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 30, 2022~~March 31, 2023

☐ 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~~April 25, ~~2022,~~2023, there were ~~24,548,426~~23,390,262 shares of the registrant’s Class A Common Stock, par value $0.01 per share, and 12,029,375 shares of the registrant’s Class B Common Stock, par value $0.01 per share, outstanding.

UNCERTAINTY OF FORWARD-LOOKING STATEMENTS AND INFORMATION

This 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, ~~2021~~2022 and elsewhere 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 vehicle 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;~~subsidiaries;

•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 ~~RFJ Auto (as defined herein) and~~recent or future acquisitions;

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

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

•the ~~severity and duration~~impact 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 newany variants of the virus and any other similar pandemic or ~~otherwise.~~public health situation.

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~~ MONTHS ENDED ~~SEPTEMBER 30, 2022~~MARCH 31, 2023

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,					Three Months Ended March 31,
		2022		2021		2022		2021				2023		2022
		(Dollars and shares in millions, except per share amounts)										(Dollars and shares in millions, except per share amounts)
Revenues:	Revenues:									Revenues:
Retail new vehicles	Retail new vehicles	$	1,373.1	$	1,128.0	$	4,068.7	$	3,715.2	Retail new vehicles		$	1,442.8	$	1,351.3
Fleet new vehicles	Fleet new vehicles	32.0		18.9		70.0		50.9		Fleet new vehicles		18.8		18.2
Total new vehicles	Total new vehicles	1,405.1		1,146.9		4,138.7		3,766.1		Total new vehicles		1,461.6		1,369.5
Used vehicles	Used vehicles	1,358.0		1,324.8		4,178.3		3,708.9		Used vehicles		1,344.9		1,370.1
Wholesale vehicles	Wholesale vehicles	114.7		97.1		404.8		256.7		Wholesale vehicles		85.6		168.8
Total vehicles	Total vehicles	2,877.8		2,568.8		8,721.8		7,731.7		Total vehicles		2,892.1		2,908.4
Parts, service and collision repair	Parts, service and collision repair	404.7		339.9		1,183.4		994.1		Parts, service and collision repair		430.5		381.2
Finance, insurance and other, net	Finance, insurance and other, net	165.6		164.1		505.3		486.1		Finance, insurance and other, net		168.6		166.6
Total revenues	Total revenues	3,448.1		3,072.8		10,410.5		9,211.9		Total revenues		3,491.2		3,456.2
Cost of sales:	Cost of sales:									Cost of sales:
Retail new vehicles	Retail new vehicles	(1,209.6)		(1,012.9)		(3,569.2)		(3,412.8)		Retail new vehicles		(1,304.7)		(1,183.6)
Fleet new vehicles	Fleet new vehicles	(30.7)		(18.6)		(66.9)		(50.0)		Fleet new vehicles		(17.9)		(17.4)
Total new vehicles	Total new vehicles	(1,240.3)		(1,031.5)		(3,636.1)		(3,462.8)		Total new vehicles		(1,322.6)		(1,201.0)
Used vehicles	Used vehicles	(1,306.6)		(1,304.6)		(4,031.6)		(3,623.1)		Used vehicles		(1,314.9)		(1,322.2)
Wholesale vehicles	Wholesale vehicles	(116.8)		(95.9)		(404.2)		(250.1)		Wholesale vehicles		(82.6)		(167.4)
Total vehicles	Total vehicles	(2,663.7)		(2,432.0)		(8,071.9)		(7,336.0)		Total vehicles		(2,720.1)		(2,690.6)
Parts, service and collision repair	Parts, service and collision repair	(203.7)		(168.8)		(597.7)		(492.2)		Parts, service and collision repair		(217.6)		(194.3)
Total cost of sales	Total cost of sales	(2,867.4)		(2,600.8)		(8,669.6)		(7,828.2)		Total cost of sales		(2,937.7)		(2,884.9)
Gross profit	Gross profit	580.7		472.0		1,740.9		1,383.7		Gross profit		553.5		571.3
Selling, general and administrative expenses	Selling, general and administrative expenses	(399.0)		(321.4)		(1,188.8)		(931.3)		Selling, general and administrative expenses		(412.8)		(387.0)

Depreciation and amortization	Depreciation and amortization	(32.8)		(25.2)		(94.0)		(73.7)		Depreciation and amortization		(34.3)		(29.9)
Operating income	Operating income	148.9		125.4		458.1		378.7		Operating income		106.4		154.4
Other income (expense):	Other income (expense):									Other income (expense):
Interest expense, floor plan	Interest expense, floor plan	(9.6)		(3.3)		(20.6)		(12.8)		Interest expense, floor plan		(14.6)		(5.0)
Interest expense, other, net	Interest expense, other, net	(22.9)		(9.8)		(65.1)		(30.2)		Interest expense, other, net		(28.4)		(20.8)
Other income (expense), net	Other income (expense), net	—		(0.1)		0.1		0.1		Other income (expense), net		0.2		0.3
Total other income (expense)	Total other income (expense)	(32.5)		(13.2)		(85.6)		(42.9)		Total other income (expense)		(42.8)		(25.5)
Income from continuing operations before taxes		116.4		112.2		372.5		335.8
Provision for income taxes for continuing operations - benefit (expense)		(29.1)		(27.5)		(93.1)		(83.4)
Income from continuing operations		87.3		84.7		279.4		252.4
Discontinued operations:
Income (loss) from discontinued operations before taxes		—		(0.3)		—		0.2
Provision for income taxes for discontinued operations - benefit (expense)		—		0.1		—		—
Income (loss) from discontinued operations		—		(0.2)		—		0.2
Income before taxes										Income before taxes		63.6		128.9
Provision for income taxes - benefit (expense)										Provision for income taxes - benefit (expense)		(15.9)		(31.6)

Net income	Net income	$	87.3	$	84.5	$	279.4	$	252.6	Net income		$	47.7	$	97.3

Basic earnings per common share:	Basic earnings per common share:									Basic earnings per common share:
Earnings per share from continuing operations		$	2.28	$	2.04	$	7.09	$	6.07
Earnings per share from discontinued operations		—		(0.01)		—		0.01

Earnings per common share	Earnings per common share	$	2.28	$	2.03	$	7.09	$	6.08	Earnings per common share		$	1.33	$	2.41
Weighted-average common shares outstanding	Weighted-average common shares outstanding	38.3		41.6		39.4		41.6		Weighted-average common shares outstanding		35.9		40.4
Diluted earnings per common share:	Diluted earnings per common share:									Diluted earnings per common share:
Earnings per share from continuing operations		$	2.23	$	1.96	$	6.90	$	5.81
Earnings per share from discontinued operations		—		(0.01)		—		0.01

Earnings per common share	Earnings per common share	$	2.23	$	1.95	$	6.90	$	5.82	Earnings per common share		$	1.29	$	2.33
Weighted-average common shares outstanding	Weighted-average common shares outstanding	39.2		43.3		40.5		43.4		Weighted-average common shares outstanding		36.9		41.8

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 March 31,
		2022		2021		2022		2021				2023		2022
		(Dollars in millions)										(Dollars in millions)
Net income	Net income	$	87.3	$	84.5	$	279.4	$	252.6	Net income		$	47.7	$	97.3
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	—		0.3		0.7		1.2		Change in fair value and amortization of interest rate cap agreements		(0.1)		0.3

Total other comprehensive income (loss) before taxes	Total other comprehensive income (loss) before taxes	—		0.3		0.7		1.2		Total other comprehensive income (loss) before taxes		(0.1)		0.3
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)	—		(0.1)		(0.2)		(0.4)		Provision for income tax benefit (expense) related to components of other comprehensive income (loss)		—		(0.1)
Other comprehensive income (loss)	Other comprehensive income (loss)	—		0.2		0.5		0.8		Other comprehensive income (loss)		(0.1)		0.2
Comprehensive income	Comprehensive income	$	87.3	$	84.7	$	279.9	$	253.4	Comprehensive income		$	47.6	$	97.5

See notes to unaudited condensed consolidated financial statements.

SONIC AUTOMOTIVE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


		September 30, 2022		December 31, 2021			March 31, 2023		December 31, 2022
		(Dollars in millions, except per share amounts)					(Dollars in millions, except per share amounts)
ASSETS	ASSETS					ASSETS
Current Assets:	Current Assets:					Current Assets:
Cash and cash equivalents	Cash and cash equivalents	$	139.0	$	299.4	Cash and cash equivalents	$	160.2	$	229.2
Receivables, net	Receivables, net	360.6		401.1		Receivables, net	374.8		462.4
Inventories	Inventories	1,197.1		1,261.2		Inventories	1,462.6		1,216.8
Other current assets	Other current assets	60.3		122.4		Other current assets	304.2		297.9
Total current assets	Total current assets	1,757.0		2,084.1		Total current assets	2,301.8		2,206.3
Property and Equipment, net	Property and Equipment, net	1,555.7		1,458.8		Property and Equipment, net	1,591.9		1,561.7
Goodwill	Goodwill	436.5		416.4		Goodwill	244.4		231.0
Other Intangible Assets, net	Other Intangible Assets, net	513.4		480.2		Other Intangible Assets, net	419.3		396.7
Operating Right-of-Use Lease Assets	Operating Right-of-Use Lease Assets	267.1		293.2		Operating Right-of-Use Lease Assets	236.8		260.7
Finance Right-of-Use Lease Assets	Finance Right-of-Use Lease Assets	231.4		179.9		Finance Right-of-Use Lease Assets	255.1		224.1
Other Assets	Other Assets	67.2		62.5		Other Assets	98.7		97.8
Total Assets	Total Assets	$	4,828.3	$	4,975.1	Total Assets	$	5,148.0	$	4,978.3

LIABILITIES AND STOCKHOLDERS’ EQUITY	LIABILITIES AND STOCKHOLDERS’ EQUITY					LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:	Current Liabilities:					Current Liabilities:
Notes payable - floor plan - trade	Notes payable - floor plan - trade	$	95.1	$	89.8	Notes payable - floor plan - trade	$	119.1	$	114.9
Notes payable - floor plan - non-trade	Notes payable - floor plan - non-trade	959.8		1,178.6		Notes payable - floor plan - non-trade	1,301.5		1,112.7
Trade accounts payable	Trade accounts payable	139.1		133.3		Trade accounts payable	148.6		138.4
Operating short-term lease liabilities	Operating short-term lease liabilities	36.1		36.2		Operating short-term lease liabilities	33.5		36.4
Finance short-term lease liabilities	Finance short-term lease liabilities	15.8		52.7		Finance short-term lease liabilities	12.7		11.1

Other accrued liabilities	Other accrued liabilities	392.6		350.5		Other accrued liabilities	359.9		352.4
Current maturities of long-term debt	Current maturities of long-term debt	80.0		50.6		Current maturities of long-term debt	81.7		79.5
Total current liabilities	Total current liabilities	1,718.5		1,891.7		Total current liabilities	2,057.0		1,845.4
Long-Term Debt	Long-Term Debt	1,442.4		1,510.7		Long-Term Debt	1,650.8		1,672.2
Other Long-Term Liabilities	Other Long-Term Liabilities	93.2		96.0		Other Long-Term Liabilities	114.6		105.5
Operating Long-Term Lease Liabilities	Operating Long-Term Lease Liabilities	238.2		264.8		Operating Long-Term Lease Liabilities	210.5		231.4
Finance Long-Term Lease Liabilities	Finance Long-Term Lease Liabilities	229.1		135.5		Finance Long-Term Lease Liabilities	260.3		228.6

Commitments and Contingencies	Commitments and Contingencies					Commitments and Contingencies
Stockholders’ Equity:	Stockholders’ Equity:					Stockholders’ Equity:
Class A Convertible Preferred Stock, none issued	Class A Convertible Preferred Stock, none issued	—		—		Class A Convertible Preferred Stock, none issued	—		—
Class A Common Stock, $0.01 par value; 100,000,000 shares authorized; 67,566,172 shares issued and 24,548,426 shares outstanding at September 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 September 30, 2022 and December 31, 2021		0.1		0.1
Class A Common Stock, $0.01 par value; 100,000,000 shares authorized; 68,290,700 shares issued and 23,275,269 shares outstanding at March 31, 2023; 67,574,922 shares issued and 24,204,324 shares outstanding at December 31, 2022						Class A Common Stock, $0.01 par value; 100,000,000 shares authorized; 68,290,700 shares issued and 23,275,269 shares outstanding at March 31, 2023; 67,574,922 shares issued and 24,204,324 shares outstanding at December 31, 2022	0.7		0.7
Class B Common Stock, $0.01 par value; 30,000,000 shares authorized; 12,029,375 shares issued and outstanding at March 31, 2023 and December 31, 2022						Class B Common Stock, $0.01 par value; 30,000,000 shares authorized; 12,029,375 shares issued and outstanding at March 31, 2023 and December 31, 2022	0.1		0.1
Paid-in capital	Paid-in capital	815.6		790.2		Paid-in capital	832.0		819.4
Retained earnings	Retained earnings	1,301.5		1,051.7		Retained earnings	1,138.1		1,100.3
Accumulated other comprehensive income (loss)	Accumulated other comprehensive income (loss)	(0.8)		(1.3)		Accumulated other comprehensive income (loss)	1.5		1.6
Treasury stock, at cost; 43,017,746 Class A Common Stock shares held at September 30, 2022 and 37,808,540 Class A Common Stock shares held at December 31, 2021		(1,010.2)		(765.0)
Treasury stock, at cost; 45,015,431 Class A Common Stock shares held at March 31, 2023 and 43,370,598 Class A Common Stock shares held at December 31, 2022						Treasury stock, at cost; 45,015,431 Class A Common Stock shares held at March 31, 2023 and 43,370,598 Class A Common Stock shares held at December 31, 2022	(1,117.6)		(1,026.9)
Total Stockholders’ Equity	Total Stockholders’ Equity	1,106.9		1,076.4		Total Stockholders’ Equity	854.8		895.2
Total Liabilities and Stockholders’ Equity	Total Liabilities and Stockholders’ Equity	$	4,828.3	$	4,975.1	Total Liabilities and Stockholders’ Equity	$	5,148.0	$	4,978.3

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 millions, except per share amounts)
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
Shares awarded under stock compensation plans 0.1 — — — — — 0.7 — — 0.7
Purchases of treasury stock — — (0.5) (24.8) — — — — — (24.8)
Effect of cash flow hedge instruments, net of tax expense of $0.1 — — — — — — — — 0.2 0.2
Restricted stock amortization and stock option amortization — — — — — — 3.7 — — 3.7
Net income — — — — — — — 84.5 — 84.5
Class A dividends declared ($0.12 per share) — — — — — — — (3.5) — (3.5)
Class B dividends declared ($0.12
per share)
— — — — — — — (1.4) — (1.4)
Balance at September 30, 2021 66.5 $ 0.7 (37.3) $ (738.7) 12.0 $ 0.1 $ 786.2 $ 960.3 $ (2.8) $ 1,005.8


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

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

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 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
Shares awarded under stock compensation plans 0.5 — — — — — 7.2 — — 7.2
Purchases of treasury stock — — (3.1) (152.1) — — — — — (152.1)
Restricted stock amortization and stock option amortization — — — — — — 3.8 — — 3.8
Net income — — — — — — — 87.3 — 87.3
Class A dividends declared ($0.25 per share) — — — — — — — (6.3) — (6.3)
Class B dividends declared ($0.25
per share)
— — — — — — — (3.0) — (3.0)
Balance at September 30, 2022 67.6 $ 0.7 (43.0) $ (1,010.2) 12.0 $ 0.1 $ 815.6 $ 1,301.5 $ (0.8) $ 1,106.9


	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, 2022	67.6	$	0.7	(43.4)	$	(1,026.9)	12.0	$	0.1	$	819.4	$	1,100.3	$	1.6	$	895.2
Shares awarded under stock compensation plans	0.7	—		—	—		—	—		7.6		—		—		7.6
Purchases of treasury stock	—	—		(1.6)	(90.7)		—	—		—		—		—		(90.7)
Effect of cash flow hedge instruments, net of tax benefit	—	—		—	—		—	—		—		—		(0.1)		(0.1)
Stock compensation expense	—	—		—	—		—	—		5.0		—		—		5.0
Net income	—	—		—	—		—	—		—		47.7		—		47.7

Class A dividends declared ($0.28 per share)	—	—		—	—		—	—		—		(6.5)		—		(6.5)
Class B dividends declared ($0.28 per share)	—	—		—	—		—	—		—		(3.4)		—		(3.4)
Balance at March 31, 2023	68.3	$	0.7	(45.0)	$	(1,117.6)	12.0	$	0.1	$	832.0	$	1,138.1	$	1.5	$	854.8

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 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 0.9 — — — — — 7.5 — — 7.5
Purchases of treasury stock — — (1.5) (67.0) — — — — — (67.0)
Effect of cash flow hedge instruments, net of tax expense of $0.3 — — — — — — — — 0.8 0.8
Restricted stock amortization and stock option amortization — — — — — — 11.2 — — 11.2
Net income — — — — — — — 252.6 — 252.6
Class A dividends declared ($0.34 per share) — — — — — — — (10.0) — (10.0)
Class B dividends declared ($0.34 per share) — — — — — — — (4.1) — (4.1)
Balance at September 30, 2021 66.5 $ 0.7 (37.3) $ (738.7) 12.0 $ 0.1 $ 786.2 $ 960.3 $ (2.8) $ 1,005.8

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 1.1 — — — — — 8.5 — — 8.5
Purchases of treasury stock — — (5.2) (245.2) — — — — — (245.2)
Effect of cash flow hedge instruments, net of tax expense of $0.2 — — — — — — — — 0.5 0.5
Restricted stock amortization and stock option amortization — — — — — — 16.9 — — 16.9
Net income — — — — — — — 279.4 — 279.4
Class A dividends declared ($0.62 per share) — — — — — — — (22.1) — (22.1)
Class B dividends declared ($0.62 per share) — — — — — — — (7.5) — (7.5)
Balance at September 30, 2022 67.6 $ 0.7 (43.0) $ (1,010.2) 12.0 $ 0.1 $ 815.6 $ 1,301.5 $ (0.8) $ 1,106.9

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

SONIC AUTOMOTIVE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


		Nine Months Ended September 30,					Three Months Ended March 31,
		2022		2021			2023		2022
		(Dollars in millions)					(Dollars in millions)
CASH FLOWS FROM OPERATING ACTIVITIES:	CASH FLOWS FROM OPERATING ACTIVITIES:					CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	Net income	$	279.4	$	252.6	Net income	$	47.7	$	97.3
Adjustments to reconcile net income to net cash provided by operating activities:
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	84.2		69.1		Depreciation and amortization of property and equipment	30.0		27.0

Debt issuance cost amortization	Debt issuance cost amortization	3.8		2.3		Debt issuance cost amortization	1.6		1.1

Stock-based compensation expense	Stock-based compensation expense	16.9		11.2		Stock-based compensation expense	5.0		4.5
Deferred income taxes	Deferred income taxes	(10.4)		(8.9)		Deferred income taxes	(3.3)		(3.2)

Other	Other	1.0		(1.2)		Other	0.7		(0.2)
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	43.5		93.2		Receivables	87.5		53.4
Inventories	Inventories	101.1		419.8		Inventories	(234.6)		72.2
Other assets	Other assets	107.5		(2.7)		Other assets	4.2		(11.8)
Notes payable - floor plan – trade	Notes payable - floor plan – trade	5.3		(556.6)		Notes payable - floor plan – trade	4.2		(16.0)
Trade accounts payable and other liabilities	Trade accounts payable and other liabilities	13.1		(12.4)		Trade accounts payable and other liabilities	23.0		28.2
Total adjustments	Total adjustments	366.0		13.8		Total adjustments	(81.7)		155.2
Net cash provided by operating activities		645.4		266.4
Net cash (used in) provided by operating activities						Net cash (used in) provided by operating activities	(34.0)		252.5
CASH FLOWS FROM INVESTING ACTIVITIES:	CASH FLOWS FROM INVESTING ACTIVITIES:					CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of businesses, net of cash acquired	Purchases of businesses, net of cash acquired	(94.2)		(66.1)		Purchases of businesses, net of cash acquired	(75.1)		(28.4)
Purchases of land, property and equipment	Purchases of land, property and equipment	(197.6)		(181.5)		Purchases of land, property and equipment	(37.2)		(58.8)
Proceeds from sales of property and equipment	Proceeds from sales of property and equipment	15.7		6.2		Proceeds from sales of property and equipment	4.8		6.9
Proceeds from sales of dealerships		—		3.9

Net cash used in investing activities	Net cash used in investing activities	(276.1)		(237.5)		Net cash used in investing activities	(107.5)		(80.3)
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		(218.8)		128.1
Borrowings on revolving credit facilities		—		4.9
Repayments on revolving credit facilities		—		(4.9)
Proceeds from issuance of long-term debt		—		16.5
Net borrowings (repayments) on notes payable - floor plan - non-trade						Net borrowings (repayments) on notes payable - floor plan - non-trade	188.8		(56.3)

Debt issuance costs	Debt issuance costs	(0.5)		(4.8)		Debt issuance costs	(1.3)		(0.2)
Principal payments of long-term debt	Principal payments of long-term debt	(42.1)		(43.0)		Principal payments of long-term debt	(19.5)		(15.8)
Principal payments of long-term lease liabilities	Principal payments of long-term lease liabilities	(6.4)		(3.1)		Principal payments of long-term lease liabilities	(2.2)		(0.9)
Purchases of treasury stock	Purchases of treasury stock	(245.2)		(67.0)		Purchases of treasury stock	(90.7)		(33.7)

Issuance of shares under stock compensation plans	Issuance of shares under stock compensation plans	8.5		7.5		Issuance of shares under stock compensation plans	7.6		0.4
Dividends paid	Dividends paid	(25.2)		(13.3)		Dividends paid	(10.2)		(4.9)
Net cash provided by (used in) financing activities	Net cash provided by (used in) financing activities	(529.7)		20.9		Net cash provided by (used in) financing activities	72.5		(111.4)
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS	NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS	(160.4)		49.8		NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS	(69.0)		60.8
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR	CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR	299.4		170.3		CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR	229.2		299.4
CASH AND CASH EQUIVALENTS, END OF PERIOD	CASH AND CASH EQUIVALENTS, END OF PERIOD	$	139.0	$	220.1	CASH AND CASH EQUIVALENTS, END OF PERIOD	$	160.2	$	360.2

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:	SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:					SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest, including amount capitalized		$	68.7	$	46.0
Cash paid (received) during the period for:						Cash paid (received) during the period for:
Interest, including amounts capitalized						Interest, including amounts capitalized	$	26.5	$	10.7
Income taxes	Income taxes	$	95.2	$	85.8	Income taxes	$	(0.4)	$	0.1

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~~ months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States (the “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, ~~2021.~~

~~COVID-19~~ – The COVID-19 pandemic negatively impacted the global economy beginning in the first quarter of 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, both of which continue to impact our business. The global automotive supply chain has been significantly disrupted since the onset of the pandemic, primarily related to the production of semiconductors and other components that are used in many modern automobiles, in addition to workforce-related production delays and stoppages. As a result, automobile manufacturing has operated for multiple years at lower than 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 low new and used vehicle inventory and a high new and used vehicle pricing environment, which drove retail new vehicle unit sales volumes lower across the industry.2022.

Recent Accounting Pronouncements – InPlease 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, 2022 for further discussion of recent accounting pronouncements.

Change in Accounting Principle – During the quarter ended March ~~2020,~~31, 2023, Sonic voluntarily changed the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2020-04, “Reference Rate Reform (Accounting Standards Codification (“ASC”) Topic 848): Facilitationdate of its annual goodwill impairment test and other intangible assets impairment test from October 1 to April 30. This change is preferable under the circumstances as it provides Sonic with better alignment of the ~~Effects~~annual impairment test with the availability of ~~Reference Rate Reform on Financial Reporting.” ASU 2020-04 provides optional guidance~~final approved prospective financial information for ~~a limited period~~use in projecting future cash flows in our impairment models. We intend to utilize the same valuation approach and do not expect the change in valuation date to produce different impairment results. This change is not applied retrospectively as it is impracticable to do so because retrospective application would require the application of ~~time to ease~~significant estimates and assumptions with the ~~potential accounting impact associated~~use of hindsight. Accordingly, the change will be applied prospectively, beginning 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. In October 2022, Sonic entered into Amendment No. 2 to Fifth Amended, Restated and Consolidated Credit Agreement (the “Second Credit Agreement Amendment”) which amended the Credit Agreement to, among other things: (i) replace the Credit Agreement’s LIBOR-based Eurodollar reference interest rate option with a reference interest rate option based upon one month Term SOFR (as defined in the Credit Agreement); (ii) amend the provisions relating to the basis for inclusion of real property owned by the Company or certain of its subsidiaries in the borrowing base for the Revolving Credit Facility; (iii) amend the minimum amount for commitments under the Revolving Credit Facility and the proportion that such commitments under the Revolving Credit Facility may compose of the total commitments made by the lenders; and (iv) adjust aspects of the offset account used for voluntary reductions to loans under the Floor Plan Facilities.April 30, 2023 impairment test date.

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. Certain amounts and percentages may not compute due to rounding.

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. 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 third-party vehicle financing and the sale of third-party 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 obligations are satisfied when the associated vehicle is ~~either~~ delivered to a customer and customer acceptance has occurred, over time as the maintenance and repair services are 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, as vehicle service work is performed and when parts are delivered. Conditions for completing a sale include having an agreement with the customer, including pricing, and it being probable that the proceeds from the sale will be collected.

The accompanying unaudited condensed consolidated balance sheets as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022 include approximately ~~$31.3~~$20.5 million and ~~$34.9~~$38.7 million, respectively, related to contract assets from F&I retro revenues

SONIC AUTOMOTIVE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

recognition, which are recorded in receivables, net. Changes in contract assets from December 31, ~~2021~~2022 to ~~September 30, 2022~~March 31, 2023 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, ~~2021~~2022 for further discussion of our revenue recognition policies and processes.

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)., in addition to Class A Common Stock purchase warrants.

2. Business Acquisitions and Dispositions

During the ~~nine~~three months ended ~~September 30,~~March 31, 2023, we acquired one business (consisting of five locations) in our Powersports Segment for a aggregate gross purchase price (including inventory acquired and subsequently funded by floor plan notes payable) of approximately $75.1 million. The preliminary allocation of the approximately $75.1 million gross purchase price for the acquisition completed during the three months ended March 31, 2023 included inventory of approximately $11.6 million, property and equipment of approximately $0.7 million, franchise assets of approximately $22.6 million, goodwill of approximately $11.4 million, real estate of approximately $29.0 million, other assets of approximately $0.1 million, and other liabilities of approximately $0.3 million. During the three months ended March 31, 2022, we recognized a $14.7 million impact of a post-close adjustment related to the acquisition of RFJ Auto Partners, Inc. and its subsidiaries (collectively, “RFJ Auto”) completed in December 2021. See, “RFJ Acquisition,” for further discussion. We acquired two ~~franchised dealership locations and one business to be included~~businesses in our ~~EchoPark~~Franchised Dealerships Segment ~~during the nine months ended September 30, 2022~~ for an aggregate gross purchase price (including inventory acquired and subsequently funded by floor plan notes payable) of approximately ~~$79.5 million.~~$28.4 million, including the impact of a $14.7 million post-close adjustment related to the acquisition of RFJ Auto Partners, Inc. and its subsidiaries completed in December 2021 (the "RFJ Acquisition"). Of this amount, approximately $13.7 million was related to the acquisition of the two franchised dealership stores. The allocation of the ~~$79.5~~approximately $13.7 million aggregate gross purchase price for the acquisitions completed during the ~~nine~~three months ended ~~September 30,~~March 31, 2022 included inventory of approximately ~~$31.0~~$4.9 million, property and equipment of approximately ~~$0.5~~$0.1 million, franchise assets of approximately ~~$33.2~~$6.4 million, goodwill of approximately ~~$14.1~~$1.3 million, other assets of approximately $1.1 million and other liabilities of $0.4 million. We acquired three businesses to be included in our EchoPark segment and two franchised dealership locations during the nine months ended September 30, 2021 for an aggregate gross purchase price (including inventory acquired and subsequently funded by floor plan notes payable) of approximately ~~$66.1~~$0.1 million.

