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 ~~September~~June 30, ~~2021~~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 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 ~~October 25, 2021,~~July 26, 2022, there were ~~29,225,197~~27,236,398 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 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 herein) 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 U.S. Securities and Exchange Commission.

SONIC AUTOMOTIVE, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE THREE AND ~~NINE~~SIX MONTHS ENDED ~~SEPTEMBER~~JUNE 30, ~~2021~~2022

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

SONIC AUTOMOTIVE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
(Dollars and shares in thousands, except per share amounts)
Revenues:
New vehicles $ 1,146,922 $ 1,098,302 $ 3,766,133 $ 2,957,794
Used vehicles 1,309,492 946,028 3,666,286 2,604,957
Wholesale vehicles 97,087 56,502 256,701 138,221
Total vehicles 2,553,501 2,100,832 7,689,120 5,700,972
Parts, service and collision repair 355,227 320,929 1,036,736 914,667
Finance, insurance and other, net 164,084 126,784 486,000 352,848
Total revenues 3,072,812 2,548,545 9,211,856 6,968,487
Cost of sales:
New vehicles (1,031,476) (1,035,624) (3,462,795) (2,804,314)
Used vehicles (1,289,772) (917,993) (3,580,944) (2,517,421)
Wholesale vehicles (95,832) (53,958) (250,072) (136,260)
Total vehicles (2,417,080) (2,007,575) (7,293,811) (5,457,995)
Parts, service and collision repair (183,713) (164,403) (534,325) (475,964)
Total cost of sales (2,600,793) (2,171,978) (7,828,136) (5,933,959)
Gross profit 472,019 376,567 1,383,720 1,034,528
Selling, general and administrative expenses (321,373) (257,174) (931,349) (769,688)
Impairment charges — (26) — (268,859)
Depreciation and amortization (25,239) (22,934) (73,687) (67,879)
Operating income (loss) 125,407 96,433 378,684 (71,898)
Other income (expense):
Interest expense, floor plan (3,340) (4,999) (12,781) (21,821)
Interest expense, other, net (9,817) (10,762) (30,180) (31,523)
Other income (expense), net — 1 100 100
Total other income (expense) (13,157) (15,760) (42,861) (53,244)
Income (loss) from continuing operations before taxes 112,250 80,673 335,823 (125,142)
Provision for income taxes for continuing operations - benefit (expense) (27,559) (20,685) (83,452) 16,995
Income (loss) from continuing operations 84,691 59,988 252,371 (108,147)
Discontinued operations:
Income (loss) from discontinued operations before taxes (275) (234) 241 (808)
Provision for income taxes for discontinued operations - benefit (expense) 69 64 (60) 231
Income (loss) from discontinued operations (206) (170) 181 (577)
Net income (loss) $ 84,485 $ 59,818 $ 252,552 $ (108,724)
Basic earnings (loss) per common share:
Earnings (loss) per share from continuing operations $ 2.04 $ 1.41 $ 6.07 $ (2.53)
Earnings (loss) per share from discontinued operations (0.01) — 0.01 (0.02)
Earnings (loss) per common share $ 2.03 $ 1.41 $ 6.08 $ (2.55)
Weighted-average common shares outstanding 41,561 42,510 41,561 42,687
Diluted earnings (loss) per common share:
Earnings (loss) per share from continuing operations $ 1.96 $ 1.35 $ 5.81 $ (2.53)
Earnings (loss) per share from discontinued operations (0.01) (0.01) 0.01 (0.02)
Earnings (loss) per common share $ 1.95 $ 1.34 $ 5.82 $ (2.55)
Weighted-average common shares outstanding 43,285 44,577 43,416 42,687


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
	(Dollars and shares in millions, except per share amounts)
Revenues:
Retail new vehicles	$	1,344.3	$	1,453.2	$	2,695.6	$	2,587.2
Fleet new vehicles	166.4		9.7		315.0		32.0
Total new vehicles	1,510.7		1,462.9		3,010.6		2,619.2
Used vehicles	1,449.4		1,281.2		2,820.2		2,384.1
Wholesale vehicles	121.4		84.8		290.2		159.6
Total vehicles	3,081.5		2,828.9		6,121.0		5,162.9
Parts, service and collision repair	398.1		346.1		778.7		654.2
Finance, insurance and other, net	173.2		177.2		339.7		321.9
Total revenues	3,652.8		3,352.2		7,239.4		6,139.0
Cost of sales:
Retail new vehicles	(1,176.0)		(1,335.1)		(2,359.6)		(2,399.9)
Fleet new vehicles	(165.5)		(9.4)		(313.2)		(31.4)
Total new vehicles	(1,341.5)		(1,344.5)		(2,672.8)		(2,431.3)
Used vehicles	(1,402.3)		(1,246.1)		(2,725.0)		(2,318.4)
Wholesale vehicles	(120.2)		(80.3)		(287.6)		(154.2)
Total vehicles	(2,864.0)		(2,670.9)		(5,685.4)		(4,903.9)
Parts, service and collision repair	(200.0)		(170.5)		(393.9)		(323.4)
Total cost of sales	(3,064.0)		(2,841.4)		(6,079.3)		(5,227.3)
Gross profit	588.8		510.8		1,160.1		911.7
Selling, general and administrative expenses	(402.8)		(320.6)		(789.8)		(610.0)

Depreciation and amortization	(31.2)		(24.8)		(61.1)		(48.4)
Operating income	154.8		165.4		309.2		253.3
Other income (expense):
Interest expense, floor plan	(6.1)		(4.3)		(11.1)		(9.4)
Interest expense, other, net	(21.3)		(10.1)		(42.1)		(20.4)
Other income (expense), net	(0.2)		—		0.1		0.1
Total other income (expense)	(27.6)		(14.4)		(53.1)		(29.7)
Income from continuing operations before taxes	127.2		151.0		256.1		223.6
Provision for income taxes for continuing operations - benefit (expense)	(32.4)		(37.0)		(64.0)		(55.9)
Income from continuing operations	94.8		114.0		192.1		167.7
Discontinued operations:
Income (loss) from discontinued operations before taxes	—		(0.2)		—		0.5
Provision for income taxes for discontinued operations - benefit (expense)	—		—		—		(0.1)
Income (loss) from discontinued operations	—		(0.2)		—		0.4
Net income	$	94.8	$	113.8	$	192.1	$	168.1
Basic earnings per common share:
Earnings per share from continuing operations	$	2.40	$	2.74	$	4.81	$	4.03
Earnings per share from discontinued operations	—		—		—		0.01
Earnings per common share	$	2.40	$	2.74	$	4.81	$	4.04
Weighted-average common shares outstanding	39.5		41.6		40.0		41.6
Diluted earnings per common share:
Earnings per share from continuing operations	$	2.34	$	2.63	$	4.67	$	3.86
Earnings per share from discontinued operations	—		—		—		0.01
Earnings per common share	$	2.34	$	2.63	$	4.67	$	3.87
Weighted-average common shares outstanding	40.5		43.4		41.2		43.5

See notes to unaudited condensed consolidated financial statements.

SONIC AUTOMOTIVE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE OPERATIONS

(Unaudited)


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2021		2020		2021		2020			2022		2021		2022		2021
		(Dollars in thousands)									(Dollars in millions)
Net income (loss)		$	84,485	$	59,818	$	252,552	$	(108,724)
Net income										Net income	$	94.8	$	113.8	$	192.1	$	168.1
Other comprehensive income (loss) before taxes:	Other comprehensive income (loss) before taxes:									Other comprehensive income (loss) before taxes:
Change in fair value and amortization of interest rate cap agreements	Change in fair value and amortization of interest rate cap agreements	297		296		1,178		1,076		Change in fair value and amortization of interest rate cap agreements	0.4		0.5		0.7		0.9
Amortization of terminated interest rate swap agreements		—		(280)		—		(1,912)

Total other comprehensive income (loss) before taxes	Total other comprehensive income (loss) before taxes	297		16		1,178		(836)		Total other comprehensive income (loss) before taxes	0.4		0.5		0.7		0.9
Provision for income tax benefit (expense) related to components of other comprehensive income (loss)	Provision for income tax benefit (expense) related to components of other comprehensive income (loss)	(78)		9		(369)		334		Provision for income tax benefit (expense) related to components of other comprehensive income (loss)	(0.1)		(0.1)		(0.2)		(0.3)
Other comprehensive income (loss)	Other comprehensive income (loss)	219		25		809		(502)		Other comprehensive income (loss)	0.3		0.4		0.5		0.6
Comprehensive income (loss)		$	84,704	$	59,843	$	253,361	$	(109,226)
Comprehensive income										Comprehensive income	$	95.1	$	114.2	$	192.6	$	168.7

See notes to unaudited condensed consolidated financial statements.

SONIC AUTOMOTIVE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

September 30, 2021 December 31, 2020
(Dollars in thousands)
ASSETS
Current Assets:
Cash and cash equivalents $ 220,082 $ 170,313
Receivables, net 278,008 371,666
Inventories 850,469 1,247,254
Other current assets 123,404 93,334
Total current assets 1,471,963 1,882,567
Property and Equipment, net 1,232,236 1,120,526
Goodwill 237,575 213,977
Other Intangible Assets, net 77,500 64,300
Operating Right-of-Use Lease Assets 313,425 330,322
Finance Right-of-Use Lease Assets 84,267 60,121
Other Assets 88,997 74,180
Total Assets $ 3,505,963 $ 3,745,993
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Notes payable - floor plan - trade $ 28,605 $ 585,225
Notes payable - floor plan - non-trade 867,152 739,019
Trade accounts payable 105,181 105,098
Operating short-term lease liabilities 39,684 42,339
Finance short-term lease liabilities 35,684 3,515
Accrued interest 3,431 8,496
Other accrued liabilities 295,282 279,477
Current maturities of long-term debt 53,383 68,244
Total current liabilities 1,428,402 1,831,413
Long-Term Debt 637,774 651,823
Other Long-Term Liabilities 96,420 88,753
Operating Long-Term Lease Liabilities 278,315 296,564
Finance Long-Term Lease Liabilities 59,303 62,290
Deferred Income Taxes — 345
Commitments and Contingencies 0 0
Stockholders’ Equity:
Class A Convertible Preferred Stock, none issued — —
Class A Common Stock, $0.01 par value; 100,000,000 shares authorized; 66,493,317 shares issued and 29,225,197 shares outstanding at September 30, 2021; 65,607,628 shares issued and 29,797,727 shares outstanding at December 31, 2020 665 656
Class B Common Stock, $0.01 par value; 30,000,000 shares authorized; 12,029,375 shares issued and outstanding at September 30, 2021 and December 31, 2020 121 121
Paid-in capital 786,258 767,599
Retained earnings 960,238 721,770
Accumulated other comprehensive income (loss) (2,807) (3,616)
Treasury stock, at cost; 37,268,120 Class A Common Stock shares held at September 30, 2021 and 35,809,901 Class A Common Stock shares held at December 31, 2020 (738,726) (671,725)
Total Stockholders’ Equity 1,005,749 814,805
Total Liabilities and Stockholders’ Equity $ 3,505,963 $ 3,745,993


	June 30, 2022		December 31, 2021
	(Dollars in millions)
ASSETS
Current Assets:
Cash and cash equivalents	$	327.1	$	299.4
Receivables, net	345.9		401.1
Inventories	1,240.4		1,261.2
Other current assets	157.5		122.4
Total current assets	2,070.9		2,084.1
Property and Equipment, net	1,491.6		1,458.8
Goodwill	423.5		416.4
Other Intangible Assets, net	486.6		480.2
Operating Right-of-Use Lease Assets	276.5		293.2
Finance Right-of-Use Lease Assets	211.4		179.9
Other Assets	63.0		62.5
Total Assets	$	5,023.5	$	4,975.1

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Notes payable - floor plan - trade	$	77.5	$	89.8
Notes payable - floor plan - non-trade	1,153.7		1,178.6
Trade accounts payable	134.6		133.3
Operating short-term lease liabilities	36.4		36.2
Finance short-term lease liabilities	54.2		52.7

Other accrued liabilities	350.2		350.5
Current maturities of long-term debt	76.5		50.6
Total current liabilities	1,883.1		1,891.7
Long-Term Debt	1,462.0		1,510.7
Other Long-Term Liabilities	92.5		96.0
Operating Long-Term Lease Liabilities	247.3		264.8
Finance Long-Term Lease Liabilities	168.6		135.5

Commitments and Contingencies	0		0
Stockholders’ Equity:
Class A Convertible Preferred Stock, none issued	—		—
Class A Common Stock, $0.01 par value; 100,000,000 shares authorized; 67,134,072 shares issued and 27,236,398 shares outstanding at June 30, 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 June 30, 2022 and December 31, 2021	0.1		0.1
Paid-in capital	804.6		790.2
Retained earnings	1,223.5		1,051.7
Accumulated other comprehensive income (loss)	(0.8)		(1.3)
Treasury stock, at cost; 39,897,674 Class A Common Stock shares held at June 30, 2022 and 37,808,540 Class A Common Stock shares held at December 31, 2021	(858.1)		(765.0)
Total Stockholders’ Equity	1,170.0		1,076.4
Total Liabilities and Stockholders’ Equity	$	5,023.5	$	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 June 30, 2020 65,604 $ 656 (34,638) $ (627,812) 12,029 $ 121 $ 761,293 $ 613,033 $ (2,589) $ 744,702
Shares awarded under stock compensation plans 4 — — — — — (1) — — (1)
Purchases of treasury stock — — (784) (29,285) — — — — — (29,285)
Effect of cash flow hedge instruments, including tax benefit of $9 — — — — — — — — 25 25
Restricted stock amortization — — — — — — 3,154 — — 3,154
Net income (loss) — — — — — — — 59,818 — 59,818
Class A dividends declared ($0.10) — — — — — — — (3,108) — (3,108)
Class B dividends declared ($0.10) — — — — — — — (1,203) — (1,203)
Balance at September 30, 2020 65,608 $ 656 (35,422) $ (657,097) 12,029 $ 121 $ 764,446 $ 668,540 $ (2,564) $ 774,102


	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 March 31, 2021	66.0	$	0.7	(36.8)	$	(713.9)	12.0	$	0.1	$	771.1	$	771.9	$	(3.4)	$	826.5
Shares awarded under stock compensation plans	0.4	—		—	—		—	—		6.8		—		—		6.8
Purchases of treasury stock	—	—		—	—		—	—		—		—		—		—
Effect of cash flow hedge instruments, net of tax expense of $0.1	—	—		—	—		—	—		—		—		0.4		0.4
Restricted stock amortization and stock option amortization	—	—		—	—		—	—		3.9		—		—		3.9
Net income	—	—		—	—		—	—		—		113.8		—		113.8

Class A dividends declared ($0.12 per share)	—	—		—	—		—	—		—		(3.6)		—		(3.6)
Class B dividends declared ($0.12 per share)	—	—		—	—		—	—		—		(1.4)		—		(1.4)
Balance at June 30, 2021	66.4	$	0.7	(36.8)	$	(713.9)	12.0	$	0.1	$	781.8	$	880.7	$	(3.0)	$	946.4

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 June 30, 2021 66,449 $ 664 (36,768) $ (713,938) 12,029 $ 121 $ 781,829 $ 880,704 $ (3,026) $ 946,354
Shares awarded under stock compensation plans 44 1 — — — — 749 — — 750
Purchases of treasury stock — — (500) (24,788) — — — — — (24,788)
Effect of cash flow hedge instruments, net of tax expense of $78 — — — — — — — — 219 219
Restricted stock and stock option amortization — — — — — — 3,680 — — 3,680
Net income (loss) — — — — — — — 84,485 — 84,485
Class A dividends declared ($0.12) — — — — — — — (3,507) — (3,507)
Class B dividends declared ($0.12) — — — — — — — (1,444) — (1,444)
Balance at September 30, 2021 66,493 $ 665 (37,268) $ (738,726) 12,029 $ 121 $ 786,258 $ 960,238 $ (2,807) $ 1,005,749


	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 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
Shares awarded under stock compensation plans	0.1	—		—	—		—	—		0.9		—		—		0.9
Purchases of treasury stock	—	—		(1.4)	(59.4)		—	—		—		—		—		(59.4)
Effect of cash flow hedge instruments, net of tax expense of $0.1	—	—		—	—		—	—		—		—		0.3		0.3
Restricted stock amortization and stock option amortization	—	—		—	—		—	—		8.6		—		—		8.6
Net income	—	—		—	—		—	—		—		94.8		—		94.8

Class A dividends declared ($0.25 per share)	—	—		—	—		—	—		—		(7.2)		—		(7.2)
Class B dividends declared ($0.25 per share)	—	—		—	—		—	—		—		(3.0)		—		(3.0)
Balance at June 30, 2022	67.1	$	0.7	(39.9)	$	(858.1)	12.0	$	0.1	$	804.6	$	1,223.5	$	(0.8)	$	1,170.0

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 874 9 — — — — (9) — — —
Purchases of treasury stock — — (1,793) (57,093) — — — — — (57,093)
Effect of cash flow hedge instruments, net of tax benefit of $334 — — — — — — — — (502) (502)
Restricted stock amortization — — — — — — 8,551 — — 8,551
Net income (loss) — — — — — — — (108,724) — (108,724)
Class A dividends declared ($0.30) — — — — — — — (9,285) — (9,285)
Class B dividends declared ($0.30) — — — — — — — (3,609) — (3,609)
Balance at September 30, 2020 65,608 $ 656 (35,422) $ (657,097) 12,029 $ 121 $ 764,446 $ 668,540 $ (2,564) $ 774,102



	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	0.8	—		—	—		—	—		6.8		—		—		6.8
Purchases of treasury stock	—	—		(1.0)	(42.2)		—	—		—		—		—		(42.2)
Effect of cash flow hedge instruments, net of tax expense of $0.3	—	—		—	—		—	—		—		—		0.6		0.6
Restricted stock amortization and stock option amortization	—	—		—	—		—	—		7.5		—		—		7.5
Net income	—	—		—	—		—	—		—		168.1		—		168.1

Class A dividends declared ($0.22 per share)	—	—		—	—		—	—		—		(6.5)		—		(6.5)
Class B dividends declared ($0.22 per share)	—	—		—	—		—	—		—		(2.7)		—		(2.7)
Balance at June 30, 2021	66.4	$	0.7	(36.8)	$	(713.9)	12.0	$	0.1	$	781.8	$	880.7	$	(3.0)	$	946.4

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 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 885 9 — — — — 7,505 — — 7,514
Purchases of treasury stock — — (1,458) (67,001) — — — — — (67,001)
Effect of cash flow hedge instruments, net of tax expense of $369 — — — — — — — — 809 809
Restricted stock and stock option amortization — — — — — — 11,154 — — 11,154
Net income (loss) — — — — — — — 252,552 — 252,552
Class A dividends declared ($0.34) — — — — — — — (9,977) — (9,977)
Class B dividends declared ($0.34) — — — — — — — (4,107) — (4,107)
Balance at September 30, 2021 66,493 $ 665 (37,268) $ (738,726) 12,029 $ 121 $ 786,258 $ 960,238 $ (2,807) $ 1,005,749



	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	0.6	—		—	—		—	—		1.3		—		—		1.3
Purchases of treasury stock	—	—		(2.1)	(93.1)		—	—		—		—		—		(93.1)
Effect of cash flow hedge instruments, net of tax expense of $0.2	—	—		—	—		—	—		—		—		0.5		0.5
Restricted stock amortization and stock option amortization	—	—		—	—		—	—		13.1		—		—		13.1
Net income	—	—		—	—		—	—		—		192.1		—		192.1

Class A dividends declared ($0.37 per share)	—	—		—	—		—	—		—		(14.3)		—		(14.3)
Class B dividends declared ($0.37 per share)	—	—		—	—		—	—		—		(6.0)		—		(6.0)
Balance at June 30, 2022	67.1	$	0.7	(39.9)	$	(858.1)	12.0	$	0.1	$	804.6	$	1,223.5	$	(0.8)	$	1,170.0

See notes to unaudited condensed consolidated financial statements.

SONIC AUTOMOTIVE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


		Nine Months Ended September 30,					Six Months Ended June 30,
		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)		$	252,552	$	(108,724)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Net income						Net income	$	192.1	$	168.1
Adjustments to reconcile net income to net cash provided by (used in) operating activities:						Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization of property and equipment	Depreciation and amortization of property and equipment	69,069		65,474		Depreciation and amortization of property and equipment	55.2		45.4

Debt issuance cost amortization	Debt issuance cost amortization	2,343		2,016		Debt issuance cost amortization	2.3		1.7

Stock-based compensation expense	Stock-based compensation expense	11,154		8,551		Stock-based compensation expense	13.1		7.5
Deferred income taxes	Deferred income taxes	(8,928)		(62,950)		Deferred income taxes	(7.4)		(6.0)

Asset impairment charges		—		268,859

Other	Other	(1,246)		(515)		Other	(0.5)		(0.5)
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	93,255		145,280		Receivables	58.8		14.5
Inventories	Inventories	419,842		374,651		Inventories	29.8		240.2
Other assets	Other assets	(2,683)		(21,485)		Other assets	1.6		10.5
Notes payable - floor plan – trade	Notes payable - floor plan – trade	(556,620)		(317,745)		Notes payable - floor plan – trade	(12.3)		(552.4)
Trade accounts payable and other liabilities	Trade accounts payable and other liabilities	(12,354)		(80,416)		Trade accounts payable and other liabilities	(26.4)		36.4
Total adjustments	Total adjustments	13,832		381,720		Total adjustments	114.2		(202.7)
Net cash provided by operating activities		266,384		272,996
Net cash provided by (used in) operating activities						Net cash provided by (used in) operating activities	306.3		(34.6)
CASH FLOWS FROM INVESTING ACTIVITIES:	CASH FLOWS FROM INVESTING ACTIVITIES:					CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of businesses, net of cash acquired		(66,138)		—
Purchases of businesses, net of cash acquired						Purchases of businesses, net of cash acquired	(28.4)		(28.6)
Purchases of land, property and equipment	Purchases of land, property and equipment	(181,516)		(92,056)		Purchases of land, property and equipment	(100.4)		(105.1)
Proceeds from sales of property and equipment	Proceeds from sales of property and equipment	6,195		21,488		Proceeds from sales of property and equipment	10.0		0.7
Proceeds from sales of dealerships	Proceeds from sales of dealerships	3,872		8,806		Proceeds from sales of dealerships	—		3.8
Net cash used in investing activities	Net cash used in investing activities	(237,587)		(61,762)		Net cash used in investing activities	(118.8)		(129.2)
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	Net (repayments) borrowings on notes payable - floor plan - non-trade	128,133		(49,245)		Net (repayments) borrowings on notes payable - floor plan - non-trade	(24.9)		314.3
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		16,500		53,135

Debt issuance costs	Debt issuance costs	(4,775)		(2,115)		Debt issuance costs	(0.3)		(4.7)
Principal payments of long-term debt	Principal payments of long-term debt	(42,975)		(26,328)		Principal payments of long-term debt	(24.7)		(30.7)
Principal payments of long-term lease liabilities	Principal payments of long-term lease liabilities	(3,109)		(20,058)		Principal payments of long-term lease liabilities	(3.1)		(2.1)
Purchases of treasury stock	Purchases of treasury stock	(67,001)		(57,093)		Purchases of treasury stock	(93.1)		(42.2)

Issuance of shares under stock compensation plans	Issuance of shares under stock compensation plans	7,514		—		Issuance of shares under stock compensation plans	1.3		6.8
Dividends paid	Dividends paid	(13,315)		(12,894)		Dividends paid	(15.0)		(8.3)
Net cash provided by (used in) financing activities	Net cash provided by (used in) financing activities	20,972		(114,598)		Net cash provided by (used in) financing activities	(159.8)		233.1
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		49,769		96,636
NET INCREASE IN CASH AND CASH EQUIVALENTS						NET INCREASE IN CASH AND CASH EQUIVALENTS	27.7		69.3
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	$	220,082	$	125,739	CASH AND CASH EQUIVALENTS, END OF PERIOD	$	327.1	$	239.6

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 during the period for:						Cash paid during the period for:
Interest, including amount capitalized	Interest, including amount capitalized	$	46,025	$	56,912	Interest, including amount capitalized	$	52.6	$	29.6
Income taxes	Income taxes	$	85,773	$	51,455	Income taxes	$	59.0	$	54.4

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 ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021 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 U.S. 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 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.~~

~~Pending Acquisition~~ –On September 17, 2021, Sonic entered into an Agreement and Plan of Merger (the “Merger Agreement”) with RFJMS, Inc., a Delaware corporation and a direct, wholly owned subsidiary of Sonic (“Merger Sub”), RFJ Auto Partners, Inc., a Delaware corporation (“RFJ Auto”), and The Resolute Fund III, L.P., a Delaware limited partnership, solely in its capacity as the representative of RFJ Auto’s equityholders, pursuant to which Merger Sub will merge with and into RFJ Auto (the “Acquisition”), with RFJ Auto surviving the merger and becoming a direct, wholly owned subsidiary of Sonic. RFJ Auto is an automotive dealership platform based in Dallas, Texas. The Acquisition is expected to close in the fourth quarter of 2021.

Subject to the terms and conditions of the Merger Agreement and other customary adjustments set forth in the Merger Agreement, the purchase price payable by Sonic pursuant to the Merger Agreement is expected to be approximately $964.9 million comprising (1) approximately $576.1 million for the goodwill and other intangible assets and real estate assets of RFJ Auto and each of its subsidiaries, plus (2) approximately $136.5 million for property and equipment including real estate assets, plus (3) approximately $271.5 million for new and used vehicle inventories, plus (4) approximately $67.0 million for accounts receivable, minus (5) approximately $86.2 million related to liabilities assumed net of other miscellaneous assets. The value, and therefore the resulting purchase price, of RFJ Auto’s parts and accessories inventory, supplies, repair work-in-process and new and used vehicle inventories and other assets acquired or liabilities assumed by Sonic are all subject to change based on natural fluctuations in the business of RFJ Auto prior to the closing of the Acquisition and the foregoing amounts are management’s estimate based on currently available information. The Acquisition will be funded with the proceeds of the Company’s offering of the 2021 Notes (as defined below) (See Note 10, “Subsequent Events”) and borrowings on our floor plan credit facilities.

COVID-19 – The COVID-19 pandemic ~~began~~ negatively ~~impacting~~impacted the global economy beginning in the first quarter of ~~2020.~~2020 and continues to affect the global economy and supply chain. The impact on the economy has affected both consumer demand and the supply of manufactured goods, as many countries around the world and states and municipalities in the United States (the “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 resultboth of ~~the economic impacts of the COVID-19 pandemic.~~

This broader economic backdrop resulting from the COVID-19 pandemic had a direct impact on our business and operations beginning in March 2020 and continuing through the date of this report. 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 towhich continue to ~~conduct business so far, while adjusting operations to comply with state and~~

~~SONIC AUTOMOTIVE, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~local standards for safety and social distancing to promote the health and safety of~~impact our teammates and guests. As of September 30, 2021, most of such restrictions had been relaxed; however, 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 restrictions may be tightened again if conditions relating to the pandemic worsen as a result of variants.

business. The global automotive supply chain has been significantly disrupted ~~during~~since the onset of 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~~has operated for multiple years at lower than ~~expected~~usual production levels, reducing the amount of new vehicle inventory 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 a low new and used vehicle inventory and a high new and used vehicle pricing ~~environment. While we believe that inventory levels should improve in the first half of 2022, there is a risk that~~environment, which drove retail new vehicle unit sales volumes lower across the industry.

All of our store operations were impacted by the COVID-19 pandemic to varying degrees. State and ~~certain parts inventory levels remain at~~local governmental restrictions on consumer and business activity may be tightened again if conditions related to the pandemic worsen as a ~~low level or worsen, which could adversely impact our revenues and other financial results.~~result of future coronavirus variants.

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.

