022 and 2021, ~~and 2020,~~ respectively.

Fixed Operations revenue increased ~~39.0% and 14.3%~~12.3% during the three ~~and six~~ months ended ~~June 30, 2021, respectively,~~March 31, 2022, and Fixed Operations gross profit increased ~~42.6% and 17.7%~~10.0% during the three ~~and six~~ months ended ~~June 30, 2021, respectively.~~March 31, 2022. Fixed Operations gross margin ~~increased 130 and 140~~decreased 110 basis points during the three ~~and six~~ months ended ~~June 30, 2021, respectively,~~March 31, 2022 to ~~50.6% and 50.4%~~49.2%, ~~respectively,~~ driven primarily by an increase in customer pay revenue contribution and higher customer pay gross margin.

F&I revenue increased ~~56.5% and 37.2%~~6.6% during the three ~~and six~~ months ended ~~June 30, 2021, respectively,~~March 31, 2022, driven primarily by an increases in F&I gross profit per retail unit. F&I gross profit per retail unit increased ~~$258~~$472 per unit, or ~~14.9%~~26.1%, to ~~$1,984~~$2,280 per unit induring the three months ended ~~June 30, 2021. F&I gross profit per retail unit increased $204 per unit, or 12.0%, to $1,902 per unit in the six months ended June 30, 2021.~~March 31, 2022. We believe that our proprietary software applications, playbook processes and guest-centric

SONIC AUTOMOTIVE, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

selling approach enable us to optimize F&I gross profit and penetration rates (the number of F&I products sold per vehicle) across our F&I product lines. ~~We believe that we will continue to increase revenue in this area as we refine our processes, train our associates and continue to sell a high volume of retail new and used vehicles at our stores.~~

~~SONIC AUTOMOTIVE, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

EchoPark Segment

Reported total EchoPark ~~revenues~~Segment revenue increased ~~88.9% and 70.4% in~~23.3% during the three ~~and six~~ months ended ~~June 30, 2021, respectively,~~March 31, 2022, driven primarily by continued expansion of our nationwide distribution network and ~~increases~~higher average selling prices. Reported total gross profit decreased 3.5% during the three months ended March 31, 2022, due primarily to decreases in retail used vehicle unit sales volume.

Reported retail used vehicle revenue increased 17.2% in the three months ended March 31, 2022. F&I revenue decreased 14.5% during the three months ended March 31, 2022, driven primarily by a 23.8% decrease in retail used vehicle unit sales volume ~~and average selling prices. Reported total gross profit increased 33.7% and 39.4% in~~during the three ~~and six~~ months ended ~~June 30, 2021, respectively, due primarily to higher retail used vehicle unit sales volume and an increase in F&I per retail unit.~~March 31, 2022. Reported combined retail used vehicle and F&I gross profit per unit ~~decreased 25.6% and 11.9% in the three and six months ended June 30, 2021, respectively, to $1,539 and $1,924 per unit, respectively, as a result of higher inventory acquisition costs due to~~ increased ~~demand in the wholesale auction market.~~

Retail used vehicle revenue increased 84.9% and 67.8% in the three and six months ended June 30, 2021, respectively. F&I revenue increased 75.1% and 60.2% during the three and six months ended June 30, 2021, respectively, driven primarily by a 61.0% and 50.5% increase in retail used vehicle unit sales volume, respectively, and increases in retail used vehicle average selling prices. Combined retail used vehicle and F&I gross profit per unit decreased $530$437 per unit, or ~~25.6%~~18.8%, to ~~$1,539~~$2,755, per unit during the three months ended ~~June 30, 2021, and decreased $261 per unit, or 12%,~~March 31, 2022, due primarily to ~~$1,924 per unit during the six months ended June 30, 2021.~~generally increased average selling prices driven by inventory shortages.

Wholesale vehicle gross profit improved by approximately ~~$3.2 million and $3.3~~$1.6 million during the three ~~and six~~ months ended ~~June 30, 2021, respectively,~~March 31, 2022, due in part to higher average wholesale prices as a result of increased demand for used vehicles at auction. We generally focus on maintaining used vehicle inventory days’ supply in the 30- to ~~40-day~~35-day range, which may fluctuate seasonally, in order to limit our exposure to market pricing volatility. Our used vehicle inventory days’ supply at our EchoPark stores was approximately 4757 and 3840 days as of ~~June 30,~~March 31, 2022 and 2021, ~~and 2020,~~ respectively. The elevated level of used vehicle inventory days’ supply as of ~~June 30, 2021~~March 31, 2022 was due primarily to the opening of ~~several~~ new EchoPark stores, which require additional inventory on hand but are not yet generating retail used vehicle sales at the rate of a more mature store.

~~All currently operating EchoPark stores in a local geographic market are included within the same market group as of the first full month following the first anniversary of the market’s opening.~~ EchoPark same market total revenues ~~increased 37.5% and 30.8%~~decreased 18.9% during the three ~~and six~~ months ended ~~June 30, 2021, respectively,~~March 31, 2022, driven primarily by ~~a 16.5% and 14.7% increase~~decreases in used vehicle unit sales volume. EchoPark same market total gross profit decreased 48.9% during the three months ended March 31, 2022, due primarily to lower retail used vehicle unit sales volume ~~during the three~~ and six months ended June 30, 2021, respectively, and increases in retail used vehicle average selling prices. EchoPark same market total gross profit increased 3.0% during the three months ended June 30, 2021, due primarily to higher retail used vehicle unit sales volume, offset partially by a ~~20.8%~~11.3% decrease in total gross profit per unit, to $1,423 per unit. EchoPark same market total gross profit increased 19.6% during the six months ended June 30, 2021, due primarily to higher retail used vehicle unit sales volume, partially offset by a 0.8% decrease in total gross profit per unit, to $1,887$2,064 per unit.

Results of Operations – Consolidated

New Vehicles – Consolidated

New vehicle revenues include the sale of new vehicles to retail customers, as well as the sale of fleet vehicles. New vehicle revenues and gross profit can be influenced by vehicle manufacturer incentives to consumers (which vary from cash-back incentives to low interest rate financing, among other things), the availability of consumer credit and the level and type of manufacturer-to-dealer incentives, as well as manufacturers providing adequate inventory allocations to our dealerships to meet customer demands. The ~~following tables list other items of interest that affected reported amounts~~automobile manufacturing industry is cyclical and historically has experienced periodic downturns characterized by oversupply and weakening demand, both within specific brands and in the ~~accompanying unaudited condensed consolidated statements~~industry as a whole. As an automotive retailer, we seek to mitigate the effects of ~~operations:~~

Three Months Ended June 30, 2021 Three Months Ended June 30, 2020
(Amounts are before the effect of income taxes, except tax items) Franchised Dealerships Segment EchoPark Segment Total Franchised Dealerships Segment EchoPark Segment Total Operations Statement Line Impacted
(In thousands)
Impairment charges $ — $ — $ — $ (833) $ — $ (833) Impairment charges
Non-recurring tax benefit $ — $ — $ — $ 3,175 $ — $ 3,175 Income taxes

Six Months Ended June 30, 2021 Six Months Ended June 30, 2020
(Amounts are before the effect of income taxes, except tax items) Franchised Dealerships Segment EchoPark Segment Total Franchised Dealerships Segment EchoPark Segment Total Operations Statement Line Impacted
(In thousands)
Impairment charges $ — $ — $ — $ (268,833) $ — $ (268,833) Impairment charges
Non-recurring tax benefit $ — $ — $ — $ 54,470 $ — $ 54,470 Income taxes

this sales cycle by maintaining a diverse brand mix of dealerships. Our brand diversity allows us to offer a broad range of products at a wide range of prices from lower-priced/economy vehicles to luxury vehicles.

1918

SONIC AUTOMOTIVE, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following table depicts the breakdown of our Franchised Dealerships Segment new vehicle revenues by brand for the three ~~and six~~ months ended ~~June 30, 2021~~March 31, 2022 and ~~2020:~~2021:


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended March 31,
Brand	Brand	2021		2020		2021		2020		Brand	2022		2021
Luxury:	Luxury:									Luxury:
BMW	BMW	26.6	%	21.9	%	25.4	%	23.6	%	BMW	22.8	%	23.8	%
Mercedes	Mercedes	12.2	%	13.3	%	12.4	%	13.3	%	Mercedes	10.3	%	12.8	%
Audi	Audi	7.6	%	6.4	%	7.4	%	6.2	%	Audi	4.6	%	7.2	%
Lexus	Lexus	4.7	%	4.1	%	4.8	%	4.4	%	Lexus	4.4	%	5.1	%
Land Rover	Land Rover	3.9	%	6.1	%	4.2	%	5.2	%	Land Rover	3.0	%	4.5	%
Porsche	Porsche	3.7	%	3.5	%	3.7	%	3.2	%	Porsche	2.5	%	3.7	%
Cadillac	Cadillac	2.4	%	2.1	%	2.6	%	2.2	%	Cadillac	1.9	%	3.0	%
Volvo										Volvo	0.9	%	—	%
MINI	MINI	1.2	%	1.0	%	1.1	%	1.0	%	MINI	0.8	%	0.9	%
Other luxury (1)	Other luxury (1)	3.0	%	3.0	%	2.9	%	2.7	%	Other luxury (1)	0.4	%	2.5	%
Total Luxury	Total Luxury	65.3	%	61.4	%	64.5	%	61.8	%	Total Luxury	51.6	%	63.5	%
Mid-line Import:	Mid-line Import:									Mid-line Import:
Honda	Honda	14.7	%	14.3	%	14.0	%	14.6	%	Honda	8.6	%	13.1	%
Toyota	Toyota	7.6	%	8.7	%	8.3	%	8.7	%	Toyota	8.4	%	9.1	%
Volkswagen	Volkswagen	1.5	%	1.1	%	1.4	%	1.1	%	Volkswagen	1.5	%	1.2	%
Hyundai	Hyundai	1.0	%	1.2	%	1.0	%	1.1	%	Hyundai	1.3	%	1.0	%
Nissan		0.8	%	0.5	%	0.5	%	0.4	%
Other Import (2)										Other Import (2)	1.6	%	0.4	%
Total Mid-line Import	Total Mid-line Import	25.6	%	25.8	%	25.2	%	25.9	%	Total Mid-line Import	21.4	%	24.8	%
Domestic:	Domestic:									Domestic:
Ford	Ford	4.6	%	6.9	%	5.2	%	6.4	%	Ford	13.3	%	5.9	%
General Motors (2)		4.5	%	5.9	%	5.1	%	5.9	%
Chrysler, Dodge, Jeep, and Ram										Chrysler, Dodge, Jeep, and Ram	10.3	%	—	%
General Motors (3)										General Motors (3)	3.4	%	5.8	%
Total Domestic	Total Domestic	9.1	%	12.8	%	10.3	%	12.3	%	Total Domestic	27.0	%	11.7	%
Total	Total	100.0	%	100.0	%	100.0	%	100.0	%	Total	100.0	%	100.0	%

(1)Includes Acura, Infiniti ~~Jaguar~~ and ~~Volvo.~~Jaguar

(2)Includes Mazda, Nissan and Subaru

(3)Includes Buick, Chevrolet and ~~GMC.~~GMC

~~SONIC AUTOMOTIVE, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

~~Results of Operations~~

~~Results of Operations – Consolidated~~

~~New Vehicles – Consolidated~~

The U.S. retail automotive ~~industry uses the total new vehicle SAAR to measure the annual amount of expected~~industry's new vehicle unit sales ~~activity (both retail and fleet sales) within the U.S. The total and retail new vehicle SAAR below reflect~~volume reflects all brands marketed or sold in the U.S. ~~The total and retail new vehicle SAAR include~~This industry sales volume includes brands we do not sell and markets in which we do not ~~operate;~~operate, therefore, our new vehicle unit sales volume may not trend directly in line with the ~~total and retail~~industry new vehicle ~~SAAR.~~unit sales volume. We believe that the retail new vehicle ~~SAAR~~industry sales volume is a more meaningful metric for comparing our new vehicle unit sales volume to the industry due to our minimal fleet vehicle business.

Beginning in the middle of March 2020, the COVID-19 pandemic began to adversely impact the retail automotive industry and consequentially also our business operations by severely impacting the demand portion of our business. State and local governmental authorities in all of the markets in which we currently operate began to put in place various levels of shelter-in-place or stay-at-home orders in the middle of March 2020, which in many cases significantly restricted our business operations and suppressed consumer activity, in particular related to our vehicle sales activities. While the majority of these restrictions have been relaxed and consumer demand has rebounded significantly, the timing and rate of improvement in demand has not been uniform across the markets in which we operate. Further, disruptions in the automotive supply chain have caused lower than expected levels of vehicle production, which, combined with consumer demand for new vehicles, drove lower than typical levels of new vehicle inventory during ~~the second quarter of~~ 2021. Low levels of new vehicle inventory have resulted in higher average selling prices for new vehicles and ~~may have~~we believe had a negative impact on ~~the~~ retail new vehicle SAAR for the three months ended ~~June 30, 2021.~~March 31, 2022.

SONIC AUTOMOTIVE, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Retail new vehicle SAAR, fleet new vehicle SAAR and total new vehicle SAAR were as follows:


		Three Months Ended June 30,		Better / (Worse)		Six Months Ended June 30,		Better / (Worse)			Three Months Ended March 31,		Better / (Worse)
		2021	2020	% Change		2021	2020	% Change			2022	2021	% Change
		(In millions of vehicles)									(In millions of vehicles)
Retail new vehicle SAAR (1)	Retail new vehicle SAAR (1)	15.6	10.4	50.0	%	15.0	11.0	36.4	%	Retail new vehicle SAAR (1)	12.7	14.3	(11.2)	%
Fleet new vehicle SAAR	Fleet new vehicle SAAR	1.4	0.9	55.6	%	2.0	2.2	(9.1)	%	Fleet new vehicle SAAR	1.5	2.6	(42.3)	%
Total new vehicle SAAR (2)	Total new vehicle SAAR (2)	17.0	11.3	50.4	%	17.0	13.2	28.8	%	Total new vehicle SAAR (2)	14.2	16.9	(16.0)	%

(1)Source: PIN from J.D. Power

(2)Source: Bloomberg Finance L.P., provided by Stephens Inc.

Our consolidated reported new vehicle results ~~(combined retail and fleet data)~~ were as follows:

Three Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit and per unit data)
Reported new vehicle:
Revenue $ 1,462,893 $ 900,003 $ 562,890 62.5 %
Gross profit $ 118,426 $ 45,386 $ 73,040 160.9 %
Unit sales 30,502 19,891 10,611 53.3 %
Revenue per unit $ 47,961 $ 45,247 $ 2,714 6.0 %
Gross profit per unit $ 3,883 $ 2,282 $ 1,601 70.2 %
Gross profit as a % of revenue 8.1 % 5.0 % 310 bps


	Three Months Ended March 31,						Better / (Worse)
	2022			2021			Change		% Change
	(In millions, except unit and per unit data)
Reported new vehicle:
Retail new vehicle revenue	$	1,351.3		$	1,134.0		$	217.3	19.2	%
Fleet new vehicle revenue	148.6			22.3			126.3		566.4	%
Total new vehicle revenue	$	1,499.9		$	1,156.3		$	343.6	29.7	%

Retail new vehicle gross profit	$	167.7		$	69.2		$	98.5	142.3	%
Fleet new vehicle gross profit	0.8			0.2			0.6		300.0	%
Total new vehicle gross profit	$	168.5		$	69.4		$	99.1	142.8	%

Retail new vehicle unit sales	24,687			23,817			870		3.7	%
Fleet new vehicle unit sales	4,381			541			3,840		709.8	%
Total new unit sales	29,068			24,358			4,710		19.3	%

Revenue per retail unit	$	54,737		$	47,613		$	7,124	15.0	%
Revenue per fleet unit	33,919			41,220			(7,301)		(17.7)	%
Total revenue per unit	$	51,600		$	47,472		$	4,128	8.7	%

Gross profit per retail unit	$	6,793		$	2,906		$	3,887	133.8	%
Gross profit per fleet unit	193			459			(266)		(58.0)	%
Total gross profit per unit	$	5,798		$	2,852		$	2,946	103.3	%

Retail gross profit as a % of revenue	12.4		%	6.1		%	630		bps
Fleet gross profit as a % of revenue	0.5		%	0.9		%	(40)		bps
Total gross profit as a % of revenue	11.2		%	6.0		%	520		bps

~~SONIC AUTOMOTIVE, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

Six Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit and per unit data)
Reported new vehicle:
Revenue $ 2,619,210 $ 1,859,492 $ 759,718 40.9 %
Gross profit $ 187,891 $ 90,802 $ 97,089 106.9 %
Unit sales 54,860 41,615 13,245 31.8 %
Revenue per unit $ 47,744 $ 44,683 $ 3,061 6.9 %
Gross profit per unit $ 3,425 $ 2,182 $ 1,243 57.0 %
Gross profit as a % of revenue 7.2 % 4.9 % 230 bps

For further analysis of new vehicle results, see the tables and discussion under the heading “New Vehicles – Franchised Dealerships Segment” in the Franchised Dealerships Segment section below.

Used Vehicles – Consolidated

Used vehicle revenues are directly affected by a number of factors, including the pricing and level of manufacturer incentives on new vehicles, the number and quality of trade-ins and lease turn-ins, the availability and pricing of used vehicles acquired at wholesale auction and the availability of consumer credit. As with new vehicles, COVID-19 began to adversely impact the retail automotive industry and consequentially also our business operations beginning in the middle of March 2020, by severely impacting the demand portion of our business. State and local governmental authorities in all of the markets in which we currently operate began to put in place various levels of shelter-in-place or stay-at-home orders in the middle of March 2020, which in many cases significantly restricted our business operations and suppressed consumer activity, in particular related to our vehicle sales activities. While the majority of these restrictions have been relaxed and consumer demand has rebounded significantly, the timing and rate of improvement in demand has not been uniform across the markets in which we operate.

As a result of low levels of new vehicle inventory and a ~~recovery in~~heightened demand for used vehicles (both by retail consumers and dealers at wholesale auction), used vehicle prices reached an all-time high during the ~~second~~first quarter of ~~2021.~~2022. Depending on

SONIC AUTOMOTIVE, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

the mix of inventory sourcing (trade-in ~~vs.~~versus wholesale auction), the days’ supply of used vehicle inventory, and the pricing strategy employed by the dealership, retail used vehicle gross profit per unit and retail used vehicle gross profit as a percentage of revenue may vary significantly from historical levels given the current used vehicle environment.

~~SONIC AUTOMOTIVE, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

Our consolidated reported retail used vehicle results were as follows:


		Three Months Ended June 30,						Better / (Worse)					Three Months Ended March 31,						Better / (Worse)
		2021			2020			Change		% Change			2022			2021			Change		% Change
		(In thousands, except unit and per unit data)											(In millions, except unit and per unit data)
Reported used vehicle:	Reported used vehicle:											Reported used vehicle:
Revenue	Revenue	$	1,266,696		$	808,877		$	457,819	56.6	%	Revenue	$	1,370.9		$	1,090.1		$	280.8	25.8	%
Gross profit	Gross profit	$	34,753		$	27,371		$	7,382	27.0	%	Gross profit	$	48.2		$	30.9		$	17.3	56.0	%
Unit sales	Unit sales	49,811			37,180			12,631		34.0	%	Unit sales	42,073			46,906			(4,833)		(10.3)	%
Revenue per unit	Revenue per unit	$	25,430		$	21,756		$	3,674	16.9	%	Revenue per unit	$	32,584		$	23,240		$	9,344	40.2	%
Gross profit per unit	Gross profit per unit	$	698		$	736		$	(38)	(5.2)	%	Gross profit per unit	$	1,144		$	658		$	486	73.9	%
Gross profit as a % of revenue	Gross profit as a % of revenue	2.7		%	3.4		%	(70)		bps		Gross profit as a % of revenue	3.5		%	2.8		%	70		bps

Six Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit and per unit data)
Reported used vehicle:
Revenue $ 2,356,794 $ 1,658,930 $ 697,864 42.1 %
Gross profit $ 65,623 $ 59,502 $ 6,121 10.3 %
Unit sales 96,717 77,204 19,513 25.3 %
Revenue per unit $ 24,368 $ 21,488 $ 2,880 13.4 %
Gross profit per unit $ 679 $ 771 $ (92) (11.9) %
Gross profit as a % of revenue 2.8 % 3.6 % (80) bps

For further analysis of used vehicle results, see the tables and discussion under the headings “Used Vehicles – Franchised Dealerships Segment” and “Used Vehicles and F&I – EchoPark Segment” in the Franchised Dealerships Segment and EchoPark Segment sections, respectively, below.

Wholesale Vehicles – Consolidated

Wholesale vehicle revenues are affected by retail new and used vehicle unit sales volume and the associated trade-in volume, as well as short-term, temporary and seasonal fluctuations in wholesale auction pricing. Since the ~~onset~~beginning of the COVID-19 pandemic in March 2020, wholesale vehicle prices and supply at auction have experienced periods of volatility, impacting our wholesale vehicle revenues and related gross profit (loss), as well as retail used vehicle revenues and related gross profit. ~~During 2021, wholesale vehicle gross profit increased significantly as a result of increased demand for used vehicles due in part to low levels of new vehicle inventory.~~ We believe that the current wholesale vehicle price environment is not sustainable in the long-term and expect that wholesale vehicle pricing and related gross profit (loss) ~~will~~may begin to return toward long-term normalized ~~levels.~~levels in 2022. Wholesale vehicle revenues are also significantly affected by our corporate inventory management strategy and policies, which are designed to optimize our total used vehicle inventory and minimize inventory carrying risks.