We did not dispose of any businesses during the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022. ~~During the nine months ended September 30, 2021, we disposed of one luxury franchised dealership, which generated net cash from dispositions of approximately $3.9 million.~~

~~RFJ Acquisition~~

On December 6, 2021 (the “Closing Date”), Sonic completed the acquisition of 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 months ended September 30, 2022. The post-close adjustment in March 2022 consisted of additional acquired inventory of $4.3 million, other assets of $3.4 million, goodwill of $1.1 million, and a reduction in other liabilities of $5.9 million.

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

~~SONIC AUTOMOTIVE, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

3. Inventories

Inventories consist of the following:


		September 30, 2022		December 31, 2021			March 31, 2023		December 31, 2022
		(In millions)					(In millions)
New vehicles	New vehicles	$	300.6	$	273.1	New vehicles	$	560.5	$	449.3
Used vehicles	Used vehicles	675.8		807.2		Used vehicles	648.2		534.0
Service loaners	Service loaners	132.5		106.3		Service loaners	152.2		143.8
Parts, accessories and other	Parts, accessories and other	88.2		74.6		Parts, accessories and other	101.7		89.7
Inventories	Inventories	$	1,197.1	$	1,261.2	Inventories	$	1,462.6	$	1,216.8

4. Property and Equipment

Property and equipment, net consists of the following:


		September 30, 2022		December 31, 2021			March 31, 2023		December 31, 2022
		(In millions)					(In millions)
Land	Land	$	481.1	$	447.4	Land	$	484.5	$	478.2
Buildings and improvements	Buildings and improvements	1,353.5		1,240.5		Buildings and improvements	1,407.7		1,365.3
Furniture, fixtures and equipment	Furniture, fixtures and equipment	498.9		451.2		Furniture, fixtures and equipment	518.2		504.1
Construction in progress	Construction in progress	45.8		68.1		Construction in progress	53.7		57.0
Total, at cost	Total, at cost	2,379.3		2,207.2		Total, at cost	2,464.1		2,404.6
Less accumulated depreciation	Less accumulated depreciation	(820.2)		(746.2)		Less accumulated depreciation	(872.2)		(842.9)
Subtotal		1,559.1		1,461.0
Less assets held for sale (1)		(3.4)		(2.2)

Property and equipment, net	Property and equipment, net	$	1,555.7	$	1,458.8	Property and equipment, net	$	1,591.9	$	1,561.7

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

~~In the three and nine months ended September 30, 2022, capital~~Capital expenditures were approximately ~~$97.3~~$37.2 million and ~~$197.6~~$58.8 million ~~respectively, and~~ in the three ~~and nine~~ months ended ~~September 30, 2021, capital expenditures were approximately $76.5 million~~March 31, 2023 and ~~$181.5 million,~~2022, respectively. Capital expenditures in all periods were primarily related to real estate acquisitions, construction of new

SONIC AUTOMOTIVE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

franchised dealerships and EchoPark and powersports stores, building improvements and equipment purchased for use in our franchised dealerships and EchoPark ~~stores. Assets held for sale as of September 30, 2022~~ and ~~December 31, 2021 consisted of real property not currently used in operations that we expect to dispose of in the next 12 months.~~powersports stores.

There were no fixed asset impairment charges for the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 and ~~2021.~~2022.

5. Goodwill and Intangible Assets

The changes in the carrying amount of goodwill for ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022 were as follows:

September 30, 2022 December 31, 2021
(In millions)
Carrying Amount of Goodwill:
Franchised Dealerships Segment $ 224.4 $ 251.2
EchoPark Segment 212.1 165.2
Total goodwill (1) $ 436.5 $ 416.4


	Franchised Dealerships Segment		EchoPark Segment		Powersports Segment		Total
	(In millions)
Balance at December 31, 2021 (1)	$	251.2	$	165.2	$	—	$	416.4
Additions through current year acquisitions	5.1		—		9.2		14.3

Reductions from impairment	—		(202.9)		—		(202.9)
Prior year acquisition allocations	(34.5)		37.7		—		3.2
Balance at December 31, 2022 (2)	$	221.8	$	—	$	9.2	$	231.0
Additions through current year acquisitions	—		—		11.9		11.9


Prior year acquisition allocations	—		—		1.5		1.5
Balance at March 31, 2023 (2)	$	221.8	$	—	$	22.6	$	244.4

(1)Net of accumulated impairment losses of ~~$1.1 billion.~~$1.1 billion, related to the Franchised Dealerships Segment.

(2) Net of accumulated impairment losses of $1.1 billion and $202.9 million, related to the Franchised Dealerships Segment and the EchoPark Segment, respectively.

The carrying amount of indefinite lived franchise assets was approximately ~~$513.4~~$419.3 million and ~~$480.2~~$396.7 million as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively. We did not record any impairment charges as of ~~September 30, 2022~~March 31, 2023 orDecember 31, ~~2021.~~2022.

~~SONIC AUTOMOTIVE, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

6. Long-Term Debt

Long-term debt consists of the following:


		September 30, 2022		December 31, 2021			March 31, 2023		December 31, 2022
		(In millions)					(In millions)
2021 Revolving Credit Facility (1)	2021 Revolving Credit Facility (1)	$	—	$	—	2021 Revolving Credit Facility (1)	$	—	$	—

4.625% Senior Notes due 2029 (the “4.625% Notes”)	4.625% Senior Notes due 2029 (the “4.625% Notes”)	650.0		650.0		4.625% 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		4.875% Senior Notes due 2031 (the “4.875% Notes”)	500.0		500.0
2019 Mortgage Facility (2)	2019 Mortgage Facility (2)	81.8		90.0		2019 Mortgage Facility (2)	323.0		327.0
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%	190.4		213.4		Mortgage notes to finance companies - fixed rate, bearing interest from 2.05% to 7.03%	183.0		186.6
Mortgage notes to finance companies - variable rate, bearing interest at 1.50 to 2.90 percentage points above one-month or three-month LIBOR		121.7		132.8
Mortgage notes to finance companies - variable rate, bearing interest at 1.50 to 2.90 percentage points above one-month or three-month LIBOR or SOFR						Mortgage notes to finance companies - variable rate, bearing interest at 1.50 to 2.90 percentage points above one-month or three-month LIBOR or SOFR	104.1		116.0

Subtotal	Subtotal	$	1,543.9	$	1,586.2	Subtotal	$	1,760.1	$	1,779.6
Debt issuance costs	Debt issuance costs	(21.5)		(24.9)		Debt issuance costs	(27.6)		(27.9)
Total debt	Total debt	1,522.4		1,561.3		Total debt	1,732.5		1,751.7
Less current maturities	Less current maturities	(80.0)		(50.6)		Less current maturities	(81.7)		(79.5)
Long-term debt	Long-term debt	$	1,442.4	$	1,510.7	Long-term debt	$	1,650.8	$	1,672.2

(1)The interest rate on the 2021 Revolving Credit Facility (as defined below) was ~~100~~135 basis points above ~~LIBOR~~one-month Term SOFR at ~~both September 30, 2022~~March 31, 2023 and 110 basis points above one-month Term SOFR (as defined below) at December 31, ~~2021.~~2022.

(2)The interest rate on the 2019 Mortgage Facility (as defined below) was ~~150~~160 basis points above ~~LIBOR~~one-month Term SOFR at both ~~September 30, 2022~~March 31, 2023 and 135 basis points above one-month Term SOFR (as defined below) at December 31, ~~2021.~~2022.

SONIC AUTOMOTIVE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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 $2.9 billion that may be allocated between the new vehicle revolving floor plan facility and the used vehicle revolving floor plan facility that comprise the 2021 Floor Plan Facilities as the Company 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 4.625% Notes and the 4.875% Notes. On October 7, 2022, we entered into an amendment to the 2021 Credit Facilities (the “Second Credit Facility Amendment”) to, among other things: (i) replace the 2021 Credit Facilities’ ~~LIBOR-based~~London InterBank Offered Rate ("LIBOR")-based Eurodollar reference interest rate option with a reference interest rate option based upon one month Term SOFR (as defined in the 2021 Credit Facilities) (the conversion of the interest rate benchmark from LIBOR to one-month Term SOFR included a 10-basis point credit spread adjustment); (ii) amend the provisions relating to the basis for inclusion of real property owned by the Company or certain of its subsidiaries in the borrowing base for the 2021 Revolving Credit Facility; (iii) amend the minimum amount for commitments under the 2021 Revolving Credit Facility and the proportion that such commitments under the 2021 Revolving Credit Facility may compose of the total commitments made by the lenders; and (iv) adjust aspects of the offset account used for voluntary reductions to loans under the 2021 Floor Plan Facilities.

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 30, 2022,~~March 31, 2023, the 2021 Revolving Borrowing Base was approximately ~~$293.4~~$306.1 million based on balances as of such date. As of ~~September 30, 2022,~~March 31, 2023, we had no outstanding borrowings and approximately ~~$12.4~~$12.1 million in outstanding letters of credit under the 2021 Revolving Credit Facility, resulting in ~~$281.0~~$294.0 million remaining borrowing availability under the 2021 Revolving Credit Facility.

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 (subsequent to September 30, 2022, the Second Credit Facility Amendment

~~SONIC AUTOMOTIVE, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

replaced LIBOR with ~~the~~ one-month term SOFR). 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 cash dividends on our Class A and Class B Common Stock up to ~~$0.25~~$0.12 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. Additional dividends are permitted subject to the limitations on restricted payments set forth in the 2021 Credit Facilities.

4.625% Notes

On October 27, 2021, we issued $650.0 million in aggregate principal amount of 4.625% Notes, which will mature on November 15, 2029. Sonic used the net proceeds from the issuance of the 4.625% Notes, along with the net proceeds of the 4.875% 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 “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 4.625% Notes are unconditionally guaranteed, jointly and severally, on a senior unsecured basis initially by all of the Company’s domestic operating ~~domestic~~ subsidiaries. The parent company has no independent assets or operations. The non-domestic operating subsidiary that is not a guarantor is considered minor. Under certain circumstances set forth in the 2029 Indenture, the guarantees of the certain subsidiaries of the Company comprising the EchoPark Business (as defined in the 2029 Indenture) may be released. The 2029 Indenture also provides substantial flexibility for the Company to enter into

SONIC AUTOMOTIVE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

fundamental transactions involving the EchoPark Business. The 2029 Indenture provides that interest on the 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 Company under certain circumstances. For further discussion of the 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, ~~2021.~~2022.

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, along with the net proceeds of the 4.625% 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 domestic operating ~~domestic~~ subsidiaries. The parent company has no independent assets or operations. The non-domestic operating subsidiary that is not a guarantor is considered minor. Under certain circumstances set forth in the 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.~~2022.

2019 Mortgage Facility

On November 22, 2019, we entered into a delayed draw-term loan credit agreement, which iswas 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 consummation of the RFJ Acquisition and the issuance of the 4.625% Notes and the 4.875% Notes. On November 17, 2022, we entered into an amendment to the 2019 Mortgage Facility to, among other things, extend the scheduled maturity date to November 17, 2027.

On November 17, 2022, in connection with the closing of the amendment, the Company incurred a term loan under the 2019 Mortgage Facility with a principal amount of $320.0 million, with a portion of the proceeds used to repay the entire $77.6 million principal amount of the prior term loan. In addition, the lenders under the 2019 Mortgage Facility committed to providing, upon the terms set forth in the amendment and upon the pledging of sufficient collateral by the Company, delayed draw-term loans in an aggregate principal amount up to $85.0 million (the “Delayed Draw Credit Facility”), and revolving loans in an aggregate principal amount not to exceed $95.0 million outstanding. On November 18, 2022, the Company incurred a term loan under the Delayed Draw Credit Facility with a principal amount of $7.0 million. The aggregate commitments of the lenders under the 2019 Mortgage Facility equal a total of $500.0 million, upon satisfaction of the conditions set forth in the 2019 Mortgage Facility, including the appraisal and pledging of collateral of a specified value. The amendment also amended the 2019 Mortgage Facility to, among other things: (1) replace the 2019 Mortgage Facility’s LIBOR-based Eurodollar reference interest rate option with a reference interest rate option based upon one-month Term SOFR (as defined in the 2019 Mortgage Facility); and (2) make changes to the pricing grid for loans incurred under the 2019 Mortgage Facility, which price is based on an incremental interest margin calculated based on the Company’s Consolidated Total Lease Adjusted Leverage Ratio (as defined in the 2019 Mortgage Facility).

Under the 2019 Mortgage Facility, Sonic has a maximum borrowing limit of ~~$112.2~~$500.0 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 30, 2022,~~March 31, 2023, we had approximately ~~$81.8~~$327.0 million of outstanding borrowings under the 2019 Mortgage Facility, resulting in total remaining borrowing availability of approximately ~~$30.4~~$166.4 million under the 2019 Mortgage ~~Facility.~~Facility and additional lender commitments of approximately $6.6 million subject to the appraisal and pledging of additional collateral.

Amounts outstanding under the 2019 Mortgage Facility bear interest at: (1) a specified rate above one-month Term SOFR, ranging from 1.25% to 2.25% per annum according to a performance-based pricing grid determined by the Company’s

1110

SONIC AUTOMOTIVE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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%~~0.25% to ~~1.75%~~1.25% per annum according to the Performance Grid. Interest on the 2019 Mortgage Facility is paid monthly in arrears calculated using the Base Rate plus the Applicable Rate (as defined in the 2019 Mortgage Facility) according to the Performance Grid. Scheduled repayment of outstanding principal is paid quarterly commencing on March 31, 2023 through December 31, 2024 at a rate of 1.25% of the aggregate initial principal amount, and increases to 1.875% in March 2025 until the maturity date at November 17, 2027. A balloon payment of the remaining balance will be due at the November 17, 2027 maturity date. Prior to the November 17, 2027 maturity date, the Company reserves the right to prepay the principal amount outstanding at any time without premium or penalty provided the prepayment amount exceeds $0.5 million. Additional dividends are permitted subject to the limitations on restricted payments set forth in the 2021 Credit Facilities.

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, ~~2021.~~2022.

Mortgage Notes to Finance Companies

As of ~~September 30, 2022,~~March 31, 2023, the weighted-average interest rate of our other outstanding mortgage notes (excluding the 2019 Mortgage Facility) was ~~4.67%~~5.24% and the total outstanding mortgage principal balance of these notes (excluding the 2019 Mortgage Facility) was approximately ~~$312.1~~$287.1 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 2022 and~~from 2023 to 2033.

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 as of ~~September 30, 2022.~~March 31, 2023. 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, 2022 actual		1.22	2.51	2.46
March 31, 2023 actual					March 31, 2023 actual	1.28	1.70	2.58

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 30, 2022,~~March 31, 2023, we had approximately ~~$290.9~~$260.8 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 30, 2022.~~March 31, 2023.

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 30, 2022,~~March 31, 2023, the ratio was ~~13.79~~12.88 to 1.00.

SONIC AUTOMOTIVE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

7. Commitments and Contingencies

Guarantees and ~~Indemnifications~~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. 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, we did not have any remaining exposure as of September 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~~We did not have any material exposure with respect to these indemnifications ~~was not material and the amount recorded for this contingency was not significant~~ at ~~September 30,~~March 31, 2023 or December 31, 2022.

We also guarantee the floor plan commitments of our 50%-owned joint venture, and the amount of such guarantee at both ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022 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~~is unable to predict with certainty the eventual outcome of any litigation, regulatory investigation or inquiry, in ~~all~~the opinion of management, Sonic does not believe it is reasonably possible that its current and threatened 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 couldwill have a material adverse effect on ~~Sonic’s~~the Sonic's business, financial ~~condition,~~position or consolidated results of ~~operations, cash flows or prospects.~~operations. Given the inherent unpredictability of these types of proceedings, however, it is possible that future adverse outcomes could have a material effect on Sonic's financial results.

~~Included in other accrued~~There were no significant liabilities ~~and other long-term liabilities in the accompanying unaudited condensed consolidated balance sheet~~recorded related to legal matters as of ~~September 30, 2022 were approximately $0.4 million~~March 31, 2023 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 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.2022.

8. Fair Value Measurements

Assets and liabilities recorded at fair value in the accompanying unaudited condensed consolidated balance sheets as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022 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, 2022		December 31, 2021			March 31, 2023		December 31, 2022
		(In millions)					(In millions)
Assets:	Assets:					Assets:
Cash surrender value of life insurance policies (1)	Cash surrender value of life insurance policies (1)	$	38.3	$	39.5	Cash surrender value of life insurance policies (1)	$	39.7	$	38.2

Interest rate caps designated as hedges (2)						Interest rate caps designated as hedges (2)	2.0		—
Total assets	Total assets	$	38.3	$	39.5	Total assets	$	41.7	$	38.2

Liabilities:	Liabilities:					Liabilities:

Deferred compensation plan ~~(2)~~(3)	Deferred compensation plan ~~(2)~~(3)	$	22.0	$	24.4	Deferred compensation plan ~~(2)~~(3)	$	22.7	$	21.1
Total liabilities	Total liabilities	$	22.0	$	24.4	Total liabilities	$	22.7	$	21.1

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

(2)As of March 31, 2023, approximately $1.0 million and $1.0 million were included in other current assets and other assets, respectively, in the accompanying unaudited condensed consolidated balance sheets.

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

SONIC AUTOMOTIVE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

There were no instances during the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 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, 2022~~April 30, 2023 or as events or changes in circumstances require.

~~SONIC AUTOMOTIVE, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

As of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, 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.

As of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, the fair value and the carrying value of Sonic’s significant fixed rate long-term debt were as follows:


		September 30, 2022				December 31, 2021					March 31, 2023				December 31, 2022
		Fair Value		Carrying Value		Fair Value		Carrying Value			Fair Value		Carrying Value		Fair Value		Carrying Value
		(In millions)									(In millions)

4.875% Notes (1)	4.875% Notes (1)	$	375.8	$	500.0	$	504.8	$	500.0	4.875% Notes (1)	$	408.8	$	500.0	$	390.3	$	500.0
4.625% Notes (1)	4.625% Notes (1)	$	504.2	$	650.0	$	655.9	$	650.0	4.625% Notes (1)	$	547.6	$	650.0	$	519.5	$	650.0
Mortgage Notes (2)										Mortgage Notes (2)	$	173.3	$	183.0	$	174.0	$	186.6

(1)As determined by market quotations from similar securities as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively (Level 2).

(2)As determined by the discounted cash flow method (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, ~~2021.~~2022.

9. Segment Information

As of ~~September 30, 2022,~~March 31, 2023, Sonic had ~~two~~three 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”); and (3) retail locations that sell new and used powersports vehicles, perform vehicle maintenance, warranty and repair services, and arrange finance and insurance products (the “Powersports 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.

1413

SONIC AUTOMOTIVE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Reportable segment financial information for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ were as follows:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2022		2021		2022		2021			2023		2022
		(In millions)									(In millions)
Revenues:	Revenues:									Revenues:
Franchised Dealerships Segment revenues:	Franchised Dealerships Segment revenues:									Franchised Dealerships Segment revenues:
Retail new vehicles	Retail new vehicles	$	1,359.6	$	1,124.5	$	4,047.1	$	3,710.8	Retail new vehicles	$	1,421.0	$	1,345.7
Fleet new vehicles	Fleet new vehicles	32.0		18.9		70.0		50.9		Fleet new vehicles	18.8		18.2
Total new vehicles	Total new vehicles	$	1,391.6	$	1,143.4	$	4,117.1	$	3,761.7	Total new vehicles	$	1,439.8	$	1,363.9
Used vehicles	Used vehicles	842.4		750.3		2,568.1		2,173.3		Used vehicles	767.6		853.6
Wholesale vehicles	Wholesale vehicles	75.8		64.1		261.2		183.2		Wholesale vehicles	58.4		106.4
Parts, service and collision repair	Parts, service and collision repair	404.7		339.9		1,183.4		994.1		Parts, service and collision repair	423.8		380.5
Finance, insurance and other, net	Finance, insurance and other, net	125.8		111.8		382.1		333.5		Finance, insurance and other, net	117.1		126.5
Franchised Dealerships Segment revenues	Franchised Dealerships Segment revenues	$	2,840.3	$	2,409.5	$	8,511.9	$	7,445.8	Franchised Dealerships Segment revenues	$	2,806.7	$	2,830.9

EchoPark Segment revenues:	EchoPark Segment revenues:									EchoPark Segment revenues:
Retail new vehicles	Retail new vehicles	$	13.5	$	3.5	$	21.6	$	4.4	Retail new vehicles	$	1.0	$	4.4
Used vehicles	Used vehicles	515.6		574.5		1,610.2		1,535.6		Used vehicles	572.5		515.4
Wholesale vehicles	Wholesale vehicles	38.9		33.0		143.6		73.5		Wholesale vehicles	27.0		62.4

Finance, insurance and other, net	Finance, insurance and other, net	39.8		52.3		123.2		152.6		Finance, insurance and other, net	50.0		39.9
EchoPark Segment revenues	EchoPark Segment revenues	$	607.8	$	663.3	$	1,898.6	$	1,766.1	EchoPark Segment revenues	$	650.5	$	622.1

Powersports Segment revenues:										Powersports Segment revenues:
Retail new vehicles										Retail new vehicles	$	20.8	$	1.2

Used vehicles										Used vehicles	4.8		1.1
Wholesale vehicles										Wholesale vehicles	0.2		—
Parts, service and collision repair										Parts, service and collision repair	6.7		0.7
Finance, insurance and other, net										Finance, insurance and other, net	1.5		0.2
Powersports Segment revenues										Powersports Segment revenues	$	34.0	$	3.2

Total consolidated revenues	Total consolidated revenues	$	3,448.1	$	3,072.8	$	10,410.5	$	9,211.9	Total consolidated revenues	$	3,491.2	$	3,456.2


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2022		2021		2022		2021			2023		2022
		(In millions)									(In millions)
Income (Loss) (1):
Segment Income (Loss) (1):										Segment Income (Loss) (1):
Franchised Dealerships Segment	Franchised Dealerships Segment	$	146.3	$	145.1	$	472.2	$	381.1	Franchised Dealerships Segment	$	109.8	$	163.8
EchoPark Segment	EchoPark Segment	(29.9)		(32.9)		(99.7)		(45.3)		EchoPark Segment	(46.8)		(35.3)
Powersports Segment										Powersports Segment	0.6		0.4

Income from continuing operations before taxes		$	116.4	$	112.2	$	372.5	$	335.8
Income before taxes										Income before taxes	$	63.6	$	128.9

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


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2022		2021		2022		2021			2023		2022
		(In millions)									(In millions)
Depreciation and Amortization:	Depreciation and Amortization:									Depreciation and Amortization:
Franchised Dealerships Segment	Franchised Dealerships Segment	$	25.8	$	21.2	$	75.8	$	62.3	Franchised Dealerships Segment	$	26.5	$	24.9
EchoPark Segment	EchoPark Segment	7.0		4.0		18.2		11.4		EchoPark Segment	7.0		5.0
Powersports Segment										Powersports Segment	0.8		—
Total depreciation and amortization	Total depreciation and amortization	$	32.8	$	25.2	$	94.0	$	73.7	Total depreciation and amortization	$	34.3	$	29.9

Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
(In millions)
Floor Plan Interest Expense:
Franchised Dealerships Segment $ 6.6 $ 2.0 $ 13.9 $ 9.2
EchoPark Segment 3.0 1.3 6.7 3.5
Total floor plan interest expense $ 9.6 $ 3.3 $ 20.6 $ 12.8

1514

SONIC AUTOMOTIVE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2022		2021		2022		2021			2023		2022
		(In millions)									(In millions)
Interest Expense, Other, Net:
Floor Plan Interest Expense:										Floor Plan Interest Expense:
Franchised Dealerships Segment(1)	Franchised Dealerships Segment(1)	$	21.4	$	9.5	$	61.7	$	29.2	Franchised Dealerships Segment(1)	$	9.9	$	3.3
EchoPark Segment	EchoPark Segment	1.5		0.3		3.4		1.0		EchoPark Segment	4.6		1.7
Total interest expense, other, net		$	22.9	$	9.8	$	65.1	$	30.2
Powersports Segment										Powersports Segment	0.1		—
Total floor plan interest expense										Total floor plan interest expense	$	14.6	$	5.0

Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
(In millions)
Capital Expenditures:
Franchised Dealerships Segment $ 43.8 $ 53.8 $ 95.8 $ 122.0
EchoPark Segment 53.5 22.7 101.8 59.5
Total capital expenditures $ 97.3 $ 76.5 $ 197.6 $ 181.5
(1)Amount is net of interest earned on the floor plan deposit balance of $4.1 million and $0.6 million in the three months ended March 31, 2023 and 2022, respectively.

September 30, 2022 December 31, 2021
(In millions)
Assets:
Franchised Dealerships Segment $ 4,004.9 $ 3,934.9
EchoPark Segment 684.4 740.6
Corporate and other:
Cash and cash equivalents 139.0 299.4
Other corporate assets — 0.2
Total assets $ 4,828.3 $ 4,975.1


	Three Months Ended March 31,
	2023		2022
	(In millions)
Interest Expense, Other, Net:
Franchised Dealerships Segment	$	26.9	$	20.0
EchoPark Segment	0.9		0.8
Powersports Segment	0.6		—
Total interest expense, other, net	$	28.4	$	20.8


	Three Months Ended March 31,
	2023		2022
	(In millions)
Capital Expenditures:
Franchised Dealerships Segment	$	31.0	$	30.2
EchoPark Segment	5.7		28.6
Powersports Segment	0.5		—
Total capital expenditures	$	37.2	$	58.8


	March 31, 2023		December 31, 2022
	(In millions)
Assets:
Franchised Dealerships Segment	$	4,468.9	$	4,363.7
EchoPark Segment	319.0		267.6
Powersports Segment	199.9		117.8
Corporate and other:
Cash and cash equivalents	160.2		229.2



Total assets	$	5,148.0	$	4,978.3

~~10. Subsequent Events~~

On October 7, 2022, we entered into the Second Credit Facility Amendment, which, among other things: (1) replaced the 2021 Credit Facilities’ LIBOR-based Eurodollar reference interest rate option with a reference interest rate option based upon one month Term SOFR (as defined in the 2021 Credit Agreement); (2) amended the provisions relating to the basis for inclusion of real property owned by the Company or certain of its subsidiaries in the borrowing base for the 2021 Revolving Credit Facility; (3) amended the minimum amount for commitments under the 2021 Revolving Credit Facility and the proportion that such commitments under the 2021 Revolving Credit Facility may compose of the total commitments made by the lenders; and (4) adjusted aspects of the offset account used for voluntary reductions to loans under the 2021 Floor Plan Facilities.

