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Sonic Automotive Inc.

07/29/2021 | Press release | Distributed by Public on 07/29/2021 14:47

10-Q Filing Q2 2021

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 June 30, 2021

OR

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 July 26, 2021, there were 29,686,573 shares of the registrant's Class A Common Stock and 12,029,375 shares of the registrant's Class B Common Stock outstanding.

UNCERTAINTY OF FORWARD-LOOKING STATEMENTS AND INFORMATION

This Quarterly Report on Form 10-Q 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, 2020 and in 'Item 1A. Risk Factors' of this report and elsewhere herein, 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 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;

changes in laws and regulations governing the operation of automobile franchises, accounting standards, taxation requirements and environmental laws, including any change in law 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 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, 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 potential future acquisitions;

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

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

the severity and duration 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 the Delta variant or otherwise.

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 Securities and Exchange Commission.

SONIC AUTOMOTIVE, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2021

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

SONIC AUTOMOTIVE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)
Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
(Dollars and shares in thousands, except per share amounts)
Revenues:
New vehicles $ 1,462,893 $ 900,003 $ 2,619,210 $ 1,859,492
Used vehicles 1,266,696 808,877 2,356,794 1,658,930
Wholesale vehicles 84,807 33,175 159,614 81,718
Total vehicles 2,814,396 1,742,055 5,135,618 3,600,140
Parts, service and collision repair 360,596 259,058 681,509 593,738
Finance, insurance and other, net 177,254 110,773 321,916 226,064
Total revenues 3,352,246 2,111,886 6,139,043 4,419,942
Cost of sales:
New vehicles (1,344,467) (854,617) (2,431,319) (1,768,690)
Used vehicles (1,231,943) (781,506) (2,291,171) (1,599,428)
Wholesale vehicles (80,280) (33,601) (154,240) (82,303)
Total vehicles (2,656,690) (1,669,724) (4,876,730) (3,450,421)
Parts, service and collision repair (184,748) (134,779) (350,612) (311,560)
Total cost of sales (2,841,438) (1,804,503) (5,227,342) (3,761,981)
Gross profit 510,808 307,383 911,701 657,961
Selling, general and administrative expenses (320,620) (230,359) (609,976) (512,515)
Impairment charges - (833) - (268,833)
Depreciation and amortization (24,761) (22,647) (48,448) (44,944)
Operating income (loss) 165,427 53,544 253,277 (168,331)
Other income (expense):
Interest expense, floor plan (4,329) (6,314) (9,441) (16,822)
Interest expense, other, net (10,077) (9,797) (20,363) (20,762)
Other income (expense), net - - 100 100
Total other income (expense) (14,406) (16,111) (29,704) (37,484)
Income (loss) from continuing operations before taxes 151,021 37,433 223,573 (205,815)
Provision for income taxes for continuing operations - benefit (expense) (37,030) (6,437) (55,893) 37,680
Income (loss) from continuing operations 113,991 30,996 167,680 (168,135)
Discontinued operations:
Income (loss) from discontinued operations before taxes (204) (289) 516 (573)
Provision for income taxes for discontinued operations - benefit (expense) 58 84 (129) 166
Income (loss) from discontinued operations (146) (205) 387 (407)
Net income (loss) $ 113,845 $ 30,791 $ 168,067 $ (168,542)
Basic earnings (loss) per common share:
Earnings (loss) per share from continuing operations $ 2.74 $ 0.72 $ 4.03 $ (3.93)
Earnings (loss) per share from discontinued operations - - 0.01 (0.01)
Earnings (loss) per common share $ 2.74 $ 0.72 $ 4.04 $ (3.94)
Weighted-average common shares outstanding 41,581 42,940 41,561 42,779
Diluted earnings (loss) per common share:
Earnings (loss) per share from continuing operations $ 2.63 $ 0.71 $ 3.86 $ (3.93)
Earnings (loss) per share from discontinued operations - - 0.01 (0.01)
Earnings (loss) per common share $ 2.63 $ 0.71 $ 3.87 $ (3.94)
Weighted-average common shares outstanding 43,424 43,575 43,483 42,779

See notes to unaudited condensed consolidated financial statements.

1

SONIC AUTOMOTIVE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE OPERATIONS

(Unaudited)

Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
(Dollars in thousands)
Net income (loss) $ 113,845 $ 30,791 $ 168,067 $ (168,542)
Other comprehensive income (loss) before taxes:
Change in fair value and amortization of interest rate cap agreements 471 419 881 780
Amortization of terminated interest rate swap agreements - (835) - (1,632)
Total other comprehensive income (loss) before taxes 471 (416) 881 (852)
Provision for income tax benefit (expense) related to components of other comprehensive income (loss) (124) 161 (291) 325
Other comprehensive income (loss) 347 (255) 590 (527)
Comprehensive income (loss) $ 114,192 $ 30,536 $ 168,657 $ (169,069)

See notes to unaudited condensed consolidated financial statements.

2

SONIC AUTOMOTIVE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

June 30, 2021 December 31, 2020
(Dollars in thousands)
ASSETS
Current Assets:
Cash and cash equivalents $ 239,617 $ 170,313
Receivables, net 356,850 371,666
Inventories 1,016,566 1,247,254
Other current assets 106,341 93,334
Total current assets 1,719,374 1,882,567
Property and Equipment, net 1,177,928 1,120,526
Goodwill 223,398 213,977
Other Intangible Assets, net 68,200 64,300
Operating Right-of-Use Lease Assets 313,941 330,322
Finance Right-of-Use Lease Assets 70,486 60,121
Other Assets 83,018 74,180
Total Assets $ 3,656,345 $ 3,745,993
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable - floor plan - trade $ 32,778 $ 585,225
Notes payable - floor plan - non-trade 1,053,325 739,019
Trade accounts payable 146,634 105,098
Operating short-term lease liabilities 40,413 42,339
Finance short-term lease liabilities 12,920 3,515
Accrued interest 7,365 8,496
Other accrued liabilities 290,686 279,477
Current maturities of long-term debt 51,681 68,244
Total current liabilities 1,635,802 1,831,413
Long-Term Debt 634,712 651,823
Other Long-Term Liabilities 92,974 88,753
Operating Long-Term Lease Liabilities 281,636 296,564
Finance Long-Term Lease Liabilities 64,382 62,290
Deferred Income Taxes 485 345
Commitments and Contingencies
Stockholders' Equity:

Class A Convertible Preferred Stock, none issued

- -

Class A Common Stock, $0.01 par value; 100,000,000 shares authorized; 66,448,546 shares issued and 29,680,414 shares outstanding at June 30, 2021; 65,607,628 shares issued and 29,797,727 shares outstanding at December 31, 2020

664 656

Class B Common Stock, $0.01 par value; 30,000,000 shares authorized; 12,029,375 shares issued and outstanding at June 30, 2021 and December 31, 2020

121 121
Paid-in capital 781,829 767,599
Retained earnings 880,704 721,770
Accumulated other comprehensive income (loss) (3,026) (3,616)

Treasury stock, at cost; 36,768,132 Class A Common Stock shares held at June 30, 2021 and 35,809,901 Class A Common Stock shares held at December 31, 2020

(713,938) (671,725)
Total Stockholders' Equity 946,354 814,805
Total Liabilities and Stockholders' Equity $ 3,656,345 $ 3,745,993

See notes to unaudited condensed consolidated financial statements.

3

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 thousands, except per share amounts)
Balance at March 31, 2020 65,199 $ 652 (34,364) $ (621,290) 12,029 $ 121 $ 758,327 $ 586,511 $ (2,334) $ 721,987
Shares awarded under stock compensation plans 405 4 - - - - (5) - - (1)
Purchases of treasury stock - - (274) (6,522) - - - - - (6,522)

Effect of cash flow hedge instruments, net of tax benefit of $161

- - - - - - - - (255) (255)
Restricted stock amortization - - - - - - 2,971 - - 2,971
Net income (loss) - - - - - - - 30,791 - 30,791

Class A dividends declared ($0.10)

- - - - - - - (3,066) - (3,066)

Class B dividends declared ($0.10)

- - - - - - - (1,203) - (1,203)
Balance at June 30, 2020 65,604 $ 656 (34,638) $ (627,812) 12,029 $ 121 $ 761,293 $ 613,033 $ (2,589) $ 744,702
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 thousands, except per share amounts)
Balance at March 31, 2021 66,018 $ 660 (36,767) $ (713,892) 12,029 $ 121 $ 771,079 $ 771,864 $ (3,373) $ 826,459
Shares awarded under stock compensation plans 431 4 - - - - 6,762 - - 6,766
Purchases of treasury stock - - (1) (46) - - - - - (46)

Effect of cash flow hedge instruments, net of tax expense of $124

- - - - - - - - 347 347
Restricted stock and stock option amortization - - - - - - 3,988 - - 3,988
Net income (loss) - - - - - - - 113,845 - 113,845

Class A dividends declared ($0.12)

- - - - - - - (3,562) - (3,562)

Class B dividends declared ($0.12)

- - - - - - - (1,443) - (1,443)
Balance at June 30, 2021 66,449 $ 664 (36,768) $ (713,938) 12,029 $ 121 $ 781,829 $ 880,704 $ (3,026) $ 946,354

See notes to unaudited condensed consolidated financial statements.

