SONIC AUTOMOTIVE INC

Previous wording

Unless otherwise noted, all discussion of increases or decreases are for the year ended December 31, 2023 (“2023”) compared to 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. The following discussion of EchoPark Segment used vehicles, wholesale vehicles, and finance, insurance and other, net is on a reported basis, except where otherwise noted. 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 or acquisition. 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. All currently operating stores in the Powersports Segment are included within the same store group as of the first full month following the first anniversary of the store’s opening or acquisition.

Current wording

Unless otherwise noted, all discussion of increases or decreases are for the year ended December 31, 2024 (“2024”) compared to 2023. 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. The following discussion of EchoPark Segment used vehicles, wholesale vehicles, and finance, insurance and other, net is on a reported basis, except where otherwise noted. 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 or acquisition. 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 same store basis, except where otherwise noted. All currently operating stores in the Powersports Segment are included within the same store group as of the first full month following the first anniversary of the store’s opening or acquisition.

Previous wording

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 three reportable segments as of December 31, 2023: (1) the Franchised Dealerships 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 December 31, 2023, we operated 108 stores in the Franchised Dealerships Segment, 25 stores in the EchoPark Segment, and 13 stores in the Powersports Segment. The Franchised Dealerships Segment consists of 134 new vehicle franchises (representing 28 different brands of cars and light trucks) and 16 collision repair centers in 18 states. The EchoPark Segment operates in 11 states and the Powersports Segment operates in two states.

Current wording

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 three reportable segments as of December 31, 2024: (1) the Franchised Dealerships 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 December 31, 2024, we operated 108 stores in the Franchised Dealerships Segment, 18 stores in the EchoPark Segment, and 15 stores in the Powersports Segment. The Franchised Dealerships Segment consists of 133 new vehicle franchises (representing 25 different brands of cars and light trucks) and 16 collision repair centers in 18 states. The EchoPark Segment consists of 18 stores operating in 10 states. The Powersports Segment consists of 11 franchises and four authorized retail outlets in three states.

Previous wording

The U.S. retail automotive industry’s total new vehicle (retail and fleet combined) unit sales volume was approximately 15.5 million vehicles in 2023, an increase of 13%, compared to approximately 13.7 million vehicles in 2022, according to the Power Information Network (“PIN”) from J.D. Power. We currently estimate the 2024 new vehicle industry volume will be between 15.5 million vehicles (flat compared to 2023) and 16.0 million vehicles (an increase of 3% compared to 2023). The effects of 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 economic conditions, natural disasters or other unforeseen circumstances could cause the actual 2024 new vehicle industry volume to vary from 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 industry volume (which excludes fleet new vehicle sales). According to PIN from J.D. Power, industry retail new vehicle unit sales volume increased 9%, to approximately 12.7 million vehicles, in 2023, from approximately 11.7 million vehicles in 2022.

Current wording

The U.S. retail automotive industry’s total new vehicle (retail and fleet combined) unit sales volume was approximately 16.1 million vehicles in 2024, an increase of 4%, compared to approximately 15.5 million vehicles in 2023, according to the Power Information Network (“PIN”) from J.D. Power. We currently estimate the 2025 new vehicle industry volume will be between 16.1 million vehicles (flat compared to 2024) and 16.5 million vehicles (an increase of 2% compared to 2024). The effects of 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 economic conditions, natural disasters or other unforeseen circumstances could cause the actual 2025 new vehicle industry volume to vary from 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 industry retail new vehicle seasonally adjusted annual rate of unit sales volume (the “retail new vehicle SAAR”) (which excludes fleet new vehicle sales). According to PIN from J.D. Power, the retail new vehicle SAAR increased 3%, to approximately 13.1 million vehicles, in 2024, from approximately 12.7 million vehicles in 2023.

Previous wording

Impairment charges were approximately $79.3 million and $320.4 million in 2023 and 2022, respectively. Impairment charges for 2023 included approximately $78.3 million in the EchoPark Segment related to fixed assets, lease right-of-use assets, and other contractual obligations related to abandoned property as a result of our decisions to indefinitely suspend operations at certain EchoPark locations, and approximately $1.0 million of property and equipment impairment charges related to the Franchised Dealerships Segment. Impairment charges for 2022 included approximately $202.9 million of goodwill related to the EchoPark Segment, approximately $116.4 million of franchise asset impairment charges, of which approximately $114.4 million is related to the Franchised Dealerships Segment and approximately $2.0 million is related to the EchoPark Segment, and approximately $1.1 million of charges related to the abandonment of certain construction projects in the Franchised Dealerships Segment.