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

SONIC AUTOMOTIVE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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.

~~SONIC AUTOMOTIVE, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

The accompanying unaudited condensed consolidated balance sheets as of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020~~2021 include approximately ~~$27.5~~$27.6 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 ~~September~~June 30, ~~2021~~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 24.6% and 24.9% for the three and nine months ended September 30, 2021, respectively, and 25.6% and 13.6% for the three and nine months ended September 30, 2020, respectively. Income tax benefit for the nine months ended September 30, 2020 includes a $55.8 million benefit, including the effect of non-deductible amounts, related to the $268.0 million goodwill impairment charge related to adjustments in fair value of goodwill for the Franchised Dealerships Segment (as defined below). 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) ~~To the extent that we report a net loss in any period presented, basic and diluted loss per share are the same as there is no dilutive effect of outstanding stock awards in a net loss position.~~.

2. Business Acquisitions and Dispositions

We acquired 31 franchised dealership location during the six months ended June 30, 2022 for an aggregate gross purchase price (including inventory acquired and subsequently funded by floor plan notes payable) of approximately $20.9 million, including a $14.7 million impact of a post-close adjustment related to the acquisition of RFJ Auto Partners, Inc. completed in December 2021. The allocation of the roughly $6.2 million aggregate gross purchase price for the acquisition completed during the six months ended June 30, 2022 included inventory of approximately $3.1 million, property and equipment of approximately $0.1 million, franchise assets of approximately $2.5 million, and goodwill of approximately $0.5 million. We acquired 2 businesses to be included in our EchoPark segment ~~and 2 franchised dealership locations~~ during the ~~nine~~six months ended ~~September~~June 30, 2021 for an aggregate gross purchase price (including inventory acquired and subsequently funded by floor plan notes payable) of approximately ~~$66.1~~$28.6 million. The acquisitions purchase price for the nine months ended September 30, 2021 acquired inventory of $26.4 million, property and equipment of $1.7 million, franchise assets of $13.2 million and goodwill of $24.8 million.

We did not ~~acquire~~dispose of any businesses during the ~~nine~~six months ended ~~September~~June 30, ~~2020.~~

We2022. During the six months ended June 30, 2021, we disposed of 1 luxury franchised dealership, ~~during the nine months ended September 30, 2021 that~~which generated net cash from dispositions of approximately ~~$3.9~~$3.8 million. ~~We disposed~~

RFJ Acquisition

On December 6, 2021 (the “Closing Date”), Sonic completed the acquisition of ~~1 mid-line import franchised dealership~~RFJ Auto Partners, Inc. and ~~terminated 1 luxury franchised dealership~~its subsidiaries (collectively, “RFJ Auto”). On the Closing Date, RFJ Auto became a direct, wholly owned subsidiary of Sonic (the “RFJ Acquisition”). The aggregate consideration for the RFJ Acquisition purchase price was approximately $964.9 million, including a customary post-close adjustment of $14.7 million recognized during the ~~nine~~six months ended ~~September~~June 30, ~~2020 that generated net cash~~2022. The post-close adjustment in March 2022 consisted of ~~approximately $8.8~~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.

~~3. Inventories~~

~~Inventories consist~~For further discussion of the ~~following:~~
September 30, 2021 December 31, 2020
(In thousands)
New vehicles $ 135,659 $ 648,448
Used vehicles 547,145 413,209
Service loaners 105,404 128,531
Parts, accessories and other 62,261 57,066
Net inventories $ 850,469 $ 1,247,254

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 December 31, 2021.

SONIC AUTOMOTIVE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

3. Inventories

Inventories consist of the following:


	June 30, 2022		December 31, 2021
	(In millions)
New vehicles	$	321.5	$	273.1
Used vehicles	719.8		807.2
Service loaners	118.8		106.3
Parts, accessories and other	80.3		74.6
Net inventories	$	1,240.4	$	1,261.2

4. Property and Equipment

Property and equipment, net consists of the following:


		September 30, 2021		December 31, 2020			June 30, 2022		December 31, 2021
		(In thousands)					(In millions)
Land	Land	$	393,920	$	375,297	Land	$	451.2	$	447.4
Building and improvements		1,109,311		1,028,016
Buildings and improvements						Buildings and improvements	1,319.5		1,240.5
Furniture, fixtures and equipment	Furniture, fixtures and equipment	415,999		365,222		Furniture, fixtures and equipment	485.0		451.2
Construction in progress	Construction in progress	56,548		34,767		Construction in progress	37.9		68.1
Total, at cost	Total, at cost	1,975,778		1,803,302		Total, at cost	2,293.6		2,207.2
Less accumulated depreciation	Less accumulated depreciation	(737,250)		(673,082)		Less accumulated depreciation	(796.4)		(746.2)
Subtotal	Subtotal	1,238,528		1,130,220		Subtotal	1,497.2		1,461.0
Less assets held for sale (1)	Less assets held for sale (1)	(6,292)		(9,694)		Less assets held for sale (1)	(5.6)		(2.2)
Property and equipment, net	Property and equipment, net	$	1,232,236	$	1,120,526	Property and equipment, net	$	1,491.6	$	1,458.8

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

~~Capital~~In the three and six months ended June 30, 2022, capital expenditures were approximately ~~$60.0~~$41.6 million and ~~$165.1~~$100.4 million, respectively, and in the three and ~~nine~~six months ended ~~September~~June 30, 2021, ~~respectively, and~~capital expenditures were approximately ~~$30.3~~$37.4 million and ~~$92.0~~$105.1 million, ~~in the three and nine months ended September 30, 2020,~~ respectively. Capital expenditures in all periods were primarily related to real estate acquisitions, 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 ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020 consists~~2021 consist of real property not currently used in operations that we expect to dispose of in the next 12 months.

There were 0 fixed asset impairment charges for the six months ended June 30, 2022 and 2021.

5. Goodwill and Intangible Assets

The ~~carrying amount of goodwill was approximately $237.6 million and $214.0 million as of September 30, 2021 and December 31, 2020, respectively. The~~changes in the carrying amount of goodwill for ~~our franchised dealership reporting unit was approximately $158.1 million and $147.3 million as of September~~June 30, ~~2021~~2022 and December 31, ~~2020, respectively. The carrying amount of goodwill for our EchoPark reporting unit was approximately $79.5 million and $66.7 million~~2021 were as ~~of September 30, 2021 and December 31, 2020, respectively. The total carrying amount of goodwill is net~~follows:


	June 30, 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 September 30, 2021 and December 31, 2020.~~ $1.1 billion.

The carrying amount of indefinite lived franchise assets was approximately ~~$77.5~~$486.6 million and ~~$64.3~~$480.2 million as of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, 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. We did not record any impairment charges ~~for the~~ as of~~three and nine months ended September~~ June 30, 2022 or December 31, 2021.

109

SONIC AUTOMOTIVE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

6. Long-Term Debt

Long-term debt consists of the following:


		September 30, 2021		December 31, 2020			June 30, 2022		December 31, 2021
		(In thousands)					(In millions)
2021 Revolving Credit Facility (1)	2021 Revolving Credit Facility (1)	$	—	$	—	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)	92,724		100,906		2019 Mortgage Facility (2)	84.5		90.0
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%	217,504		212,135		Mortgage notes to finance companies - fixed rate, bearing interest from 2.05% to 7.03%	198.5		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	141,225		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	128.3		132.8

Subtotal	Subtotal	$	701,453	$	727,930	Subtotal	$	1,561.3	$	1,586.2
Debt issuance costs	Debt issuance costs	(10,296)		(7,863)		Debt issuance costs	(22.8)		(24.9)
Total debt	Total debt	691,157		720,067		Total debt	1,538.5		1,561.3
Less current maturities	Less current maturities	(53,383)		(68,244)		Less current maturities	(76.5)		(50.6)
Long-term debt	Long-term debt	$	637,774	$	651,823	Long-term debt	$	1,462.0	$	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 ~~September~~both June 30, ~~2021~~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 ~~September~~June 30, ~~2021~~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. 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 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 the applicable revolving borrowing base, and the 2021 Floor Plan Facilities 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 ~~New Vehicle~~ Floor Plan ~~Facility and the 2021 Used Vehicle Floor Plan Facility~~Facilities as the Company ~~requests)~~requests, with no more than 40% of the aggregate commitments allocated to the commitments under the used vehicle revolving floor plan facility); and (2) permit the issuance of the ~~2021~~4.625% Notes and the 4.875% Notes.

As amended, availability under the 2021 Revolving Credit Facility is calculated as the lesser of $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 Revolving Borrowing Base”). The 2021 Revolving Credit Facility may be increased at our option up to $400.0 million upon satisfaction of certain conditions. As of ~~September~~June 30, ~~2021,~~2022, the 2021 Revolving Borrowing Base was approximately ~~$236.3~~$281.8 million based on balances as of such date. As of ~~September~~June 30, ~~2021,~~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 ~~$224.0~~$269.3 million remaining borrowing availability under the 2021 Revolving Credit Facility.

The 2021 Floor Plan Facilities are composed 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”), in a combined amount of up to $2.6 billion. We may, under certain conditions, request an increase in the 2021 Floor Plan Facilities to a maximum borrowing limit of up to $2.85 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.

~~SONIC AUTOMOTIVE, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

Our obligations under the 2021 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 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. Specifically, the 2021 Credit Facilities permit quarterly

SONIC AUTOMOTIVE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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 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~~which will mature on November 15, 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 4.625% Notes were issued under an Indenture, dated as of October 27, 2021 (the ~~“6.125% Notes”~~“2029 Indenture”), by and among the Company, certain subsidiary guarantors named therein (collectively, the “Guarantors”) and U.S. Bank National Association, as trustee (the “trustee”). The ~~6.125%~~4.625% Notes ~~were~~are unconditionally guaranteed, jointly and severally, on a senior unsecured basis initially by all of ~~our~~the Company’s operating domestic subsidiaries. The non-domestic operating ~~subsidiaries. On October 28, 2021, we redeemed~~subsidiary that is not a guarantor is considered minor. Under certain circumstances set forth in the ~~6.125% Notes. The redemption price~~2029 Indenture, the guarantees of the ~~6.125% Notes was $263.2 million plus accrued interest. Accordingly, we expect~~certain subsidiaries of the ~~pre-tax loss~~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 ~~redemption~~4.625% Notes will be 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 ~~6.125% Notes to be approximately $13.2 million in the fourth quarter of 2021.~~

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 ~~2021~~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 ~~September~~June 30, ~~2021,~~2022, we had approximately ~~$92.7~~$84.5 million of outstanding borrowings under the 2019 Mortgage Facility, resulting in total remaining borrowing availability of approximately ~~$19.5~~$27.7 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.

SONIC AUTOMOTIVE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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.

Mortgage Notes to Finance Companies

As of ~~September~~June 30, ~~2021,~~2022, the weighted-average interest rate of our other outstanding mortgage notes (excluding the 2019 Mortgage Facility) was ~~3.47%~~4.14% and the total outstanding mortgage principal balance of these notes (excluding the 2019 Mortgage Facility) was approximately ~~$358.7~~$326.8 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. On October 1, 2021, Sonic terminated the 2020 Line of Credit Facility.0Covenants

~~SONIC AUTOMOTIVE, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~Covenants~~

We have agreed under the 2021 Credit Facilities and the 2019 Mortgage 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), including other lenders, subject to certain stated exceptions, including floor plan financing arrangements. In addition, the 2021 Credit Facilities and the 2019 Mortgage 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 ~~September~~June 30, ~~2021.~~2022. Financial covenants include required specified ratios (as each is defined in the 2021 Credit Facilities and the 2019 Mortgage 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
September 30, 2021 actual		1.19	2.58	1.28
June 30, 2022 actual					June 30, 2022 actual	1.27	2.62	2.17

The 2021 Credit Facilities and the 2019 Mortgage 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.

After giving effect to the applicable restrictions on the payment of dividends under our debt agreements, as of ~~September~~June 30, ~~2021,~~2022, we had approximately ~~$368.2~~$367.6 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 ~~September~~June 30, ~~2021.~~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 Credit Facilities and the 2019 Mortgage 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 ~~September~~June 30, ~~2021,~~2022, the ratio was ~~10.75~~13.03 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

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, we did not have any remaining exposure as of June 30, 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 June 30, 2022.

We also guarantee the floor plan commitments of our 50%-owned joint venture, and the amount of such guarantee at both June 30, 2022 and December 31, 2021 was approximately $4.3 million.

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 June 30, 2022 were approximately $1.6 million and $0.3 million, respectively, in reserves that Sonic was holding for pending proceedings. Included in other accrued liabilities and other long-term liabilities in the accompanying unaudited condensed consolidated balance sheet as of December 31, 2021 were approximately $1.5 million and $0.3 million, respectively, for such reserves. 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.

~~SONIC AUTOMOTIVE, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

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 the 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 September 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 September 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 September 30, 2021 and December 31, 2020.~~

8. Fair Value Measurements

Assets and liabilities recorded at fair value in the accompanying unaudited condensed consolidated balance sheets as of ~~September~~June 30, ~~2021~~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)
		September 30, 2021		December 31, 2020			June 30, 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)	$	38,805	$	35,739	Cash surrender value of life insurance policies (1)	$	37.2	$	39.5

Total assets	Total assets	$	38,805	$	35,739	Total assets	$	37.2	$	39.5

Liabilities:	Liabilities:					Liabilities:

Deferred compensation plan (2)	Deferred compensation plan (2)	$	24,068	$	20,685	Deferred compensation plan (2)	$	22.2	$	24.4
Total liabilities	Total liabilities	$	24,068	$	20,685	Total liabilities	$	22.2	$	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 no instances during the ~~nine~~six months ended ~~September~~June 30, ~~2021~~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 ~~September~~June 30, ~~2021~~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 ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the fair value and carrying value of Sonic’s significant fixed rate long-term debt were as follows:

September 30, 2021 December 31, 2020
Fair Value Carrying Value Fair Value Carrying Value
(In thousands)
6.125% Notes (1) $ 260,625 $ 250,000 $ 263,438 $ 250,000


	June 30, 2022				December 31, 2021
	Fair Value		Carrying Value		Fair Value		Carrying Value
	(In millions)

4.875% Notes (1)	$	376.3	$	500.0	$	504.8	$	500.0
4.625% Notes (1)	$	503.8	$	650.0	$	655.9	$	650.0

(1)As determined by market quotations from similar securities as of ~~September~~June 30, ~~2021~~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.

~~SONIC AUTOMOTIVE, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

9. Segment Information

As of ~~September~~June 30, ~~2021,~~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.

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.

Reportable segment financial information for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021 were as follows:
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
(In thousands)
Segment Revenues:
Franchised Dealerships Segment revenues:
New vehicles $ 1,143,416 $ 1,098,302 $ 3,761,718 $ 2,957,794
Used vehicles 750,263 615,565 2,173,322 1,718,151
Wholesale vehicles 64,052 48,526 183,212 119,474
Parts, service and collision repair 339,930 310,035 994,125 886,534
Finance, insurance and other, net 111,808 91,035 333,394 254,465
Franchised Dealerships Segment revenues $ 2,409,469 $ 2,163,463 $ 7,445,771 $ 5,936,418
EchoPark Segment revenues:
New vehicles $ 3,506 $ — $ 4,415 $ —
Used vehicles 559,229 330,463 1,492,964 886,806
Wholesale vehicles 33,035 7,976 73,489 18,747
Parts, service and collision repair 15,297 10,894 42,611 28,133
Finance, insurance and other, net 52,276 35,749 152,606 98,383
EchoPark Segment revenues $ 663,343 $ 385,082 $ 1,766,085 $ 1,032,069
Total consolidated revenues $ 3,072,812 $ 2,548,545 $ 9,211,856 $ 6,968,487

Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
(In thousands, except unit data)
Segment Income (Loss) (1):
Franchised Dealerships Segment (2) $ 145,137 $ 80,460 $ 381,094 $ 138,805
EchoPark Segment (32,887) 239 (45,271) 4,912
Total segment income (loss) $ 112,250 $ 80,699 $ 335,823 $ 143,717
Impairment charges (3) — (26) — (268,859)
Income (loss) from continuing operations before taxes $ 112,250 $ 80,673 $ 335,823 $ (125,142)


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
	(In millions)
Revenues:
Franchised Dealerships Segment revenues:
Retail new vehicles	$	1,341.7	$	1,452.3	$	2,687.4	$	2,586.3
Fleet new vehicles	166.5		9.7		315.0		32.0
Total new vehicles	$	1,508.2	$	1,462.0	$	3,002.4	$	2,618.3
Used vehicles	871.9		761.5		1,725.7		1,423.1
Wholesale vehicles	79.2		63.0		185.5		119.1
Parts, service and collision repair	398.1		346.1		778.7		654.2
Finance, insurance and other, net	129.8		124.0		256.2		221.6
Franchised Dealerships Segment revenues	$	2,987.2	$	2,756.6	$	5,948.5	$	5,036.3

EchoPark Segment revenues:
Retail new vehicles	$	2.5	$	0.9	$	8.2	$	0.9
Used vehicles	577.5		519.7		1,094.5		961.0
Wholesale vehicles	42.2		21.8		104.7		40.5

Finance, insurance and other, net	43.4		53.2		83.5		100.3
EchoPark Segment revenues	$	665.6	$	595.6	$	1,290.9	$	1,102.7

Total consolidated revenues	$	3,652.8	$	3,352.2	$	7,239.4	$	6,139.0

SONIC AUTOMOTIVE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
	(In millions)
Income (Loss) (1):
Franchised Dealerships Segment	$	162.1	$	165.4	$	326.0	$	236.0
EchoPark Segment	(34.9)		(14.4)		(69.9)		(12.4)


Income from continuing operations before taxes	$	127.2	$	151.0	$	256.1	$	223.6

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

~~(2)For the three months ended September 30, 2020, the above amount includes a pre-tax gain on the disposal of a franchised dealership of approximately $3.2 million.~~


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
	(In millions)
Depreciation and Amortization:
Franchised Dealerships Segment	$	25.3	$	20.6	$	50.1	$	41.0
EchoPark Segment	5.9		4.2		11.0		7.4
Total depreciation and amortization	$	31.2	$	24.8	$	61.1	$	48.4


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
	(In millions)
Floor Plan Interest Expense:
Franchised Dealerships Segment	$	3.9	$	3.2	$	7.2	$	7.3
EchoPark Segment	2.2		1.1		3.9		2.1
Total floor plan interest expense	$	6.1	$	4.3	$	11.1	$	9.4


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
	(In millions)
Interest Expense, Other, Net:
Franchised Dealerships Segment	$	20.2	$	9.7	$	40.3	$	19.7
EchoPark Segment	1.1		0.4		1.8		0.7
Total interest expense, other, net	$	21.3	$	10.1	$	42.1	$	20.4


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
	(In millions)
Capital Expenditures:
Franchised Dealerships Segment	$	21.9	$	25.5	$	52.0	$	71.7
EchoPark Segment	19.7		11.9		48.4		33.4
Total capital expenditures	$	41.6	$	37.4	$	100.4	$	105.1

SONIC AUTOMOTIVE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~business, as well as a pre-tax impairment charge of approximately $0.9 million related to the abandonment of certain construction projects.~~

Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
(In thousands)
Impairment Charges:
Franchised Dealerships Segment $ — $ 26 $ — $ 268,859
EchoPark Segment — — — —
Total impairment charges $ — $ 26 $ — $ 268,859

Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
(In thousands)
Depreciation and Amortization:
Franchised Dealerships Segment $ 21,266 $ 20,170 $ 62,258 $ 59,654
EchoPark Segment 3,973 2,764 11,429 8,225
Total depreciation and amortization $ 25,239 $ 22,934 $ 73,687 $ 67,879

Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
(In thousands)
Floor Plan Interest Expense:
Franchised Dealerships Segment $ 1,973 $ 4,234 $ 9,243 $ 19,517
EchoPark Segment 1,367 765 3,538 2,304
Total floor plan interest expense $ 3,340 $ 4,999 $ 12,781 $ 21,821

Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
(In thousands)
Interest Expense, Other, Net:
Franchised Dealerships Segment $ 9,477 $ 10,615 $ 29,158 $ 30,771
EchoPark Segment 340 147 1,022 752
Total interest expense, other, net $ 9,817 $ 10,762 $ 30,180 $ 31,523

Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
(In thousands)
Capital Expenditures:
Franchised Dealerships Segment $ 53,774 $ 18,237 $ 122,022 $ 70,875
EchoPark Segment 22,693 12,085 59,494 21,181
Total capital expenditures $ 76,467 $ 30,322 $ 181,516 $ 92,056

~~SONIC AUTOMOTIVE, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~


		September 30, 2021		December 31, 2020			June 30, 2022		December 31, 2021
		(In thousands)					(In millions)
Assets:	Assets:					Assets:
Franchised Dealerships Segment assets		$	2,638,803	$	3,096,811
EchoPark Segment assets		647,075		478,869
Franchised Dealerships Segment						Franchised Dealerships Segment	$	4,031.9	$	3,934.9
EchoPark Segment						EchoPark Segment	664.5		740.6
Corporate and other:	Corporate and other:					Corporate and other:
Cash and cash equivalents	Cash and cash equivalents	220,082		170,313		Cash and cash equivalents	327.1		299.4

Other corporate assets	Other corporate assets	3		—		Other corporate assets	—		0.2
Total assets	Total assets	$	3,505,963	$	3,745,993	Total assets	$	5,023.5	$	4,975.1

10. Subsequent Events

~~On October 8, 2021, we entered into the 2021 Credit Facility Amendment which, among other things: (1)~~Subsequent to June 30, 2022, Sonic’s Board of Directors increased the aggregate commitments under the 2021 Revolving Credit Facility and the 2021 Floor Plan Facilities and (2) permitted the issuance of the 2021 Notes. On October 1, 2021, Sonic terminated the 2020 Line of Credit Facility. There were no outstanding borrowings under the 2021 Line of Credit Facility as of September 30, 2021 or at the time of termination. For more information, see Note 6, “Long-Term Debt.”

~~On October 13, 2021, Sonic issued a notice to redeem the entire $250.0 million aggregate principal amount of the outstanding 6.125% Notes, which occurred on October 28, 2021.~~

On October 27, 2021, Sonic issued $1.15 billion aggregate principal amount of senior notes, consisting of $650.0 million aggregate principal amount of 4.625% Senior Notes due 2029 (the “4.625% Notes”) andCompany’s share repurchase authorization by $500.0 million, ~~aggregate principal amount~~resulting in current remaining availability of 4.875% Senior Notes due 2031 (the “4.875% Notes,” and, together with the 2029 Notes, the “2021 Notes”). The 2021 Notes are fully and unconditionally guaranteed on a joint and several basis by all of the Company’s domestic operating subsidiaries. The Company intends to use the net proceeds from the offering of the 2021 Notes, together with additional borrowings to (1) fund, if consummated, the Acquisition, (2) pay the redemption price for the 6.125% Notes, (3) pay fees and expenses in connection with the Acquisition and the offering of the 2021 Notes and (4) for general corporate purposes, which may include the acquisition and development of dealerships and related real property and the repayment of outstanding indebtedness.

approximately $633.1 million.

1716

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 ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 compared to the three and ~~nine~~six months ended ~~September~~June 30, ~~2020.~~2021. The three months ended June 30, 2022 was the second 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 ~~September~~June 30, ~~2021:~~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 ~~September~~June 30, ~~2021,~~2022, we operated 87111 stores in the Franchised Dealerships Segment and 3050 stores in the EchoPark Segment. The Franchised Dealerships Segment consists of 99141 new vehicle franchises (representing 2228 different brands of cars and light trucks) and 1417 collision repair centers in 1218 states. As of June 30, 2022, we operated 50 EchoPark stores in 20 states, including 11 Northwest Motorsport pre-owned vehicle stores acquired in the RFJ Acquisition in December 2021 and which are in the EchoPark Segment. Under our current EchoPark growth plan, we plan to continue to increase our physical and digital footprint 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 September 30, 2021, we operated 30 EchoPark stores in 15 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

On September 17, 2021, Sonic entered into an Agreement and Plan of Merger (the “Merger Agreement”) with RFJMS, Inc., a Delaware corporation and a direct, wholly owned subsidiary of Sonic (“Merger Sub”), RFJ Auto Partners, Inc., a Delaware corporation (“RFJ Auto”), and The Resolute Fund III, L.P., a Delaware limited partnership, solely in its capacity as the representative of RFJ Auto’s equityholders, pursuant to which Merger Sub will merge with and into RFJ Auto (the “Acquisition”), with RFJ Auto surviving the merger and becoming a direct, wholly owned subsidiary of Sonic. RFJ Auto is an automotive dealership platform based in Dallas, Texas. The Acquisition is expected to close in the fourth quarter of 2021.

~~SONIC AUTOMOTIVE, INC.~~

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

natural fluctuations in the business of RFJ Auto prior to the closing of the Acquisition and the foregoing amounts are management’s estimate based on currently available information. The Acquisition will be funded with the proceeds of the Company’s offering of the 2021 Notes and borrowings on our floor plan credit facilities.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”) decreased ~~12.4%~~21% and ~~increased 13.7%~~18%, ~~in the three and nine months ended September 30, 2021, respectively,~~ to ~~13.4 million and 15.8 million vehicles in the three and nine months ended September 30, 2021, respectively, compared to 15.3~~13.5 million and 13.9 million ~~vehicles in~~for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2022, respectively, compared to 17.0 million vehicles in both the three and six months ended June 30, 2021, according to data from ~~Bloomberg Finance L.P., provided by Stephens Inc. Results in the nine months ended September 30, 2021 benefit~~Power Information Network (“PIN”) 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.For 2021, analysts’ industry expectation for the total new vehicle SAAR ranges from 14.5 million vehicles (flat compared to 2020) to 16.0 million vehicles (an increase of 10.3% compared to 2020). As a result of low levels of new vehicle inventory due to supply chain disruption related to the ongoing COVID-19 pandemic, we estimate the 2021 total new vehicle SAAR will be between 14.5 million vehicles (flat compared to 2020) and 15.0 million vehicles (an increase of 3.4% compared to 2020).J.D. Power. 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.current levels. Many factors, including brand and geographic concentrations 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 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”)~~PIN from J.D. Power, industry retail new vehicle SAAR was ~~11.5~~11.6 million

SONIC AUTOMOTIVE, INC.

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

vehicles for the three months ended ~~September~~June 30, ~~2021,~~2022, a decrease of ~~14.2%~~26% from ~~13.4~~15.6 million vehicles in the prior year period, and ~~13.8~~12.1 million vehicles for the ~~nine~~six months ended ~~September~~June 30, ~~2021, an increase~~2022, a decrease of ~~16.9%~~19% from ~~11.8~~15.0 million vehicles in the prior year period.

~~The automotive supply chain has been disrupted during the pandemic, primarily related to the production~~Impact 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~~COVID-19 and certain parts inventory available to our dealerships. These inventory constraints, coupled with strong consumer demand, led to low levels of new vehicle inventory as of September 30, 2021 and lower than expected retail new vehicle unit sales volume in the third quarter ended September 30, 2021.Supply Chain Disruptions

The ongoing effects of the COVID-19 pandemic continue to evolve. ~~While we currently expect to see continued economic recovery~~A setback in the ~~remainder~~recovery of ~~2021 and into 2022,~~ the ~~ongoing~~general economy over the course of the pandemic may cause changes in consumer behaviors, including a potential reduction in consumer spending for vehicles and automotive repairs, ~~especially~~particularly if the pandemic worsens, interest rates experienced by consumers continue to rise or if the ~~regulatory environment changes in response to the pandemic.~~U.S. economy experiences a recession. 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 ~~through the rest of 2021~~throughout 2022 and into ~~2022.~~2023. These and other ~~COVID-related~~ factors may adversely impact our revenues, operating income, ~~and~~ earnings per share, and other 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 modern automobiles, in addition to workforce-related production delays and stoppages. As a result, automobile manufacturing is operating at lower than 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 new vehicle inventory and a high new and used vehicle pricing environment, which drove lower retail new vehicle unit sales volume in the second quarter of 2022. While new vehicle and parts production levels began 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 adversely impact our revenues, operating income, earnings per share, and other financial measures.