4

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 thousands, except per share amounts)
Balance at December 31, 2019 64,734 $ 647 (33,629) $ (600,004) 12,029 $ 121 $ 755,904 $ 790,158 $ (2,062) $ 944,764
Shares awarded under stock compensation plans 870 9 - - - - (8) - - 1
Purchases of treasury stock - - (1,009) (27,808) - - - - - (27,808)

Effect of cash flow hedge instruments, net of tax benefit of $325

- - - - - - - - (527) (527)
Restricted stock amortization - - - - - - 5,397 - - 5,397
Net income (loss) - - - - - - - (168,542) - (168,542)

Class A dividends declared ($0.20)

- - - - - - - (6,177) - (6,177)

Class B dividends declared ($0.20)

- - - - - - - (2,406) - (2,406)
Balance at June 30, 2020 65,604 $ 656 (34,638) $ (627,812) 12,029 $ 121 $ 761,293 $ 613,033 $ (2,589) $ 744,702
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 thousands, except per share amounts)
Balance at December 31, 2020 65,608 $ 656 (35,810) $ (671,725) 12,029 $ 121 $ 767,599 $ 721,770 $ (3,616) $ 814,805
Shares awarded under stock compensation plans 841 8 - - - - 6,757 - - 6,765
Purchases of treasury stock - - (958) (42,213) - - - - - (42,213)

Effect of cash flow hedge instruments, net of tax expense of $291

- - - - - - - - 590 590
Restricted stock and stock option amortization - - - - - - 7,473 - - 7,473
Net income (loss) - - - - - - - 168,067 - 168,067

Class A dividends declared ($0.22)

- - - - - - - (6,499) - (6,499)

Class B dividends declared ($0.22)

- - - - - - - (2,634) - (2,634)
Balance at June 30, 2021 66,449 $ 664 (36,768) $ (713,938) 12,029 $ 121 $ 781,829 $ 880,704 $ (3,026) $ 946,354

See notes to unaudited condensed consolidated financial statements.

5

SONIC AUTOMOTIVE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)
Six Months Ended June 30,
2021 2020
(Dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 168,067 $ (168,542)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization of property and equipment 45,392 43,462
Provision for bad debt expense 348 345
Debt issuance cost amortization 1,658 1,182
Stock-based compensation expense 7,473 5,397
Deferred income taxes (5,962) (60,035)
Net distributions from equity investee (262) 465
Asset impairment charges - 268,833
Loss (gain) on disposal of dealerships and property and equipment (490) 2,364
Changes in assets and liabilities that relate to operations:
Receivables 14,467 139,305
Inventories 240,233 341,340
Other assets 10,514 (45,013)
Notes payable - floor plan - trade (552,447) (257,660)
Trade accounts payable and other liabilities 36,351 (43,695)
Total adjustments (202,725) 396,290
Net cash provided by (used in) operating activities (34,658) 227,748
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of businesses, net of cash acquired (28,595) -
Purchases of land, property and equipment (105,091) (61,733)
Proceeds from sales of property and equipment 739 163
Proceeds from sales of dealerships 3,798 (886)
Net cash provided by (used in) investing activities (129,149) (62,456)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (repayments) borrowings on notes payable - floor plan - non-trade 314,306 (64,121)
Borrowings on revolving credit facilities 4,906 460,916
Repayments on revolving credit facilities (4,906) (460,916)
Proceeds from issuance of long-term debt - 53,135
Debt issuance costs (4,638) (1,252)
Principal payments and repurchase of long-term debt (30,693) (10,423)
Principal payments of long-term lease liabilities (2,106) (19,620)
Purchases of treasury stock (42,213) (27,808)
Issuance of shares under stock compensation plans 6,765 1
Dividends paid (8,310) (8,583)
Net cash provided by (used in) financing activities 233,111 (78,671)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 69,304 86,621
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 170,313 29,103
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 239,617 $ 115,724
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid (received) during the period for:
Interest, including amount capitalized $ 29,635 $ 34,939
Income taxes $ 54,377 $ 79

See notes to unaudited condensed consolidated financial statements.

6

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 six months ended June 30, 2021 and 2020 are unaudited and have been prepared in accordance with U.S. generally accepted accounting principles ('U.S. GAAP') for interim financial information and applicable rules and regulations of the 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 operating results for interim periods are not necessarily indicative of the results to be expected for the entire fiscal year or future interim periods, because 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. Additionally, the ongoing COVID-19 pandemic could impact earnings for the remainder of 2021 and beyond. 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, 2020.

COVID-19 - The COVID-19 pandemic began negatively impacting the global economy in the first quarter of 2020. The impact on the economy affected both consumer demand and supply of manufactured goods as many countries around the world and states and municipalities in the United States (the 'U.S.') mandated restrictions on citizen movements (i.e., shelter-in-place or stay-at-home orders) or on in-person retail trade or manufacturing activities at physical locations. As a result, many businesses curtailed operations and furloughed or terminated employees. In the U.S., the federal government passed several relief measures, including the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and the Families First Coronavirus Response Act, in an attempt to provide short-term relief to families and businesses as a result of the economic impacts of the COVID-19 pandemic.

This broader economic backdrop resulting from the COVID-19 pandemic had a direct impact on our business and operations beginning in March 2020 and continuing through the date of this report. As a result of the pandemic and related shelter-in-place or stay-at-home orders, we transitioned many of our teammates to remote work arrangements. In situations where a teammate's role did not permit remote work (e.g., service repair technicians), we implemented staggered work hours, social distancing and other safety measures to promote the health and safety of our teammates and guests. As a result of the systems and infrastructure we had in place prior to the pandemic, we were largely able to maintain our back-office operations and financial reporting and internal control processes with minimal disruption or changes in the effectiveness of such operations and processes.

All of our store operations were impacted by the COVID-19 pandemic to varying degrees. During parts of the first half of 2020, the majority of our stores were not permitted to conduct retail sales of new and used vehicles at our physical locations. Those locations could offer virtual sales transactions with 'contactless' delivery to customers but experienced lower consumer demand as a result of the initial onset of the pandemic and state and local governmental restrictions on business and consumer activities. Due to the critical nature of automotive repair, our fixed operations were deemed 'essential' by governmental agencies and have largely been able to continue to conduct business so far, while adjusting operations to comply with state and local standards for safety and social distancing to promote the health and safety of our teammates and guests. As of June 30, 2021, most of such restrictions had been relaxed; however, our stores remain subject to both external and self-imposed health and safety policies and practices that may affect the way we sell vehicles and interact with our guests in the future. These restrictions may be tightened again if conditions relating to the pandemic worsen as a result of variants.

The automotive supply chain has been disrupted during the pandemic, primarily related to the production of semiconductors that are used in many components of modern automobiles. As a result, automobile manufacturing is operating at lower than expected production levels, reducing the amount of new vehicle and certain parts inventory available to our dealerships. These inventory constraints, coupled with strong consumer demand, have led to a low new vehicle inventory and a high vehicle pricing environment. While we believe that inventory levels should improve during the second half of 2021, there is a risk that vehicle and parts inventory levels remain at a low level or worsen, which could adversely impact our revenues and other financial results.

The ongoing effects of the COVID-19 pandemic continue to evolve. While we currently expect to see continued economic recovery in the remainder of the fiscal year ending December 31, 2021, the ongoing pandemic may cause changes in consumer behaviors, including a potential reduction in consumer spending for vehicles and automotive repairs, especially if the pandemic worsens or the regulatory environment changes in response to the pandemic. This may lead to increased asset

SONIC AUTOMOTIVE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

recovery and valuation risks, such as impairment of additional indefinite lived intangible assets. In addition, uncertainties in the global economy may negatively impact our suppliers and other business partners, which may interrupt our vehicle and parts inventory supply chain and require other changes to our operations. These and other COVID-related factors may adversely impact our revenues, operating income and earnings per share financial measures.

Recent Accounting Pronouncements - In March 2020, the Financial Accounting Standards Board issued Accounting Standards Update ('ASU') 2020-04, 'Reference Rate Reform (Accounting Standards Codification ('ASC') Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.' ASU 2020-04 provides optional guidance for a limited period of time to ease potential accounting impact associated 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. We do not currently have any contracts that have been modified, amended or renegotiated to accommodate a transition to a new reference rate, but we will continue to evaluate any such modifications or amendments to our contracts to determine the applicability of this standard on our unaudited condensed consolidated financial statements and related financial statement disclosures.

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.

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. ASC Topic 606, 'Revenue from Contracts with Customers,' applies a five-step model that includes: (1) identifying the contract(s) with the customer; (2) identifying the performance obligation(s) in the contract(s); (3) determining the transaction price; (4) allocating the transaction price to the performance obligation(s) in the contract(s); and (5) recognizing revenue as the performance obligation(s) are satisfied. The standard also requires disclosure of the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. 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 vehicle financing and the sale of 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 conditions are satisfied when the associated vehicle is either delivered or returned to a customer and customer acceptance has occurred, or over time as the maintenance and repair services are performed. 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, when 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 June 30, 2021 and December 31, 2020 include approximately $22.0 million and $21.7 million, respectively, related to contract assets from F&I retro revenues recognition. Changes in contract assets from December 31, 2020 to June 30, 2021 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, 2020 for further discussion of our revenue recognition policies and processes.