~~SONIC AUTOMOTIVE, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

Our consolidated reported wholesale vehicle results were as follows:


		Three Months Ended June 30,						Better / (Worse)					Three Months Ended March 31,						Better / (Worse)
		2021			2020			Change		% Change			2022			2021			Change		% Change
		(In thousands, except unit and per unit data)											(In millions, except unit and per unit data)
Reported wholesale vehicle:	Reported wholesale vehicle:											Reported wholesale vehicle:
Revenue	Revenue	$	84,807		$	33,175		$	51,632	155.6	%	Revenue	$	168.7		$	74.8		$	93.9	125.5	%
Gross profit (loss)	Gross profit (loss)	$	4,527		$	(426)		$	4,953	1,162.7	%	Gross profit (loss)	$	1.4		$	0.9		$	0.5	55.6	%
Unit sales	Unit sales	9,631			6,281			3,350		53.3	%	Unit sales	10,421			9,693			728		7.5	%
Revenue per unit	Revenue per unit	$	8,806		$	5,282		$	3,524	66.7	%	Revenue per unit	$	16,188		$	7,718		$	8,470	109.7	%
Gross profit (loss) per unit	Gross profit (loss) per unit	$	470		$	(68)		$	538	791.2	%	Gross profit (loss) per unit	$	147		$	88		$	59	67.0	%
Gross profit (loss) as a % of revenue	Gross profit (loss) as a % of revenue	5.3		%	(1.3)		%	660		bps		Gross profit (loss) as a % of revenue	0.8		%	1.1		%	(30)		bps

Six Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit and per unit data)
Reported wholesale vehicle:
Revenue $ 159,614 $ 81,718 $ 77,896 95.3 %
Gross profit (loss) $ 5,374 $ (585) $ 5,959 1,018.6 %
Unit sales 19,324 14,956 4,368 29.2 %
Revenue per unit $ 8,260 $ 5,464 $ 2,796 51.2 %
Gross profit (loss) per unit $ 278 $ (39) $ 317 812.8 %
Gross profit (loss) as a % of revenue 3.4 % (0.7) % 410 bps

For further analysis of wholesale vehicle results, see the tables and discussion under the headings “Wholesale Vehicles – Franchised Dealerships Segment” and “Wholesale Vehicles – EchoPark Segment” in the Franchised Dealerships Segment and EchoPark Segment sections, respectively, below.

SONIC AUTOMOTIVE, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Fixed Operations – Consolidated

Parts, service and collision repair revenues consist of customer requested repair orders (“customer pay”), warranty repairs (manufacturer-paid), wholesale parts and internal, sublet and other. Parts and service revenue is driven by the mix of warranty repairs versus customer pay repairs, available service capacity (a combination of service bay count and technician availability), vehicle quality, manufacturer recalls, customer loyalty, and prepaid or manufacturer-paid maintenance programs. Internal, sublet and other primarily relates to preparation and reconditioning work performed on vehicles in inventory that are later sold to a third party. When that work is performed by one of our dealerships or stores, the work is classified as internal. In the event the work is performed by a third party on our behalf, it is classified as sublet.

We believe that, over time, vehicle quality will continue to improve, but vehicle complexity and the associated demand for repairs by qualified technicians at manufacturer-affiliated dealerships may result in market share gains that could offset any revenue lost from improvement in vehicle quality. We also believe that, over the long term, we have the ability to continue to optimize service capacity at our dealerships and stores to further increase Fixed Operations revenues. Manufacturers continue to extend new vehicle warranty periods and have also begun to include regular maintenance items in the warranty or complimentary maintenance program coverage. These factors, over the long term, combined with the extended manufacturer warranties on certified pre-owned vehicles, should facilitate growth in our parts and service business. Barriers to long-term growth may include reductions in the rate paid by manufacturers to dealers for warranty work performed, as well as the improved quality of vehicles that may affect the level and frequency of future customer pay or warranty-related repair revenues.

The COVID-19 pandemic continues to have a significant effect on our consolidated Fixed Operations revenues, as travel restrictions, government-imposed stay-at-home and shelter-in-place orders and fewer workers undertaking a daily commute combined to substantially decrease the number of miles driven in the U.S., which decreased the demand for maintenance and warranty and collision repair services since March 2020. As government-imposed restrictions have been relaxed, we have begun to see a recovery in Fixed Operations revenues to varying degrees depending on the market and type of work being performed.

~~SONIC AUTOMOTIVE, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

Our consolidated reported Fixed Operations results were as follows:


		Three Months Ended June 30,						Better / (Worse)					Three Months Ended March 31,						Better / (Worse)
		2021			2020			Change		% Change			2022			2021			Change		% Change
		(In thousands)											(In millions)
Reported Fixed Operations:	Reported Fixed Operations:											Reported Fixed Operations:
Revenue	Revenue											Revenue
Customer pay	Customer pay	$	152,071		$	110,600		$	41,471	37.5	%	Customer pay	$	159.7		$	133.6		$	26.1	19.5	%
Warranty	Warranty	58,172			49,326			8,846		17.9	%	Warranty	53.0			53.1			(0.1)		(0.2)	%
Wholesale parts	Wholesale parts	39,601			26,352			13,249		50.3	%	Wholesale parts	49.8			34.7			15.1		43.5	%
Internal, sublet and other	Internal, sublet and other	110,752			72,780			37,972		52.2	%	Internal, sublet and other	118.0			99.5			18.5		18.6	%
Total revenue	Total revenue	$	360,596		$	259,058		$	101,538	39.2	%	Total revenue	$	380.5		$	320.9		$	59.6	18.6	%

Gross profit	Gross profit											Gross profit
Customer pay	Customer pay	$	87,397		$	62,467		$	24,930	39.9	%	Customer pay	$	91.4		$	76.0		$	15.4	20.3	%
Warranty	Warranty	33,947			27,720			6,227		22.5	%	Warranty	31.6			30.9			0.7		2.3	%
Wholesale parts	Wholesale parts	6,896			4,506			2,390		53.0	%	Wholesale parts	8.9			6.1			2.8		45.9	%
Internal, sublet and other	Internal, sublet and other	47,608			29,586			18,022		60.9	%	Internal, sublet and other	54.7			42.0			12.7		30.2	%
Total gross profit	Total gross profit	$	175,848		$	124,279		$	51,569	41.5	%	Total gross profit	$	186.6		$	155.0		$	31.6	20.4	%

Gross profit as a % of revenue	Gross profit as a % of revenue											Gross profit as a % of revenue
Customer pay	Customer pay	57.5		%	56.5		%	100		bps		Customer pay	57.3		%	56.9		%	40		bps
Warranty	Warranty	58.4		%	56.2		%	220		bps		Warranty	59.5		%	58.2		%	130		bps
Wholesale parts	Wholesale parts	17.4		%	17.1		%	30		bps		Wholesale parts	17.9		%	17.6		%	30		bps
Internal, sublet and other	Internal, sublet and other	43.0		%	40.7		%	230		bps		Internal, sublet and other	46.4		%	42.2		%	420		bps
Total gross profit as a % of revenue	Total gross profit as a % of revenue	48.8		%	48.0		%	80		bps		Total gross profit as a % of revenue	49.0		%	48.3		%	70		bps

Six Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands)
Reported Fixed Operations:
Revenue
Customer pay $ 285,637 $ 245,656 $ 39,981 16.3 %
Warranty 111,303 110,086 1,217 1.1 %
Wholesale parts 74,290 65,058 9,232 14.2 %
Internal, sublet and other 210,279 172,938 37,341 21.6 %
Total revenue $ 681,509 $ 593,738 $ 87,771 14.8 %
Gross profit
Customer pay $ 163,370 $ 137,061 $ 26,309 19.2 %
Warranty 64,875 61,466 3,409 5.5 %
Wholesale parts 13,002 11,173 1,829 16.4 %
Internal, sublet and other 89,650 72,478 17,172 23.7 %
Total gross profit $ 330,897 $ 282,178 $ 48,719 17.3 %
Gross profit as a % of revenue
Customer pay 57.2 % 55.8 % 140 bps
Warranty 58.3 % 55.8 % 250 bps
Wholesale parts 17.5 % 17.2 % 30 bps
Internal, sublet and other 42.6 % 41.9 % 70 bps
Total gross profit as a % of revenue 48.6 % 47.5 % 110 bps

~~SONIC AUTOMOTIVE, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

For further analysis of Fixed Operations results, see the ~~tables~~table and discussion under the headings “Fixed Operations – Franchised Dealerships Segment” ~~and “Fixed Operations – EchoPark Segment”~~ in the Franchised Dealerships Segment ~~and EchoPark Segment~~ sections, ~~respectively,~~ below.

F&I – Consolidated

Finance, insurance and other, net revenues include commissions for arranging vehicle financing and insurance, sales of third-party extended warranties and service contracts for vehicles, and sales of other aftermarket products. In connection with vehicle financing, extended warranties and service contracts, other aftermarket products and insurance contracts, we receive

SONIC AUTOMOTIVE, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

commissions from the providers for originating contracts. F&I revenues are recognized net of estimated chargebacks and other costs associated with originating contracts (as a result, F&I revenues and F&I gross profit are the same amount). F&I revenues are affected by the level of new and retail used vehicle unit sales volume, the age and average selling price of vehicles sold, the level of manufacturer financing specials or leasing incentives, and our F&I penetration rate. The F&I penetration rate represents the number of finance contracts, extended warranties and service contracts, other aftermarket products or insurance contracts that we are able to originate per vehicle sold, expressed as a percentage.

Our consolidated reported F&I results were as follows:


	Three Months Ended March 31,				Better / (Worse)
	2022		2021		Change		% Change
	(In millions, except unit and per unit data)
Reported F&I:
Revenue	$	166.6	$	144.7	$	21.9	15.1	%
Unit sales	66,760		70,723		(3,963)		(5.6)	%
Gross profit per retail unit (excludes fleet)	$	2,495	$	2,045	$	450	22.0	%

Three Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit and per unit data)
Reported F&I:
Revenue $ 177,254 $ 110,773 $ 66,481 60.0 %
Unit sales 80,068 56,921 23,147 40.7 %
Gross profit per retail unit (excludes fleet) $ 2,214 $ 1,946 $ 268 13.8 %

Six Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit and per unit data)
Reported F&I:
Revenue $ 321,916 $ 226,064 $ 95,852 42.4 %
Unit sales 150,791 118,084 32,707 27.7 %
Gross profit per retail unit (excludes fleet) $ 2,135 $ 1,914 $ 221 11.5 %

For further analysis of F&I results, see the tables and discussion under the headings “F&I – Franchised Dealerships Segment” and “Used Vehicles and F&I – EchoPark Segment” in the Franchised Dealerships Segment and EchoPark Segment sections, respectively, below.

Results of Operations – Franchised Dealerships Segment

As a result of the acquisition, disposition, termination or closure of ~~several~~ franchised ~~dealerships subsequent to January 1, 2020,~~dealership stores in 2021, including the RFJ Acquisition in December 2021, the change in reported amounts from period to period may not be indicative of the current or future operational or financial performance of our current group of operating stores. Please refer to the same store tables and discussion on the following pages for more meaningful comparison and discussion of financial results on a comparable store basis.

New Vehicles – Franchised Dealerships Segment

~~New vehicle revenues include the sale~~The following table provides a reconciliation of Franchised Dealerships Segment reported basis and same store basis for total new vehicles to retail customers, as well as the sale of fleet vehicles. New vehicle revenues and gross profit can be influenced by vehicle manufacturer incentives to consumers (which vary from cash-back incentives to low interest rate financing, among other things), the availability of consumer credit and the level and type of manufacturer-to-dealer incentives, as well as manufacturers providing adequate inventory allocations to our dealerships to meet customer demands. The automobile manufacturing industry is cyclical and historically has experienced periodic downturns characterized by oversupply and weakening demand, both within specific brands and in the industry as a whole. As an automotive retailer, we seek to mitigate the effects of this sales cycle by maintaining a diverse brand mix of dealerships. Our brand diversity allows us to offer a broad range of products at a wide range of prices from lower-priced/economy vehicles to luxury vehicles.vehicles:


	Three Months Ended March 31,				Better / (Worse)
	2022		2021		Change		% Change
	(In millions, except unit data)
Retail new vehicle revenue:
Same store	$	1,109.7	$	1,130.7	$	(21.0)	(1.9)	%
Acquisitions, open points, dispositions and holding company	236.0		3.3		232.7		NM
Total as reported	$	1,345.7	$	1,134.0	$	211.7	18.7	%

Fleet new vehicle revenue:
Same store	$	13.6	$	22.3	$	(8.7)	(39.0)	%
Acquisitions, open points, dispositions and holding company	135.0		—		135.0		NM
Total as reported	$	148.6	$	22.3	$	126.3	566.4	%

Total new vehicle revenue:
Same store	$	1,123.3	$	1,153.0	$	(29.7)	(2.6)	%
Acquisitions, open points, dispositions and holding company	371.0		3.3		367.7		NM
Total as reported	$	1,494.3	$	1,156.3	$	338.0	29.2	%






























NM = Not Meaningful

2623

SONIC AUTOMOTIVE, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

~~The following tables provide a reconciliation of Franchised Dealerships Segment reported basis and same store basis for total new vehicles (combined retail and fleet data):~~


	Three Months Ended March 31,				Better / (Worse)
	2022		2021		Change		% Change
	(In millions, except unit data)















Retail new vehicle gross profit:
Same store	$	137.9	$	68.8	$	69.1	100.4	%
Acquisitions, open points, dispositions and holding company	28.7		0.4		28.3		NM
Total as reported	$	166.6	$	69.2	$	97.4	140.8	%

Fleet new vehicle gross profit:
Same store	$	0.7	$	0.3	$	0.4	133.3	%
Acquisitions, open points, dispositions and holding company	0.1		—		0.1		NM
Total as reported	$	0.8	$	0.3	$	0.5	166.7	%

Total new vehicle gross profit:
Same store	$	138.6	$	69.1	$	69.5	100.6	%
Acquisitions, open points, dispositions and holding company	28.8		0.4		28.4		NM
Total as reported	$	167.4	$	69.5	$	97.9	140.9	%

Retail new vehicle unit sales:
Same store	20,283		23,736		(3,453)		(14.5)	%
Acquisitions, open points, dispositions and holding company	4,319		81		4,238		NM
Total as reported	24,602		23,817		785		3.3	%

Fleet new vehicle unit sales:
Same store	277		541		(264)		(48.8)	%
Acquisitions, open points, dispositions and holding company	4,104		—		4,104		NM
Total as reported	4,381		541		3,840		709.8	%

Total new vehicle unit sales:
Same store	20,560		24,277		(3,717)		(15.3)	%
Acquisitions, open points, dispositions and holding company	8,423		81		8,342		NM
Total as reported	28,983		24,358		4,625		19.0	%
NM = Not Meaningful

Three Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit data)
Total new vehicle revenue:
Same store $ 1,461,984 $ 892,958 $ 569,026 63.7 %
Acquisitions, open points, dispositions and holding company — 7,045 (7,045) NM
Total as reported $ 1,461,984 $ 900,003 $ 561,981 62.4 %
Total new vehicle gross profit:
Same store $ 116,692 $ 43,811 $ 72,881 166.4 %
Acquisitions, open points, dispositions and holding company 1,634 1,575 59 NM
Total as reported $ 118,326 $ 45,386 $ 72,940 160.7 %
Total new vehicle unit sales:
Same store 30,488 19,631 10,857 55.3 %
Acquisitions, open points, dispositions and holding company — 260 (260) NM
Total as reported 30,488 19,891 10,597 53.3 %
NM = Not Meaningful

Six Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit data)
Total new vehicle revenue:
Same store $ 2,618,301 $ 1,843,548 $ 774,753 42.0 %
Acquisitions, open points, dispositions and holding company — 15,944 (15,944) NM
Total as reported $ 2,618,301 $ 1,859,492 $ 758,809 40.8 %
Total new vehicle gross profit:
Same store $ 185,648 $ 88,926 $ 96,722 108.8 %
Acquisitions, open points, dispositions and holding company 2,142 1,876 266 NM
Total as reported $ 187,790 $ 90,802 $ 96,988 106.8 %
Total new vehicle unit sales:
Same store 54,846 41,041 13,805 33.6 %
Acquisitions, open points, dispositions and holding company — 574 (574) NM
Total as reported 54,846 41,615 13,231 31.8 %
NM = Not Meaningful

2724

SONIC AUTOMOTIVE, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Our Franchised Dealerships Segment reported new vehicle results (combined retail and fleet data) were as follows:
Three Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit and per unit data)
Reported new vehicle:
Revenue $ 1,461,984 $ 900,003 $ 561,981 62.4 %
Gross profit $ 118,326 $ 45,386 $ 72,940 160.7 %
Unit sales 30,488 19,891 10,597 53.3 %
Revenue per unit $ 47,953 $ 45,247 $ 2,706 6.0 %
Gross profit per unit $ 3,881 $ 2,282 $ 1,599 70.1 %
Gross profit as a % of revenue 8.1 % 5.0 % 310 bps


	Three Months Ended March 31,						Better / (Worse)
	2022			2021			Change		% Change
	(In millions, except unit and per unit data)
Reported new vehicle:
Retail new vehicle revenue	$	1,345.7		$	1,134.0		$	211.7	18.7	%
Fleet new vehicle revenue	148.6			22.3			126.3		566.4	%
Total new vehicle revenue	$	1,494.3		$	1,156.3		$	338.0	29.2	%

Retail new vehicle gross profit	$	166.6		$	69.2		$	97.4	140.8	%
Fleet new vehicle gross profit	0.8			0.3			0.5		166.7	%
Total new vehicle gross profit	$	167.4		$	69.5		$	97.9	140.9	%

Retail new vehicle unit sales	24,602			23,817			785		3.3	%
Fleet new vehicle unit sales	4,381			541			3,840		709.8	%
Total new unit sales	28,983			24,358			4,625		19.0	%

Revenue per retail unit	$	54,699		$	47,613		$	7,086	14.9	%
Revenue per fleet unit	33,919			41,220			(7,301)		(17.7)	%
Total revenue per unit	$	51,558		$	47,472		$	4,086	8.6	%

Gross profit per retail unit	$	6,771		$	2,906		$	3,865	133.0	%
Gross profit per fleet unit	193			459			(266)		(58.0)	%
Total gross profit per unit	$	5,777		$	2,852		$	2,925	102.6	%

Retail gross profit as a % of revenue	12.4		%	6.1		%	630		bps
Fleet gross profit as a % of revenue	0.5		%	1.3		%	(80)		bps
Total gross profit as a % of revenue	11.2		%	6.0		%	520		bps

Six Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit and per unit data)
Reported new vehicle:
Revenue $ 2,618,301 $ 1,859,492 $ 758,809 40.8 %
Gross profit $ 187,790 $ 90,802 $ 96,988 106.8 %
Unit sales 54,846 41,615 13,231 31.8 %
Revenue per unit $ 47,739 $ 44,683 $ 3,056 6.8 %
Gross profit per unit $ 3,424 $ 2,182 $ 1,242 56.9 %
Gross profit as a % of revenue 7.2 % 4.9 % 230 bps

~~Our Franchised Dealerships Segment same store new vehicle results (combined retail and fleet data) were as follows:~~
Three Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit and per unit data)
Same store new vehicle:
Revenue $ 1,461,984 $ 892,958 $ 569,026 63.7 %
Gross profit $ 116,692 $ 43,811 $ 72,881 166.4 %
Unit sales 30,488 19,631 10,857 55.3 %
Revenue per unit $ 47,953 $ 45,487 $ 2,466 5.4 %
Gross profit per unit $ 3,827 $ 2,232 $ 1,595 71.5 %
Gross profit as a % of revenue 8.0 % 4.9 % 310 bps

Six Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit and per unit data)
Same store new vehicle:
Revenue $ 2,618,301 $ 1,843,548 $ 774,753 42.0 %
Gross profit $ 185,648 $ 88,926 $ 96,722 108.8 %
Unit sales 54,846 41,041 13,805 33.6 %
Revenue per unit $ 47,739 $ 44,920 $ 2,819 6.3 %
Gross profit per unit $ 3,385 $ 2,167 $ 1,218 56.2 %
Gross profit as a % of revenue 7.1 % 4.8 % 230 bps

2825

SONIC AUTOMOTIVE, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Our Franchised Dealerships Segment same store new vehicle results (combined retail and fleet data) were as follows:


	Three Months Ended March 31,						Better / (Worse)
	2022			2021			Change		% Change
	(In millions, except unit and per unit data)
Same store new vehicle:
Retail new vehicle revenue	$	1,109.7		$	1,130.7		$	(21.0)	(1.9)	%
Fleet new vehicle revenue	13.6			22.3			(8.7)		(39.0)	%
Total new vehicle revenue	$	1,123.3		$	1,153.0		$	(29.7)	(2.6)	%

Retail new vehicle gross profit	$	137.9		$	68.8		$	69.1	100.4	%
Fleet new vehicle gross profit	0.7			0.3			0.4		133.3	%
Total new vehicle gross profit	$	138.6		$	69.1		$	69.5	100.6	%

Retail new vehicle unit sales	20,283			23,736			(3,453)		(14.5)	%
Fleet new vehicle unit sales	277			541			(264)		(48.8)	%
Total new unit sales	20,560			24,277			(3,717)		(15.3)	%

Revenue per retail unit	$	54,711		$	47,637		$	7,074	14.8	%
Revenue per fleet unit	49,097			41,220			7,877		19.1	%
Total revenue per unit	$	54,635		$	47,494		$	7,141	15.0	%

Gross profit per retail unit	$	6,799		$	2,900		$	3,899	134.4	%
Gross profit per fleet unit	2,348			459			1,889		411.5	%
Total gross profit per unit	$	6,739		$	2,846		$	3,893	136.8	%

Retail gross profit as a % of revenue	12.4		%	6.1		%	630		bps
Fleet gross profit as a % of revenue	5.1		%	1.3		%	380		bps
Total gross profit as a % of revenue	12.3		%	6.0		%	630		bps

Same Store Franchised Dealerships Segment Retail New Vehicles – Three Months Ended ~~June 30, 2021~~March 31, 2022 Compared to Three Months Ended ~~June 30, 2020~~March 31, 2021

~~New~~Retail new vehicle revenue ~~increased 63.7%~~decreased 1.9% due primarily to ~~a higher average selling prices and a 55.3% increase in~~lower new vehicle unit sales volume ~~which was driven by a favorable comparison due~~as compared to the ~~impact of COVID-19 on the~~ prior ~~year quarter results. New~~period. Retail new vehicle gross profit increased approximately ~~$72.9~~$69.1 million, or ~~166.4%~~100.4%, as a result of ~~increased new vehicle unit sales volume and~~ higher retail new vehicle gross profit per unit. ~~New~~Retail new vehicle gross profit per unit increased ~~$1,595~~$3,899 per unit, or ~~71.5%~~134.4%, to ~~$3,827~~$6,799 per unit, due primarily to inventory shortages as a result of vehicle manufacturer supply chain and production delays as a result of the COVID-19 pandemic, which have generally increased the average selling prices of such vehicles.