1615

SONIC AUTOMOTIVE, INC.

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

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

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and related notes thereto, 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” included in our Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022.

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. Certain amounts and percentages may not compute due to rounding.

Unless otherwise noted, all discussion of increases or decreases are for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 compared to the three ~~and nine~~ months ended ~~September 30, 2021. The three months ended September 30, 2022 was the third full quarterly period to include the results of the locations acquired in the RFJ Acquisition.~~March 31, 2022. 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. The following discussion of Powersports Segment new vehicles, used vehicles, wholesale vehicles, parts, service and collision repair, and finance, insurance and other, net is on a reported basis.

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~~three reportable segments as of ~~September 30, 2022:~~March 31, 2023: (1) the Franchised Dealerships ~~Segment and~~Segment; (2) the EchoPark Segment; and (3) the Powersports 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 30, 2022,~~March 31, 2023, we operated 111 stores in the Franchised Dealerships Segment, ~~and 52~~50 stores in the EchoPark Segment and 13 stores in the Powersports Segment. The Franchised Dealerships Segment consists of ~~142~~138 new vehicle franchises (representing 28 different brands of cars and light trucks) and 17 collision repair centers in 18 states. As of ~~September 30, 2022,~~March 31, 2023, we operated 5250 EchoPark stores in 2120 states, including 1110 Northwest Motorsport pre-owned vehicle stores acquired in the RFJ Acquisition in December 2021 that are included 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 sales and 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 third-party financing, 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 third-party F&I product sales for our guests in pre-owned vehicle specialty retail ~~locations. Our EchoPark business~~locations, and does not offer customer-facing Fixed Operations services. The Powersports Segment offers guests: (1) sales of both new and used powersports vehicles (such as motorcycles, personal watercraft and all-terrain vehicles); (2) Fixed Operations activities; and (3) F&I services. All three segments generally ~~operates~~operate independently ~~from our franchised dealerships business (except for~~of one another with the exception of certain shared back-office functions and corporate overhead ~~costs).~~costs.

1716

SONIC AUTOMOTIVE, INC.

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

Executive Summary

Retail Automotive Industry Performance

The U.S. retail automotive industry’s total new vehicle (retail and fleet combined) ~~seasonally adjusted annual rate of~~unit sales ~~(“SAAR”) remained flat and decreased 13%, to 13.4 million and 13.7~~volume was approximately 15.3 million vehicles for the three ~~and nine~~ months ended ~~September 30, 2022, respectively,~~March 31, 2023, an increase of 7%, compared to ~~13.4 million and 15.8~~approximately 14.3 million vehicles for the three ~~and nine~~ months ended ~~September 30, 2021,~~March 31, 2022, according to ~~data from~~ the Power Information Network ~~(the “PIN”~~(“PIN”) from J.D. Power. We currently estimate the 2023 new vehicle industry volume will be between 14.0 million vehicles (an increase of 2.2% compared to 2022) and 15.0 million vehicles (an increase of 9.5% compared to 2022). The ongoing effects of supply chain disruptions as a result of the COVID-19 pandemic, availability of new and used vehicle inventory, interest rates, changes in consumer confidence, availability of consumer financing, manufacturer inventory production levels, incentive levels from automotive manufacturers or shifts in such levels, or timing of consumer demand as a result of natural disasters or other unforeseen circumstances could cause the actual ~~2022 total~~2023 new vehicle ~~SAAR~~industry volume to vary from ~~current levels.~~expectations. 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~~industry volume (which excludes fleet new vehicle sales). According to ~~the~~ PIN from J.D. Power, industry retail new vehicle ~~SAAR was 11.2~~unit sales volume decreased 1%, to approximately 12.6 million vehicles for the three months ended ~~September 30, 2022, a decrease of 3%~~March 31, 2023, from ~~11.5 million vehicles in the prior year period, and 11.8~~approximately 12.7 million vehicles for the ~~nine~~three months ended ~~September 30, 2022, a decrease of 14% from 13.8 million vehicles in the prior year period.~~March 31, 2022.

Impact of COVID-19 and Supply Chain Disruptions

The ongoing effects of the COVID-19 pandemic continue to evolve. A setback in the recovery of the 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, particularly if the pandemic worsens, interest rates experienced by consumers continue to rise or if the 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, and expect that this tight supply of vehicle inventory may continue into 2023. These and other factors may adversely impact our revenues, operating income, earnings per share, and other financial measures.

~~In addition, the~~ global automotive supply chain has been significantly disrupted since the onset of the COVID-19 pandemic, primarily related to the production of semiconductors and other components that are used in many modern automobiles, in addition to workforce-related production delays and stoppages. As a result, automobile manufacturing has operated for multiple years at lower than 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 low new and used vehicle inventory and a high new and used vehicle pricing environment, which drove retail new vehicle unit sales volumes lower across the ~~industry. While new~~industry since the onset of the COVID-19 pandemic. New vehicle and certain parts production levels have ~~begun to improve in the first nine months of 2022,~~improved; however, there is a risk that higher production levels and new vehicle ~~and certain parts~~ inventory ~~levels remain at a low level or worsen,~~on hand may not result in incremental retail new vehicle sales volume, which could ~~adversely impact~~cause actual 2023 new vehicle industry volume to vary from our ~~revenues, operating income, earnings per share, and other financial measures.~~expectations.

Franchised Dealerships Segment

As a result of the acquisition, disposition, termination or closure of franchised dealership stores since the beginning of ~~2021, including the RFJ Acquisition in December 2021,~~2022, 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.

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. Unless otherwise noted, all comparisons are to the prior year period.

Retail new vehicle revenue increased 5% during the three months ended ~~September 30, 2022~~March 31, 2023, primarily driven by a ~~12%~~6% increase in retail new vehicle average selling prices, offset partially by lower retail new vehicle unit sales volume. Retail new vehicle revenue decreased 8% during the nine months ended September 30, 2022, primarily driven by a 19% decrease in retail new vehicle unit sales volume, offset partially by higher retail new vehicle average selling prices. Retail new vehicle gross profit increased 20% and 38% during the three and nine months ended September 30, 2022, respectively, due to a 12% and 15% increase in retail new vehicle average selling prices for the three and nine months ended September 30, 2022, which drove higher retail new vehicle gross profit per unit. Retail new vehicle gross profit per unit ~~increased $1,424~~decreased $1,104 per unit, or ~~28%~~17%, to ~~$6,571~~$5,434 per unit during the three months ended ~~September 30, 2022, and increased $2,805 per unit, or 71%, to $6,756 per unit~~

~~SONIC AUTOMOTIVE, INC.~~

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

~~during the nine months ended September 30, 2022,~~March 31, 2023, due primarily to higher ~~average selling prices due in part to~~ inventory ~~shortages~~invoice costs and increased price competition as a result of ~~vehicle manufacturer supply chain disruptions and production delays. Many~~higher levels of ~~our new vehicles are being pre-ordered and delivered to customers shortly after the vehicles arrive at our stores.~~available inventory. On a trailing quarter cost of sales basis, our reported Franchised Dealerships Segment ~~days’ supply of~~ new vehicle inventory days’ supply was 19approximately 31 and 18 days as of ~~September 30,~~March 31, 2023 and 2022, ~~compared to 10 days as of September 30, 2021.~~respectively.

Retail used vehicle revenue decreased 1%10% during the three months ended ~~September 30, 2022,~~March 31, 2023, driven primarily by lower retail used vehicle unit sales volume ~~offset partially by higher~~and lower retail used vehicle average selling prices. Retail used vehicle ~~revenue increased 2%~~gross profit decreased 19% during the ~~nine~~three months ended ~~September 30, 2022, driven by higher average selling prices, offset partially by~~March 31, 2023, due to lower retail used vehicle ~~unit sales volume. Retail used vehicle~~ gross profit ~~decreased 20%~~per unit and ~~16% during the three and nine months ended September 30, 2022, respectively, due to~~ a decrease in retail used vehicle unit sales volume. Retail used vehicle gross profit per unit decreased ~~$175~~$208 per unit, or 9%12%, to ~~$1,669~~$1,560 per unit during the three months ended ~~September 30, 2022,~~March 31, 2023, due primarily to higher inventory acquisition ~~costs. Retail~~costs and lower retail used vehicle ~~gross profit per unit decreased $7 per unit, or 0.4%, to $1,672 per unit during the nine months ended September 30, 2022, due primarily to lower~~ average selling ~~prices due in part to shortages of new vehicle inventory.~~prices. Wholesale vehicle gross profit ~~decreased~~increased by approximately ~~$2.5~~$2.4 million in the three months ended ~~September 30, 2022,~~March 31, 2023, due primarily to a ~~$490~~$382 per unit, or ~~374%~~490%, decrease in wholesale vehicle gross profit per unit. Wholesale vehicle gross profit decreased by approximately $8.1 million in the nine months ended September 30, 2022, due primarily to a $455 per unit, or 156%, decreaseincrease in wholesale vehicle gross profit per unit. We generally focus on maintaining Franchised Dealerships Segment used vehicle inventory days’ supply in the 25- to 35-day range, which may fluctuate seasonally, in order to limit our exposure to market pricing volatility. On a trailing quarter cost of

SONIC AUTOMOTIVE, INC.

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

sales basis, our reported Franchised Dealerships Segment used vehicle inventory days’ supply was approximately 3129 and 2733 days as of ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ respectively.

Fixed Operations revenue increased ~~10% and 9%~~11% during the three ~~and nine~~ months ended ~~September 30, 2022, respectively,~~March 31, 2023, and Fixed Operations gross profit increased ~~10% and 8%~~12% during the three ~~and nine~~ months ended ~~September 30, 2022, respectively.~~March 31, 2023. Fixed Operations gross margin ~~decreased 40~~increased 30 basis points, to ~~49.9%~~49.3%, during the three months ended ~~September 30, 2022. Fixed Operations~~March 31, 2023, due primarily to higher customer pay revenues and gross ~~margin decreased 70 basis points, to 49.7% during the nine months ended September 30, 2022.~~margin.

F&I revenue decreased 5%4% during ~~both~~ the three ~~and nine~~ months ended ~~September 30, 2022,~~March 31, 2023, driven primarily by a 4% decrease in combined retail new and used vehicle unit sales volume. F&I gross profit per retail unit increased ~~$106~~$2 per unit, ~~or 5%,~~ to ~~$2,406~~$2,318 per unit, during the ~~nine~~three months ended ~~September 30, 2022. F&I gross profit per retail unit increased $304 per unit, or 14%, to $2,410 per unit during the nine months ended September 30, 2022.~~March 31, 2023. 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.

EchoPark Segment

The following discussion of EchoPark used vehicles, wholesale vehicles, and finance, insurance and other, net, is on a reported basis, except where otherwise noted as being on a same market basis. 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. Unless otherwise noted, all comparisons are to the prior year period.

Reported total revenue ~~decreased 8%~~increased 5% during the three months ended ~~September 30, 2022,~~March 31, 2023, driven primarily by ~~a decrease~~an increase in retail used vehicle unit sales volume. Reported total revenue increased 8% during the nine months ended September 30, 2022, driven primarily by continued expansion of our nationwide distribution network and higher average retail used vehicle selling prices. Reported total gross profit increased 88% and 32% during the three and nine months ended September 30, 2022, respectively, primarily due to an increase in total vehicle sales volume, ~~higher average retail used vehicle selling prices and an improvement in retail used vehicle gross profit (loss) per unit.~~

Reported retail used vehicle revenue decreased 10% during the three months ended September 30, 2022, driven primarily by a decrease in retail used vehicle unit sales volume. Reported retail used vehicle revenue increased 5% during the nine months ended September 30, 2022 due to higher retail used vehicle average selling prices, offset partially by a decrease in retail used vehicle average selling prices. Reported total gross profit decreased 9% during the three months ended March 31, 2023, primarily due to a decrease in retail used vehicle gross profit (loss) per unit as a result of higher inventory acquisition costs.

Reported retail used vehicle revenue increased 11% during the three months ended March 31, 2023, driven primarily by an increase in retail used vehicle unit sales ~~volume.~~volume, offset partially by lower retail used vehicle average selling prices. F&I revenue ~~decreased 24% and 19%~~increased 25% during the three ~~and nine~~ months ended ~~September 30, 2022, respectively,~~March 31, 2023, driven primarily by a ~~27% and 24% decrease~~34% increase in retail used vehicle unit sales volume during the three ~~and nine~~ months ended ~~September 30, 2022, respectively, as we strategically adjusted our retail used vehicle unit sales volume to manage overall segment income (loss) levels.~~March 31, 2023. Reported combined retail used vehicle and F&I gross profit per unit ~~increased $1,857~~decreased $757 per unit, or ~~182%~~28%, to ~~$2,880~~$1,906 per unit during the three months ended ~~September 30, 2022,~~March 31, 2023, due primarily to ~~strategic actions taken to diversify our inventory sourcing mix and reduce used vehicle~~higher inventory acquisition costs ~~benefiting retail used vehicle gross profit per unit. Reported combined retail used vehicle and F&I gross profit per unit increased $1,190 per unit, or 74%, to $2,808, per unit~~as a result of increases in wholesale auction prices during the ~~nine~~three months ended September 30, 2022, due primarily to strategic actions taken to diversify our inventory sourcing mix and reduce used vehicle inventory acquisition costs, benefiting retail used vehicle gross profit per unit.March 31, 2023.

~~SONIC AUTOMOTIVE, INC.~~

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

~~Wholesale~~Reported wholesale vehicle gross profit decreased by approximately ~~$3.2 million and $2.8~~$0.8 million during the three ~~and nine~~ months ended ~~September 30, 2022, respectively,~~March 31, 2023, due to a decrease in wholesale vehicle unit sales ~~volume and declining wholesale auction prices.~~volume. 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~~On a trailing quarter cost of sales basis, our reported EchoPark ~~stores was approximately 57 and 41 days as of September 30, 2022 and 2021, respectively. The elevated level of~~Segment used vehicle inventory days’ supply was ~~due primarily to the opening of new EchoPark stores, which require additional inventory on hand but are not yet generating retail used vehicle sales at the rate of a more mature store.~~

~~All currently operating EchoPark stores in a local geographic market are included within the same market group~~approximately 48 and 57 days as of ~~the first full month following the first anniversary of the market’s opening. EchoPark same~~March 31, 2023 and 2022, respectively.

Same market total revenues decreased ~~35% and 21%~~3% during the three ~~and nine~~ months ended ~~September 30, 2022, respectively,~~March 31, 2023, driven primarily by lower retail used vehicle average selling prices. Same market total gross profit decreased 15% during the three months ended March 31, 2023, due primarily to a 31% decrease in same market combined retail used vehicle and F&I gross profit per unit, to $1,940 per unit, offset partially by a 27% increase in retail used vehicle unit sales ~~volume as~~volume.

Powersports Segment

The following discussion of Powersports Segment new vehicles, used vehicles, wholesale vehicles, parts, service and collision repair, and finance, insurance and other, net, is on a reported basis, except where otherwise noted.

In February 2023, we ~~strategically adjusted our retail used vehicle unit sales volume to manage overall segment income (loss) levels. EchoPark same market total gross profit increased 10% during~~acquired one powersports business with five locations. In the three months ended ~~September 30, 2022, due primarily to~~March 31, 2023, reported total revenue was $34.0 million and reported total gross profit was $9.8 million

Reported retail new vehicle revenue was $20.8 million and reported retail new vehicle gross profit was $4.0 million, based on a ~~130% increase in EchoPark same market total~~retail new vehicle average selling price of approximately $18,793 and a retail new vehicle gross profit per unit of $3,573 per unit. On a trailing quarter cost of sales basis, our reported Powersports Segment new vehicle inventory days’ supply was approximately 140 days (136 days excluding the effect of first quarter 2023 acquisitions, which contributed less than a full quarter of trailing cost of sales to ~~$2,361 per unit, offset partially by lower~~the days' supply calculation) as of March 31, 2023. We believe that in a normal production environment, the level of new vehicle inventory days’ supply in our Powersports Segment should be in the 90- to 120-day range, depending on seasonality.

Reported retail used vehicle ~~unit sales volume. EchoPark same market total gross profit decreased 22% during the nine months ended September 30, 2022, due primarily to lower~~revenue was $4.8 million and reported retail used vehicle ~~unit sales volume, offset partially by~~gross profit was $1.0 million, based on a ~~32% increase in EchoPark same market total~~retail used vehicle average selling price of $10,864 and a retail used vehicle gross profit per unit ~~to $2,125~~of $2,328 per unit.

SONIC AUTOMOTIVE, INC.

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

On a trailing quarter cost of sales basis, our reported Powersports Segment used vehicle inventory days’ supply was approximately 133 days (122 days excluding the effect of first quarter 2023 acquisitions, which contributed less than a full quarter of trailing cost of sales to the days' supply calculation) as of March 31, 2023. Going forward, we generally expect to maintain a used vehicle inventory days’ supply in our Powersports Segment in the 75- to 100-day range, depending on seasonality.

Reported Fixed Operations revenue was $6.7 million and reported Fixed Operations gross profit was $3.3 million. Customer pay revenue was $2.6 million and customer pay gross profit was $1.4 million. Warranty revenue was $0.3 million and warranty gross profit was $0.2 million. Wholesale parts revenue was $0.1 million and there was no wholesale parts gross profit. Internal, sublet and other revenue was $3.7 million and internal, sublet and other gross profit was $1.7 million.

Reported F&I revenue was $1.5 million, based on F&I gross profit per retail unit of $980.

Results of Operations – Consolidated

As a result of the acquisition, disposition, termination or closure of franchised dealership stores since the beginning of 2022, 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 Vehicles – Consolidated

New vehicle revenues include the sale of new vehicles, including new powersports vehicles, to retail customers, as well as the sale of fleet ~~vehicles.~~vehicles to businesses for use in their operations. 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.~~consumer demand. The automobile manufacturing industry is cyclical and historically has experienced periodic downturns characterized by oversupply and ~~weakening~~weak 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/~~lower-priced economy vehicles to luxury vehicles and powersports vehicles.

2019

SONIC AUTOMOTIVE, INC.

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

The following table depicts the breakdown of our Franchised Dealerships Segment new vehicle revenues by brand for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 and ~~2021:~~2022:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
Brand	Brand	2022		2021		2022		2021		Brand	2023		2022
Luxury:	Luxury:									Luxury:
BMW	BMW	24.9	%	26.9	%	24.6	%	25.8	%	BMW	25.6	%	25.0	%
Mercedes	Mercedes	13.6	%	12.3	%	12.5	%	12.4	%	Mercedes	13.6	%	11.3	%
Audi	Audi	5.8	%	6.2	%	5.7	%	7.0	%	Audi	5.6	%	5.1	%
Lexus	Lexus	4.7	%	5.7	%	4.8	%	5.1	%	Lexus	4.6	%	4.8	%
Land Rover										Land Rover	4.5	%	3.2	%
Porsche	Porsche	3.7	%	3.8	%	3.8	%	3.7	%	Porsche	4.1	%	2.7	%
Cadillac	Cadillac	2.4	%	2.1	%	2.2	%	2.5	%	Cadillac	2.3	%	2.1	%
Land Rover		3.1	%	3.5	%	2.7	%	4.0	%
Volvo	Volvo	1.0	%	1.9	%	1.1	%	1.7	%	Volvo	1.1	%	1.0	%
MINI	MINI	0.9	%	1.3	%	0.8	%	1.2	%	MINI	1.0	%	0.8	%
Other Luxury (1)	Other Luxury (1)	0.6	%	1.1	%	0.6	%	1.2	%	Other Luxury (1)	0.5	%	0.6	%
Total Luxury	Total Luxury	60.7	%	64.8	%	58.8	%	64.6	%	Total Luxury	62.9	%	56.6	%
Mid-line Import:	Mid-line Import:									Mid-line Import:
Honda										Honda	10.3	%	9.5	%
Toyota	Toyota	8.8	%	8.6	%	9.0	%	8.4	%	Toyota	7.8	%	9.2	%
Honda		7.5	%	14.2	%	8.4	%	14.1	%
Volkswagen	Volkswagen	2.1	%	1.8	%	1.9	%	1.5	%	Volkswagen	1.6	%	1.6	%
Hyundai	Hyundai	1.5	%	0.8	%	1.6	%	1.0	%	Hyundai	1.5	%	1.5	%
Other Mid-line Import (2)	Other Mid-line Import (2)	1.3	%	1.1	%	1.5	%	0.6	%	Other Mid-line Import (2)	1.4	%	1.6	%
Total Mid-line Import	Total Mid-line Import	21.2	%	26.5	%	22.4	%	25.6	%	Total Mid-line Import	22.6	%	23.4	%
Domestic:	Domestic:									Domestic:
General Motors (3)										General Motors (3)	6.5	%	7.2	%
Ford	Ford	5.4	%	4.2	%	5.4	%	4.9	%	Ford	4.6	%	5.5	%
Chrysler, Dodge, Jeep and Ram		5.5	%	—	%	6.1	%	—	%
General Motors (3)		7.2	%	4.5	%	7.3	%	4.9	%
Chrysler										Chrysler	3.4	%	7.3	%
Total Domestic	Total Domestic	18.1	%	8.7	%	18.8	%	9.8	%	Total Domestic	14.5	%	20.0	%
Total	Total	100.0	%	100.0	%	100.0	%	100.0	%	Total	100.0	%	100.0	%

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

(2)Includes Mazda, Nissan and Subaru.

(3)Includes Buick, Chevrolet and GMC.

The U.S. retail automotive industry’s new vehicle unit sales volume reflects all brands marketed or sold in the U.S. This industry sales volume includes brands we do not sell and markets in which we do not operate, therefore, changes in our new vehicle unit sales volume may not trend directly in line with changes in the industry new vehicle unit sales volume. We believe that the retail new vehicle industry unit 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. Disruptions in the automotive supply chain have caused lower than expected levels of vehicle production, which, combined with consumer demand for new vehicles, drove lower than typical levels of new vehicle inventory during 2021 and in 2022 to date. Low levels of new vehicle inventory have resulted in higher average selling prices for new vehicles and we believe had a negative impact onU.S. retail new vehicle ~~SAAR for the three~~industry volume, fleet new vehicle industry volume and ~~nine months ended September 30, 2022.~~total new vehicle industry volume were as follows:


	Three Months Ended March 31,		Better / (Worse)
	2023	2022	% Change
	(In millions of vehicles)
U.S. industry volume – Retail new vehicle (1)	12.6	12.7	(1)	%
U.S. industry volume – Fleet new vehicle	2.7	1.6	69	%
U.S. industry volume – Total new vehicle SAAR (1)	15.3	14.3	7	%

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

2120

SONIC AUTOMOTIVE, INC.

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

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

Three Months Ended September 30, Better / (Worse) Nine Months Ended September 30, Better / (Worse)
2022 2021 % Change 2022 2021 % Change
(In millions of vehicles)
Retail new vehicle SAAR (1) 11.2 11.5 (2.6) % 11.8 13.8 (14.5) %
Fleet new vehicle SAAR 2.2 1.9 15.8 % 1.9 2.0 (5.0) %
Total new vehicle SAAR (1) 13.4 13.4 — % 13.7 15.8 (13.3) %

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

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


		Three Months Ended September 30,						Better / (Worse)					Three Months Ended March 31,						Better / (Worse)
		2022			2021			Change		% Change			2023			2022			Change		% Change
		(In millions, except unit and per unit data)											(In millions, except unit and per unit data)
Reported new vehicle:	Reported new vehicle:											Reported new vehicle:
Retail new vehicle revenue	Retail new vehicle revenue	$	1,373.1		$	1,128.0		$	245.1	22	%	Retail new vehicle revenue	$	1,442.8		$	1,351.3		$	91.5	7	%
Fleet new vehicle revenue	Fleet new vehicle revenue	32.0			18.9			13.1		69	%	Fleet new vehicle revenue	18.8			18.2			0.6		3	%
Total new vehicle revenue	Total new vehicle revenue	$	1,405.1		$	1,146.9		$	258.2	23	%	Total new vehicle revenue	$	1,461.6		$	1,369.5		$	92.1	7	%

Retail new vehicle gross profit	Retail new vehicle gross profit	$	163.5		$	115.1		$	48.4	42	%	Retail new vehicle gross profit	$	138.1		$	167.7		$	(29.6)	(18)	%
Fleet new vehicle gross profit	Fleet new vehicle gross profit	1.3			0.3			1.0		333	%	Fleet new vehicle gross profit	0.9			0.8			0.1		13	%
Total new vehicle gross profit	Total new vehicle gross profit	$	164.8		$	115.4		$	49.4	43	%	Total new vehicle gross profit	$	139.0		$	168.5		$	(29.5)	(18)	%

Retail new vehicle unit sales	Retail new vehicle unit sales	24,776			22,335			2,441		11	%	Retail new vehicle unit sales	25,657			24,687			970		4	%
Fleet new vehicle unit sales	Fleet new vehicle unit sales	672			511			161		32	%	Fleet new vehicle unit sales	441			360			81		23	%
Total new vehicle unit sales	Total new vehicle unit sales	25,448			22,846			2,602		11	%	Total new vehicle unit sales	26,098			25,047			1,051		4	%

Revenue per new retail unit	Revenue per new retail unit	$	55,420		$	50,504		$	4,916	10	%	Revenue per new retail unit	$	56,233		$	54,739		$	1,494	3	%
Revenue per new fleet unit	Revenue per new fleet unit	$	47,636		$	37,114		$	10,522	28	%	Revenue per new fleet unit	$	42,680		$	50,387		$	(7,707)	(15)	%
Total revenue per new unit	Total revenue per new unit	$	55,214		$	50,202		$	5,012	10	%	Total revenue per new unit	$	56,004		$	54,676		$	1,328	2	%

Gross profit per new retail unit	Gross profit per new retail unit	$	6,600		$	5,151		$	1,449	28	%	Gross profit per new retail unit	$	5,381		$	6,793		$	(1,412)	(21)	%
Gross profit per new fleet unit	Gross profit per new fleet unit	$	1,955		$	773		$	1,182	153	%	Gross profit per new fleet unit	$	2,020		$	2,348		$	(328)	(14)	%
Total gross profit per new unit	Total gross profit per new unit	$	6,478		$	5,053		$	1,425	28	%	Total gross profit per new unit	$	5,325		$	6,729		$	(1,404)	(21)	%

Retail gross profit as a % of revenue	Retail gross profit as a % of revenue	11.9		%	10.2		%	170		bps		Retail gross profit as a % of revenue	9.6		%	12.4		%	(280)		bps
Fleet gross profit as a % of revenue	Fleet gross profit as a % of revenue	4.1		%	1.6		%	250		bps		Fleet gross profit as a % of revenue	4.7		%	4.7		%	—		bps
Total new vehicle gross profit as a % of revenue	Total new vehicle gross profit as a % of revenue	11.7		%	10.1		%	160		bps		Total new vehicle gross profit as a % of revenue	9.5		%	12.3		%	(280)		bps

~~SONIC AUTOMOTIVE, INC.~~

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

Nine Months Ended September 30, Better / (Worse)
2022 2021 Change % Change
(In millions, except unit and per unit data)
Reported new vehicle:
Retail new vehicle revenue $ 4,068.7 $ 3,715.2 $ 353.5 10 %
Fleet new vehicle revenue 70.0 50.9 19.1 38 %
Total new vehicle revenue $ 4,138.7 $ 3,766.1 $ 372.6 10 %
Retail new vehicle gross profit $ 499.5 $ 302.4 $ 197.1 65 %
Fleet new vehicle gross profit 3.1 0.9 2.2 244 %
Total new vehicle gross profit $ 502.6 $ 303.3 $ 199.3 66 %
Retail new vehicle unit sales 73,890 76,409 (2,519) (3) %
Fleet new vehicle unit sales 1,454 1,297 157 12 %
Total new vehicle unit sales 75,344 77,706 (2,362) (3) %
Revenue per new retail unit $ 55,064 $ 48,623 $ 6,441 13 %
Revenue per new fleet unit $ 48,176 $ 39,279 $ 8,897 23 %
Total revenue per new unit $ 54,931 $ 48,466 $ 6,465 13 %
Gross profit per new retail unit $ 6,760 $ 3,957 $ 2,803 71 %
Gross profit per new fleet unit $ 2,133 $ 745 $ 1,388 186 %
Total gross profit per new unit $ 6,671 $ 3,904 $ 2,767 71 %
Retail gross profit as a % of revenue 12.3 % 8.1 % 420 bps
Fleet gross profit as a % of revenue 4.4 % 1.8 % 260 bps
Total new vehicle gross profit as a % of revenue 12.1 % 8.1 % 400 bps

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

Used Vehicles – Consolidated

Used vehicle revenues include the sale of used vehicles, including used powersports vehicles, to retail customers and at wholesale. Used vehicle revenues are directly affected by a number of factors, including consumer demand for used vehicles, the pricing and level of manufacturer incentives on new vehicles, the number and quality of trade-ins and lease turn-ins available to our dealerships, the availability and pricing of used vehicles acquired at wholesale auction and the availability of consumer credit.