Franchised Dealerships Segment

As a result of the acquisition, disposition, termination or closure of ~~several~~ franchised ~~dealerships subsequent to January 1, 2020,~~dealership stores since the first quarter of 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~~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.

Retail new vehicle revenue ~~increased 4.2%~~decreased 22% and ~~28.0%~~13% during the three and ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, respectively, primarily driven by a ~~9.8%~~33% and ~~7.2% increase~~25% decrease in retail new vehicle unit sales ~~prices,~~volume, respectively. ~~New~~Retail new vehicle gross profit increased ~~83.3%~~18% and ~~97.8%~~49% during the three and ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, respectively, asdue to a ~~result of higher~~16% increase in retail new vehicle average selling ~~prices. New~~prices for both the three and six months ended June 30, 2022, which drove higher retail new vehicle gross profit per unit. Retail new vehicle gross profit per unit increased ~~$2,437~~$3,008 per unit, or ~~93.2%~~77%, to ~~$5,051~~$6,905 per unit induring the three months ended ~~September~~June 30, ~~2021,~~2022, and increased ~~$1,543~~$3,393 per unit, or ~~65.7%~~98%, to ~~$3,893~~$6,851 per unit induring the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, due primarily to higher average selling prices due in part to inventory shortages 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

~~SONIC AUTOMOTIVE, INC.~~

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

customers shortly after the vehicles arrive at our stores. AsOn a trailing quarter cost of ~~September 30, 2021,~~sales basis, our Franchised Dealerships Segment days’ supply of new vehicle inventory was 1018 days as of June 30, 2022 compared to ~~a days’ supply of new vehicle inventory~~15 days as of ~~September~~June 30, 2020 of 46 days. To the extent new vehicle inventory levels remain low, we could experience lower than expected levels of retail new vehicle unit sales volume and higher selling prices in the fourth quarter of 2021.

Retail used vehicle revenue ~~increased 21.8% and 27.2%~~decreased 1% during the three ~~and nine~~ months ended ~~September~~June 30, ~~2021, respectively,~~2022, driven by lower retail used vehicle unit sales volume. Retail used vehicle revenue increased 4% during the six months ended June 30, 2022, driven by higher average selling prices. Retail used vehicle gross profit ~~increased 31.4%~~decreased 30% and ~~35.5%~~13% during the three and ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, respectively due to ~~an increase~~a decrease in retail used vehicle unit sales volume. Retail used vehicle gross profit per ~~unit.~~unit decreased $293 per unit, or 15%, to $1,622 per unit during the three months ended June 30, 2022, due primarily to lower retail used vehicle unit sales volume. Retail used vehicle gross profit per unit increased ~~$444~~$72 per unit, or ~~31.9%~~4%, to ~~$1,835~~$1,674 per unit during the ~~three~~six months ended ~~September~~June 30, ~~2021, and increased $334 per unit, or 24.9%, to $1,675 per unit during the nine months ended September 30, 2021,~~2022, due primarily to higher average selling prices due in part to shortages of new vehicle inventory. Wholesale vehicle gross profit ~~worsened~~decreased by approximately ~~$1.9 million and increased by approximately $3.4~~$4.5 million in the three ~~and nine~~ months ended ~~September~~June 30, ~~2021, respectively.~~2022, due primarily to a $694 per unit, or 112%, decrease in wholesale vehicle gross profit per unit. Wholesale vehicle gross profit decreased by approximately $5.7 million in the six months ended June 30, 2022, due primarily to a $435 per unit, or 120%, decrease in wholesale vehicle gross profit per unit. In the past, we have focused on maintaining Franchised Dealerships Segment used vehicle inventory days’ supply in the ~~30-~~25- to 35-day range, which may fluctuate seasonally, in order to limit our

SONIC AUTOMOTIVE, INC.

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

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 ~~27 and 29~~31 days as of ~~September~~both June 30, ~~2021~~2022 and ~~2020, respectively.~~2021.

Fixed Operations revenue increased ~~9.9%~~5% and ~~13.5%~~8% during the three and ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, respectively, and Fixed Operations gross profit increased ~~9.0%~~4% and ~~15.2%~~7% during the three and ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, respectively. Fixed Operations gross margin decreased 4060 basis points, to 50.0%, during the three months ended ~~September~~June 30, ~~2021 to 50.2%.~~2022. Fixed Operations gross margin ~~increased~~decreased 80 basis points, to 49.6% during the ~~nine~~six months ended ~~September~~June 30, ~~2021 to 50.4%, driven primarily by an increase in customer pay revenue contribution and higher customer pay gross margin.~~2022.

F&I revenue ~~increased 20.8%~~decreased 14% and ~~31.3%~~5% during the three and ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, respectively, driven primarily by ~~increases~~a decrease in F&I ~~gross profit per retail unit.~~unit sales volume. F&I gross profit per retail unit increased ~~$429~~$327 per unit, or ~~24.9%~~15%, to ~~$2,152~~$2,440 per unit induring the three months ended ~~September~~June 30, ~~2021.~~2022. F&I gross profit per retail unit increased ~~$271~~$392 per unit, or ~~15.9%~~19%, to ~~$1,978~~$2,412 per unit induring the ~~nine~~six months ended ~~September~~June 30, ~~2021.~~2022. We believe that our proprietary software applications, playbook processes and guest-centric 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.~~

EchoPark Segment

Reported total revenue increased ~~72.3%~~12% and ~~71.1% in~~17% during the three and ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, respectively, driven primarily by continued expansion of our nationwide distribution network and ~~increases~~higher average retail used vehicle selling prices. Reported total gross profit increased 37% and 14% during the three and six months ended June 30, 2022, respectively, primarily due to higher average retail used vehicle selling prices and improvement in retail used vehicle gross profit (loss) per unit.

Reported retail used vehicle revenue increased 11% and 14% during the three and six months ended June 30, 2022, respectively. F&I revenue decreased 18% and 17% during the three and six months ended June 30, 2022, respectively, driven primarily by a 22% and 23% decrease in retail used vehicle unit sales volume ~~and average selling prices. Reported total gross profit decreased 11.6% in~~during the three and six months ended ~~September~~June 30, ~~2021, due primarily to lower gross profit per unit, which decreased $1,010 per unit, or 240% to a loss of $1,430 per unit, driven primarily by higher cost of inventory~~2022, respectively, as ~~a result of continued increases in wholesale market prices. Reported total gross profit increased 22.5% in the nine months ended September 30, 2021, due primarily to higher~~we strategically adjusted our retail used vehicle unit sales volume ~~and an increase in F&I gross per unit, which offset lower gross profit per retail unit as a result of continued increases in wholesale market prices.~~to manage overall segment income (loss) levels. Reported combined retail used vehicle and F&I gross profit per unit ~~decreased 47.0% and 22.9% in~~increased $1,267 per unit, or 82%, to $2,804, per unit during the three ~~and nine~~ months ended ~~September~~June 30, ~~2021, respectively,~~2022, due primarily to ~~$1,030 and $1,618 per unit, respectively, as a result of higher~~strategic actions taken to reduce used vehicle inventory acquisition costs, ~~due to increased demand in the wholesale auction market.~~

~~Reported~~benefiting retail used vehicle revenue increased 69.2% and 68.4% in the three and nine months ended September 30, 2021, respectively. F&I revenue increased 46.2% and 55.1% during the three and nine months ended September 30, 2021, respectively, driven primarily by a 40.5% and 46.9% increase ingross profit per unit. Reported combined retail used vehicle and F&I gross profit per unit ~~sales volume~~increased $852 per unit, or 44%, to $2,774, per unit during the ~~three and nine~~six months ended ~~September~~June 30, ~~2021, respectively, and increases in~~2022, due primarily to strategic actions taken to reduce used vehicle inventory acquisition costs, benefiting retail used vehicle ~~average selling prices.~~gross profit per unit.

Wholesale vehicle gross profit ~~improved~~decreased by approximately ~~$3.3 million and $6.6~~$1.3 million during the three ~~and nine~~ months ended ~~September~~June 30, ~~2021, respectively,~~2022, due to a decrease in wholesale vehicle unit sales volume. Wholesale vehicle gross profit increased by approximately $0.3 million during the six months ended June 30, 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 EchoPark Segment used vehicle inventory days’ supply in the 30- to 40-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 4153 and 3447 days as of ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, respectively. The elevated level of used vehicle inventory days’ supply ~~as of September 30, 2021~~ 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.

~~SONIC AUTOMOTIVE, INC.~~

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

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 23.8%~~decreased 20% and ~~30.7%~~16% during the three and ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, respectively, driven primarily by ~~increases~~a decrease in retail used vehicle ~~average selling prices.~~unit sales volume as we strategically adjusted our retail used vehicle unit sales volume to manage overall segment income (loss) levels. EchoPark same market total gross profit decreased ~~13.6%~~20% during the three months ended ~~September~~June 30, ~~2021,~~2022, due primarily to lower retail used vehicle unit sales volume, ~~and~~offset partially by a ~~26.2% decrease~~41% increase in total gross profit per unit, to ~~$1,149~~$2,171 per unit. EchoPark same market total gross profit ~~increased 12.3%~~decreased 35% during the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, due primarily to ~~higher~~lower retail used vehicle unit sales volume, offset partially by a ~~6.9% decrease~~7% increase in total gross profit per unit, to ~~$1,657~~$2,048 per unit.

Results of Operations – Consolidated

~~The following tables list~~

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 ~~items~~things), the availability of ~~interest that affected reported amounts in~~consumer credit and the ~~accompanying unaudited condensed consolidated statements~~level and type of ~~operations:~~

Three Months Ended September 30, 2021 Three Months Ended September 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)
Gain (loss) on franchise disposals $ — $ — $ — $ 3,150 $ — $ 3,150 SG&A expenses

Nine Months Ended September 30, 2021 Nine Months Ended September 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)
Gain (loss) on franchise disposals $ 465 $ — $ 465 $ 3,150 $ — $ 3,150 SG&A expenses
Impairment charges $ — $ — $ — $ (268,859) $ — $ (268,859) Impairment charges
Non-recurring tax benefit $ — $ — $ — $ 53,643 $ — $ 53,643 Income taxes

2119

SONIC AUTOMOTIVE, INC.

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

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.

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


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
Brand	Brand	2021		2020		2021		2020		Brand	2022		2021		2022		2021
Luxury:	Luxury:									Luxury:
BMW	BMW	26.9	%	24.2	%	25.8	%	23.8	%	BMW	21.6	%	26.6	%	22.2	%	25.4	%
Mercedes	Mercedes	12.3	%	12.8	%	12.4	%	13.1	%	Mercedes	11.4	%	12.2	%	10.8	%	12.4	%
Audi	Audi	6.2	%	6.6	%	7.0	%	6.3	%	Audi	5.7	%	7.6	%	5.2	%	7.4	%
Lexus	Lexus	5.7	%	5.1	%	5.1	%	4.7	%	Lexus	4.4	%	4.7	%	4.4	%	4.8	%
Porsche	Porsche	3.8	%	3.6	%	3.7	%	3.4	%	Porsche	4.4	%	3.7	%	3.4	%	3.7	%
Cadillac										Cadillac	1.9	%	2.4	%	1.9	%	2.6	%
Land Rover	Land Rover	3.5	%	3.7	%	4.0	%	4.6	%	Land Rover	1.7	%	3.9	%	2.3	%	4.2	%
Cadillac		2.1	%	2.0	%	2.5	%	2.1	%
Volvo	Volvo	1.9	%	1.3	%	1.7	%	1.3	%	Volvo	1.1	%	—	%	1.0	%	—	%
MINI	MINI	1.3	%	1.3	%	1.2	%	1.1	%	MINI	0.7	%	1.2	%	0.7	%	1.1	%
Other luxury (1)		1.1	%	1.2	%	1.2	%	1.4	%
Other Luxury (1)										Other Luxury (1)	0.4	%	3.0	%	0.6	%	2.9	%
Total Luxury	Total Luxury	64.8	%	61.8	%	64.6	%	61.8	%	Total Luxury	53.3	%	65.3	%	52.5	%	64.5	%
Mid-line Import:	Mid-line Import:									Mid-line Import:
Toyota										Toyota	8.1	%	7.6	%	8.2	%	8.3	%
Honda	Honda	14.2	%	14.3	%	14.1	%	14.5	%	Honda	7.4	%	14.7	%	8.0	%	14.0	%
Toyota		8.6	%	9.5	%	8.4	%	9.0	%
Volkswagen	Volkswagen	1.8	%	1.0	%	1.5	%	1.0	%	Volkswagen	1.8	%	1.5	%	1.6	%	1.4	%
Hyundai	Hyundai	0.8	%	1.0	%	1.0	%	1.0	%	Hyundai	1.6	%	1.0	%	1.5	%	1.0	%
Other Import (2)		1.1	%	0.6	%	0.6	%	0.6	%
Other Mid-line Import (2)										Other Mid-line Import (2)	1.4	%	0.8	%	1.6	%	0.5	%
Total Mid-line Import	Total Mid-line Import	26.5	%	26.4	%	25.6	%	26.1	%	Total Mid-line Import	20.3	%	25.6	%	20.9	%	25.2	%
Domestic:	Domestic:									Domestic:
Ford										Ford	14.0	%	4.6	%	13.6	%	5.2	%
Chrysler, Dodge, Jeep and Ram										Chrysler, Dodge, Jeep and Ram	8.6	%	—	%	9.4	%	—	%
General Motors (3)	General Motors (3)	4.5	%	5.8	%	4.9	%	6.2	%	General Motors (3)	3.8	%	4.5	%	3.6	%	5.1	%
Ford		4.2	%	6.0	%	4.9	%	5.9	%
Total Domestic	Total Domestic	8.7	%	11.8	%	9.8	%	12.1	%	Total Domestic	26.4	%	9.1	%	26.6	%	10.3	%
Total	Total	100.0	%	100.0	%	100.0	%	100.0	%	Total	100.0	%	100.0	%	100.0	%	100.0	%

(1)Includes Acura, Alfa Romeo, Infiniti, Jaguar and ~~Jaguar~~Maserati.

(2)Includes Mazda, Nissan and ~~Subaru~~Subaru.

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

~~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, disruptionsDisruptions in the automotive supply chain have caused lower

~~SONIC AUTOMOTIVE, INC.~~

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

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~~2021 and ~~third quarters of 2021.~~in 2022 to

SONIC AUTOMOTIVE, INC.

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

date. 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 and six months ended ~~September~~June 30, ~~2021.~~2022.

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


		Three Months Ended September 30,		Better / (Worse)		Nine Months Ended September 30,		Better / (Worse)			Three Months Ended June 30,		Better / (Worse)		Six Months Ended June 30,		Better / (Worse)
		2021	2020	% Change		2021	2020	% Change			2022	2021	% Change		2022	2021	% Change
		(In millions of vehicles)									(In millions of vehicles)
Retail new vehicle SAAR (1)	Retail new vehicle SAAR (1)	11.5	13.4	(14.2)	%	13.8	11.8	16.9	%	Retail new vehicle SAAR (1)	11.6	15.6	(25.6)	%	12.1	15.0	(19.3)	%
Fleet new vehicle SAAR	Fleet new vehicle SAAR	1.9	1.9	—	%	2.0	2.1	(4.8)	%	Fleet new vehicle SAAR	1.9	1.4	35.7	%	1.8	2.0	(10.0)	%
Total new vehicle SAAR ~~(2)~~(1)	Total new vehicle SAAR ~~(2)~~(1)	13.4	15.3	(12.4)	%	15.8	13.9	13.7	%	Total new vehicle SAAR ~~(2)~~(1)	13.5	17.0	(20.6)	%	13.9	17.0	(18.2)	%

(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 September 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit and per unit data)
Reported new vehicle:
Revenue $ 1,146,922 $ 1,098,302 $ 48,620 4.4 %
Gross profit $ 115,446 $ 62,678 $ 52,768 84.2 %
Unit sales 22,846 24,100 (1,254) (5.2) %
Revenue per unit $ 50,202 $ 45,573 $ 4,629 10.2 %
Gross profit per unit $ 5,053 $ 2,601 $ 2,452 94.3 %
Gross profit as a % of revenue 10.1 % 5.7 % 440 bps


	Three Months Ended June 30,						Better / (Worse)
	2022			2021			Change		% Change
	(In millions, except unit and per unit data)
Reported new vehicle:
Retail new vehicle revenue	$	1,344.3		$	1,453.2		$	(108.9)	(7)	%
Fleet new vehicle revenue	166.4			9.7			156.7		NM
Total new vehicle revenue	$	1,510.7		$	1,462.9		$	47.8	3	%

Retail new vehicle gross profit	$	168.3		$	118.1		$	50.2	43	%
Fleet new vehicle gross profit	0.9			0.3			0.6		200	%
Total new vehicle gross profit	$	169.2		$	118.4		$	50.8	43	%

Retail new vehicle unit sales	24,427			30,257			(5,830)		(19)	%
Fleet new vehicle unit sales	4,638			245			4,393		NM
Total new vehicle unit sales	29,065			30,502			(1,437)		(5)	%

Revenue per new retail unit	$	55,031		$	48,029		$	7,002	15	%
Revenue per new fleet unit	$	35,889		$	39,487		$	(3,598)	(9)	%
Total revenue per new unit	$	51,977		$	47,961		$	4,016	8	%

Gross profit per new retail unit	$	6,890		$	3,903		$	2,987	77	%
Gross profit per new fleet unit	$	203		$	1,319		$	(1,116)	(85)	%
Total gross profit per new unit	$	5,823		$	3,883		$	1,940	50	%

Retail gross profit as a % of revenue	12.5		%	8.1		%	440		bps
Fleet gross profit as a % of revenue	0.5		%	3.1		%	(260)		bps
Total new vehicle gross profit as a % of revenue	11.2		%	8.1		%	310		bps

Nine Months Ended September 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit and per unit data)
Reported new vehicle:
Revenue $ 3,766,133 $ 2,957,794 $ 808,339 27.3 %
Gross profit $ 303,338 $ 153,480 $ 149,858 97.6 %
Unit sales 77,706 65,715 11,991 18.2 %
Revenue per unit $ 48,466 $ 45,009 $ 3,457 7.7 %
Gross profit per unit $ 3,904 $ 2,336 $ 1,568 67.1 %
Gross profit as a % of revenue 8.1 % 5.2 % 290 bps
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)
	2022			2021			Change		% Change
	(In millions, except unit and per unit data)
Reported new vehicle:
Retail new vehicle revenue	$	2,695.6		$	2,587.2		$	108.4	4	%
Fleet new vehicle revenue	315.0			32.0			283.0		884	%
Total new vehicle revenue	$	3,010.6		$	2,619.2		$	391.4	15	%

Retail new vehicle gross profit	$	336.0		$	187.3		$	148.7	79	%
Fleet new vehicle gross profit	1.8			0.6			1.2		200	%
Total new vehicle gross profit	$	337.8		$	187.9		$	149.9	80	%

Retail new vehicle unit sales	49,114			54,074			(4,960)		(9)	%
Fleet new vehicle unit sales	9,019			786			8,233		NM
Total new vehicle unit sales	58,133			54,860			3,273		6	%

Revenue per new retail unit	$	54,884		$	47,846		$	7,038	15	%
Revenue per new fleet unit	$	34,928		$	40,686		$	(5,758)	(14)	%
Total revenue per new unit	$	51,788		$	47,744		$	4,044	8	%

Gross profit per new retail unit	$	6,841		$	3,464		$	3,377	97	%
Gross profit per new fleet unit	$	198		$	727		$	(529)	(73)	%
Total gross profit per new unit	$	5,810		$	3,425		$	2,385	70	%

Retail gross profit as a % of revenue	12.5		%	7.2		%	530		bps
Fleet gross profit as a % of revenue	0.6		%	1.9		%	(130)		bps
Total new vehicle gross profit as a % of revenue	11.2		%	7.2		%	400		bps

NM = Not Meaningful

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

~~SONIC AUTOMOTIVE, INC.~~

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

~~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 ~~third~~first quarter of ~~2021.~~2022, and remained at elevated levels during the second quarter of 2022. Depending on the mix of inventory sourcing (trade-in 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 September 30,						Better / (Worse)					Three Months Ended June 30,						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 retail used vehicle:												Reported retail used vehicle:
Revenue	Revenue	$	1,309,492		$	946,028		$	363,464	38.4	%	Revenue	$	1,449.4		$	1,281.2		$	168.2	13	%
Gross profit	Gross profit	$	19,720		$	28,035		$	(8,315)	(29.7)	%	Gross profit	$	47.1		$	35.1		$	12.0	34	%
Unit sales	Unit sales	47,529			41,490			6,039		14.6	%	Unit sales	44,764			49,811			(5,047)		(10)	%
Revenue per unit	Revenue per unit	$	27,551		$	22,801		$	4,750	20.8	%	Revenue per unit	$	32,379		$	25,430		$	6,949	27	%
Gross profit per unit	Gross profit per unit	$	415		$	676		$	(261)	(38.6)	%	Gross profit per unit	$	1,053		$	698		$	355	51	%
Gross profit as a % of revenue	Gross profit as a % of revenue	1.5		%	3.0		%	(150)		bps		Gross profit as a % of revenue	3.3		%	2.7		%	60		bps


		Nine Months Ended September 30,						Better / (Worse)					Six Months Ended June 30,						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 retail used vehicle:												Reported retail used vehicle:
Revenue	Revenue	$	3,666,286		$	2,604,957		$	1,061,329	40.7	%	Revenue	$	2,820.2		$	2,384.1		$	436.1	18	%
Gross profit	Gross profit	$	85,342		$	87,536		$	(2,194)	(2.5)	%	Gross profit	$	95.2		$	65.7		$	29.5	45	%
Unit sales	Unit sales	144,246			118,694			25,552		21.5	%	Unit sales	86,837			96,717			(9,880)		(10)	%
Revenue per unit	Revenue per unit	$	25,417		$	21,947		$	3,470	15.8	%	Revenue per unit	$	32,477		$	24,368		$	8,109	33	%
Gross profit per unit	Gross profit per unit	$	592		$	737		$	(145)	(19.7)	%	Gross profit per unit	$	1,097		$	679		$	418	62	%
Gross profit as a % of revenue	Gross profit as a % of revenue	2.3		%	3.4		%	(110)		bps		Gross profit as a % of revenue	3.4		%	2.8		%	60		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 average wholesale vehicle pricing and related gross profit (loss) ~~will~~may begin to return toward long-term normalized ~~levels.~~levels in the second half of 2022 or early 2023. 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.

2423

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 September 30,						Better / (Worse)					Three Months Ended June 30,						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	$	97,087		$	56,502		$	40,585	71.8	%	Revenue	$	121.4		$	84.8		$	36.6	43	%
Gross profit (loss)	Gross profit (loss)	$	1,255		$	2,544		$	(1,289)	(50.7)	%	Gross profit (loss)	$	1.2		$	4.5		$	(3.3)	(73)	%
Unit sales	Unit sales	9,611			8,634			977		11.3	%	Unit sales	8,545			9,631			(1,086)		(11)	%
Revenue per unit	Revenue per unit	$	10,102		$	6,544		$	3,558	54.4	%	Revenue per unit	$	14,207		$	8,806		$	5,401	61	%
Gross profit (loss) per unit	Gross profit (loss) per unit	$	131		$	295		$	(164)	(55.6)	%	Gross profit (loss) per unit	$	129		$	470		$	(341)	(73)	%
Gross profit (loss) as a % of revenue	Gross profit (loss) as a % of revenue	1.3		%	4.5		%	(320)		bps		Gross profit (loss) as a % of revenue	1.0		%	5.3		%	(430)		bps


		Nine Months Ended September 30,						Better / (Worse)					Six Months Ended June 30,						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	$	256,701		$	138,221		$	118,480	85.7	%	Revenue	$	290.2		$	159.6		$	130.6	82	%
Gross profit (loss)	Gross profit (loss)	$	6,629		$	1,961		$	4,668	238.0	%	Gross profit (loss)	$	2.6		$	5.4		$	(2.8)	(52)	%
Unit sales	Unit sales	28,935			23,590			5,345		22.7	%	Unit sales	18,966			19,324			(358)		(2)	%
Revenue per unit	Revenue per unit	$	8,872		$	5,859		$	3,013	51.4	%	Revenue per unit	$	15,301		$	8,260		$	7,041	85	%
Gross profit (loss) per unit	Gross profit (loss) per unit	$	229		$	83		$	146	175.9	%	Gross profit (loss) per unit	$	139		$	278		$	(139)	(50)	%
Gross profit (loss) as a % of revenue	Gross profit (loss) as a % of revenue	2.6		%	1.4		%	120		bps		Gross profit (loss) as a % of revenue	0.9		%	3.4		%	(250)		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.

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.~~party, and may vary based on used vehicle inventory and sales volume from period to period. 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 has 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.