Current wording

Impairment charges were approximately $3.9 million and $79.3 million in 2024 and 2023, respectively. Impairment charges for 2024 included approximately $2.7 million in the EchoPark Segment related to fixed assets, lease right-of-use assets, and other contractual obligations related to abandoned property as a result of our decisions to indefinitely suspend operations at certain EchoPark locations, and approximately $1.2 million of property and equipment impairment charges related to the Franchised Dealerships Segment. Impairment charges for 2023 included approximately $78.3 million in the EchoPark Segment related to fixed assets, lease right-of-use assets, and other contractual obligations related to abandoned property as a result of our decisions to indefinitely suspend operations at certain EchoPark locations, and approximately $1.0 million of property and equipment impairment charges related to the Franchised Dealerships Segment.

Previous wording

Retail new vehicle revenue increased 12% in 2023, primarily driven by an 8% increase in retail new vehicle unit sales volume, combined with a 3% increase in retail new vehicle average selling price. Retail new vehicle gross profit decreased 21% in 2023, as a result of lower retail new vehicle gross profit per unit, offset partially by higher retail new vehicle unit sales volume. Retail new vehicle gross profit per unit decreased $1,774 per unit, or 27%, to $4,849 per unit, due primarily to increased price competition as a result of higher levels of available inventory and higher inventory acquisition costs, which combined to drive lower retail new vehicle gross profit per unit. On a trailing quarter cost of sales basis, our reported Franchised Dealerships Segment new vehicle inventory days’ supply was approximately 37 days as of December 31, 2023, compared to 24 days as of December 31, 2022.

Current wording

Same store retail new vehicle revenue increased 4% in 2024, primarily driven by a 5% increase in retail new vehicle unit sales volume, offset partially by a 1% decrease in retail new vehicle average selling price. Retail new vehicle gross profit decreased 27% in 2024, due primarily to increased price competition resulting from higher levels of available inventory and higher cost of goods sold per unit, which combined to drive lower retail new vehicle gross profit per unit. Retail new vehicle gross profit per unit decreased $1,468 per unit, or 30%, to $3,387 per unit. On a trailing quarter cost of sales basis, our reported Franchised Dealerships Segment new vehicle inventory days’ supply was approximately 46 days as of December 31, 2024, compared to 37 days as of December 31, 2023, as a result of increased manufacturer production levels and lower consumer demand resulting from affordability challenges.

Previous wording

Retail used vehicle revenue decreased 10% in 2023, driven by a 7% decrease in retail used vehicle unit sales volume, combined with a 3% decrease in retail used vehicle average selling price. Retail used vehicle gross profit decreased 6% in 2023, due primarily to the reduction in retail used vehicle unit sales volume, as well as a lower volume of off-lease inventory and challenges related to consumer affordability. Wholesale vehicle gross profit (loss) improved by approximately $3.0 million, to a gross loss of $2.5 million during 2023, due primarily to a $114 per unit, or 48%, improvement in wholesale vehicle gross profit per unit as a result of changes in pricing and demand for vehicles at wholesale auction. We generally focus on maintaining 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 29 days as of December 31, 2023, compared to 26 days as of December 31, 2022.

Current wording

Same store retail used vehicle revenue decreased 4% in 2024, driven by a 6% decrease in retail used vehicle average selling price, offset partially by a 2% increase in retail used vehicle unit sales volume. Retail used vehicle gross profit decreased 7% in 2024, primarily due to lower retail used vehicle gross profit per unit. Retail used vehicle gross profit per unit decreased $154 per unit, or 9%, to $1,477 per unit in 2024, due primarily to higher inventory acquisition costs and lower selling prices due to increased price competition as a result of ongoing consumer affordability challenges, including the effect of higher interest rates. Same store wholesale vehicle gross profit (loss) worsened by approximately $2.0 million, to a gross loss of $4.3 million during 2024, due primarily to a $95 per unit, or 81%, increase in wholesale vehicle gross loss per unit as a result of changes in pricing and demand for vehicles at wholesale auction. We generally focus on maintaining 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 31 days as of December 31, 2024, compared to 29 days as of December 31, 2023.

Previous wording

Fixed Operations revenue increased 8% and Fixed Operations gross profit increased 9% in 2023, driven primarily by higher repair order volume and higher parts and labor costs that were passed along to customers. Fixed Operations gross margin increased 10 basis points, to 49.6%, in 2023, driven primarily by an increase in customer pay revenue contribution and higher customer pay and warranty gross margin.

Current wording

Same store Fixed Operations revenue increased 6%, driven primarily by increased capacity as a result of additional technicians and higher parts and labor costs that were passed along to consumers, despite being negatively affected by the CDK outage. Fixed Operations gross profit increased 7% in 2024, driven primarily by higher warranty revenue contribution and higher warranty gross margin. Fixed Operations gross margin increased 70 basis points, to 50.4%, in 2024, driven primarily by an increase in warranty revenue contribution and higher warranty gross margin.

