Sonic Automotive (SAH) investor relations material

Business overview and segment strategy

• Operates three segments: new vehicle franchises, EchoPark used vehicles, and Power Sports, with growth focus on consolidation and higher returns in Power Sports due to low acquisition multiples.

• Franchise segment includes a wide range of luxury and domestic brands, with over 50% of revenue from luxury brands.

• EchoPark scaled back from 50 to 18 locations to optimize profitability amid used vehicle supply constraints, with plans to resume expansion in 2026 as off-lease supply recovers.

• Power Sports segment targets a fragmented, unsophisticated market with lower entry multiples and aims to build scalable processes before significant expansion.

• Brand awareness and direct-to-consumer strategies are key for EchoPark’s future growth, with ongoing evaluation of home delivery options.

Market environment and consumer trends

• New vehicle market remains healthy with normalized inventory levels and a projected SAR of 15.8–16.2 million, but luxury brands saw a slowdown in October, prompting calls for increased incentives.

• Electric vehicle (EV) penetration reached 12% of mix in Q3, concentrated in luxury brands, but inventory was right-sized to 4% to reduce margin pressure.

• Consumer sentiment weakened in October, with concerns over economic conditions, tariffs, and a potential demand pull-forward due to tax credit changes.

• Affordability is a growing issue, with average new vehicle payments at $750/month and few models under $30,000, though luxury segment resilience persists.

• No significant geographic softness detected, except for higher EV demand in California.

Financial performance and margin outlook

• New vehicle gross profit per unit (GPU) is targeted at $3,100–$3,200 for Q4 and 2025, above pre-pandemic levels, with normalization expected in the $2,500–$3,000 range.

• Used vehicle GPU peaked at $1,600–$1,700, currently around $1,500, with supply tailwinds expected from 2026 as off-lease maturities increase.

• Margins remain supported by a higher mix of SUVs and trucks, and lower incentive dollars as a percent of ATP provide room to balance supply-demand.

• EchoPark contributes 15% of revenues, with the core business providing stability and capital for disciplined growth.