~~Same Store Franchised Dealerships Segment New Vehicles~~ – ~~Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020~~

New vehicle revenue increased 42.0% due primarily to a higher average selling prices and a 33.6% increase in new vehicle unit sales volume, which was driven by a favorable comparison due to the impact of COVID-19 on the prior year-to-date period results. New vehicle gross profit increased approximately $96.7 million, or 108.8%, as a result of increased new vehicle unit sales volume and higher new vehicle gross profit per unit. New vehicle gross profit per unit increased $1,218 per unit, or 56.2%, to $3,385 per unit, due primarily to inventory shortages as a result of vehicle manufacturer supply chain and production delays as a result of the COVID-19 pandemic, which have generally increased the average selling prices of such vehicles.

~~Used Vehicles – Franchised Dealerships Segment~~

~~The following tables provide a reconciliation of Franchised Dealerships Segment reported basis and same store basis for retail used vehicles:~~

Three Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit data)
Total used vehicle revenue:
Same store $ 761,524 $ 531,335 $ 230,189 43.3 %
Acquisitions, open points, dispositions and holding company — 4,364 (4,364) NM
Total as reported $ 761,524 $ 535,699 $ 225,825 42.2 %
Total used vehicle gross profit:
Same store $ 52,647 $ 26,759 $ 25,888 96.7 %
Acquisitions, open points, dispositions and holding company 2,573 3,657 (1,084) NM
Total as reported $ 55,220 $ 30,416 $ 24,804 81.5 %
Total used vehicle unit sales:
Same store 28,550 23,701 4,849 20.5 %
Acquisitions, open points, dispositions and holding company — 272 (272) NM
Total as reported 28,550 23,973 4,577 19.1 %

~~NM = Not Meaningful~~

SONIC AUTOMOTIVE, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Six Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit data)
Total used vehicle revenue:
Same store $ 1,423,059 $ 1,092,131 $ 330,928 30.3 %
Acquisitions, open points, dispositions and holding company — 10,456 (10,456) NM
Total as reported $ 1,423,059 $ 1,102,587 $ 320,472 29.1 %
Total used vehicle gross profit:
Same store $ 82,920 $ 58,900 $ 24,020 40.8 %
Acquisitions, open points, dispositions and holding company 4,299 3,830 469 NM
Total as reported $ 87,219 $ 62,730 $ 24,489 39.0 %
Total used vehicle unit sales:
Same store 55,786 49,336 6,450 13.1 %
Acquisitions, open points, dispositions and holding company — 675 (675) NM
Total as reported 55,786 50,011 5,775 11.5 %
NM = Not Meaningful
Used Vehicles – Franchised Dealerships Segment

The following table provides a reconciliation of Franchised Dealerships Segment reported basis and same store basis for retail used vehicles:


	Three Months Ended March 31,				Better / (Worse)
	2022		2021		Change		% Change
	(In millions, except unit data)
Total used vehicle revenue:
Same store	$	723.1	$	659.1	$	64.0	9.7	%
Acquisitions, open points, dispositions and holding company	130.6		2.4		128.2		NM
Total as reported	$	853.7	$	661.5	$	192.2	29.1	%

Total used vehicle gross profit:
Same store	$	39.2	$	34.5	$	4.7	13.6	%
Acquisitions, open points, dispositions and holding company	7.7		(2.5)		10.2		408.0	%
Total as reported	$	46.9	$	32.0	$	14.9	46.6	%

Total used vehicle unit sales:
Same store	22,717		27,120		(4,403)		(16.2)	%
Acquisitions, open points, dispositions and holding company	4,361		116		4,245		NM
Total as reported	27,078		27,236		(158)		(0.6)	%

NM = Not Meaningful

Our Franchised Dealerships Segment reported retail used vehicle results were as follows:


		Three Months Ended June 30,						Better / (Worse)					Three Months Ended March 31,						Better / (Worse)
		2021			2020			Change		% Change			2022			2021			Change		% Change
		(In thousands, except unit and per unit data)											(In millions, except unit and per unit data)
Reported used vehicle:	Reported used vehicle:											Reported used vehicle:
Revenue	Revenue	$	761,524		$	535,699		$	225,825	42.2	%	Revenue	$	853.7		$	661.5		$	192.2	29.1	%
Gross profit	Gross profit	$	55,220		$	30,416		$	24,804	81.5	%	Gross profit	$	46.9		$	32.0		$	14.9	46.6	%
Unit sales	Unit sales	28,550			23,973			4,577		19.1	%	Unit sales	27,078			27,236			(158)		(0.6)	%
Revenue per unit	Revenue per unit	$	26,673		$	22,346		$	4,327	19.4	%	Revenue per unit	$	31,527		$	24,289		$	7,238	29.8	%
Gross profit per unit	Gross profit per unit	$	1,934		$	1,269		$	665	52.4	%	Gross profit per unit	$	1,731		$	1,175		$	556	47.3	%
Gross profit as a % of revenue	Gross profit as a % of revenue	7.3		%	5.7		%	160		bps		Gross profit as a % of revenue	5.5		%	4.8		%	70		bps

Six Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit and per unit data)
Reported used vehicle:
Revenue $ 1,423,059 $ 1,102,587 $ 320,472 29.1 %
Gross profit $ 87,219 $ 62,730 $ 24,489 39.0 %
Unit sales 55,786 50,011 5,775 11.5 %
Revenue per unit $ 25,509 $ 22,047 $ 3,462 15.7 %
Gross profit per unit $ 1,563 $ 1,254 $ 309 24.6 %
Gross profit as a % of revenue 6.1 % 5.7 % 40 bps
Our Franchised Dealerships Segment same store retail used vehicle results were as follows:



	Three Months Ended March 31,						Better / (Worse)
	2022			2021			Change		% Change
	(In millions, except unit and per unit data)
Same store used vehicle:
Revenue	$	723.1		$	659.1		$	64.0	9.7	%
Gross profit	$	39.2		$	34.5		$	4.7	13.6	%
Unit sales	22,717			27,120			(4,403)		(16.2)	%
Revenue per unit	$	31,831		$	24,303		$	7,528	31.0	%
Gross profit per unit	$	1,728		$	1,273		$	455	35.7	%
Gross profit as a % of revenue	5.4		%	5.2		%	20		bps

3027

SONIC AUTOMOTIVE, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

~~Our Franchised Dealerships Segment same store retail used vehicle results were as follows:~~
Three Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit and per unit data)
Same store used vehicle:
Revenue $ 761,524 $ 531,335 $ 230,189 43.3 %
Gross profit $ 52,647 $ 26,759 $ 25,888 96.7 %
Unit sales 28,550 23,701 4,849 20.5 %
Revenue per unit $ 26,673 $ 22,418 $ 4,255 19.0 %
Gross profit per unit $ 1,844 $ 1,129 $ 715 63.3 %
Gross profit as a % of revenue 6.9 % 5.0 % 190 bps

Six Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit and per unit data)
Same store used vehicle:
Revenue $ 1,423,059 $ 1,092,131 $ 330,928 30.3 %
Gross profit $ 82,920 $ 58,900 $ 24,020 40.8 %
Unit sales 55,786 49,336 6,450 13.1 %
Revenue per unit $ 25,509 $ 22,137 $ 3,372 15.2 %
Gross profit per unit $ 1,486 $ 1,194 $ 292 24.5 %
Gross profit as a % of revenue 5.8 % 5.4 % 40 bps

Same Store Franchised Dealerships Segment Used Vehicles – Three Months Ended ~~June 30, 2021~~March 31, 2022 Compared to Three Months Ended ~~June 30, 2020~~March 31, 2021

Retail used vehicle revenue increased approximately ~~$230.2~~$64.0 million, or ~~43.3% and~~9.7%, driven primarily by a 31.0% increase in retail used vehicle revenue per unit, offset partially by a 16.2% decrease in retail used vehicle unit sales volume ~~increased 20.5%. Retail used vehicle revenue per unit increased 19.0%~~ due to higher industry used vehicle prices ~~as a result of~~and higher consumer interest rates which drove down the ~~recovery of consumer~~ demand ~~from the impact of the COVID-19 pandemic~~for used vehicles during the ~~second~~first quarter of ~~2021~~2022. Retail used vehicle gross profit increased approximately ~~$25.9~~$4.7 million, or ~~96.7%~~13.6%, driven primarily by a ~~$715~~$455 per unit increase in retail used vehicle gross profit per ~~unit due to increased consumer demand for used vehicle inventory as a result of new vehicle inventory shortages during the second quarter of 2021.~~

~~Same Store~~ ~~Franchised Dealerships Segment Used Vehicles~~ – ~~Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020~~

Retail used vehicle revenue increased approximately $330.9 million, or 30.3% and retail used vehicle unit sales volume increased 13.1%. Retail used vehicle revenue per unit increased 15.2% due to higher industry used vehicle prices as a result of the recovery of consumer demand from the impact of the COVID-19 pandemic during the first and second quarters of 2021. Retail used vehicle gross profit increased approximately $24.0 million, or 40.8%, driven primarily by a 24.5% per unit increase in retail used vehicle gross profit per unit due to increased consumer demand for used vehicle inventory as a result of new vehicle inventory shortages during the first and second quarters of 2021.unit.

Wholesale Vehicles – Franchised Dealerships Segment

The following table provides a reconciliation of Franchised Dealerships Segment reported basis and same store basis for wholesale vehicles:


	Three Months Ended March 31,				Better / (Worse)
	2022		2021		Change		% Change
	(In millions, except unit data)
Total wholesale vehicle revenue:
Same store	$	82.5	$	56.0	$	26.5	47.3	%
Acquisitions, open points, dispositions and holding company	23.8		0.2		23.6		NM
Total as reported	$	106.3	$	56.2	$	50.1	89.1	%

Total wholesale vehicle gross profit (loss):
Same store	$	(0.4)	$	0.8	$	(1.2)	(150.0)	%
Acquisitions, open points, dispositions and holding company	—		(0.1)		0.1		100.0	%
Total as reported	$	(0.4)	$	0.7	$	(1.1)	(157.1)	%

Total wholesale vehicle unit sales:
Same store	5,362		6,803		(1,441)		(21.2)	%
Acquisitions, open points, dispositions and holding company	1,410		29		1,381		NM
Total as reported	6,772		6,832		(60)		(0.9)	%
NM = Not Meaningful

Our Franchised Dealerships Segment reported wholesale vehicle results were as follows:


	Three Months Ended March 31,						Better / (Worse)
	2022			2021			Change		% Change
	(In millions, except unit and per unit data)
Reported wholesale vehicle:
Revenue	$	106.3		$	56.2		$	50.1	89.1	%
Gross profit (loss)	$	(0.4)		$	0.7		$	(1.1)	(157.1)	%
Unit sales	6,772			6,832			(60)		(0.9)	%
Revenue per unit	$	15,697		$	8,227		$	7,470	90.8	%
Gross profit (loss) per unit	$	(60)		$	108		$	(168)	(155.6)	%
Gross profit (loss) as a % of revenue	(0.4)		%	1.2		%	(160)		bps

SONIC AUTOMOTIVE, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

~~Wholesale Vehicles~~ – ~~Franchised Dealerships Segment~~

~~The following tables provide a reconciliation of Franchised Dealerships Segment reported basis and same store basis for wholesale vehicles:~~

Three Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit data)
Total wholesale vehicle revenue:
Same store $ 62,956 $ 28,236 $ 34,720 123.0 %
Acquisitions, open points, dispositions and holding company — 273 (273) NM
Total as reported $ 62,956 $ 28,509 $ 34,447 120.8 %
Total wholesale vehicle gross profit (loss):
Same store $ 4,199 $ (289) $ 4,488 1,552.9 %
Acquisitions, open points, dispositions and holding company (2,765) (68) (2,697) NM
Total as reported $ 1,434 $ (357) $ 1,791 501.7 %
Total wholesale vehicle unit sales:
Same store 6,753 4,773 1,980 41.5 %
Acquisitions, open points, dispositions and holding company — 54 (54) NM
Total as reported 6,753 4,827 1,926 39.9 %
NM = Not Meaningful

Six Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit data)
Total wholesale vehicle revenue:
Same store $ 119,160 $ 70,339 $ 48,821 69.4 %
Acquisitions, open points, dispositions and holding company — 609 (609) NM
Total as reported $ 119,160 $ 70,948 $ 48,212 68.0 %
Total wholesale vehicle gross profit (loss):
Same store $ 4,935 $ (338) $ 5,273 1,560.1 %
Acquisitions, open points, dispositions and holding company (2,763) (102) (2,661) NM
Total as reported $ 2,172 $ (440) $ 2,612 593.6 %
Total wholesale vehicle unit sales:
Same store 13,585 11,611 1,974 17.0 %
Acquisitions, open points, dispositions and holding company — 126 (126) NM
Total as reported 13,585 11,737 1,848 15.7 %
NM = Not Meaningful

~~SONIC AUTOMOTIVE, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

~~Our Franchised Dealerships Segment reported wholesale vehicle results were as follows:~~
Three Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit and per unit data)
Reported wholesale vehicle:
Revenue $ 62,956 $ 28,509 $ 34,447 120.8 %
Gross profit (loss) $ 1,434 $ (357) $ 1,791 501.7 %
Unit sales 6,753 4,827 1,926 39.9 %
Revenue per unit $ 9,323 $ 5,906 $ 3,417 57.9 %
Gross profit (loss) per unit $ 212 $ (74) $ 286 386.5 %
Gross profit (loss) as a % of revenue 2.3 % (1.3) % 360 bps

Six Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit and per unit data)
Reported wholesale vehicle:
Revenue $ 119,160 $ 70,948 $ 48,212 68.0 %
Gross profit (loss) $ 2,172 $ (440) $ 2,612 593.6 %
Unit sales 13,585 11,737 1,848 15.7 %
Revenue per unit $ 8,771 $ 6,045 $ 2,726 45.1 %
Gross profit (loss) per unit $ 160 $ (37) $ 197 532.4 %
Gross profit (loss) as a % of revenue 1.8 % (0.6) % 240 bps

Our Franchised Dealerships Segment same store wholesale vehicle results were as follows:


		Three Months Ended June 30,						Better / (Worse)					Three Months Ended March 31,						Better / (Worse)
		2021			2020			Change		% Change			2022			2021			Change		% Change
		(In thousands, except unit and per unit data)											(In millions, except unit and per unit data)
Same store wholesale vehicle:	Same store wholesale vehicle:											Same store wholesale vehicle:
Revenue	Revenue	$	62,956		$	28,236		$	34,720	123.0	%	Revenue	$	82.5		$	56.0		$	26.5	47.3	%
Gross profit (loss)	Gross profit (loss)	$	4,199		$	(289)		$	4,488	1,552.9	%	Gross profit (loss)	$	(0.4)		$	0.8		$	(1.2)	(150.0)	%
Unit sales	Unit sales	6,753			4,773			1,980		41.5	%	Unit sales	5,362			6,803			(1,441)		(21.2)	%
Revenue per unit	Revenue per unit	$	9,323		$	5,916		$	3,407	57.6	%	Revenue per unit	$	15,386		$	8,232		$	7,154	86.9	%
Gross profit (loss) per unit	Gross profit (loss) per unit	$	622		$	(61)		$	683	1,119.7	%	Gross profit (loss) per unit	$	(70)		$	110		$	(180)	(163.6)	%
Gross profit (loss) as a % of revenue	Gross profit (loss) as a % of revenue	6.7		%	(1.0)		%	770		bps		Gross profit (loss) as a % of revenue	(0.5)		%	1.4		%	(190)		bps

Six Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit and per unit data)
Same store wholesale vehicle:
Revenue $ 119,160 $ 70,339 $ 48,821 69.4 %
Gross profit (loss) $ 4,935 $ (338) $ 5,273 1,560.1 %
Unit sales 13,585 11,611 1,974 17.0 %
Revenue per unit $ 8,771 $ 6,058 $ 2,713 44.8 %
Gross profit (loss) per unit $ 363 $ (29) $ 392 1,351.7 %
Gross profit (loss) as a % of revenue 4.1 % (0.5) % 460 bps

We generally focus on maintaining used vehicle inventory days’ supply in the 30- to 35-day range, which may fluctuate seasonally, in order to limit our exposure to market pricing volatility. On a trailing quarter ~~vehicle~~ cost of sales basis, our

~~SONIC AUTOMOTIVE, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

reported ~~franchised dealerships~~Franchised Dealerships Segment used vehicle inventory days’ supply was approximately 3133 and 2527 days as of ~~June 30,~~March 31, 2022 and 2021, ~~and 2020,~~ respectively. Wholesale vehicle revenue and wholesale vehicle unit sales volume fluctuations are typically a result of retail new and used vehicle unit sales volumes that generate additional trade-in vehicle volume that we are not always able to sell as retail used vehicles and choose to sell at auction. Whenever possible, we prefer to sell a used vehicle through retail channels rather than wholesaling the vehicle at auction due to the opportunity to sell F&I products and to avoid auction and transportation fees.

Same Store Franchised Dealerships Segment Wholesale Vehicles – Three Months Ended ~~June 30, 2021~~March 31, 2022 Compared to Three Months Ended ~~June 30, 2020~~March 31, 2021

Wholesale vehicle revenue increased ~~123.0%~~approximately $26.5 million, or 47.3%, driven primarily by ~~a 57.6%~~an 86.9% increase in wholesale vehicle revenue per unit, ~~as well as~~offset partially by a ~~41.5% increase~~21.2% decrease in wholesale vehicle unit sales volume due to ~~increased demand in the wholesale auction market~~fewer trade-ins as a result of decreased new and used vehicle ~~inventory shortages during the second quarter of 2021. The increase in wholesale vehicle revenue was due in part to a reduction in wholesale auction~~sales activity during the ~~second~~first quarter of ~~2020~~ ~~as a result of the impact the COVID-19 pandemic had on consumer demand~~.2022. Wholesale vehicle gross profit ~~increased~~decreased approximately ~~$4.5~~$1.2 million, driven primarily ~~due to~~by a ~~$683~~$180 per unit, or ~~1,119.7%~~163.6%, ~~increase~~decrease in wholesale vehicle gross profit per ~~unit.~~

~~Same Store~~ ~~Franchised Dealerships Segment Wholesale Vehicles~~ – ~~Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020~~

~~Wholesale vehicle revenue increased 69.4%, driven primarily by a 44.8% increase in wholesale vehicle revenue per~~ unit ~~as well as a 17.0% increase in wholesale vehicle unit sales volume due to increased demand in the wholesale auction market~~ as a result of ~~new vehicle inventory shortages during the first and second quarters of 2021. The increase in~~lower wholesale ~~vehicle revenue was due in part to a reduction in wholesale auction activity during the first and second quarters of 2020~~ ~~as a result of the impact the COVID-19 pandemic had on consumer demand. Wholesale vehicle~~ gross profit ~~increased approximately $5.3 million, primarily due to~~levels combined with a ~~$392 per~~decrease in unit ~~or 1,351.7%, increase in wholesale vehicle gross profit per unit.~~sales.