2524

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 September 30,						Better / (Worse)					Three Months Ended June 30,						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	$	156,503		$	129,779		$	26,724	20.6	%	Customer pay	$	168.0		$	152.1		$	15.9	10	%
Warranty	Warranty	52,886			58,294			(5,408)		(9.3)	%	Warranty	54.7			58.2			(3.5)		(6)	%
Wholesale parts	Wholesale parts	41,686			32,515			9,171		28.2	%	Wholesale parts	50.2			39.6			10.6		27	%
Internal, sublet and other	Internal, sublet and other	104,152			100,341			3,811		3.8	%	Internal, sublet and other	125.2			96.2			29.0		30	%
Total revenue	Total revenue	$	355,227		$	320,929		$	34,298	10.7	%	Total revenue	$	398.1		$	346.1		$	52.0	15	%

Gross profit	Gross profit											Gross profit
Customer pay	Customer pay	$	89,313		$	73,652		$	15,661	21.3	%	Customer pay	$	96.3		$	87.4		$	8.9	10	%
Warranty	Warranty	30,799			33,548			(2,749)		(8.2)	%	Warranty	32.5			33.9			(1.4)		(4)	%
Wholesale parts	Wholesale parts	7,541			5,654			1,887		33.4	%	Wholesale parts	9.0			6.9			2.1		30	%
Internal, sublet and other	Internal, sublet and other	43,861			43,672			189		0.4	%	Internal, sublet and other	60.3			47.4			12.9		27	%
Total gross profit	Total gross profit	$	171,514		$	156,526		$	14,988	9.6	%	Total gross profit	$	198.1		$	175.6		$	22.5	13	%

Gross profit as a % of revenue	Gross profit as a % of revenue											Gross profit as a % of revenue
Customer pay	Customer pay	57.1		%	56.8		%	30		bps		Customer pay	57.3		%	57.5		%	(20)		bps
Warranty	Warranty	58.2		%	57.5		%	70		bps		Warranty	59.4		%	58.4		%	100		bps
Wholesale parts	Wholesale parts	18.1		%	17.4		%	70		bps		Wholesale parts	18.0		%	17.4		%	60		bps
Internal, sublet and other	Internal, sublet and other	42.1		%	43.5		%	(140)		bps		Internal, sublet and other	48.2		%	49.3		%	(110)		bps
Total gross profit as a % of revenue	Total gross profit as a % of revenue	48.3		%	48.8		%	(50)		bps		Total gross profit as a % of revenue	49.8		%	50.7		%	(90)		bps


		Nine Months Ended September 30,						Better / (Worse)					Six Months Ended June 30,						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	$	442,140		$	375,436		$	66,704	17.8	%	Customer pay	$	327.5		$	285.6		$	41.9	15	%
Warranty	Warranty	164,189			168,380			(4,191)		(2.5)	%	Warranty	107.8			111.3			(3.5)		(3)	%
Wholesale parts	Wholesale parts	115,976			97,573			18,403		18.9	%	Wholesale parts	100.0			74.3			25.7		35	%
Internal, sublet and other	Internal, sublet and other	314,431			273,278			41,153		15.1	%	Internal, sublet and other	243.4			183.0			60.4		33	%
Total revenue	Total revenue	$	1,036,736		$	914,667		$	122,069	13.3	%	Total revenue	$	778.7		$	654.2		$	124.5	19	%

Gross profit	Gross profit											Gross profit
Customer pay	Customer pay	$	252,683		$	210,712		$	41,971	19.9	%	Customer pay	$	187.6		$	163.4		$	24.2	15	%
Warranty	Warranty	95,674			95,014			660		0.7	%	Warranty	64.1			64.9			(0.8)		(1)	%
Wholesale parts	Wholesale parts	20,543			16,827			3,716		22.1	%	Wholesale parts	17.9			13.0			4.9		38	%
Internal, sublet and other	Internal, sublet and other	133,511			116,150			17,361		14.9	%	Internal, sublet and other	115.2			89.5			25.7		29	%
Total gross profit	Total gross profit	$	502,411		$	438,703		$	63,708	14.5	%	Total gross profit	$	384.8		$	330.8		$	54.0	16	%

Gross profit as a % of revenue	Gross profit as a % of revenue											Gross profit as a % of revenue
Customer pay	Customer pay	57.1		%	56.1		%	100		bps		Customer pay	57.3		%	57.2		%	10		bps
Warranty	Warranty	58.3		%	56.4		%	190		bps		Warranty	59.5		%	58.3		%	120		bps
Wholesale parts	Wholesale parts	17.7		%	17.2		%	50		bps		Wholesale parts	17.9		%	17.5		%	40		bps
Internal, sublet and other	Internal, sublet and other	42.5		%	42.5		%	—		bps		Internal, sublet and other	47.3		%	48.9		%	(160)		bps
Total gross profit as a % of revenue	Total gross profit as a % of revenue	48.5		%	48.0		%	50		bps		Total gross profit as a % of revenue	49.4		%	50.6		%	(120)		bps

2625

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 and discussion under the ~~headings~~heading “Fixed Operations – Franchised Dealerships Segment” ~~and “Fixed Operations – EchoPark Segment”~~ in the Franchised Dealerships Segment ~~and EchoPark Segment sections, respectively,~~section, 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 commissions from the providers for originating contracts. F&I revenues are recognized net of actual and estimated future chargebacks and other costs associated with originating contracts (as a result, reported F&I revenues and F&I gross profit are the same ~~amount)~~amount, resulting in a 100% gross margin for F&I). 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 September 30,				Better / (Worse)					Three Months Ended June 30,				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 F&I:	Reported F&I:									Reported F&I:
Revenue	Revenue	$	164,084	$	126,784	$	37,300	29.4	%	Revenue	$	173.2	$	177.2	$	(4.0)	(2)	%
Unit sales		69,864		65,424		4,440		6.8	%
Total combined new and used vehicle retail unit sales										Total combined new and used vehicle retail unit sales	69,191		80,068		(10,877)		(14)	%
Gross profit per retail unit (excludes fleet)	Gross profit per retail unit (excludes fleet)	$	2,349	$	1,938	$	411	21.2	%	Gross profit per retail unit (excludes fleet)	$	2,503	$	2,214	$	289	13	%


		Nine Months Ended September 30,				Better / (Worse)					Six Months Ended June 30,				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 F&I:	Reported F&I:									Reported F&I:
Revenue	Revenue	$	486,000	$	352,848	$	133,152	37.7	%	Revenue	$	339.7	$	321.9	$	17.8	6	%
Unit sales		220,655		183,508		37,147		20.2	%
Total combined new and used vehicle retail unit sales										Total combined new and used vehicle retail unit sales	135,951		150,791		(14,840)		(10)	%
Gross profit per retail unit (excludes fleet)	Gross profit per retail unit (excludes fleet)	$	2,203	$	1,923	$	280	14.6	%	Gross profit per retail unit (excludes fleet)	$	2,499	$	2,135	$	364	17	%

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 since the first quarter of 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.

SONIC AUTOMOTIVE, INC.

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

New Vehicles – Franchised Dealerships Segment

~~New vehicle revenues include the sale~~The following tables provide a reconciliation of Franchised Dealerships Segment reported basis and same store basis for 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 June 30,				Better / (Worse)
	2022		2021		Change		% Change
	(In millions, except unit data)
Retail new vehicle revenue:
Same store	$	1,126.3	$	1,447.5	$	(321.2)	(22)	%
Acquisitions, open points, dispositions and holding company	215.4		4.8		210.6		NM
Total as reported	$	1,341.7	$	1,452.3	$	(110.6)	(8)	%

Fleet new vehicle revenue:
Same store	$	17.5	$	9.7	$	7.8	80	%
Acquisitions, open points, dispositions and holding company	149.0		—		149.0		NM
Total as reported	$	166.5	$	9.7	$	156.8	NM

Total new vehicle revenue:
Same store	$	1,143.8	$	1,457.2	$	(313.4)	(22)	%
Acquisitions, open points, dispositions and holding company	364.4		4.8		359.6		NM
Total as reported	$	1,508.2	$	1,462.0	$	46.2	3	%

Retail new vehicle gross profit:
Same store	$	139.0	$	117.4	$	21.6	18	%
Acquisitions, open points, dispositions and holding company	28.3		0.6		27.7		NM
Total as reported	$	167.3	$	118.0	$	49.3	42	%

Fleet new vehicle gross profit:
Same store	$	0.8	$	0.3	$	0.5	167	%
Acquisitions, open points, dispositions and holding company	0.1		—		0.1		NM
Total as reported	$	0.9	$	0.3	$	0.6	200	%

Total new vehicle gross profit:
Same store	$	139.8	$	117.7	$	22.1	19	%
Acquisitions, open points, dispositions and holding company	28.4		0.6		27.8		NM
Total as reported	$	168.2	$	118.3	$	49.9	42	%

Retail new vehicle unit sales:
Same store	20,135		30,129		(9,994)		(33)	%
Acquisitions, open points, dispositions and holding company	4,207		114		4,093		NM
Total as reported	24,342		30,243		(5,901)		(20)	%

Fleet new vehicle unit sales:
Same store	381		245		136		56	%
Acquisitions, open points, dispositions and holding company	4,257		—		4,257		NM
Total as reported	4,638		245		4,393		NM

Total new vehicle unit sales:
Same store	20,516		30,374		(9,858)		(32)	%
Acquisitions, open points, dispositions and holding company	8,464		114		8,350		NM
Total as reported	28,980		30,488		(1,508)		(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 Franchised Dealerships Segment reported basis and same store basis for total new vehicles (combined retail and fleet data):~~


	Six Months Ended June 30,				Better / (Worse)
	2022		2021		Change		% Change
	(In millions, except unit data)
Retail new vehicle revenue:
Same store	$	2,236.0	$	2,578.2	$	(342.2)	(13)	%
Acquisitions, open points, dispositions and holding company	451.4		8.1		443.3		NM
Total as reported	$	2,687.4	$	2,586.3	$	101.1	4	%

Fleet new vehicle revenue:
Same store	$	31.0	$	32.0	$	(1.0)	(3)	%
Acquisitions, open points, dispositions and holding company	284.0		—		284.0		NM
Total as reported	$	315.0	$	32.0	$	283.0	884	%

Total new vehicle revenue:
Same store	$	2,267.0	$	2,610.2	$	(343.2)	(13)	%
Acquisitions, open points, dispositions and holding company	735.4		8.1		727.3		NM
Total as reported	$	3,002.4	$	2,618.3	$	384.1	15	%

Retail new vehicle gross profit:
Same store	$	276.9	$	186.2	$	90.7	49	%
Acquisitions, open points, dispositions and holding company	56.9		1.0		55.9		NM
Total as reported	$	333.8	$	187.2	$	146.6	78	%

Fleet new vehicle gross profit:
Same store	$	1.4	$	0.6	$	0.8	133	%
Acquisitions, open points, dispositions and holding company	0.4		—		0.4		NM
Total as reported	$	1.8	$	0.6	$	1.2	200	%

Total new vehicle gross profit:
Same store	$	278.3	$	186.8	$	91.5	49	%
Acquisitions, open points, dispositions and holding company	57.3		1.0		56.3		NM
Total as reported	$	335.6	$	187.8	$	147.8	79	%

Retail new vehicle unit sales:
Same store	40,418		53,865		(13,447)		(25)	%
Acquisitions, open points, dispositions and holding company	8,526		195		8,331		NM
Total as reported	48,944		54,060		(5,116)		(9)	%

Fleet new vehicle unit sales:
Same store	658		786		(128)		(16)	%
Acquisitions, open points, dispositions and holding company	8,361		—		8,361		NM
Total as reported	9,019		786		8,233		NM

Total new vehicle unit sales:
Same store	41,076		54,651		(13,575)		(25)	%
Acquisitions, open points, dispositions and holding company	16,887		195		16,692		NM
Total as reported	57,963		54,846		3,117		6	%
NM = Not Meaningful

Three Months Ended September 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit data)
Total new vehicle revenue:
Same store $ 1,137,465 $ 1,091,592 $ 45,873 4.2 %
Acquisitions, open points, dispositions and holding company 5,951 6,710 (759) (11.3) %
Total as reported $ 1,143,416 $ 1,098,302 $ 45,114 4.1 %
Total new vehicle gross profit:
Same store $ 114,308 $ 62,360 $ 51,948 83.3 %
Acquisitions, open points, dispositions and holding company 896 318 578 181.8 %
Total as reported $ 115,204 $ 62,678 $ 52,526 83.8 %
Total new vehicle unit sales:
Same store 22,631 23,852 (1,221) (5.1) %
Acquisitions, open points, dispositions and holding company 160 248 (88) (35.5) %
Total as reported 22,791 24,100 (1,309) (5.4) %
NM = Not Meaningful

Nine Months Ended September 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit data)
Total new vehicle revenue:
Same store $ 3,755,766 $ 2,935,140 $ 820,626 28.0 %
Acquisitions, open points, dispositions and holding company 5,952 22,654 (16,702) (73.7) %
Total as reported $ 3,761,718 $ 2,957,794 $ 803,924 27.2 %
Total new vehicle gross profit:
Same store $ 301,616 $ 152,487 $ 149,129 97.8 %
Acquisitions, open points, dispositions and holding company 1,378 993 385 38.8 %
Total as reported $ 302,994 $ 153,480 $ 149,514 97.4 %
Total new vehicle unit sales:
Same store 77,477 64,893 12,584 19.4 %
Acquisitions, open points, dispositions and holding company 160 822 (662) (80.5) %
Total as reported 77,637 65,715 11,922 18.1 %
NM = Not Meaningful

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 September 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit and per unit data)
Reported new vehicle:
Revenue $ 1,143,416 $ 1,098,302 $ 45,114 4.1 %
Gross profit $ 115,204 $ 62,678 $ 52,526 83.8 %
Unit sales 22,791 24,100 (1,309) (5.4) %
Revenue per unit $ 50,170 $ 45,573 $ 4,597 10.1 %
Gross profit per unit $ 5,055 $ 2,601 $ 2,454 94.3 %
Gross profit as a % of revenue 10.1 % 5.7 % 440 bps

Nine Months Ended September 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit and per unit data)
Reported new vehicle:
Revenue $ 3,761,718 $ 2,957,794 $ 803,924 27.2 %
Gross profit $ 302,994 $ 153,480 $ 149,514 97.4 %
Unit sales 77,637 65,715 11,922 18.1 %
Revenue per unit $ 48,453 $ 45,009 $ 3,444 7.7 %
Gross profit per unit $ 3,903 $ 2,336 $ 1,567 67.1 %
Gross profit as a % of revenue 8.1 % 5.2 % 290 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)
	2022			2021			Change		% Change
	(In millions, except unit and per unit data)
Reported new vehicle:
Retail new vehicle revenue	$	1,341.7		$	1,452.3		$	(110.6)	(8)	%
Fleet new vehicle revenue	166.5			9.7			156.8		NM
Total new vehicle revenue	$	1,508.2		$	1,462.0		$	46.2	3	%

Retail new vehicle gross profit	$	167.3		$	118.0		$	49.3	42	%
Fleet new vehicle gross profit	0.9			0.3			0.6		200	%
Total new vehicle gross profit	$	168.2		$	118.3		$	49.9	42	%

Retail new vehicle unit sales	24,342			30,243			(5,901)		(20)	%
Fleet new vehicle unit sales	4,638			245			4,393		NM
Total new vehicle unit sales	28,980			30,488			(1,508)		(5)	%

Revenue per retail unit	$	55,119		$	48,021		$	7,098	15	%
Revenue per fleet unit	$	35,889		$	39,487		$	(3,598)	(9)	%
Total revenue per new unit	$	52,042		$	47,953		$	4,089	9	%

Gross profit per retail unit	$	6,871		$	3,902		$	2,969	76	%
Gross profit per fleet unit	$	203		$	1,319		$	(1,116)	(85)	%
Total gross profit per new unit	$	5,804		$	3,881		$	1,923	50	%

Retail gross profit as a % of revenue	12.5		%	8.1		%	440		bps
Fleet gross profit as a % of revenue	0.5		%	3.3		%	(280)		bps
Total new vehicle gross profit as a % of revenue	11.2		%	8.1		%	310		bps

Three Months Ended September 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit and per unit data)
Same store new vehicle:
Revenue $ 1,137,465 $ 1,091,592 $ 45,873 4.2 %
Gross profit $ 114,308 $ 62,360 $ 51,948 83.3 %
Unit sales 22,631 23,852 (1,221) (5.1) %
Revenue per unit $ 50,261 $ 45,765 $ 4,496 9.8 %
Gross profit per unit $ 5,051 $ 2,614 $ 2,437 93.2 %
Gross profit as a % of revenue 10.0 % 5.7 % 430 bps

Nine Months Ended September 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit and per unit data)
Same store new vehicle:
Revenue $ 3,755,766 $ 2,935,140 $ 820,626 28.0 %
Gross profit $ 301,616 $ 152,487 $ 149,129 97.8 %
Unit sales 77,477 64,893 12,584 19.4 %
Revenue per unit $ 48,476 $ 45,230 $ 3,246 7.2 %
Gross profit per unit $ 3,893 $ 2,350 $ 1,543 65.7 %
Gross profit as a % of revenue 8.0 % 5.2 % 280 bps
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)
	2022			2021			Change		% Change
	(In millions, except unit and per unit data)
Reported new vehicle:
Retail new vehicle revenue	$	2,687.4		$	2,586.3		$	101.1	4	%
Fleet new vehicle revenue	315.0			32.0			283.0		884	%
Total new vehicle revenue	$	3,002.4		$	2,618.3		$	384.1	15	%

Retail new vehicle gross profit	$	333.8		$	187.2		$	146.6	78	%
Fleet new vehicle gross profit	1.8			0.6			1.2		200	%
Total new vehicle gross profit	$	335.6		$	187.8		$	147.8	79	%

Retail new vehicle unit sales	48,944			54,060			(5,116)		(9)	%
Fleet new vehicle unit sales	9,019			786			8,233		NM
Total new vehicle unit sales	57,963			54,846			3,117		6	%

Revenue per retail unit	$	54,908		$	47,841		$	7,067	15	%
Revenue per fleet unit	$	34,926		$	40,686		$	(5,760)	(14)	%
Total revenue per new unit	$	51,799		$	47,739		$	4,060	9	%

Gross profit per retail unit	$	6,821		$	3,463		$	3,358	97	%
Gross profit per fleet unit	$	198		$	727		$	(529)	(73)	%
Total gross profit per new unit	$	5,790		$	3,424		$	2,366	69	%

Retail gross profit as a % of revenue	12.4		%	7.2		%	520		bps
Fleet gross profit as a % of revenue	0.6		%	1.8		%	(120)		bps
Total new vehicle gross profit as a % of revenue	11.2		%	7.2		%	400		bps

NM = Not Meaningful

SONIC AUTOMOTIVE, INC.

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

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


	Three Months Ended June 30,						Better / (Worse)
	2022			2021			Change		% Change
	(In millions, except unit and per unit data)
Same store new vehicle:
Retail new vehicle revenue	$	1,126.3		$	1,447.5		$	(321.2)	(22)	%
Fleet new vehicle revenue	17.5			9.7			7.8		80	%
Total new vehicle revenue	$	1,143.8		$	1,457.2		$	(313.4)	(22)	%

Retail new vehicle gross profit	$	139.0		$	117.4		$	21.6	18	%
Fleet new vehicle gross profit	0.8			0.3			0.5		167	%
Total new vehicle gross profit	$	139.8		$	117.7		$	22.1	19	%

Retail new vehicle unit sales	20,135			30,129			(9,994)		(33)	%
Fleet new vehicle unit sales	381			245			136		56	%
Total new vehicle unit sales	20,516			30,374			(9,858)		(32)	%

Revenue per new retail unit	$	55,938		$	48,043		$	7,895	16	%
Revenue per new fleet unit	$	45,847		$	39,487		$	6,360	16	%
Total revenue per new unit	$	55,751		$	47,974		$	7,777	16	%

Gross profit per new retail unit	$	6,905		$	3,897		$	3,008	77	%
Gross profit per new fleet unit	$	1,973		$	1,319		$	654	50	%
Total gross profit per new unit	$	6,813		$	3,876		$	2,937	76	%

Retail gross profit as a % of revenue	12.3		%	8.1		%	420		bps
Fleet gross profit as a % of revenue	4.3		%	3.1		%	120		bps
Total new vehicle gross profit as a % of revenue	12.2		%	8.1		%	410		bps

SONIC AUTOMOTIVE, INC.

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



	Six Months Ended June 30,						Better / (Worse)
	2022			2021			Change		% Change
	(In millions, except unit and per unit data)
Same store new vehicle:
Retail new vehicle revenue	$	2,236.0		$	2,578.2		$	(342.2)	(13)	%
Fleet new vehicle revenue	31.0			32.0			(1.0)		(3)	%
Total new vehicle revenue	$	2,267.0		$	2,610.2		$	(343.2)	(13)	%

Retail new vehicle gross profit	$	276.9		$	186.2		$	90.7	49	%
Fleet new vehicle gross profit	1.4			0.6			0.8		133	%
Total new vehicle gross profit	$	278.3		$	186.8		$	91.5	49	%

Retail new vehicle unit sales	40,418			53,865			(13,447)		(25)	%
Fleet new vehicle unit sales	658			786			(128)		(16)	%
Total new vehicle unit sales	41,076			54,651			(13,575)		(25)	%

Revenue per new retail unit	$	55,323		$	47,864		$	7,459	16	%
Revenue per new fleet unit	$	47,118		$	40,686		$	6,432	16	%
Total revenue per new unit	$	55,191		$	47,761		$	7,430	16	%

Gross profit per new retail unit	$	6,851		$	3,458		$	3,393	98	%
Gross profit per new fleet unit	$	2,130		$	727		$	1,403	193	%
Total gross profit per new unit	$	6,775		$	3,418		$	3,357	98	%

Retail gross profit as a % of revenue	12.4		%	7.2		%	520		bps
Fleet gross profit as a % of revenue	4.5		%	1.8		%	270		bps
Total new vehicle gross profit as a % of revenue	12.3		%	7.2		%	510		bps

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

~~New~~Retail new vehicle revenue ~~increased 4.2%~~decreased 22% due primarily to ~~higher average selling prices, which was driven by a favorable comparison due~~lower retail new vehicle unit sales volume as compared to the ~~impact of the COVID-19 pandemic on the~~ prior ~~year quarter results. New~~period. Retail new vehicle gross profit increased approximately ~~$51.9~~$21.6 million, or ~~83.3%~~18%, as a result of higher retail new vehicle gross profit per unit. ~~New~~Retail new vehicle gross profit per unit increased ~~$2,437~~$3,008 per unit, or ~~93.2%~~77%, to ~~$5,051~~$6,905 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 Retail New Vehicles – ~~Nine~~Six Months Ended ~~September~~June 30, ~~2021~~2022 Compared to ~~Nine~~Six Months Ended ~~September~~June 30, ~~2020~~2021

~~New~~Retail new vehicle revenue ~~increased 28.0%~~decreased 13%, due primarily to ~~higher average selling prices and a 19.4% increase in~~lower retail new vehicle unit sales volume ~~which was driven~~partially offset by ~~a favorable comparison due to the impact of the COVID-19 pandemic~~higher average selling prices on ~~the prior year-to-date period results. New~~such vehicles. Retail new vehicle gross profit increased approximately ~~$149.1~~$90.7 million, or ~~97.8%~~49%, 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 ~~$1,543~~$3,393 per unit, or ~~65.7%~~98%, to ~~$3,893~~$6,851 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.

SONIC AUTOMOTIVE, INC.

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

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 September 30,				Better / (Worse)					Three Months Ended June 30,				Better / (Worse)
		2021		2020		Change		% Change			2022		2021		Change		% Change
		(In thousands, except unit data)									(In millions, except unit data)
Total used vehicle revenue:
Retail used vehicle revenue:										Retail used vehicle revenue:
Same store	Same store	$	745,754	$	612,363	$	133,391	21.8	%	Same store	$	751.5	$	758.8	$	(7.3)	(1)	%
Acquisitions, open points, dispositions and holding company	Acquisitions, open points, dispositions and holding company	4,509		3,202		1,307		40.8	%	Acquisitions, open points, dispositions and holding company	120.4		2.7		117.7		NM
Total as reported	Total as reported	$	750,263	$	615,565	$	134,698	21.9	%	Total as reported	$	871.9	$	761.5	$	110.4	14	%

Total used vehicle gross profit:
Retail used vehicle gross profit:										Retail used vehicle gross profit:
Same store	Same store	$	47,860	$	36,411	$	11,449	31.4	%	Same store	$	38.2	$	54.5	$	(16.3)	(30)	%
Acquisitions, open points, dispositions and holding company	Acquisitions, open points, dispositions and holding company	2,244		(2,026)		4,270		210.8	%	Acquisitions, open points, dispositions and holding company	5.5		0.7		4.8		686	%
Total as reported	Total as reported	$	50,104	$	34,385	$	15,719	45.7	%	Total as reported	$	43.7	$	55.2	$	(11.5)	(21)	%

Total used vehicle unit sales:
Retail used vehicle unit sales:										Retail used vehicle unit sales:
Same store	Same store	26,084		26,168		(84)		(0.3)	%	Same store	23,555		28,429		(4,874)		(17)	%
Acquisitions, open points, dispositions and holding company	Acquisitions, open points, dispositions and holding company	190		195		(5)		(2.6)	%	Acquisitions, open points, dispositions and holding company	4,601		121		4,480		NM
Total as reported	Total as reported	26,274		26,363		(89)		(0.3)	%	Total as reported	28,156		28,550		(394)		(1)	%

NM = Not Meaningful



	Six Months Ended June 30,				Better / (Worse)
	2022		2021		Change		% Change
	(In millions, except unit data)
Retail used vehicle revenue:
Same store	$	1,474.5	$	1,417.9	$	56.6	4	%
Acquisitions, open points, dispositions and holding company	251.2		5.2		246.0		NM
Total as reported	$	1,725.7	$	1,423.1	$	302.6	21	%

Retail used vehicle gross profit:
Same store	$	77.5	$	89.0	$	(11.5)	(13)	%
Acquisitions, open points, dispositions and holding company	13.1		(1.8)		14.9		828	%
Total as reported	$	90.6	$	87.2	$	3.4	4	%

Retail used vehicle unit sales:
Same store	46,272		55,549		(9,277)		(17)	%
Acquisitions, open points, dispositions and holding company	8,962		237		8,725		NM
Total as reported	55,234		55,786		(552)		(1)	%
NM = Not Meaningful

~~SONIC AUTOMOTIVE, INC.~~

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

Nine Months Ended September 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit data)
Total used vehicle revenue:
Same store $ 2,168,814 $ 1,704,494 $ 464,320 27.2 %
Acquisitions, open points, dispositions and holding company 4,508 13,657 (9,149) (67.0) %
Total as reported $ 2,173,322 $ 1,718,151 $ 455,171 26.5 %
Total used vehicle gross profit:
Same store $ 137,158 $ 101,259 $ 35,899 35.5 %
Acquisitions, open points, dispositions and holding company 163 (4,145) 4,308 103.9 %
Total as reported $ 137,321 $ 97,114 $ 40,207 41.4 %
Total used vehicle unit sales:
Same store 81,870 75,504 6,366 8.4 %
Acquisitions, open points, dispositions and holding company 190 870 (680) (78.2) %
Total as reported 82,060 76,374 5,686 7.4 %
NM = Not Meaningful

~~Our Franchised Dealerships Segment reported retail used vehicle results were as follows:~~
Three Months Ended September 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit and per unit data)
Reported used vehicle:
Revenue $ 750,263 $ 615,565 $ 134,698 21.9 %
Gross profit $ 50,104 $ 34,385 $ 15,719 45.7 %
Unit sales 26,274 26,363 (89) (0.3) %
Revenue per unit $ 28,555 $ 23,350 $ 5,205 22.3 %
Gross profit per unit $ 1,907 $ 1,304 $ 603 46.2 %
Gross profit as a % of revenue 6.7 % 5.6 % 110 bps

Nine Months Ended September 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit and per unit data)
Reported used vehicle:
Revenue $ 2,173,322 $ 1,718,151 $ 455,171 26.5 %
Gross profit $ 137,321 $ 97,114 $ 40,207 41.4 %
Unit sales 82,060 76,374 5,686 7.4 %
Revenue per unit $ 26,485 $ 22,497 $ 3,988 17.7 %
Gross profit per unit $ 1,673 $ 1,272 $ 401 31.5 %
Gross profit as a % of revenue 6.3 % 5.7 % 60 bps

3133

SONIC AUTOMOTIVE, INC.

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

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


	Three Months Ended June 30,						Better / (Worse)
	2022			2021			Change		% Change
	(In millions, except unit and per unit data)
Reported retail used vehicle:
Revenue	$	871.9		$	761.5		$	110.4	14	%
Gross profit	$	43.7		$	55.2		$	(11.5)	(21)	%
Unit sales	28,156			28,550			(394)		(1)	%
Revenue per unit	$	30,967		$	26,673		$	4,294	16	%
Gross profit per unit	$	1,553		$	1,934		$	(381)	(20)	%
Gross profit as a % of revenue	5.0		%	7.3		%	(230)		bps



	Six Months Ended June 30,						Better / (Worse)
	2022			2021			Change		% Change
	(In millions, except unit and per unit data)
Reported retail used vehicle:
Revenue	$	1,725.7		$	1,423.1		$	302.6	21	%
Gross profit	$	90.6		$	87.2		$	3.4	4	%
Unit sales	55,234			55,786			(552)		(1)	%
Revenue per unit	$	31,243		$	25,509		$	5,734	22	%
Gross profit per unit	$	1,640		$	1,563		$	77	5	%
Gross profit as a % of revenue	5.3		%	6.1		%	(80)		bps

Our Franchised Dealerships Segment same store retail used vehicle results were as follows:
Three Months Ended September 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit and per unit data)
Same store used vehicle:
Revenue $ 745,754 $ 612,363 $ 133,391 21.8 %
Gross profit $ 47,860 $ 36,411 $ 11,449 31.4 %
Unit sales 26,084 26,168 (84) (0.3) %
Revenue per unit $ 28,590 $ 23,401 $ 5,189 22.2 %
Gross profit per unit $ 1,835 $ 1,391 $ 444 31.9 %
Gross profit as a % of revenue 6.4 % 5.9 % 50 bps


		Nine Months Ended September 30,						Better / (Worse)					Three Months Ended June 30,						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 used vehicle:
Same store retail used vehicle:												Same store retail used vehicle:
Revenue	Revenue	$	2,168,814		$	1,704,494		$	464,320	27.2	%	Revenue	$	751.5		$	758.8		$	(7.3)	(1)	%
Gross profit	Gross profit	$	137,158		$	101,259		$	35,899	35.5	%	Gross profit	$	38.2		$	54.5		$	(16.3)	(30)	%
Unit sales	Unit sales	81,870			75,504			6,366		8.4	%	Unit sales	23,555			28,429			(4,874)		(17)	%
Revenue per unit	Revenue per unit	$	26,491		$	22,575		$	3,916	17.3	%	Revenue per unit	$	31,903		$	26,690		$	5,213	20	%
Gross profit per unit	Gross profit per unit	$	1,675		$	1,341		$	334	24.9	%	Gross profit per unit	$	1,622		$	1,915		$	(293)	(15)	%
Gross profit as a % of revenue	Gross profit as a % of revenue	6.3		%	5.9		%	40		bps		Gross profit as a % of revenue	5.1		%	7.2		%	(210)		bps

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

Retail used vehicle revenue increased approximately $133.4 million, or 21.8%, and retail used vehicle revenue per unit increased approximately 22.2% due to higher industry used vehicle prices as a result of increased consumer demand from the impact of new vehicle inventory shortages during the third quarter of 2021. Retail used vehicle gross profit increased approximately $11.4 million, or 31.4%, driven primarily by a $444 per unit increase in retail used vehicle gross profit per unit due to increased consumer demand for used vehicle inventory during the third quarter of 2021.