Previous wording

Unless otherwise noted, all discussion of increases or decreases are for 2023 compared to 2022. The following discussion 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 or acquisition. Same market results may vary significantly from reported results due to store closures during 2023, as the closed stores are not included in the same market results.

Current wording

Unless otherwise noted, all discussion of increases or decreases are for 2024 compared to 2023. The following discussion 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 or acquisition.

Previous wording

Reported total revenues decreased 1% in 2023, driven primarily by a 12% decrease in average retail used vehicle selling price, offset partially by a 13% increase in total vehicle unit sales volume (retail used vehicles and wholesale vehicles combined). Reported total gross profit decreased 8% in 2023, primarily due to an approximately $300 decrease in retail used vehicle gross profit (loss) per unit, offset partially by higher retail used vehicle unit sales volume and an increase in F&I gross profit and an increase in F&I gross profit per unit.

Current wording

Reported total revenues decreased 13% in 2024, driven primarily by a 9% decrease in average retail used vehicle selling price and a 6% decrease in total vehicle unit sales volume (retail used vehicles and wholesale vehicles combined). Reported total gross profit increased 28% in 2024, primarily due to an $452 increase in retail used vehicle gross profit (loss) per unit and a $395 increase in F&I gross profit per unit, partially offset by the decrease in retail used vehicle unit sales volume.

Previous wording

Same market total revenues increased 51% in 2023, driven primarily by a 65% increase in retail used vehicle unit sales volume. Same market total gross profit increased 82% in 2023, driven primarily by an increase in retail used vehicle unit sales volume and higher combined retail used vehicle and F&I gross profit per unit.

Current wording

Same market total revenues increased 4% in 2024, driven primarily by a 10% increase in retail used vehicle unit sales volume, offset partially by a 7% decrease in average selling price per used retail unit. Same market total gross profit increased 48% in 2024, driven primarily by a 271% increase in retail used vehicle gross profit per unit.

Previous wording

Reported wholesale vehicle gross profit decreased approximately $2.3 million in 2023, primarily due to a decrease in wholesale vehicle gross profit per unit. 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. On a trailing quarter cost of sales basis, our reported used vehicle inventory days’ supply in our EchoPark Segment was approximately 36 days as of December 31, 2023, as compared to 40 days as of December 31, 2022.

Current wording

Reported wholesale vehicle gross profit decreased approximately $2.2 million in 2024, primarily due to a 257% decrease in wholesale vehicle gross profit per unit. 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. On a trailing quarter cost of sales basis, our reported used vehicle inventory days’ supply in our EchoPark Segment was approximately 38 days as of December 31, 2024, as compared to 36 days as of December 31, 2023

Previous wording

Reported retail new vehicle revenue increased 179% in 2023, primarily driven by a 204% increase in retail new vehicle unit sales volume, offset partially by an 8% decrease in retail new vehicle average selling price. Retail new vehicle gross profit increased 159% in 2023, as a result of higher retail new vehicle unit sales volume, offset partially by lower retail new vehicle gross profit per unit. Retail new vehicle gross profit per unit decreased $539 per unit, or 14%, to $3,435 per unit, due primarily to lower retail new vehicle average selling prices. On a trailing quarter cost of sales basis, our reported Powersports Segment new vehicle inventory days’ supply was approximately 183 days as of December 31, 2023, compared to 119 days as of December 31, 2022. 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.

Current wording

Same store retail new vehicle revenue decreased 9% in 2024, primarily driven by a 14% decrease in retail new vehicle unit sales volume, offset partially by a 5% increase in retail new vehicle average selling price. Retail new vehicle gross profit decreased 33% in 2024, as a result of lower retail new vehicle unit sales volume and lower retail new vehicle gross profit per unit. Retail new vehicle gross profit per unit decreased $743 per unit, 22%, to $2,687 per unit, due primarily to higher inventory invoice costs. On a trailing quarter cost of sales basis, our reported Powersports Segment new vehicle inventory days’ supply was approximately 178 days as of December 31, 2024, compared to 183 days as of December 31, 2023. We believe that the level of new vehicle inventory days’ supply in our Powersports Segment should be in the 90- to 120-day range, depending on seasonality (typically the second and third quarters have more demand and lower days’ supply compared to the first and fourth quarters).

Previous wording

Reported retail used vehicle revenue increased 1%, due to a 15% increase in retail used vehicle unit sales volume, partially offset by a 12% decrease in retail used vehicle revenue per unit. F&I revenue increased 7% in 2023, driven primarily by a 15% increase in retail used vehicle unit sales volume, offset partially by a 7% decrease in F&I gross profit per unit. Combined retail used vehicle and F&I gross profit per unit decreased $474 per unit, or 18%, to $2,183 per unit in 2023, primarily due to a 438% decrease in used vehicle gross profit per unit.