Fixed Operations – Franchised Dealerships Segment

The following ~~tables provide~~table provides a reconciliation of Franchised Dealerships Segment reported basis and same store basis for Fixed Operations:


		Three Months Ended June 30,				Better / (Worse)					Three Months Ended March 31,				Better / (Worse)
		2021		2020		Change		% Change			2022		2021		Change		% Change
		(In thousands)									(In millions)
Total Fixed Operations revenue:	Total Fixed Operations revenue:									Total Fixed Operations revenue:
Same store	Same store	$	343,441	$	247,134	$	96,307	39.0	%	Same store	$	344.7	$	306.9	$	37.8	12.3	%
Acquisitions, open points, dispositions and holding company	Acquisitions, open points, dispositions and holding company	2,677		4,864		(2,187)		NM		Acquisitions, open points, dispositions and holding company	35.8		1.2		34.6		NM
Total as reported	Total as reported	$	346,118	$	251,998	$	94,120	37.3	%	Total as reported	$	380.5	$	308.1	$	72.4	23.5	%

Total Fixed Operations gross profit:	Total Fixed Operations gross profit:									Total Fixed Operations gross profit:
Same store	Same store	$	173,900	$	121,946	$	51,954	42.6	%	Same store	$	169.7	$	154.3	$	15.4	10.0	%
Acquisitions, open points, dispositions and holding company	Acquisitions, open points, dispositions and holding company	1,678		2,519		(841)		NM		Acquisitions, open points, dispositions and holding company	16.9		1.0		15.9		NM
Total as reported	Total as reported	$	175,578	$	124,465	$	51,113	41.1	%	Total as reported	$	186.6	$	155.3	$	31.3	20.2	%

NM = Not Meaningful

3429

SONIC AUTOMOTIVE, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Six Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands)
Total Fixed Operations revenue:
Same store $ 649,631 $ 568,429 $ 81,202 14.3 %
Acquisitions, open points, dispositions and holding company 4,563 8,070 (3,507) NM
Total as reported $ 654,194 $ 576,499 $ 77,695 13.5 %
Total Fixed Operations gross profit:
Same store $ 327,583 $ 278,411 $ 49,172 17.7 %
Acquisitions, open points, dispositions and holding company 3,261 4,150 (889) NM
Total as reported $ 330,844 $ 282,561 $ 48,283 17.1 %
NM = Not Meaningful

Our Franchised Dealerships Segment reported Fixed Operations results were as follows:


		Three Months Ended June 30,						Better / (Worse)					Three Months Ended March 31,						Better / (Worse)
		2021			2020			Change		% Change			2022			2021			Change		% Change
		(In thousands)											(In millions)
Reported Fixed Operations:	Reported Fixed Operations:											Reported Fixed Operations:
Revenue	Revenue											Revenue
Customer pay	Customer pay	$	151,601		$	110,444		$	41,157	37.3	%	Customer pay	$	176.4		$	133.3		$	43.1	32.3	%
Warranty	Warranty	57,993			49,326			8,667		17.6	%	Warranty	52.7			53.1			(0.4)		(0.8)	%
Wholesale parts	Wholesale parts	39,600			26,352			13,248		50.3	%	Wholesale parts	49.7			34.7			15.0		43.2	%
Internal, sublet and other	Internal, sublet and other	96,924			65,876			31,048		47.1	%	Internal, sublet and other	101.7			87.0			14.7		16.9	%
Total revenue	Total revenue	$	346,118		$	251,998		$	94,120	37.3	%	Total revenue	$	380.5		$	308.1		$	72.4	23.5	%

Gross profit	Gross profit											Gross profit
Customer pay	Customer pay	$	87,275		$	62,461		$	24,814	39.7	%	Customer pay	$	97.8		$	76.0		$	21.8	28.7	%
Warranty	Warranty	33,835			27,720			6,115		22.1	%	Warranty	31.4			30.9			0.5		1.6	%
Wholesale parts	Wholesale parts	6,896			4,506			2,390		53.0	%	Wholesale parts	8.9			6.1			2.8		45.9	%
Internal, sublet and other	Internal, sublet and other	47,572			29,778			17,794		59.8	%	Internal, sublet and other	48.5			42.3			6.2		14.7	%
Total gross profit	Total gross profit	$	175,578		$	124,465		$	51,113	41.1	%	Total gross profit	$	186.6		$	155.3		$	31.3	20.2	%

Gross profit as a % of revenue	Gross profit as a % of revenue											Gross profit as a % of revenue
Customer pay	Customer pay	57.6		%	56.6		%	100		bps		Customer pay	55.4		%	57.0		%	(160)		bps
Warranty	Warranty	58.3		%	56.2		%	210		bps		Warranty	59.5		%	58.2		%	130		bps
Wholesale parts	Wholesale parts	17.4		%	17.1		%	30		bps		Wholesale parts	17.8		%	17.6		%	20		bps
Internal, sublet and other	Internal, sublet and other	49.1		%	45.2		%	390		bps		Internal, sublet and other	47.7		%	48.6		%	(90)		bps
Total gross profit as a % of revenue	Total gross profit as a % of revenue	50.7		%	49.4		%	130		bps		Total gross profit as a % of revenue	49.0		%	50.4		%	(140)		bps

SONIC AUTOMOTIVE, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Six Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands)
Reported Fixed Operations:
Revenue
Customer pay $ 284,885 $ 245,242 $ 39,643 16.2 %
Warranty 111,124 110,086 1,038 0.9 %
Wholesale parts 74,289 65,058 9,231 14.2 %
Internal, sublet and other 183,896 156,113 27,783 17.8 %
Total revenue $ 654,194 $ 576,499 $ 77,695 13.5 %
Gross profit
Customer pay $ 163,243 $ 137,054 $ 26,189 19.1 %
Warranty 64,763 61,466 3,297 5.4 %
Wholesale parts 13,002 11,173 1,829 16.4 %
Internal, sublet and other 89,836 72,868 16,968 23.3 %
Total gross profit $ 330,844 $ 282,561 $ 48,283 17.1 %
Gross profit as a % of revenue
Customer pay 57.3 % 55.9 % 140 bps
Warranty 58.3 % 55.8 % 250 bps
Wholesale parts 17.5 % 17.2 % 30 bps
Internal, sublet and other 48.9 % 46.7 % 220 bps
Total gross profit as a % of revenue 50.6 % 49.0 % 160 bps

Our Franchised Dealerships Segment same store Fixed Operations results were as follows:


		Three Months Ended June 30,						Better / (Worse)					Three Months Ended March 31,						Better / (Worse)
		2021			2020			Change		% Change			2022			2021			Change		% Change
		(In thousands)											(In millions)
Same store Fixed Operations:	Same store Fixed Operations:											Same store Fixed Operations:
Revenue	Revenue											Revenue
Customer pay	Customer pay	$	149,262		$	107,542		$	41,720	38.8	%	Customer pay	$	161.8		$	132.7		$	29.1	21.9	%
Warranty	Warranty	57,655			48,475			9,180		18.9	%	Warranty	50.4			53.0			(2.6)		(4.9)	%
Wholesale parts	Wholesale parts	39,600			26,081			13,519		51.8	%	Wholesale parts	46.0			34.6			11.4		32.9	%
Internal, sublet and other	Internal, sublet and other	96,924			65,036			31,888		49.0	%	Internal, sublet and other	86.5			86.6			(0.1)		(0.1)	%
Total revenue	Total revenue	$	343,441		$	247,134		$	96,307	39.0	%	Total revenue	$	344.7		$	306.9		$	37.8	12.3	%

Gross profit	Gross profit											Gross profit
Customer pay	Customer pay	$	86,173		$	60,828		$	25,345	41.7	%	Customer pay	$	91.2		$	75.6		$	15.6	20.6	%
Warranty	Warranty	33,676			27,237			6,439		23.6	%	Warranty	29.7			30.8			(1.1)		(3.6)	%
Wholesale parts	Wholesale parts	6,896			4,487			2,409		53.7	%	Wholesale parts	8.3			6.1			2.2		36.1	%
Internal, sublet and other	Internal, sublet and other	47,155			29,394			17,761		60.4	%	Internal, sublet and other	40.5			41.8			(1.3)		(3.1)	%
Total gross profit	Total gross profit	$	173,900		$	121,946		$	51,954	42.6	%	Total gross profit	$	169.7		$	154.3		$	15.4	10.0	%

Gross profit as a % of revenue	Gross profit as a % of revenue											Gross profit as a % of revenue
Customer pay	Customer pay	57.7		%	56.6		%	110		bps		Customer pay	56.3		%	57.0		%	(70)		bps
Warranty	Warranty	58.4		%	56.2		%	220		bps		Warranty	58.8		%	58.1		%	70		bps
Wholesale parts	Wholesale parts	17.4		%	17.2		%	20		bps		Wholesale parts	18.0		%	17.6		%	40		bps
Internal, sublet and other	Internal, sublet and other	48.7		%	45.2		%	350		bps		Internal, sublet and other	46.8		%	48.3		%	(150)		bps
Total gross profit as a % of revenue	Total gross profit as a % of revenue	50.6		%	49.3		%	130		bps		Total gross profit as a % of revenue	49.2		%	50.3		%	(110)		bps

~~SONIC AUTOMOTIVE, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

Six Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands)
Same store Fixed Operations:
Revenue
Customer pay $ 281,195 $ 241,032 $ 40,163 16.7 %
Warranty 110,284 109,311 973 0.9 %
Wholesale parts 74,289 64,600 9,689 15.0 %
Internal, sublet and other 183,863 153,486 30,377 19.8 %
Total revenue $ 649,631 $ 568,429 $ 81,202 14.3 %
Gross profit
Customer pay $ 161,464 $ 134,920 $ 26,544 19.7 %
Warranty 64,297 60,910 3,387 5.6 %
Wholesale parts 13,002 11,124 1,878 16.9 %
Internal, sublet and other 88,820 71,457 17,363 24.3 %
Total gross profit $ 327,583 $ 278,411 $ 49,172 17.7 %
Gross profit as a % of revenue
Customer pay 57.4 % 56.0 % 140 bps
Warranty 58.3 % 55.7 % 260 bps
Wholesale parts 17.5 % 17.2 % 30 bps
Internal, sublet and other 48.3 % 46.6 % 170 bps
Total gross profit as a % of revenue 50.4 % 49.0 % 140 bps

Same Store Franchised Dealerships Segment Fixed Operations – Three Months Ended ~~June 30, 2021~~March 31, 2022 Compared to Three Months Ended ~~June 30, 2020~~March 31, 2021

Fixed Operations revenue increased approximately ~~$96.3~~$37.8 million, or ~~39.0%~~12.3%, and Fixed Operations gross profit increased approximately ~~$52.0~~$15.4 million, or ~~42.6%~~10.0%. Customer pay gross profit increased approximately ~~$25.3~~$15.6 million, or ~~41.7%~~20.6%, warranty gross profit ~~increased~~decreased approximately ~~$6.4~~$1.1 million, or ~~23.6%~~3.6%, wholesale parts gross profit increased approximately ~~$2.4~~$2.2 million, or ~~53.7%~~36.1%, and internal, sublet and other gross profit ~~increased~~decreased approximately ~~$17.8~~$1.3 million, or ~~60.4%~~3.1%. While our Fixed Operations business was not specifically restricted by state and local shelter-in-place or stay-at-home orders, consumer behavior was disrupted by such orders beginning in March 2020 and we experienced lower levels of Fixed Operations activity in the ~~second quarter of 2020. We expect consumer~~March 2021. Consumer activity ~~to continue~~has continued to improve, asand we ~~proceed through 2021, and~~ anticipate a continuing recovery in Fixed Operations activity (in particular, related to customer pay repairs) above pre-pandemic levels in the ~~latter half~~remainder of ~~2021.~~2022.

~~Same Store Franchised Dealerships Segment Fixed Operations~~ – ~~Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020~~

Fixed Operations revenue increased approximately $81.2 million, or 14.3%, and Fixed Operations gross profit increased approximately $49.2 million, or 17.7%. Customer pay gross profit increased approximately $26.5 million, or 19.7%, warranty gross profit increased approximately $3.4 million, or 5.6%, wholesale parts gross profit increased approximately $1.9 million, or 16.9%, and internal, sublet and other gross profit increased approximately $17.4 million, or 24.3%. While our Fixed Operations business was not specifically restricted by state and local shelter-in-~~place or stay~~-at-home orders, consumer behavior was disrupted by such orders beginning in March 2020 and we experienced lower levels of Fixed Operations activity in the second quarter of 2020. We expect consumer activity to continue to improve as we proceed through 2021, and anticipate a continuing recovery in Fixed Operations activity (in particular, related to customer pay repairs) above pre-pandemic levels in the latter half of 2021.

SONIC AUTOMOTIVE, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

F&I – Franchised Dealerships Segment

The following table provides a reconciliation of Franchised Dealerships Segment reported basis and same store basis for F&I:


	Three Months Ended March 31,				Better / (Worse)
	2022		2021		Change		% Change
	(In millions, except unit and per unit data)
Total F&I revenue:
Same store	$	98.1	$	92.0	$	6.1	6.6	%
Acquisitions, open points, dispositions and holding company	28.4		5.6		22.8		407.1	%
Total as reported	$	126.5	$	97.6	$	28.9	29.6	%

Total F&I gross profit per retail unit (excludes fleet):
Same store	$	2,280	$	1,808	$	472	26.1	%
Reported	$	2,448	$	1,910	$	538	28.2	%

Total combined retail new and used vehicle unit sales:
Same store	43,000		50,856		(7,856)		(15.4)	%
Acquisitions, open points, dispositions and holding company	8,680		197		8,483		NM
Total as reported	51,680		51,053		627		1.2	%

NM = Not Meaningful

Our Franchised Dealerships Segment reported F&I results were as follows:


	Three Months Ended March 31,				Better / (Worse)
	2022		2021		Change		% Change
	(In millions, except unit and per unit data)
Reported F&I:
Revenue	$	126.5	$	97.6	$	28.9	29.6	%
Total combined retail new and used vehicle unit sales	51,680		51,053		627		1.2	%
Gross profit per retail unit (excludes fleet)	$	2,448	$	1,910	$	538	28.2	%

Our Franchised Dealerships Segment same store F&I results were as follows:


	Three Months Ended March 31,				Better / (Worse)
	2022		2021		Change		% Change
	(In millions, except unit and per unit data)
Same store F&I:
Revenue	$	98.1	$	92.0	$	6.1	6.6	%
Total combined retail new and used vehicle unit sales	43,000		50,856		(7,856)		(15.4)	%
Gross profit per retail unit (excludes fleet)	$	2,280	$	1,808	$	472	26.1	%

Same Store Franchised Dealerships Segment F&I – Three Months Ended March 31, 2022 Compared to Three Months Ended March 31, 2021

F&I gross profit per retail unit increased $472 per unit, or 26.1%, to $2,280 per unit, primarily due to an increase in gross profit per finance contract and an increase in the aftermarket contract penetration rate. F&I revenue increased approximately $6.1 million, or 6.6%, due to the following:

Finance ~~insurance~~contract revenue for new and ~~other, net revenues include commissions~~used vehicles increased 4.6%, primarily due to a 25.6% increase in gross revenue per finance contract, offset partially by a 16.7% decrease in finance contract volume and a 110-basis point decrease in the finance contract penetration rate. Service contract revenue for ~~arranging vehicle financing~~new and ~~insurance, sales of third-party extended warranties~~used vehicles increased 0.7%, driven by a 4.6% increase in gross revenue per service contract, and a 520-basis point increase in the service ~~contracts for vehicles, and sales of other aftermarket products. In connection with~~contract penetration rate, offset partially by a 3.7% decrease in service contract volume. Aftermarket contract revenue increased 11.9%, driven by a 12.7% increase in gross

3732

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

vehicle financing, extended warranties and service contracts, other aftermarket products and insurance contracts, we receive commissions from the providers for originating contracts. F&I revenues are recognized net of estimated chargebacks and other costs associated with originating contracts (as a result, F&I revenues and F&I gross profit are the same amount). F&I revenues are affected by the level of new and used vehicle unit sales volume, the age and average selling price of vehicles sold, the level of manufacturer financing specials or leasing incentives and our F&I penetration rate. The F&I penetration rate represents the number of finance contracts, extended warranties and service contracts, other aftermarket products or insurance contracts that we are able to originate per vehicle sold, expressed as a percentage.

~~The following tables provide a reconciliation of Franchised Dealerships Segment reported basis and same store basis for F&I:~~
Three Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit and per unit data)
Total F&I revenue:
Same store $ 116,657 $ 74,522 $ 42,135 56.5 %
Acquisitions, open points, dispositions and holding company 7,403 5,879 1,524 NM
Total as reported $ 124,060 $ 80,401 $ 43,659 54.3 %
Total F&I gross profit per retail unit (excludes fleet):
Same store $ 1,984 $ 1,726 $ 258 14.9 %
Reported $ 2,110 $ 1,839 $ 271 14.7 %
Total combined new and used retail unit sales:
Same store 58,793 43,182 15,611 36.2 %
Acquisitions, open points, dispositions and holding company — 532 (532) NM
Total as reported 58,793 43,714 15,079 34.5 %

~~NM = Not Meaningful~~

Six Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit and per unit data)
Total F&I revenue:
Same store $ 208,903 $ 152,213 $ 56,690 37.2 %
Acquisitions, open points, dispositions and holding company 12,683 11,216 1,467 NM
Total as reported $ 221,586 $ 163,429 $ 58,157 35.6 %
Total F&I gross profit per retail unit (excludes fleet):
Same store $ 1,902 $ 1,698 $ 204 12.0 %
Reported $ 2,017 $ 1,798 $ 219 12.2 %
Total combined new and used retail unit sales:
Same store 109,846 89,642 20,204 22.5 %
Acquisitions, open points, dispositions and holding company — 1,249 (1,249) NM
Total as reported 109,846 90,891 18,955 20.9 %

~~NM = Not Meaningful~~

~~SONIC AUTOMOTIVE, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

~~Our Franchised Dealerships Segment reported F&I results were as follows:~~

Three Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit and per unit data)
Reported F&I:
Revenue $ 124,060 $ 80,401 $ 43,659 54.3 %
Unit sales 58,793 43,714 15,079 34.5 %
Gross profit per retail unit (excludes fleet) $ 2,110 $ 1,839 $ 271 14.7 %

Six Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit and per unit data)
Reported F&I:
Revenue $ 221,586 $ 163,429 $ 58,157 35.6 %
Unit sales 109,846 90,891 18,955 20.9 %
Gross profit per retail unit (excludes fleet) $ 2,017 $ 1,798 $ 219 12.2 %

~~Our Franchised Dealerships Segment same store F&I results were as follows:~~
Three Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit and per unit data)
Same store F&I:
Revenue $ 116,657 $ 74,522 $ 42,135 56.5 %
Unit sales 58,793 43,182 15,611 36.2 %
Gross profit per retail unit (excludes fleet) $ 1,984 $ 1,726 $ 258 14.9 %

Six Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit and per unit data)
Same store F&I:
Revenue $ 208,903 $ 152,213 $ 56,690 37.2 %
Unit sales 109,846 89,642 20,204 22.5 %
Gross profit per retail unit (excludes fleet) $ 1,902 $ 1,698 $ 204 12.0 %

~~Same Store Franchised Dealerships Segment F&I~~ – ~~Three Months Ended June 30, 2021 Compared to Three Months Ended June 30, 2020~~

F&I revenues increased approximately $42.1 million, or 56.5%, due to a 36.2% increase in retail new and used vehicle unit sales volume and an increase in F&I gross profit per retail unit. F&I gross profit per retail unit increased $258 per unit, or 14.9%, to $1,984 per unit, primarily due to an increase in gross profit per contract and an increase in the other aftermarket contract penetration rate.

~~Finance contract~~ revenue increased 67.6%, primarily due to a 31.6% increase in finance contract volume as a result of higher retail new and used vehicle unit sales volume, as well as a 27.3% increase in gross profit per finance contract, partially offset by a 270-basis point decrease in the finance contract penetration rate. Service contract revenue increased 42.1%, primarily due to a 35.3% increase in service contract volume as a result of higher retail new and used vehicle unit sales volume, as well as a 5.0% increase in gross profit per service contract, partially offset by a 20-basis point decrease in the service contract penetration rate. Other aftermarket contract revenue increased 63.1%, primarily due to a 50.4% increase in other aftermarket contract volume, as well as an 8.4% increase in gross profit per other aftermarket contract and a ~~1,460-basis~~2,570-basis point increase in the ~~other~~ aftermarket contract penetration ~~rate.~~

~~SONIC AUTOMOTIVE, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

~~Same Store Franchised Dealerships Segment F&I~~ – ~~Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020~~

~~F&I revenues increased approximately $56.7 million, or 37.2%, due to~~rate, offset partially by a ~~22.5% increase~~0.7% decrease in retail new and used vehicle unit sales volume and an increase in F&I gross profit per retail unit. F&I gross profit per retail unit increased $204 per unit, or 12.0%, to $1,902 per unit, primarily due to an increase in gross profit per contract and an increase in the other aftermarket contract ~~penetration rate.~~

Finance contract revenue increased 43.4%, primarily due to a 21.2% increase in finance contract volume as a result of higher retail new and used vehicle unit sales volume, as well as an 18.3% increase in gross profit per finance contract, partially offset by an 80-basis point decrease in the finance contract penetration rate. Service contract revenue increased 31.5%, primarily due to a 24.8% increase in service contract volume as a result of higher retail new and used vehicle unit sales volume, as well as a 5.4% increase in gross profit per service contract and a 70-basis point increase in the service contract penetration rate. Other aftermarket contract revenue increased 40.8%, primarily due to a 31.5% increase in other aftermarket contract volume, as well as a 7.1% increase in gross profit per other aftermarket contract and a 1,030-basis point increase in the other aftermarket contract penetration rate.volume.