As a result of low levels of new vehicle inventory and a heightened demand for used vehicles ~~(both by~~(by retail consumers and automobile dealers and rental car companies at wholesale auction), used vehicle prices reached an all-time high ~~during the first half of~~in 2022 and ~~remained at~~remain elevated ~~levels during the third quarter of 2022.~~above historical levels. Depending on the mix of inventory sourcing ~~(trade-in~~(trade-ins or purchases from customers 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.

2321

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 March 31,						Better / (Worse)
		2022			2021			Change		% Change			2023			2022			Change		% Change
		(In millions, except unit and per unit data)											(In millions, except unit and per unit data)
Reported retail used vehicle:	Reported retail used vehicle:											Reported retail used vehicle:
Revenue	Revenue	$	1,358.0		$	1,324.8		$	33.2	3	%	Revenue	$	1,344.9		$	1,370.1		$	(25.2)	(2)	%
Gross profit	Gross profit	$	51.4		$	20.2		$	31.2	154	%	Gross profit	$	30.0		$	47.8		$	(17.8)	(37)	%
Unit sales	Unit sales	42,069			47,529			(5,460)		(11)	%	Unit sales	45,531			42,073			3,458		8	%
Revenue per unit	Revenue per unit	$	32,281		$	27,551		$	4,730	17	%	Revenue per unit	$	29,538		$	32,565		$	(3,027)	(9)	%
Gross profit per unit	Gross profit per unit	$	1,222		$	415		$	807	194	%	Gross profit per unit	$	660		$	1,135		$	(475)	(42)	%
Gross profit as a % of revenue	Gross profit as a % of revenue	3.9		%	1.5		%	240		bps		Gross profit as a % of revenue	2.2		%	3.5		%	(130)		bps

Nine Months Ended September 30, Better / (Worse)
2022 2021 Change % Change
(In millions, except unit and per unit data)
Reported retail used vehicle:
Revenue $ 4,178.3 $ 3,708.9 $ 469.4 13 %
Gross profit $ 146.7 $ 85.8 $ 60.9 71 %
Unit sales 128,906 144,246 (15,340) (11) %
Revenue per unit $ 32,413 $ 25,417 $ 6,996 28 %
Gross profit per unit $ 1,138 $ 592 $ 546 92 %
Gross profit as a % of revenue 3.5 % 2.3 % 120 bps

For further analysis of used vehicle results, see the tables and discussion under the headings “Used Vehicles –- Franchised Dealerships Segment,” “Used Vehicles and F&I - EchoPark Segment” and “Used Vehicles ~~and F&I – EchoPark~~- Powersports Segment” in the Franchised Dealerships Segment, EchoPark Segment and ~~EchoPark~~Powersports 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 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 our retail used vehicle revenues and related gross profit. We believe that the current wholesale vehicle price environment is not sustainable in the ~~long-term~~long term and expect that average wholesale vehicle pricing and related gross profit (loss) may begin to return toward long-term normalized levels in the ~~fourth quarter~~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 expected gross profit levels and minimize inventory carrying risks.

~~SONIC AUTOMOTIVE, INC.~~

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

Our consolidated reported wholesale vehicle results were as follows:


		Three Months Ended September 30,						Better / (Worse)					Three Months Ended March 31,						Better / (Worse)
		2022			2021			Change		% Change			2023			2022			Change		% Change
		(In millions, 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	$	114.7		$	97.1		$	17.6	18	%	Revenue	$	85.6		$	168.8		$	(83.2)	(49)	%
Gross profit (loss)	Gross profit (loss)	$	(2.1)		$	1.2		$	(3.3)	(275)	%	Gross profit (loss)	$	3.0		$	1.5		$	1.5	100	%
Unit sales	Unit sales	8,263			9,611			(1,348)		(14)	%	Unit sales	8,406			10,421			(2,015)		(19)	%
Revenue per unit	Revenue per unit	$	13,881		$	10,102		$	3,779	37	%	Revenue per unit	$	10,169		$	16,198		$	(6,029)	(37)	%
Gross profit (loss) per unit	Gross profit (loss) per unit	$	(264)		$	131		$	(395)	(302)	%	Gross profit (loss) per unit	$	359		$	147		$	212	144	%
Gross profit (loss) as a % of revenue	Gross profit (loss) as a % of revenue	(1.9)		%	1.3		%	(320)		bps		Gross profit (loss) as a % of revenue	3.5		%	0.8		%	270		bps

Nine Months Ended September 30, Better / (Worse)
2022 2021 Change % Change
(In millions, except unit and per unit data)
Reported wholesale vehicle:
Revenue $ 404.8 $ 256.7 $ 148.1 58 %
Gross profit (loss) $ 0.6 $ 6.6 $ (6.0) (91) %
Unit sales 27,229 28,935 (1,706) (6) %
Revenue per unit $ 14,867 $ 8,872 $ 5,995 68 %
Gross profit (loss) per unit $ 17 $ 229 $ (212) (93) %
Gross profit (loss) as a % of revenue 0.1 % 2.6 % (250) bps

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

SONIC AUTOMOTIVE, INC.

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

Fixed Operations – Consolidated

Parts, service and collision repair revenues consist of ~~customer~~repairs and maintenance requested ~~repair orders~~and paid by customers (“customer pay”), warranty repairs (manufacturer-paid), wholesale parts (sales of parts and accessories to third-party automotive repair businesses) and internal, sublet and other. Parts and service revenue is driven by the volume and 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~~relate to preparation and reconditioning work performed on vehicles in inventory that are later sold to a third 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 and customer retention at our dealerships and stores to further increase Fixed Operations revenues. Manufacturers continue to extend new vehicle warranty periods (in particular for battery electric vehicles, or “BEVs”) 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 repair work performed, as well as the improved quality and design of vehicles that may affect the level and frequency of future customer pay or warranty-related repair revenues.

Our consolidated reported Fixed Operations results were as follows:



	Three Months Ended March 31,						Better / (Worse)
	2023			2022			Change		% Change
	(In millions)
Reported Fixed Operations:
Revenue
Customer pay	$	203.4		$	177.0		$	26.4	15	%
Warranty	58.9			52.8			6.1		12	%
Wholesale parts	54.4			49.7			4.7		9	%
Internal, sublet and other	113.8			101.7			12.1		12	%
Total revenue	$	430.5		$	381.2		$	49.3	13	%

Gross profit
Customer pay	$	113.0		$	98.1		$	14.9	15	%
Warranty	34.6			31.4			3.2		10	%
Wholesale parts	9.7			8.9			0.8		9	%
Internal, sublet and other	55.6			48.5			7.1		15	%
Total gross profit	$	212.9		$	186.9		$	26.0	14	%

Gross profit as a % of revenue
Customer pay	55.6		%	55.4		%	20		bps
Warranty	58.7		%	59.5		%	(80)		bps
Wholesale parts	17.8		%	17.9		%	(10)		bps
Internal, sublet and other	48.9		%	47.8		%	110		bps
Total gross profit as a % of revenue	49.5		%	49.1		%	40		bps

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

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)
2022 2021 Change % Change
(In millions)
Reported Fixed Operations:
Revenue
Customer pay $ 168.4 $ 156.5 $ 11.9 8 %
Warranty 60.4 52.9 7.5 14 %
Wholesale parts 49.9 41.7 8.2 20 %
Internal, sublet and other 126.0 88.8 37.2 42 %
Total revenue $ 404.7 $ 339.9 $ 64.8 19 %
Gross profit
Customer pay $ 97.6 $ 89.3 $ 8.3 9 %
Warranty 34.2 30.8 3.4 11 %
Wholesale parts 9.1 7.5 1.6 21 %
Internal, sublet and other 60.1 43.5 16.6 38 %
Total gross profit $ 201.0 $ 171.1 $ 29.9 17 %
Gross profit as a % of revenue
Customer pay 58.0 % 57.1 % 90 bps
Warranty 56.7 % 58.2 % (150) bps
Wholesale parts 18.2 % 18.1 % 10 bps
Internal, sublet and other 47.7 % 48.9 % (120) bps
Total gross profit as a % of revenue 49.7 % 50.3 % (60) bps

Nine Months Ended September 30, Better / (Worse)
2022 2021 Change % Change
(In millions)
Reported Fixed Operations:
Revenue
Customer pay $ 495.9 $ 442.1 $ 53.8 12 %
Warranty 168.2 164.2 4.0 2 %
Wholesale parts 149.9 116.0 33.9 29 %
Internal, sublet and other 369.4 271.8 97.6 36 %
Total revenue $ 1,183.4 $ 994.1 $ 189.3 19 %
Gross profit
Customer pay $ 285.2 $ 252.7 $ 32.5 13 %
Warranty 98.3 95.7 2.6 3 %
Wholesale parts 27.0 20.5 6.5 32 %
Internal, sublet and other 175.2 133.0 42.2 32 %
Total gross profit $ 585.7 $ 501.9 $ 83.8 17 %
Gross profit as a % of revenue
Customer pay 57.5 % 57.1 % 40 bps
Warranty 58.5 % 58.3 % 20 bps
Wholesale parts 18.0 % 17.7 % 30 bps
Internal, sublet and other 47.4 % 48.9 % (150) bps
Total gross profit as a % of revenue 49.5 % 50.5 % (100) bps

~~SONIC AUTOMOTIVE, INC.~~

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

For further analysis of Fixed Operations results, see the tables and discussion under the heading “Fixed Operations – Franchised Dealerships Segment” in the Franchised Dealerships Segment section, below.

F&I – Consolidated

Finance, insurance and other, net revenues include commissions for arranging third-party 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 third-party providers for originating these 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, 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.~~rate for each type of F&I product. 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.

Yield spread premium is another term for the commission earned by our dealerships for arranging vehicle financing for consumers. The amount of the commission could be zero, a flat fee or an actual spread between the interest rate charged to the consumer and the interest rate provided by the third-party direct financing source (e.g., a commercial bank, credit union or manufacturer captive finance company). We have established caps on the potential yield spread premium our dealerships can earn with all finance sources. We believe the yield spread premium we earn for arranging vehicle financing represents value to the consumer in numerous ways, including the following:

•lower cost, below-market financing is often available only from the manufacturers’ captives and franchised dealers;

•ease of access to multiple high-quality lending sources;

•lease-financing alternatives are largely available only from manufacturers’ captives or other indirect lenders;

•guests with substandard credit frequently do not have direct access to potential sources of sub-prime financing; and

•guests with significant “negative equity” in their current vehicle (i.e., the guest’s current vehicle is worth less than the balance of their vehicle loan or lease obligation) frequently are unable to pay off the loan on their current vehicle and finance the purchase or lease of a replacement new or used vehicle without the assistance of a franchised dealership’s network of lending sources.

Our consolidated reported F&I results were as follows:

Three Months Ended September 30, Better / (Worse)
2022 2021 Change % Change
(In millions, except unit and per unit data)
Reported F&I:
Revenue $ 165.6 $ 164.1 $ 1.5 1 %
Total combined retail new and used vehicle unit sales 66,845 69,864 (3,019) (4) %
Gross profit per retail unit (excludes fleet) $ 2,477 $ 2,349 $ 128 5 %


		Nine Months Ended September 30,				Better / (Worse)					Three Months Ended March 31,				Better / (Worse)
		2022		2021		Change		% Change			2023		2022		Change		% Change
		(In millions, 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	$	505.3	$	486.1	$	19.2	4	%	Revenue	$	168.6	$	166.6	$	2.0	1	%
Total combined retail new and used vehicle unit sales	Total combined retail new and used vehicle unit sales	202,796		220,655		(17,859)		(8)	%	Total combined retail new and used vehicle unit sales	71,188		66,760		4,428		7	%
Gross profit per retail unit (excludes fleet)	Gross profit per retail unit (excludes fleet)	$	2,492	$	2,203	$	289	13	%	Gross profit per retail unit (excludes fleet)	$	2,369	$	2,495	$	(126)	(5)	%

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

Results of Operations – Franchised Dealerships Segment

As a result of the acquisition, disposition, termination or closure of franchised dealership stores since the beginning of ~~2021, including the RFJ Acquisition in December 2021,~~2022, 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.

2724

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

New Vehicles – Franchised Dealerships Segment

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


		Three Months Ended September 30,				Better / (Worse)					Three Months Ended March 31,				Better / (Worse)
		2022		2021		Change		% Change			2023		2022		Change		% Change
		(In millions, except unit data)									(In millions, except unit data)
Retail new vehicle revenue:	Retail new vehicle revenue:									Retail new vehicle revenue:
Same store	Same store	$	1,177.4	$	1,121.3	$	56.1	5	%	Same store	$	1,416.6	$	1,345.7	$	70.9	5	%
Acquisitions, open points, dispositions and holding company	Acquisitions, open points, dispositions and holding company	182.2		22.1		160.1		724	%	Acquisitions, open points, dispositions and holding company	4.4		—		4.4		NM
Total as reported	Total as reported	$	1,359.6	$	1,143.4	$	216.2	19	%	Total as reported	$	1,421.0	$	1,345.7	$	75.3	6	%

Fleet new vehicle revenue:	Fleet new vehicle revenue:									Fleet new vehicle revenue:
Same store	Same store	$	27.0	$	18.9	$	8.1	43	%	Same store	$	18.9	$	18.1	$	0.8	4	%
Acquisitions, open points, dispositions and holding company	Acquisitions, open points, dispositions and holding company	5.0		—		5.0		NM		Acquisitions, open points, dispositions and holding company	(0.1)		0.1		(0.2)		NM
Total as reported	Total as reported	$	32.0	$	18.9	$	13.1	69	%	Total as reported	$	18.8	$	18.2	$	0.6	3	%

Total new vehicle revenue:	Total new vehicle revenue:									Total new vehicle revenue:
Same store	Same store	$	1,204.4	$	1,140.2	$	64.2	6	%	Same store	$	1,435.5	$	1,363.8	$	71.7	5	%
Acquisitions, open points, dispositions and holding company	Acquisitions, open points, dispositions and holding company	187.2		3.2		184.0		NM		Acquisitions, open points, dispositions and holding company	4.3		0.1		4.2		NM
Total as reported	Total as reported	$	1,391.6	$	1,143.4	$	248.2	22	%	Total as reported	$	1,439.8	$	1,363.9	$	75.9	6	%

Retail new vehicle gross profit:	Retail new vehicle gross profit:									Retail new vehicle gross profit:
Same store	Same store	$	136.9	$	114.3	$	22.6	20	%	Same store	$	133.0	$	160.8	$	(27.8)	(17)	%
Acquisitions, open points, dispositions and holding company	Acquisitions, open points, dispositions and holding company	23.8		0.9		22.9		NM		Acquisitions, open points, dispositions and holding company	1.0		5.8		(4.8)		NM
Total as reported	Total as reported	$	160.7	$	115.2	$	45.5	39	%	Total as reported	$	134.0	$	166.6	$	(32.6)	(20)	%

Fleet new vehicle gross profit:	Fleet new vehicle gross profit:									Fleet new vehicle gross profit:
Same store	Same store	$	1.0	$	0.4	$	0.6	150	%	Same store	$	0.8	$	0.9	$	(0.1)	(11)	%
Acquisitions, open points, dispositions and holding company	Acquisitions, open points, dispositions and holding company	0.3		(0.1)		0.4		NM		Acquisitions, open points, dispositions and holding company	0.1		(0.1)		0.2		NM
Total as reported	Total as reported	$	1.3	$	0.3	$	1.0	333	%	Total as reported	$	0.9	$	0.8	$	0.1	13	%

Total new vehicle gross profit:	Total new vehicle gross profit:									Total new vehicle gross profit:
Same store	Same store	$	137.9	$	114.7	$	23.2	20	%	Same store	$	133.8	$	161.7	$	(27.9)	(17)	%
Acquisitions, open points, dispositions and holding company	Acquisitions, open points, dispositions and holding company	24.1		0.5		23.6		NM		Acquisitions, open points, dispositions and holding company	1.1		5.7		(4.6)		NM
Total as reported	Total as reported	$	162.0	$	115.2	$	46.8	41	%	Total as reported	$	134.9	$	167.4	$	(32.5)	(19)	%

Retail new vehicle unit sales:	Retail new vehicle unit sales:									Retail new vehicle unit sales:
Same store	Same store	20,829		22,208		(1,379)		(6)	%	Same store	24,465		24,602		(137)		(1)	%
Acquisitions, open points, dispositions and holding company	Acquisitions, open points, dispositions and holding company	3,412		72		3,340		NM		Acquisitions, open points, dispositions and holding company	74		—		74		NM
Total as reported	Total as reported	24,241		22,280		1,961		9	%	Total as reported	24,539		24,602		(63)		—	%

Fleet new vehicle unit sales:	Fleet new vehicle unit sales:									Fleet new vehicle unit sales:
Same store	Same store	574		511		63		12	%	Same store	441		360		81		23	%
Acquisitions, open points, dispositions and holding company	Acquisitions, open points, dispositions and holding company	98		—		98		NM		Acquisitions, open points, dispositions and holding company	—		—		—		NM
Total as reported	Total as reported	672		511		161		32	%	Total as reported	441		360		81		23	%

Total new vehicle unit sales:	Total new vehicle unit sales:									Total new vehicle unit sales:
Same store	Same store	21,403		22,719		(1,316)		(6)	%	Same store	24,906		24,962		(56)		—	%
Acquisitions, open points, dispositions and holding company	Acquisitions, open points, dispositions and holding company	3,510		72		3,438		NM		Acquisitions, open points, dispositions and holding company	74		—		74		NM
Total as reported	Total as reported	24,913		22,791		2,122		9	%	Total as reported	24,980		24,962		18		—	%
NM = Not Meaningful

~~SONIC AUTOMOTIVE, INC.~~NM = Not Meaningful

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

Nine Months Ended September 30, Better / (Worse)
2022 2021 Change % Change
(In millions, except unit data)
Retail new vehicle revenue:
Same store $ 3,413.5 $ 3,699.4 $ (285.9) (8) %
Acquisitions, open points, dispositions and holding company 633.6 62.3 571.3 917 %
Total as reported $ 4,047.1 $ 3,761.7 $ 285.4 8 %
Fleet new vehicle revenue:
Same store $ 57.9 $ 51.0 $ 6.9 14 %
Acquisitions, open points, dispositions and holding company 12.1 (0.1) 12.2 NM
Total as reported $ 70.0 $ 50.9 $ 19.1 38 %
Total new vehicle revenue:
Same store $ 3,471.4 $ 3,750.4 $ (279.0) (7) %
Acquisitions, open points, dispositions and holding company 645.7 11.3 634.4 NM
Total as reported $ 4,117.1 $ 3,761.7 $ 355.4 9 %
Retail new vehicle gross profit:
Same store $ 413.8 $ 300.6 $ 113.2 38 %
Acquisitions, open points, dispositions and holding company 80.7 1.5 79.2 NM
Total as reported $ 494.5 $ 302.1 $ 192.4 64 %
Fleet new vehicle gross profit:
Same store $ 2.4 $ 0.9 $ 1.5 167 %
Acquisitions, open points, dispositions and holding company 0.7 — 0.7 NM
Total as reported $ 3.1 $ 0.9 $ 2.2 244 %
Total new vehicle gross profit:
Same store $ 416.2 $ 301.5 $ 114.7 38 %
Acquisitions, open points, dispositions and holding company 81.4 1.5 79.9 NM
Total as reported $ 497.6 $ 303.0 $ 194.6 64 %
Retail new vehicle unit sales:
Same store 61,247 76,073 (14,826) (19) %
Acquisitions, open points, dispositions and holding company 11,938 267 11,671 NM
Total as reported 73,185 76,340 (3,155) (4) %
Fleet new vehicle unit sales:
Same store 1,232 1,297 (65) (5) %
Acquisitions, open points, dispositions and holding company 222 — 222 NM
Total as reported 1,454 1,297 157 12 %
Total new vehicle unit sales:
Same store 62,479 77,370 (14,891) (19) %
Acquisitions, open points, dispositions and holding company 12,160 267 11,893 NM
Total as reported 74,639 77,637 (2,998) (4) %
NM = Not Meaningful

2925

SONIC AUTOMOTIVE, INC.

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

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


		Three Months Ended September 30,						Better / (Worse)					Three Months Ended March 31,						Better / (Worse)
		2022			2021			Change		% Change			2023			2022			Change		% Change
		(In millions, except unit and per unit data)											(In millions, except unit and per unit data)
Reported new vehicle:	Reported new vehicle:											Reported new vehicle:
Retail new vehicle revenue	Retail new vehicle revenue	$	1,359.6		$	1,124.5		$	235.1	21	%	Retail new vehicle revenue	$	1,421.0		$	1,345.7		$	75.3	6	%
Fleet new vehicle revenue	Fleet new vehicle revenue	32.0			18.9			13.1		69	%	Fleet new vehicle revenue	18.8			18.2			0.6		3	%
Total new vehicle revenue	Total new vehicle revenue	$	1,391.6		$	1,143.4		$	248.2	22	%	Total new vehicle revenue	$	1,439.8		$	1,363.9		$	75.9	6	%

Retail new vehicle gross profit	Retail new vehicle gross profit	$	160.7		$	114.9		$	45.8	40	%	Retail new vehicle gross profit	$	134.0		$	166.6		$	(32.6)	(20)	%
Fleet new vehicle gross profit	Fleet new vehicle gross profit	1.3			0.3			1.0		333	%	Fleet new vehicle gross profit	0.9			0.8			0.1		13	%
Total new vehicle gross profit	Total new vehicle gross profit	$	162.0		$	115.2		$	46.8	41	%	Total new vehicle gross profit	$	134.9		$	167.4		$	(32.5)	(19)	%

Retail new vehicle unit sales	Retail new vehicle unit sales	24,241			22,280			1,961		9	%	Retail new vehicle unit sales	24,539			24,602			(63)		—	%
Fleet new vehicle unit sales	Fleet new vehicle unit sales	672			511			161		32	%	Fleet new vehicle unit sales	441			360			81		23	%
Total new vehicle unit sales	Total new vehicle unit sales	24,913			22,791			2,122		9	%	Total new vehicle unit sales	24,980			24,962			18		—	%

Revenue per new retail unit	Revenue per new retail unit	$	56,087		$	50,471		$	5,616	11	%	Revenue per new retail unit	$	57,907		$	54,699		$	3,208	6	%
Revenue per new fleet unit	Revenue per new fleet unit	$	47,636		$	37,114		$	10,522	28	%	Revenue per new fleet unit	$	42,680		$	50,337		$	(7,657)	(15)	%
Total revenue per new unit	Total revenue per new unit	$	55,859		$	50,170		$	5,689	11	%	Total revenue per new unit	$	57,638		$	54,636		$	3,002	5	%

Gross profit per new retail unit	Gross profit per new retail unit	$	6,627		$	5,153		$	1,474	29	%	Gross profit per new retail unit	$	5,463		$	6,771		$	(1,308)	(19)	%
Gross profit per new fleet unit	Gross profit per new fleet unit	$	1,955		$	773		$	1,182	153	%	Gross profit per new fleet unit	$	2,020		$	2,344		$	(324)	(14)	%
Total gross profit per new unit	Total gross profit per new unit	$	6,501		$	5,055		$	1,446	29	%	Total gross profit per new unit	$	5,402		$	6,707		$	(1,305)	(19)	%

Retail gross profit as a % of revenue	Retail gross profit as a % of revenue	11.8		%	10.2		%	160		bps		Retail gross profit as a % of revenue	9.4		%	12.4		%	(300)		bps
Fleet gross profit as a % of revenue	Fleet gross profit as a % of revenue	4.1		%	1.8		%	230		bps		Fleet gross profit as a % of revenue	4.7		%	4.7		%	—		bps
Total new vehicle gross profit as a % of revenue	Total new vehicle gross profit as a % of revenue	11.6		%	10.1		%	150		bps		Total new vehicle gross profit as a % of revenue	9.4		%	12.3		%	(290)		bps

~~SONIC AUTOMOTIVE, INC.~~

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

Nine Months Ended September 30, Better / (Worse)
2022 2021 Change % Change
(In millions, except unit and per unit data)
Reported new vehicle:
Retail new vehicle revenue $ 4,047.1 $ 3,710.8 $ 336.3 9 %
Fleet new vehicle revenue 70.0 50.9 19.1 38 %
Total new vehicle revenue $ 4,117.1 $ 3,761.7 $ 355.4 9 %
Retail new vehicle gross profit $ 494.5 $ 302.1 $ 192.4 64 %
Fleet new vehicle gross profit 3.1 0.9 2.2 244 %
Total new vehicle gross profit $ 497.6 $ 303.0 $ 194.6 64 %
Retail new vehicle unit sales 73,185 76,340 (3,155) (4) %
Fleet new vehicle unit sales 1,454 1,297 157 12 %
Total new vehicle unit sales 74,639 77,637 (2,998) (4) %
Revenue per new retail unit $ 55,299 $ 48,609 $ 6,690 14 %
Revenue per new fleet unit $ 48,164 $ 39,279 $ 8,885 23 %
Total revenue per new unit $ 55,160 $ 48,453 $ 6,707 14 %
Gross profit per new retail unit $ 6,757 $ 3,956 $ 2,801 71 %
Gross profit per new fleet unit $ 2,132 $ 745 $ 1,387 186 %
Total gross profit per new unit $ 6,667 $ 3,903 $ 2,764 71 %
Retail gross profit as a % of revenue 12.2 % 8.1 % 410 bps
Fleet gross profit as a % of revenue 4.4 % 1.7 % 270 bps
Total new vehicle gross profit as a % of revenue 12.1 % 8.1 % 400 bps

3126

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 March 31,						Better / (Worse)
	2023			2022			Change		% Change
	(In millions, except unit and per unit data)
Same store new vehicle:
Retail new vehicle revenue	$	1,416.6		$	1,345.7		$	70.9	5	%
Fleet new vehicle revenue	18.9			18.1			0.8		4	%
Total new vehicle revenue	$	1,435.5		$	1,363.8		$	71.7	5	%