IncomeTaxes - The overall effective tax rate from continuing operations was 24.5% and 25.0% for the three and six months ended June 30, 2021, respectively, and 17.2% and 18.3% for the three and six months ended June 30, 2020,

SONIC AUTOMOTIVE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

respectively. Income tax expense for the three months ended June 30, 2021 includes a $1.3 million discrete benefit related to vested or exercised stock compensation awards. Income tax expense for the six months ended June 30, 2021 includes a $2.8 million discrete benefit related to vested or exercised stock compensation awards. Income tax benefit for the three months ended June 30, 2020 includes a $3.4 million discrete benefit related to the favorable resolution of certain tax matters and other adjustments, offset partially by a $0.3 million discrete charge related to vested or exercised stock compensation awards. Income tax benefit for the six months ended June 30, 2020 includes a $55.8 million benefit, including the effect of non-deductible amounts, related to the $268.0 million goodwill impairment charge recognized in such quarter, a $0.2 million discrete benefit related to vested or exercised stock compensation awards and a $0.2 million discrete benefit related to the favorable resolution a of certain tax matter, offset partially by a $1.4 million discrete charge related to changes in uncertain tax positions. Sonic's 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.

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).

2. Business Acquisitions and Dispositions

We acquired two businesses to be included in our EchoPark segment during the six months ended June 30, 2021 for a gross purchase price (including inventory acquired and subsequently funded by floor plan notes payable) of approximately $28.6 million. We did not acquire any businesses during the six months ended June 30, 2020.

We disposed of one luxury franchised dealership during the six months ended June 30, 2021 that generated net cash of approximately $3.8 million. We did not dispose of any dealerships during the six months ended June 30, 2020. We terminated one luxury franchised dealership during the six months ended June 30, 2020.

3. Inventories

Inventories consist of the following:
June 30, 2021 December 31, 2020
(In thousands)
New vehicles $ 243,366 $ 648,448
Used vehicles 593,964 413,209
Service loaners 119,996 128,531
Parts, accessories and other 59,240 57,066
Net inventories $ 1,016,566 $ 1,247,254

4. Property and Equipment

Property and equipment, net consists of the following:
June 30, 2021 December 31, 2020
(In thousands)
Land $ 378,511 $ 375,297
Building and improvements 1,079,078 1,028,016
Furniture, fixtures and equipment 406,408 365,222
Construction in progress 43,428 34,767
Total, at cost 1,907,425 1,803,302
Less accumulated depreciation (717,565) (673,082)
Subtotal 1,189,860 1,130,220
Less assets held for sale (1) (11,932) (9,694)
Property and equipment, net $ 1,177,928 $ 1,120,526

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

In the three and six months ended June 30, 2021, capital expenditures were approximately $37.4 million and $105.1 million, respectively, and in the three and six months ended June 30, 2020, capital expenditures were approximately $41.9 million and $61.7 million, respectively. Capital expenditures in all periods were primarily related to real estate acquisitions,

SONIC AUTOMOTIVE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

construction of new franchised dealerships and EchoPark stores, building improvements and equipment purchased for use in our franchised dealerships and EchoPark stores. Assets held for sale as of June 30, 2021 and December 31, 2020 consists of real property not currently used in operations that we expect to dispose of in the next 12 months.

There were no fixed asset impairment charges for the six months ended June 30, 2021. Impairment charges for the six months ended June 30, 2020 were approximately $0.8 million, related to the abandonment of certain construction projects.

5. Goodwill and Intangible Assets

The carrying amount of goodwill was approximately $223.4 million and $214.0 million as of June 30, 2021 and December 31, 2020, respectively. The carrying amount of goodwill for our franchised dealership reporting unit was approximately $147.1 million and $147.3 million as of June 30, 2021 and December 31, 2020, respectively. The carrying amount of goodwill for our EchoPark reporting unit was approximately $76.3 million and $66.7 million as of June 30, 2021 and December 31, 2020, respectively. The total carrying amount of goodwill is net of accumulated impairment losses of approximately $1.1 billion as of both June 30, 2021 and December 31, 2020. The carrying amount of indefinite lived franchise assets was approximately $68.2 million and $64.3 million as of June 30, 2021 and December 31, 2020, respectively.

Pursuant to the applicable accounting pronouncements, we were required to evaluate the recoverability of our long-lived assets at the end of the first quarter of 2020 as a result of the effects of the COVID-19 pandemic on our operations and market value. Based on this evaluation, we determined the carrying value of our franchised dealership reporting unit goodwill was greater than the fair value of the reporting unit. Accordingly, we recorded a non-cash goodwill impairment charge of $268.0 million and a corresponding income tax benefit of $55.8 million to reduce the carrying value to fair value as of March 31, 2020. We did not record any impairment charges for the three and six months ended June 30, 2021.

6. Long-Term Debt

Long-term debt consists of the following:
June 30, 2021 December 31, 2020
(In thousands)
2021 Revolving Credit Facility (1) $ - $ -
6.125% Senior Subordinated Notes due 2027 250,000 250,000
2019 Mortgage Facility (2) 95,452 100,906
Mortgage notes to finance companies - fixed rate, bearing interest from 2.41% to 7.03% 204,746 212,135
Mortgage notes to finance companies - variable rate, bearing interest at 1.50 to 2.90 percentage points above one-month or three-month LIBOR 147,038 164,889
Subtotal $ 697,236 $ 727,930
Debt issuance costs (10,843) (7,863)
Total debt 686,393 720,067
Less current maturities (51,681) (68,244)
Long-term debt $ 634,712 $ 651,823

(1)The interest rate on the 2021 Revolving Credit Facility (as defined below) was 100 and 150 basis points above LIBOR at June 30, 2021 and December 31, 2020.

(2)The interest rate on the 2019 Mortgage Facility (as defined below) was 150 basis points above LIBOR at both June 30, 2021 and December 31, 2020.

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, increased availability under the 2021 Revolving Credit Facility by $4.5 million and increased availability under the 2021 Floor Plan Facilities by $584.0 million, among other things.

SONIC AUTOMOTIVE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Availability under the 2021 Revolving Credit Facility is calculated as the lesser of $250.0 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 $300.0 million upon satisfaction of certain conditions. As of June 30, 2021, the 2021 Revolving Borrowing Base was approximately $236.6 million based on balances as of such date. As of June 30, 2021, we had no outstanding borrowings and approximately $12.3 million in outstanding letters of credit under the 2021 Revolving Credit Facility, resulting in $224.3 million remaining borrowing availability under the 2021 Revolving Credit Facility.

The 2021 Floor Plan Facilities are comprised of a new vehicle revolving floor plan facility (as amended, the '2021 New Vehicle Floor Plan Facility') and a used vehicle revolving floor plan facility (as amended, the '2021 Used Vehicle Floor Plan Facility'), subject to a borrowing base, in a combined amount of up to $1.55 billion. We may, under certain conditions, request an increase in the 2021 Floor Plan Facilities to a maximum borrowing limit of up to $1.8 billion, which shall be allocated between the 2021 New Vehicle Floor Plan Facility and the 2021 Used Vehicle Floor Plan Facility as we request, with no more than 40% of the aggregate commitments allocated to the commitments under the 2021 Used Vehicle Floor Plan Facility. Outstanding obligations under the 2021 Floor Plan 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.

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 covenants which could restrict or prohibit indebtedness, liens, the payment of dividends, 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 $0.12 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.

6.125% Notes

On March 10, 2017, we issued $250.0 million in aggregate principal amount of unsecured senior subordinated 6.125% Notes due 2027 (the '6.125% Notes') which mature on March 15, 2027. The 6.125% Notes were issued at a price of 100.0% of the principal amount thereof. Balances outstanding under the 6.125% Notes are guaranteed by all of our domestic operating subsidiaries. These guarantees are full and unconditional and joint and several. The parent company has no independent assets or operations. The non-domestic operating subsidiary that is not a guarantor is considered to be minor.

For further discussion of the 6.125% 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, 2020.

2019 Mortgage Facility

On November 22, 2019, we entered into a delayed draw-term loan credit agreement which is scheduled to mature on November 22, 2024 (the '2019 Mortgage Facility').

Under the 2019 Mortgage Facility, Sonic has a maximum borrowing limit of $112.2 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 June 30, 2021, we had approximately $95.5 million of outstanding borrowings under the 2019 Mortgage Facility, resulting in total remaining borrowing availability of approximately $16.7 million under the 2019 Mortgage Facility.

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% to 1.75% per annum according to the Performance Grid.

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, 2020.

SONIC AUTOMOTIVE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Mortgage Notes to Finance Companies

As of June 30, 2021, the weighted-average interest rate of our other outstanding mortgage notes (excluding the 2019 Mortgage Facility) was 3.54% and the total outstanding mortgage principal balance of these notes (excluding the 2019 Mortgage Facility) was approximately $351.8 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 2021 and 2033.

2020 Line of Credit Facility

On June 23, 2020, we entered into a line of credit agreement with Ally Bank (the '2020 Line of Credit Facility') which was scheduled to mature on June 22, 2021. On June 21, 2021, we extended the maturity date of the 2020 Line of Credit Facility to June 19, 2022.

The 2020 Line of Credit Facility has borrowing availability of up to $54.1 million which can be used for general corporate purposes. The amount available for borrowing under the 2020 Line of Credit Facility is directly tied to the appraised value of certain real estate properties of the Company, which are used as collateral for any funds drawn under the 2020 Line of Credit Facility. As of June 30, 2021 and December 31, 2020, we had no outstanding borrowings under the 2020 Line of Credit Facility, resulting in $54.1 million remaining borrowing availability under the 2020 Line of Credit Facility.