Current wording

Reported retail new vehicle revenue decreased 7% in 2024, primarily driven by a 12% decrease in retail new vehicle unit sales volume, offset partially by a 6% increase in retail new vehicle average selling price. Retail new vehicle gross profit decreased 31% in 2024, as a result of lower retail new vehicle unit sales volume and lower retail new vehicle gross profit per unit. Retail new vehicle gross profit per unit decreased $722 per unit, or 21%, to $2,713 per unit, due primarily to higher inventory invoice costs.

Previous wording

Reported retail used vehicle revenue increased 175% in 2023, primarily driven by a 283% increase in retail used vehicle unit sales volume, offset partially by a 29% decrease in retail used vehicle average selling price. Retail used vehicle gross profit increased 170% in 2023, as a result of higher retail used vehicle unit sales volume. Retail used vehicle gross profit per unit decreased $955 per unit, or 29%, to $2,394 per unit, due primarily to lower retail used vehicle average selling prices. On a trailing quarter cost of sales basis, our reported Powersports Segment used vehicle inventory days’ supply was approximately 118 days as of December 31, 2023, compared to 141 days as of December 31, 2022. 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.

Current wording

Same store used vehicle revenue increased 12% in 2024, primarily driven by a 17% increase in retail used vehicle average selling price. Retail used vehicle gross profit decreased 4% in 2024, as a result of lower retail used vehicle unit sales volume. Retail used vehicle gross profit per unit increased $34 per unit, or 1%, to $2,420 per unit. On a trailing quarter cost of sales basis, our reported Powersports Segment used vehicle inventory days’ supply was approximately 115 days as of December 31, 2024, compared to 118 days as of December 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 (typically the second and third quarter has more demand and lower days’ supply compared to the first and fourth quarters).

Previous wording

Reported Fixed Operations revenue increased 287% and Fixed Operations gross profit increased 267% in 2023, driven primarily by higher repair order volume and higher parts and labor costs that were passed along to consumers. Fixed Operations gross margin decreased 310 basis points to 47.0% in 2023, driven primarily by a decrease in customer pay and warranty revenue contribution and lower customer pay and warranty gross margin.

Current wording

Reported Fixed Operations revenue decreased 4% and Fixed Operations gross profit decreased 6% in 2024, driven primarily by lower repair order volume. Fixed Operations gross margin decreased 100 basis points to 46.0% in 2024, driven primarily by a decrease in customer pay revenue contribution and lower customer pay gross margin.

Previous wording

We currently estimate the 2024 new vehicle industry volume will be between 15.5 million vehicles (flat compared to 2023) and 16.0 million vehicles (an increase of 3% compared to 2023). The effects of 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 economic conditions, natural disasters or other unforeseen circumstances could cause the actual 2024 new vehicle industry volume to vary from expectations.

Current wording

We currently estimate the 2025 new vehicle industry volume will be between 16.1 million vehicles (flat compared to 2024) and 16.5 million vehicles (an increase of 2% compared to 2024). The effects of 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 economic conditions, natural disasters or other unforeseen circumstances could cause the actual 2025 new vehicle industry volume to vary from expectations.

Previous wording

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.

Current wording

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. Depending on the mix of inventory sourcing (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 recent trends in the used vehicle environment.

Previous wording

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 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 CPO 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.

Current wording

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) 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.

Previous wording

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 rates 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.

Current wording

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. We do not have direct credit risk for the vehicle financing, extended warranties and service contracts that we sell. 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 rates 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.

Previous wording

Retail new vehicle revenue increased 12%, due primarily to an 8% increase in retail new vehicle unit sales volume, as well as a 3% increase in retail new vehicle average selling price. Retail new vehicle gross profit decreased approximately $134.0 million, or 21%, as a result of lower retail new vehicle gross profit per unit. Retail new vehicle gross profit per unit decreased $1,774 per unit, or 27%, to $4,849 per unit, due primarily to increased price competition as a result of higher levels of available inventory than in the prior year and higher inventory acquisition costs. On a trailing quarter cost of sales basis, our reported Franchised Dealerships Segment new vehicle inventory days’ supply was approximately 37 and 24 days as of December 31, 2023 and 2022, respectively.