Retail new vehicle gross profit	$	133.0		$	160.8		$	(27.8)	(17)	%
Fleet new vehicle gross profit	0.8			0.9			(0.1)		(11)	%
Total new vehicle gross profit	$	133.8		$	161.7		$	(27.9)	(17)	%

Retail new vehicle unit sales	24,465			24,602			(137)		(1)	%
Fleet new vehicle unit sales	441			360			81		23	%
Total new vehicle unit sales	24,906			24,962			(56)		—	%

Revenue per new retail unit	$	57,905		$	54,699		$	3,206	6	%
Revenue per new fleet unit	$	42,680		$	50,337		$	(7,657)	(15)	%
Total revenue per new unit	$	57,635		$	54,636		$	2,999	5	%

Gross profit per new retail unit	$	5,434		$	6,538		$	(1,104)	(17)	%
Gross profit per new fleet unit	$	2,020		$	2,344		$	(324)	(14)	%
Total gross profit per new unit	$	5,374		$	6,477		$	(1,103)	(17)	%

Retail gross profit as a % of revenue	9.4		%	12.0		%	(260)		bps
Fleet gross profit as a % of revenue	4.1		%	5.3		%	(120)		bps
Total new vehicle gross profit as a % of revenue	9.3		%	11.9		%	(260)		bps

Three Months Ended September 30, Better / (Worse)
2022 2021 Change % Change
(In millions, except unit and per unit data)
Same store new vehicle:
Retail new vehicle revenue $ 1,177.4 $ 1,121.3 $ 56.1 5 %
Fleet new vehicle revenue 27.0 18.9 8.1 43 %
Total new vehicle revenue $ 1,204.4 $ 1,140.2 $ 64.2 6 %
Retail new vehicle gross profit $ 136.9 $ 114.3 $ 22.6 20 %
Fleet new vehicle gross profit 1.0 0.4 0.6 150 %
Total new vehicle gross profit $ 137.9 $ 114.7 $ 23.2 20 %
Retail new vehicle unit sales 20,829 22,208 (1,379) (6) %
Fleet new vehicle unit sales 574 511 63 12 %
Total new vehicle unit sales 21,403 22,719 (1,316) (6) %
Revenue per new retail unit $ 56,529 $ 50,489 $ 6,040 12 %
Revenue per new fleet unit $ 46,937 $ 37,114 $ 9,823 26 %
Total revenue per new unit $ 56,272 $ 50,188 $ 6,084 12 %
Gross profit per new retail unit $ 6,571 $ 5,147 $ 1,424 28 %
Gross profit per new fleet unit $ 1,782 $ 773 $ 1,009 131 %
Total gross profit per new unit $ 6,443 $ 5,049 $ 1,394 28 %
Retail gross profit as a % of revenue 11.6 % 10.2 % 140 bps
Fleet gross profit as a % of revenue 3.4 % 2.1 % 130 bps
Total new vehicle gross profit as a % of revenue 11.4 % 10.1 % 130 bps

~~SONIC AUTOMOTIVE, INC.~~

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

Nine Months Ended September 30, Better / (Worse)
2022 2021 Change % Change
(In millions, except unit and per unit data)
Same store new vehicle:
Retail new vehicle revenue $ 3,413.5 $ 3,699.4 $ (285.9) (8) %
Fleet new vehicle revenue 57.9 51.0 6.9 14 %
Total new vehicle revenue $ 3,471.4 $ 3,750.4 $ (279.0) (7) %
Retail new vehicle gross profit $ 413.8 $ 300.6 $ 113.2 38 %
Fleet new vehicle gross profit 2.4 0.9 1.5 167 %
Total new vehicle gross profit $ 416.2 $ 301.5 $ 114.7 38 %
Retail new vehicle unit sales 61,247 76,073 (14,826) (19) %
Fleet new vehicle unit sales 1,232 1,297 (65) (5) %
Total new vehicle unit sales 62,479 77,370 (14,891) (19) %
Revenue per new retail unit $ 55,733 $ 48,630 $ 7,103 15 %
Revenue per new fleet unit $ 47,034 $ 39,279 $ 7,755 20 %
Total revenue per new unit $ 55,561 $ 48,473 $ 7,088 15 %
Gross profit per new retail unit $ 6,756 $ 3,951 $ 2,805 71 %
Gross profit per new fleet unit $ 1,968 $ 745 $ 1,223 164 %
Total gross profit per new unit $ 6,661 $ 3,897 $ 2,764 71 %
Retail gross profit as a % of revenue 12.1 % 8.1 % 400 bps
Fleet gross profit as a % of revenue 4.1 % 1.7 % 240 bps
Total new vehicle gross profit as a % of revenue 12.0 % 8.0 % 400 bps

Same Store Franchised Dealerships Segment Retail New Vehicles – Three Months Ended ~~September 30, 2022~~March 31, 2023 Compared to Three Months Ended ~~September 30, 2021~~March 31, 2022

Retail new vehicle revenue increased 5%, due primarily to ~~higher average selling prices, offset partially by lower~~a 6% increase in retail new vehicle unit sales volume. Retail new vehicle gross profit increased approximately $22.6 million, or 20%, as a result of higher retail new vehicle gross profit per unit, offset partially by lower retail new vehicle unit sales volume. Retail new vehicle gross profit per unit increased $1,424 per unit, or 28%, to $6,571 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 Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021~~

~~Retail new vehicle revenue decreased 8%, due primarily to lower retail new vehicle unit sales volume, offset partially by higher~~ average selling prices. Retail new vehicle gross profit ~~increased~~decreased approximately ~~$113.2~~$27.8 million, or ~~38%~~17%, as a result of ~~higher~~lower retail new vehicle gross profit per unit, ~~offset partially by lower retail new vehicle unit sales volume.~~due primarily to higher inventory invoice costs and increased price competition as a result of higher levels of available inventory. Retail new vehicle gross profit per unit ~~increased $2,805~~decreased $1,104 per unit, or ~~71%~~17%, to ~~$6,756~~$5,434 per unit, due primarily to higher inventory ~~shortages~~invoice costs and increased price competition as a result of ~~vehicle manufacturer supply chain and production delays as a result~~higher levels of available inventory than in the ~~COVID-19 pandemic, which have generally increased the average selling prices of such vehicles.~~prior year period.

3327

SONIC AUTOMOTIVE, INC.

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

Used Vehicles – Franchised Dealerships Segment

The following ~~tables provide~~table provides 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 March 31,				Better / (Worse)
		2022		2021		Change		% Change			2023		2022		Change		% Change
		(In millions, except unit data)									(In millions, except unit data)
Retail used vehicle revenue:	Retail used vehicle revenue:									Retail used vehicle revenue:
Same store	Same store	$	736.4	$	747.4	$	(11.0)	(1)	%	Same store	$	765.0	$	853.7	$	(88.7)	(10)	%
Acquisitions, open points, dispositions and holding company	Acquisitions, open points, dispositions and holding company	106.0		2.9		103.1		NM		Acquisitions, open points, dispositions and holding company	2.6		(0.1)		2.7		NM
Total as reported	Total as reported	$	842.4	$	750.3	$	92.1	12	%	Total as reported	$	767.6	$	853.6	$	(86.0)	(10)	%

Retail used vehicle gross profit:	Retail used vehicle gross profit:									Retail used vehicle gross profit:
Same store	Same store	$	38.5	$	48.2	$	(9.7)	(20)	%	Same store	$	39.0	$	47.9	$	(8.9)	(19)	%
Acquisitions, open points, dispositions and holding company	Acquisitions, open points, dispositions and holding company	6.9		1.9		5.0		263	%	Acquisitions, open points, dispositions and holding company	1.8		(1.0)		2.8		NM
Total as reported	Total as reported	$	45.4	$	50.1	$	(4.7)	(9)	%	Total as reported	$	40.8	$	46.9	$	(6.1)	(13)	%

Retail used vehicle unit sales:	Retail used vehicle unit sales:									Retail used vehicle unit sales:
Same store	Same store	23,043		26,164		(3,121)		(12)	%	Same store	25,023		27,078		(2,055)		(8)	%
Acquisitions, open points, dispositions and holding company	Acquisitions, open points, dispositions and holding company	3,604		110		3,494		NM		Acquisitions, open points, dispositions and holding company	84		—		84		NM
Total as reported	Total as reported	26,647		26,274		373		1	%	Total as reported	25,107		27,078		(1,971)		(7)	%

NM = Not Meaningful

Nine Months Ended September 30, Better / (Worse)
2022 2021 Change % Change
(In millions, except unit data)
Retail used vehicle revenue:
Same store $ 2,210.9 $ 2,165.2 $ 45.7 2 %
Acquisitions, open points, dispositions and holding company 357.2 8.1 349.1 NM
Total as reported $ 2,568.1 $ 2,173.3 $ 394.8 18 %
Retail used vehicle gross profit:
Same store $ 115.9 $ 137.2 $ (21.3) (16) %
Acquisitions, open points, dispositions and holding company 20.1 0.1 20.0 NM
Total as reported $ 136.0 $ 137.3 $ (1.3) (1) %
Retail used vehicle unit sales:
Same store 69,315 81,713 (12,398) (15) %
Acquisitions, open points, dispositions and holding company 12,566 347 12,219 NM
Total as reported 81,881 82,060 (179) — %
NM = Not Meaningful

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


	Three Months Ended March 31,						Better / (Worse)
	2023			2022			Change		% Change
	(In millions, except unit and per unit data)
Reported retail used vehicle:
Revenue	$	767.6		$	853.6		$	(86.0)	(10)	%
Gross profit	$	40.8		$	46.9		$	(6.1)	(13)	%
Unit sales	25,107			27,078			(1,971)		(7)	%
Revenue per unit	$	30,573		$	31,529		$	(956)	(3)	%
Gross profit per unit	$	1,626		$	1,731		$	(105)	(6)	%
Gross profit as a % of revenue	5.3		%	5.5		%	(20)		bps

3428

SONIC AUTOMOTIVE, INC.

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

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



	Three Months Ended March 31,						Better / (Worse)
	2023			2022			Change		% Change
	(In millions, except unit and per unit data)
Same store retail used vehicle:
Revenue	$	765.0		$	853.7		$	(88.7)	(10)	%
Gross profit	$	39.0		$	47.9		$	(8.9)	(19)	%
Unit sales	25,023			27,078			(2,055)		(8)	%
Revenue per unit	$	30,571		$	31,529		$	(958)	(3)	%
Gross profit per unit	$	1,560		$	1,768		$	(208)	(12)	%
Gross profit as a % of revenue	5.1		%	5.6		%	(50)		bps

Same Store Franchised Dealerships Segment Retail Used Vehicles – Three Months Ended March 31, 2023 Compared to Three Months Ended March 31, 2022

Retail used vehicle revenue decreased approximately $88.7 million, or 10%, driven primarily by an 8% decrease in retail used vehicle unit sales volume, as well as a 3% decrease in retail used vehicle average selling prices. Retail used vehicle gross profit decreased approximately $8.9 million, or 19%, driven primarily by a $208 per unit, or 12%, decrease in retail used vehicle gross profit per unit, as well as a decrease in retail used vehicle unit sales volume during the first quarter of 2023.

Wholesale Vehicles – Franchised Dealerships Segment

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


	Three Months Ended March 31,				Better / (Worse)
	2023		2022		Change		% Change
	(In millions, except unit data)
Total wholesale vehicle revenue:
Same store	$	58.1	$	106.4	$	(48.3)	(45)	%
Acquisitions, open points, dispositions and holding company	0.3		—		0.3		NM
Total as reported	$	58.4	$	106.4	$	(48.0)	(45)	%

Total wholesale vehicle gross profit (loss):
Same store	$	1.8	$	(0.6)	$	2.4	400	%
Acquisitions, open points, dispositions and holding company	0.1		0.2		(0.1)		NM
Total as reported	$	1.9	$	(0.4)	$	2.3	575	%

Total wholesale vehicle unit sales:
Same store	5,466		6,772		(1,306)		(19)	%
Acquisitions, open points, dispositions and holding company	17		—		17		NM
Total as reported	5,483		6,772		(1,289)		(19)	%

NM = Not Meaningful

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 September 30, Better / (Worse)
2022 2021 Change % Change
(In millions, except unit and per unit data)
Reported retail used vehicle:
Revenue $ 842.4 $ 750.3 $ 92.1 12 %
Gross profit $ 45.4 $ 50.1 $ (4.7) (9) %
Unit sales 26,647 26,274 373 1 %
Revenue per unit $ 31,615 $ 28,555 $ 3,060 11 %
Gross profit per unit $ 1,704 $ 1,907 $ (203) (11) %
Gross profit as a % of revenue 5.4 % 6.7 % (130) bps

Nine Months Ended September 30, Better / (Worse)
2022 2021 Change % Change
(In millions, except unit and per unit data)
Reported retail used vehicle:
Revenue $ 2,568.1 $ 2,173.3 $ 394.8 18 %
Gross profit $ 136.0 $ 137.3 $ (1.3) (1) %
Unit sales 81,881 82,060 (179) — %
Revenue per unit $ 31,364 $ 26,485 $ 4,879 18 %
Gross profit per unit $ 1,661 $ 1,673 $ (12) (1) %
Gross profit as a % of revenue 5.3 % 6.3 % (100) bps

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

Three Months Ended September 30, Better / (Worse)
2022 2021 Change % Change
(In millions, except unit and per unit data)
Same store retail used vehicle:
Revenue $ 736.4 $ 747.4 $ (11.0) (1) %
Gross profit $ 38.5 $ 48.2 $ (9.7) (20) %
Unit sales 23,043 26,164 (3,121) (12) %
Revenue per unit $ 31,955 $ 28,565 $ 3,390 12 %
Gross profit per unit $ 1,669 $ 1,844 $ (175) (9) %
Gross profit as a % of revenue 5.2 % 6.4 % (120) bps

Nine Months Ended September 30, Better / (Worse)
2022 2021 Change % Change
(In millions, except unit and per unit data)
Same store retail used vehicle:
Revenue $ 2,210.9 $ 2,165.2 $ 45.7 2 %
Gross profit $ 115.9 $ 137.2 $ (21.3) (16) %
Unit sales 69,315 81,713 (12,398) (15) %
Revenue per unit $ 31,896 $ 26,498 $ 5,398 20 %
Gross profit per unit $ 1,672 $ 1,679 $ (7) — %
Gross profit as a % of revenue 5.2 % 6.3 % (110) bps

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

Retail used vehicle revenue decreased approximately $11.0 million, or 1%, driven primarily by a 12% decrease in retail used vehicle unit sales volume, offset partially by a 12% increase in retail used vehicle average selling prices. Retail used vehicle gross profit decreased approximately $9.7 million, or 20%, driven primarily by a $175 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 third quarter of 2022.

~~Same Store~~ ~~Franchised Dealerships Segment Retail Used Vehicles~~ – ~~Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021~~

Retail used vehicle revenue increased approximately $45.7 million, or 2%, driven primarily by a 20% increase in retail used vehicle average selling price, offset partially by a 15% decrease in retail used vehicle unit sales volume~~. Retail used vehicle gross profit decreased approximately $21.3 million, or 16%, driven primarily by a~~ ~~decrease~~ ~~in retail used vehicle unit sales volume during the nine months ended September 30, 2022.~~

~~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)
2022 2021 Change % Change
(In millions, except unit data)
Total wholesale vehicle revenue:
Same store $ 58.8 $ 63.9 $ (5.1) (8) %
Acquisitions, open points, dispositions and holding company 17.0 0.2 16.8 NM
Total as reported $ 75.8 $ 64.1 $ 11.7 18 %
Total wholesale vehicle gross profit (loss):
Same store $ (1.7) $ 0.8 $ (2.5) (313) %
Acquisitions, open points, dispositions and holding company (0.4) (2.8) 2.4 86 %
Total as reported $ (2.1) $ (2.0) $ (0.1) (5) %
Total wholesale vehicle unit sales:
Same store 4,583 6,102 (1,519) (25) %
Acquisitions, open points, dispositions and holding company 1,230 17 1,213 NM
Total as reported 5,813 6,119 (306) (5) %
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)
2022 2021 Change % Change
(In millions, except unit data)
Total wholesale vehicle revenue:
Same store $ 196.9 $ 182.7 $ 14.2 8 %
Acquisitions, open points, dispositions and holding company 64.3 0.5 63.8 NM
Total as reported $ 261.2 $ 183.2 $ 78.0 43 %
Total wholesale vehicle gross profit (loss):
Same store $ (2.3) $ 5.8 $ (8.1) (140) %
Acquisitions, open points, dispositions and holding company (0.7) (5.6) 4.9 88 %
Total as reported $ (3.0) $ 0.2 $ (3.2) NM
Total wholesale vehicle unit sales:
Same store 14,258 19,634 (5,376) (27) %
Acquisitions, open points, dispositions and holding company 4,178 70 4,108 NM
Total as reported 18,436 19,704 (1,268) (6) %
NM = Not Meaningful

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


		Three Months Ended September 30,						Better / (Worse)					Three Months Ended March 31,						Better / (Worse)
		2022			2021			Change		% Change			2023			2022			Change		% Change
		(In millions, 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	$	75.8		$	64.1		$	11.7	18	%	Revenue	$	58.4		$	106.4		$	(48.0)	(45)	%
Gross profit (loss)	Gross profit (loss)	$	(2.1)		$	(2.0)		$	(0.1)	(5)	%	Gross profit (loss)	$	1.9		$	(0.4)		$	2.3	575	%
Unit sales	Unit sales	5,813			6,119			(306)		(5)	%	Unit sales	5,483			6,772			(1,289)		(19)	%
Revenue per unit	Revenue per unit	$	13,028		$	10,468		$	2,560	24	%	Revenue per unit	$	10,637		$	15,698		$	(5,061)	(32)	%
Gross profit (loss) per unit	Gross profit (loss) per unit	$	(356)		$	(325)		$	(31)	(10)	%	Gross profit (loss) per unit	$	324		$	(60)		$	384	640	%
Gross profit (loss) as a % of revenue	Gross profit (loss) as a % of revenue	(2.7)		%	(3.1)		%	40		bps		Gross profit (loss) as a % of revenue	3.0		%	(0.4)		%	340		bps

Nine Months Ended September 30, Better / (Worse)
2022 2021 Change % Change
(In millions, except unit and per unit data)
Reported wholesale vehicle:
Revenue $ 261.2 $ 183.2 $ 78.0 43 %
Gross profit (loss) $ (3.0) $ 0.2 $ (3.2) NM
Unit sales 18,436 19,704 (1,268) (6) %
Revenue per unit $ 14,170 $ 9,298 $ 4,872 52 %
Gross profit (loss) per unit $ (163) $ 9 $ (172) NM
Gross profit (loss) as a % of revenue (1.2) % 0.1 % (130) 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 wholesale vehicle results were as follows:


		Three Months Ended September 30,						Better / (Worse)					Three Months Ended March 31,						Better / (Worse)
		2022			2021			Change		% Change			2023			2022			Change		% Change
		(In millions, except unit and per unit data)											(In millions, except unit and per unit data)
Same store wholesale vehicle:	Same store wholesale vehicle:											Same store wholesale vehicle:
Revenue	Revenue	$	58.8		$	63.9		$	(5.1)	(8)	%	Revenue	$	58.1		$	106.4		$	(48.3)	(45)	%
Gross profit (loss)	Gross profit (loss)	$	(1.7)		$	0.8		$	(2.5)	(313)	%	Gross profit (loss)	$	1.8		$	(0.6)		$	2.4	400	%
Unit sales	Unit sales	4,583			6,102			(1,519)		(25)	%	Unit sales	5,466			6,772			(1,306)		(19)	%
Revenue per unit	Revenue per unit	$	12,848		$	10,467		$	2,381	23	%	Revenue per unit	$	10,645		$	15,698		$	(5,053)	(32)	%
Gross profit (loss) per unit	Gross profit (loss) per unit	$	(359)		$	131		$	(490)	(374)	%	Gross profit (loss) per unit	$	304		$	(78)		$	382	490	%
Gross profit (loss) as a % of revenue	Gross profit (loss) as a % of revenue	(2.8)		%	1.3		%	(410)		bps		Gross profit (loss) as a % of revenue	2.9		%	(0.6)		%	350		bps

Nine Months Ended September 30, Better / (Worse)
2022 2021 Change % Change
(In millions, except unit and per unit data)
Same store wholesale vehicle:
Revenue $ 196.9 $ 182.7 $ 14.2 8 %
Gross profit (loss) $ (2.3) $ 5.8 $ (8.1) (140) %
Unit sales 14,258 19,634 (5,376) (27) %
Revenue per unit $ 13,812 $ 9,303 $ 4,509 48 %
Gross profit (loss) per unit $ (164) $ 291 $ (455) (156) %
Gross profit (loss) as a % of revenue (1.2) % 3.1 % (430) bps

We generally focus on maintaining Franchised Dealerships Segment used vehicle inventory days’ supply in the 25- to 35-day range, which may fluctuate seasonally, in order to limit our exposure to market pricing volatility. On a trailing quarter cost of sales basis, our reported Franchised Dealerships Segment used vehicle inventory days’ supply was approximately 3129 and 33 days as of ~~September 30,~~March 31, 2023 and 2022, ~~and 27 days as of September 30, 2021.~~respectively. Wholesale vehicle revenue and wholesale vehicle unit sales volume fluctuations are typically a result of retail new and used vehicle unit sales volumes that generate additional trade-in vehicle volume that we are not always able to sell as retail used vehicles and choose to sell at auction. Whenever possible, we prefer to sell a used vehicle through retail channels rather than wholesaling the vehicle at auction due to the opportunity to sell F&I products and to avoid auction and transportation fees.

Same Store Franchised Dealerships Segment Wholesale Vehicles – Three Months Ended ~~September 30, 2022~~March 31, 2023 Compared to Three Months Ended ~~September 30, 2021~~March 31, 2022

Wholesale vehicle revenue decreased approximately ~~$5.1~~$48.3 million, or 8%45%, driven by a ~~25%~~19% 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 ~~third~~first quarter of ~~2022, offset partially by~~2023, and a ~~23% increase~~32% decrease in wholesale vehicle revenue per unit. Wholesale vehicle gross profit ~~decreased~~increased approximately ~~$2.5~~$2.4 million, driven primarily by a ~~$490~~$382 per unit, or ~~374%~~490%, ~~decrease~~increase in wholesale vehicle gross profit per unit as a result of ~~declining~~increasing wholesale auction prices.

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

Wholesale vehicle revenue increased approximately $14.2 million or 8%, driven primarily by a 48% increase in wholesale vehicle revenue per unit during the first nine months of 2022. Wholesale vehicle gross profit decreased approximately $8.1 million, driven primarily by a $455 per unit, or 156%, decrease in wholesale vehicle gross profit per unit, in addition to a 27% decrease in wholesale vehicle unit sales volume due in part to fewer trade-ins as a result of decreased retail new and used vehicle sales activity during the first nine months of 2022.

3830

SONIC AUTOMOTIVE, INC.

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

Fixed Operations – Franchised Dealerships Segment

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


		Three Months Ended September 30,				Better / (Worse)					Three Months Ended March 31,				Better / (Worse)
		2022		2021		Change		% Change			2023		2022		Change		% Change
		(In millions)									(In millions)
Total Fixed Operations revenue:	Total Fixed Operations revenue:									Total Fixed Operations revenue:
Same store	Same store	$	373.6	$	338.7	$	34.9	10	%	Same store	$	422.0	$	380.5	$	41.5	11	%
Acquisitions, open points, dispositions and holding company	Acquisitions, open points, dispositions and holding company	31.1		1.2		29.9		NM		Acquisitions, open points, dispositions and holding company	1.8		—		1.8		NM
Total as reported	Total as reported	$	404.7	$	339.9	$	64.8	19	%	Total as reported	$	423.8	$	380.5	$	43.3	11	%

Total Fixed Operations gross profit:	Total Fixed Operations gross profit:									Total Fixed Operations gross profit:
Same store	Same store	$	186.5	$	170.2	$	16.3	10	%	Same store	$	208.2	$	186.3	$	21.9	12	%
Acquisitions, open points, dispositions and holding company	Acquisitions, open points, dispositions and holding company	14.5		0.9		13.6		NM		Acquisitions, open points, dispositions and holding company	1.4		0.3		1.1		NM
Total as reported	Total as reported	$	201.0	$	171.1	$	29.9	17	%	Total as reported	$	209.6	$	186.6	$	23.0	12	%

NM = Not Meaningful
Nine Months Ended September 30, Better / (Worse)
2022 2021 Change % Change
(In millions)
Total Fixed Operations revenue:
Same store $ 1,080.5 $ 990.5 $ 90.0 9 %
Acquisitions, open points, dispositions and holding company 102.9 3.6 99.3 NM
Total as reported $ 1,183.4 $ 994.1 $ 189.3 19 %
Total Fixed Operations gross profit:
Same store $ 537.5 $ 498.8 $ 38.7 8 %
Acquisitions, open points, dispositions and holding company 48.2 3.1 45.1 NM
Total as reported $ 585.7 $ 501.9 $ 83.8 17 %

~~NM = Not Meaningful~~

~~SONIC AUTOMOTIVE, INC.~~

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

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


		Three Months Ended September 30,						Better / (Worse)					Three Months Ended March 31,						Better / (Worse)
		2022			2021			Change		% Change			2023			2022			Change		% Change
		(In millions)											(In millions)
Reported Fixed Operations:	Reported Fixed Operations:											Reported Fixed Operations:
Revenue	Revenue											Revenue
Customer pay	Customer pay	$	186.6		$	155.8		$	30.8	20	%	Customer pay	$	200.8		$	176.4		$	24.4	14	%
Warranty	Warranty	60.0			52.6			7.4		14	%	Warranty	58.6			52.7			5.9		11	%
Wholesale parts	Wholesale parts	49.7			41.7			8.0		19	%	Wholesale parts	54.3			49.7			4.6		9	%
Internal, sublet and other	Internal, sublet and other	108.4			89.8			18.6		21	%	Internal, sublet and other	110.1			101.7			8.4		8	%
Total revenue	Total revenue	$	404.7		$	339.9		$	64.8	19	%	Total revenue	$	423.8		$	380.5		$	43.3	11	%

Gross profit	Gross profit											Gross profit
Customer pay	Customer pay	$	105.5		$	89.0		$	16.5	19	%	Customer pay	$	111.6		$	97.8		$	13.8	14	%
Warranty	Warranty	34.0			30.6			3.4		11	%	Warranty	34.4			31.4			3.0		10	%
Wholesale parts	Wholesale parts	9.0			7.5			1.5		20	%	Wholesale parts	9.7			8.9			0.8		9	%
Internal, sublet and other	Internal, sublet and other	52.5			44.0			8.5		19	%	Internal, sublet and other	53.9			48.5			5.4		11	%
Total gross profit	Total gross profit	$	201.0		$	171.1		$	29.9	17	%	Total gross profit	$	209.6		$	186.6		$	23.0	12	%

Gross profit as a % of revenue	Gross profit as a % of revenue											Gross profit as a % of revenue
Customer pay	Customer pay	56.6		%	57.1		%	(50)		bps		Customer pay	55.6		%	55.4		%	20		bps
Warranty	Warranty	56.6		%	58.2		%	(160)		bps		Warranty	58.7		%	59.5		%	(80)		bps
Wholesale parts	Wholesale parts	18.2		%	18.1		%	10		bps		Wholesale parts	17.8		%	17.8		%	—		bps
Internal, sublet and other	Internal, sublet and other	48.4		%	48.8		%	(40)		bps		Internal, sublet and other	49.0		%	47.7		%	130		bps
Total gross profit as a % of revenue	Total gross profit as a % of revenue	49.7		%	50.3		%	(60)		bps		Total gross profit as a % of revenue	49.5		%	49.0		%	50		bps

Nine Months Ended September 30, Better / (Worse)
2022 2021 Change % Change
(In millions)
Reported Fixed Operations:
Revenue
Customer pay $ 549.2 $ 440.7 $ 108.5 25 %
Warranty 167.1 163.8 3.3 2 %
Wholesale parts 149.3 115.9 33.4 29 %
Internal, sublet and other 317.8 273.7 44.1 16 %
Total revenue $ 1,183.4 $ 994.1 $ 189.3 19 %
Gross profit
Customer pay $ 306.5 $ 252.2 $ 54.3 22 %
Warranty 97.7 95.4 2.3 2 %
Wholesale parts 26.8 20.5 6.3 31 %
Internal, sublet and other 154.7 133.8 20.9 16 %
Total gross profit $ 585.7 $ 501.9 $ 83.8 17 %
Gross profit as a % of revenue
Customer pay 55.8 % 57.2 % (140) bps
Warranty 58.5 % 58.3 % 20 bps
Wholesale parts 18.0 % 17.7 % 30 bps
Internal, sublet and other 48.7 % 48.8 % (10) bps
Total gross profit as a % of revenue 49.5 % 50.5 % (100) bps

4031

SONIC AUTOMOTIVE, INC.