Results of Operations – EchoPark Segment

~~Unless otherwise noted, all discussion of increases or decreases are for the three and six months ended June 30, 2021 compared to the three and six months ended June 30, 2020.~~ All currently operating EchoPark stores in a local geographic market are included within the same market group as of the first full month following the first anniversary of the market’s opening. Due to the ongoing expansion of our EchoPark Segment, same market results may vary significantly from reported results due to newly opened markets that began operations in the last 13 months.

Used Vehicles and F&I – EchoPark Segment

Based on the way we manage the EchoPark Segment, our operating strategy focuses on maximizing total used vehicle-related gross profit (based on a combination of retail used vehicle unit sales volume, front-end retail used vehicle gross profit (loss) per unit and F&I gross profit per unit) rather than realizing traditional levels of front-end retail used vehicle gross profit (loss) per unit. As such, we believe the best per unit measure of gross profit performance at our EchoPark stores is a combined total gross profit per unit, which includes both front-end retail used vehicle gross profit (loss) and F&I gross profit per unit sold.

See the discussion under the heading “Results of Operations – Franchised Dealerships Segment” for additional discussion of the macro drivers of used vehicle revenues and F&I revenues.

~~SONIC AUTOMOTIVE, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

As all Fixed Operations at our EchoPark stores support our used vehicle operations and EchoPark stores do not currently perform customer pay repairs or maintenance work and are not permitted to perform manufacturer-paid warranty repairs, amounts previously classified as Fixed Operations revenues and cost of sales for the EchoPark Segment have been reclassified to used vehicle cost of sales.

The following ~~tables provide~~table provides a reconciliation of EchoPark Segment reported basis, same market basis and new market basis for retail used vehicles:

Three Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit data)
Total used vehicle revenue:
Same market $ 368,857 $ 273,178 $ 95,679 35.0 %
New markets 136,315 — 136,315 NM
Total as reported $ 505,172 $ 273,178 $ 231,994 84.9 %
Total used vehicle gross profit (loss):
Same market $ (17,118) $ (6,545) $ (10,573) (161.5) %
New markets (3,349) 3,500 (6,849) NM
Total as reported $ (20,467) $ (3,045) $ (17,422) (572.2) %
Total used vehicle unit sales:
Same market 15,382 13,207 2,175 16.5 %
New markets 5,879 — 5,879 NM
Total as reported 21,261 13,207 8,054 61.0 %
NM = Not Meaningful

Six Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit data)
Total used vehicle revenue:
Same market $ 716,654 $ 556,353 $ 160,301 28.8 %
New markets 217,081 (10) 217,091 NM
Total as reported $ 933,735 $ 556,343 $ 377,392 67.8 %
Total used vehicle gross profit (loss):
Same market $ (18,633) $ (10,703) $ (7,930) (74.1) %
New markets (2,963) 7,475 (10,438) NM
Total as reported $ (21,596) $ (3,228) $ (18,368) (569.0) %
Total used vehicle unit sales:
Same market 31,189 27,193 3,996 14.7 %
New markets 9,742 — 9,742 NM
Total as reported 40,931 27,193 13,738 50.5 %
NM = Not Meaningful

~~SONIC AUTOMOTIVE, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

~~The following tables provide a reconciliation of EchoPark Segment reported basis, same market basis and new market basis for F&I:~~
Three Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands)
Total F&I revenue:
Same market $ 39,007 $ 30,259 $ 8,748 28.9 %
New markets 14,187 113 14,074 NM
Total as reported $ 53,194 $ 30,372 $ 22,822 75.1 %

~~NM = Not Meaningful~~


											Three Months Ended March 31,				Better / (Worse)
		Six Months Ended June 30,				Better / (Worse)					2022		2021		Change		% Change
		2021		2020		Change		% Change			(In millions, except unit data)
Total used vehicle revenue:										Total used vehicle revenue:
Same market										Same market	$	293.4	$	391.7	$	(98.3)	(25.1)	%
New markets										New markets	223.8		49.7		174.1		350.3	%
Total as reported										Total as reported	$	517.2	$	441.4	$	75.8	17.2	%
		(In thousands)
Total F&I revenue:
Total used vehicle gross profit (loss):										Total used vehicle gross profit (loss):
Same market										Same market	$	(3.9)	$	(1.6)	$	(2.3)	(143.8)	%
New markets										New markets	5.2		0.2		5.0		NM
Total as reported										Total as reported	$	1.3	$	(1.4)	$	2.7	192.9	%

Total used vehicle unit sales:										Total used vehicle unit sales:
Same market	Same market	$	77,473	$	62,430	$	15,043	24.1	%	Same market	8,984		17,358		(8,374)		(48.2)	%
New markets	New markets	22,857		205		22,652		NM		New markets	6,011		2,312		3,699		160.0	%
Total as reported	Total as reported	$	100,330	$	62,635	$	37,695	60.2	%	Total as reported	14,995		19,670		(4,675)		(23.8)	%
NM = Not Meaningful	NM = Not Meaningful									NM = Not Meaningful

~~Our EchoPark Segment reported retail used vehicle and F&I results were as follows:~~
Three Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit and per unit data)
Reported used vehicle and F&I:
Used vehicle revenue $ 505,172 $ 273,178 $ 231,994 84.9 %
Used vehicle gross profit (loss) $ (20,467) $ (3,045) $ (17,422) (572.2) %
Used vehicle unit sales 21,261 13,207 8,054 61.0 %
Used vehicle revenue per unit $ 23,761 $ 20,684 $ 3,077 14.9 %
F&I revenue $ 53,194 $ 30,372 $ 22,822 75.1 %
Combined used vehicle gross profit and F&I revenue $ 32,727 $ 27,327 $ 5,400 19.8 %
Total used vehicle and F&I gross profit per unit $ 1,539 $ 2,069 $ (530) (25.6) %

Six Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit and per unit data)
Reported used vehicle and F&I:
Used vehicle revenue $ 933,735 $ 556,343 $ 377,392 67.8 %
Used vehicle gross profit (loss) $ (21,596) $ (3,228) $ (18,368) (569.0) %
Used vehicle unit sales 40,931 27,193 13,738 50.5 %
Used vehicle revenue per unit $ 22,812 $ 20,459 $ 2,353 11.5 %
F&I revenue $ 100,330 $ 62,635 $ 37,695 60.2 %
Combined used vehicle gross profit and F&I revenue $ 78,734 $ 59,407 $ 19,327 32.5 %
Total used vehicle and F&I gross profit per unit $ 1,924 $ 2,185 $ (261) (11.9) %

4233

SONIC AUTOMOTIVE, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following table provides a reconciliation of EchoPark Segment reported basis, same market basis and new market basis for F&I:


	Three Months Ended March 31,				Better / (Worse)
	2022		2021		Change		% Change
	(In millions)
Total F&I revenue:
Same market	$	22.4	$	41.9	$	(19.5)	(46.5)	%
New markets	17.7		5.2		12.5		240.4	%
Total as reported	$	40.1	$	47.1	$	(7.0)	(14.9)	%

Our EchoPark Segment reported retail used vehicle and F&I results were as follows:


	Three Months Ended March 31,				Better / (Worse)
	2022		2021		Change		% Change
	(In millions, except unit and per unit data)
Reported used vehicle and F&I:
Used vehicle revenue	$	517.2	$	441.4	$	75.8	17.2	%
Used vehicle gross profit (loss)	$	1.3	$	(1.4)	$	2.7	192.9	%
Used vehicle unit sales	14,995		19,670		(4,675)		(23.8)	%
Used vehicle revenue per unit	$	34,491	$	22,438	$	12,053	53.7	%
F&I revenue	$	40.1	$	47.1	$	(7.0)	(14.5)	%
Combined used vehicle gross profit and F&I revenue	$	41.4	$	45.7	$	(4.3)	(9.4)	%
Total used vehicle and F&I gross profit per unit	$	2,755	$	2,318	$	437	18.8	%

Our EchoPark Segment same market retail used vehicle and F&I results were as follows:
Three Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit and per unit data)
Same market used vehicle and F&I:
Used vehicle revenue $ 368,857 $ 273,178 $ 95,679 35.0 %
Used vehicle gross profit (loss) $ (17,118) $ (6,545) $ (10,573) (161.5) %
Used vehicle unit sales 15,382 13,207 2,175 16.5 %
Used vehicle revenue per unit $ 23,980 $ 20,684 $ 3,296 15.9 %
F&I revenue $ 39,007 $ 30,259 $ 8,748 28.9 %
Combined used vehicle gross profit and F&I revenue $ 21,889 $ 23,714 $ (1,825) (7.7) %
Total used vehicle and F&I gross profit per unit $ 1,423 $ 1,796 $ (373) (20.8) %


	Three Months Ended March 31,				Better / (Worse)
	2022		2021		Change		% Change
	(In millions, except unit and per unit data)
Same market used vehicle and F&I:
Used vehicle revenue	$	293.4	$	391.7	$	(98.3)	(25.1)	%
Used vehicle gross profit (loss)	$	(3.9)	$	(1.6)	$	(2.3)	(143.8)	%
Used vehicle unit sales	8,984		17,358		(8,374)		(48.2)	%
Used vehicle revenue per unit	$	32,658	$	22,566	$	10,092	44.7	%
F&I revenue	$	22.4	$	41.9	$	(19.5)	(46.5)	%
Combined used vehicle gross profit and F&I revenue	$	18.5	$	40.3	$	(21.8)	(54.1)	%
Total used vehicle and F&I gross profit per unit	$	2,064	$	2,327	$	(263)	(11.3)	%

Six Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit and per unit data)
Same market used vehicle and F&I:
Used vehicle revenue $ 716,654 $ 556,353 $ 160,301 28.8 %
Used vehicle gross profit (loss) $ (18,633) $ (10,703) $ (7,930) (74.1) %
Used vehicle unit sales 31,189 27,193 3,996 14.7 %
Used vehicle revenue per unit $ 22,978 $ 20,459 $ 2,519 12.3 %
F&I revenue $ 77,473 $ 62,430 $ 15,043 24.1 %
Combined used vehicle gross profit and F&I revenue $ 58,840 $ 51,727 $ 7,113 13.8 %
Total used vehicle and F&I gross profit per unit $ 1,887 $ 1,902 $ (15) (0.8) %

~~Same Market EchoPark Segment Used Vehicles and F&I~~ – ~~Three Months Ended June 30, 2021 Compared to Three Months Ended June 30, 2020~~

Retail used vehicle revenue increased approximately $95.7 million, or 35.0%, driven by a $3,296 per unit, or 15.9%, increase in retail used vehicle revenue per unit, as well as a 16.5% increase in retail used vehicle unit sales volume due to increased consumer demand for used vehicles and EchoPark market share gains. Combined retail used vehicle gross profit and F&I revenue decreased approximately $1.8 million, or 7.7%, driven primarily by a 161.5% increase in retail used vehicle gross loss, offset partially by an $8.7 million, or 28.9%, increase in F&I revenue. Total retail used vehicle and F&I gross profit per unit decreased approximately $373 per unit, or 20.8%, due to the increased cost of inventory at wholesale auction as a result of high levels of short-term demand in wholesale markets due to new vehicle inventory shortages as a result of vehicle manufacturer supply chain and production delays as a result of the COVID-19 pandemic. Finance contract gross profit increased approximately $2.5 million, or 29.8%, due to a 16.0% increase in total finance contracts and an 11.9% increase in F&I gross profit per unit. Service contract gross profit increased approximately $2.1 million, or 28.9%, due to a 29.6% increase in total service contracts, as well as a 600-basis point increase in the service contract penetration rate. Other aftermarket product contract gross profit increased approximately $1.3 million, or 26.6%, due to a 27.6% increase in total other aftermarket product contracts and an 890-basis point increase in the other aftermarket product contract penetration rate.

~~Same Market EchoPark Segment Used Vehicles and F&I~~ – ~~Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020~~

Retail used vehicle revenue increased approximately $160.3 million, or 28.8%, driven primarily by a 14.7% increase in retail used vehicle unit sales volume as well as a $2,519 per unit, or 12.3%, increase in retail used vehicle revenue per unit. Combined retail used vehicle gross profit and F&I revenue increased approximately $7.1 million, or 13.8%, driven primarily by a $15.0 million, or 24.1% increase in F&I revenue, and higher retail used vehicle unit sales volume. Total retail used vehicle and F&I gross profit per unit decreased approximately $15 per unit, or 0.8%, due to the increased cost of inventory at wholesale auction as a result of high levels of short-term demand in wholesale markets due to new vehicle inventory shortages as a result of vehicle manufacturer supply chain and production delays as a result of the COVID-19 pandemic. Finance contract gross profit increased approximately $3.6 million, or 20.7%, due to a 14.7% increase in total finance contracts and a 5.2% increase in

SONIC AUTOMOTIVE, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

F&I gross profit per unit. Service contract gross profit increased approximately $4.2 million, or 27.3%, due to a 26.1% increase in total service contracts, as well as a 530-basis point increase in the service contract penetration rate. Other aftermarket product contract gross profit increased approximately $2.2 million, or 22.4%, due to a 22.9% increase in total other aftermarket product contracts and a 650-basis point increase in the other aftermarket product contract penetration rate.

Wholesale Vehicles – EchoPark Segment

See the discussion under the heading “Results of Operations – Franchised Dealerships Segment” for additional discussion of the macro drivers of wholesale vehicle revenues.

The following ~~tables provide~~table provides a reconciliation of EchoPark Segment reported basis, same market basis and new market basis for wholesale vehicles:


		Three Months Ended June 30,				Better / (Worse)					Three Months Ended March 31,				Better / (Worse)
		2021		2020		Change		% Change			2022		2021		Change		% Change
		(In thousands, except unit data)									(In millions, except unit data)
Total wholesale vehicle revenue:	Total wholesale vehicle revenue:									Total wholesale vehicle revenue:
Same market	Same market	$	14,951	$	4,666	$	10,285	220.4	%	Same market	$	45.4	$	16.6	$	28.8	173.5	%
New markets	New markets	6,900		—		6,900		NM		New markets	17.0		2.0		15.0		750.0	%
Total as reported	Total as reported	$	21,851	$	4,666	$	17,185	368.3	%	Total as reported	$	62.4	$	18.6	$	43.8	235.5	%

Total wholesale vehicle gross profit (loss):	Total wholesale vehicle gross profit (loss):									Total wholesale vehicle gross profit (loss):
Same market	Same market	$	2,288	$	(69)	$	2,357	3,415.9	%	Same market	$	1.8	$	0.1	$	1.7	NM
New markets	New markets	805		—		805		NM		New markets	—		0.1		(0.1)		(100.0)	%
Total as reported	Total as reported	$	3,093	$	(69)	$	3,162	4,582.6	%	Total as reported	$	1.8	$	0.2	$	1.6	800.0	%

Total wholesale vehicle unit sales:	Total wholesale vehicle unit sales:									Total wholesale vehicle unit sales:
Same market	Same market	1,847		1,454		393		27.0	%	Same market	2,438		2,501		(63)		(2.5)	%
New markets	New markets	1,031		—		1,031		NM		New markets	1,211		360		851		236.4	%
Total as reported	Total as reported	2,878		1,454		1,424		97.9	%	Total as reported	$	3,649	$	2,861	$	788	27.5	%
NM = Not Meaningful	NM = Not Meaningful									NM = Not Meaningful

Six Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit data)
Total wholesale vehicle revenue:
Same market $ 30,722 $ 10,770 $ 19,952 185.3 %
New markets 9,732 — 9,732 NM
Total as reported $ 40,454 $ 10,770 $ 29,684 275.6 %
Total wholesale vehicle gross profit (loss):
Same market $ 2,410 $ (145) $ 2,555 1,762.1 %
New markets 792 — 792 NM
Total as reported $ 3,202 $ (145) $ 3,347 2,308.3 %
Total wholesale vehicle unit sales:
Same market 4,151 3,219 932 29.0 %
New markets 1,588 — 1,588 NM
Total as reported 5,739 3,219 2,520 78.3 %
NM = Not Meaningful

Our EchoPark Segment reported wholesale vehicle results were as follows:


	Three Months Ended March 31,						Better / (Worse)
	2022			2021			Change		% Change
	(In millions, except unit and per unit data)
Reported wholesale vehicle:
Revenue	$	62.4		$	18.6		$	43.8	235.5	%
Gross profit (loss)	$	1.8		$	0.2		$	1.6	NM
Unit sales	3,649			2,861			788		27.5	%
Revenue per unit	$	17,101		$	6,503		$	10,598	163.0	%
Gross profit (loss) per unit	$	530		$	39		$	491	NM
Gross profit (loss) as a % of revenue	2.9		%	0.6		%	230		bps
NM = Not Meaningful

4435

SONIC AUTOMOTIVE, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

~~Our EchoPark Segment reported wholesale vehicle results were as follows:~~
Three Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit and per unit data)
Reported wholesale vehicle:
Revenue $ 21,851 $ 4,666 $ 17,185 368.3 %
Gross profit (loss) $ 3,093 $ (69) $ 3,162 4,582.6 %
Unit sales 2,878 1,454 1,424 97.9 %
Revenue per unit $ 7,592 $ 3,209 $ 4,383 136.6 %
Gross profit (loss) per unit $ 1,075 $ (47) $ 1,122 2,387.2 %
Gross profit (loss) as a % of revenue 14.2 % (1.5) % 1,570 bps

Six Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit and per unit data)
Reported wholesale vehicle:
Revenue $ 40,454 $ 10,770 $ 29,684 275.6 %
Gross profit (loss) $ 3,202 $ (145) $ 3,347 2,308.3 %
Unit sales 5,739 3,219 2,520 78.3 %
Revenue per unit $ 7,049 $ 3,346 $ 3,703 110.7 %
Gross profit (loss) per unit $ 558 $ (45) $ 603 1,340.0 %
Gross profit (loss) as a % of revenue 7.9 % (1.3) % 920 bps

Our EchoPark Segment same market wholesale vehicle results were as follows:


		Three Months Ended June 30,						Better / (Worse)					Three Months Ended March 31,						Better / (Worse)
		2021			2020			Change		% Change			2022			2021			Change		% Change
		(In thousands, except unit and per unit data)											(In millions, except unit and per unit data)
Same market wholesale vehicle:	Same market wholesale vehicle:											Same market wholesale vehicle:
Revenue	Revenue	$	14,951		$	4,666		$	10,285	220.4	%	Revenue	$	45.4		$	16.6		$	28.8	173.5	%
Gross profit (loss)	Gross profit (loss)	$	2,288		$	(69)		$	2,357	3,415.9	%	Gross profit (loss)	$	1.8		$	0.1		$	1.7	NM
Unit sales	Unit sales	1,847			1,454			393		27.0	%	Unit sales	2,438			2,501			(63)		(2.5)	%
Revenue per unit	Revenue per unit	$	8,095		$	3,209		$	4,886	152.3	%	Revenue per unit	$	18,622		$	6,637		$	11,985	180.6	%
Gross profit (loss) per unit	Gross profit (loss) per unit	$	1,239		$	(47)		$	1,286	2,736.2	%	Gross profit (loss) per unit	$	732		$	47		$	685	NM
Gross profit (loss) as a % of revenue	Gross profit (loss) as a % of revenue	15.3		%	(1.5)		%	1,680		bps		Gross profit (loss) as a % of revenue	4.0		%	0.6		%	340		bps
NM = Not Meaningful												NM = Not Meaningful

Six Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit and per unit data)
Same market wholesale vehicle:
Revenue $ 30,722 $ 10,770 $ 19,952 185.3 %
Gross profit (loss) $ 2,410 $ (145) $ 2,555 1,762.1 %
Unit sales 4,151 3,219 932 29.0 %
Revenue per unit $ 7,401 $ 3,346 $ 4,055 121.2 %
Gross profit (loss) per unit $ 581 $ (45) $ 626 1,391.1 %
Gross profit (loss) as a % of revenue 7.8 % (1.3) % 910 bps

Same Market EchoPark Segment Wholesale Vehicles – Three Months Ended ~~June 30, 2021~~March 31, 2022 Compared to Three Months Ended ~~June 30, 2020~~March 31, 2021

Same market wholesale vehicle revenue increased ~~220.4%~~173.5% and same market wholesale vehicle gross profit improved by ~~3,415.9%,~~approximately $1.7 million, due primarily to ~~higher trade-in volume,~~a 180.6% increase in wholesale vehicle revenue per unit, which drove a ~~27.0% increase in same market wholesale vehicle~~$685 per unit ~~sales~~

~~SONIC AUTOMOTIVE, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

~~volume and a 2,736.2%~~ increase in same market wholesale vehicle gross profit per unit, due to excess demand in the wholesale auction market driving higher average wholesale pricing. Given EchoPark’s retail inventory mix, the majority of vehicles acquired from ~~customers~~guests on trade-ins cannot be sold as retail at our EchoPark stores and are subsequently sold at auction or transferred to one of our franchised dealerships to be sold as a retail used vehicle. However, a successful acquisition of a ~~customer’s~~guest’s trade-in vehicle often facilitates a retail used vehicle sale transaction that otherwise may not have occurred, driving higher overall gross profit. Our overall EchoPark inventory acquisition and pricing strategy reduces the risk of aged inventory that must be sold at auction (which would typically have a higher wholesale vehicle gross loss per unit) and increases the volume of trade-ins that we obtain from guests.