Current wording

Retail new vehicle revenue increased 4%, due primarily to a 5% increase in retail new vehicle unit sales volume, partially offset by a 1% decrease in retail new vehicle average selling price. Retail new vehicle gross profit decreased approximately $138.5 million, or 27%, as a result of lower retail new vehicle gross profit per unit. Retail new vehicle gross profit per unit decreased $1,468 per unit, or 30%, to $3,387 per unit, due primarily to increased price competition as a result of higher levels of available inventory than in the prior year and higher inventory invoice costs. On a trailing quarter cost of sales basis, our reported Franchised Dealerships Segment new vehicle inventory days’ supply was approximately 46 and 37 days as of December 31, 2024 and 2023, respectively.

Previous wording

Same store wholesale vehicle revenue decreased 35%, driven primarily by a 24% decrease in wholesale vehicle revenue per unit and a 14% decrease in wholesale vehicle unit sales volume in 2023. The decline in wholesale vehicle unit sales volume was driven by a reduction in trade-in inventory volume and an increase in the supply of new vehicle inventory, resulting in a shift in the sales mix from used vehicles to new vehicles. Wholesale vehicle gross loss improved by approximately $3.0 million, driven primarily by a $114 per unit improvement in wholesale vehicle gross loss per unit during 2023.

Current wording

Same store wholesale vehicle revenue decreased 7%, driven primarily by a 9% decrease in wholesale vehicle revenue per unit, offset partially by a 3% increase in wholesale vehicle unit sales volume in 2024. The increase in wholesale vehicle unit sales volume was driven by a continued increase in the supply of new vehicle inventory resulting in a sales mix with higher retail new and used vehicle sales volume. Wholesale vehicle gross loss worsened by approximately $2.0 million, driven primarily by a $95 per unit increase in wholesale vehicle gross loss per unit during 2024.

Previous wording

F&I revenue remained flat in 2023, due to flat year-over-year combined retail new and used vehicle unit sales volume. F&I gross profit per retail unit decreased $10 per unit to $2,411 per unit, primarily due to a decrease in gross profit per finance contract and lower finance contract penetration rates.

Current wording

F&I revenue increased 2%, due to an increase in combined retail new and used vehicle unit sales volume, offset partially by lower F&I gross profit per retail unit. F&I gross profit per retail unit decreased $36 per unit to $2,377 per unit, primarily due to a decrease in gross profit per finance contract and lower service contract and other aftermarket contract penetration rates.

Previous wording

Finance contract revenue decreased 5%, primarily due to a 170-basis point decrease in the combined new and used vehicle finance contract penetration rate. Service contract revenue increased 12%, primarily due to an 18% increase in gross profit per service contract, offset partially by a 250-basis point decrease in the service contract penetration rate. Other aftermarket contract revenue increased 7%, driven primarily by a 10% increase in gross profit per other aftermarket contract, offset partially by a 430-basis point decrease in the other aftermarket contract penetration rate. We believe that elevated interest rates during 2023 had a negative impact on consumer affordability, which contributed to lower penetration rates across contract categories.

Current wording

Finance contract revenue increased 1%, primarily due to a 130-basis point increase in the combined new and used vehicle finance contract penetration rate. Service contract revenue increased 4%, primarily due to a 2% increase in gross profit per service contract, offset partially by a 90-basis point decrease in the service contract penetration rate. Other aftermarket contract revenue increased 4%, driven primarily by a 5% increase in gross profit per other aftermarket contract, offset partially by a 1% decrease in the other aftermarket contract volume.

Previous wording

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 or acquisition. Same market results may vary significantly from reported results due to store closures during 2023, as the closed stores are not included in same market results.

Current wording

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 or acquisition. Same market results may vary significantly from reported results due to store closures during 2023 and 2024, as the closed stores are not included in same market results.

Previous wording

Used vehicle revenue increased approximately $625.5 million, or 55%, due to a 65% increase in used vehicle unit sales volume, partially offset by a 6% decrease in used vehicle revenue per unit. Combined used vehicle gross profit and F&I revenue increased approximately $71.0 million, or 85%, due to a $248, or 12%, increase in total used vehicle and F&I gross profit per unit. The increase in total used vehicle and F&I gross profit per unit was due primarily to improvement in inventory acquisition cost as a result of sourcing a higher percentage of inventory from non-auction sources, in addition to expanding our inventory to include older vehicles, which typically earn a higher gross profit per unit.

Current wording

Used vehicle revenue increased approximately $39.7 million, or 2%, due to a 10% increase in used vehicle unit sales volume, partially offset by a 7% decrease in used vehicle revenue per unit. Combined used vehicle gross profit and F&I revenue increased approximately $70.0 million, or 50%, due to an $821, or 36%, increase in total 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 higher F&I penetration rates, an improvement in inventory acquisition costs as a result of paying lower wholesale auction prices, and sourcing a higher percentage of inventory from non-auction sources.