The 2020 Line of Credit Facility contains usual and customary representations and warranties, and usual and customary affirmative and negative covenants, including 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 2020 Line of Credit Facility permits 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 2020 Line of Credit Facility) has occurred and is continuing and provided that we remain in compliance with all financial covenants under the 2020 Line of Credit Facility.

Covenants

We have agreed under the 2021 Credit Facilities, the 2019 Mortgage Facility and the 2020 Line of Credit 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, the 2019 Mortgage Facility and the 2020 Line of Credit Facility), including other lenders, subject to certain stated exceptions, including floor plan financing arrangements. In addition, the 2021 Credit Facilities, the 2019 Mortgage Facility and the 2020 Line of Credit 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, the 2019 Mortgage Facility and the 2020 Line of Credit Facility as of June 30, 2021. Financial covenants include required specified ratios (as each is defined in the 2021 Credit Facilities, the 2019 Mortgage Facility and the 2020 Line of Credit Facility) of:

Covenant
Minimum Consolidated Liquidity Ratio Minimum Consolidated Fixed Charge Coverage Ratio Maximum Consolidated Total Lease Adjusted Leverage Ratio
Required ratio 1.05 1.20 5.75
June 30, 2021 actual 1.19 2.21 1.34

The 2021 Credit Facilities, the 2019 Mortgage Facility and the 2020 Line of Credit 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, the 2019 Mortgage Facility and the 2020 Line of Credit Facility.

After giving effect to the applicable restrictions on the payment of dividends under our debt agreements, as of June 30, 2021, we had approximately $348.9 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 June 30, 2021.

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

SONIC AUTOMOTIVE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Credit Facilities, the 2019 Mortgage Facility and the 2020 Line of Credit 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 June 30, 2021, the ratio was 10.05 to 1.00.

7. Commitments and Contingencies

Legal and Other Proceedings

In the ordinary course of business, 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 in all 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 could have a material adverse effect on Sonic's business, financial condition, results of operations, cash flows or prospects. When we believe that a loss is probable and reasonably estimable, we make an accrual for our estimated probable losses. Such reserves are presently immaterial, both individually and in the aggregate. Other than as reflected in our recognized 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.

Guarantees and 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.

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 or facilities. 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 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, our maximum exposure associated with these general indemnifications was approximately $4.0 million and $25.0 million at June 30, 2021 and December 31, 2020, respectively. These indemnifications typically expire within a period of oneto three years following the date of sale. The estimated fair value of these indemnifications was not material and the amount recorded for this contingency was not significant at June 30, 2021.

We also guarantee the floor plan commitments of our 50%-owned joint venture. The amount of such guarantee was approximately $4.3 million at both June 30, 2021 and December 31, 2020.

SONIC AUTOMOTIVE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

8. Fair Value Measurements

Assets and liabilities recorded at fair value in the accompanying unaudited condensed consolidated balance sheets as of June 30, 2021 and December 31, 2020 were as follows:

Fair Value Based on Significant Other Observable Inputs (Level 2)
June 30, 2021 December 31, 2020
(In thousands)
Assets:
Cash surrender value of life insurance policies (1) $ 37,928 $ 35,739
Total assets $ 37,928 $ 35,739
Liabilities:
Deferred compensation plan (2) $ 22,784 $ 20,685
Total liabilities $ 22,784 $ 20,685

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

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

There were no instances during the six months ended June 30, 2021 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, 2021 or as events or changes in circumstances require.

As of June 30, 2021 and December 31, 2020, 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 June 30, 2021 and December 31, 2020, the fair value and carrying value of Sonic's significant fixed rate long-term debt were as follows:

June 30, 2021 December 31, 2020
Fair Value Carrying Value Fair Value Carrying Value
(In thousands)
6.125% Notes (1) $ 261,875 $ 250,000 $ 263,438 $ 250,000

(1)As determined by market quotations from similar securities as of June 30, 2021 and December 31, 2020, respectively (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, 2020.

9. Accumulated Other Comprehensive Income (Loss)

The changes in accumulated other comprehensive income (loss) related to our cash flow hedges and defined benefit pension plan for the three and six months ended June 30, 2021 are presently immaterial, both individually and in the aggregate.

For further discussion of Sonic's accumulated other comprehensive income (loss), see Note 13, 'Accumulated Other Comprehensive Income (Loss),' to the consolidated financial statements in Sonic's Annual Report on Form 10-K for the year ended December 31, 2020. For further discussion of Sonic's defined benefit pension plan, see Note 10, 'Employee Benefit Plans,' to the consolidated financial statements in Sonic's Annual Report on Form 10-K for the year ended December 31, 2020.

10. Segment Information

As of June 30, 2021, Sonic had two 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 vehicle, select finance and insurance products and sell their current vehicle to us (the 'EchoPark Segment'). Sonic has determined that its operating segments also represent its reportable segments.

SONIC AUTOMOTIVE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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.

Reportable segment financial information for the three and six months ended June 30, 2021 and 2020 were as follows:
Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
(In thousands)
Segment Revenues:
Franchised Dealerships Segment revenues:
New vehicles $ 1,461,984 $ 900,003 $ 2,618,301 $ 1,859,492
Used vehicles 761,524 535,699 1,423,059 1,102,587
Wholesale vehicles 62,956 28,509 119,160 70,948
Parts, service and collision repair 346,118 251,998 654,194 576,499
Finance, insurance and other, net 124,060 80,401 221,586 163,429
Franchised Dealerships Segment revenues $ 2,756,642 $ 1,796,610 $ 5,036,300 $ 3,772,955
EchoPark Segment revenues:
New vehicles $ 909 $ - $ 909 $ -
Used vehicles 505,172 273,178 933,735 556,343
Wholesale vehicles 21,851 4,666 40,454 10,770
Parts, service and collision repair 14,478 7,060 27,315 17,239
Finance, insurance and other, net 53,194 30,372 100,330 62,635
EchoPark Segment revenues $ 595,604 $ 315,276 $ 1,102,743 $ 646,987
Total consolidated revenues $ 3,352,246 $ 2,111,886 $ 6,139,043 $ 4,419,942
Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
(In thousands, except unit data)
Segment Income (Loss) (1):
Franchised Dealerships Segment $ 165,415 $ 35,689 $ 235,957 $ 58,346
EchoPark Segment (14,394) 2,577 (12,384) 4,672
Total segment income (loss) $ 151,021 $ 38,266 $ 223,573 $ 63,018
Impairment charges (2) - (833) - (268,833)
Income (loss) from continuing operations before taxes $ 151,021 $ 37,433 $ 223,573 $ (205,815)
Retail New and Used Vehicle Unit Sales Volume:
Franchised Dealerships Segment 59,038 43,864 110,632 91,626
EchoPark Segment 21,275 13,207 40,945 27,193
Total retail new and used vehicle unit sales volume 80,313 57,071 151,577 118,819

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

(2)For the three months ended June 30, 2020, the above amount includes a pre-tax impairment charge of approximately $0.8 million related to the abandonment of certain construction projects. For the six months ended June 30, 2020, the above amount includes a pre-tax impairment charge of approximately $268.0 million related to adjustments in fair value of goodwill for the Franchised Dealerships Segment as a result of the economic disruptions due to the worldwide spread of COVID-19 which had adversely affected our business, as well as a pre-tax impairment charge of approximately $0.8 million related to the abandonment of certain construction projects.

SONIC AUTOMOTIVE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
(In thousands)
Impairment Charges:
Franchised Dealerships Segment $ - $ 833 $ - $ 268,833
EchoPark Segment - - - -
Total impairment charges $ - $ 833 $ - $ 268,833
Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
(In thousands)
Depreciation and Amortization:
Franchised Dealerships Segment $ 20,616 $ 19,895 $ 40,992 $ 39,484
EchoPark Segment 4,145 2,752 7,456 5,460
Total depreciation and amortization $ 24,761 $ 22,647 $ 48,448 $ 44,944
Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
(In thousands)
Floor Plan Interest Expense:
Franchised Dealerships Segment $ 3,155 $ 5,675 $ 7,271 $ 15,283
EchoPark Segment 1,174 639 2,170 1,539
Total floor plan interest expense $ 4,329 $ 6,314 $ 9,441 $ 16,822
Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
(In thousands)
Interest Expense, Other, Net:
Franchised Dealerships Segment $ 9,723 $ 9,556 $ 19,682 $ 20,156
EchoPark Segment 354 241 681 606
Total interest expense, other, net $ 10,077 $ 9,797 $ 20,363 $ 20,762
Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
(In thousands)
Capital Expenditures:
Franchised Dealerships Segment $ 25,506 $ 35,388 $ 71,677 $ 52,637
EchoPark Segment 11,923 6,540 33,414 9,096
Total capital expenditures $ 37,429 $ 41,928 $ 105,091 $ 61,733
June 30, 2021 December 31, 2020
(In thousands)
Assets:
Franchised Dealerships Segment assets $ 2,742,475 $ 3,096,811
EchoPark Segment assets 674,253 478,869
Corporate and other:
Cash and cash equivalents 239,617 170,313
Other corporate assets - -
Total assets $ 3,656,345 $ 3,745,993

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 and 'Item 1A. Risk Factors' in this report, 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' appearing in our Annual Report on Form 10-K for the year ended December 31, 2020.

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.

Unless otherwise noted, all discussion of increases or decreases are for the three and six months ended June 30, 2021 compared to the three and six months ended June 30, 2020. 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.

