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Sonic to Pilot Hybrid Process in July

April 29, 2014

CHARLOTTE, N.C.  — Sonic Automotive reported last week that its F&I operations achieved an average profit per retail unit of $1,206, a $58 gain from a year ago. Officials said they believe a new hybrid sales and F&I process the group will begin piloting this summer, one of three initiatives executives discussed during its April 22 quarterly investor call, could push up that average into the $1,500 range. 

Announced last October, One Sonic-One Experience is a customer service initiative that will deliver a “one associate at one price in one hour” experience to Sonic customers. The group will begin testing the process this July at a single store in Charlotte, N.C.

“If we can move the needle where we are now in the $1,200 range to $1,400, $1,500 range, we multiply that across how many vehicles we sell, that’s a huge, huge opportunity for us that translates into hundreds and millions of dollars of gross,” said Vice Chairman David Smith, according to a transcript published by seekingalpa.com.

Scott Smith, the group’s president and co-founder, was quick to note that the group will not expand its initiative to other stores until the company “works out all the bugs.”

“If things go according to plan … One Sonic-One Experience will be fully implemented in the Charlotte market by the end of 2014,” Smith explained, adding that the company expects companywide implementation to happen in approximately 18 months.

Smith also updated investors on the company’s second initiative, the introduction of pre-owned specialty stores. Sonic will kick off its plan in the Denver market in the fourth quarter. Hiring and training will begin later this quarter.

“This is a plan we believe has enormous potential,” the company’s co-founder said. “Bear in mind that the larger player in this segment, CarMax, which we very much admire, has approximately 1% share of the industry. A 1% share of the industry means there is 99% still out there to be had. And we believe that there are opportunities far beyond 1% share.”

In the first quarter, Sonic posted an all-time record for pre-owned sales (27,657 units) and a first-quarter record for pre-owned gross profit ($40.7 million). Retail revenue was up 6.4%. Pre-owned unit sales per store per month in the first quarter reached 90 units, with the group averaging 100 units per store in March for a total of 9,900 units sold for the month.  

“We believe our current store base is capable of selling more than 15,000 units per month,” said Jeff Dyke, executive vice president of operations. “That’s 150 units per store as we patiently grow our teams and capabilities.”

The group’s used-to-new sales ratio was 0.9 to 1, Dyke added. He also reported that new-vehicle revenue increased 1%, while volume was down 1.8% from a year ago. Gross profit per new unit sold increased $58 to $2,191, driving up total new-vehicle gross profit by 1% to $66 million.

“We continue to adjust True Price, which is a key ingredient to our One Sonic-One Experience strategy …,” Dyke said of group’s pricing model. “What’s important … to note is when combined with One Sonic-One Experience, we expect significant market share gains as well as continued improvement in our gross per unit, which, if you are watching, has made tremendous progress over the last several quarters.”

Dyke also reported on the company’s fixed operations, which he said was impacted by harsh weather in the first quarter. Revenue from fixed operations was up $22.1 million, or 7.5% from the year-ago period. The department also realized a record for gross profit, which increased $7.9 million from a year ago to $152.1 million. On a same-store adjusted basis, fixed gross grew 2% from a year ago.

“Without the weather in Texas and the East Coast, we think we would have grown the business in the mid-single digits on a same-store basis and the upper single digits in total,” Dyke said, noting that customer-pay gross grew more than 5%, while warranty work grew more than 5.6% from a year ago.

In the first quarter, Sonic posted net income of $19.4 million, down from $21.3 million in the year-ago period. Total revenue improved to $2.14 billion from $2.08 billion in the year-ago quarter.  

“I would like to thank all of our associates for their hard work and dedication to bring One Sonic-One Experience and our specialty pre-owned stores to life,” Scott Smith said. “This is a very, very exciting time in the company’s history. We are about to embark on a journey that will truly differentiate Sonic Automotive from the rest of the industry.”

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