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

Retail used vehicle revenue increased approximately $464.3 million, or 27.2%, and retail used vehicle revenue per unit increased approximately 17.3% due to higher industry used vehicle prices as a result of increased consumer demand from the impact of new vehicle inventory shortages during the first nine months of 2021. Retail used vehicle gross profit increased approximately $35.9 million, or 35.5%, driven primarily by a $334 per unit increase in retail used vehicle gross profit per unit due to increased consumer demand for used vehicle inventory during the first nine months of 2021.



	Six Months Ended June 30,						Better / (Worse)
	2022			2021			Change		% Change
	(In millions, except unit and per unit data)
Same store retail used vehicle:
Revenue	$	1,474.5		$	1,417.9		$	56.6	4	%
Gross profit	$	77.5		$	89.0		$	(11.5)	(13)	%
Unit sales	46,272			55,549			(9,277)		(17)	%
Revenue per unit	$	31,866		$	25,525		$	6,341	25	%
Gross profit per unit	$	1,674		$	1,602		$	72	4	%
Gross profit as a % of revenue	5.3		%	6.3		%	(100)		bps

3234

SONIC AUTOMOTIVE, INC.

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

Same Store Franchised Dealerships Segment Retail Used Vehicles – Three Months Ended June 30, 2022 Compared to Three Months Ended June 30, 2021

Retail used vehicle revenue decreased approximately $7.3 million, or 1%, driven primarily by a 17% decrease in retail used vehicle unit sales volume, offset partially by a 20% increase in retail used vehicle revenue per unit. Retail used vehicle gross profit decreased approximately $16.3 million, or 30%, driven primarily by a $293 per unit decrease in retail used vehicle gross profit per unit, as well as the decrease in retail used vehicle unit sales volume during the second quarter of 2022.

Same Store Franchised Dealerships Segment Retail Used Vehicles – Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021

Retail used vehicle revenue increased approximately $56.6 million, or 4%, driven primarily by a 25% increase in retail used vehicle revenue per unit, offset partially by a 17% decrease in retail used vehicle unit sales volume. Retail used vehicle gross profit decreased approximately $11.5 million, or 13%, driven primarily by the decrease in used vehicle unit sales volume during the second quarter of 2022, offset partially by a $72 per unit increase in retail used vehicle gross profit per unit.

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 September 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit data)
Total wholesale vehicle revenue:
Same store $ 63,886 $ 48,290 $ 15,596 32.3 %
Acquisitions, open points, dispositions and holding company 166 236 (70) (29.7) %
Total as reported $ 64,052 $ 48,526 $ 15,526 32.0 %
Total wholesale vehicle gross profit (loss):
Same store $ 770 $ 2,686 $ (1,916) (71.3) %
Acquisitions, open points, dispositions and holding company (2,756) (130) (2,626) NM
Total as reported $ (1,986) $ 2,556 $ (4,542) (177.7) %
Total wholesale vehicle unit sales:
Same store 6,095 6,630 (535) (8.1) %
Acquisitions, open points, dispositions and holding company 24 49 (25) (51.0) %
Total as reported 6,119 6,679 (560) (8.4) %
NM = Not Meaningful


		Nine Months Ended September 30,				Better / (Worse)					Three Months Ended June 30,				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 store	Same store	$	183,047	$	118,629	$	64,418	54.3	%	Same store	$	55.4	$	62.7	$	(7.3)	(12)	%
Acquisitions, open points, dispositions and holding company	Acquisitions, open points, dispositions and holding company	165		845		(680)		(80.5)	%	Acquisitions, open points, dispositions and holding company	23.8		0.3		23.5		NM
Total as reported	Total as reported	$	183,212	$	119,474	$	63,738	53.3	%	Total as reported	$	79.2	$	63.0	$	16.2	26	%

Total wholesale vehicle gross profit (loss):	Total wholesale vehicle gross profit (loss):									Total wholesale vehicle gross profit (loss):
Same store	Same store	$	5,705	$	2,348	$	3,357	143.0	%	Same store	$	(0.4)	$	4.1	$	(4.5)	(110)	%
Acquisitions, open points, dispositions and holding company	Acquisitions, open points, dispositions and holding company	(5,519)		(232)		(5,287)		NM		Acquisitions, open points, dispositions and holding company	(0.1)		(2.6)		2.5		96	%
Total as reported	Total as reported	$	186	$	2,116	$	(1,930)	(91.2)	%	Total as reported	$	(0.5)	$	1.5	$	(2.0)	(133)	%

Total wholesale vehicle unit sales:	Total wholesale vehicle unit sales:									Total wholesale vehicle unit sales:
Same store	Same store	19,680		18,241		1,439		7.9	%	Same store	4,313		6,729		(2,416)		(36)	%
Acquisitions, open points, dispositions and holding company	Acquisitions, open points, dispositions and holding company	24		175		(151)		(86.3)	%	Acquisitions, open points, dispositions and holding company	1,538		24		1,514		NM
Total as reported	Total as reported	19,704		18,416		1,288		7.0	%	Total as reported	5,851		6,753		(902)		(13)	%
NM = Not Meaningful	NM = Not Meaningful									NM = Not Meaningful

3335

SONIC AUTOMOTIVE, INC.

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



	Six Months Ended June 30,				Better / (Worse)
	2022		2021		Change		% Change
	(In millions, except unit data)
Total wholesale vehicle revenue:
Same store	$	138.1	$	118.7	$	19.4	16	%
Acquisitions, open points, dispositions and holding company	47.4		0.4		47.0		NM
Total as reported	$	185.5	$	119.1	$	66.4	56	%

Total wholesale vehicle gross profit (loss):
Same store	$	(0.8)	$	4.9	$	(5.7)	(116)	%
Acquisitions, open points, dispositions and holding company	(0.1)		(2.7)		2.6		96	%
Total as reported	$	(0.9)	$	2.2	$	(3.1)	(141)	%

Total wholesale vehicle unit sales:
Same store	9,675		13,532		(3,857)		(29)	%
Acquisitions, open points, dispositions and holding company	2,948		53		2,895		NM
Total as reported	12,623		13,585		(962)		(7)	%
NM = Not Meaningful

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


		Three Months Ended September 30,						Better / (Worse)					Three Months Ended June 30,						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	$	64,052		$	48,526		$	15,526	32.0	%	Revenue	$	79.2		$	63.0		$	16.2	26	%
Gross profit (loss)	Gross profit (loss)	$	(1,986)		$	2,556		$	(4,542)	(177.7)	%	Gross profit (loss)	$	(0.5)		$	1.5		$	(2.0)	(133)	%
Unit sales	Unit sales	6,119			6,679			(560)		(8.4)	%	Unit sales	5,851			6,753			(902)		(13)	%
Revenue per unit	Revenue per unit	$	10,468		$	7,265		$	3,203	44.1	%	Revenue per unit	$	13,537		$	9,323		$	4,214	45	%
Gross profit (loss) per unit	Gross profit (loss) per unit	$	(325)		$	383		$	(708)	(184.9)	%	Gross profit (loss) per unit	$	(91)		$	212		$	(303)	(143)	%
Gross profit (loss) as a % of revenue	Gross profit (loss) as a % of revenue	(3.1)		%	5.3		%	(840)		bps		Gross profit (loss) as a % of revenue	(0.6)		%	2.3		%	(290)		bps

Nine Months Ended September 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit and per unit data)
Reported wholesale vehicle:
Revenue $ 183,212 $ 119,474 $ 63,738 53.3 %
Gross profit (loss) $ 186 $ 2,116 $ (1,930) (91.2) %
Unit sales 19,704 18,416 1,288 7.0 %
Revenue per unit $ 9,298 $ 6,488 $ 2,810 43.3 %
Gross profit (loss) per unit $ 9 $ 115 $ (106) (92.2) %
Gross profit (loss) as a % of revenue 0.1 % 1.8 % (170) bps

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

Three Months Ended September 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit and per unit data)
Same store wholesale vehicle:
Revenue $ 63,886 $ 48,290 $ 15,596 32.3 %
Gross profit (loss) $ 770 $ 2,686 $ (1,916) (71.3) %
Unit sales 6,095 6,630 (535) (8.1) %
Revenue per unit $ 10,482 $ 7,284 $ 3,198 43.9 %
Gross profit (loss) per unit $ 126 $ 405 $ (279) (68.9) %
Gross profit (loss) as a % of revenue 1.2 % 5.6 % (440) bps


		Nine Months Ended September 30,						Better / (Worse)					Six Months Ended June 30,						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:
Reported wholesale vehicle:												Reported wholesale vehicle:
Revenue	Revenue	$	183,047		$	118,629		$	64,418	54.3	%	Revenue	$	185.5		$	119.1		$	66.4	56	%
Gross profit (loss)	Gross profit (loss)	$	5,705		$	2,348		$	3,357	143.0	%	Gross profit (loss)	$	(0.9)		$	2.2		$	(3.1)	(141)	%
Unit sales	Unit sales	19,680			18,241			1,439		7.9	%	Unit sales	12,623			13,585			(962)		(7)	%
Revenue per unit	Revenue per unit	$	9,301		$	6,503		$	2,798	43.0	%	Revenue per unit	$	14,696		$	8,771		$	5,925	68	%
Gross profit (loss) per unit	Gross profit (loss) per unit	$	290		$	129		$	161	124.8	%	Gross profit (loss) per unit	$	(74)		$	160		$	(234)	(146)	%
Gross profit (loss) as a % of revenue	Gross profit (loss) as a % of revenue	3.1		%	2.0		%	110		bps		Gross profit (loss) as a % of revenue	(0.5)		%	1.8		%	(230)		bps

3436

SONIC AUTOMOTIVE, INC.

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

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


	Three Months Ended June 30,						Better / (Worse)
	2022			2021			Change		% Change
	(In millions, except unit and per unit data)
Same store wholesale vehicle:
Revenue	$	55.4		$	62.7		$	(7.3)	(12)	%
Gross profit (loss)	$	(0.4)		$	4.1		$	(4.5)	(110)	%
Unit sales	4,313			6,729			(2,416)		(36)	%
Revenue per unit	$	12,860		$	9,329		$	3,531	38	%
Gross profit (loss) per unit	$	(75)		$	619		$	(694)	(112)	%
Gross profit (loss) as a % of revenue	(0.7)		%	6.5		%	(720)		bps



	Six Months Ended June 30,						Better / (Worse)
	2022			2021			Change		% Change
	(In millions, except unit and per unit data)
Same store wholesale vehicle:
Revenue	$	138.1		$	118.7		$	19.4	16	%
Gross profit (loss)	$	(0.8)		$	4.9		$	(5.7)	(116)	%
Unit sales	9,675			13,532			(3,857)		(29)	%
Revenue per unit	$	14,269		$	8,778		$	5,491	63	%
Gross profit (loss) per unit	$	(72)		$	363		$	(435)	(120)	%
Gross profit (loss) as a % of revenue	(0.6)		%	4.1		%	(470)		bps

We generally focus on maintaining Franchised Dealerships Segment used vehicle inventory days’ supply in the ~~30-~~25- 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 reported ~~franchised dealerships~~Franchised Dealerships Segment used vehicle inventory days’ supply was approximately ~~27 and 29~~31 days as of ~~September~~both June 30, ~~2021~~2022 and ~~2020, respectively.~~2021. 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 ~~September~~June 30, ~~2021~~2022 Compared to Three Months Ended ~~September~~June 30, ~~2020~~2021

Wholesale vehicle revenue ~~increased 32.3%~~decreased approximately $7.3 million, or 12%, driven ~~primarily~~ by a ~~43.9%~~36% decrease in wholesale vehicle unit sales volume due to fewer trade-ins as a result of decreased retail new and used vehicle sales activity during the second quarter of 2022, partially offset by a 38% increase in wholesale vehicle revenue per ~~unit during the third quarter of 2021.~~unit. Wholesale vehicle gross profit decreased approximately ~~$1.9~~$4.5 million, driven primarily by a ~~$279~~$694 per unit, or ~~68.9%~~112%, decrease in wholesale vehicle gross profit per unit as ~~well as an 8.1% decrease in wholesale vehicle unit sales volume as~~ a result of ~~decreased wholesale vehicle supply~~lower demand in the wholesale ~~auction~~vehicle market ~~due~~compared to the ~~impact of new vehicle inventory shortages during the third quarter of 2021.~~prior year period.

Same Store Franchised Dealerships Segment Wholesale Vehicles – ~~Nine~~Six Months Ended ~~September~~June 30, ~~2021~~2022 Compared to ~~Nine~~Six Months Ended ~~September~~June 30, ~~2020~~2021

Wholesale vehicle revenue increased ~~54.3%~~approximately $19.4 million or 16%, driven primarily by a ~~43.0%~~63% increase in wholesale vehicle revenue per unit during the first ~~nine~~six months of ~~2021.~~2022. Wholesale vehicle gross profit ~~increased~~decreased approximately ~~$3.4~~$5.7 million, driven primarily by a ~~$161~~$435 per unit, or ~~124.8%~~120%, ~~increase~~decrease in wholesale vehicle gross profit per unit, as well as a ~~7.9% increase~~29% decrease in wholesale vehicle unit sales volume as a result of ~~increased wholesale vehicle~~higher levels of demand in the wholesale vehicle auction market during the first six months of 2021 due to the impact of new vehicle inventory shortages ~~during the first nine months~~and high levels of ~~2021.~~consumer demand for both new and used vehicles.

SONIC AUTOMOTIVE, INC.

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

Fixed Operations – Franchised Dealerships Segment

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


		Three Months Ended September 30,				Better / (Worse)					Three Months Ended June 30,				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	$	338,141	$	307,614	$	30,527	9.9	%	Same store	$	362.1	$	344.9	$	17.2	5	%
Acquisitions, open points, dispositions and holding company	Acquisitions, open points, dispositions and holding company	1,789		2,421		(632)		(26.1)	%	Acquisitions, open points, dispositions and holding company	36.0		1.2		34.8		NM
Total as reported	Total as reported	$	339,930	$	310,035	$	29,895	9.6	%	Total as reported	$	398.1	$	346.1	$	52.0	15	%

Total Fixed Operations gross profit:	Total Fixed Operations gross profit:									Total Fixed Operations gross profit:
Same store	Same store	$	169,700	$	155,682	$	14,018	9.0	%	Same store	$	181.2	$	174.5	$	6.7	4	%
Acquisitions, open points, dispositions and holding company	Acquisitions, open points, dispositions and holding company	1,365		1,029		336		32.7	%	Acquisitions, open points, dispositions and holding company	16.9		1.1		15.8		NM
Total as reported	Total as reported	$	171,065	$	156,711	$	14,354	9.2	%	Total as reported	$	198.1	$	175.6	$	22.5	13	%

NM = Not Meaningful



	Six Months Ended June 30,				Better / (Worse)
	2022		2021		Change		% Change
	(In millions)
Total Fixed Operations revenue:
Same store	$	706.8	$	651.8	$	55.0	8	%
Acquisitions, open points, dispositions and holding company	71.9		2.4		69.5		NM
Total as reported	$	778.7	$	654.2	$	124.5	19	%

Total Fixed Operations gross profit:
Same store	$	350.9	$	328.8	$	22.1	7	%
Acquisitions, open points, dispositions and holding company	33.9		2.0		31.9		NM
Total as reported	$	384.8	$	330.8	$	54.0	16	%

NM = Not Meaningful

~~SONIC AUTOMOTIVE, INC.~~

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

Nine Months Ended September 30, Better / (Worse)
2021 2020 Change % Change
(In thousands)
Total Fixed Operations revenue:
Same store $ 992,291 $ 874,636 $ 117,655 13.5 %
Acquisitions, open points, dispositions and holding company 1,834 11,898 (10,064) (84.6) %
Total as reported $ 994,125 $ 886,534 $ 107,591 12.1 %
Total Fixed Operations gross profit:
Same store $ 499,714 $ 433,629 $ 66,085 15.2 %
Acquisitions, open points, dispositions and holding company 2,194 5,643 (3,449) (61.1) %
Total as reported $ 501,908 $ 439,272 $ 62,636 14.3 %

~~Our Franchised Dealerships Segment reported Fixed Operations results were as follows:~~
Three Months Ended September 30, Better / (Worse)
2021 2020 Change % Change
(In thousands)
Reported Fixed Operations:
Revenue
Customer pay $ 155,765 $ 129,556 $ 26,209 20.2 %
Warranty 52,636 58,294 (5,658) (9.7) %
Wholesale parts 41,660 32,515 9,145 28.1 %
Internal, sublet and other 89,869 89,670 199 0.2 %
Total revenue $ 339,930 $ 310,035 $ 29,895 9.6 %
Gross profit
Customer pay $ 88,994 $ 73,652 $ 15,342 20.8 %
Warranty 30,648 33,548 (2,900) (8.6) %
Wholesale parts 7,533 5,654 1,879 33.2 %
Internal, sublet and other 43,890 43,857 33 0.1 %
Total gross profit $ 171,065 $ 156,711 $ 14,354 9.2 %
Gross profit as a % of revenue
Customer pay 57.1 % 56.8 % 30 bps
Warranty 58.2 % 57.5 % 70 bps
Wholesale parts 18.1 % 17.4 % 70 bps
Internal, sublet and other 48.8 % 48.9 % (10) bps
Total gross profit as a % of revenue 50.3 % 50.5 % (20) bps

~~SONIC AUTOMOTIVE, INC.~~

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

Nine Months Ended September 30, Better / (Worse)
2021 2020 Change % Change
(In thousands)
Reported Fixed Operations:
Revenue
Customer pay $ 440,650 $ 374,798 $ 65,852 17.6 %
Warranty 163,760 168,380 (4,620) (2.7) %
Wholesale parts 115,949 97,573 18,376 18.8 %
Internal, sublet and other 273,766 245,783 27,983 11.4 %
Total revenue $ 994,125 $ 886,534 $ 107,591 12.1 %
Gross profit
Customer pay $ 252,237 $ 210,706 $ 41,531 19.7 %
Warranty 95,411 95,014 397 0.4 %
Wholesale parts 20,534 16,827 3,707 22.0 %
Internal, sublet and other 133,726 116,725 17,001 14.6 %
Total gross profit $ 501,908 $ 439,272 $ 62,636 14.3 %
Gross profit as a % of revenue
Customer pay 57.2 % 56.2 % 100 bps
Warranty 58.3 % 56.4 % 190 bps
Wholesale parts 17.7 % 17.2 % 50 bps
Internal, sublet and other 48.8 % 47.5 % 130 bps
Total gross profit as a % of revenue 50.5 % 49.5 % 100 bps

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

Three Months Ended September 30, Better / (Worse)
2021 2020 Change % Change
(In thousands)
Same store Fixed Operations:
Revenue
Customer pay $ 154,905 $ 128,221 $ 26,684 20.8 %
Warranty 52,212 58,031 (5,819) (10.0) %
Wholesale parts 41,577 32,441 9,136 28.2 %
Internal, sublet and other 89,447 88,921 526 0.6 %
Total revenue $ 338,141 $ 307,614 $ 30,527 9.9 %
Gross profit
Customer pay $ 88,549 $ 72,989 $ 15,560 21.3 %
Warranty 30,448 33,430 (2,982) (8.9) %
Wholesale parts 7,519 5,641 1,878 33.3 %
Internal, sublet and other 43,184 43,622 (438) (1.0) %
Total gross profit $ 169,700 $ 155,682 $ 14,018 9.0 %
Gross profit as a % of revenue
Customer pay 57.2 % 56.9 % 30 bps
Warranty 58.3 % 57.6 % 70 bps
Wholesale parts 18.1 % 17.4 % 70 bps
Internal, sublet and other 48.3 % 49.1 % (80) bps
Total gross profit as a % of revenue 50.2 % 50.6 % (40) bps

~~SONIC AUTOMOTIVE, INC.~~

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

Nine Months Ended September 30, Better / (Worse)
2021 2020 Change % Change
(In thousands)
Same store Fixed Operations:
Revenue
Customer pay $ 439,784 $ 367,869 $ 71,915 19.5 %
Warranty 163,332 167,319 (3,987) (2.4) %
Wholesale parts 115,866 97,040 18,826 19.4 %
Internal, sublet and other 273,309 242,408 30,901 12.7 %
Total revenue $ 992,291 $ 874,636 $ 117,655 13.5 %
Gross profit
Customer pay $ 251,790 $ 207,392 $ 44,398 21.4 %
Warranty 95,153 94,378 775 0.8 %
Wholesale parts 20,520 16,765 3,755 22.4 %
Internal, sublet and other 132,251 115,094 17,157 14.9 %
Total gross profit $ 499,714 $ 433,629 $ 66,085 15.2 %
Gross profit as a % of revenue
Customer pay 57.3 % 56.4 % 90 bps
Warranty 58.3 % 56.4 % 190 bps
Wholesale parts 17.7 % 17.3 % 40 bps
Internal, sublet and other 48.4 % 47.5 % 90 bps
Total gross profit as a % of revenue 50.4 % 49.6 % 80 bps

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

Fixed Operations revenue increased approximately $30.5 million, or 9.9%, and Fixed Operations gross profit increased approximately $14.0 million, or 9.0%. Customer pay gross profit increased approximately $15.6 million, or 21.3%, warranty gross profit decreased approximately $3.0 million, or 8.9%, wholesale parts gross profit increased approximately $1.9 million, or 33.3%, and internal, sublet and other gross profit decreased approximately $0.4 million, or 1.0%. 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 third quarter of 2020. We expect consumer activity to continue to improve as we proceed through the remainder of 2021, and anticipate a continuing recovery in Fixed Operations activity (in particular, related to customer pay repairs) above pre-pandemic levels in 2022.

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

Fixed Operations revenue increased approximately $117.7 million, or 13.5%, and Fixed Operations gross profit increased approximately $66.1 million, or 15.2%. Customer pay gross profit increased approximately $44.4 million, or 21.4%, warranty gross profit increased approximately $0.8 million, or 0.8%, wholesale parts gross profit increased approximately $3.8 million, or 22.4%, and internal, sublet and other gross profit increased approximately $17.2 million, or 14.9%. 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 and third quarters of 2020. We expect consumer activity to continue to improve as we proceed through the remainder of 2021, and anticipate a continuing recovery in Fixed Operations activity (in particular, related to customer pay repairs) above pre-pandemic levels in 2022.

~~F&I~~ – ~~Franchised Dealerships Segment~~

SONIC AUTOMOTIVE, INC.

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~~Our Franchised Dealerships Segment reported ~~basis and same store basis for F&I:~~
Three Months Ended September 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit and per unit data)
Total F&I revenue:
Same store $ 103,746 $ 85,911 $ 17,835 20.8 %
Acquisitions, open points, dispositions and holding company 8,062 5,124 2,938 57.3 %
Total as reported $ 111,808 $ 91,035 $ 20,773 22.8 %
Total F&I gross profit per retail unit (excludes fleet):
Same store $ 2,152 $ 1,723 $ 429 24.9 %
Reported $ 2,303 $ 1,810 $ 493 27.2 %
Total combined new and used retail unit sales:
Same store 48,204 49,854 (1,650) (3.3) %
Acquisitions, open points, dispositions and holding company 350 443 (93) (21.0) %
Total as reported 48,554 50,297 (1,743) (3.5) %
Fixed Operations results were as follows:

~~NM = Not Meaningful~~


	Three Months Ended June 30,						Better / (Worse)
	2022			2021			Change		% Change
	(In millions)
Reported Fixed Operations:
Revenue
Customer pay	$	186.2		$	151.6		$	34.6	23	%
Warranty	54.4			58.0			(3.6)		(6)	%
Wholesale parts	49.9			39.6			10.3		26	%
Internal, sublet and other	107.6			96.9			10.7		11	%
Total revenue	$	398.1		$	346.1		$	52.0	15	%

Gross profit
Customer pay	$	103.2		$	87.3		$	15.9	18	%
Warranty	32.3			33.8			(1.5)		(4)	%
Wholesale parts	9.0			6.9			2.1		30	%
Internal, sublet and other	53.6			47.6			6.0		13	%
Total gross profit	$	198.1		$	175.6		$	22.5	13	%

Gross profit as a % of revenue
Customer pay	55.4		%	57.6		%	(220)		bps
Warranty	59.4		%	58.3		%	110		bps
Wholesale parts	18.0		%	17.4		%	60		bps
Internal, sublet and other	49.8		%	49.1		%	70		bps
Total gross profit as a % of revenue	49.8		%	50.7		%	(90)		bps

Nine Months Ended September 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit and per unit data)
Total F&I revenue:
Same store $ 312,649 $ 238,125 $ 74,524 31.3 %
Acquisitions, open points, dispositions and holding company 20,745 16,340 4,405 27.0 %
Total as reported $ 333,394 $ 254,465 $ 78,929 31.0 %
Total F&I gross profit per retail unit (excludes fleet):
Same store $ 1,978 $ 1,707 $ 271 15.9 %
Reported $ 2,105 $ 1,802 $ 303 16.8 %
Total combined new and used retail unit sales:
Same store 158,050 139,496 18,554 13.3 %
Acquisitions, open points, dispositions and holding company 350 1,692 (1,342) (79.3) %
Total as reported 158,400 141,188 17,212 12.2 %

~~NM = Not Meaningful~~



	Six Months Ended June 30,						Better / (Worse)
	2022			2021			Change		% Change
	(In millions)
Reported Fixed Operations:
Revenue
Customer pay	$	362.6		$	284.9		$	77.7	27	%
Warranty	107.1			111.1			(4.0)		(4)	%
Wholesale parts	99.6			74.3			25.3		34	%
Internal, sublet and other	209.4			183.9			25.5		14	%
Total revenue	$	778.7		$	654.2		$	124.5	19	%

Gross profit
Customer pay	$	201.0		$	163.2		$	37.8	23	%
Warranty	63.7			64.8			(1.1)		(2)	%
Wholesale parts	17.8			13.0			4.8		37	%
Internal, sublet and other	102.3			89.8			12.5		14	%
Total gross profit	$	384.8		$	330.8		$	54.0	16	%

Gross profit as a % of revenue
Customer pay	55.4		%	57.3		%	(190)		bps
Warranty	59.5		%	58.3		%	120		bps
Wholesale parts	17.9		%	17.5		%	40		bps
Internal, sublet and other	48.9		%	48.8		%	10		bps
Total gross profit as a % of revenue	49.4		%	50.6		%	(120)		bps

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 September 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit and per unit data)
Reported F&I:
Revenue $ 111,808 $ 91,035 $ 20,773 22.8 %
Unit sales 48,554 50,297 (1,743) (3.5) %
Gross profit per retail unit (excludes fleet) $ 2,303 $ 1,810 $ 493 27.2 %

Nine Months Ended September 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit and per unit data)
Reported F&I:
Revenue $ 333,394 $ 254,465 $ 78,929 31.0 %
Unit sales 158,400 141,188 17,212 12.2 %
Gross profit per retail unit (excludes fleet) $ 2,105 $ 1,802 $ 303 16.8 %

Our Franchised Dealerships Segment same store ~~F&I~~Fixed Operations results were as follows:
Three Months Ended September 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit and per unit data)
Same store F&I:
Revenue $ 103,746 $ 85,911 $ 17,835 20.8 %
Unit sales 48,204 49,854 (1,650) (3.3) %
Gross profit per retail unit (excludes fleet) $ 2,152 $ 1,723 $ 429 24.9 %

Nine Months Ended September 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit and per unit data)
Same store F&I:
Revenue $ 312,649 $ 238,125 $ 74,524 31.3 %
Unit sales 158,050 139,496 18,554 13.3 %
Gross profit per retail unit (excludes fleet) $ 1,978 $ 1,707 $ 271 15.9 %


	Three Months Ended June 30,						Better / (Worse)
	2022			2021			Change		% Change
	(In millions)
Same store Fixed Operations:
Revenue
Customer pay	$	171.0		$	151.0		$	20.0	13	%
Warranty	51.7			57.8			(6.1)		(11)	%
Wholesale parts	46.5			39.4			7.1		18	%
Internal, sublet and other	92.9			96.7			(3.8)		(4)	%
Total revenue	$	362.1		$	344.9		$	17.2	5	%

Gross profit
Customer pay	$	96.2		$	86.9		$	9.3	11	%
Warranty	30.3			33.7			(3.4)		(10)	%
Wholesale parts	8.4			6.9			1.5		22	%
Internal, sublet and other	46.3			47.0			(0.7)		(1)	%
Total gross profit	$	181.2		$	174.5		$	6.7	4	%

Gross profit as a % of revenue
Customer pay	56.2		%	57.6		%	(140)		bps
Warranty	58.7		%	58.3		%	40		bps
Wholesale parts	18.0		%	17.4		%	60		bps
Internal, sublet and other	49.8		%	48.6		%	120		bps
Total gross profit as a % of revenue	50.0		%	50.6		%	(60)		bps

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

F&I revenues increased approximately $17.8 million, or 20.8%, due to an increase in F&I gross profit per retail unit. F&I gross profit per retail unit increased $429 per unit, or 24.9%, to $2,152 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 22.7%, primarily due to a 28.0% increase in gross profit per finance contract, offset partially by a 4.2% decrease in finance contract volume as a result of lower retail new and used vehicle unit sales volume, as well as a 70-basis point decrease in the finance contract penetration rate. Service contract revenue increased 13.6%, primarily due to a 9.5% increase in service contract volume, as well as a 3.8% increase in gross profit per service contract, and a 490-basis point increase in the service contract penetration rate. Other aftermarket contract revenue increased 18.2%, primarily due to an 8.9% increase in other aftermarket contract volume, as well as an 8.5% increase in gross profit per other aftermarket contract and an 1,800-basis point increase in the other aftermarket contract penetration rate.