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 reportable segments as of June 30, 2021: (1) the Franchised Dealerships Segment and (2) the EchoPark Segment. For management and operational reporting purposes, we group certain businesses together that share management and inventory (principally used vehicles) into 'stores.' As of June 30, 2021, we operated 84 stores in the Franchised Dealerships Segment and 25 stores in the EchoPark Segment. The Franchised Dealerships Segment consists of 95 new vehicle franchises (representing 21 different brands of cars and light trucks) and 14 collision repair centers in 12 states.

The Franchised Dealerships Segment provides comprehensive 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 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 F&I product sales for our guests in pre-owned vehicle specialty retail locations. Our EchoPark business generally operates independently from our franchised dealerships business (except for certain shared back-office functions and corporate overhead costs). Sales operations for EchoPark began in the fourth quarter of 2014, and, as of June 30, 2021, we operated 25 EchoPark stores in 12 states. During 2020, we announced an accelerated EchoPark growth plan in which we plan to open 25 additional EchoPark stores annually from 2021 to 2025 as we build out an expected 140-plus point nationwide EchoPark distribution network by 2025, which we expect will allow EchoPark to reach 90% of the U.S. population by that time.

Executive Summary

Results in the three and six months ended June 30, 2021 benefit from a favorable comparison to the prior year period, where the onset of the COVID-19 pandemic caused significant disruption to our industry and business. The U.S. retail automotive industry's total new vehicle (retail and fleet combined) seasonally adjusted annual rate of sales ('SAAR') increased 50.4% and 28.8%, in the three and six months ended June 30, 2021, respectively, to 17.0 million vehicles in both periods, compared to 11.3 million and 13.2 million vehicles in the three and six months ended June 30, 2020, respectively, according to data from Bloomberg Finance L.P., provided by Stephens Inc. For 2021, analysts' industry expectation for the total new vehicle SAAR ranges from 14.5 million vehicles (flat compared to 2020) to 16.0 million vehicles (an increase of 10.3% compared to 2020). We estimate the 2021 total new vehicle SAAR will be between 15.5 million vehicles (an increase of 6.9% compared to 2020) and 16.0 million vehicles (an increase of 10.3% compared to 2020). The ongoing effects of the COVID-19 pandemic, changes in consumer confidence, availability of consumer financing, interest rates, additional federal relief spending by the U.S government, manufacturer inventory production levels, incentive levels from automotive manufacturers or shifts in such levels, availability of new and used vehicle inventory, or timing of consumer demand as a result of natural disasters or other unforeseen circumstances could cause the actual 2021 total new vehicle SAAR to vary from our expectation. For example, a material portion of our revenue is generated from our stores in Texas, nearly all of which were affected by the extreme winter weather and related power outages experienced in February 2021. Many factors, including brand and geographic concentrations

SONIC AUTOMOTIVE, INC.

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

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 (which excludes fleet new vehicle sales). According to the Power Information Network ('PIN') from J.D. Power, industry retail new vehicle SAAR was 15.6 million vehicles for the three months ended June 30, 2021, an increase of 50.0% from 10.4 million vehicles in the prior year period, and 15.0 million vehicles for the six months ended June 30, 2021, an increase of 36.4% from 11.0 million vehicles in the prior year period.

The automotive supply chain has been disrupted during the pandemic, primarily related to the production of semiconductors that are used in many components of modern automobiles. As a result, automobile manufacturing is operating at lower than expected production levels, reducing the amount of new vehicle and certain parts inventory available to our dealerships. These inventory constraints, coupled with strong consumer demand, have led to low levels of new vehicle inventory as of June 30, 2021.

Franchised Dealerships Segment

As a result of the disposition, termination or closure of several franchised dealerships subsequent to January 1, 2020, 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 vehicle revenue increased 63.7% and 42.0% during the three and six months ended June 30, 2021, respectively, primarily driven by a 55.3% and 33.6% increase in new vehicle unit sales volume, respectively. New vehicle gross profit increased 166.4% and 108.8% during the three and six months ended June 30, 2021, respectively, due to higher new vehicle unit sales volume and a 71.5% and 56.2% increase in new vehicle gross profit per unit, respectively, as a result of higher average selling prices. New vehicle gross profit per unit increased $1,595 per unit, or 71.5%, to $3,827 per unit in the three months ended June 30, 2021, and increased $1,218 per unit, or 56.2%, to $3,385 per unit in the six months ended June 30, 2021, due primarily to higher average selling prices due to inventory shortages as a result of vehicle manufacturer supply chain disruptions and production delays during the COVID-19 pandemic. As a result of the new vehicle inventory shortages, our new vehicle inventories are at historic lows. Many of the new vehicles are being delivered to customers shortly after the vehicles arrive at our stores, As of June 30, 2021, our days' supply of new vehicle inventory was 15 days compared to a days' supply of inventory as of June 30, 2020 of 64 days. The third quarter of 2021 could face volume pressures if availability continues to decline.

Retail used vehicle revenue increased 43.3% and 30.3% during the three and six months ended June 30, 2021, respectively, driven by a 20.5% and 13.1% increase in retail used vehicle unit sales volume, respectively, and higher average selling prices. Retail used vehicle gross profit increased 96.7% and 40.8% during the three and six months ended June 30, 2021, respectively, due to higher retail used vehicle unit sales volume and an increase in retail used vehicle gross profit per unit of 63.3% and 24.5%, respectively. Retail used vehicle gross profit per unit increased $715 per unit, or 63.3%, to $1,844 per unit during the three months ended June 30, 2021, and increased $292 per unit, or 24.5%, to $1,486 per unit during the six months ended June 30, 2021, as a result of higher average selling prices due in part to shortages of new vehicle inventory. Wholesale vehicle gross profit improved by approximately $4.5 million and $5.3 million in the three and six months ended June 30, 2021, respectively, due primarily to a 57.6% and 44.8% increase in average wholesale vehicle revenue per unit, respectively, as a result of increased demand in the wholesale auction market as a result of new vehicle inventory shortages. In the past, we have focused on maintaining used vehicle inventory days' supply in the 30- to 35-day range, which may fluctuate seasonally, in order to limit our exposure to market pricing volatility. Our reported franchised dealerships used vehicle inventory days' supply was approximately 31 and 25 days as of June 30, 2021 and 2020, respectively.

Fixed Operations revenue increased 39.0% and 14.3% during the three and six months ended June 30, 2021, respectively, and Fixed Operations gross profit increased 42.6% and 17.7% during the three and six months ended June 30, 2021, respectively. Fixed Operations gross margin increased 130 and 140 basis points, during the three and six months ended June 30, 2021, respectively, to 50.6% and 50.4%, respectively, driven primarily by an increase in customer pay revenue contribution and higher customer pay gross margin.

F&I revenue increased 56.5% and 37.2% during the three and six months ended June 30, 2021, respectively, driven primarily by increases in F&I gross profit per retail unit. F&I gross profit per retail unit increased $258 per unit, or 14.9%, to $1,984 per unit in the three months ended June 30, 2021. F&I gross profit per retail unit increased $204 per unit, or 12.0%, to $1,902 per unit in the six months ended June 30, 2021. 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. We believe that we will continue to increase revenue in this area as we refine our processes, train our associates and continue to sell a high volume of retail new and used vehicles at our stores.

SONIC AUTOMOTIVE, INC.

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

EchoPark Segment

Reported total EchoPark revenues increased 88.9% and 70.4% in the three and six months ended June 30, 2021, respectively, driven primarily by continued expansion of our nationwide distribution network and increases in retail used vehicle unit sales volume and average selling prices. Reported total gross profit increased 33.7% and 39.4% in the three and six months ended June 30, 2021, respectively, due primarily to higher retail used vehicle unit sales volume and an increase in F&I per retail unit. Reported combined retail used vehicle and F&I gross profit per unit decreased 25.6% and 11.9% in the three and six months ended June 30, 2021, respectively, to $1,539 and $1,924 per unit, respectively, as a result of higher inventory acquisition costs due to increased demand in the wholesale auction market.

Retail used vehicle revenue increased 84.9% and 67.8% in the three and six months ended June 30, 2021, respectively. F&I revenue increased 75.1% and 60.2% during the three and six months ended June 30, 2021, respectively, driven primarily by a 61.0% and 50.5% increase in retail used vehicle unit sales volume, respectively, and increases in retail used vehicle average selling prices. Combined retail used vehicle and F&I gross profit per unit decreased $530 per unit, or 25.6%, to $1,539 per unit during the three months ended June 30, 2021, and decreased $261 per unit, or 12%, to $1,924 per unit during the six months ended June 30, 2021.

Wholesale vehicle gross profit improved by approximately $3.2 million and $3.3 million during the three and six months ended June 30, 2021, respectively, due in part to higher average wholesale prices as a result of increased demand for used vehicles at auction. We generally focus on maintaining 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 our EchoPark stores was approximately 47 and 38 days as of June 30, 2021 and 2020, respectively. The elevated level of used inventory days' supply as of June 30, 2021 was due primarily to the opening of several 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 as of the first full month following the first anniversary of the market's opening. EchoPark same market total revenues increased 37.5% and 30.8% during the three and six months ended June 30, 2021, respectively, driven primarily by a 16.5% and 14.7% increase in retail used vehicle unit sales volume during the three and six months ended June 30, 2021, respectively, and increases in retail used vehicle average selling prices. EchoPark same market total gross profit increased 3.0% during the three months ended June 30, 2021, due primarily to higher retail used vehicle unit sales volume, offset partially by a 20.8% decrease in total gross profit per unit, to $1,423 per unit. EchoPark same market total gross profit increased 19.6% during the six months ended June 30, 2021, due primarily to higher retail used vehicle unit sales volume, partially offset by a 0.8% decrease in total gross profit per unit, to $1,887 per unit.