~~Same Market EchoPark Segment Wholesale Vehicles~~ – ~~Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020~~

Same market wholesale vehicle revenue increased 185.3% and same market wholesale vehicle gross profit improved by 1,762.1%, due primarily to higher trade-in volume, which drove a 29.0% increase in same market wholesale vehicle unit sales volume and a 1,391.1% increase in same market wholesale vehicle gross profit per unit, due to excess demand in the wholesale auction market driving higher average pricing. Given EchoPark’s retail inventory mix, the majority of vehicles acquired from customers on trade-ins cannot be sold as retail at our EchoPark stores and are subsequently sold at auction or transferred to one of our franchised dealerships to be sold as a retail used vehicle. However, a successful acquisition of a customer’s trade-in vehicle often facilitates a retail used vehicle sale transaction that otherwise may not have occurred, driving higher overall gross profit. Our overall EchoPark inventory acquisition and pricing strategy reduces the risk of aged inventory that must be sold at auction (which would typically have a higher wholesale vehicle gross loss per unit) and increases the volume of trade-ins that we obtain from guests.

~~Fixed Operations~~ – ~~EchoPark Segment~~

Parts, service and collision repair revenues consist of internal, sublet and other work related to preparation and reconditioning performed on vehicles in inventory that are later sold to a third party. When that work is performed by one of our stores, the work is classified as internal. In the event the work is performed by a third party on our behalf, it is classified as sublet. Our EchoPark stores do not currently perform warranty or customer pay repairs or maintenance work.

~~The following tables provide a reconciliation of EchoPark Segment reported basis, same market basis and new market basis for Fixed Operations:~~

Three Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands)
Total Fixed Operations revenue:
Same market $ 10,602 $ 7,060 $ 3,542 50.2 %
New markets 3,876 — 3,876 NM
Total as reported $ 14,478 $ 7,060 $ 7,418 105.1 %
Total Fixed Operations gross profit (loss):
Same market $ (4) $ (186) $ 182 97.8 %
New markets 274 — 274 NM
Total as reported $ 270 $ (186) $ 456 245.2 %

~~NM = Not Meaningful~~

4636

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Six Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands)
Total Fixed Operations revenue:
Same market $ 21,248 $ 17,205 $ 4,043 23.5 %
New markets 6,067 34 6,033 (17,744.1) %
Total as reported $ 27,315 $ 17,239 $ 10,076 58.4 %
Total Fixed Operations gross profit (loss):
Same market $ (27) $ (383) $ 356 93.0 %
New markets 80 — 80 100.0 %
Total as reported $ 53 $ (383) $ 436 113.8 %

~~Our EchoPark Segment reported Fixed Operations results were as follows:~~
Three Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands)
Total Reported Fixed Operations:
Revenue $ 14,478 $ 7,060 $ 7,418 105.1 %
Gross profit (loss) $ 270 $ (186) $ 456 245.2 %
Gross profit (loss) as a % of revenue 1.9 % (2.6) % 450 bps

Six Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands)
Total Reported Fixed Operations:
Revenue $ 27,315 $ 17,239 $ 10,076 58.4 %
Gross profit (loss) $ 53 $ (383) $ 436 113.8 %
Gross profit (loss) as a % of revenue 0.2 % (2.2) % 240 bps

~~Our EchoPark Segment same market Fixed Operations results were as follows:~~

Three Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands)
Total Same market Fixed Operations:
Revenue $ 10,602 $ 7,060 $ 3,542 50.2 %
Gross profit (loss) $ (4) $ (186) $ 182 97.8 %
Gross profit (loss) as a % of revenue — % (2.6) % 260 bps

Six Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands)
Total Same store Fixed Operations:
Revenue $ 21,248 $ 17,205 $ 4,043 23.5 %
Gross profit (loss) $ (27) $ (383) $ 356 93.0 %
Gross profit (loss) as a % of revenue (0.1) % (2.2) % 210 bps

~~SONIC AUTOMOTIVE, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

~~Same Market EchoPark Segment Fixed Operations~~ – ~~Three Months Ended June 30, 2021 Compared to Three Months Ended June 30, 2020~~

Same market Fixed Operations revenue increased approximately $3.5 million, or 50.2%, primarily due to a 16.5% increase in retail used vehicle unit sales volume, driving higher levels of reconditioning work.

~~Same Market EchoPark Segment Fixed Operations~~ – ~~Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020~~

Same market Fixed Operations revenue increased approximately $4.0 million, or 23.5%, primarily due to a 14.7% increase in retail used vehicle unit sales volume, driving higher levels of reconditioning work.

Segment Results Summary

In the following tables of financial data, total segment income of the reportable segments is reconciled to consolidated income (loss) from continuing operations before taxes and impairment charges. See above for tables and discussion of results by reportable segment.


		Three Months Ended June 30,				Better / (Worse)					Three Months Ended March 31,				Better / (Worse)
		2021		2020		Change		% Change			2022		2021		Change		% Change
		(In thousands, except unit data)									(In millions, except unit data)
Segment Revenues:	Segment Revenues:									Segment Revenues:
Franchised Dealerships Segment revenues:	Franchised Dealerships Segment revenues:									Franchised Dealerships Segment revenues:
New vehicles		$	1,461,984	$	900,003	$	561,981	62.4	%
Retail new vehicles										Retail new vehicles	$	1,345.7	$	1,134.0	$	211.7	18.7	%
Fleet new vehicles										Fleet new vehicles	148.6		22.3		126.3		566.4	%
Total new vehicles										Total new vehicles	1,494.3		1,156.3		338.0		29.2	%
Used vehicles	Used vehicles	761,524		535,699		225,825		42.2	%	Used vehicles	853.7		661.5		192.2		29.1	%
Wholesale vehicles	Wholesale vehicles	62,956		28,509		34,447		120.8	%	Wholesale vehicles	106.3		56.2		50.1		89.1	%
Parts, service and collision repair	Parts, service and collision repair	346,118		251,998		94,120		37.3	%	Parts, service and collision repair	380.5		308.1		72.4		23.5	%
Finance, insurance and other, net	Finance, insurance and other, net	124,060		80,401		43,659		54.3	%	Finance, insurance and other, net	126.5		97.6		28.9		29.6	%
Franchised Dealerships Segment revenues	Franchised Dealerships Segment revenues	$	2,756,642	$	1,796,610	$	960,032	53.4	%	Franchised Dealerships Segment revenues	$	2,961.3	$	2,279.7	$	681.6	29.9	%

EchoPark Segment revenues:	EchoPark Segment revenues:									EchoPark Segment revenues:
New vehicles		$	909	$	—	$	909	100.0	%
Retail new vehicles										Retail new vehicles	$	5.6	$	—	$	5.6	100.0	%
Used vehicles	Used vehicles	505,172		273,178		231,994		84.9	%	Used vehicles	517.2		441.4		75.8		17.2	%
Wholesale vehicles	Wholesale vehicles	21,851		4,666		17,185		368.3	%	Wholesale vehicles	62.4		18.6		43.8		235.5	%
Parts, service and collision repair		14,478		7,060		7,418		105.1	%

Finance, insurance and other, net	Finance, insurance and other, net	53,194		30,372		22,822		75.1	%	Finance, insurance and other, net	40.1		47.1		(7.0)		(14.9)	%
EchoPark Segment revenues	EchoPark Segment revenues	$	595,604	$	315,276	$	280,328	88.9	%	EchoPark Segment revenues	$	625.3	$	507.1	$	118.2	23.3	%

Total consolidated revenues	Total consolidated revenues	$	3,352,246	$	2,111,886	$	1,240,360	58.7	%	Total consolidated revenues	$	3,586.6	$	2,786.8	$	799.8	28.7	%

Segment Income (Loss) (1):	Segment Income (Loss) (1):									Segment Income (Loss) (1):
Franchised Dealerships Segment	Franchised Dealerships Segment	$	165,415	$	35,689	$	129,726	363.5	%	Franchised Dealerships Segment	$	163.8	$	70.6	$	93.2	132.0	%
EchoPark Segment	EchoPark Segment	(14,394)		2,577		(16,971)		(658.6)	%	EchoPark Segment	(34.9)		2.0		(36.9)		NM
Total segment income (loss)		$	151,021	$	38,266	$	112,755	294.7	%
Impairment charges (2)		—		(833)		833		100.0	%
Income (loss) from continuing operations before taxes		$	151,021	$	37,433	$	113,588	303.4	%
Total segment income										Total segment income	$	128.9	$	72.6	$	56.3	77.5	%
Impairment charges										Impairment charges	—		—		—		—	%
Income from continuing operations before taxes										Income from continuing operations before taxes	$	128.9	$	72.6	$	56.3	77.5	%

Retail New and Used Vehicle Unit Sales Volume:	Retail New and Used Vehicle Unit Sales Volume:									Retail New and Used Vehicle Unit Sales Volume:
Franchised Dealerships Segment	Franchised Dealerships Segment	59,038		43,864		15,174		34.6	%	Franchised Dealerships Segment	51,680		51,053		627		1.2	%
EchoPark Segment	EchoPark Segment	21,275		13,207		8,068		61.1	%	EchoPark Segment	15,080		19,670		(4,590)		(23.3)	%
Total retail new and used vehicle unit sales volume	Total retail new and used vehicle unit sales volume	80,313		57,071		23,242		40.7	%	Total retail new and used vehicle unit sales volume	66,760		70,723		(3,963)		(5.6)	%
NM = Not Meaningful										NM = Not Meaningful

(1)Segment income (loss) for each segment is defined as income (loss) from continuing operations before taxes and impairment charges.

4837

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Six Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit data)
Segment Revenues:
Franchised Dealerships Segment revenues:
New vehicles $ 2,618,301 $ 1,859,492 $ 758,809 40.8 %
Used vehicles 1,423,059 1,102,587 320,472 29.1 %
Wholesale vehicles 119,160 70,948 48,212 68.0 %
Parts, service and collision repair 654,194 576,499 77,695 13.5 %
Finance, insurance and other, net 221,586 163,429 58,157 35.6 %
Franchised Dealerships Segment revenues $ 5,036,300 $ 3,772,955 $ 1,263,345 33.5 %
EchoPark Segment revenues:
New vehicles $ 909 $ — $ 909 100.0 %
Used vehicles 933,735 556,343 377,392 67.8 %
Wholesale vehicles 40,454 10,770 29,684 275.6 %
Parts, service and collision repair 27,315 17,239 10,076 58.4 %
Finance, insurance and other, net 100,330 62,635 37,695 60.2 %
EchoPark Segment revenues $ 1,102,743 $ 646,987 $ 455,756 70.4 %
Total consolidated revenues $ 6,139,043 $ 4,419,942 $ 1,719,101 38.9 %
Segment Income (Loss) (1):
Franchised Dealerships Segment $ 235,957 $ 58,346 $ 177,611 304.4 %
EchoPark Segment (12,384) 4,672 (17,056) (365.1) %
Total segment income (loss) $ 223,573 $ 63,018 $ 160,555 254.8 %
Impairment charges (2) — (268,833) 268,833 100.0 %
Income (loss) from continuing operations before taxes $ 223,573 $ (205,815) $ 429,388 208.6 %
Retail New and Used Vehicle Unit Sales Volume:
Franchised Dealerships Segment 110,632 91,626 19,006 20.7 %
EchoPark Segment 40,945 27,193 13,752 50.6 %
Total retail new and used vehicle unit sales volume 151,577 118,819 32,758 27.6 %

~~(1)Segment income (loss) for each segment is defined as income (loss) from continuing operations before taxes and impairment charges.~~

~~(2)~~For the six months ended June 30, 2020, the above amount includes a pre-tax impairment charge of approximately $268.0 million related to adjustments in fair value of goodwill for the Franchised Dealerships Segment as a result of the economic disruptions due to the worldwide spread of COVID-19 which had adversely affected our business, as well as a pre-tax impairment charge of approximately $0.8 million related to the abandonment of certain construction projects within the Franchised Dealerships Segment.

Selling, General and Administrative (“SG&A”) Expenses – Consolidated

Consolidated SG&A expenses are comprised of four major groups: compensation expense, advertising expense, rent expense and other expense. Compensation expense primarily relates to store personnel who are paid a commission or a salary plus commission and support personnel who are generally paid a fixed salary. Commissions paid to store personnel typically vary depending on gross profits realized and sales volume objectives. Due to the salary component for certain store and corporate personnel, gross profits and compensation expense do not change in direct proportion to one another. Advertising expense and other expense vary based on the level of actual or anticipated business activity and the number of dealerships in operation. Rent expense typically varies with the number of store locations owned, investments made for facility improvements and interest rates. Other expense includes various fixed and variable expenses, including gain on disposal of franchises, certain customer-related costs such as gasoline and service loaners, and insurance, training, legal and IT expenses, which may not change in proportion to gross profit levels.

~~SONIC AUTOMOTIVE, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

The following ~~tables set~~table sets forth information related to our consolidated reported SG&A expenses:

Three Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands)
SG&A expenses:
Compensation $ 213,842 $ 140,266 $ (73,576) (52.5) %
Advertising 15,345 8,087 (7,258) (89.7) %
Rent 13,665 13,223 (442) (3.3) %
Other 77,768 68,783 (8,985) (13.1) %
Total SG&A expenses $ 320,620 $ 230,359 $ (90,261) (39.2) %
SG&A expenses as a % of gross profit:
Compensation 41.9 % 45.6 % 370 bps
Advertising 3.0 % 2.6 % (40) bps
Rent 2.7 % 4.3 % 160 bps
Other 15.2 % 22.4 % 720 bps
Total SG&A expenses as a % of gross profit 62.8 % 74.9 % 1,210 bps


		Six Months Ended June 30,						Better / (Worse)					Three Months Ended March 31,						Better / (Worse)
		2021			2020			Change		% Change			2022			2021			Change		% Change
		(In thousands)											(In millions)
SG&A expenses:	SG&A expenses:											SG&A expenses:
Compensation	Compensation	$	402,333		$	314,688		$	(87,645)	(27.9)	%	Compensation	$	252.5		$	188.5		$	(64.0)	(34.0)	%
Advertising	Advertising	27,515			22,222			(5,293)		(23.8)	%	Advertising	26.2			12.2			(14.0)		(114.8)	%
Rent	Rent	27,409			27,088			(321)		(1.2)	%	Rent	12.7			13.7			1.0		7.3	%
Other	Other	152,719			148,517			(4,202)		(2.8)	%	Other	95.6			75.0			(20.6)		(27.5)	%
Total SG&A expenses	Total SG&A expenses	$	609,976		$	512,515		$	(97,461)	(19.0)	%	Total SG&A expenses	$	387.0		$	289.4		$	(97.6)	(33.7)	%

SG&A expenses as a % of gross profit:	SG&A expenses as a % of gross profit:											SG&A expenses as a % of gross profit:
Compensation	Compensation	44.1		%	47.8		%	370		bps		Compensation	44.2		%	47.0		%	280		bps
Advertising	Advertising	3.0		%	3.4		%	40		bps		Advertising	4.6		%	3.0		%	(160)		bps
Rent	Rent	3.0		%	4.1		%	110		bps		Rent	2.2		%	3.4		%	120		bps
Other	Other	16.8		%	22.6		%	580		bps		Other	16.7		%	18.8		%	210		bps
Total SG&A expenses as a % of gross profit	Total SG&A expenses as a % of gross profit	66.9		%	77.9		%	1,100		bps		Total SG&A expenses as a % of gross profit	67.7		%	72.2		%	450		bps

Three Months Ended ~~June 30, 2021~~March 31, 2022 Compared to Three Months Ended ~~June 30, 2020~~March 31, 2021

Overall SG&A expenses increased in dollar amount but decreased as a percentage of gross profit, primarily due to higher compensation levels as a result of higher vehicle unit sales volume and higher overall gross profit levels. Compensation expense increased in dollar amount but decreased as a percentage of gross profit, primarily due to increased sales associate productivity during ~~2021~~the three months ended March 31, 2022 as well as higher overall gross profit levels. Advertising expense increased in both dollar amount and as a percentage of gross profit, ~~due primarily to changes we made to optimize~~as a result of our ~~marketing spend during~~continued investment in EchoPark and the ~~initial months~~effect of acquisitions in the ~~pandemic.~~prior year. Rent expense ~~increased~~decreased in both dollar amount ~~but decreased~~and as a percentage of gross profit primarily due ~~primarily~~ to higher levels of overall gross profit. Other SG&A expenses increased in dollar amount but decreased as a percentage of gross profit, due primarily to higher gross profit levels and temporary reductions in expenses during the second quarter of 2020 as a result of the initial onset of the pandemic.

~~SONIC AUTOMOTIVE, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

~~Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020~~

~~Overall~~ SG&A expenses increased in dollar amount but decreased as a percentage of gross profit, primarily due to higher ~~compensation levels as a result of higher vehicle unit sales volume and higher~~ overall gross profit levels. Compensation expense increased in dollar amount but decreased as a percentage of gross profit, primarily due to increased sales associate productivity during 2021 as well as higher gross profit levels. Advertising expense increased in dollar amount but decreased as a percentage of gross profit, due primarily to a focused marketing strategy. Rent expense increased in dollar amount but decreased as a percentage of gross profit, due primarily to higher levels of gross profit. Other SG&A expenses increased in dollar amount but decreased as a percentage of gross profit, due primarily to higher gross profit levels and ~~increased spending in relation to higher sales as compared to the prior year period.~~a continued focus on expense optimization.

Impairment Charges – Consolidated

We did not record any impairment charges for the three ~~and six~~ months ended ~~June 30,~~March 31, 2022 or 2021. Impairment charges were approximately $0.8 million for the three months ended June 30, 2020, related to the abandonment of certain construction projects in our Franchised Dealerships Segment. Impairment charges for the six months ended June 30, 2020 were approximately $268.8 million, primarily related to fair value adjustments to goodwill in our Franchised Dealerships Segment.

Depreciation and Amortization – Consolidated

Depreciation expense increased approximately ~~$2.1~~$6.3 million, or ~~9.3%~~26.7%, during the three months ended ~~June 30, 2021, and $3.5 million, or 7.8%, during the six months ended June 30, 2021,~~March 31, 2022, due primarily to acquisitions and the opening ~~or acquisition~~ of additional EchoPark stores and the construction projects completed and placed in service ininto our Franchised Dealerships Segment and EchoPark Segment.

~~Interest Expense, Floor Plan~~ – ~~Consolidated~~

~~Three Months Ended June 30, 2021 Compared to Three Months Ended June 30, 2020~~

Interest expense, floor plan for new vehicles decreased approximately $2.8 million, or 55.1%. The average new vehicle floor plan interest rate was 0.81%, down from 1.57% in the three months ended June 30, 2020, resulting in a decrease in new vehicle floor plan interest expense of approximately $2.1 million. The average new vehicle floor plan notes payable balance decreased approximately $173.7 million, which decreased new vehicle floor plan interest expense by approximately $0.7 million.

Interest expense, floor plan for used vehicles increased approximately $0.8 million, or 65.5%. The average used vehicle floor plan interest rate was 1.67%, down from 1.89% in the three months ended June 30, 2020, resulting in a decrease in used vehicle floor plan interest expense of approximately $0.3 million. The average used vehicle floor plan notes payable balance increased approximately $230.2 million, which increased used vehicle floor plan interest expense by approximately $1.1 million.

~~Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020~~

Interest expense, floor plan for new vehicles decreased approximately $8.3 million, or 59.5%. The average new vehicle floor plan interest rate was 1.00%, down from 2.12% in the six months ended June 30, 2020, resulting in a decrease in new vehicle floor plan interest expense of approximately $6.5 million. The average new vehicle floor plan notes payable balance decreased approximately $182.5 million, which decreased new vehicle floor plan interest expense by approximately $1.8 million.

Interest expense, floor plan for used vehicles increased approximately $1.0 million, or 33.8%. The average used vehicle floor plan interest rate was 1.71%, down from 2.30% in the six months ended June 30, 2020, resulting in a decrease in used vehicle floor plan interest expense of approximately $1.3 million. The average used vehicle floor plan notes payable balance increased approximately $197.9 million, which increased used vehicle floor plan interest expense by approximately $2.3 million.

5138

SONIC AUTOMOTIVE, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Interest Expense, Floor Plan – Consolidated

Three Months Ended March 31, 2022 Compared to Three Months Ended March 31, 2021

Interest expense, floor plan for new vehicles decreased approximately $1.9 million, or 54.5%. The average new vehicle floor plan interest rate was 0.52% in the three months ended March 31, 2021, down from 1.18% in the three months ended March 31, 2021, resulting in an decrease in new vehicle floor plan interest expense of approximately $2.0 million. The average new vehicle floor plan notes payable balance increased approximately $29.2 million, which increased new vehicle floor plan interest expense by approximately $0.1 million.