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

F&I revenues increased approximately $74.5 million, or 31.3%, due to a 15.9% increase in gross profit per retail unit, as well as a 13.3% increase in retail new and used vehicle unit sales volume and an increase in F&I gross profit per retail unit. F&I



	Six Months Ended June 30,						Better / (Worse)
	2022			2021			Change		% Change
	(In millions)
Same store Fixed Operations:
Revenue
Customer pay	$	332.9		$	283.8		$	49.1	17	%
Warranty	102.1			110.8			(8.7)		(8)	%
Wholesale parts	92.6			74.0			18.6		25	%
Internal, sublet and other	179.2			183.2			(4.0)		(2)	%
Total revenue	$	706.8		$	651.8		$	55.0	8	%

Gross profit
Customer pay	$	187.4		$	162.6		$	24.8	15	%
Warranty	60.0			64.5			(4.5)		(7)	%
Wholesale parts	16.7			12.9			3.8		29	%
Internal, sublet and other	86.8			88.8			(2.0)		(2)	%
Total gross profit	$	350.9		$	328.8		$	22.1	7	%

Gross profit as a % of revenue
Customer pay	56.3		%	57.3		%	(100)		bps
Warranty	58.8		%	58.2		%	60		bps
Wholesale parts	18.0		%	17.4		%	60		bps
Internal, sublet and other	48.4		%	48.5		%	(10)		bps
Total gross profit as a % of revenue	49.6		%	50.4		%	(80)		bps

SONIC AUTOMOTIVE, INC.

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

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

Fixed Operations revenue increased approximately $17.2 million, or 5%, and Fixed Operations gross profit increased approximately $6.7 million, or 4%. Customer pay gross profit increased approximately $9.3 million, or 11%, warranty gross profit decreased approximately $3.4 million, or 10%, wholesale parts gross profit increased approximately $1.5 million, or 22%, and internal, sublet and other gross profit decreased approximately $0.7 million, or 1%. As consumer activity and vehicle miles driven have continued to improve from pandemic-induced lows in early 2020, we have experienced a recovery in Fixed Operations activity (in particular, related to customer pay repairs) above pre-pandemic levels, and expect to continue to see elevated levels in the remainder of 2022, compared to the prior year period.

Same Store Franchised Dealerships Segment Fixed Operations – Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021

Fixed Operations revenue increased approximately $55.0 million, or 8%, and Fixed Operations gross profit increased approximately $22.1 million, or 7%. Customer pay gross profit increased approximately $24.8 million, or 15%, warranty gross profit decreased approximately $4.5 million, or 7%, wholesale parts gross profit increased approximately $3.8 million, or 29%, and internal, sublet and other gross profit decreased approximately $2.0 million, or 2%. As consumer activity and vehicle miles driven have continued to improve from pandemic-induced lows in early 2020, we have experienced a recovery in Fixed Operations activity (in particular, related to customer pay repairs) above pre-pandemic levels, and expect to continue to see elevated levels in the remainder of 2022, compared to the prior year period.

F&I – Franchised Dealerships Segment

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)
	2022		2021		Change		% Change
	(In millions, except unit and per unit data)
Total F&I revenue:
Same store	$	106.6	$	123.7	$	(17.1)	(14)	%
Acquisitions, open points, dispositions and holding company	23.2		0.3		22.9		NM
Total as reported	$	129.8	$	124.0	$	5.8	5	%

Total F&I gross profit per retail unit (excludes fleet):
Same store	$	2,440	$	2,113	$	327	15	%
Reported	$	2,472	$	2,110	$	362	17	%

Total combined retail new and used vehicle unit sales:
Same store	43,690		58,558		(14,868)		(25)	%
Acquisitions, open points, dispositions and holding company	8,808		235		8,573		NM
Total as reported	52,498		58,793		(6,295)		(11)	%

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)
	2022		2021		Change		% Change
	(In millions, except unit and per unit data)
Total F&I revenue:
Same store	$	209.1	$	221.0	$	(11.9)	(5)	%
Acquisitions, open points, dispositions and holding company	47.1		0.6		46.5		NM
Total as reported	$	256.2	$	221.6	$	34.6	16	%

Total F&I gross profit per retail unit (excludes fleet):
Same store	$	2,412	$	2,020	$	392	19	%
Reported	$	2,460	$	2,017	$	443	22	%

Total combined retail new and used vehicle unit sales:
Same store	86,690		109,414		(22,724)		(21)	%
Acquisitions, open points, dispositions and holding company	17,488		432		17,056		NM
Total as reported	104,178		109,846		(5,668)		(5)	%

NM = Not Meaningful

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


	Three Months Ended June 30,				Better / (Worse)
	2022		2021		Change		% Change
	(In millions, except unit and per unit data)
Reported F&I:
Revenue	$	129.8	$	124.0	$	5.8	5	%
Total combined retail new and used vehicle unit sales	52,498		58,793		(6,295)		(11)	%
Gross profit per retail unit (excludes fleet)	$	2,472	$	2,110	$	362	17	%



	Six Months Ended June 30,				Better / (Worse)
	2022		2021		Change		% Change
	(In millions, except unit and per unit data)
Reported F&I:
Revenue	$	256.2	$	221.6	$	34.6	16	%
Total combined retail new and used vehicle unit sales	104,178		109,846		(5,668)		(5)	%
Gross profit per retail unit (excludes fleet)	$	2,460	$	2,017	$	443	22	%

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


	Three Months Ended June 30,				Better / (Worse)
	2022		2021		Change		% Change
	(In millions, except unit and per unit data)
Same store F&I:
Revenue	$	106.6	$	123.7	$	(17.1)	(14)	%
Total combined retail new and used vehicle unit sales	43,690		58,558		(14,868)		(25)	%
Gross profit per retail unit (excludes fleet)	$	2,440	$	2,113	$	327	15	%

SONIC AUTOMOTIVE, INC.

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



	Six Months Ended June 30,				Better / (Worse)
	2022		2021		Change		% Change
	(In millions, except unit and per unit data)
Same store F&I:
Revenue	$	209.1	$	221.0	$	(11.9)	(5)	%
Total combined retail new and used vehicle unit sales	86,690		109,414		(22,724)		(21)	%
Gross profit per retail unit (excludes fleet)	$	2,412	$	2,020	$	392	19	%

Same Store Franchised Dealerships Segment F&I – Three Months Ended June 30, 2022 Compared to Three Months Ended June 30, 2021

F&I revenue decreased approximately $17.1 million, or 14%, due primarily to a 25% decrease in total combined new and used retail unit sales volume, offset partially by an increase in F&I gross profit per retail unit. F&I gross profit per retail unit increased ~~$271~~$327 per unit, or ~~15.9%~~15%, to ~~$1,978~~$2,440 per unit, due primarily ~~due~~ to an ~~increase in gross profit per contract and an increase in the other aftermarket contract penetration rate.~~

~~Finance contract revenue increased 35.9%, primarily due to a 21.2%~~ increase in gross profit per finance contract as well as an increase in the other aftermarket contract penetration rate and gross profit per aftermarket contract.

Finance contract revenue for new and used vehicles decreased 17%, due primarily to a ~~12.2% increase~~30% decrease in finance contract volume as well as a ~~result of higher retail~~460-basis point decrease in the finance contract penetration rate, offset partially by a 19% increase in gross profit per finance contract. Service contract revenue for new and used vehicles decreased 9%, due primarily to a 13% decrease in service contract volume, offset partially by a 4% increase in gross profit per service contract as well as a 620-basis point increase in the service contract penetration rate. Other aftermarket contract revenue decreased 4%, due primarily to a 14% decrease in other aftermarket contract volume, offset by a 11% increase in gross profit per other aftermarket contract as well as a 2,400-basis point increase in the other aftermarket contract penetration rate.

Same Store Franchised Dealerships Segment F&I – Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021

F&I revenue decreased approximately $11.9 million, or 5%, due primarily to a 21% decrease in total combined new and used vehicle retail unit sales volume, offset partially by an ~~80-basis~~increase in F&I gross profit per retail unit. F&I gross profit per retail unit increased $392 per unit, or 19%, to $2,412 per unit, due primarily to an increase in gross profit per contract (finance, service, and other aftermarket) and an increase in the service contract and other aftermarket contract penetration rates.

Finance contract revenue for new and used vehicles decreased 7%, due primarily to a 24% decrease in finance contract volume as well as a 290-basis point decrease in the finance contract penetration ~~rate.~~rate, offset partially by a 22% increase in gross profit per finance contract. Service contract revenue ~~increased 25.0%~~for new and used vehicles decreased 5%, due primarily ~~due~~ to a ~~19.3% increase~~9% decrease in service contract volume, ~~as well as~~offset partially by a ~~4.7%~~4% increase in gross profit per service contract ~~and~~as well as a ~~200-basis~~570-basis point increase in the service contract penetration rate. Other aftermarket contract revenue increased ~~32.5%~~3%, due primarily ~~due~~ to a ~~23.4% increase in other aftermarket contract volume, as well as a 7.4%~~11.5% increase in gross profit per other aftermarket contract ~~and~~as well as a ~~1,260-basis~~2,460-basis point increase in the other aftermarket contract penetration ~~rate.~~rate, offset partially by a 8% decrease in other aftermarket contract volume.

Results of Operations – EchoPark Segment

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 retail 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 retail unit, which includes both front-end retail used vehicle gross profit (loss) and F&I gross profit per retail 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 a reconciliation of EchoPark Segment reported basis, same market basis and new market basis for retail used vehicles:


		Three Months Ended September 30,				Better / (Worse)					Three Months Ended June 30,				Better / (Worse)
		2021		2020		Change		% Change			2022		2021		Change		% Change
		(In thousands, except unit data)									(In millions, except unit data)
Total used vehicle revenue:	Total used vehicle revenue:									Total used vehicle revenue:
Same market	Same market	$	400,050	$	330,520	$	69,530	21.0	%	Same market	$	406.3	$	518.6	$	(112.3)	(22)	%
New markets	New markets	159,179		(57)		159,236		NM		New markets	171.2		1.1		170.1		NM
Total as reported	Total as reported	$	559,229	$	330,463	$	228,766	69.2	%	Total as reported	$	577.5	$	519.7	$	57.8	11	%

Total used vehicle gross profit (loss):	Total used vehicle gross profit (loss):									Total used vehicle gross profit (loss):
Same market	Same market	$	(20,015)	$	(12,115)	$	(7,900)	(65.2)	%	Same market	$	(3.6)	$	(20.3)	$	16.7	82	%
New markets	New markets	(10,369)		5,765		(16,134)		(279.9)	%	New markets	7.0		0.2		6.8		NM
Total as reported	Total as reported	$	(30,384)	$	(6,350)	$	(24,034)	(378.5)	%	Total as reported	$	3.4	$	(20.1)	$	23.5	117	%

Total used vehicle unit sales:	Total used vehicle unit sales:									Total used vehicle unit sales:
Same market	Same market	14,828		15,127		(299)		(2.0)	%	Same market	12,440		21,222		(8,782)		(41)	%
New markets	New markets	6,427		—		6,427		100.0	%	New markets	4,168		39		4,129		NM
Total as reported	Total as reported	21,255		15,127		6,128		40.5	%	Total as reported	16,608		21,261		(4,653)		(22)	%
NM = Not Meaningful	NM = Not Meaningful									NM = Not Meaningful



	Six Months Ended June 30,				Better / (Worse)
	2022		2021		Change		% Change
	(In millions, except unit data)
Total used vehicle revenue:
Same market	$	768.4	$	960.1	$	(191.7)	(20)	%
New markets	326.1		0.9		325.2		NM
Total as reported	$	1,094.5	$	961.0	$	133.5	14	%

Total used vehicle gross profit (loss):
Same market	$	(10.4)	$	(21.6)	$	11.2	52	%
New markets	15.0		0.2		14.8		NM
Total as reported	$	4.6	$	(21.4)	$	26.0	121	%

Total used vehicle unit sales:
Same market	23,830		40,892		(17,062)		(42)	%
New markets	7,773		39		7,734		NM
Total as reported	31,603		40,931		(9,328)		(23)	%
NM = Not Meaningful

4144

SONIC AUTOMOTIVE, INC.

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

Nine Months Ended September 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit data)
Total used vehicle revenue:
Same market $ 1,139,032 $ 886,873 $ 252,159 28.4 %
New markets 353,932 (67) 353,999 NM
Total as reported $ 1,492,964 $ 886,806 $ 606,158 68.4 %
Total used vehicle gross profit (loss):
Same market $ (38,344) $ (22,818) $ (15,526) (68.0) %
New markets (13,635) 13,240 (26,875) (203.0) %
Total as reported $ (51,979) $ (9,578) $ (42,401) (442.7) %
Total used vehicle unit sales:
Same market 46,864 42,320 4,544 10.7 %
New markets 15,322 — 15,322 100.0 %
Total as reported 62,186 42,320 19,866 46.9 %
NM = Not Meaningful

The following tables provide a reconciliation of EchoPark Segment reported basis, same market basis and new market basis for F&I:
Three Months Ended September 30, Better / (Worse)
2021 2020 Change % Change
(In thousands)
Total F&I revenue:
Same market $ 37,045 $ 35,669 $ 1,376 3.9 %
New markets 15,231 80 15,151 NM
Total as reported $ 52,276 $ 35,749 $ 16,527 46.2 %


	Three Months Ended June 30,				Better / (Worse)
	2022		2021		Change		% Change
	(In millions)
Total F&I revenue:
Same market	$	30.8	$	53.3	$	(22.5)	(42)	%
New markets	12.6		(0.1)		12.7		NM
Total as reported	$	43.4	$	53.2	$	(9.8)	(18)	%
NM = Not Meaningful



	Six Months Ended June 30,				Better / (Worse)
	2022		2021		Change		% Change
	(In millions)
Total F&I revenue:
Same market	$	59.4	$	99.9	$	(40.5)	(41)	%
New markets	24.1		0.4		23.7		NM
Total as reported	$	83.5	$	100.3	$	(16.8)	(17)	%
NM = Not Meaningful

~~NM = Not Meaningful~~

Nine Months Ended September 30, Better / (Worse)
2021 2020 Change % Change
(In thousands)
Total F&I revenue:
Same market $ 116,003 $ 98,099 $ 17,904 18.3 %
New markets 36,603 284 36,319 NM
Total as reported $ 152,606 $ 98,383 $ 54,223 55.1 %
NM = Not Meaningful

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


	Three Months Ended June 30,				Better / (Worse)
	2022		2021		Change		% Change
	(In millions, except unit and per unit data)
Reported used vehicle and F&I:
Used vehicle revenue	$	577.5	$	519.7	$	57.8	11	%
Used vehicle gross profit (loss)	$	3.4	$	(20.1)	$	23.5	117	%
Used vehicle unit sales	16,608		21,261		(4,653)		(22)	%
Used vehicle revenue per unit	$	34,772	$	24,442	$	10,330	42	%
F&I revenue	$	43.4	$	53.2	$	(9.8)	(18)	%
Combined used vehicle gross profit and F&I revenue	$	46.8	$	33.1	$	13.7	41	%
Total used vehicle and F&I gross profit per retail unit	$	2,804	$	1,537	$	1,267	82	%



	Six Months Ended June 30,				Better / (Worse)
	2022		2021		Change		% Change
	(In millions, except unit and per unit data)
Reported used vehicle and F&I:
Used vehicle revenue	$	1,094.5	$	961.0	$	133.5	14	%
Used vehicle gross profit (loss)	$	4.6	$	(21.4)	$	26.0	121	%
Used vehicle unit sales	31,603		40,931		(9,328)		(23)	%
Used vehicle revenue per unit	$	34,633	$	23,479	$	11,154	48	%
F&I revenue	$	83.5	$	100.3	$	(16.8)	(17)	%
Combined used vehicle gross profit and F&I revenue	$	88.1	$	78.9	$	9.2	12	%
Total used vehicle and F&I gross profit per retail unit	$	2,774	$	1,922	$	852	44	%

4245

SONIC AUTOMOTIVE, INC.

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

~~Our EchoPark Segment reported retail used vehicle and F&I results were as follows:~~
Three Months Ended September 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit and per unit data)
Reported used vehicle and F&I:
Used vehicle revenue $ 559,229 $ 330,463 $ 228,766 69.2 %
Used vehicle gross profit (loss) $ (30,384) $ (6,350) $ (24,034) (378.5) %
Used vehicle unit sales 21,255 15,127 6,128 40.5 %
Used vehicle revenue per unit $ 26,310 $ 21,846 $ 4,464 20.4 %
F&I revenue $ 52,276 $ 35,749 $ 16,527 46.2 %
Combined used vehicle gross profit and F&I revenue $ 21,892 $ 29,399 $ (7,507) (25.5) %
Total used vehicle and F&I gross profit per unit $ 1,030 $ 1,943 $ (913) (47.0) %

Nine Months Ended September 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit and per unit data)
Reported used vehicle and F&I:
Used vehicle revenue $ 1,492,964 $ 886,806 $ 606,158 68.4 %
Used vehicle gross profit (loss) $ (51,979) $ (9,578) $ (42,401) (442.7) %
Used vehicle unit sales 62,186 42,320 19,866 46.9 %
Used vehicle revenue per unit $ 24,008 $ 20,955 $ 3,053 14.6 %
F&I revenue $ 152,606 $ 98,383 $ 54,223 55.1 %
Combined used vehicle gross profit and F&I revenue $ 100,627 $ 88,805 $ 11,822 13.3 %
Total used vehicle and F&I gross profit per unit $ 1,618 $ 2,098 $ (480) (22.9) %

Our EchoPark Segment same market retail used vehicle and F&I results were as follows:
Three Months Ended September 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 $ 400,050 $ 330,520 $ 69,530 21.0 %
Used vehicle gross profit (loss) $ (20,015) $ (12,115) $ (7,900) (65.2) %
Used vehicle unit sales 14,828 15,127 (299) (2.0) %
Used vehicle revenue per unit $ 26,979 $ 21,850 $ 5,129 23.5 %
F&I revenue $ 37,045 $ 35,669 $ 1,376 3.9 %
Combined used vehicle gross profit and F&I revenue $ 17,030 $ 23,554 $ (6,524) (27.7) %
Total used vehicle and F&I gross profit per unit $ 1,149 $ 1,557 $ (408) (26.2) %


	Three Months Ended June 30,				Better / (Worse)
	2022		2021		Change		% Change
	(In millions, except unit and per unit data)
Same market used vehicle and F&I:
Used vehicle revenue	$	406.3	$	518.6	$	(112.3)	(22)	%
Used vehicle gross profit (loss)	$	(3.6)	$	(20.3)	$	16.7	82	%
Used vehicle unit sales	12,440		21,222		(8,782)		(41)	%
Used vehicle revenue per unit	$	32,661	$	24,437	$	8,224	34	%
F&I revenue	$	30.8	$	53.3	$	(22.5)	(42)	%
Combined used vehicle gross profit and F&I revenue	$	27.2	$	33.0	$	(5.8)	(18)	%
Total used vehicle and F&I gross profit per retail unit	$	2,171	$	1,538	$	633	41	%


		Nine Months Ended September 30,				Better / (Worse)					Six Months Ended June 30,				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 used vehicle and F&I:	Same market used vehicle and F&I:									Same market used vehicle and F&I:
Used vehicle revenue	Used vehicle revenue	$	1,139,032	$	886,873	$	252,159	28.4	%	Used vehicle revenue	$	768.4	$	960.1	$	(191.7)	(20)	%
Used vehicle gross profit (loss)	Used vehicle gross profit (loss)	$	(38,344)	$	(22,818)	$	(15,526)	(68.0)	%	Used vehicle gross profit (loss)	$	(10.4)	$	(21.6)	$	11.2	52	%
Used vehicle unit sales	Used vehicle unit sales	46,864		42,320		4,544		10.7	%	Used vehicle unit sales	23,830		40,892		(17,062)		(42)	%
Used vehicle revenue per unit	Used vehicle revenue per unit	$	24,305	$	20,956	$	3,349	16.0	%	Used vehicle revenue per unit	$	32,245	$	23,479	$	8,766	37	%
F&I revenue	F&I revenue	$	116,003	$	98,099	$	17,904	18.3	%	F&I revenue	$	59.4	$	99.9	$	(40.5)	(41)	%
Combined used vehicle gross profit and F&I revenue	Combined used vehicle gross profit and F&I revenue	$	77,659	$	75,281	$	2,378	3.2	%	Combined used vehicle gross profit and F&I revenue	$	49.0	$	78.3	$	(29.3)	(37)	%
Total used vehicle and F&I gross profit per unit		$	1,657	$	1,779	$	(122)	(6.9)	%
Total used vehicle and F&I gross profit per retail unit										Total used vehicle and F&I gross profit per retail unit	$	2,048	$	1,914	$	134	7	%

~~SONIC AUTOMOTIVE, INC.~~

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

Same Market EchoPark Segment Used Vehicles and F&I – Three Months Ended ~~September~~June 30, ~~2021~~2022 Compared to Three Months Ended ~~September~~June 30, ~~2020~~2021

Retail used vehicle revenue ~~increased~~decreased approximately ~~$69.5~~$112.3 million, or ~~21.0%, driven~~22% due primarily to a 41% decrease in retail used vehicle unit sales, offset partially by a ~~$5,129 per unit, or 23.5%,~~34% increase in retail used vehicle revenue per ~~unit, offset partially by a 2.0% decrease in retail used vehicle unit sales.~~unit. Combined ~~retail~~ used vehicle gross profit and F&I revenue decreased approximately ~~$6.5~~$5.8 million, or ~~27.7%~~18%, ~~driven~~due primarily to a $22.5 million decrease in F&I revenue, offset partially by ~~an approximately $7.9~~a $16.7 million ~~or 65.2%, increase~~decrease in retail used vehicle gross ~~loss, offset partially by an approximately $1.4 million, or 3.9%,~~loss. The increase in ~~F&I revenue. Total retail~~total used vehicle and F&I gross profit per retail unit ~~decreased approximately $408 per unit, or 26.2%,~~was due primarily to used vehicle prices reaching an all-time high during the ~~increased cost~~first quarter of ~~inventory~~2022, and remaining at ~~wholesale auction as a result~~elevated levels during the second quarter 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 $1.2 million, or 11.5%, due to a 10.4% increase in F&I gross profit per unit, as well as a 1.0% increase in total finance contracts. Service contract gross profit decreased approximately $0.1 million, or 1.7%, due to a 1.6% decrease in gross profit per service contract, as well as a 0.1% decrease in total service contracts. Other aftermarket product contract gross profit increased approximately $0.4 million, or 7.2%, due to a 3.8% increase in total other aftermarket product contracts, as well as a 3.3% increase in gross profit per aftermarket contract.2022.

Same Market EchoPark Segment Used Vehicles and F&I – ~~Nine~~Three Months Ended ~~September~~June 30, ~~2021~~2022 Compared to ~~Nine~~Three Months Ended ~~September~~June 30, ~~2020~~2021

Retail used vehicle revenue ~~increased~~decreased approximately ~~$252.2~~$191.7 million, or ~~28.4%, driven~~20% due primarily to a 42% decrease in retail used vehicle unit sales, offset partially by a ~~$3,349 per unit, or 16.0%,~~37% increase in retail used vehicle revenue per ~~unit, as well as a 10.7% increase in retail used vehicle unit sales.~~unit. Combined ~~retail~~ used vehicle gross profit and F&I revenue ~~increased~~decreased approximately ~~$2.4~~$29.3 million, or ~~3.2%~~37%, ~~driven~~due primarily ~~by an approximately $17.9~~to a $40.5 million ~~or 18.3%, increase~~decrease in F&I revenue, offset partially by ~~an approximately $15.5~~a $11.2 million ~~or 68.0%, increase~~decrease in retail used vehicle gross loss. ~~Total retail~~The increase in total used vehicle and F&I gross profit per retail unit ~~decreased approximately $122 per unit, or 6.9%,~~was due primarily to used vehicle prices reaching an all-time high during the ~~increased cost~~first quarter of ~~inventory~~2022, and remaining at ~~wholesale auction as a result~~elevated levels during the second quarter 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 $5.2 million, or 19.0%, due to an 11.6% increase in total finance contracts, as well as a 6.6% increase in F&I gross profit per unit. Service contract gross profit increased approximately $4.4 million, or 18.4%, due to a 17.9% increase in total service contracts, as well as a 0.5% increase in gross profit per service contract. Other aftermarket product contract gross profit increased approximately $2.8 million, or 18.5%, due to a 17.1% increase in total other aftermarket product contracts, as well as a 1.3% increase in gross profit per aftermarket contract.2022.

4446

SONIC AUTOMOTIVE, INC.