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

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


		Three Months Ended September 30,						Better / (Worse)					Three Months Ended March 31,						Better / (Worse)
		2022			2021			Change		% Change			2023			2022			Change		% Change
		(In millions)											(In millions)
Same store Fixed Operations:	Same store Fixed Operations:											Same store Fixed Operations:
Revenue	Revenue											Revenue
Customer pay	Customer pay	$	177.1		$	155.1		$	22.0	14	%	Customer pay	$	199.9		$	176.4		$	23.5	13	%
Warranty	Warranty	55.8			52.5			3.3		6	%	Warranty	58.2			52.7			5.5		10	%
Wholesale parts	Wholesale parts	47.2			41.5			5.7		14	%	Wholesale parts	54.0			49.7			4.3		9	%
Internal, sublet and other	Internal, sublet and other	93.5			89.6			3.9		4	%	Internal, sublet and other	109.9			101.7			8.2		8	%
Total revenue	Total revenue	$	373.6		$	338.7		$	34.9	10	%	Total revenue	$	422.0		$	380.5		$	41.5	11	%

Gross profit	Gross profit											Gross profit
Customer pay	Customer pay	$	99.3		$	88.6		$	10.7	12	%	Customer pay	$	111.1		$	97.8		$	13.3	14	%
Warranty	Warranty	32.7			30.6			2.1		7	%	Warranty	34.1			31.4			2.7		9	%
Wholesale parts	Wholesale parts	8.6			7.5			1.1		15	%	Wholesale parts	9.6			8.9			0.7		8	%
Internal, sublet and other	Internal, sublet and other	45.9			43.5			2.4		6	%	Internal, sublet and other	53.4			48.2			5.2		11	%
Total gross profit	Total gross profit	$	186.5		$	170.2		$	16.3	10	%	Total gross profit	$	208.2		$	186.3		$	21.9	12	%

Gross profit as a % of revenue	Gross profit as a % of revenue											Gross profit as a % of revenue
Customer pay	Customer pay	56.1		%	57.1		%	(100)		bps		Customer pay	55.6		%	55.4		%	20		bps
Warranty	Warranty	58.5		%	58.3		%	20		bps		Warranty	58.6		%	59.5		%	(90)		bps
Wholesale parts	Wholesale parts	18.3		%	18.1		%	20		bps		Wholesale parts	17.8		%	17.8		%	—		bps
Internal, sublet and other	Internal, sublet and other	49.1		%	48.5		%	60		bps		Internal, sublet and other	48.6		%	47.4		%	120		bps
Total gross profit as a % of revenue	Total gross profit as a % of revenue	49.9		%	50.3		%	(40)		bps		Total gross profit as a % of revenue	49.3		%	49.0		%	30		bps

Nine Months Ended September 30, Better / (Worse)
2022 2021 Change % Change
(In millions)
Same store Fixed Operations:
Revenue
Customer pay $ 509.9 $ 438.9 $ 71.0 16 %
Warranty 157.9 163.4 (5.5) (3) %
Wholesale parts 139.8 115.5 24.3 21 %
Internal, sublet and other 272.9 272.7 0.2 — %
Total revenue $ 1,080.5 $ 990.5 $ 90.0 9 %
Gross profit
Customer pay $ 286.6 $ 251.2 $ 35.4 14 %
Warranty 92.7 95.1 (2.4) (3) %
Wholesale parts 25.3 20.4 4.9 24 %
Internal, sublet and other 132.9 132.1 0.8 1 %
Total gross profit $ 537.5 $ 498.8 $ 38.7 8 %
Gross profit as a % of revenue
Customer pay 56.2 % 57.2 % (100) bps
Warranty 58.7 % 58.2 % 50 bps
Wholesale parts 18.1 % 17.7 % 40 bps
Internal, sublet and other 48.7 % 48.4 % 30 bps
Total gross profit as a % of revenue 49.7 % 50.4 % (70) 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 ~~September 30, 2022~~March 31, 2023 Compared to Three Months Ended ~~September 30, 2021~~March 31, 2022

Fixed Operations revenue increased approximately ~~$34.9~~$41.5 million, or ~~10%~~11%, and Fixed Operations gross profit increased approximately ~~$16.3~~$21.9 million, or ~~10%~~12%. Customer pay gross profit increased approximately ~~$10.7~~$13.3 million, or ~~12%~~14%, warranty gross profit increased approximately ~~$2.1~~$2.7 million, or 7%9%, wholesale parts gross profit increased approximately ~~$1.1~~$0.7 million, or ~~15%~~8%, and internal, sublet and other gross profit increased approximately ~~$2.4~~$5.2 million, or 6%11%. 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.~~levels.

~~Same Store Franchised Dealerships Segment Fixed Operations~~
– ~~Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021~~

Fixed Operations revenue increased approximately $90.0 million, or 9%, and Fixed Operations gross profit increased approximately $38.7 million, or 8%. Customer pay gross profit increased approximately $35.4 million, or 14%, warranty gross profit decreased approximately $2.4 million, or 3%, wholesale parts gross profit increased approximately $4.9 million, or 24%, and internal, sublet and other gross profit increased approximately $0.8 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.

~~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 September 30, Better / (Worse)
2022 2021 Change % Change
(In millions, except unit and per unit data)
Total F&I revenue:
Same store $ 105.6 $ 111.2 $ (5.6) (5) %
Acquisitions, open points, dispositions and holding company 20.2 0.6 19.6 NM
Total as reported $ 125.8 $ 111.8 $ 14.0 13 %
Total F&I gross profit per retail unit (excludes fleet):
Same store $ 2,406 $ 2,300 $ 106 5 %
Reported $ 2,473 $ 2,303 $ 170 7 %
Total combined retail new and used vehicle unit sales:
Same store 43,872 48,372 (4,500) (9) %
Acquisitions, open points, dispositions and holding company 7,016 182 6,834 NM
Total as reported 50,888 48,554 2,334 5 %

~~NM = Not Meaningful~~

4232

SONIC AUTOMOTIVE, INC.

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

Nine Months Ended September 30, Better / (Worse)
2022 2021 Change % Change
(In millions, except unit and per unit data)
Total F&I revenue:
Same store $ 314.6 $ 332.2 $ (17.6) (5) %
Acquisitions, open points, dispositions and holding company 67.5 1.3 66.2 NM
Total as reported $ 382.1 $ 333.5 $ 48.6 15 %
Total F&I gross profit per retail unit (excludes fleet):
Same store $ 2,410 $ 2,106 $ 304 14 %
Reported $ 2,464 $ 2,105 $ 359 17 %
Total combined retail new and used vehicle unit sales:
Same store 130,562 157,786 (27,224) (17) %
Acquisitions, open points, dispositions and holding company 24,504 614 23,890 NM
Total as reported 155,066 158,400 (3,334) (2) %
F&I – Franchised Dealerships Segment

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


	Three Months Ended March 31,				Better / (Worse)
	2023		2022		Change		% Change
	(In millions, except unit and per unit data)
Total F&I revenue:
Same store	$	114.7	$	119.7	$	(5.0)	(4)	%
Acquisitions, open points, dispositions and holding company	2.4		6.8		(4.4)		NM
Total as reported	$	117.1	$	126.5	$	(9.4)	(7)	%

Total F&I gross profit per retail unit (excludes fleet):
Same store	$	2,318	$	2,316	$	2	—	%
Reported	$	2,360	$	2,448	$	(88)	(4)	%

Total combined retail new and used vehicle unit sales:
Same store	49,488		51,680		(2,192)		(4)	%
Acquisitions, open points, dispositions and holding company	158		—		158		NM
Total as reported	49,646		51,680		(2,034)		(4)	%

NM = Not Meaningful

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

Three Months Ended September 30, Better / (Worse)
2022 2021 Change % Change
(In millions, except unit and per unit data)
Reported F&I:
Revenue $ 125.8 $ 111.8 $ 14.0 13 %
Total combined retail new and used vehicle unit sales 50,888 48,554 2,334 5 %
Gross profit per retail unit (excludes fleet) $ 2,473 $ 2,303 $ 170 7 %


		Nine Months Ended September 30,				Better / (Worse)					Three Months Ended March 31,				Better / (Worse)
		2022		2021		Change		% Change			2023		2022		Change		% Change
		(In millions, 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	$	382.1	$	333.5	$	48.6	15	%	Revenue	$	117.1	$	126.5	$	(9.4)	(7)	%
Total combined retail new and used vehicle unit sales	Total combined retail new and used vehicle unit sales	155,066		158,400		(3,334)		(2)	%	Total combined retail new and used vehicle unit sales	49,646		51,680		(2,034)		(4)	%
Gross profit per retail unit (excludes fleet)	Gross profit per retail unit (excludes fleet)	$	2,464	$	2,105	$	359	17	%	Gross profit per retail unit (excludes fleet)	$	2,360	$	2,448	$	(88)	(4)	%

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


		Three Months Ended September 30,				Better / (Worse)					Three Months Ended March 31,				Better / (Worse)
		2022		2021		Change		% Change			2023		2022		Change		% Change
		(In millions, except unit and per unit data)									(In millions, except unit and per unit data)
Same store F&I:	Same store F&I:									Same store F&I:
Revenue	Revenue	$	105.6	$	111.2	$	(5.6)	(5)	%	Revenue	$	114.7	$	119.7	$	(5.0)	(4)	%
Total combined retail new and used vehicle unit sales	Total combined retail new and used vehicle unit sales	43,872		48,372		(4,500)		(9)	%	Total combined retail new and used vehicle unit sales	49,488		51,680		(2,192)		(4)	%
Gross profit per retail unit (excludes fleet)	Gross profit per retail unit (excludes fleet)	$	2,406	$	2,300	$	106	5	%	Gross profit per retail unit (excludes fleet)	$	2,318	$	2,316	$	2	0	%

Same Store Franchised Dealerships Segment F&I – Three Months Ended March 31, 2023 Compared to Three Months Ended March 31, 2022

F&I revenue decreased approximately $5.0 million, or 4%, due primarily to a 4% decrease in total combined retail new and used vehicle unit sales volume. F&I gross profit per retail unit increased $2 per unit, to $2,318 per unit, due primarily to an increase in service contract penetration rate, offset by a decrease in the finance and aftermarket contract penetration rates.

Finance contract revenue for new and used vehicles decreased 14%, due primarily to lower retail unit sales volume, a 510-basis point decrease in the finance contract penetration rate and a 4% decrease in gross profit per finance contract. We believe the decrease in the finance contract penetration rate is a result of higher average interest rates driving a small percentage

4333

SONIC AUTOMOTIVE, INC.

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

Nine Months Ended September 30, Better / (Worse)
2022 2021 Change % Change
(In millions, except unit and per unit data)
Same store F&I:
Revenue $ 314.6 $ 332.2 $ (17.6) (5) %
Total combined retail new and used vehicle unit sales 130,562 157,786 (27,224) (17) %
Gross profit per retail unit (excludes fleet) $ 2,410 $ 2,106 $ 304 14 %

~~Same Store Franchised Dealerships Segment F&I~~ – ~~Three Months Ended September 30, 2022 Compared~~of customers to ~~Three Months Ended September 30, 2021~~

~~F&I revenue decreased approximately $5.6 million, or 5%, due primarily~~switch to a 9% decrease in total combined retail new and used vehicle unit sales volume, offset partially by an increase in F&I gross profit per retail unit. F&I gross profit per retail unit increased $106 per unit,cash purchase or ~~5%,~~ to ~~$2,406 per unit, due primarily to an increase in gross profit per finance contract as well as an increase in service contract and other aftermarket contract penetration rates.~~

Finance contract revenue for new and used vehicles decreased 7%, due primarily to a 16% decrease in finance contract volume as well as a 600-basis point decrease in the finance contract penetration rate, offset partially by a 11% increase in gross profit per finance contract.obtain their own outside financing. Service contract revenue for new and used vehicles decreased 5%13%, due primarily to a 7%15% decrease ~~in service contract volume, offset partially by a 2% increase~~ in gross profit per service contract ~~as well as~~partially offset by a ~~120-basis~~250-basis point increase in the service contract penetration ~~rate.~~rate and an increase in service contract unit sales volume. Other aftermarket contract revenue for new and used vehicles increased ~~11%~~10%, due primarily to ~~a 11%~~an 20% increase in gross profit per other aftermarket contract, ~~as well as a 1,680-basis point increase in the other aftermarket contract penetration rate.~~

~~Same Store Franchised Dealerships Segment F&I~~ – ~~Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021~~

~~F&I revenue decreased approximately $17.6 million, or 5%, due primarily to a 17% decrease in total combined retail new and used vehicle unit sales volume,~~partially offset partially by an increase in F&I gross profit per retail unit. F&I gross profit per retail unit increased $304 per unit, or 14%, to $2,410 per unit, due primarily to an increase in gross profit per contract (finance, service, and other aftermarket) as well as 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 22% decrease in finance contract volume as well as a 390-basis point decrease in the finance contract penetration rate, offset partially by a ~~18% increase in gross profit per finance contract. Service contract revenue for new and used vehicles decreased 5%, due primarily to a 8%~~780-basis point decrease in service contract volume, offset partially by a 4% increase in gross profit per service contract as well as a 430-basis point increase in the service contract penetration rate. Other aftermarket contract revenue for new and used vehicles increased 6%, due primarily to an 11% increase in gross profit per other aftermarket contract as well as a 2,230-basis point increase in the other aftermarket contract penetration rate ~~offset partially by an 5% decrease in other aftermarket contract~~and lower retail unit sales 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.

In the used vehicle market, raw material cost increases generally do not directly determine used vehicle pricing at retail, instead, used vehicle retail prices typically result, indirectly, from new vehicle prices. Since the onset of the COVID-19 pandemic, the used vehicle market has experienced new vehicle costs and average transaction prices higher than their historical average and trends, resulting in an average used vehicle transaction price in the third quarter of 2022 11% higher than the third quarter of 2021and 43% higher than the third quarter of 2019 based on Sonic’s franchised store data. Most used vehicle retailers cannot easily expand used vehicle gross profit-per-unit (“GPU”) in light of the fragmented and highly competitive market in which they operate, including wholesale auctions, franchised dealerships, independent dealerships and private party/peer-to-peer sellers. As a result, most operators in the used vehicle retail industry depend upon managing inventory turnover to maintain desired GPU and profit margins.

~~SONIC AUTOMOTIVE, INC.~~

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

For much of 2021, elevated demand in the wholesale auction markets from dealers and rental car companies resulted in the retail price of used vehicles falling below the wholesale price obtainable at auction. This put pressure on GPUs for auction-sourced inventory and related overall profit levels for affected used car retailers.

~~During the third quarter of 2022, the effects of certain participants (such as many rental car agencies) exiting the used auctions which lowered acquisition costs.~~

Throughout 2022, and particularly during the third quarter of 2022, both wholesale and retail used vehicle prices have been declining, while remaining above historical levels. Further, the gap between retail and auction prices has returned to a spread more consistent with its historical averages, allowing used vehicle retailers to improve GPU on auction-sourced inventory as compared to 2021. We expect this trend to continue through the end of 2022 and into 2023, benefiting used GPUs including EchoPark.

Used Vehicles and F&I – EchoPark Segment

~~Based on the way we manage the~~Our 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) per unit and F&I gross profit per retail unit sold. See the discussion under the heading “Results of Operations – ~~Franchised Dealerships Segment”~~- Consolidated” for additional discussion of the macro drivers of used vehicle revenues and F&I revenues.

~~As all~~All Fixed Operations activity at our EchoPark stores ~~support~~supports our used vehicle inventory reconditioning operations and EchoPark stores do not currently perform customer pay repairs or maintenance work and are not permitted to perform manufacturer-paid warranty ~~repairs,~~repairs. As such, reconditioning amounts ~~previously~~that are classified as Fixed Operations revenues and cost of sales ~~for the EchoPark~~in our Franchised Dealerships Segment ~~have been reclassified to~~are presented as used vehicle cost of ~~sales.~~sales for the EchoPark Segment.

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


		Three Months Ended September 30,				Better / (Worse)					Three Months Ended March 31,				Better / (Worse)
		2022		2021		Change		% Change			2023		2022		Change		% Change
		(In millions, except unit data)									(In millions, except unit data)
Total retail used vehicle revenue:	Total retail used vehicle revenue:									Total retail used vehicle revenue:
Same market	Same market	$	367.8	$	569.7	$	(201.9)	(35)	%	Same market	$	505.7	$	488.7	$	17.0	3	%
New markets	New markets	147.8		4.8		143.0		NM		New markets	66.8		26.7		40.1		NM
Total as reported	Total as reported	$	515.6	$	574.5	$	(58.9)	(10)	%	Total as reported	$	572.5	$	515.4	$	57.1	11	%

Total retail used vehicle gross profit (loss):	Total retail used vehicle gross profit (loss):									Total retail used vehicle gross profit (loss):
Same market	Same market	$	0.1	$	(29.7)	$	29.8	100	%	Same market	$	(10.1)	$	1.5	$	(11.6)	(773)	%
New markets	New markets	5.9		(0.2)		6.1		NM		New markets	(1.7)		(0.8)		(0.9)		NM
Total as reported	Total as reported	$	6.0	$	(29.9)	$	35.9	120	%	Total as reported	$	(11.8)	$	0.7	$	(12.5)	NM

Total retail used vehicle unit sales:	Total retail used vehicle unit sales:									Total retail used vehicle unit sales:
Same market	Same market	11,809		21,078		(9,269)		(44)	%	Same market	17,789		14,042		3,747		27	%
New markets	New markets	3,613		177		3,436		NM		New markets	2,191		889		1,302		NM
Total as reported	Total as reported	15,422		21,255		(5,833)		(27)	%	Total as reported	19,980		14,931		5,049		34	%
NM = Not Meaningful

NM = Not Meaningful

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

4534

SONIC AUTOMOTIVE, INC.

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

Nine Months Ended September 30, Better / (Worse)
2022 2021 Change % Change
(In millions, except unit data)
Total retail used vehicle revenue:
Same market $ 1,176.8 $ 1,529.7 $ (352.9) (23) %
New markets 433.4 5.9 427.5 NM
Total as reported $ 1,610.2 $ 1,535.6 $ 74.6 5 %
Total retail used vehicle gross profit (loss):
Same market $ (11.3) $ (51.2) $ 39.9 78 %
New markets 22.0 (0.2) 22.2 NM
Total as reported $ 10.7 $ (51.4) $ 62.1 121 %
Total retail used vehicle unit sales:
Same market 36,960 61,970 (25,010) (40) %
New markets 10,065 216 9,849 NM
Total as reported 47,025 62,186 (15,161) (24) %
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)
2022 2021 Change % Change
(In millions)
Total F&I revenue:
Same market $ 27.9 $ 52.0 $ (24.1) (46) %
New markets 11.9 0.3 11.6 NM
Total as reported $ 39.8 $ 52.3 $ (12.5) (24) %
NM = Not Meaningful
Nine Months Ended September 30, Better / (Worse)
2022 2021 Change % Change
(In millions)
Total F&I revenue:
Same market $ 90.2 $ 152.0 $ (61.8) (41) %
New markets 33.0 0.6 32.4 NM
Total as reported $ 123.2 $ 152.6 $ (29.4) (19) %
NM = Not Meaningful

~~SONIC AUTOMOTIVE, INC.~~

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


	Three Months Ended March 31,				Better / (Worse)
	2023		2022		Change		% Change
	(In millions)
Total F&I revenue:
Same market	$	44.7	$	37.9	$	6.8	18	%
New markets	5.3		2.0		3.3		NM
Total as reported	$	50.0	$	39.9	$	10.1	25	%
NM = Not Meaningful

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


		Three Months Ended September 30,				Better / (Worse)					Three Months Ended March 31,				Better / (Worse)
		2022		2021		Change		% Change			2023		2022		Change		% Change
		(In millions, except unit and per unit data)									(In millions, except unit and per unit data)
Reported retail used vehicle and F&I:	Reported retail used vehicle and F&I:									Reported retail used vehicle and F&I:
Retail used vehicle revenue	Retail used vehicle revenue	$	515.6	$	574.5	$	(58.9)	(10)	%	Retail used vehicle revenue	$	572.5	$	515.4	$	57.1	11	%
Retail used vehicle gross profit (loss)	Retail used vehicle gross profit (loss)	$	6.0	$	(29.9)	$	35.9	120	%	Retail used vehicle gross profit (loss)	$	(11.8)	$	0.7	$	(12.5)	NM
Retail used vehicle unit sales	Retail used vehicle unit sales	15,422		21,255		(5,833)		(27)	%	Retail used vehicle unit sales	19,980		14,931		5,049		34	%
Retail used vehicle revenue per unit	Retail used vehicle revenue per unit	$	33,433	$	27,029	$	6,404	24	%	Retail used vehicle revenue per unit	$	28,653	$	34,512	$	(5,859)	(17)	%
F&I revenue	F&I revenue	$	39.8	$	52.3	$	(12.5)	(24)	%	F&I revenue	$	50.0	$	39.9	$	10.1	25	%
Combined retail used vehicle gross profit and F&I revenue	Combined retail used vehicle gross profit and F&I revenue	$	45.8	$	22.4	$	23.4	104	%	Combined retail used vehicle gross profit and F&I revenue	$	38.2	$	40.6	$	(2.4)	(6)	%
Combined retail used vehicle and F&I gross profit per unit	Combined retail used vehicle and F&I gross profit per unit	$	2,880	$	1,023	$	1,857	182	%	Combined retail used vehicle and F&I gross profit per unit	$	1,906	$	2,663	$	(757)	(28)	%

NM = Not Meaningful

Nine Months Ended September 30, Better / (Worse)
2022 2021 Change % Change
(In millions, except unit and per unit data)
Reported retail used vehicle and F&I:
Retail used vehicle revenue $ 1,610.2 $ 1,535.6 $ 74.6 5 %
Retail used vehicle gross profit (loss) $ 10.7 $ (51.4) $ 62.1 121 %
Retail used vehicle unit sales 47,025 62,186 (15,161) (24) %
Retail used vehicle revenue per unit $ 34,241 $ 24,694 $ 9,547 39 %
F&I revenue $ 123.2 $ 152.6 $ (29.4) (19) %
Combined retail used vehicle gross profit and F&I revenue $ 133.9 $ 101.2 $ 32.7 32 %
Combined retail used vehicle and F&I gross profit per unit $ 2,808 $ 1,618 $ 1,190 74 %

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


		Three Months Ended September 30,				Better / (Worse)					Three Months Ended March 31,				Better / (Worse)
		2022		2021		Change		% Change			2023		2022		Change		% Change
		(In millions, except unit and per unit data)									(In millions, except unit and per unit data)
Same market retail used vehicle and F&I:	Same market retail used vehicle and F&I:									Same market retail used vehicle and F&I:
Retail used vehicle revenue	Retail used vehicle revenue	$	367.8	$	569.7	$	(201.9)	(35)	%	Retail used vehicle revenue	$	505.7	$	488.7	$	17.0	3	%
Retail used vehicle gross profit (loss)	Retail used vehicle gross profit (loss)	$	0.1	$	(29.7)	$	29.8	100	%	Retail used vehicle gross profit (loss)	$	(10.1)	$	1.5	$	(11.6)	(773)	%
Retail used vehicle unit sales	Retail used vehicle unit sales	11,809		21,078		(9,269)		(44)	%	Retail used vehicle unit sales	17,789		14,042		3,747		27	%
Retail used vehicle revenue per unit	Retail used vehicle revenue per unit	$	31,146	$	27,028	$	4,118	15	%	Retail used vehicle revenue per unit	$	28,425	$	34,804	$	(6,379)	(18)	%
F&I revenue	F&I revenue	$	27.9	$	52.0	$	(24.1)	(46)	%	F&I revenue	$	44.7	$	37.9	$	6.8	18	%
Combined retail used vehicle gross profit and F&I revenue	Combined retail used vehicle gross profit and F&I revenue	$	28.0	$	22.3	$	5.7	26	%	Combined retail used vehicle gross profit and F&I revenue	$	34.6	$	39.4	$	(4.8)	(12)	%
Combined retail used vehicle and F&I gross profit per unit	Combined retail used vehicle and F&I gross profit per unit	$	2,361	$	1,028	$	1,333	130	%	Combined retail used vehicle and F&I gross profit per unit	$	1,940	$	2,802	$	(862)	(31)	%

~~SONIC AUTOMOTIVE, INC.~~

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

Nine Months Ended September 30, Better / (Worse)
2022 2021 Change % Change
(In millions, except unit and per unit data)
Same market retail used vehicle and F&I:
Retail used vehicle revenue $ 1,176.8 $ 1,529.7 $ (352.9) (23) %
Retail used vehicle gross profit (loss) $ (11.3) $ (51.2) $ 39.9 78 %
Retail used vehicle unit sales 36,960 61,970 (25,010) (40) %
Retail used vehicle revenue per unit $ 31,840 $ 24,685 $ 7,155 29 %
F&I revenue $ 90.2 $ 152.0 $ (61.8) (41) %
Combined retail used vehicle gross profit and F&I revenue $ 78.9 $ 100.8 $ (21.9) (22) %
Combined retail used vehicle and F&I gross profit per unit $ 2,125 $ 1,615 $ 510 32 %

Same Market EchoPark Segment Retail Used Vehicles and F&I – Three Months Ended ~~September 30, 2022~~March 31, 2023 Compared to Three Months Ended ~~September 30, 2021~~March 31, 2022

Retail used vehicle revenue ~~decreased~~increased approximately ~~$201.9~~$17.0 million, or ~~35%~~3%, due primarily to a ~~44% decrease~~27% increase in retail used vehicle unit sales volume, offset partially by a 15% increase in retail used vehicle revenue per unit. Combined retail used vehicle gross profit and F&I revenue increased approximately $5.7 million, or 26%, due primarily to a $1,333, or 130%, increase in combined retail used vehicle and F&I gross profit per unit. The increase in combined retail used vehicle and F&I gross profit per unit was due primarily to a favorable comparison to the prior year period due to the high costs of inventory at wholesale auction during the third quarter of 2021 and s~~trategic actions taken to diversify our inventory sourcing mix and reduce used vehicle inventory acquisition costs beginning in the second quarter of 2022.~~

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

~~Retail used vehicle revenue decreased approximately $352.9 million, or 23%, due primarily to a 40%~~an 18% decrease ~~in retail used vehicle unit sales volume, offset partially by a 29% increase~~ in retail used vehicle revenue per unit. Combined retail used vehicle gross profit and F&I revenue decreased approximately ~~$21.9~~$4.8 million, or ~~22%~~12%, due primarily to ~~a $61.8 million~~an $862, or 31%, decrease in ~~F&I revenue, offset partially by a $39.9 million decrease in~~combined retail used vehicle and F&I gross ~~loss.~~profit per unit. The ~~increase~~decrease in combined retail used vehicle and F&I gross profit per unit was due primarily to higher inventory acquisition costs in the three months ended March 31, 2023 as a result of rising used vehicle ~~pricing reaching an all-time high during the first half of 2022, and remaining~~prices at ~~elevated levels during the third quarter of 2022.~~wholesale auction.