Interest expense, floor plan for used vehicles increased approximately $1.7 million, or 96.5%. The average used vehicle floor plan interest rate was 2.16% in the three months ended March 31, 2021, up from 1.83% in the three months ended March 31, 2021, resulting in an increase in used vehicle floor plan interest expense of approximately $0.5 million. The average used vehicle floor plan notes payable balance increased approximately $251.0 million, which increased used vehicle floor plan interest expense by approximately $1.1 million.

Interest Expense, Other, Net – Consolidated

Interest expense, other, net is summarized in the tables below:
Three Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands)
Stated/coupon interest $ 7,501 $ 8,741 $ 1,240 14.2 %
Deferred loan cost amortization 834 624 (210) (33.7) %
Interest rate hedge expense (benefit) 471 (380) (851) (223.9) %
Capitalized interest (564) (124) 440 354.8 %
Interest on finance lease liabilities 1,676 1,337 (339) (25.4) %
Other interest 159 (401) (560) (139.7) %
Total interest expense, other, net $ 10,077 $ 9,797 $ (280) (2.9) %


		Six Months Ended June 30,				Better / (Worse)					Three Months Ended March 31,				Better / (Worse)
		2021		2020		Change		% Change			2022		2021		Change		% Change
		(In thousands)									(In millions)
Stated/coupon interest	Stated/coupon interest	$	15,147	$	17,955	$	2,808	15.6	%	Stated/coupon interest	$	17.0	$	7.6	$	(9.4)	(123.7)	%

Deferred loan cost amortization	Deferred loan cost amortization	1,658		1,182		(476)		(40.3)	%	Deferred loan cost amortization	1.1		0.8		(0.3)		(37.5)	%
Interest rate hedge expense (benefit)	Interest rate hedge expense (benefit)	881		(808)		(1,689)		(209.0)	%	Interest rate hedge expense (benefit)	0.3		0.4		0.1		25.0	%
Capitalized interest	Capitalized interest	(974)		(545)		429		78.7	%	Capitalized interest	(0.5)		(0.4)		0.1		(25.0)	%
Interest on finance lease liabilities	Interest on finance lease liabilities	3,332		2,681		(651)		(24.3)	%	Interest on finance lease liabilities	2.7		1.7		(1.0)		(58.8)	%
Other interest	Other interest	319		297		(22)		(7.4)	%	Other interest	0.2		0.2		—		—	%
Total interest expense, other, net	Total interest expense, other, net	$	20,363	$	20,762	$	399	1.9	%	Total interest expense, other, net	$	20.8	$	10.3	$	(10.5)	(101.9)	%

Interest expense, other, net increased approximately ~~$0.3~~$10.5 million ~~and decreased approximately $0.4 million~~or 101.9%, during the three ~~and six~~ months ended ~~June 30, 2021, respectively,~~March 31, 2022 primarily due to ~~a decrease~~an increase in ~~outstanding borrowings on our revolving credit facility~~principal of debt due to the issuance of the 4.625% Notes and ~~lower mortgage debt, offset by a lower benefit from interest rate hedge instruments~~the 4.875% Notes in October 2021, and an increase in interest associated with finance lease liabilities.

Income Taxes

The overall effective tax rate from continuing operations was 24.5% ~~and 25.0% for the three and six months ended June 30, 2021, respectively, and 17.2% and 18.3% for the three and six months ended June 30, 2020, respectively. Income tax expense~~ for the three months ended June 30, 2021 includes a $1.3 million discrete benefit related to vested or exercised stock compensation awards. Income tax expense for the six months ended June 30, 2021 includes a $2.8 million discrete benefit related to vested or exercised stock compensation awards. Income tax benefitMarch 31, 2022, and 26.0% for the three months ended June 30, 2020 includes a $3.4 million discrete benefit related to the favorable resolution of certain tax matters and other adjustments, offset partially by a $0.3 million discrete charge related to vested or exercised stock compensation awards. Income tax benefit for the six months ended June 30, 2020 includes a $55.8 million benefit, including the effect of non-deductible amounts, related to the $268.0 million goodwill impairment charge recognized in such quarter, and a $0.2 million discrete benefit related to vested or exercised stock compensation awards and a $0.2 million discrete benefit related to the favorable resolution of a certain tax matter, offset partially by a $1.4 million discrete charge related to changes in uncertain tax positions.March 31, 2021. Sonic’s effective tax rate varies from year to year based on the level of taxable income, the distribution of taxable income between states in which the Company operates and other tax adjustments.

Liquidity and Capital Resources

We require cash to fund debt service, lease obligations, working capital requirements, facility improvements and other capital improvements, and dividends on our common stock and to finance acquisitions and otherwise invest in our business. We rely on cash flows from operations, borrowings under our revolving credit and floor plan borrowing arrangements, real estate mortgage financing, asset sales and offerings of debt and equity securities to meet these requirements. We were in compliance with all restrictive covenants under our debt agreements as of ~~June 30, 2021~~March 31, 2022 and expect to be in compliance for at least the next 12 months. We closely monitor our available liquidity and projected future operating results in order to remain in compliance

~~SONIC AUTOMOTIVE, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

with the restrictive covenants under the 2021 Credit Facilities, the 2019 Mortgage Facility, the ~~2020 Line of Credit Facility, the indenture~~indentures governing the ~~6.125%~~4.625% Notes and the 4.875% Notes, and our other debt obligations and lease arrangements. However, our liquidity could be negatively affected if we fail to comply with the financial covenants in our existing debt obligations or lease arrangements. After giving effect to the applicable restrictions on the payment of dividends under our debt agreements, as of ~~June 30, 2021,~~March 31, 2022, we had approximately ~~$348.9~~$413.0 million of net income and retained earnings free of such restrictions. Cash flows provided by our ~~franchised~~ dealerships ~~and EchoPark stores~~ are derived from various sources. The primary sources include individual consumers, automobile manufacturers, automobile manufacturers’ captive finance subsidiaries and other financial institutions. Disruptions in these cash flows could have a material adverse impact on our operations and overall liquidity.

SONIC AUTOMOTIVE, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Because the majority of our consolidated assets are held by our dealership subsidiaries, the majority of our cash flows from operations are generated by these subsidiaries. As a result, our cash flows and ~~our~~ ability to service our obligations depend to a substantial degree on the results of operations of these subsidiaries and their ability to provide us with ~~cash.~~cash..

We had the following liquidity resources available as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020:~~2021:
June 30, 2021 December 31, 2020
(In thousands)
Cash and cash equivalents $ 239,617 $ 170,313
Availability under the 2021 Revolving Credit Facility (1) 224,318 214,672
Availability under the 2019 Mortgage Facility 16,726 11,272
Availability under the 2020 Line of Credit Facility 54,141 56,973
Floor plan deposit balance 75,000 73,180
Total available liquidity resources $ 609,802 $ 526,410

~~(1) The balance as of December 31, 2020 was under the Company’s prior revolving credit facility, which was replaced by the 2021 Revolving Credit Facility.~~


	March 31, 2022		December 31, 2021
	(In millions)
Cash and cash equivalents	$	360.2	$	299.4
Availability under the 2021 Revolving Credit Facility	274.0		281.4

Availability under the 2019 Mortgage Facility	24.9		22.2

Floor plan deposit balance	125.5		99.8
Total available liquidity resources	$	784.6	$	702.8

We participate in a program with two of our lender partners wherein we maintain a floor plan deposit balance ~~(included~~(as shown in the table above) with the lender that earns interest based on the agreed upon rate, effectively reducing the net floor plan interest expense with the lender. This deposit balance is not designated as a prepayment of notes payable –- floor plan, nor is it our intent to use this amount to offset principal amounts owed under notes payable –- floor plan in the future, although we have the right and ability to do so. The deposit balances of approximately ~~$75.0~~$125.5 million and ~~$73.2~~$99.8 million as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively, are classified inas other current assets in the accompanying unaudited condensed consolidated balance sheets as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020.~~2021.

Floor Plan Facilities

We finance all of our new and certain of our used vehicle inventory through standardized floor plan facilities with manufacturer captive finance companies and a syndicate of manufacturer-affiliated finance companies and commercial banks. These floor plan facilities are due on demand and bear interest at variable rates based on LIBOR or prime plus an additional spread, as applicable. The weighted-average interest rate for our new and used vehicle floor plan facilities was ~~1.07%~~1.09% and ~~1.62% in~~1.34% for the three months ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020, respectively, and 1.20% and 2.14% in the six months ended June 30, 2021 and 2020,~~ respectively.

We receive floor plan assistance in the form of direct payments or credits from certain manufacturers. Floor plan assistance received is capitalized in inventory and recorded as a reduction of cost of sales when the associated inventory is sold. We received approximately $~~11.5~~12.7 million and ~~$6.2~~$10.9 million in manufacturer assistance in the three months ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020, respectively, and approximately $22.3 million and $16.2 million in manufacturer assistance in the six months ended June 30, 2021 and 2020,~~ respectively. We recognized in cost of sales approximately ~~$13.7~~$12.8 million and ~~$8.7~~$11.4 million in manufacturer assistance in the three months ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020, respectively, and approximately $25.0 million and $17.7 million in manufacturer assistance in the~~ ~~six months ended June 30, 2021 and 2020,~~ respectively. Interest payments under each of our floor plan facilities are due monthly and we are generally not required to make principal repayments prior to the sale of the ~~associated~~ vehicles.

Long-Term Debt and Credit Facilities

See Note 6, “Long-Term Debt,” to the accompanying unaudited condensed consolidated financial statements for a discussion of our long-term debt, mortgage notes and credit facilities and compliance with debt covenants.

~~SONIC AUTOMOTIVE, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

Capital Expenditures

Our capital expenditures include the purchase of land and buildings, the construction of new franchised dealerships, EchoPark stores and collision repair centers, building improvements and equipment purchased for use in our franchised dealerships and EchoPark stores. We selectively construct ~~new~~ or improve existing franchised dealership facilities to maintain compliance with manufacturers’ image requirements. We typically finance these projects through cash flows from operations, new mortgages or our credit facilities.

Capital expenditures in the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 were approximately ~~$105.1~~$58.8 million, including approximately ~~$71.7~~$30.2 million related to our Franchised Dealerships Segment and approximately ~~$33.4~~$28.6 million related to our EchoPark Segment. Of ~~this amount,~~the total capital expenditures, approximately ~~$59.2~~$32.3 million was related to facility construction projects, ~~$7.4~~approximately $17.1 million was related to acquisitions of real estate ~~acquisitions~~(land and ~~$38.5~~buildings) and approximately $9.4 million was for other fixed assets utilized in our store operations.

All of the ~~$105.1~~$58.8 million in gross capital expenditures in the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 was funded through cash from operations. As of ~~June 30, 2021,~~March 31, 2022, commitments for facility construction projects totaled approximately ~~$34.6~~$17.7 million, nearly all of which is expected to be completed in the next 12 months. ~~We expect investments related to capital expenditures to be partly dependent upon our overall liquidity position and the availability of mortgage financing to fund significant capital projects.~~

SONIC AUTOMOTIVE, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Share Repurchase Program

Our Board of Directors has authorized us to repurchase shares of our Class A Common Stock. Historically, we have used our share repurchase authorization to offset dilution caused by the exercise of stock options or the vesting of equity compensation awards and to maintain our desired capital structure. During the ~~six~~three months ended ~~June 30, 2021,~~March 31, 2022, we repurchased approximately ~~1.0~~0.7 million shares of our Class A Common Stock for approximately ~~$42.2~~$33.7 million in open-market transactions at prevailing market prices and in connection with tax withholding on the vesting of equity compensation awards. ~~During the second quarter of 2021, our Board of Directors increased our share repurchase authorization by $250.0 million.~~ As of ~~June 30, 2021,~~March 31, 2022, our total remaining share repurchase authorization was approximately ~~$277.3~~$192.5 million. Subsequent to March 31, 2022, we repurchased an additional 1.0 million shares of Class A Common Stock for approximately $42.5 million, resulting in current remaining availability of approximately $150.0 million. Under the 2021 Credit Facilities, share repurchases are permitted to the extent that no event of default exists, and we do not exceed the restrictions set forth in our debt agreements. After giving effect to the applicable restrictions on share repurchases and certain other transactions under our debt agreements, as of ~~June 30, 2021,~~March 31, 2022, we had approximately ~~$348.9~~$413.0 million of net income and retained earnings free of such restrictions.

Our share repurchase activity is subject to the business judgment of our Board of Directors and management, taking into consideration our historical and projected results of operations, financial condition, cash flows, capital requirements, ~~and~~ covenant compliance, the current economic environment and other factors considered relevant. These factors are considered each quarter and will be scrutinized as our Board of Directors and management determine our share repurchase policy in the future.

Dividends

During the three months ended ~~June 30, 2021,~~March 31, 2022, our Board of Directors approved a cash dividend of ~~$0.12~~$0.25 per share on all outstanding shares of Class A and Class B Common Stock as of March 15, 2022, which was paid on April 15, 2022. Subsequent to March 31, 2022, our Board of Directors approved a cash dividend of $0.25 per share on all outstanding shares of Class A and Class B Common Stock as of June 15, ~~2021, which was~~2022 to be paid on July 15, 2021. Subsequent to June 30, 2021, our Board of Directors approved a cash dividend of $0.12 per share on all outstanding shares of Class A and Class B Common Stock as of September 15, 2021 to be paid on October 15, 2021.2022. Under the 2021 Credit Facilities, dividends are permitted to the extent that no event of default exists and we are in compliance with the financial covenants contained therein. The ~~indenture governing~~2029 Indenture and the ~~6.125% Notes~~2031 Indenture also ~~contains~~contain restrictions on our ability to pay dividends. After giving effect to the applicable restrictions on share repurchases and certain other transactions under our debt agreements, as of ~~June 30, 2021,~~March 31, 2022, we had approximately ~~$348.9~~$413.0 million of net income and retained earnings free of such restrictions. The declaration and payment of any future dividend is subject to the business judgment of our Board of Directors, taking into consideration our ~~historical~~historic and projected results of operations, financial condition, cash flows, capital requirements, covenant compliance and share repurchases, the current economic environment and other factors considered by our Board of Directors to be relevant. These factors are considered each quarter and will be scrutinized as our Board of Directors determines our future dividend policy. There is no guarantee that additional dividends will be declared and paid at any time in the future. See Note 6, “Long-Term Debt,” to the accompanying unaudited condensed consolidated financial statements for a description of restrictions on the payment of dividends.

~~SONIC AUTOMOTIVE, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

Cash Flows

Cash Flows from Operating Activities – Net cash ~~used in~~provided by operating activities in the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 was approximately ~~$34.7~~$252.5 million. This ~~use~~provision of cash was comprised primarily of net income less non-cash items, a decrease in inventories, a decrease in receivables, and an increase in trade accounts payable and other liabilities, offset partially by a decrease in notes payable – floor plan – ~~trade, offset partially by a decrease in inventories and an increase in trade accounts payable and other liabilities. In the six months ended June 30, 2020, net~~trade. Net cash provided by operating activities in the three months ended March 31, 2021 was approximately ~~$227.7~~$90.3 million. This provision of cash was comprised primarily of net income (less non-cash items), an increase in trade accounts payable and other liabilities and a decrease in inventories, offset partially by a decrease in notes payable – floor plan – ~~trade and inventories and an increase in other assets, offset partially by a decrease in receivables and cash inflows related to operating profits.~~trade.

Cash Flows from Investing Activities – Net cash used in investing activities in the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 was approximately ~~$129.1~~$80.3 million. This use of cash was comprised primarily of purchases of land, property and equipment and purchases of businesses, net of cash acquired. Net cash used in investing activities in the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 was approximately ~~$62.5~~$75.6 million. This use of cash was comprised primarily of purchases of land, property and equipment.

Cash Flows from Financing Activities – Net cash ~~provided by~~used in financing activities in the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 was approximately ~~$233.1~~$111.4 million. This ~~provision~~use of cash was comprised primarily of a net ~~borrowing of~~borrowings under notes payable – floor plan – non-trade, offset partially by purchases of treasury stock and payments on long-term debt. Net cash used in financing activities in the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 was approximately ~~$78.7~~$107.8 million. This use of cash was comprised primarily of net repayments of notes payable – floor plan – non-trade and purchases of treasury ~~stock, offset partially by proceeds from the issuance of long-term debt.~~stock.

We arrange our inventory floor plan financing through both manufacturer captive finance companies and a syndicate of manufacturer-affiliated finance companies and commercial banks. Our floor plan financed with manufacturer captives is recorded as trade floor plan liabilities (with the resulting change being reflected as operating cash flows). Our dealerships that obtain floor plan financing from a syndicate of manufacturer-affiliated finance companies and commercial banks record their

SONIC AUTOMOTIVE, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

obligation as non-trade floor plan liabilities (with the resulting change being reflected as financing cash flows). Due to the presentation differences for changes in trade floor plan financing and non-trade floor plan financing in the accompanying unaudited condensed consolidated statements of cash flows, decisions made by us to move dealership floor plan financing arrangements from one finance source to another may cause significant variations in operating and financing cash flows without affecting our overall liquidity, working capital or cash flows. Net cash used in combined trade and non-trade floor plan financing was approximately ~~$238.1~~$72.3 million in the ~~six~~three months ended ~~June 30, 2021.~~March 31, 2022. Net cash used in combined trade and non-trade floor plan financing was approximately ~~$321.8~~$98.0 million in the ~~six~~three months ended ~~June 30, 2020.~~March 31, 2021. Accordingly, if all changes in floor plan notes payable were classified as an operating activity, the result would have been net cash provided by operating activities of approximately ~~$279.6~~$196.2 million in the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 and net cash provided by operating activities of approximately ~~$163.6~~$38.8 million in the ~~six~~three months ended ~~June 30, 2020.~~March 31, 2021.

One ~~factor~~metric that management uses to measure ~~cash flow generation or use~~operating performance is Adjusted EBITDA, a non-GAAP financial measure, for each of the Company’s reportable ~~segments. That~~segments and on a consolidated basis. This non-GAAP financial measure is provided and reconciled to ~~the~~net income (loss) (the nearest comparable GAAP financial ~~measure~~measure) in the ~~tables~~table below:


		Three Months Ended June 30, 2021								Three Months Ended June 30, 2020									Three Months Ended March 31, 2022								Three Months Ended March 31, 2021
		Franchised Dealerships Segment		EchoPark Segment		Discontinued Operations		Total		Franchised Dealerships Segment		EchoPark Segment		Discontinued Operations		Total			Franchised Dealerships Segment		EchoPark Segment		Discontinued Operations		Total		Franchised Dealerships Segment		EchoPark Segment		Discontinued Operations		Total
		(In thousands)																	(In millions)
Net income (loss)								$	113,845							$	30,791
Net income																		Net income							$	97.3							$	54.2
Provision for income taxes	Provision for income taxes							36,972								6,353		Provision for income taxes							31.6								19.1
Income (loss) before taxes	Income (loss) before taxes	$	165,415	$	(14,394)	$	(204)	$	150,817	$	34,856	$	2,577	$	(289)	$	37,144	Income (loss) before taxes	$	163.8	$	(34.9)	$	—	$	128.9	$	70.6	$	2.0	$	0.7	$	73.3
Non-floor plan interest (1)	Non-floor plan interest (1)	8,895		348		—		9,243		8,938		234		—		9,172		Non-floor plan interest (1)	19.0		0.7		—		19.7		9.1		0.4		—		9.5
Depreciation & amortization (2)	Depreciation & amortization (2)	21,444		4,152		—		25,596		20,514		2,758		—		23,272		Depreciation & amortization (2)	25.9		5.2		—		31.1		21.2		3.3		—		24.5
Stock-based compensation expense	Stock-based compensation expense	3,989		—		—		3,989		2,971		—		—		2,971		Stock-based compensation expense	4.4		—		—		4.4		3.5		—		—		3.5

Asset impairment charges		—		—		—		—		833		—		—		833

Long-term compensation charges	Long-term compensation charges	—		500		—		500		—		—		—		—		Long-term compensation charges	—		—		—		—		—		0.5		—		0.5
Loss (gain) on franchise and real estate disposals	Loss (gain) on franchise and real estate disposals	(400)		(23)		—		(423)		1,117		—		—		1,117		Loss (gain) on franchise and real estate disposals	(1.1)		—		—		(1.1)		—		—		—		—
Adjusted EBITDA (3)	Adjusted EBITDA (3)	$	199,343	$	(9,417)	$	(204)	$	189,722	$	69,229	$	5,569	$	(289)	$	74,509	Adjusted EBITDA (3)	$	212.0	$	(29.0)	$	—	$	183.0	$	104.4	$	6.2	$	0.7	$	111.3

(1)Includes the following line items from the accompanying unaudited condensed consolidated statements of operations, net of any amortization of debt issuance costs or net debt discount/premium included in footnote (2) below: interest expense, other, ~~net; interest expense, non-cash, convertible debt; and interest expense/amortization, non-cash, cash flow swaps.~~

~~SONIC AUTOMOTIVE, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

~~(2)~~Includes the following line items from the accompanying unaudited condensed consolidated statements of cash flows: depreciation and amortization of property and equipment; debt issuance cost amortization; and net debt discount/premium amortization and other amortization.