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

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 a reconciliation of EchoPark Segment reported basis, same market basis and new market basis for wholesale vehicles:


		Three Months Ended September 30,				Better / (Worse)					Three Months Ended June 30,				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	$	24,186	$	7,977	$	16,209	203.2	%	Same market	$	35.0	$	21.9	$	13.1	60	%
New markets	New markets	8,849		(1)		8,850		NM		New markets	7.2		(0.1)		7.3		NM
Total as reported	Total as reported	$	33,035	$	7,976	$	25,059	314.2	%	Total as reported	$	42.2	$	21.8	$	20.4	94	%

Total wholesale vehicle gross profit (loss):	Total wholesale vehicle gross profit (loss):									Total wholesale vehicle gross profit (loss):
Same market	Same market	$	2,328	$	(13)	$	2,341	NM		Same market	$	1.5	$	2.8	$	(1.3)	(46)	%
New markets	New markets	913		1		912		NM		New markets	0.2		0.2		—		—	%
Total as reported	Total as reported	$	3,241	$	(12)	$	3,253	NM		Total as reported	$	1.7	$	3.0	$	(1.3)	(43)	%

Total wholesale vehicle unit sales:	Total wholesale vehicle unit sales:									Total wholesale vehicle unit sales:
Same market	Same market	2,226		1,955		271		13.9	%	Same market	2,286		2,878		(592)		(21)	%
New markets	New markets	1,266		—		1,266		NM		New markets	408		—		408		100	%
Total as reported	Total as reported	3,492		1,955		1,537		78.6	%	Total as reported	2,694		2,878		(184)		(6)	%
NM = Not Meaningful


		Nine Months Ended September 30,				Better / (Worse)					Six Months Ended June 30,				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	$	55,275	$	18,747	$	36,528	194.8	%	Same market	$	89.3	$	40.5	$	48.8	120	%
New markets	New markets	18,214		—		18,214		NM		New markets	15.4		—		15.4		100	%
Total as reported	Total as reported	$	73,489	$	18,747	$	54,742	292.0	%	Total as reported	$	104.7	$	40.5	$	64.2	159	%

Total wholesale vehicle gross profit (loss):	Total wholesale vehicle gross profit (loss):									Total wholesale vehicle gross profit (loss):
Same market	Same market	$	4,768	$	(157)	$	4,925	NM		Same market	$	3.5	$	3.1	$	0.4	13	%
New markets	New markets	1,675		2		1,673		NM		New markets	—		0.1		(0.1)		(100)	%
Total as reported	Total as reported	$	6,443	$	(155)	$	6,598	NM		Total as reported	$	3.5	$	3.2	$	0.3	9	%

Total wholesale vehicle unit sales:	Total wholesale vehicle unit sales:									Total wholesale vehicle unit sales:
Same market	Same market	6,386		5,174		1,212		23.4	%	Same market	5,393		5,739		(346)		(6)	%
New markets	New markets	2,845		—		2,845		NM		New markets	950		—		950		100	%
Total as reported	Total as reported	9,231		5,174		4,057		78.4	%	Total as reported	6,343		5,739		604		11	%
NM = Not Meaningful

4547

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 September 30,						Better / (Worse)					Three Months Ended June 30,						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	$	33,035		$	7,976		$	25,059	314.2	%	Revenue	$	42.2		$	21.8		$	20.4	94	%
Gross profit (loss)	Gross profit (loss)	$	3,241		$	(12)		$	3,253	NM		Gross profit (loss)	$	1.7		$	3.0		$	(1.3)	(43)	%
Unit sales	Unit sales	3,492			1,955			1,537		78.6	%	Unit sales	2,694			2,878			(184)		(6)	%
Revenue per unit	Revenue per unit	$	9,460		$	4,080		$	5,380	131.9	%	Revenue per unit	$	15,656		$	7,592		$	8,064	106	%
Gross profit (loss) per unit	Gross profit (loss) per unit	$	928		$	(6)		$	934	NM		Gross profit (loss) per unit	$	608		$	1,075		$	(467)	NM
Gross profit (loss) as a % of revenue	Gross profit (loss) as a % of revenue	9.8		%	(0.2)		%	1,000		bps		Gross profit (loss) as a % of revenue	3.9		%	14.2		%	(1,030)		bps
NM = Not Meaningful	NM = Not Meaningful											NM = Not Meaningful


		Nine Months Ended September 30,						Better / (Worse)					Six Months Ended June 30,						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	$	73,489		$	18,747		$	54,742	292.0	%	Revenue	$	104.7		$	40.5		$	64.2	159	%
Gross profit (loss)	Gross profit (loss)	$	6,443		$	(155)		$	6,598	NM		Gross profit (loss)	$	3.5		$	3.2		$	0.3	9	%
Unit sales	Unit sales	9,231			5,174			4,057		78.4	%	Unit sales	6,343			5,739			604		11	%
Revenue per unit	Revenue per unit	$	7,961		$	3,623		$	4,338	119.7	%	Revenue per unit	$	16,502		$	7,049		$	9,453	134	%
Gross profit (loss) per unit	Gross profit (loss) per unit	$	698		$	(30)		$	728	NM		Gross profit (loss) per unit	$	563		$	558		$	5	1	%
Gross profit (loss) as a % of revenue	Gross profit (loss) as a % of revenue	8.8		%	(0.8)		%	960		bps		Gross profit (loss) as a % of revenue	3.4		%	7.9		%	(450)		bps
NM = Not Meaningful

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


		Three Months Ended September 30,						Better / (Worse)					Three Months Ended June 30,						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	$	24,186		$	7,977		$	16,209	203.2	%	Revenue	$	35.0		$	21.9		$	13.1	60	%
Gross profit (loss)	Gross profit (loss)	$	2,328		$	(13)		$	2,341	NM		Gross profit (loss)	$	1.5		$	2.8		$	(1.3)	(46)	%
Unit sales	Unit sales	2,226			1,955			271		13.9	%	Unit sales	2,286			2,878			(592)		(21)	%
Revenue per unit	Revenue per unit	$	10,865		$	4,080		$	6,785	166.3	%	Revenue per unit	$	15,307		$	7,592		$	7,715	102	%
Gross profit (loss) per unit	Gross profit (loss) per unit	$	1,046		$	(7)		$	1,053	NM		Gross profit (loss) per unit	$	695		$	1,074		$	(379)	(35)	%
Gross profit (loss) as a % of revenue	Gross profit (loss) as a % of revenue	9.6		%	(0.2)		%	980		bps		Gross profit (loss) as a % of revenue	4.5		%	14.2		%	(970)		bps
NM = Not Meaningful

Nine Months Ended September 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit and per unit data)
Same market wholesale vehicle:
Revenue $ 55,275 $ 18,747 $ 36,528 194.8 %
Gross profit (loss) $ 4,768 $ (157) $ 4,925 NM
Unit sales 6,386 5,174 1,212 23.4 %
Revenue per unit $ 8,656 $ 3,623 $ 5,033 138.9 %
Gross profit (loss) per unit $ 747 $ (30) $ 777 NM
Gross profit (loss) as a % of revenue 8.6 % (0.8) % 940 bps
NM = Not Meaningful



	Six Months Ended June 30,						Better / (Worse)
	2022			2021			Change		% Change
	(In millions, except unit and per unit data)
Same market wholesale vehicle:
Revenue	$	89.3		$	40.5		$	48.8	120	%
Gross profit (loss)	$	3.5		$	3.1		$	0.4	13	%
Unit sales	5,393			5,739			(346)		(6)	%
Revenue per unit	$	16,566		$	7,049		$	9,517	135	%
Gross profit (loss) per unit	$	648		$	558		$	90	16	%
Gross profit (loss) as a % of revenue	3.9		%	7.7		%	(380)		bps

4648

SONIC AUTOMOTIVE, INC.

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

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

Same market wholesale vehicle revenue increased ~~203.2% and same market wholesale vehicle gross profit improved by~~ approximately ~~$2.3~~$13.1 million or 60% due primarily to ~~higher trade-in volume, which drove~~ a ~~13.9%~~102% increase in ~~same market~~revenue per wholesale unit, offset partially by a 21% decrease in wholesale vehicle unit sales volume ~~and an increase in same market wholesale vehicle gross profit per unit to $1,053 per unit, due to~~resulting from the stabilization of excess demand in the wholesale vehicle auction market ~~driving higher average pricing. Given~~which drove record high wholesale vehicle pricing through the second quarter of 2022. Historically, given EchoPark’s retail inventory mix focused on 1-4-year old vehicles, 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~~As we add older model year vehicles to EchoPark’s inventory going forward, the levels 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 revenue and gross ~~loss per unit) and increases the volume of trade-ins that we obtain from guests.~~

profit may vary.

Same Market EchoPark Segment Wholesale Vehicles – ~~Nine~~Six Months Ended ~~September~~June 30, ~~2021~~2022 Compared to ~~Nine~~Six Months Ended ~~September~~June 30, ~~2020~~2021

Same market wholesale vehicle revenue increased ~~194.8% and same market wholesale vehicle gross profit improved by~~ approximately ~~$4.9~~$48.8 million or 120% due primarily to ~~higher trade-in volume, which drove~~ a ~~23.4%~~135% increase in ~~same market~~revenue per wholesale unit, offset partially by a 6% decrease in wholesale vehicle unit sales volume ~~and an increase in same market wholesale vehicle gross profit per unit to $777 per unit, due to~~resulting from the stabilization of excess demand in the wholesale vehicle auction market ~~driving higher average pricing. Given~~which drove record high wholesale vehicle pricing through the first half of 2022. Historically, given EchoPark’s retail inventory mix focused on 1-4-year old vehicles, 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~~As we add older model year vehicles to EchoPark’s inventory going forward, the levels 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 revenue and gross ~~loss per unit) and increases the volume of trade-ins that we obtain from guests.~~

~~Fixed Operations~~ – ~~EchoPark Segment~~profit may vary.

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-branded 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 September 30, Better / (Worse)
2021 2020 Change % Change
(In thousands)
Fixed Operations revenue:
Same market $ 11,866 $ 10,858 $ 1,008 9.3 %
New markets 3,431 36 3,395 NM
Total as reported $ 15,297 $ 10,894 $ 4,403 40.4 %
Fixed Operations gross profit (loss):
Same market $ 593 $ (168) $ 761 453.0 %
New markets (144) (17) (127) (747.1) %
Total as reported $ 449 $ (185) $ 634 342.7 %

~~NM = Not Meaningful~~

4749

SONIC AUTOMOTIVE, INC.

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

Nine Months Ended September 30, Better / (Worse)
2021 2020 Change % Change
(In thousands)
Fixed Operations revenue:
Same market $ 33,714 $ 28,064 $ 5,650 20.1 %
New markets 8,897 69 8,828 NM
Total as reported $ 42,611 $ 28,133 $ 14,478 51.5 %
Total Fixed Operations gross profit (loss):
Same market $ 947 $ (553) $ 1,500 271.2 %
New markets (444) (16) (428) NM
Total as reported $ 503 $ (569) $ 1,072 188.4 %
NM = Not Meaningful

~~Our EchoPark Segment reported Fixed Operations results were as follows:~~
Three Months Ended September 30, Better / (Worse)
2021 2020 Change % Change
(In thousands)
Reported Fixed Operations:
Revenue $ 15,297 $ 10,894 $ 4,403 40.4 %
Gross profit (loss) $ 449 $ (185) $ 634 342.7 %
Gross profit (loss) as a % of revenue 2.9 % (1.7) % 460 bps

Nine Months Ended September 30, Better / (Worse)
2021 2020 Change % Change
(In thousands)
Reported Fixed Operations:
Revenue $ 42,611 $ 28,133 $ 14,478 51.5 %
Gross profit (loss) $ 503 $ (569) $ 1,072 188.4 %
Gross profit (loss) as a % of revenue 1.2 % (2.0) % 320 bps

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

Three Months Ended September 30, Better / (Worse)
2021 2020 Change % Change
(In thousands)
Same market Fixed Operations:
Revenue $ 11,866 $ 10,858 $ 1,008 9.3 %
Gross profit (loss) $ 593 $ (168) $ 761 453.0 %
Gross profit (loss) as a % of revenue 5.0 % (1.5) % 650 bps

Nine Months Ended September 30, Better / (Worse)
2021 2020 Change % Change
(In thousands)
Same market Fixed Operations:
Revenue $ 33,714 $ 28,064 $ 5,650 20.1 %
Gross profit (loss) $ 947 $ (553) $ 1,500 271.2 %
Gross profit (loss) as a % of revenue 2.8 % (2.0) % 480 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 September 30, 2021 Compared to Three Months Ended September 30, 2020~~

~~Same market Fixed Operations revenue increased approximately $1.0 million, or 9.3%, primarily related to vehicle reconditioning work on higher levels of inventory.~~

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

~~Same market Fixed Operations revenue increased approximately $5.7 million, or 20.1%, primarily related to vehicle reconditioning work on higher levels of inventory.~~

Segment Results Summary

In the following tables of financial data, total segment income (loss) 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 September 30,				Better / (Worse)					Three Months Ended June 30,				Better / (Worse)
		2021		2020		Change		% Change			2022		2021		Change		% Change
		(In thousands, except unit data)									(In millions, except unit data)
Segment Revenues:
Revenues:										Revenues:
Franchised Dealerships Segment revenues:	Franchised Dealerships Segment revenues:									Franchised Dealerships Segment revenues:
New vehicles		$	1,143,416	$	1,098,302	$	45,114	4.1	%
Retail new vehicles										Retail new vehicles	$	1,341.7	$	1,452.3	$	(110.6)	(8)	%
Fleet new vehicles										Fleet new vehicles	166.5		9.7		156.8		NM
Total new vehicles										Total new vehicles	$	1,508.2	$	1,462.0	$	46.2	3	%
Used vehicles	Used vehicles	750,263		615,565		134,698		21.9	%	Used vehicles	871.9		761.5		110.4		14	%
Wholesale vehicles	Wholesale vehicles	64,052		48,526		15,526		32.0	%	Wholesale vehicles	79.2		63.0		16.2		26	%
Parts, service and collision repair	Parts, service and collision repair	339,930		310,035		29,895		9.6	%	Parts, service and collision repair	398.1		346.1		52.0		15	%
Finance, insurance and other, net	Finance, insurance and other, net	111,808		91,035		20,773		22.8	%	Finance, insurance and other, net	129.8		124.0		5.8		5	%
Franchised Dealerships Segment revenues	Franchised Dealerships Segment revenues	$	2,409,469	$	2,163,463	$	246,006	11.4	%	Franchised Dealerships Segment revenues	$	2,987.2	$	2,756.6	$	230.6	8	%

EchoPark Segment revenues:	EchoPark Segment revenues:									EchoPark Segment revenues:
New vehicles		$	3,506	$	—	$	3,506	100.0	%
Retail new vehicles										Retail new vehicles	$	2.5	$	0.9	$	1.6	(178)	%
Used vehicles	Used vehicles	559,229		330,463		228,766		69.2	%	Used vehicles	577.5		519.7		57.8		11	%
Wholesale vehicles	Wholesale vehicles	33,035		7,976		25,059		314.2	%	Wholesale vehicles	42.2		21.8		20.4		94	%
Parts, service and collision repair		15,297		10,894		4,403		40.4	%

Finance, insurance and other, net	Finance, insurance and other, net	52,276		35,749		16,527		46.2	%	Finance, insurance and other, net	43.4		53.2		(9.8)		(18)	%
EchoPark Segment revenues	EchoPark Segment revenues	$	663,343	$	385,082	$	278,261	72.3	%	EchoPark Segment revenues	$	665.6	$	595.6	$	70.0	12	%

Total consolidated revenues	Total consolidated revenues	$	3,072,812	$	2,548,545	$	524,267	20.6	%	Total consolidated revenues	$	3,652.8	$	3,352.2	$	300.6	9	%

Income (Loss) (1):										Income (Loss) (1):
Franchised Dealerships Segment										Franchised Dealerships Segment	$	162.1	$	165.4	$	(3.3)	(2)	%
EchoPark Segment										EchoPark Segment	(34.9)		(14.4)		(20.5)		(142)	%

Segment Income (Loss) (1):
Franchised Dealerships Segment (2)		$	145,137	$	80,460	$	64,677	80.4	%
EchoPark Segment		(32,887)		239		(33,126)		NM
Total segment income (loss)		$	112,250	$	80,699	$	31,551	39.1	%
Impairment charges		—		(26)		26		100.0	%
Income (loss) from continuing operations before taxes		$	112,250	$	80,673	$	31,577	39.1	%

Income from continuing operations before taxes										Income from continuing operations before taxes	$	127.2	$	151.0	$	(23.8)	(16)	%

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	48,554		50,297		(1,743)		(3.5)	%	Franchised Dealerships Segment	52,498		58,793		(6,295)		(11)	%
EchoPark Segment	EchoPark Segment	21,310		15,127		6,183		40.9	%	EchoPark Segment	16,693		21,275		(4,582)		(22)	%
Total retail new and used vehicle unit sales volume	Total retail new and used vehicle unit sales volume	69,864		65,424		4,440		6.8	%	Total retail new and used vehicle unit sales volume	69,191		80,068		(10,877)		(14)	%
NM = Not Meaningful

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

4950

SONIC AUTOMOTIVE, INC.

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

~~(2)For the three months ended September 30, 2020, the above amount includes a pre-tax gain on the disposal of a franchised dealership of approximately $3.2 million.~~


		Nine Months Ended September 30,				Better / (Worse)
		2021		2020		Change		% Change			Six Months Ended June 30,				Better / (Worse)
		(In thousands, except unit data)									2022		2021		Change		% Change
Segment Revenues:
											(In millions, except unit data)
Revenues:										Revenues:
Franchised Dealerships Segment revenues:	Franchised Dealerships Segment revenues:									Franchised Dealerships Segment revenues:
New vehicles		$	3,761,718	$	2,957,794	$	803,924	27.2	%
Retail new vehicles										Retail new vehicles	$	2,687.4	$	2,586.3	$	101.1	4	%
Fleet new vehicles										Fleet new vehicles	315.0		32.0		283.0		884	%
Total new vehicles										Total new vehicles	$	3,002.4	$	2,618.3	$	384.1	15	%
Used vehicles	Used vehicles	2,173,322		1,718,151		455,171		26.5	%	Used vehicles	1,725.7		1,423.1		302.6		21	%
Wholesale vehicles	Wholesale vehicles	183,212		119,474		63,738		53.3	%	Wholesale vehicles	185.5		119.1		66.4		56	%
Parts, service and collision repair	Parts, service and collision repair	994,125		886,534		107,591		12.1	%	Parts, service and collision repair	778.7		654.2		124.5		19	%
Finance, insurance and other, net	Finance, insurance and other, net	333,394		254,465		78,929		31.0	%	Finance, insurance and other, net	256.2		221.6		34.6		16	%
Franchised Dealerships Segment revenues	Franchised Dealerships Segment revenues	$	7,445,771	$	5,936,418	$	1,509,353	25.4	%	Franchised Dealerships Segment revenues	$	5,948.5	$	5,036.3	$	912.2	18	%

EchoPark Segment revenues:	EchoPark Segment revenues:									EchoPark Segment revenues:
New vehicles		$	4,415	$	—	$	4,415	100.0	%
Retail new vehicles										Retail new vehicles	$	8.2	$	0.9	$	7.3	(811)	%
Used vehicles	Used vehicles	1,492,964		886,806		606,158		68.4	%	Used vehicles	1,094.5		961.0		133.5		14	%
Wholesale vehicles	Wholesale vehicles	73,489		18,747		54,742		292.0	%	Wholesale vehicles	104.7		40.5		64.2		159	%
Parts, service and collision repair		42,611		28,133		14,478		51.5	%

Finance, insurance and other, net	Finance, insurance and other, net	152,606		98,383		54,223		55.1	%	Finance, insurance and other, net	83.5		100.3		(16.8)		(17)	%
EchoPark Segment revenues	EchoPark Segment revenues	$	1,766,085	$	1,032,069	$	734,016	71.1	%	EchoPark Segment revenues	$	1,290.9	$	1,102.7	$	188.2	17	%

Total consolidated revenues	Total consolidated revenues	$	9,211,856	$	6,968,487	$	2,243,369	32.2	%	Total consolidated revenues	$	7,239.4	$	6,139.0	$	1,100.4	18	%

Income (Loss) (1):										Income (Loss) (1):
Franchised Dealerships Segment										Franchised Dealerships Segment	$	326.0	$	236.0	$	90.0	38	%
EchoPark Segment										EchoPark Segment	(69.9)		(12.4)		(57.5)		(464)	%

Segment Income (Loss) (1):
Franchised Dealerships Segment (2)		$	381,094	$	138,805	$	242,289	174.6	%
EchoPark Segment		(45,271)		4,912		(50,183)		NM
Total segment income (loss)		$	335,823	$	143,717	$	192,106	133.7	%
Impairment charges (3)		—		(268,859)		268,859		100.0	%
Income (loss) from continuing operations before taxes		$	335,823	$	(125,142)	$	460,965	368.4	%

Income from continuing operations before taxes										Income from continuing operations before taxes	$	256.1	$	223.6	$	32.5	15	%

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	158,400		141,188		17,212		12.2	%	Franchised Dealerships Segment	104,178		109,846		(5,668)		(5)	%
EchoPark Segment	EchoPark Segment	62,255		42,320		19,935		47.1	%	EchoPark Segment	31,773		40,945		(9,172)		(22)	%
Total retail new and used vehicle unit sales volume	Total retail new and used vehicle unit sales volume	220,655		183,508		37,147		20.2	%	Total retail new and used vehicle unit sales volume	135,951		150,791		(14,840)		(10)	%

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

~~(2)For the nine months ended September 30, 2020, the above amount includes a pre-tax gain on the disposal of a franchised dealership of approximately $3.2 million.~~

~~(3)~~For the nine months ended September 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 $0.9 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-~~

~~SONIC AUTOMOTIVE, INC.~~

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

~~related~~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.

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

Three Months Ended September 30, Better / (Worse)
2021 2020 Change % Change
(In thousands)
SG&A expenses:
Compensation $ 206,205 $ 169,097 $ (37,108) (21.9) %
Advertising 16,715 9,455 (7,260) (76.8) %
Rent 13,781 13,846 65 0.5 %
Other 84,672 64,776 (19,896) (30.7) %
Total SG&A expenses $ 321,373 $ 257,174 $ (64,199) (25.0) %
SG&A expenses as a % of gross profit:
Compensation 43.7 % 44.9 % 120 bps
Advertising 3.5 % 2.5 % (100) bps
Rent 2.9 % 3.7 % 80 bps
Other 18.0 % 17.2 % (80) bps
Total SG&A expenses as a % of gross profit 68.1 % 68.3 % 20 bps

Nine Months Ended September 30, Better / (Worse)
2021 2020 Change % Change
(In thousands)
SG&A expenses:
Compensation $ 608,539 $ 483,784 $ (124,755) (25.8) %
Advertising 44,229 31,677 (12,552) (39.6) %
Rent 41,190 40,934 (256) (0.6) %
Other 237,391 213,293 (24,098) (11.3) %
Total SG&A expenses $ 931,349 $ 769,688 $ (161,661) (21.0) %
SG&A expenses as a % of gross profit:
Compensation 44.0 % 46.8 % 280 bps
Advertising 3.2 % 3.1 % (10) bps
Rent 3.0 % 4.0 % 100 bps
Other 17.1 % 20.5 % 340 bps
Total SG&A expenses as a % of gross profit 67.3 % 74.4 % 710 bps

~~Three Months Ended September 30, 2021 Compared to Three Months Ended September 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 both dollar amount and as a percentage of gross profit, due primarily to changes we made to optimize our marketing spend during the initial months of the pandemic. Rent expense decreased in both dollar amount and as a percentage of gross profit, due primarily to higher levels of gross profit. Other SG&A expenses increased in both dollar amount and as a percentage of gross profit, due primarily to higher gross profit levels and reductions in expenses during the third 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

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


	Three Months Ended June 30,						Better / (Worse)
	2022			2021			Change		% Change
	(In millions)
SG&A expenses:
Compensation	$	266.4		$	213.8		$	(52.6)	(25)	%
Advertising	25.6			15.3			(10.3)		(67)	%
Rent	13.7			13.7			—		—	%
Other	97.1			77.8			(19.3)		(25)	%
Total SG&A expenses	$	402.8		$	320.6		$	(82.2)	(26)	%

SG&A expenses as a % of gross profit:
Compensation	45.2		%	41.9		%	(330)		bps
Advertising	4.3		%	3.0		%	(130)		bps
Rent	2.3		%	2.7		%	40		bps
Other	16.6		%	15.2		%	(140)		bps
Total SG&A expenses as a % of gross profit	68.4		%	62.8		%	(560)		bps



	Six Months Ended June 30,						Better / (Worse)
	2022			2021			Change		% Change
	(In millions)
SG&A expenses:
Compensation	$	518.9		$	402.3		$	(116.6)	(29)	%
Advertising	51.7			27.5			(24.2)		(88)	%
Rent	26.4			27.4			1.0		4	%
Other	192.8			152.8			(40.0)		(26)	%
Total SG&A expenses	$	789.8		$	610.0		$	(179.8)	(29)	%

SG&A expenses as a % of gross profit:
Compensation	44.7		%	44.1		%	(60)		bps
Advertising	4.5		%	3.0		%	(150)		bps
Rent	2.3		%	3.0		%	70		bps
Other	16.6		%	16.8		%	20		bps
Total SG&A expenses as a % of gross profit	68.1		%	66.9		%	(120)		bps

Three Months Ended ~~September~~June 30, ~~2021~~2022 Compared to ~~Nine~~Three Months Ended ~~September~~June 30, ~~2020~~2021

Overall SG&A expenses increased in both dollar amount ~~but decreased~~and as a percentage of gross profit, primarily due to higher compensation levels as a result of ~~higher vehicle unit sales volume~~the RFJ Acquisition and higher overall gross profit levels. Compensation expense increased in both dollar amount ~~but~~and as a percentage of gross profit, primarily due to the RFJ Acquisition and higher overall gross profit levels. Advertising expense increased in both dollar amount and as a percentage of gross profit, as a result of our continued investment in EchoPark and the effect of the RFJ Acquisition. Rent expense was flat in dollar amount and decreased as a percentage of gross profit primarily due to higher levels of overall gross profit. Other SG&A expenses increased ~~sales associate productivity during~~in both dollar amount and as a percentage of gross profit, primarily due to the effect of our EchoPark growth plan and the RFJ Acquisition.

SONIC AUTOMOTIVE, INC.

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

Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021

Overall SG&A expenses increased in both dollar amount and as ~~well~~a percentage of gross profit, primarily due to higher compensation levels as a result of the RFJ Acquisition and higher overall gross profit levels. Compensation expense increased in both dollar amount and as a percentage of gross profit, primarily due to the RFJ Acquisition and higher overall gross profit levels. Advertising expense increased in both dollar amount and as a percentage of gross profit, due primarily to a focused marketing ~~strategy.~~strategy particularly at EchoPark and the effects of the RFJ Acquisition. Rent expense ~~increased~~decreased in both dollar amount ~~but decreased~~and as a percentage of gross profit, primarily due ~~primarily~~ to the buyout of certain previously leased properties and higher levels of overall gross profit. Other SG&A expenses increased in dollar amount but decreased as a percentage of gross profit, primarily due ~~primarily~~ to higher gross profit ~~levels and increased spending in relation to higher sales as compared to the prior year period.~~levels.

Impairment Charges – Consolidated

We did not record any impairment charges for the three and ~~nine~~six months ended ~~September~~June 30, 2022 or 2021. Impairment charges were not significant in the three months ended September 30, 2020, related to real estate assets held for sale at former EchoPark locations. Impairment charges for the nine months ended September 30, 2020 were approximately $268.9 million, primarily related to fair value adjustments to goodwill in our Franchised Dealerships Segment.