4835

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”~~Consolidated” for additional discussion of the macro drivers of wholesale vehicle revenues.

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


		Three Months Ended September 30,				Better / (Worse)					Three Months Ended March 31,				Better / (Worse)
		2022		2021		Change		% Change			2023		2022		Change		% Change
		(In millions, except unit data)									(In millions, except unit data)
Total wholesale vehicle revenue:	Total wholesale vehicle revenue:									Total wholesale vehicle revenue:
Same market	Same market	$	29.6	$	33.0	$	(3.4)	(10)	%	Same market	$	23.8	$	62.5	$	(38.7)	(62)	%
New markets	New markets	9.3		—		9.3		100	%	New markets	3.2		(0.1)		3.3		NM
Total as reported	Total as reported	$	38.9	$	33.0	$	5.9	18	%	Total as reported	$	27.0	$	62.4	$	(35.4)	(57)	%

Total wholesale vehicle gross profit (loss):	Total wholesale vehicle gross profit (loss):									Total wholesale vehicle gross profit (loss):
Same market	Same market	$	0.1	$	3.3	$	(3.2)	(97)	%	Same market	$	1.1	$	2.0	$	(0.9)	(45)	%
New markets	New markets	(0.1)		(0.1)		—		—	%	New markets	—		(0.1)		0.1		NM
Total as reported	Total as reported	$	—	$	3.2	$	(3.2)	(100)	%	Total as reported	$	1.1	$	1.9	$	(0.8)	(42)	%

Total wholesale vehicle unit sales:	Total wholesale vehicle unit sales:									Total wholesale vehicle unit sales:
Same market	Same market	1,925		3,492		(1,567)		(45)	%	Same market	2,571		3,649		(1,078)		(30)	%
New markets	New markets	525		—		525		100	%	New markets	345		—		345		NM
Total as reported	Total as reported	2,450		3,492		(1,042)		(30)	%	Total as reported	2,916		3,649		(733)		(20)	%

Nine Months Ended September 30, Better / (Worse)
2022 2021 Change % Change
(In millions, except unit data)
Total wholesale vehicle revenue:
Same market $ 121.1 $ 73.5 $ 47.6 65 %
New markets 22.5 — 22.5 100 %
Total as reported $ 143.6 $ 73.5 $ 70.1 95 %
Total wholesale vehicle gross profit (loss):
Same market $ 3.6 $ 6.5 $ (2.9) (45) %
New markets — (0.1) 0.1 100 %
Total as reported $ 3.6 $ 6.4 $ (2.8) (44) %
Total wholesale vehicle unit sales:
Same market 7,452 9,231 (1,779) (19) %
New markets 1,341 — 1,341 100 %
Total as reported 8,793 9,231 (438) (5) %
NM = Not Meaningful

Our EchoPark Segment reported wholesale vehicle results were as follows:


	Three Months Ended March 31,						Better / (Worse)
	2023			2022			Change		% Change
	(In millions, except unit and per unit data)
Reported wholesale vehicle:
Revenue	$	27.0		$	62.4		$	(35.4)	(57)	%
Gross profit (loss)	$	1.1		$	1.9		$	(0.8)	(42)	%
Unit sales	2,916			3,649			(733)		(20)	%
Revenue per unit	$	9,279		$	17,107		$	(7,828)	(46)	%
Gross profit (loss) per unit	$	427		$	531		$	(104)	NM
Gross profit (loss) as a % of revenue	4.6		%	3.1		%	150		bps

NM = Not Meaningful

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


	Three Months Ended March 31,						Better / (Worse)
	2023			2022			Change		% Change
	(In millions, except unit and per unit data)
Same market wholesale vehicle:
Revenue	$	23.8		$	62.5		$	(38.7)	(62)	%
Gross profit (loss)	$	1.1		$	2.0		$	(0.9)	(45)	%
Unit sales	2,571			3,649			(1,078)		(30)	%
Revenue per unit	$	9,287		$	17,107		$	(7,820)	(46)	%
Gross profit (loss) per unit	$	443		$	531		$	(88)	(17)	%
Gross profit (loss) as a % of revenue	4.8		%	3.1		%	170		bps

4936

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)
2022 2021 Change % Change
(In millions, except unit and per unit data)
Reported wholesale vehicle:
Revenue $ 38.9 $ 33.0 $ 5.9 18 %
Gross profit (loss) $ — $ 3.2 $ (3.2) (100) %
Unit sales 2,450 3,492 (1,042) (30) %
Revenue per unit $ 15,882 $ 9,460 $ 6,422 68 %
Gross profit (loss) per unit $ (44) $ 928 $ (972) NM
Gross profit (loss) as a % of revenue — % 9.8 % (980) bps
NM = Not Meaningful

Nine Months Ended September 30, Better / (Worse)
2022 2021 Change % Change
(In millions, except unit and per unit data)
Reported wholesale vehicle:
Revenue $ 143.6 $ 73.5 $ 70.1 95 %
Gross profit (loss) $ 3.6 $ 6.4 $ (2.8) (44) %
Unit sales 8,793 9,231 (438) (5) %
Revenue per unit $ 16,329 $ 7,961 $ 8,368 105 %
Gross profit (loss) per unit $ 394 $ 698 $ (304) (44) %
Gross profit (loss) as a % of revenue 2.5 % 8.8 % (630) bps

~~Our EchoPark Segment same market wholesale vehicle results were as follows:~~
Three Months Ended September 30, Better / (Worse)
2022 2021 Change % Change
(In millions, except unit and per unit data)
Same market wholesale vehicle:
Revenue $ 29.6 $ 33.0 $ (3.4) (10) %
Gross profit (loss) $ 0.1 $ 3.3 $ (3.2) (97) %
Unit sales 1,925 3,492 (1,567) (45) %
Revenue per unit $ 15,396 $ 9,460 $ 5,936 63 %
Gross profit (loss) per unit $ 76 $ 928 $ (852) (92) %
Gross profit (loss) as a % of revenue 0.5 % 9.8 % (930) bps

Nine Months Ended September 30, Better / (Worse)
2022 2021 Change % Change
(In millions, except unit and per unit data)
Same market wholesale vehicle:
Revenue $ 121.1 $ 73.5 $ 47.6 65 %
Gross profit (loss) $ 3.6 $ 6.5 $ (2.9) (45) %
Unit sales 7,452 9,231 (1,779) (19) %
Revenue per unit $ 16,236 $ 7,961 $ 8,275 104 %
Gross profit (loss) per unit $ 487 $ 698 $ (211) (30) %
Gross profit (loss) as a % of revenue 3.0 % 8.8 % (580) bps

~~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 30, 2022~~March 31, 2023 Compared to Three Months Ended ~~September 30, 2021~~March 31, 2022

Same market wholesale vehicle revenue decreased approximately ~~$3.4~~$38.7 million, or ~~10%~~62%, due primarily to a ~~45%~~30% decrease in wholesale vehicle unit sales volume resulting from the stabilization of excess demand in the wholesale vehicle auction market which drove record high wholesale vehicle pricing through the third quarter of 2022. Historically, given EchoPark’s retail inventory mix focused on 1-4-year old vehicles, the majority of vehicles acquired from 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.volume. As we ~~add~~have added older model year vehicles to ~~EchoPark’s inventory going forward, the levels of~~our retail sales strategy, fewer units are sold at wholesale ~~vehicle revenue and gross profit may vary.~~

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

Same market wholesale vehicle revenue increased approximately $47.6 million, or 65%, due primarily to a 104% increase in revenue per wholesale unit, offset partially by a 19% decrease in wholesale vehicle unit sales volume resulting from the stabilization of excess demand in the wholesale vehicle auction market which drove record high wholesale vehicle pricingas we are now pushing these units through the ~~first three quarters of 2022. Historically, given EchoPark’s~~ retail channel to maximize our profit opportunity. As we adjust the inventory mix ~~focused on 1-4-year old vehicles, the majority~~ of vehicles acquired from 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. As we addnearly-new versus older model year vehicles ~~to EchoPark’s inventory~~sold at retail going forward, the levels of wholesale vehicle revenue and gross profit may vary.

Results of Operations – Powersports Segment

Our Powersports Segment consists of eight stores acquired during 2022 and five stores acquired in the first quarter of 2023. The following discussion of new vehicles, used vehicles, wholesale vehicles, parts, service and collision repair, and finance, insurance and other, net is on a reported basis, except where otherwise noted.

New Vehicles – Powersports Segment

Our Powersports Segment reported retail new vehicle results were as follows:


	Three Months Ended March 31,						Better / (Worse)
	2023			2022			Change		% Change
	(In millions, except unit and per unit data)
Reported retail new vehicle:
Revenue	$	20.8		$	1.2		$	19.6	NM
Gross profit	$	4.0		$	0.3		$	3.7	NM
Unit sales	1,107			41			1,066		NM
Revenue per unit	$	18,793		$	28,241		$	(9,448)	NM
Gross profit per unit	$	3,573		$	6,829		$	(3,256)	NM
Gross profit as a % of revenue	19.0		%	24.3		%	(530)		bps

NM = Not Meaningful

Reported retail new vehicle revenue was $20.8 million and reported retail new vehicle gross profit was $4.0 million, based on a reported retail new vehicle average selling price of $18,793 and reported retail new vehicle gross profit per unit of $3,573 per unit.

On a trailing quarter cost of sales basis, our reported Powersports Segment new vehicle inventory days’ supply was approximately 140 days (136 days excluding the effect of first quarter 2023 acquisitions, which contributed less than a full quarter of trailing cost of sales to the days' supply calculation) as of March 31, 2023. We believe that in a normal production environment, the level of new vehicle inventory days’ supply in our Powersports Segment should be in the 90- to 120-day range, depending on seasonality.

SONIC AUTOMOTIVE, INC.

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

Used Vehicles – Powersports Segment

Our Powersports Segment reported retail used vehicle results were as follows:


	Three Months Ended March 31,						Better / (Worse)
	2023			2022			Change		% Change
	(In millions, except unit and per unit data)
Reported retail used vehicle:
Revenue	$	4.8		$	1.1		$	3.7	NM
Gross profit	$	1.0		$	0.2		$	0.8	NM
Unit sales	444			64			380		NM
Revenue per unit	$	10,864		$	16,541		$	(5,677)	NM
Gross profit per unit	$	2,328		$	3,733		$	(1,405)	NM
Gross profit as a % of revenue	21.4		%	22.6		%	(120)		bps

NM = Not Meaningful

Reported retail used vehicle revenue was $4.8 million and reported retail used vehicle gross profit was $1.0 million, based on a reported retail used vehicle average selling price of $10,864 and reported retail used vehicle gross profit per unit of $2,328 per unit.

Wholesale Vehicles – Powersports Segment

Our Powersports Segment reported wholesale vehicle results were as follows:


	Three Months Ended March 31,						Better / (Worse)
	2023			2022			Change		% Change
	(In millions, except unit and per unit data)
Reported wholesale vehicle:
Revenue	$	0.2		$	—		$	0.2	NM
Gross profit (loss)	$	—		$	—		$	—	NM
Unit sales	7			—			7		NM
Revenue per unit	$	13,993		$	—		$	13,993	NM
Gross profit (loss) per unit	$	(125)		$	—		$	(125)	NM
Gross profit (loss) as a % of revenue	(0.9)		%	—		%	NM

NM = Not Meaningful

Reported wholesale vehicle revenue was $0.2 million based on reported wholesale vehicle revenue per unit of $13,993 per unit. Reported wholesale vehicle gross profit was flat, resulting in reported wholesale vehicle gross loss per unit of $125 per unit.

SONIC AUTOMOTIVE, INC.

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

Fixed Operations – Powersports Segment

Our Powersports Segment reported Fixed Operations results were as follows:


	Three Months Ended March 31,						Better / (Worse)
	2023			2022			Change		% Change
	(In millions)
Reported Fixed Operations:
Revenue
Customer pay	$	2.6		$	0.6		$	2.0	NM
Warranty	0.3			0.1			0.2		NM
Wholesale parts	0.1			—			0.1		NM
Internal, sublet and other	3.7			—			3.7		NM
Total revenue	$	6.7		$	0.7		$	6.0	NM

Gross profit
Customer pay	$	1.4		$	0.3		$	1.1	NM
Warranty	0.2			—			0.2		NM
Wholesale parts	—			—			—		NM
Internal, sublet and other	1.7			—			1.7		NM
Total gross profit	$	3.3		$	0.3		$	3.0	NM

Gross profit as a % of revenue
Customer pay	55.1		%	65.5		%	NM
Warranty	56.7		%	—		%	NM
Wholesale parts	20.5		%	—		%	NM
Internal, sublet and other	45.9		%	—		%	NM
Total gross profit as a % of revenue	48.9		%	49.1		%	NM

NM = Not Meaningful

F&I – Powersports Segment

Our Powersports Segment reported F&I results were as follows:


	Three Months Ended March 31,				Better / (Worse)
	2023		2022		Change		% Change
	(In millions, except unit and per unit data)
Reported F&I:
Revenue	$	1.5	$	0.2	$	1.3	NM
Unit sales	1,551		105		1,446		NM
Gross profit per retail unit (excludes fleet)	$	980	$	1,643	$	(663)	NM

NM = Not Meaningful

Reported F&I revenue was $1.5 million and reported F&I gross profit per retail unit was $980 per unit. The combined new and used vehicle finance contract penetration rate was 46%, the combined new and used vehicle service contract penetration rate was 28% and the total other aftermarket product contract penetration rate was 49%.

SONIC AUTOMOTIVE, INC.

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

Segment Results Summary

In the following ~~tables~~table of financial data, total segment income (loss) of the reportable segments is reconciled to consolidated income ~~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)
2022 2021 Change % Change
(In millions, except unit data)
Revenues:
Franchised Dealerships Segment revenues:
Retail new vehicles $ 1,359.6 $ 1,124.5 $ 235.1 21 %
Fleet new vehicles 32.0 18.9 13.1 NM
Total new vehicles $ 1,391.6 $ 1,143.4 $ 248.2 22 %
Used vehicles 842.4 750.3 92.1 12 %
Wholesale vehicles 75.8 64.1 11.7 18 %
Parts, service and collision repair 404.7 339.9 64.8 19 %
Finance, insurance and other, net 125.8 111.8 14.0 13 %
Franchised Dealerships Segment revenues $ 2,840.3 $ 2,409.5 $ 430.8 18 %
EchoPark Segment revenues:
Retail new vehicles $ 13.5 $ 3.5 $ 10.0 286 %
Used vehicles 515.6 574.5 (58.9) (10) %
Wholesale vehicles 38.9 33.0 5.9 18 %
Finance, insurance and other, net 39.8 52.3 (12.5) (24) %
EchoPark Segment revenues $ 607.8 $ 663.3 $ (55.5) (8) %
Total consolidated revenues $ 3,448.1 $ 3,072.8 $ 375.3 12 %
Income (Loss) (1):
Franchised Dealerships Segment $ 146.3 $ 145.1 $ 1.2 1 %
EchoPark Segment (29.9) (32.9) 3.0 9 %
Income from continuing operations before taxes $ 116.4 $ 112.2 $ 4.2 4 %
Retail New and Used Vehicle Unit Sales Volume:
Franchised Dealerships Segment 50,888 48,554 2,334 5 %
EchoPark Segment 15,957 21,310 (5,353) (25) %
Total retail new and used vehicle unit sales volume 66,845 69,864 (3,019) (4) %


	Three Months Ended March 31,				Better / (Worse)
	2023		2022		Change		% Change
	(In millions, except unit data)
Segment Revenues:
Franchised Dealerships Segment revenues:
Retail new vehicles	$	1,421.0	$	1,345.7	$	75.3	6	%
Fleet new vehicles	18.8		18.2		0.6		3	%
Total new vehicles	$	1,439.8	$	1,363.9	$	75.9	6	%
Used vehicles	767.6		853.6		(86.0)		(10)	%
Wholesale vehicles	58.4		106.4		(48.0)		(45)	%
Parts, service and collision repair	423.8		380.5		43.3		11	%
Finance, insurance and other, net	117.1		126.5		(9.4)		(7)	%
Franchised Dealerships Segment revenues	$	2,806.7	$	2,830.9	$	(24.2)	(1)	%

EchoPark Segment revenues:
Retail new vehicles	$	1.0	$	4.4	$	(3.4)	(77)	%
Used vehicles	572.5		515.4		57.1		11	%
Wholesale vehicles	27.0		62.4		(35.4)		(57)	%

Finance, insurance and other, net	50.0		39.9		10.1		25	%
EchoPark Segment revenues	$	650.5	$	622.1	$	28.4	5	%

Powersports Segment revenues:
Retail new vehicles	$	20.8	$	1.2	$	19.6	NM


Used vehicles	4.8		1.1		3.7		NM
Wholesale vehicles	0.2		—		0.2		NM
Parts, service and collision repair	6.7		0.7		6.0		NM
Finance, insurance and other, net	1.5		0.2		1.3		NM
Powersports Segment revenues	$	34.0	$	3.2	$	30.8	NM

Total consolidated revenues	$	3,491.2	$	3,456.2	$	35.0	1	%

Segment Income (Loss) (1):
Franchised Dealerships Segment	$	109.8	$	163.8	$	(54.0)	(33)	%
EchoPark Segment	(46.8)		(35.3)		(11.5)		(33)	%
Powersports Segment	0.6		0.4		0.2		50	%


Income before taxes	$	63.6	$	128.9	$	(65.3)	(51)	%

Segment Retail New and Used Vehicle Unit Sales Volume:
Franchised Dealerships Segment	49,646		51,680		(2,034)		(4)	%
EchoPark Segment	19,991		14,975		5,016		33	%
Powersports Segment	1,551		105		1,446		NM
Total retail new and used vehicle unit sales volume	71,188		66,760		4,428		7	%

NM = Not Meaningful

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

SONIC AUTOMOTIVE, INC.

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

Nine Months Ended September 30, Better / (Worse)
2022 2021 Change % Change
(In millions, except unit data)
Revenues:
Franchised Dealerships Segment revenues:
Retail new vehicles $ 4,047.1 $ 3,710.8 $ 336.3 9 %
Fleet new vehicles 70.0 50.9 19.1 38 %
Total new vehicles $ 4,117.1 $ 3,761.7 $ 355.4 9 %
Used vehicles 2,568.1 2,173.3 394.8 18 %
Wholesale vehicles 261.2 183.2 78.0 43 %
Parts, service and collision repair 1,183.4 994.1 189.3 19 %
Finance, insurance and other, net 382.1 333.5 48.6 15 %
Franchised Dealerships Segment revenues $ 8,511.9 $ 7,445.8 $ 1,066.1 14 %
EchoPark Segment revenues:
Retail new vehicles $ 21.6 $ 4.4 $ 17.2 391 %
Used vehicles 1,610.2 1,535.6 74.6 5 %
Wholesale vehicles 143.6 73.5 70.1 95 %
Finance, insurance and other, net 123.2 152.6 (29.4) (19) %
EchoPark Segment revenues $ 1,898.6 $ 1,766.1 $ 132.5 8 %
Total consolidated revenues $ 10,410.5 $ 9,211.9 $ 1,198.6 13 %
Income (Loss) (1):
Franchised Dealerships Segment $ 472.2 $ 381.1 $ 91.1 24 %
EchoPark Segment (99.7) (45.3) (54.4) (120) %
Income from continuing operations before taxes $ 372.5 $ 335.8 $ 36.7 11 %
Retail New and Used Vehicle Unit Sales Volume:
Franchised Dealerships Segment 155,066 158,400 (3,334) (2) %
EchoPark Segment 47,730 62,255 (14,525) (23) %
Total retail new and used vehicle unit sales volume 202,796 220,655 (17,859) (8) %

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

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

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

~~SONIC AUTOMOTIVE, INC.~~

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

Typically, SG&A expenses as a percentage of gross profit are highest in the first quarter of the year, due to the seasonal nature of our business and the effects of certain payroll taxes and fringe benefits that occur early in the year.

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

Three Months Ended September 30, Better / (Worse)
2022 2021 Change % Change
(In millions)
SG&A expenses:
Compensation $ 255.2 $ 206.2 $ (49.0) (24) %
Advertising 21.1 16.7 (4.4) (26) %
Rent 11.9 13.8 1.9 14 %
Other 110.8 84.7 (26.1) (31) %
Total SG&A expenses $ 399.0 $ 321.4 $ (77.6) (24) %
SG&A expenses as a % of gross profit:
Compensation 43.9 % 43.7 % (20) bps
Advertising 3.6 % 3.5 % (10) bps
Rent 2.1 % 2.9 % 80 bps
Other 19.1 % 18.0 % (110) bps
Total SG&A expenses as a % of gross profit 68.7 % 68.1 % (60) bps
Nine Months Ended September 30, Better / (Worse)
2022 2021 Change % Change
(In millions)
SG&A expenses:
Compensation $ 774.1 $ 608.5 $ (165.6) (27) %
Advertising 72.8 44.2 (28.6) (65) %
Rent 38.3 41.2 2.9 7 %
Other 303.6 237.4 (66.2) (28) %
Total SG&A expenses $ 1,188.8 $ 931.3 $ (257.5) (28) %
SG&A expenses as a % of gross profit:
Compensation 44.5 % 44.0 % (50) bps
Advertising 4.2 % 3.2 % (100) bps
Rent 2.2 % 3.0 % 80 bps
Other 17.4 % 17.1 % (30) bps
Total SG&A expenses as a % of gross profit 68.3 % 67.3 % (100) bps


	Three Months Ended March 31,						Better / (Worse)
	2023			2022			Change		% Change
	(In millions)
SG&A expenses:
Compensation	$	258.8		$	252.5		$	(6.3)	(2)	%
Advertising	26.1			26.2			0.1		—	%
Rent	11.3			12.7			1.4		11	%
Other	116.6			95.6			(21.0)		(22)	%
Total SG&A expenses	$	412.8		$	387.0		$	(25.8)	(7)	%

SG&A expenses as a % of gross profit:
Compensation	46.7		%	44.2		%	(250)		bps
Advertising	4.7		%	4.6		%	(10)		bps
Rent	2.0		%	2.2		%	20		bps
Other	21.2		%	16.7		%	(450)		bps
Total SG&A expenses as a % of gross profit	74.6		%	67.7		%	(690)		bps

Three Months Ended ~~September 30, 2022~~March 31, 2023 Compared to Three Months Ended ~~September 30, 2021~~March 31, 2022

Overall SG&A expenses increased in both dollar amount and as a percentage of gross profit, primarily due to ~~the RFJ Acquisition~~higher IT expenses and ~~higher~~lower 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~~lower overall gross profit ~~levels.~~levels and the effects of industry-wide wage inflation. Advertising expense remained flat in dollar amount and increased as a percentage of gross profit. Rent expense decreased in both dollar amount and as a percentage of gross profit, primarily ~~as a result of the RFJ Acquisition. Rent expense was flat in dollar amount and decreased as a percentage of gross profit, primarily~~ due to ~~higher overall gross profit levels.~~the purchase of several properties that were previously leased. Other SG&A expenses increased in both dollar amount and as a percentage of gross profit, primarily due to ~~the effect of our EchoPark growth plan~~higher IT expenses and ~~the RFJ Acquisition.~~

~~SONIC AUTOMOTIVE, INC.~~

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

~~Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021~~

Overall SG&A expenses increased in both dollar amount and as a percentage of gross profit, primarily 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 our EchoPark growth strategy and the effect of the RFJ Acquisition. Rent expense decreased in both dollar amount and as a percentage of gross profit, primarily due to the buyout of certain previously leased properties and higher levels of overall gross profit. Other SG&A expenses increased 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.customer-related costs.

Impairment Charges – Consolidated

We did not record any impairment charges for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 or ~~2021.~~2022.

Depreciation and Amortization – Consolidated

Depreciation and amortization expense increased approximately ~~$7.6~~$4.4 million, or ~~30%, and $20.3 million, or 28%~~15%, during the three ~~and nine~~ months ended ~~September 30, 2022, respectively,~~March 31, 2023, due primarily to ~~the RFJ Acquisition~~acquisitions and completed construction projects and purchases of fixed assets for use in our franchised dealerships and EchoPark stores.

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

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

Interest expense, floor plan for new vehicles increased approximately $2.6 million, or 259%. The average new vehicle floor plan interest rate was 1.28% in the three months ended September 30, 2022, up from 0.41% in the three months ended September 30, 2021, resulting in an increase in new vehicle floor plan interest expense of approximately $2.4 million. The effective new vehicle floor plan interest rate is reduced by the interest income earned on the floor plan deposit balance. The average new vehicle floor plan notes payable balance increased approximately $153.2 million, which increased new vehicle floor plan interest expense by approximately $0.2 million.

Interest expense, floor plan for used vehicles increased approximately $3.7 million, or 157%. The average used vehicle floor plan interest rate was 4.51% in the three months ended September 30, 2022, up from 1.64% in the three months ended September 30, 2021, resulting in an increase in used vehicle floor plan interest expense of approximately $3.8 million. The average used vehicle floor plan notes payable balance decreased approximately $39.7 million, which decreased used vehicle floor plan interest expense by approximately $0.1 million.

~~Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021~~

Interest expense, floor plan for new vehicles increased approximately $0.3 million, or 4%. The average new vehicle floor plan interest rate was 0.81%, in the nine months ended September 30, 2022, down from 0.83% in the nine months ended September 30, 2021, resulting in a decrease in new vehicle floor plan interest expense of approximately $0.2 million. The effective new vehicle floor plan interest rate is reduced by the interest income earned on the floor plan deposit balance. The average new vehicle floor plan notes payable balance increased approximately $67.9 million, which increased new vehicle floor plan interest expense by approximately $0.4 million.

Interest expense, floor plan for used vehicles increased approximately $7.6 million, or 125%. The average used vehicle floor plan interest rate was 3.15% in the nine months ended September 30, 2022, up from 1.70% in the nine months ended September 30, 2021, resulting in an increase in used vehicle floor plan interest expense of approximately $6.3 million. The average used vehicle floor plan notes payable balance increased approximately $102.8 million, which increased used vehicle floor plan interest expense by approximately $1.3 million.

5541

SONIC AUTOMOTIVE, INC.