Previous wording

Within F&I revenue, reported finance contract gross profit increased approximately $10.3 million, or 30%, due to a 58% increase in total finance contracts, partially offset by an 18% decrease in gross profit per finance contract and a 330-basis point decrease in finance contract penetration rate. Reported service contract gross profit increased approximately $15.9 million, or 79%, due to a 54% increase in total service contracts and a 16% increase in gross profit per service contract, partially offset by a 410-basis point decrease in service contract penetration rate. Reported other aftermarket product contract gross profit increased approximately $15.4 million, or 101%, due to a 71% increase in total aftermarket contracts, an 18% increase in total aftermarket contracts, and a 340-basis point increase in other aftermarket product contract penetration rate.

Current wording

Within F&I revenue, finance contract gross profit increased approximately $3.7 million, or 9%, due to a 10% increase in retail unit sales volume, partially offset by a 1% decrease in gross profit per finance contract and a 20-basis point decrease in finance contract penetration rate. Service contract gross profit increased approximately $4.4 million, or 14%, due to a 3% increase in total service contracts and a 11% increase in gross profit per service contract, partially offset by a 310-basis point decrease in service contract penetration rate. Other aftermarket product contract gross profit increased approximately $40.0 million, or 138%, due to a 91% increase in total aftermarket contracts, a 24% increase in gross profit per aftermarket contract, and a 7,790-basis point increase in other aftermarket product contract penetration rate as a result of our efforts to offer a wider range of F&I products to our guests.

Previous wording

On a trailing quarter cost of sales basis, our reported used vehicle inventory days’ supply in our EchoPark Segment was approximately 36 and 40 days as of December 31, 2023 and 2022, respectively. 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.

Current wording

On a trailing quarter cost of sales basis, our reported used vehicle inventory days’ supply in our EchoPark Segment was approximately 38 and 36 days as of December 31, 2024 and 2023, respectively. 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.

Previous wording

Same market wholesale vehicle revenue decreased 12%, driven primarily by a $3,634, or 32%, decrease in same market wholesale vehicle revenue per unit, offset partially by a 30% increase in same market wholesale vehicle unit sales volume. Same market wholesale vehicle gross profit decreased approximately $1.1 million, due primarily to a decrease in same market wholesale vehicle gross profit per unit of $165 per unit. As we adjust the inventory mix of nearly-new versus older model year vehicles sold at retail going forward, the levels of wholesale vehicle revenue and gross profit may vary.

Current wording

Same market wholesale vehicle revenue increased 5%, driven primarily by a 16% increase in same market wholesale vehicle unit sales volume, offset partially by an $880, or 9%, decrease in same market wholesale vehicle revenue per unit. Same market wholesale vehicle gross profit decreased approximately $2.2 million, due primarily to a decrease in same market wholesale vehicle gross profit per unit of $235 per unit. As we adjust the inventory mix of nearly-new versus older model year vehicles sold at retail going forward, the levels of wholesale vehicle revenue and gross profit may vary.

Previous wording

Our Powersports Segment consists of eight stores acquired during 2022 and five stores acquired in the first quarter of 2023. As a result of these acquisitions, 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. 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. Our Powersports Segment results are subject to seasonal variations, such that the second and third quarters are generally expected to contribute higher revenues and segment income than the first and fourth quarters.

Current wording

Our Powersports Segment consists of eight stores acquired during 2022, five stores acquired in the first quarter of 2023, and two stores acquired in the fourth quarter of 2024. As a result of these acquisitions, 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. 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. Our Powersports Segment results are subject to seasonal variations, such that the second and third quarters are generally expected to contribute higher revenues and segment income than the first and fourth quarters.

Previous wording

On a trailing quarter cost of sales basis, our reported Powersports Segment new vehicle inventory days’ supply was approximately 183 days as of December 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.

Current wording

On a trailing quarter cost of sales basis, our reported Powersports Segment new vehicle inventory days’ supply was approximately 178 days as of December 31, 2024. 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 (typically the second and third quarters have more demand and lower days’ supply compared to the first and fourth quarters).

Previous wording

On a trailing quarter cost of sales basis, our reported Powersports Segment used vehicle inventory days’ supply was approximately 118 days as of December 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.

Current wording

On a trailing quarter cost of sales basis, our reported Powersports Segment used vehicle inventory days’ supply was approximately 115 days as of December 31, 2024. 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 (typically the second and third quarters have more demand and lower days’ supply compared to the first and fourth quarters).

Previous wording

Same store Fixed Operations revenue decreased approximately $1.4 million and same store Fixed Operations gross profit decreased approximately $1.2 million. Same store customer pay revenue decreased approximately $1.6 million and same store customer pay gross profit decreased approximately $1.5 million. Same store warranty revenue decreased approximately $0.2 million and same store warranty gross profit decreased approximately $0.2 million. Same store wholesale parts revenue increased approximately $0.1 million and same store wholesale parts gross profit remained flat. Same store internal, sublet and other revenue increased approximately $0.3 million and same store internal, sublet and other gross profit increased approximately $0.5 million.