~~(3)Adjusted EBITDA is a non-GAAP financial measure.~~

Six Months Ended June 30, 2021 Six Months Ended June 30, 2020
Franchised Dealerships Segment EchoPark Segment Discontinued Operations Total Franchised Dealerships Segment EchoPark Segment Discontinued Operations Total
(In thousands)
Net income (loss) $ 168,067 $ (168,542)
Provision for income taxes 56,022 (37,846)
Income (loss) before taxes $ 235,957 $ (12,384) $ 516 $ 224,089 $ (210,487) $ 4,672 $ (573) $ (206,388)
Non-floor plan interest (1) 18,022 682 — 18,704 18,981 599 — 19,580
Depreciation & amortization (2) 42,650 7,456 — 50,106 40,658 5,466 — 46,124
Stock-based compensation expense 7,474 — — 7,474 5,398 — — 5,398
Asset impairment charges — — — — 268,833 — — 268,833
Long-term compensation charges — 1,000 — 1,000 — — — —
Loss (gain) on franchise and real estate disposals (421) (9) — (430) 1,117 — — 1,117
Adjusted EBITDA (3) $ 303,682 $ (3,255) $ 516 $ 300,943 $ 124,500 $ 10,737 $ (573) $ 134,664

~~(1)~~Includes the following line items from the accompanying unaudited condensed consolidated statements of operations, net of any amortization of debt issuance costs or net debt discount/premium included in footnote (2) below: interest expense, other, net; interest expense, non-cash, convertible debt; and interest expense/amortization, non-cash, cash flow swaps.net.

(2)Includes the following line items from the accompanying unaudited condensed consolidated statements of cash flows: depreciation and amortization of property and equipment; debt issuance cost amortization; and debt discount amortization, net ~~debt discount/~~of premium ~~amortization~~ and other amortization.

(3)Adjusted EBITDA is a non-GAAP financial measure.

Future Liquidity Outlook

We believe our best sources of liquidity for operations and debt service remain cash flows generated from operations combined with the availability of borrowings under our floor plan facilities (or any replacements thereof), the 2021 Credit Facilities (or any replacements thereof), the 2019 Mortgage Facility (or any replacements thereof)~~, the 2020 Line of Credit Facility (or any replacements thereof),~~ and real estate mortgage financing, ~~and~~ selected dealership and other asset sales and our ability to raise funds in the capital markets through offerings of debt or equity securities. Because the majority of our consolidated assets are held by our dealership subsidiaries, the majority of our cash flows from operations are generated by these subsidiaries. As a result, our cash flows and our ability to service our obligations depend to a substantial degree on the results of operations of these subsidiaries, their contractual obligations and capital requirements, and their ability to provide us with cash.

Currently, we do not believe that the effects of the COVID-19 pandemic have materially affected our cost of or access to capital and funding sources, but this could change if the pandemic and its impact on our business worsen. We do not currently anticipate any materially negative changes to our cost of or access to capital over the next 12 months or after.

~~Off-Balance Sheet Arrangements~~

~~Guarantees and Indemnification Obligations~~

In connection with dealership dispositions and facility relocations, certain of our subsidiaries have assigned or sublet to the buyer their interests in real property leases associated with such dealerships or facilities. In general, the subsidiaries retain responsibility for the performance of certain obligations under such leases, including rent payments and repairs to leased property upon termination of the lease, to the extent that the assignee or sublessee does not perform. In the event an assignee or a sublessee does not perform its obligations, we remain liable for such obligations.

~~SONIC AUTOMOTIVE, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

In accordance with the terms of agreements entered into for the sale of our dealerships, we generally agree to indemnify the buyer from certain liabilities and costs arising subsequent to the date of sale, including environmental exposure and exposure resulting from the breach of representations or warranties made in accordance with the agreements. While our exposure with respect to environmental remediation and repairs is difficult to quantify, our maximum exposure associated with these general indemnifications was approximately $4.0 million and $25.0 million at June 30, 2021 and December 31, 2020, respectively. These indemnifications typically expire within a period of one to three years following the date of sale. The estimated fair value of these indemnifications was not material and the amount recorded for this contingency was not significant at June 30, 2021.

~~We also guarantee the floor plan commitments of our 50%-owned joint venture, the amount of which was approximately $4.3 million at both June 30, 2021 and December 31, 2020.~~

See Note 7, “Commitments and Contingencies,” to the accompanying unaudited condensed consolidated financial statements and Note 12, “Commitments and Contingencies,” to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2020 for further discussion regarding these guarantees and indemnification obligations.

Seasonality

Our operations are subject to seasonal variations. The first quarter historically has contributed less operating profit than the second and third quarters, while the fourth quarter historically has contributed the highest operating profit of any quarter. Weather conditions and the timing of manufacturer incentive programs and model changeovers cause seasonality and may adversely affect vehicle demand and, consequently, our profitability. Comparatively, parts and service demand has historically remained stable throughout the year.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Off-Balance Sheet Arrangements

Guarantees and Indemnification Obligations

In connection with the operation and disposition of our dealerships, we have entered into various guarantees and indemnification obligations. When we sell dealerships, we attempt to assign any related lease to the buyer of the dealership to eliminate any future liability. However, if we are unable to assign the related leases to the buyer, we will attempt to sublease the leased properties to the buyer at a rate equal to the terms of the original leases. In the event we are unable to sublease the properties to the buyer with terms at least equal to our leases, we may be required to record lease exit accruals. As of March 31, 2022, our future gross minimum lease payments related to properties subleased to buyers of sold dealerships totaled approximately $14.5 million. Future sublease payments expected to be received related to these lease payments were approximately $14.4 million at March 31, 2022.

We also guarantee the floor plan commitments of our 50%-owned joint venture, and the amount of such guarantee was approximately $4.3 million at both March 31, 2022 and December 31, 2021. We expect the aggregate amount of the obligations we guarantee to fluctuate based on dealership disposition activity. Although we seek to mitigate our exposure in connection with these matters, these guarantees and indemnification obligations, including environmental exposures and the financial performance of lease assignees and sublessees, cannot be predicted with certainty. An unfavorable resolution of one or more of these matters could have a material adverse effect on our liquidity and capital resources.

See Note 7, “Commitments and Contingencies,” to the accompanying unaudited condensed consolidated financial statements and Note 12, “Commitments and Contingencies,” to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2021 for further discussion regarding these guarantees and indemnification obligations and legal proceedings.

SONIC AUTOMOTIVE, INC.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Interest Rate Risk

Our variable rate floor plan facilities, the 2021 Revolving Credit Facility, the 2019 Mortgage Facility ~~the 2020 Line of Credit Facility~~ and our other variable rate notes expose us to risks caused by fluctuations in the applicable interest rates. The total outstanding balance of such variable instruments, after considering the effect of ~~our interest rate caps (see below),~~outstanding cash flow hedge instruments, was approximately ~~$997.1 million~~$1.2 billion at ~~June 30, 2021. An increase in interest rates~~March 31, 2022. A change of 100 basis points in the underlying interest rate would have caused a change in interest expense of approximately ~~$14.8~~$7.9 million in the ~~six~~three months ended ~~June 30, 2021.~~March 31, 2022. Of the total change in interest expense, approximately ~~$13.5~~$7.4 million would have resulted from our floor plan facilities.

In addition to our variable rate debt, certain of our dealership lease facilities have monthly lease payments that fluctuate based on LIBOR interest rates. An increase in interest rates of 100 basis points would not have had a significant impact on rent expense in the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 due to the leases containing LIBOR floors which were above the LIBOR rate during the ~~six~~three months ended ~~June 30,~~March 31, 2022.

We also have interest rate cap agreements designated as hedging instruments to limit our exposure to increases in LIBOR rates above certain levels. Under the terms of these interest rate cap agreements, interest rates reset monthly. The fair value of the outstanding interest rate cap positions at March 31, 2022 was not material to the accompanying unaudited condensed consolidated balance sheet as of such date. The fair value of the outstanding interest rate cap positions at December 31, 2021 was not material to the accompanying unaudited condensed consolidated balance sheet as of such date. See “Item 7A. Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K for the year ended December 31, 2021.

Foreign Currency Risk

We purchase certain of our new vehicle and parts inventories from foreign manufacturers. Although we purchase our inventories in U.S. Dollars, our business is subject to foreign exchange rate risk that may influence automobile manufacturers’ ability to provide their products at competitive prices in the U.S. To the extent that we cannot recapture this exchange rate volatility in prices charged to customers or if this volatility negatively impacts consumer demand for our products, this volatility could adversely affect our future operating results.

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Item 4. Controls and Procedures.

Disclosure Controls and Procedures – Under the supervision and with the participation of our management, including our Chief Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”), we evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended ~~(the “Exchange Act”))~~ as of ~~June 30, 2021.~~March 31, 2022. Based upon that evaluation, our CEO and our CFO concluded that our disclosure controls and procedures were effective as of ~~June 30, 2021.~~March 31, 2022.

Changes in Internal Control ~~over~~Over Financial Reporting – There were no changes in our internal control over financial reporting during the quarter ended ~~June 30, 2021,~~March 31, 2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Because of its inherent limitations, internal control over financial reporting can provide only reasonable assurance that the objectives of the control system are met and may not prevent or detect misstatements. In addition, any evaluation of the effectiveness of internal control over financial reporting in future periods is subject to risk that those internal controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

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PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

For information regarding legal proceedings, see the discussion under the heading “Legal and Other Proceedings” in Note 7, “Commitments and Contingencies,” to the accompanying unaudited condensed consolidated financial statements.

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Item 1A. Risk Factors.

There have been no material changes in our risk factors from those included in “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2020, except as noted below.~~2021.

Our Amended and Restated Certificate of Incorporation and our Amended and Restated Bylaws designate the state and federal courts of Delaware as the exclusive forums for certain claims against the Company which could increase the costs of bringing a claim or limit the ability of a stockholder to bring a claim in a judicial forum viewed by a stockholder as favorable.

Our Amended and Restated Certificate of Incorporation and our Amended and Restated Bylaws provide that the Court of Chancery of the State of Delaware is the sole and exclusive forum for claims for (1) any derivative action or proceeding brought on behalf of Sonic (other than derivative actions brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder); (2) any action asserting a claim of a breach of, or based on, a fiduciary duty owed by any current or former director, officer or other employee of Sonic to Sonic or Sonic’s stockholders; (3) any action asserting a claim against Sonic or any current or former director, officer, or other employee or stockholder of Sonic arising pursuant to any provision of the Delaware General Corporation Law, our Amended and Restated Certificate of Incorporation or our Amended and Restated Bylaws; or (4) any action asserting a claim against Sonic governed by the internal affairs doctrine of the State of Delaware. Our Amended and Restated Certificate of Incorporation and our Amended and Restated Bylaws also provide that, unless the Board otherwise consents in writing, to the extent permitted by applicable law, the United States District Court for the District of Delaware shall be the sole and exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act of 1933, as amended (the “Securities Act”), the Exchange Act or any ancillary claims related thereto which are subject to the ancillary jurisdiction of the federal courts.

The exclusive forum provisions of our Amended and Restated Certificate of Incorporation and our Amended and Restated Bylaws may increase the costs to bring a claim, discourage claims or limit a stockholder’s ability to bring a claim in a judicial forum that he, she or it finds favorable for disputes with the Company or the Company’s directors, officers or other employees. Such provisions may also discourage lawsuits against the Company or the Company’s directors, officers and other employees. The Delaware courts or the United States District Court for the District of Delaware may also reach different judgments or results than would other courts, including courts where a stockholder considering an action may be located or would otherwise choose to bring the action, and such judgments may be more or less favorable to us than to our stockholders.

While the Delaware Supreme Court ruled in March 2020 that federal forum selection provisions requiring claims under the Securities Act be brought in federal court are “facially valid” under Delaware law, there is uncertainty as to whether courts in other jurisdictions will enforce provisions such as those contemplated in our Amended and Restated Certificate of Incorporation and our Amended and Restated Bylaws, including whether a court would enforce the provision requiring claims arising under the Securities Act or the Exchange Act to be brought in the United States District Court for the District of Delaware. If the exclusive forum provisions of our Amended and Restated Certificate of Incorporation and our Amended and Restated Bylaws are found to be unenforceable in a particular action, we or a stockholder may incur additional costs associated with resolving such an action or the validity of the exclusive forum clause on appeal.

6147

SONIC AUTOMOTIVE, INC.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

The following table sets forth information about the shares of Class A Common Stock we repurchased during the three months ended ~~June 30, 2021.~~March 31, 2022.

Issuer Purchases of Equity Securities
Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (1)
(In thousands, except per share data)
April 2021 928 $ 49.34 45,788 $ 277,261
May 2021 — $ — — $ —
June 2021 — $ — — $ —
Total 928 45,788


Issuer Purchases of Equity Securities
	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (1)
	(In millions, except shares and per share data)
January 2022	366,773	$	48.23	366,773	$	208,632
February 2022	133,369	$	49.75	133,369	$	202,016
March 2022	191,781	$	46.78	191,781	$	192,543
Total	691,923			691,923

(1)On July 31, 2020 and April 29, 2021, we announced that our Board of Directors had increased the dollar amount authorized for us to repurchase shares of our Class A Common Stock pursuant to our share repurchase program. Our share repurchase program does not have an expiration date and current remaining availability under the program is as follows:


	(In ~~thousands)~~millions)
July 2020 authorization	$	60,000
April 2021 authorization	250,000
Total active program repurchases prior to ~~June 30, 2021~~March 31, 2022	~~(32,700)~~(117,457)
Current remaining availability as of ~~June 30, 2021~~March 31, 2022	$	~~277,300~~192,543

Subsequent to March 31, 2021, we repurchased an additional 1.0 million shares of Class A Common Stock at an average price of $42.40, resulting in current remaining availability of approximately $150.0 million. See “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” for additional

discussion of restrictions on share repurchases and payment of dividends.

6248

SONIC AUTOMOTIVE, INC.

Item 6. Exhibits.


Exhibit No.						Description


3.1						Amended and Restated Certificate of Incorporation of Sonic Automotive, Inc., dated August 7, 1997 (incorporated by reference to Exhibit 3.1 to the Annual Report on Form ~~10-~~K 10-K for the year ended December 31, 20 20 2020 (File No. 001-13395)).
3.2						Certificate of Designation, Preferences and Rights of Class A Convertible Preferred Stock, dated March 20, 1998 (incorporated by reference to Exhibit 3.2 to the Quarterly Report on Form 10-Q for the quarter ended March 31, 2017 (File No. 001-13395)).
3.3						Certificate of Amendment to the Amended and Restated Certificate of Incorporation of Sonic Automotive, Inc., dated June 16, 1999 (incorporated by reference to Exhibit 3.3 to the Quarterly Report on Form 10-Q for the quarter ended March 31, 2017 (File No. 001-13395)).
3.4						Certificate of Amendment to the Amended and Restated Certificate of Incorporation of Sonic Automotive, Inc., dated April 18, 2017 (incorporated by reference to Exhibit 3.4 to the Quarterly Report on Form 10-Q for the quarter ended March 31, 2017 (File No. 001-13395)).
3.5						Certificate of Amendment to the Amended and Restated Certificate of Incorporation of Sonic Automotive, Inc., dated May 3, 2021 (incorporated by reference to Exhibit 4.4 to the Registration Statement on Form S-8 filed June 8, 2021 (File No. 333-256891)).
3.6						Amended and Restated Bylaws of Sonic Automotive, Inc., dated February 10, 2021 ~~(incorporated~~(incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed February 12, 2021 (File No. 001-13395)).












~~10.1~~10.1*						Sonic Automotive, Inc. 2012 Stock Incentive Plan ~~amended~~Restricted Unit Award Agreement for Retention Grant, dated February 9, 2022, between Sonic Automotive, Inc. and ~~restated as of February 10, 2021 (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed May 3, 2021 (File No. 001-13395)).~~Heath R. Byrd. (1)
~~10.2~~						Fifth Amended, Restated and Consolidated Credit Agreement, dated as of April 14, 2021, among Sonic Automotive, Inc.; the subsidiaries of Sonic Automotive, Inc. named therein; each lender a party thereto; Bank of America, N.A., as administrative agent, revolving swing line lender, new vehicle swing line lender, used vehicle swing line lender and an l/c issuer. (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed April 20, 2021 (File No. 001-13395)).
~~10.3~~						Form of Promissory Note, dated April 14, 2021, executed by Sonic Automotive, Inc., as borrower, in favor of each of the lenders to the Fifth Amended, Restated and Consolidated Credit Agreement. (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed April 20, 2021 (File No. 001-13395)).
~~10.4~~						Fourth Amended and Restated Company Guaranty Agreement, dated as of April 14, 2021, by Sonic Automotive, Inc. to Bank of America, N.A., as administrative agent for each of the lenders. (incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K filed April 20, 2021 (File No. 001-13395)).
~~10.5~~						Fifth Amended, Restated and Consolidated Subsidiary Guaranty Agreement, dated as of April 14, 2021, by the subsidiaries of Sonic Automotive, Inc. named therein, as guarantors, to Bank of America, N.A., as administrative agent for each of the lenders. (incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K filed April 20, 2021 (File No. 001-13395)).
~~10.6~~						Fifth Amended and Restated Securities Pledge Agreement, dated as of April 14, 2021, among Sonic Automotive, Inc., the subsidiaries of Sonic Automotive, Inc. named therein and Bank of America, N.A., as administrative agent for the lenders. (incorporated by reference to Exhibit 10.5 to the Current Report on Form 8-K filed April 20, 2021 (File No. 001-13395)).
~~10.7~~						Fifth Amended and Restated Escrow and Security Agreement, dated as of April 14, 2021, among Sonic Automotive, Inc., the subsidiaries of Sonic Automotive, Inc. named therein and Bank of America, N.A., as administrative agent for each of the lenders. (incorporated by reference to Exhibit 10.6 to the Current Report on Form 8-K filed April 20, 2021 (File No. 001-13395)).
~~10.8~~						Fifth Amended and Restated Security Agreement, dated as of April 14, 2021, among Sonic Automotive, Inc., the subsidiaries of Sonic Automotive, Inc. named therein and Bank of America, N.A., as administrative agent for each of the lenders. (incorporated by reference to Exhibit 10.7 to the Current Report on Form 8-K filed April 20, 2021 (File No. 001-13395)).
31.1*						Certification of Principal Financial Officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*						Certification of Principal Executive Officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**						Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2**						Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS*						Inline XBRL Instance Document.
101.SCH*						Inline XBRL Taxonomy Extension Schema Document.
101.CAL*						Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*						Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*						Inline XBRL Taxonomy Extension Label Linkbase Document.

~~SONIC AUTOMOTIVE, INC.~~


101.PRE*						Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104*						Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

_______________________________

*Filed herewith.

**Furnished herewith.

(1)Indicates a management contract or compensatory plan or arrangement.

6449

SONIC AUTOMOTIVE, INC.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	SONIC AUTOMOTIVE, INC.

~~July 29, 2021~~April 28, 2022	By:	/s/ DAVID BRUTON SMITH
		David Bruton Smith
		Chief Executive Officer

~~July 29, 2021~~April 28, 2022	By:	/s/ HEATH R. BYRD
		Heath R. Byrd
		Executive Vice President and Chief Financial Officer

6550


		Page
PART I – FINANCIAL INFORMATION		1
Item 1.	Financial Statements (Unaudited)	1
	Condensed Consolidated Statements of Operations	1
	Condensed Consolidated Statements of Comprehensive Operations	2
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Stockholders’ Equity	4
	Condensed Consolidated Statements of Cash Flows	65
	Notes to Unaudited Condensed Consolidated Financial Statements	76
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1716
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	5844
Item 4.	Controls and Procedures	5945
PART II – OTHER INFORMATION		6046
Item 1.	Legal Proceedings	6046
Item 1A.	Risk Factors	6147
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	6248
Item 6.	Exhibits	6349
SIGNATURES		6550


	Three Months Ended June 30, 2021						Three Months Ended June 30, 2020
(Amounts are before the effect of income taxes, except tax items)	Franchised Dealerships Segment		EchoPark Segment		Total		Franchised Dealerships Segment		EchoPark Segment		Total		Operations Statement Line Impacted
	(In thousands)




Impairment charges	$	—	$	—	$	—	$	(833)	$	—	$	(833)	Impairment charges

Non-recurring tax benefit	$	—	$	—	$	—	$	3,175	$	—	$	3,175	Income taxes



	Six Months Ended June 30, 2021						Six Months Ended June 30, 2020
(Amounts are before the effect of income taxes, except tax items)	Franchised Dealerships Segment		EchoPark Segment		Total		Franchised Dealerships Segment		EchoPark Segment		Total		Operations Statement Line Impacted
	(In thousands)




Impairment charges	$	—	$	—	$	—	$	(268,833)	$	—	$	(268,833)	Impairment charges

Non-recurring tax benefit	$	—	$	—	$	—	$	54,470	$	—	$	54,470	Income taxes