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

Interest Expense, Floor Plan – Consolidated

Three Months Ended March 31, 2023 Compared to Three Months Ended March 31, 2022

We participate in a program with two of our lender partners wherein we maintain a floor plan deposit balance (as shown in the table below under the heading “Liquidity and Capital Resources”) with the lender that earns interest based on the agreed upon floor plan interest rate, effectively reducing the net new vehicle floor plan interest expense with the lender. The below discussion of interest expense, floor plan includes the effect of interest earned on the floor plan deposit balance, unless otherwise noted.

Interest expense, floor plan for new vehicles increased approximately $4.4 million, including the effect of interest income earned on the floor plan deposit balance, which resulted in a decrease of $3.5 million. Excluding the effect of interest income earned on the floor plan deposit balance, interest expense, floor plan for new vehicles increased approximately $7.9 million. Excluding the effect of interest income earned on the floor plan deposit balance, the average new vehicle floor plan interest rate was 3.43% in the three months ended March 31, 2023, up from 0.72% in the three months ended March 31, 2022, resulting in an increase in new vehicle floor plan interest expense of approximately $8.1 million. The average new vehicle floor plan notes payable balance decreased approximately $8.7 million, which decreased new vehicle floor plan interest expense by approximately $0.1 million.

Interest expense, floor plan for used vehicles increased approximately $5.2 million. The average used vehicle floor plan interest rate was 6.28% in the three months ended March 31, 2023, up from 2.16% in the three months ended March 31, 2022, resulting in an increase in used vehicle floor plan interest expense of approximately $5.7 million. The average used vehicle floor plan notes payable balance decreased approximately $76.7 million, which decreased used vehicle floor plan interest expense by approximately $0.5 million.

Interest Expense, Other, Net – Consolidated

Interest expense, other, net is summarized in the ~~tables~~table below:
Three Months Ended September 30, Better / (Worse)
2022 2021 Change % Change
(In millions)
Stated/coupon interest $ 18.0 $ 7.3 $ (10.7) (147) %
Deferred loan cost amortization 1.5 0.7 (0.8) (114) %
Interest rate hedge expense (benefit) — 0.3 0.3 100 %
Capitalized interest (0.2) (0.4) (0.2) (50) %
Interest on finance lease liabilities 3.7 1.7 (2.0) (118) %
Other interest (0.1) 0.2 0.3 150 %
Total interest expense, other, net $ 22.9 $ 9.8 $ (13.1) (134) %
Nine Months Ended September 30, Better / (Worse)
2022 2021 Change % Change
(In millions)
Stated/coupon interest $ 52.0 $ 22.5 $ (29.5) (131) %
Deferred loan cost amortization 3.8 2.3 (1.5) (65) %
Interest rate hedge expense (benefit) 0.7 1.2 0.5 42 %
Capitalized interest (1.0) (1.3) (0.3) (23) %
Interest on finance lease liabilities 9.3 5.0 (4.3) (86) %
Other interest 0.3 0.5 0.2 40 %
Total interest expense, other, net $ 65.1 $ 30.2 $ (34.9) (116) %


	Three Months Ended March 31,				Better / (Worse)
	2023		2022		Change		% Change
	(In millions)
Stated/coupon interest	$	22.7	$	17.0	$	(5.7)	(34)	%

Deferred loan cost amortization	1.6		1.1		(0.5)		(45)	%
Interest rate hedge expense (benefit)	0.4		0.3		(0.1)		(33)	%
Capitalized interest	(0.6)		(0.5)		0.1		20	%
Interest on finance lease liabilities	4.2		2.7		(1.5)		(56)	%
Other interest	0.1		0.2		0.1		50	%
Total interest expense, other, net	$	28.4	$	20.8	$	(7.6)	(37)	%

Interest expense, other, net increased approximately ~~$13.1~~$7.6 million, or ~~134%~~37%, during the three months ended ~~September 30, 2022, and increased approximately $34.9 million, or 116%, during the nine months ended September 30, 2022. These increases were~~March 31, 2023. This increase was primarily ~~due~~related to ~~the issuance of the 4.625% Notes and the 4.875% Notes in October 2021, increases~~higher interest rates on variable rate mortgage debt and higher interest on finance lease liabilities as a result of a rising interest rate ~~environment.~~environment, combined with increased borrowings under the 2019 Mortgage Facility.

Income Taxes

The overall effective income tax rate ~~from continuing operations~~ was 25.0% for ~~both~~ the three ~~and nine~~ months ended ~~September 30, 2022,~~March 31, 2023 and ~~24.6% and 24.9%~~24.5% for the three ~~and nine~~ months ended ~~September 30, 2021, respectively.~~March 31, 2022. Sonic’s effective income 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 30, 2022~~March 31, 2023 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

SONIC AUTOMOTIVE, INC.

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

compliance with the restrictive covenants under the 2021 Credit Facilities, the 2019 Mortgage Facility, the indentures governing the 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 30, 2022,~~March 31, 2023, we had approximately ~~$290.9~~$260.8 million of net income and retained earnings free of such restrictions. Cash flows provided by our dealerships 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.

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

~~SONIC AUTOMOTIVE, INC.~~

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

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 30, 2022~~March 31, 2023 and December 31, ~~2021:~~2022:


		September 30, 2022		December 31, 2021			March 31, 2023		December 31, 2022
		(In millions)					(In millions)
Cash and cash equivalents	Cash and cash equivalents	$	139.0	$	299.4	Cash and cash equivalents	$	160.2	$	229.2
Floor plan deposit balance						Floor plan deposit balance	$	272.0	$	272.0
Availability under the 2021 Revolving Credit Facility	Availability under the 2021 Revolving Credit Facility	281.0		281.4		Availability under the 2021 Revolving Credit Facility	294.0		292.2

Availability under the 2019 Mortgage Facility		30.4		22.2
Availability under the 2019 Mortgage Facility (1)						Availability under the 2019 Mortgage Facility (1)	166.4		—

Floor plan deposit balance		32.0		99.8
Total available liquidity resources	Total available liquidity resources	$	482.4	$	702.8	Total available liquidity resources	$	892.6	$	793.4

(1)There was $6.6 million and $173.0 million of additional lender commitments available under the 2019 Mortgage Facility subject to the appraisal and pledging of additional collateral as of March 31, 2023 and December 31, 2022, respectively.

We participate in a program with two of our lender partners wherein we maintain a floor plan deposit balance (as shown in the table above) with the lender that earns interest based on the agreed upon rate, effectively reducing the net new vehicle 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~~balance of approximately ~~$32.0 million and $99.8~~$272.0 million as of ~~September 30, 2022~~both March 31, 2023 and December 31, ~~2021, respectively, are~~2022 is classified as other current assets in the accompanying unaudited condensed consolidated balance sheets as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021.~~2022.

Floor Plan Facilities

We finance all of our new and certain of our used vehicle inventory through standardized floor plan facilities with (1) certain manufacturer captive finance companies (classified as notes payable - floor plan - trade in the accompanying unaudited condensed consolidated balance sheets) and (2) a syndicate of manufacturer-affiliated finance companies and commercial ~~banks.~~banks (classified as notes payable - floor plan - non-trade in the accompanying unaudited condensed consolidated balance sheets). These floor plan facilities are due on demand and currently bear interest at variable rates based on ~~LIBOR~~either one-month Term SOFR or prime plus an additional spread, as applicable. On October 7, 2022, we entered into Amendment No. 2 to the 2021 Credit Facilities to, among other things: (1) replace the Credit Agreement’s LIBOR-based Eurodollar reference interest rate option with a reference interest rate option based upon one month Term SOFR (as defined in the Credit Agreement). The weighted-average interest rate for our combined new and used vehicle floor plan facilities was ~~2.32%~~3.38% and ~~0.87%~~1.09% for the three months ended ~~September 30,~~March 31, 2023 and 2022, respectively. Excluding the effect of interest income earned on the floor plan deposit balance, the weighted-average interest rate for our combined new and ~~2021, respectively,~~used vehicle floor plan facilities was 4.33% and ~~1.60%~~ ~~and 1.10%~~1.22% for the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 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 ~~$12.6 million~~ ~~and $10.3~~$12.7 million in manufacturer assistance in both the three months ended ~~September 30, 2022~~March 31, 2023 and ~~2021, respectively,~~ ~~and approximately~~ ~~$38.1 million~~ a~~nd $35.3 million in manufacturer assistance in the nine months ended September 30, 2022 and 2021, respectively.~~2022. We recognized in cost of sales approximately ~~$13.9~~$13.1 million and ~~$9.8~~$12.8 million in manufacturer assistance in the three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021, respectively, and approximately $39.4 million and $32.1 million in manufacturer assistance in the nine months ended September 30, 2022 and 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.

SONIC AUTOMOTIVE, INC.

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

Capital Expenditures

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

Capital expenditures in the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 were approximately ~~$197.6~~$37.2 million, including approximately ~~$95.8~~$31.0 million related to our Franchised Dealerships Segment, ~~and~~ approximately ~~$101.8~~$5.7 million related to our EchoPark Segment and approximately $0.5 million related to our Powersports Segment. Of the total capital expenditures, approximately ~~$84.0~~$20.1 million was related to facility construction projects, approximately ~~$80.3~~$3.9 million was related to acquisitions of real estate (land and buildings) and approximately ~~$33.3~~$13.2 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 ~~$197.6~~$37.2 million in gross capital expenditures in the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 was funded through existing cash ~~balances~~balances. As of March 31, 2023, commitments for facility construction projects totaled approximately ~~$21.2~~$23.7 million, nearly all of which is expected to be completed in the next 12 months.

Share Repurchase Program

Our Board of Directors has authorized us to repurchase shares of our Class A Common Stock. Historically, we have used our share repurchase authorization to offset dilution caused by the exercise of stock options or the vesting of equity compensation awards and to maintain our desired capital structure. During the three months ended ~~September 30, 2022,~~March 31, 2023, we repurchased approximately ~~3.1~~1.6 million shares of our Class A Common Stock for approximately ~~$152.1~~$90.7 million in open-market transactions at prevailing market prices and in connection with tax withholding on the vesting of equity compensation awards. As of ~~September 30, 2022,~~March 31, 2023, our total remaining share repurchase authorization was approximately ~~$481.0~~$373.6 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 30, 2022,~~March 31, 2023, we had approximately ~~$290.9~~$260.8 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, 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 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, 2022, which was paid on October 14, 2022. Subsequent to September 30, 2022,March 31, 2023, our Board of Directors approved a cash dividend of $0.28 per share on all outstanding shares of Class A and Class B Common Stock as of ~~December~~March 15, ~~2022~~2023, which was paid on April 14, 2023. Subsequent to March 31, 2023, our Board of Directors approved a cash dividend of $0.29 per share on all outstanding shares of Class A and Class B Common Stock as of June 15, 2023 to be paid on ~~January 13,~~July 14, 2023. ~~Under~~The 2021 Credit Facilities permit quarterly cash dividends on our Class A and Class B Common stock up to $0.12 per share so long as no Event of Default (as defined in the 2021 Credit ~~Facilities,~~Facilities) has occurred and is continuing and provided that we remain in compliance with all financial covenants under the 2021 Credit Facilities. Additional dividends are permitted subject to the ~~extent that no event of default exists and we are~~limitations on restricted payments set forth in ~~compliance with~~ the ~~financial covenants contained therein.~~2021 Credit Facilities. The 2029 Indenture and the 2031 Indenture also 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 30, 2022,~~March 31, 2023, we had approximately ~~$290.9~~$260.8 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 historic and projected results of operations, financial condition, cash flows, capital requirements, covenant compliance and share repurchases, the current economic environment and other factors considered by our Board of Directors to be relevant. These factors are considered each quarter and will be scrutinized as our Board of Directors determines our future dividend policy. There is no guarantee that additional dividends will be declared and paid at any time in the future. See Note 6, “Long-Term Debt,” to the accompanying unaudited condensed consolidated financial statements for a description of restrictions on the payment of dividends.

SONIC AUTOMOTIVE, INC.

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

Cash Flows

Cash Flows from Operating Activities – Net cash used in operating activities in the three months ended March 31, 2023 was approximately $34.0 million. This use of cash was comprised primarily of an increase in inventories, offset partially by net income less non-cash items, a decrease in receivables and an increase in trade accounts payable and other liabilities. Net cash provided by operating activities in the ~~nine~~three months ended ~~September 30,~~March 31, 2022 was approximately ~~$645.4~~$252.5 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 ~~notes payable – floor plan – trade, offset partially by a decrease in~~ trade accounts payable and other ~~liabilities. Net cash provided~~liabilities, offset partially by ~~operating activities in the nine months ended September 30, 2021 was approximately $266.4 million. This provision 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 and an increase in trade accounts payable and other liabilities.~~trade.

Cash Flows from Investing Activities – Net cash used in investing activities in the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 was approximately ~~$276.1~~$107.5 million. This use of cash was comprised primarily of the purchase of a powersports business (including real property), net of cash acquired, and purchases of land, property and ~~equipment and purchases of businesses, net of cash acquired.~~equipment. Net cash used in investing activities in the ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022 was approximately ~~$237.5~~$80.3 million. This use of cash was comprised primarily of purchases of land, property and equipment and purchases of businesses, net of cash acquired.

Cash Flows from Financing Activities – Net cash used in financing activities in the nine months ended September 30, 2022 was approximately $529.7 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~~three months ended ~~September 30, 2021~~March 31, 2023 was approximately ~~$20.9~~$72.5 million. This provision of cash was comprised primarily of net 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 three months ended March 31, 2022 was approximately $111.4 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.

~~SONIC AUTOMOTIVE, INC.~~

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

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 in the accompanying unaudited condensed consolidated balance sheets as ~~trade~~notes payable - floor plan ~~liabilities~~- trade (with the ~~resulting~~ change in balance being reflected asin operating cash flows). Our dealerships that obtain floor plan financing from a syndicate of manufacturer-affiliated finance companies and commercial banks record their obligation in the accompanying unaudited condensed consolidated balance sheets as ~~non-trade~~notes payable - floor plan ~~liabilities~~- non-trade (with the ~~resulting~~ change in balance being reflected asin 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~~provided by combined trade and non-trade floor plan financing was approximately ~~$213.5~~$193.0 million in the ~~nine~~three months ended ~~September 30, 2022.~~March 31, 2023. Net cash used in combined trade and non-trade floor plan financing was approximately ~~$428.5~~$72.3 million in the ~~nine~~three months ended ~~September 30, 2021.~~March 31, 2022. Accordingly, if all changes in floor plan notes payable were classified as an operating activity (to align changes in floor plan liability balances with the associated changes in inventory balances for cash flow classification), the result would have been net cash provided by operating activities of approximately ~~$426.6~~$154.8 million in the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 and net cash provided by operating activities of approximately ~~$394.5~~$196.2 million in the ~~nine~~three months ended ~~September 30, 2021.~~March 31, 2022.

SONIC AUTOMOTIVE, INC.

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

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


		Three Months Ended September 30, 2022								Three Months Ended September 30, 2021									Three Months Ended March 31, 2023								Three Months Ended March 31, 2022
		Franchised Dealerships Segment		EchoPark Segment		Discontinued Operations		Total		Franchised Dealerships Segment		EchoPark Segment		Discontinued Operations		Total			Franchised Dealerships Segment		EchoPark Segment		Powersports Segment		Total		Franchised Dealerships Segment		EchoPark Segment		Powersports Segment		Total
		(In millions)																	(In millions)
Net income	Net income							$	87.3							$	84.5	Net income							$	47.7							$	97.3
Provision for income taxes	Provision for income taxes							29.1								27.5		Provision for income taxes							15.9								31.6
Income (loss) before taxes	Income (loss) before taxes	$	146.3	$	(29.9)	$	—	$	116.4	$	145.1	$	(32.9)	$	(0.2)	$	112.0	Income (loss) before taxes	$	109.8	$	(46.8)	$	0.6	$	63.6	$	163.8	$	(35.3)	$	0.4	$	128.9
Non-floor plan interest (1)	Non-floor plan interest (1)	19.9		1.5		—		21.4		8.8		0.3		—		9.1		Non-floor plan interest (1)	25.4		0.9		0.6		26.9		19.0		0.7		—		19.7
Depreciation & amortization (2)	Depreciation & amortization (2)	27.3		7.0		—		34.3		21.9		4.0		—		25.9		Depreciation & amortization (2)	28.2		7.0		0.7		35.9		25.9		5.1		0.1		31.1
Stock-based compensation expense	Stock-based compensation expense	3.8		—		—		3.8		3.7		—		—		3.7		Stock-based compensation expense	5.0		—		—		5.0		4.4		—		—		4.4

Long-term compensation charges	Long-term compensation charges	—		—		—		—		—		0.5		—		0.5		Long-term compensation charges	—		2.0		—		2.0		—		—		—		—
Loss (gain) on franchise and real estate disposals	Loss (gain) on franchise and real estate disposals	0.5		—		—		0.5		(0.1)		(0.4)		—		(0.5)		Loss (gain) on franchise and real estate disposals	—		—		—		—		(1.1)		—		—		(1.1)
Adjusted EBITDA (3)	Adjusted EBITDA (3)	$	197.8	$	(21.4)	$	—	$	176.4	$	179.4	$	(28.5)	$	(0.2)	$	150.7	Adjusted EBITDA (3)	$	168.4	$	(36.9)	$	1.9	$	133.4	$	212.0	$	(29.5)	$	0.5	$	183.0

(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.

(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 of premium and other amortization.

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

~~SONIC AUTOMOTIVE, INC.~~

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

Nine Months Ended September 30, 2022 Nine Months Ended September 30, 2021
Franchised Dealerships Segment EchoPark Segment Discontinued Operations Total Franchised Dealerships Segment EchoPark Segment Discontinued Operations Total
(In millions)
Net income $ 279.4 $ 252.6
Provision for income taxes 93.1 83.4
Income (loss) before taxes $ 472.2 $ (99.7) $ — $ 372.5 $ 381.1 $ (45.3) $ 0.2 $ 336.0
Non-floor plan interest (1) 58.0 3.2 — 61.2 26.8 1.0 — 27.8
Depreciation & amortization (2) 79.6 18.1 — 97.7 64.6 11.4 — 76.0
Stock-based compensation expense 12.4 — — 12.4 11.2 — — 11.2
Long-term compensation charges 4.4 — — 4.4 — 1.5 — 1.5
Loss (gain) on franchise and real estate disposals (0.5) — — (0.5) (0.4) (0.4) — (0.8)
Adjusted EBITDA (3) $ 626.1 $ (78.4) $ — $ 547.7 $ 483.3 $ (31.8) $ 0.2 $ 451.7

~~(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.

~~(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 of premium and other amortization.

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

Seasonality

Our operations are subject to seasonal variations. ~~The~~Due in part to our brand mix and the seasonal nature of automotive retail, the first quarter historically has contributed less operating profit than the second and third quarters, while the fourth quarter historically has contributed the highest operating profit of any quarter. Due to the abnormal effects of the COVID-19 pandemic on the automotive supply chain and inventory levels, in addition to the effects of a potential economic recession, this historical seasonality did not play out in 2022 and may not hold true for the ~~years~~year ending December 31, ~~2022 and~~ 2023. 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.

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, 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.

We do not currently anticipate any materially negative changes to our cost of or access to capital over the next 12 months or after.

Off-Balance Sheet Arrangements

Guarantees and Indemnification Obligations

In connection with 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

SONIC AUTOMOTIVE, INC.

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

leased properties to the buyer at a rate equal to the terms of the original leases. In the event we are unable to sublease the properties to the buyer with terms at least equal to our leases, we may be required to record lease exit accruals. As of ~~September 30, 2022,~~March 31, 2023, our future gross minimum lease payments related to properties subleased to buyers of sold dealerships totaled approximately ~~$11.2~~$9.6 million. Future sublease payments expected to be received related to these lease payments were approximately ~~$11.2~~$10.3 million at ~~September 30, 2022.~~

~~SONIC AUTOMOTIVE, INC.~~

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

March 31, 2023.

We also guarantee the floor plan commitments of our 50%-owned joint venture, and the amount of such guarantee at both March 31, 2023 and December 31, 2022 was approximately $4.3 ~~million at both September 30, 2022 and December 31, 2021.~~million. We expect the aggregate amount of the obligations we guarantee to fluctuate based on dealership disposition activity. Although we seek to mitigate our exposure in connection with these matters, these guarantees and indemnification obligations, including environmental exposures and the financial performance of lease assignees and sublessees, cannot be predicted with certainty. An unfavorable resolution of one or more of these matters could have a material adverse effect on our liquidity and capital resources.

See Note 7, “Commitments and Contingencies,” to the accompanying unaudited condensed consolidated financial statements and Note 12, “Commitments and Contingencies,” to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, ~~2021~~2022 for further discussion regarding these guarantees and indemnification ~~obligations and legal proceedings.~~obligations.

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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 outstanding cash flow hedge instruments, was approximately $1.3 billion at ~~September 30, 2022.~~March 31, 2023. A change of 100 basis points in the underlying interest rate would have caused a change in interest expense of approximately ~~$13.3~~$4.7 million in the ~~nine~~three months ended ~~September 30, 2022.~~March 31, 2023. Of the total change in interest expense, approximately ~~$11.7~~$3.6 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 or one-month Term SOFR interest rates. An increase in interest rates of 100 basis points would not have had a significant impact on rent expense in the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 due to the leases containing ~~LIBOR~~interest rate floors which were above the ~~LIBOR~~actual interest rate in effect during the ~~nine~~three months ended ~~September 30, 2022.~~March 31, 2023.

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.

6248

SONIC AUTOMOTIVE, INC.

Item 4. Controls and Procedures.

~~Evaluation of~~ 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) as of ~~September 30, 2022.~~March 31, 2023. Based upon that evaluation, ~~and due to the material weakness described below,~~ our CEO and our CFO concluded that our disclosure controls and procedures were ~~not~~ effective as of ~~September 30, 2022.~~March 31, 2023.

During the quarter ended September 30, 2022, we identified a material weakness in certain internal controls over financial reporting related to the revenue recognition process at a single dealership acquired in December 2021. We have determined that the material weakness existed as of September 30, 2022. The acquired entity did not have an adequate risk assessment process to ensure appropriate internal controls were in place for all of their revenue streams. Specifically, the internal controls at this single dealership were not designed to assess principal-agent considerations in accordance with ASC 606 ~~Revenue from Contracts with Customers.~~ The deficiency was identified in conjunction with our integration of this dealership’s processes and controls into our internal control framework during the year following acquisition. The material weakness resulted in an overstatement of both new vehicle fleet revenues and fleet cost of sales for the same amount for the three months ended September 30, 2022.

Management performed procedures to ensure that the misstatement has been corrected and the financial statement balances included herein fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented.

~~Remediation Plan~~

Sonic and its Board of Directors are committed to maintaining a strong internal control environment. Management, with the oversight of the Audit Committee, has evaluated the material weakness described above and designed a remediation plan to address the material weakness and enhance Sonic’s internal control environment. The remediation plan is being implemented and includes incorporation of the acquired entity into our pre-existing risk assessment process and implementing incremental controls, or improving the design of existing controls, to respond to the result of our risk assessment process. We expect the material weakness will be remediated by December 31, 2022.

Changes in Internal Control ~~over~~Over Financial Reporting

~~Except as noted above, there was~~ – There were no ~~change~~changes in our internal control over financial reporting ~~identified in connection with the evaluation required by Rules 13a-15(d) and 15d-15(d) of the Exchange Act that occurred~~ during the ~~period covered by this Quarterly Report on Form 10-Q~~quarter ended March 31, 2023, that ~~has~~have materially affected, or isare 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.

6349

SONIC AUTOMOTIVE, INC.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

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

6450

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, ~~2021.~~2022.

6551

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 30, 2022.~~March 31, 2023;

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)
July 2022 — $ — — $ 632.5
August 2022 2.1 $ 48.76 2.1 $ 528.1
September 2022 1.0 $ 47.09 1.0 $ 481.0
Total 3.1 3.1



	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)
January 2023	0.2	$	49.15	0.2	$	454.8
February 2023	0.3	$	57.21	0.3	$	436.0
March 2023	1.1	$	55.14	1.1	$	373.6
Total	1.6			1.6

(1)On July ~~31, 2020, April 29, 2021, and July 31,~~28, 2022, 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 millions)
~~July 2020 authorization~~	$	~~60.0~~
~~April 2021 authorization~~	~~250.0~~
July 2022 authorization	$	500.0
Total active program repurchases prior to ~~September 30, 2022~~March 31, 2023	~~(329.0)~~(126.4)
Current remaining availability as of ~~September 30, 2022~~March 31, 2023	$	~~481.0~~373.6

~~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.~~

6652

SONIC AUTOMOTIVE, INC.

Item 6. Exhibits.


Exhibit No.						Description


3.1						Amended and Restated Certificate of Incorporation of Sonic Automotive, Inc., dated August 7, 1997 (incorporated by reference to Exhibit 3.1 to the Annual Report on Form 10-K 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)).




~~10.1~~						Amendment No. 2 to Fifth Amended, Restated and Consolidated Credit Agreement, dated as of October 7, 2022, 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 99.1 to the Current Report on Form 8-K filed October 13, 2022 (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.

**Furnished herewith.

6753

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 28, 2022~~April 27, 2023	By:	/s/ DAVID BRUTON SMITH
		David Bruton Smith
		Chairman and Chief Executive Officer

~~October 28, 2022~~April 27, 2023	By:	/s/ HEATH R. BYRD
		Heath R. Byrd
		Executive Vice President and Chief Financial Officer

6854


		Page
PART I – FINANCIAL INFORMATION		1
Item 1.	Financial Statements (Unaudited)	1
	Condensed Consolidated Statements of Operations	1
	Condensed Consolidated Statements of Comprehensive Operations	2
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Stockholders’ Equity	4
	Condensed Consolidated Statements of Cash Flows	65
	Notes to Unaudited Condensed Consolidated Financial Statements	76
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1716
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	6248
Item 4.	Controls and Procedures	6349
PART II – OTHER INFORMATION		6450
Item 1.	Legal Proceedings	6450
Item 1A.	Risk Factors	6551
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	6652
Item 6.	Exhibits	6753
SIGNATURES		6854



	Nine Months Ended September 30, 2022								Nine Months Ended September 30, 2021
	Franchised Dealerships Segment		EchoPark Segment		Discontinued Operations		Total		Franchised Dealerships Segment		EchoPark Segment		Discontinued Operations		Total
	(In millions)
Net income							$	279.4							$	252.6
Provision for income taxes							93.1								83.4
Income (loss) before taxes	$	472.2	$	(99.7)	$	—	$	372.5	$	381.1	$	(45.3)	$	0.2	$	336.0
Non-floor plan interest (1)	58.0		3.2		—		61.2		26.8		1.0		—		27.8
Depreciation & amortization (2)	79.6		18.1		—		97.7		64.6		11.4		—		76.0
Stock-based compensation expense	12.4		—		—		12.4		11.2		—		—		11.2


Long-term compensation charges	4.4		—		—		4.4		—		1.5		—		1.5
Loss (gain) on franchise and real estate disposals	(0.5)		—		—		(0.5)		(0.4)		(0.4)		—		(0.8)
Adjusted EBITDA (3)	$	626.1	$	(78.4)	$	—	$	547.7	$	483.3	$	(31.8)	$	0.2	$	451.7


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)
July 2022	—	$	—	—	$	632.5
August 2022	2.1	$	48.76	2.1	$	528.1
September 2022	1.0	$	47.09	1.0	$	481.0
Total	3.1			3.1