Current wording

Same store Fixed Operations revenue decreased approximately $2.6 million and same store Fixed Operations gross profit decreased approximately $1.7 million. Same store customer pay revenue decreased approximately $4.4 million and same store customer pay gross profit decreased approximately $3.6 million. Same store warranty revenue increased approximately $2.4 million and same store warranty gross profit increased approximately $2.1 million. Same store wholesale parts revenue remained flat year over year and same store wholesale parts gross profit increased approximately 0.1 million. Same store internal, sublet and other revenue decreased approximately $0.6 million and same store internal, sublet and other gross profit decreased approximately $0.3 million.

Previous wording

Same store F&I revenue decreased approximately $0.4 million, or 16%, primarily due to a 10% decrease in retail new and used vehicle unit sales volume. Same store F&I gross profit per retail unit decreased $48 per unit, or 4%, to $1,161 per unit, primarily due to a decrease in gross profit per service contract. Same store finance contract revenue decreased 44%, primarily due to lower retail new and used vehicle unit sales volume and a 170-basis point decrease in the combined new and used vehicle finance contract penetration rate. Same store service contract revenue decreased 71%, primarily due to a 190-basis point decrease in the service contract penetration rate, a 65% decrease in gross profit per service contract and a 15% decrease in retail new and used vehicle service contract unit sales volume. Same store other aftermarket contract revenue increased 176%, driven primarily by a 356% increase in gross profit per other aftermarket contract, offset partially by lower retail new and used vehicle unit sales volume.

Current wording

Same store finance contract revenue decreased 11%, primarily due to lower retail new and used vehicle unit sales volume, offset partially by a 160-basis point increase in the combined new and used vehicle finance contract penetration rate. Same store service contract revenue increased 24%, primarily due to a 40% increase in gross profit per service contract, offset partially by a 20-basis point decrease in the service contract penetration rate and a 11% decrease in retail new and used vehicle service contract unit sales volume. Same store other aftermarket contract revenue decreased 32%, driven primarily by a 22% decrease in gross profit per other aftermarket contract and a lower retail new and used vehicle unit sales volume.

Previous wording

(4)For 2023, amount includes approximately $1.0 million of pre-tax property and equipment impairment charges for the Franchised Dealerships Segment and approximately $78.3 million of pre-tax impairment charges related to property and equipment, lease right-of-use assets, and other assets for the EchoPark Segment. For 2022, amount includes approximately $115.5 million of pre-tax franchise asset and property and equipment impairment charges for the Franchised Dealerships Segment and approximately $204.9 million of pre-tax goodwill and franchise asset impairment charges for the EchoPark Segment.

Current wording

(5)For 2024, amount includes approximately $1.2 million of pre-tax property and equipment charges for the Franchised Dealerships Segment and approximately $2.7 million of pre-tax property and equipment charges for real estate held for sale in the EchoPark Segment. For 2023, amount includes approximately $1.0 million of pre-tax franchise asset and property and equipment impairment charges for the Franchised Dealerships Segment and approximately $78.3 million of pre-tax impairment charges related to fixed assets, lease right-of-use assets, and other contractual obligations related to abandoned property for the EchoPark Segment.

Previous wording

Overall SG&A expenses increased in both dollar amount and as a percentage of gross profit, primarily due to an increase in other SG&A expenses and a decrease in gross profit. Compensation expense increased in both dollar amount and as a percentage of gross profit, primarily due to an increase in fixed compensation expense and the effects of industry-wide wage inflation. Advertising expense decreased in dollar amount and was flat as a percentage of gross profit, due primarily to lower levels of advertising spent in the EchoPark Segment as a result of the store closures during the year. Rent expense decreased in both dollar amount and as a percentage of gross profit, primarily due to the purchase of several properties that were previously leased and the closure of stores in the EchoPark Segment. Other SG&A expenses increased in both dollar amount and as a percentage of gross profit, primarily due to an increase in expenses related to information technology and building maintenance as well as an increase in real estate tax expenses.

Current wording

Overall SG&A expenses decreased in dollar amount and increased as a percentage of gross profit, primarily due to an increase in compensation expense as a percent of gross profit due to lower gross profit as a result of a decrease in new vehicle gross profit per unit as new vehicle inventory returned toward normalized levels. Compensation expense decreased in dollar amount due to a decrease in fixed compensation expense, and increased as a percentage of gross profit as a result of lower new vehicle gross profit. Advertising expense decreased in both dollar amount and as a percentage of gross profit, due primarily to lower levels of advertising spent in the EchoPark Segment. Rent expense decreased in both dollar amount and as a percentage of gross profit, primarily due to the purchase of several properties that were previously leased and the disposal or sublease of certain non-operating stores during the year. Other SG&A expenses decreased in dollar amount as a result of ongoing efforts to optimize expenses. However, these expenses increased as a percentage of gross profit, primarily due to an increase in expenses related to information technology and building maintenance as well as an increase in real estate tax expenses, combined with lower gross profit levels.