Results of Operations - Consolidated

The following tables list other items of interest that affected reported amounts in the accompanying unaudited condensed consolidated statements of operations:

Three Months Ended June 30, 2021 Three Months Ended June 30, 2020
(Amounts are before the effect of income taxes, except tax items) Franchised Dealerships Segment EchoPark Segment Total Franchised Dealerships Segment EchoPark Segment Total Operations Statement Line Impacted
(In thousands)
Impairment charges $ - $ - $ - $ (833) $ - $ (833) Impairment charges
Non-recurring tax benefit $ - $ - $ - $ 3,175 $ - $ 3,175 Income taxes
Six Months Ended June 30, 2021 Six Months Ended June 30, 2020
(Amounts are before the effect of income taxes, except tax items) Franchised Dealerships Segment EchoPark Segment Total Franchised Dealerships Segment EchoPark Segment Total Operations Statement Line Impacted
(In thousands)
Impairment charges $ - $ - $ - $ (268,833) $ - $ (268,833) Impairment charges
Non-recurring tax benefit $ - $ - $ - $ 54,470 $ - $ 54,470 Income taxes

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 six months ended June 30, 2021 and 2020:

Three Months Ended June 30, Six Months Ended June 30,
Brand 2021 2020 2021 2020
Luxury:
BMW 26.6 % 21.9 % 25.4 % 23.6 %
Mercedes 12.2 % 13.3 % 12.4 % 13.3 %
Audi 7.6 % 6.4 % 7.4 % 6.2 %
Lexus 4.7 % 4.1 % 4.8 % 4.4 %
Land Rover 3.9 % 6.1 % 4.2 % 5.2 %
Porsche 3.7 % 3.5 % 3.7 % 3.2 %
Cadillac 2.4 % 2.1 % 2.6 % 2.2 %
MINI 1.2 % 1.0 % 1.1 % 1.0 %
Other luxury (1) 3.0 % 3.0 % 2.9 % 2.7 %
Total Luxury 65.3 % 61.4 % 64.5 % 61.8 %
Mid-line Import:
Honda 14.7 % 14.3 % 14.0 % 14.6 %
Toyota 7.6 % 8.7 % 8.3 % 8.7 %
Volkswagen 1.5 % 1.1 % 1.4 % 1.1 %
Hyundai 1.0 % 1.2 % 1.0 % 1.1 %
Nissan 0.8 % 0.5 % 0.5 % 0.4 %
Total Mid-line Import 25.6 % 25.8 % 25.2 % 25.9 %
Domestic:
Ford 4.6 % 6.9 % 5.2 % 6.4 %

General Motors (2)

4.5 % 5.9 % 5.1 % 5.9 %
Total Domestic 9.1 % 12.8 % 10.3 % 12.3 %
Total 100.0 % 100.0 % 100.0 % 100.0 %

(1)Includes Acura, Infiniti, Jaguar and Volvo.

(2)Includes Buick, Chevrolet and GMC.

SONIC AUTOMOTIVE, INC.

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

Results of Operations

Results of Operations - Consolidated

New Vehicles - Consolidated

The retail automotive industry uses the total new vehicle SAAR to measure the annual amount of expected new vehicle unit sales activity (both retail and fleet sales) within the U.S. The total and retail new vehicle SAAR below reflect all brands marketed or sold in the U.S. The total and retail new vehicle SAAR include brands we do not sell and markets in which we do not operate; therefore, our new vehicle sales may not trend directly in line with the total and retail new vehicle SAAR. We believe that the retail new vehicle SAAR 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, COVID-19 began to adversely impact the retail automotive industry and consequentially also our business operations by severely impacting the demand portion of our business. State and local governmental authorities in all of the markets in which we currently operate began to put in place various levels of shelter-in-place or stay-at-home orders in the middle of March 2020, which in many cases significantly restricted our business operations and suppressed consumer activity, in particular related to our vehicle sales activities. While the majority of these restrictions have been relaxed and consumer demand has rebounded significantly, the timing and rate of improvement in demand has not been uniform across the markets in which we operate. Further, 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 the second quarter of 2021. Low levels of new vehicle inventory have resulted in higher average selling prices for new vehicles and may have had a negative impact on the retail new vehicle SAAR for the three months ended June 30, 2021.

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

Three Months Ended June 30, Better / (Worse) Six Months Ended June 30, Better / (Worse)
2021 2020 % Change 2021 2020 % Change
(In millions of vehicles)
Retail new vehicle SAAR (1) 15.6 10.4 50.0 % 15.0 11.0 36.4 %
Fleet new vehicle SAAR 1.4 0.9 55.6 % 2.0 2.2 (9.1) %
Total new vehicle SAAR (2) 17.0 11.3 50.4 % 17.0 13.2 28.8 %

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

(2)Source: Bloomberg Finance L.P., provided by Stephens Inc.

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

Three Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit and per unit data)
Reported new vehicle:
Revenue $ 1,462,893 $ 900,003 $ 562,890 62.5 %
Gross profit $ 118,426 $ 45,386 $ 73,040 160.9 %
Unit sales 30,502 19,891 10,611 53.3 %
Revenue per unit $ 47,961 $ 45,247 $ 2,714 6.0 %
Gross profit per unit $ 3,883 $ 2,282 $ 1,601 70.2 %
Gross profit as a % of revenue 8.1 % 5.0 % 310 bps

SONIC AUTOMOTIVE, INC.

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

Six Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit and per unit data)
Reported new vehicle:
Revenue $ 2,619,210 $ 1,859,492 $ 759,718 40.9 %
Gross profit $ 187,891 $ 90,802 $ 97,089 106.9 %
Unit sales 54,860 41,615 13,245 31.8 %
Revenue per unit $ 47,744 $ 44,683 $ 3,061 6.9 %
Gross profit per unit $ 3,425 $ 2,182 $ 1,243 57.0 %
Gross profit as a % of revenue 7.2 % 4.9 % 230 bps

For further analysis of new vehicle results, see the tables and discussion under the heading 'New Vehicles - Franchised Dealerships Segment' in the Franchised Dealerships Segment section below.

Used Vehicles - Consolidated

Used vehicle revenues are directly affected by a number of factors, including the pricing and level of manufacturer incentives on new vehicles, the number and quality of trade-ins and lease turn-ins, the availability and pricing of used vehicles acquired at wholesale auction and the availability of consumer credit. As with new vehicles, COVID-19 began to adversely impact the retail automotive industry and consequentially also our business operations beginning in the middle of March 2020, by severely impacting the demand portion of our business. State and local governmental authorities in all of the markets in which we currently operate began to put in place various levels of shelter-in-place or stay-at-home orders in the middle of March 2020, which in many cases significantly restricted our business operations and suppressed consumer activity, in particular related to our vehicle sales activities. While the majority of these restrictions have been relaxed and consumer demand has rebounded significantly, the timing and rate of improvement in demand has not been uniform across the markets in which we operate.

As a result of low levels of new vehicle inventory and a recovery in demand for used vehicles (both by retail consumers and dealers at wholesale auction), used vehicle prices reached an all-time high during the second quarter of 2021. Depending on the mix of inventory sourcing (trade-in vs. 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.

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 June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit and per unit data)
Reported used vehicle:
Revenue $ 1,266,696 $ 808,877 $ 457,819 56.6 %
Gross profit $ 34,753 $ 27,371 $ 7,382 27.0 %
Unit sales 49,811 37,180 12,631 34.0 %
Revenue per unit $ 25,430 $ 21,756 $ 3,674 16.9 %
Gross profit per unit $ 698 $ 736 $ (38) (5.2) %
Gross profit as a % of revenue 2.7 % 3.4 % (70) bps
Six Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit and per unit data)
Reported used vehicle:
Revenue $ 2,356,794 $ 1,658,930 $ 697,864 42.1 %
Gross profit $ 65,623 $ 59,502 $ 6,121 10.3 %
Unit sales 96,717 77,204 19,513 25.3 %
Revenue per unit $ 24,368 $ 21,488 $ 2,880 13.4 %
Gross profit per unit $ 679 $ 771 $ (92) (11.9) %
Gross profit as a % of revenue 2.8 % 3.6 % (80) bps

For further analysis of used vehicle results, see the tables and discussion under the headings 'Used Vehicles - Franchised Dealerships Segment' and 'Used Vehicles and F&I - EchoPark Segment' in the Franchised Dealerships Segment and EchoPark 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 onset 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 gross profit (loss), as well as retail used vehicle revenues and related gross profit. During 2021, wholesale vehicle gross profit increased significantly as a result of increased demand for used vehicles due in part to low levels of new vehicle inventory. We believe that the current wholesale vehicle price environment is not sustainable in the long-term and expect that wholesale vehicle pricing and related gross profit (loss) will return toward long-term normalized levels. 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 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 June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit and per unit data)
Reported wholesale vehicle:
Revenue $ 84,807 $ 33,175 $ 51,632 155.6 %
Gross profit (loss) $ 4,527 $ (426) $ 4,953 1,162.7 %
Unit sales 9,631 6,281 3,350 53.3 %
Revenue per unit $ 8,806 $ 5,282 $ 3,524 66.7 %
Gross profit (loss) per unit $ 470 $ (68) $ 538 791.2 %
Gross profit (loss) as a % of revenue 5.3 % (1.3) % 660 bps
Six Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit and per unit data)
Reported wholesale vehicle:
Revenue $ 159,614 $ 81,718 $ 77,896 95.3 %
Gross profit (loss) $ 5,374 $ (585) $ 5,959 1,018.6 %
Unit sales 19,324 14,956 4,368 29.2 %
Revenue per unit $ 8,260 $ 5,464 $ 2,796 51.2 %
Gross profit (loss) per unit $ 278 $ (39) $ 317 812.8 %
Gross profit (loss) as a % of revenue 3.4 % (0.7) % 410 bps

For further analysis of wholesale vehicle results, see the tables and discussion under the headings 'Wholesale Vehicles - Franchised Dealerships Segment' and 'Wholesale Vehicles - EchoPark Segment' in the Franchised Dealerships Segment and EchoPark Segment sections, respectively, below.