Depreciation and Amortization – Consolidated

Depreciation and amortization expense increased approximately ~~$2.3~~$6.4 million, or ~~10.1%~~26%, and $12.7 million, or 26%, during the three and six months ended ~~September~~June 30, ~~2021, and approximately $5.8 million, or 8.6%, during the nine months ended September 30, 2021,~~2022, respectively, due primarily to ~~the opening or acquisition of additional EchoPark stores~~acquisitions and completed construction projects ~~completed~~ and ~~placed in service~~purchases of fixed assets for use in our ~~Franchised Dealerships Segment.~~franchised dealerships and EchoPark stores.

Interest Expense, Floor Plan – Consolidated

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

Interest expense, floor plan for new vehicles decreased approximately ~~$2.6~~$0.5 million, or ~~71.9%~~21%. The average new vehicle floor plan interest rate was ~~0.41%, down from 1.29%~~0.62% in the three months ended ~~September~~June 30, ~~2020,~~2022, down from 0.81% in the three months ended June 30, 2021, resulting in a decrease in new vehicle floor plan interest expense of approximately ~~$2.1~~$0.6 million. The average new vehicle floor plan notes payable balance ~~decreased~~increased approximately ~~$133.7~~$42.7 million, which ~~decreased~~increased new vehicle floor plan interest expense by approximately ~~$0.5~~$0.1 million.

Interest expense, floor plan for used vehicles increased approximately ~~$0.9~~$2.3 million, or ~~61.3%~~112%. The average used vehicle floor plan interest rate was ~~1.64%, down from 1.87%~~2.91% in the three months ended ~~September~~June 30, ~~2020,~~2022, up from 1.67% in the three months ended June 30, 2021, resulting in ~~a decrease~~an increase in used vehicle floor plan interest expense of approximately ~~$0.3~~$1.9 million. The average used vehicle floor plan notes payable balance increased approximately ~~$258.6~~$102.9 million, which increased used vehicle floor plan interest expense by approximately ~~$1.2~~$0.4 million.

~~Nine~~Six Months Ended ~~September~~June 30, ~~2021~~2022 Compared to ~~Nine~~Six Months Ended ~~September~~June 30, ~~2020~~2021

Interest expense, floor plan for new vehicles decreased approximately ~~$10.9~~$2.3 million, or ~~62.0%~~41%. The average new vehicle floor plan interest rate was ~~0.83%~~0.57%, down from ~~1.87%~~1.00% in the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2022, resulting in ~~a decrease~~an increase in new vehicle floor plan interest expense of approximately ~~$8.5~~$2.5 million. The average new vehicle floor plan notes payable balance ~~decreased~~increased approximately ~~$173.6~~$32.8 million, which ~~decreased~~increased new vehicle floor plan interest expense by approximately ~~$2.4~~$0.2 million.

Interest expense, floor plan for used vehicles increased approximately ~~$1.8~~$3.9 million, or ~~43.2%~~105%. The average used vehicle floor plan interest rate was ~~1.70%~~2.52%, ~~down~~up from ~~2.13%~~1.71% in the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2022, resulting in ~~a decrease~~an increase in used vehicle floor plan interest expense of approximately ~~$1.5~~$2.5 million. The average used vehicle floor plan notes payable balance increased approximately ~~$210.9~~$170.9 million, which ~~increased~~increase used vehicle floor plan interest expense by approximately ~~$3.4~~$1.4 million.

5253

SONIC AUTOMOTIVE, INC.

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

Interest Expense, Other, Net – Consolidated

Interest expense, other, net is summarized in the tables below:
Three Months Ended September 30, Better / (Worse)
2021 2020 Change % Change
(In thousands)
Stated/coupon interest $ 7,341 $ 8,347 $ 1,006 12.1 %
Discount/premium amortization — 260 260 100.0 %
Deferred loan cost amortization 685 575 (110) (19.1) %
Interest rate hedge expense (benefit) 297 68 (229) (336.8) %
Capitalized interest (354) 16 370 NM
Interest on finance lease liabilities 1,686 1,330 (356) (26.8) %
Other interest 162 166 4 2.4 %
Total interest expense, other, net $ 9,817 $ 10,762 $ 945 8.8 %

Nine Months Ended September 30, Better / (Worse)
2021 2020 Change % Change
(In thousands)
Stated/coupon interest $ 22,489 $ 26,302 $ 3,813 14.5 %
Discount/premium amortization — 260 260 100.0 %
Deferred loan cost amortization 2,343 1,757 (586) (33.4) %
Interest rate hedge expense (benefit) 1,178 (740) (1,918) (259.2) %
Capitalized interest (1,328) (528) 800 151.5 %
Interest on finance lease liabilities 5,017 4,009 (1,008) (25.1) %
Other interest 481 463 (18) (3.9) %
Total interest expense, other, net $ 30,180 $ 31,523 $ 1,343 4.3 %


	Three Months Ended June 30,				Better / (Worse)
	2022		2021		Change		% Change
	(In millions)
Stated/coupon interest	$	17.0	$	7.5	$	(9.5)	(127)	%

Deferred loan cost amortization	1.1		0.8		(0.3)		(38)	%
Interest rate hedge expense (benefit)	0.4		0.5		0.1		20	%
Capitalized interest	(0.3)		(0.6)		(0.3)		(50)	%
Interest on finance lease liabilities	2.9		1.7		(1.2)		(71)	%
Other interest	0.2		0.2		—		—	%
Total interest expense, other, net	$	21.3	$	10.1	$	(11.2)	(111)	%



	Six Months Ended June 30,				Better / (Worse)
	2022		2021		Change		% Change
	(In millions)
Stated/coupon interest	$	34.0	$	15.2	$	(18.8)	(124)	%
Discount/premium amortization	—		—		—		—	%
Deferred loan cost amortization	2.3		1.7		(0.6)		(35)	%
Interest rate hedge expense (benefit)	0.7		0.9		0.2		22	%
Capitalized interest	(0.8)		(1.0)		(0.2)		(20)	%
Interest on finance lease liabilities	5.6		3.3		(2.3)		(70)	%
Other interest	0.3		0.3		—		—	%
Total interest expense, other, net	$	42.1	$	20.4	$	(21.7)	(106)	%

Interest expense, other, net increased approximately ~~$0.9~~$11.2 million ~~and decreased approximately $1.3 million~~or 111%, during the three ~~and nine~~ months ended ~~September~~June 30, ~~2021, respectively,~~2022, and increased approximately $21.7 million, or 106%, during the six months ended June 30, 2022. These increases were primarily due to ~~a decrease~~the issuance of the 4.625% Notes and the 4.875% Notes in ~~outstanding borrowings~~October 2021, increases on ~~our revolving credit facility, lower~~variable rate mortgage debt, ~~increased expense from~~and higher interest on finance lease liabilities as a result of a rising interest rate ~~hedge instruments, and an increase in interest associated with finance lease liabilities.~~environment.

Income Taxes

The overall effective tax rate from continuing operations was ~~24.6%~~25.5% and ~~24.9%~~25.0% for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, respectively, and ~~25.6%~~24.5% and ~~13.6%~~25.0% for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, respectively. Income tax benefit for the nine months ended September 30, 2020 includes a $55.8 million benefit, including the effect of non-deductible amounts, related to the $268.0 million goodwill impairment charge related to adjustments in fair value of goodwill for the Franchised Dealerships Segment. 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 ~~September~~June 30, ~~2021~~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 with the restrictive covenants under the 2021 Credit Facilities, the 2019 Mortgage Facility, the indentures governing the ~~2021~~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 ~~September~~June 30, ~~2021,~~2022, we had approximately ~~$368.2~~$367.6 million of net income and retained earnings free of such restrictions. Cash flows provided by our

~~SONIC AUTOMOTIVE, INC.~~

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

~~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, their contractual obligations and capital requirements, and their ability to provide us with cash.

We had the following liquidity resources available as of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020:~~2021:
September 30, 2021 December 31, 2020
(In thousands)
Cash and cash equivalents $ 220,082 $ 170,313
Availability under the 2021 Revolving Credit Facility (1) 224,016 214,672
Availability under the 2019 Mortgage Facility 19,453 11,272
Availability under the 2020 Line of Credit Facility (2) 54,141 56,973
Floor plan deposit balance 100,000 73,180
Total available liquidity resources $ 617,692 $ 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. The availability under the 2021 Revolving Credit Facility as of September 30, 2021 does not include the impact of the 2021 Credit Facility Amendment entered into on October 8, 2021.

~~(2)Subsequent to September 30, 2021, Sonic terminated the 2020 Line of Credit Facility.~~


	June 30, 2022		December 31, 2021
	(In millions)
Cash and cash equivalents	$	327.1	$	299.4
Availability under the 2021 Revolving Credit Facility	269.3		281.4

Availability under the 2019 Mortgage Facility	27.7		22.2

Floor plan deposit balance	125.5		99.8
Total available liquidity resources	$	749.6	$	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 ~~$100.0~~$125.5 million and ~~$73.2~~$99.8 million as of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively, are classified inas other current assets in the accompanying unaudited condensed consolidated balance sheets as of ~~September~~June 30, ~~2021~~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 ~~0.87%~~1.39% and ~~1.42% in~~1.07% for the three months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, respectively, and ~~1.10%~~1.24% and ~~1.91% in~~1.20% for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, 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 $~~10.3~~12.7 million and ~~$10.6~~$11.5 million in manufacturer assistance in the three months ended ~~September~~June 30, 2022 and 2021, ~~and 2020,~~ respectively, and approximately ~~$35.3~~$25.5 million ~~and $26.8~~ and $22.3 million in manufacturer assistance in the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, respectively. We recognized in cost of sales approximately ~~$9.8~~$12.5 million and ~~$10.4~~$13.7 million in manufacturer assistance in the three months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, respectively, and ~~approximately $32.1~~approximately $25.2 million and ~~$28.0~~$25.0 million in manufacturer assistance in the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, 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.

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

~~SONIC AUTOMOTIVE, INC.~~

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

with manufacturers’ image requirements. We typically finance these projects through cash flows from operations, new mortgages or our credit facilities.

Capital expenditures in the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 were approximately ~~$181.8~~$100.4 million, including approximately ~~$122.3~~$52.0 million related to our Franchised Dealerships Segment and approximately ~~$59.5~~$48.4 million related to our EchoPark Segment. Of ~~this amount,~~the total capital expenditures, approximately ~~$86.1~~$59.0 million was related to facility construction projects, ~~$48.3~~approximately $19.1 million was related to acquisitions of real estate ~~acquisitions~~(land and ~~$47.4~~buildings) and approximately $22.3 million was for other fixed assets utilized in our store operations.

SONIC AUTOMOTIVE, INC.

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

All of the ~~$181.8~~$100.4 million in gross capital expenditures in the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 was funded through cash from operations. As of ~~September~~June 30, ~~2021,~~2022, commitments for facility construction projects totaled approximately ~~$21.8~~$22.0 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.~~

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. WeDuring the three months ended June 30, 2022, we repurchased approximately ~~0.5 million and 1.5~~1.4 million shares of our Class A Common Stock for approximately ~~$24.8~~$59.4 million ~~and $67.0 million during the three and nine months ended September 30, 2021, respectively,~~ 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 ~~September~~June 30, ~~2021,~~2022, our total remaining share repurchase authorization was approximately ~~$252.5~~$133.1 million. Subsequent to June 30, 2022, our Board of Directors approved an additional $500.0 million of share repurchase authorization, resulting in current remaining availability of approximately $633.1 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 ~~September~~June 30, ~~2021,~~2022, we had approximately ~~$368.2~~$367.6 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 ~~September~~June 30, ~~2021,~~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 June 15, 2022, which was paid on July 15, 2022. Subsequent to June 30, 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 September 15, 2021, which was paid on October 15, 2021. Subsequent to September 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 December 15, 20212022 to be paid on ~~January~~October 14, 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 ~~September~~June 30, ~~2021,~~2022, we had approximately ~~$368.2~~$367.6 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 provided by operating activities in the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 was approximately ~~$266.4~~$306.3 million. This 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. Net cash used in operating activities in the six months ended June 30, 2021 was approximately $34.6 million. This use of cash was comprised primarily of net income less non-cash items and a decrease in notes payable – floor plan – trade, offset partially by a decrease in ~~receivables~~inventories and an increase in trade accounts payable and other liabilities. In the nine months ended September 30, 2020, net cash provided by operating activities was approximately $273.0 million. This provision of cash was comprised primarily of a decrease in inventories and an increase in receivables, offset partially by an increase in notes payable

Cash Flows from Investing Activities – ~~floor plan – trade.~~

Net cash used in investing activities in the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 was approximately ~~$237.6~~$118.8 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 ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 was approximately ~~$61.8~~$129.2 million. This use of cash was comprised primarily of purchases of land, property and ~~equipment.~~equipment and purchases of businesses, net of cash acquired.

Cash Flows from Financing Activities – Net cash used in financing activities in the six months ended June 30, 2022 was approximately $159.8 million. This use of cash was comprised primarily of net repayments on notes payable – floor plan – non-trade, purchases of treasury stock and payments on long-term debt. Net cash provided by financing activities in the ~~nine~~six months ended ~~September~~June 30, 2021 was approximately ~~$21.0~~$233.1 million. This provision of cash was comprised primarily of a net ~~borrowing of~~

SONIC AUTOMOTIVE, INC.

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

borrowings on 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 nine months ended September 30, 2020 was approximately $114.6 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.

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 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 ~~$428.5~~$37.2 million in the ~~nine~~six months ended ~~September~~June 30, ~~2021.~~2022. Net cash used in combined trade and non-trade floor plan financing was approximately ~~$367.0~~$238.1 million in the ~~nine~~six months ended ~~September~~June 30, ~~2020.~~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 ~~$394.5~~$281.4 million in the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and net cash provided by operating activities of approximately ~~$223.8~~$279.7 million in the ~~nine~~six months ended ~~September~~June 30, ~~2020.~~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 (the nearest comparable GAAP financial ~~measure~~measure) in the tables below:


		Three Months Ended September 30, 2021								Three Months Ended September 30, 2020									Three Months Ended June 30, 2022								Three Months Ended June 30, 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)								$	84,485							$	59,818
Net income																		Net income							$	94.8							$	113.8
Provision for income taxes	Provision for income taxes							27,490								20,621		Provision for income taxes							32.4								37.0
Income (loss) before taxes	Income (loss) before taxes	$	145,138	$	(32,888)	$	(275)	$	111,975	$	80,434	$	239	$	(234)	$	80,439	Income (loss) before taxes	$	162.1	$	(34.9)	$	—	$	127.2	$	165.4	$	(14.4)	$	(0.2)	$	150.8
Non-floor plan interest (1)	Non-floor plan interest (1)	8,799		333		—		9,132		9,781		147		—		9,928		Non-floor plan interest (1)	19.1		1.0		—		20.1		8.9		0.3		—		9.2
Depreciation & amortization (2)	Depreciation & amortization (2)	21,943		3,980		—		25,923		21,004		2,763		—		23,767		Depreciation & amortization (2)	26.4		6.0		—		32.4		21.4		4.2		—		25.6
Stock-based compensation expense	Stock-based compensation expense	3,681		—		—		3,681		3,153		—		—		3,153		Stock-based compensation expense	4.2		—		—		4.2		4.0		—		—		4.0

Asset impairment charges		—		—		—		—		26		—		—		26

Long-term compensation charges	Long-term compensation charges	—		500		—		500		—		—		—		—		Long-term compensation charges	4.4		—		—		4.4		—		0.5		—		0.5
Loss (gain) on franchise and real estate disposals	Loss (gain) on franchise and real estate disposals	(12)		(423)		—		(435)		(3,388)				—		(3,388)		Loss (gain) on franchise and real estate disposals	0.1		—		—		0.1		(0.4)		—		—		(0.4)
Adjusted EBITDA (3)	Adjusted EBITDA (3)	$	179,549	$	(28,498)	$	(275)	$	150,776	$	111,010	$	3,149	$	(234)	$	113,925	Adjusted EBITDA (3)	$	216.3	$	(27.9)	$	—	$	188.4	$	199.3	$	(9.4)	$	(0.2)	$	189.7

(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.

~~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 debt discount amortization, net ~~debt discount/~~of premium ~~amortization~~ and other amortization.

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

Nine Months Ended September 30, 2021 Nine Months Ended September 30, 2020
Franchised Dealerships Segment EchoPark Segment Discontinued Operations Total Franchised Dealerships Segment EchoPark Segment Discontinued Operations Total
(In thousands)
Net income (loss) $ 252,552 $ (108,724)
Provision for income taxes 83,512 (17,226)
Income (loss) before taxes $ 381,094 $ (45,271) $ 241 $ 336,064 $ (130,054) $ 4,912 $ (808) $ (125,950)
Non-floor plan interest (1) 26,821 1,015 — 27,836 28,762 746 — 29,508
Depreciation & amortization (2) 64,593 11,436 — 76,029 61,662 8,229 — 69,891
Stock-based compensation expense 11,155 — — 11,155 8,551 — — 8,551
Asset impairment charges — — — — 268,859 — — 268,859
Long-term compensation charges — 1,500 — 1,500 — — — —
Loss (gain) on franchise and real estate disposals (433) (432) — (865) (2,271) — — (2,271)
Adjusted EBITDA (3) $ 483,230 $ (31,752) $ 241 $ 451,719 $ 235,509 $ 13,887 $ (808) $ 248,588

SONIC AUTOMOTIVE, INC.

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



	Six Months Ended June 30, 2022								Six Months Ended June 30, 2021
	Franchised Dealerships Segment		EchoPark Segment		Discontinued Operations		Total		Franchised Dealerships Segment		EchoPark Segment		Discontinued Operations		Total
	(In millions)
Net income							$	192.1							$	168.1
Provision for income taxes							64.0								56.0
Income (loss) before taxes	$	326.0	$	(69.9)	$	—	$	256.1	$	236.0	$	(12.4)	$	0.5	$	224.1
Non-floor plan interest (1)	38.1		1.7		—		39.8		18.0		0.7		—		18.7
Depreciation & amortization (2)	52.3		11.2		—		63.5		42.7		7.5		—		50.2
Stock-based compensation expense	8.6		—		—		8.6		7.5		—		—		7.5


Long-term compensation charges	4.4		—		—		4.4		—		1.0		—		1.0
Loss (gain) on franchise and real estate disposals	(1.0)		—		—		(1.0)		(0.5)		—		—		(0.5)
Adjusted EBITDA (3)	$	428.4	$	(57.0)	$	—	$	371.4	$	303.7	$	(3.2)	$	0.5	$	301.0

(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), 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.

~~On October 27, 2021, Sonic issued $1.15 billion aggregate principal amount~~

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 ~~2021 Notes, consisting of $650.0 million aggregate principal amount of 4.625% Notes and $500.0 million aggregate principal amount of 4.875% Notes. The Company intends~~any quarter. Due to ~~use~~ the ~~net proceeds from the offering~~abnormal effects of the ~~2021 Notes, together with additional borrowings to (1) fund, if consummated,~~COVID-19 pandemic on the ~~Acquisition, (2) pay the redemption price~~automotive supply chain and inventory levels, this historical seasonality may not hold true for the ~~6.125 Notes, (3) pay fees and expenses in connection with the Acquisition~~year ending December 31, 2022. Weather conditions and the ~~offering~~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 ~~2021 Notes and (4) for general corporate purposes, which may include the acquisition and development of dealerships and related real property and the repayment of outstanding indebtedness.~~year.

Off-Balance Sheet Arrangements

Guarantees and Indemnification Obligations

In ~~accordance~~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 ~~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.~~original leases. In ~~addition, we have generally agreed to indemnify the lessor 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 ~~a breach~~June 30, 2022, our future gross minimum lease payments related to properties subleased to buyers of ~~the~~sold dealerships totaled approximately $12.0 million. Future sublease payments expected to be received related to these lease ~~by the lessee.~~payments were approximately $12.1 million at June 30, 2022.

5758

SONIC AUTOMOTIVE, INC.

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

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 the sublessee does not perform. In the event an assignee or a sublessee does not perform its obligations, we remain 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 September 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~~We did not have any material ~~and the amount recorded for this contingency was not significant~~exposure with respect to environmental remediation at ~~September~~June 30, ~~2021.~~2022.

We also guarantee the floor plan commitments of our 50%-owned joint venture, and the amount of ~~which~~such guarantee was approximately $4.3 million at both ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020.~~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, ~~2020~~2021 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~~obligations 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.legal proceedings.

5859

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 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 ~~$879.7 million~~$1.2 billion at ~~September~~June 30, ~~2021. An increase in interest rates~~2022. A change of 100 basis points in the underlying interest rate would have caused a change in interest expense of approximately ~~$14.7~~$10.5 million in the ~~nine~~six months ended ~~September~~June 30, ~~2021.~~2022. Of the total change in interest expense, approximately ~~$12.9~~$9.4 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 ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 due to the leases containing LIBOR floors which were above the LIBOR rate during the ~~nine~~six months ended ~~September~~June 30, ~~2021.~~2022.

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.

5960

SONIC AUTOMOTIVE, INC.

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”))~~amended) as of ~~September~~June 30, ~~2021.~~2022. Based upon that evaluation, our CEO and our CFO concluded that our disclosure controls and procedures were effective as of ~~September~~June 30, ~~2021.~~2022.

Changes in Internal Control ~~over~~Over Financial Reporting – There were no changes in our internal control over financial reporting during the quarter ended ~~September~~June 30, ~~2021,~~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.

6061

SONIC AUTOMOTIVE, INC.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

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

6162

SONIC AUTOMOTIVE, INC.

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.~~

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.2021.

Changes in customer demand towards fuel efficient vehicles and electric vehicles, and resulting shifts by manufacturers to meet demand, could disrupt our ongoing business or have a material adverse effect on our overall business and results of operations.

Variability in customer behavior, including due to volatile fuel prices and initiatives to increase the use of fuel efficient and electric vehicles, has affected and may continue to affect purchases of new and used vehicles. Manufacturers have also announced increased production focus on the manufacture of fuel efficient and electric vehicles. The rate at which our customers will continue to demand fuel efficient and electric vehicles, as well as the ability of manufacturers to accurately predict and meet such demand, is dependent on various factors. The inability of manufacturers to produce fuel efficient and electric vehicles that meet customer demand, or our inability to maintain adequate vehicle inventories to meet demand or tailor our selling plans to meet fluctuations in demand for these vehicles, could disrupt our ongoing business or have a material adverse effect on our overall business and results of operations.

Certain fuel efficient and electric vehicles generally require less frequent or less costly maintenance and repairs than traditional combustion engine vehicles due to their mechanical features. In addition, advances in technology by manufacturers and their suppliers and their continued research and development investments with respect to fuel efficient and electric vehicles have contributed to an increase in the overall durability and efficiency of vehicles. The effects of increased adoption of fuel-efficient and electric vehicles are uncertain and may include reduced maintenance and repairs revenues, changes in

~~SONIC AUTOMOTIVE, INC.~~

manufacturer warranties and complimentary maintenance programs from which we realize parts, service and collision repair revenues, and changes in the level of sales or profitability of certain warranty and maintenance products we offer our customers. To the extent that the adoption of fuel efficient and electric vehicles increases rapidly or such vehicles comprise a significant percentage of new or used vehicles being sold nationwide, we may experience a disruption in our parts, service and repair revenues or revenues from certain warranty and maintenance products that we sell, any of which could have a material adverse effect on our overall business and results of operations.

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 ~~September~~June 30, ~~2021.~~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 share data)
July 2021 270 $ 44.74 270 $ 277,249
August 2021 248,684 $ 49.73 248,684 $ 264,905
September 2021 251,034 $ 49.69 251,034 $ 252,472
Total 499,988 499,988


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 per share data)
April 2022	1.2	$	42.41	1.2	$	141.2
May 2022	0.2	$	42.88	0.2	$	133.1
June 2022	—	$	—	—	$	133.1
Total	1.4			1.4

(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~~60.0
April 2021 authorization	~~250,000~~250.0
Total active program repurchases prior to ~~September~~June 30, ~~2021~~2022	~~(57,528)~~(176.9)
Current remaining availability as of ~~September~~June 30, ~~2021~~2022	$	~~252,472~~133.1

Subsequent to June 30, 2022, Sonic’s Board of Directors increased the Company’s share repurchase authorization by $500.0 million, resulting in current remaining availability of approximately $633.1 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.

SONIC AUTOMOTIVE, INC.

Item 6. Exhibits.


Exhibit No.						Description

~~2.1~~+						Agreement and Plan of Merger, dated as of September 17, 2021, by and among Sonic Automotive, Inc., RFJMS, Inc., RFJ Auto Partners, Inc. and The Resolute Fund III, L.P., as the equityholder representative (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed September 22, 2021 (File No. 001-13395)).
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 for the year ended December 31, 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 by reference to Exhibit 3.1 to the Current Report on Form 8-K filed February 12, 2021 (File No. 001-13395)).








~~4.1~~						Indenture, dated as of October 27, 2021, by and among Sonic Automotive, Inc., the guarantors named therein and U.S. Bank National Association, as trustee. (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed October 27, 2021 (File No. ~~001-13395~~))
~~4.2~~						~~Form of 4.625% Senior Note due 2029 (included in Exhibit 4.1). (incorporated by reference to Exhibit 4.2 to the Current Report on Form 8-K filed October 27, 2021 (File No.~~ ~~001-13395~~))
~~4.3~~						Indenture, dated as of October 27, 2021, by and among Sonic Automotive, Inc., the guarantors named therein and U.S. Bank National Association, as trustee. (incorporated by reference to Exhibit 4.3 to the Current Report on Form 8-K filed October 27, 2021 (File No. ~~001-13395~~))
~~4.4~~						~~Form of 4.875% Senior Note due 2031 (included in Exhibit 4.3). (incorporated by reference to Exhibit 4.4 to the Current Report on Form 8-K filed October 27, 2021 (File No.~~ ~~001-13395~~))
~~10.1~~						Amendment No. 1 to Fifth Amended, Restated and Consolidated Credit Agreement, dated as of October 8, 2021, among Sonic Automotive, Inc.; the subsidiaries of Sonic Automotive, Inc. named therein; each lender a party thereto; and 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 October 13, 2021 (File No. 001-13395)).
~~10.2~~						Third Amendment to Credit Agreement, dated as of October 11, 2021, among Sonic Automotive, Inc.; each lender a party thereto; and PNC Bank, National Association, as administrative agent (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed October 13, 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.
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.

~~SONIC AUTOMOTIVE, INC.~~

**Furnished herewith.

+ Schedules (or similar attachments) have been omitted pursuant to Item 601(a)(5) of Regulation S-K. Sonic agrees to furnish supplementally copies of any of the omitted schedules (or similar attachments) to the Securities and Exchange Commission or the Securities and Exchange Commission staff upon request.

6665

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.

~~October~~July 28, ~~2021~~2022	By:	/s/ DAVID BRUTON SMITH
		David Bruton Smith
		Chairman and Chief Executive Officer

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

6766


		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	6
	Notes to Unaudited Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1817
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	5960
Item 4.	Controls and Procedures	6061
PART II – OTHER INFORMATION		6162
Item 1.	Legal Proceedings	6162
Item 1A.	Risk Factors	6263
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	64
Item 6.	Exhibits	65
SIGNATURES		6766


	Three Months Ended September 30, 2021						Three Months Ended September 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)
Gain (loss) on franchise disposals	$	—	$	—	$	—	$	3,150	$	—	$	3,150	SG&A expenses



	Nine Months Ended September 30, 2021						Nine Months Ended September 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)
Gain (loss) on franchise disposals	$	465	$	—	$	465	$	3,150	$	—	$	3,150	SG&A expenses



Impairment charges	$	—	$	—	$	—	$	(268,859)	$	—	$	(268,859)	Impairment charges

Non-recurring tax benefit	$	—	$	—	$	—	$	53,643	$	—	$	53,643	Income taxes