Auto Retailer Sonic Growing EchoPark Used-Car Business

Sonic Automotive reports it has opened its 30^th EchoPark used-car-only location, in Las Vegas, part of a campaign to add an average of 25 locations per year through 2025, for a total of 140 locations nationwide.

The Las Vegas announcement, on Aug. 17, comes a week after Sonic announces a new location in Austin, TX, its seventh location in the state.

David Smith, CEO of Sonic and EchoPark, says in a phone interview the Austin location is what EchoPark calls a “delivery center,” a smaller location where customers who do most, or all, of their shopping online can arrange to take delivery of the car or truck they’ve chosen online.

Of the 25 locations EchoPark plans to open per year, the company expects a ratio of about 20 delivery centers to every five larger “retail hubs,” where inventory is reconditioned and kept in bulk. The Las Vegas location, EchoPark’s first location in Nevada, is a retail hub, the company says.

At the end of 2020, Sonic, based in Charlotte, NC, had 16 EchoPark locations and 84 franchised new-vehicle dealerships (pictured below), with 96 franchises representing 21 brands. Sonic is No.6 in the 2021 WardsAuto Megadealer 100, based on total 2020 revenue of about $9.7 billion.

Sonic projects 2025 revenue of $14 billion for EchoPark, vs. $1.4 billion for 2020. Sonic expects EchoPark stores to make less gross profit per unit retailed but make it up on volume.

Dealer - Sonic-Automotive dealership

Taking front-end gross profit, F&I and reconditioning into account, Sonic says its franchised new-car dealerships could make an average per-unit gross profit of $3,400 per vehicle, vs. an estimated $2,150 per unit at EchoPark.

But Sonic expects EchoPark retail hubs to sell five times the used-vehicle volume of franchised, new-car dealerships. The additional volume more than makes up for the lower per-unit average, the company says.

EchoPark generated a pretax loss of $14.4 million in the second quarter. Sonic attributes almost half of that loss to expenses related to expanding the EchoPark network. Sonic blames much of the rest on unexpectedly high prices at wholesale used-car auctions.

Sonic-EchoPark-jeffdyke-1.jpg

KAR Global, the parent company for ADESA auto auctions, reports separately that the average wholesale used vehicle price in June was $14,652. That was down 2.3% compared with May but was up 12.4% relative to June 2020, and up 27.6% compared to the pre-COVID month of June 2019.

EchoPark gets 80% of its inventory of 1- to 4-year-old vehicles from used-car auctions, Dyke says. High auction prices ate up much of EchoPark’s retail gross margin in the second quarter.

The used-car brand couldn’t raise retail prices high enough to offset the expansion costs and the high auction prices because EchoPark promotes retail prices “up to $3,000 lower” than those in a given market.

“We’re not going to adjust our strategy because of an event that happens once in a lifetime,” Dyke (pictured above, left) says, adding he hopes auction prices will be closer to normal in the fourth quarter.