Fixed Operations - Consolidated

Parts, service and collision repair revenues consist of customer requested repair orders ('customer pay'), warranty repairs (manufacturer-paid), wholesale parts, and internal, sublet and other. Parts and service revenue is driven by the 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 to preparation and reconditioning work performed on vehicles in inventory that are later sold to a third party. 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 at our dealerships and stores to further increase Fixed Operations revenues. Manufacturers continue to extend new vehicle warranty periods 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 work performed, as well as the improved quality of vehicles that may affect the level and frequency of future customer pay or warranty-related revenues.

The COVID-19 pandemic continues to have a significant effect on our consolidated Fixed Operations revenues, as travel restrictions, government-imposed stay-at-home and shelter-in-place orders and fewer workers undertaking a daily commute combined to substantially decrease the number of miles driven in the U.S., which decreased the demand for maintenance and warranty and collision repair services since March 2020. As government-imposed restrictions have been relaxed, we have begun to see a recovery in Fixed Operations revenues to varying degrees depending on the market and type of work being performed.

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 June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands)
Reported Fixed Operations:
Revenue
Customer pay $ 152,071 $ 110,600 $ 41,471 37.5 %
Warranty 58,172 49,326 8,846 17.9 %
Wholesale parts 39,601 26,352 13,249 50.3 %
Internal, sublet and other 110,752 72,780 37,972 52.2 %
Total revenue $ 360,596 $ 259,058 $ 101,538 39.2 %
Gross profit
Customer pay $ 87,397 $ 62,467 $ 24,930 39.9 %
Warranty 33,947 27,720 6,227 22.5 %
Wholesale parts 6,896 4,506 2,390 53.0 %
Internal, sublet and other 47,608 29,586 18,022 60.9 %
Total gross profit $ 175,848 $ 124,279 $ 51,569 41.5 %
Gross profit as a % of revenue
Customer pay 57.5 % 56.5 % 100 bps
Warranty 58.4 % 56.2 % 220 bps
Wholesale parts 17.4 % 17.1 % 30 bps
Internal, sublet and other 43.0 % 40.7 % 230 bps
Total gross profit as a % of revenue 48.8 % 48.0 % 80 bps
Six Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands)
Reported Fixed Operations:
Revenue
Customer pay $ 285,637 $ 245,656 $ 39,981 16.3 %
Warranty 111,303 110,086 1,217 1.1 %
Wholesale parts 74,290 65,058 9,232 14.2 %
Internal, sublet and other 210,279 172,938 37,341 21.6 %
Total revenue $ 681,509 $ 593,738 $ 87,771 14.8 %
Gross profit
Customer pay $ 163,370 $ 137,061 $ 26,309 19.2 %
Warranty 64,875 61,466 3,409 5.5 %
Wholesale parts 13,002 11,173 1,829 16.4 %
Internal, sublet and other 89,650 72,478 17,172 23.7 %
Total gross profit $ 330,897 $ 282,178 $ 48,719 17.3 %
Gross profit as a % of revenue
Customer pay 57.2 % 55.8 % 140 bps
Warranty 58.3 % 55.8 % 250 bps
Wholesale parts 17.5 % 17.2 % 30 bps
Internal, sublet and other 42.6 % 41.9 % 70 bps
Total gross profit as a % of revenue 48.6 % 47.5 % 110 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 headings 'Fixed Operations - Franchised Dealerships Segment' and 'Fixed Operations - EchoPark Segment' in the Franchised Dealerships Segment and EchoPark Segment sections, respectively, below.

F&I -Consolidated

Finance, insurance and other, net revenues include commissions for arranging 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 providers for originating contracts. F&I revenues are recognized net of estimated chargebacks and other costs associated with originating contracts (as a result, F&I revenues and F&I gross profit are the same amount). F&I revenues are affected by the level of new and 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. 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.

Our consolidated reported F&I results were as follows:

Three Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit and per unit data)
Reported F&I:
Revenue $ 177,254 $ 110,773 $ 66,481 60.0 %
Unit sales 80,068 56,921 23,147 40.7 %
Gross profit per retail unit (excludes fleet) $ 2,214 $ 1,946 $ 268 13.8 %
Six Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit and per unit data)
Reported F&I:
Revenue $ 321,916 $ 226,064 $ 95,852 42.4 %
Unit sales 150,791 118,084 32,707 27.7 %
Gross profit per retail unit (excludes fleet) $ 2,135 $ 1,914 $ 221 11.5 %

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

Results of Operations -Franchised Dealerships Segment

As a result of the disposition, termination or closure of several franchised dealerships subsequent to January 1, 2020, 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.

New Vehicles - Franchised Dealerships Segment

New vehicle revenues include the sale of new vehicles to retail customers, as well as the sale of fleet vehicles. 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. The automobile manufacturing industry is cyclical and historically has experienced periodic downturns characterized by oversupply and weakening 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/economy vehicles to luxury vehicles.

SONIC AUTOMOTIVE, INC.

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

The following tables provide a reconciliation of Franchised Dealerships Segment reported basis and same store basis for total new vehicles (combined retail and fleet data):

Three Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit data)
Total new vehicle revenue:
Same store $ 1,461,984 $ 892,958 $ 569,026 63.7 %
Acquisitions, open points, dispositions and holding company - 7,045 (7,045) NM
Total as reported $ 1,461,984 $ 900,003 $ 561,981 62.4 %
Total new vehicle gross profit:
Same store $ 116,692 $ 43,811 $ 72,881 166.4 %
Acquisitions, open points, dispositions and holding company 1,634 1,575 59 NM
Total as reported $ 118,326 $ 45,386 $ 72,940 160.7 %
Total new vehicle unit sales:
Same store 30,488 19,631 10,857 55.3 %
Acquisitions, open points, dispositions and holding company - 260 (260) NM
Total as reported 30,488 19,891 10,597 53.3 %
NM = Not Meaningful
Six Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit data)
Total new vehicle revenue:
Same store $ 2,618,301 $ 1,843,548 $ 774,753 42.0 %
Acquisitions, open points, dispositions and holding company - 15,944 (15,944) NM
Total as reported $ 2,618,301 $ 1,859,492 $ 758,809 40.8 %
Total new vehicle gross profit:
Same store $ 185,648 $ 88,926 $ 96,722 108.8 %
Acquisitions, open points, dispositions and holding company 2,142 1,876 266 NM
Total as reported $ 187,790 $ 90,802 $ 96,988 106.8 %
Total new vehicle unit sales:
Same store 54,846 41,041 13,805 33.6 %
Acquisitions, open points, dispositions and holding company - 574 (574) NM
Total as reported 54,846 41,615 13,231 31.8 %
NM = Not Meaningful

SONIC AUTOMOTIVE, INC.

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

Our Franchised Dealerships Segment reported new vehicle results (combined retail and fleet data) were as follows:
Three Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit and per unit data)
Reported new vehicle:
Revenue $ 1,461,984 $ 900,003 $ 561,981 62.4 %
Gross profit $ 118,326 $ 45,386 $ 72,940 160.7 %
Unit sales 30,488 19,891 10,597 53.3 %
Revenue per unit $ 47,953 $ 45,247 $ 2,706 6.0 %
Gross profit per unit $ 3,881 $ 2,282 $ 1,599 70.1 %
Gross profit as a % of revenue 8.1 % 5.0 % 310 bps
Six Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit and per unit data)
Reported new vehicle:
Revenue $ 2,618,301 $ 1,859,492 $ 758,809 40.8 %
Gross profit $ 187,790 $ 90,802 $ 96,988 106.8 %
Unit sales 54,846 41,615 13,231 31.8 %
Revenue per unit $ 47,739 $ 44,683 $ 3,056 6.8 %
Gross profit per unit $ 3,424 $ 2,182 $ 1,242 56.9 %
Gross profit as a % of revenue 7.2 % 4.9 % 230 bps
Our Franchised Dealerships Segment same store new vehicle results (combined retail and fleet data) were as follows:
Three Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit and per unit data)
Same store new vehicle:
Revenue $ 1,461,984 $ 892,958 $ 569,026 63.7 %
Gross profit $ 116,692 $ 43,811 $ 72,881 166.4 %
Unit sales 30,488 19,631 10,857 55.3 %
Revenue per unit $ 47,953 $ 45,487 $ 2,466 5.4 %
Gross profit per unit $ 3,827 $ 2,232 $ 1,595 71.5 %
Gross profit as a % of revenue 8.0 % 4.9 % 310 bps
Six Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit and per unit data)
Same store new vehicle:
Revenue $ 2,618,301 $ 1,843,548 $ 774,753 42.0 %
Gross profit $ 185,648 $ 88,926 $ 96,722 108.8 %
Unit sales 54,846 41,041 13,805 33.6 %
Revenue per unit $ 47,739 $ 44,920 $ 2,819 6.3 %
Gross profit per unit $ 3,385 $ 2,167 $ 1,218 56.2 %
Gross profit as a % of revenue 7.1 % 4.8 % 230 bps

SONIC AUTOMOTIVE, INC.