Previous wording

Impairment charges were approximately $79.3 million and $320.4 million in 2023 and 2022, respectively. Impairment charges for 2023 primarily related to fixed assets, lease right-of-use assets, and other contractual obligations related to abandoned property as a result of our decisions to indefinitely suspend operations at certain EchoPark locations and to close certain Northwest Motorsport stores during 2023.

Current wording

Impairment charges were approximately $3.9 million and $79.3 million in 2024 and 2023, respectively. Impairment charges for 2024 primarily related to fixed assets, lease right-of-use assets, and other contractual obligations related to abandoned property as a result of our decisions to indefinitely suspend operations at certain EchoPark locations and to close certain Northwest Motorsport stores during 2023 and 2024.

Previous wording

Depreciation expense increased approximately $14.8 million, or 11.6%, in 2023, due primarily to acquisitions and completed construction projects and purchases of fixed assets for use in our franchised dealerships and EchoPark stores.

Current wording

Depreciation expense increased approximately $8.1 million, or 5.7%, in 2024, due primarily to acquisitions and completed construction projects and purchases of fixed assets for use in our franchised dealerships and EchoPark stores.

Previous wording

Interest expense, floor plan for new vehicles increased approximately $34.0 million. The average interest rate applied to the new vehicle floor plan increased in the 12 months ended December 31, 2023, resulting in $28.5 million of the overall increase. The average new vehicle floor plan notes payable balance increased approximately $196.9 million, which resulted in $5.5 million of the overall increase.

Current wording

Interest expense, floor plan for new vehicles increased approximately $27.5 million. The average interest rate applied to the new vehicle floor plan increased in the 12 months ended December 31, 2024, resulting in $2.2 million of the overall increase. The average new vehicle floor plan notes payable balance increased approximately $414.0 million, which resulted in $25.3 million of the overall increase.

Previous wording

Interest expense, floor plan for used vehicles decreased approximately $1.1 million, including the effect of interest income earned on the floor plan deposit balance, which contributed to $15.2 million of this decrease. Excluding the effect of interest income earned on the floor plan deposit balance, interest expense, floor plan for used vehicles increased approximately $14.1 million. Excluding the effect of interest income earned on the floor plan deposit balance, the average interest rate applied to the used vehicle floor plan increased in the 12 months ended December 31, 2023, driving a $15.3 million increase. The average used vehicle floor plan notes payable balance decreased approximately $30.5 million, which reduced used vehicle floor plan interest expense by approximately $1.2 million.

Current wording

Interest expense, floor plan for used vehicles decreased approximately $7.8 million, including the effect of interest income earned on the floor plan deposit balance, which contributed to $4.3 million of this decrease. Excluding the effect of interest income earned on the floor plan deposit balance, interest expense, floor plan for used vehicles decreased approximately $3.5 million. Excluding the effect of interest income earned on the floor plan deposit balance, the average interest rate applied to the used vehicle floor plan increased in the 12 months ended December 31, 2024, offsetting $0.6 million of that decrease. The average used vehicle floor plan notes payable balance decreased approximately $57.0 million, which reduced used vehicle floor plan interest expense by approximately $4.1 million.

Previous wording

The overall effective tax rate was 26.3% and 53.4% for 2023 and 2022, respectively. Income tax expense for 2023 includes the effect of a $5.3 million charge related to changes in uncertain tax positions, a $3.4 million charge related to non-deductible executive compensation and a $0.7 million charge related to the increase of the valuation allowance for state net operating loss carryforwards, partially offset by a $1.6 million benefit related to vested or exercised stock compensation awards. Our effective tax rate varies from year to year based on the level of taxable income, the distribution of taxable income between states in which the Company operates and other tax adjustments.

Current wording

The overall effective tax rate was 15.7% and 26.3% for 2024 and 2023, respectively. Income tax expense for 2024 includes the effect of an out of period adjustment related to franchise assets of $31.0 million, a $1.6 million charge related to charges in uncertain tax positions, and a $4.7 million charge related to non-deductible executive compensation, partially offset by a $1.4 million benefit related to vested or exercised stock compensation awards. Our effective tax rate varies from year to year based on the level of taxable income, the distribution of taxable income between states in which the Company operates and other tax adjustments.