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

Same Store Franchised Dealerships Segment New Vehicles -Three Months Ended June 30, 2021 Compared to Three Months Ended June 30, 2020

New vehicle revenue increased 63.7% due primarily to a higher average selling prices and a 55.3% increase in new vehicle unit sales volume, which was driven by a favorable comparison due to the impact of COVID-19 on the prior year quarter results. New vehicle gross profit increased approximately $72.9 million, or 166.4%, as a result of increased new vehicle unit sales volume and higher new vehicle gross profit per unit. New vehicle gross profit per unit increased $1,595 per unit, or 71.5%, to $3,827 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 New Vehicles -Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020

New vehicle revenue increased 42.0% due primarily to a higher average selling prices and a 33.6% increase in new vehicle unit sales volume, which was driven by a favorable comparison due to the impact of COVID-19 on the prior year-to-date period results. New vehicle gross profit increased approximately $96.7 million, or 108.8%, as a result of increased new vehicle unit sales volume and higher new vehicle gross profit per unit. New vehicle gross profit per unit increased $1,218 per unit, or 56.2%, to $3,385 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.

Used Vehicles - Franchised Dealerships Segment

The following tables provide a reconciliation of Franchised Dealerships Segment reported basis and same store basis for retail used vehicles:

Three Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit data)
Total used vehicle revenue:
Same store $ 761,524 $ 531,335 $ 230,189 43.3 %
Acquisitions, open points, dispositions and holding company - 4,364 (4,364) NM
Total as reported $ 761,524 $ 535,699 $ 225,825 42.2 %
Total used vehicle gross profit:
Same store $ 52,647 $ 26,759 $ 25,888 96.7 %
Acquisitions, open points, dispositions and holding company 2,573 3,657 (1,084) NM
Total as reported $ 55,220 $ 30,416 $ 24,804 81.5 %
Total used vehicle unit sales:
Same store 28,550 23,701 4,849 20.5 %
Acquisitions, open points, dispositions and holding company - 272 (272) NM
Total as reported 28,550 23,973 4,577 19.1 %

NM = Not Meaningful

SONIC AUTOMOTIVE, INC.

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

Six Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit data)
Total used vehicle revenue:
Same store $ 1,423,059 $ 1,092,131 $ 330,928 30.3 %
Acquisitions, open points, dispositions and holding company - 10,456 (10,456) NM
Total as reported $ 1,423,059 $ 1,102,587 $ 320,472 29.1 %
Total used vehicle gross profit:
Same store $ 82,920 $ 58,900 $ 24,020 40.8 %
Acquisitions, open points, dispositions and holding company 4,299 3,830 469 NM
Total as reported $ 87,219 $ 62,730 $ 24,489 39.0 %
Total used vehicle unit sales:
Same store 55,786 49,336 6,450 13.1 %
Acquisitions, open points, dispositions and holding company - 675 (675) NM
Total as reported 55,786 50,011 5,775 11.5 %
NM = Not Meaningful
Our Franchised Dealerships Segment reported retail used vehicle results were as follows:
Three Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit and per unit data)
Reported used vehicle:
Revenue $ 761,524 $ 535,699 $ 225,825 42.2 %
Gross profit $ 55,220 $ 30,416 $ 24,804 81.5 %
Unit sales 28,550 23,973 4,577 19.1 %
Revenue per unit $ 26,673 $ 22,346 $ 4,327 19.4 %
Gross profit per unit $ 1,934 $ 1,269 $ 665 52.4 %
Gross profit as a % of revenue 7.3 % 5.7 % 160 bps
Six Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit and per unit data)
Reported used vehicle:
Revenue $ 1,423,059 $ 1,102,587 $ 320,472 29.1 %
Gross profit $ 87,219 $ 62,730 $ 24,489 39.0 %
Unit sales 55,786 50,011 5,775 11.5 %
Revenue per unit $ 25,509 $ 22,047 $ 3,462 15.7 %
Gross profit per unit $ 1,563 $ 1,254 $ 309 24.6 %
Gross profit as a % of revenue 6.1 % 5.7 % 40 bps

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 June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit and per unit data)
Same store used vehicle:
Revenue $ 761,524 $ 531,335 $ 230,189 43.3 %
Gross profit $ 52,647 $ 26,759 $ 25,888 96.7 %
Unit sales 28,550 23,701 4,849 20.5 %
Revenue per unit $ 26,673 $ 22,418 $ 4,255 19.0 %
Gross profit per unit $ 1,844 $ 1,129 $ 715 63.3 %
Gross profit as a % of revenue 6.9 % 5.0 % 190 bps
Six Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit and per unit data)
Same store used vehicle:
Revenue $ 1,423,059 $ 1,092,131 $ 330,928 30.3 %
Gross profit $ 82,920 $ 58,900 $ 24,020 40.8 %
Unit sales 55,786 49,336 6,450 13.1 %
Revenue per unit $ 25,509 $ 22,137 $ 3,372 15.2 %
Gross profit per unit $ 1,486 $ 1,194 $ 292 24.5 %
Gross profit as a % of revenue 5.8 % 5.4 % 40 bps

Same Store Franchised Dealerships Segment Used Vehicles -Three Months Ended June 30, 2021 Compared to Three Months Ended June 30, 2020

Retail used vehicle revenue increased approximately $230.2 million, or 43.3% and retail used vehicle unit sales volume increased 20.5%. Retail used vehicle revenue per unit increased 19.0% due to higher industry used vehicle prices as a result of the recovery of consumer demand from the impact of the COVID-19 pandemic during the second quarter of 2021. Retail used vehicle gross profit increased approximately $25.9 million, or 96.7%, driven primarily by a $715 per unit increase in retail used vehicle gross profit per unit due to increased consumer demand for used vehicle inventory as a result of new vehicle inventory shortages during the second quarter of 2021.

Same Store Franchised Dealerships Segment Used Vehicles -Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020

Retail used vehicle revenue increased approximately $330.9 million, or 30.3% and retail used vehicle unit sales volume increased 13.1%. Retail used vehicle revenue per unit increased 15.2% due to higher industry used vehicle prices as a result of the recovery of consumer demand from the impact of the COVID-19 pandemic during the first and second quarters of 2021. Retail used vehicle gross profit increased approximately $24.0 million, or 40.8%, driven primarily by a 24.5% per unit increase in retail used vehicle gross profit per unit due to increased consumer demand for used vehicle inventory as a result of new vehicle inventory shortages during the first and second quarters of 2021.

SONIC AUTOMOTIVE, INC.

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

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 June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit data)
Total wholesale vehicle revenue:
Same store $ 62,956 $ 28,236 $ 34,720 123.0 %
Acquisitions, open points, dispositions and holding company - 273 (273) NM
Total as reported $ 62,956 $ 28,509 $ 34,447 120.8 %
Total wholesale vehicle gross profit (loss):
Same store $ 4,199 $ (289) $ 4,488 1,552.9 %
Acquisitions, open points, dispositions and holding company (2,765) (68) (2,697) NM
Total as reported $ 1,434 $ (357) $ 1,791 501.7 %
Total wholesale vehicle unit sales:
Same store 6,753 4,773 1,980 41.5 %
Acquisitions, open points, dispositions and holding company - 54 (54) NM
Total as reported 6,753 4,827 1,926 39.9 %
NM = Not Meaningful
Six Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit data)
Total wholesale vehicle revenue:
Same store $ 119,160 $ 70,339 $ 48,821 69.4 %
Acquisitions, open points, dispositions and holding company - 609 (609) NM
Total as reported $ 119,160 $ 70,948 $ 48,212 68.0 %
Total wholesale vehicle gross profit (loss):
Same store $ 4,935 $ (338) $ 5,273 1,560.1 %
Acquisitions, open points, dispositions and holding company (2,763) (102) (2,661) NM
Total as reported $ 2,172 $ (440) $ 2,612 593.6 %
Total wholesale vehicle unit sales:
Same store 13,585 11,611 1,974 17.0 %
Acquisitions, open points, dispositions and holding company - 126 (126) NM
Total as reported 13,585 11,737 1,848 15.7 %
NM = Not Meaningful

SONIC AUTOMOTIVE, INC.

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

Our Franchised Dealerships Segment reported wholesale vehicle results were as follows:
Three Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit and per unit data)
Reported wholesale vehicle:
Revenue $ 62,956 $ 28,509 $ 34,447 120.8 %
Gross profit (loss) $ 1,434 $ (357) $ 1,791 501.7 %
Unit sales 6,753 4,827 1,926 39.9 %
Revenue per unit $ 9,323 $ 5,906 $ 3,417 57.9 %
Gross profit (loss) per unit $ 212 $ (74) $ 286 386.5 %
Gross profit (loss) as a % of revenue 2.3 % (1.3) % 360 bps
Six Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit and per unit data)
Reported wholesale vehicle:
Revenue $ 119,160 $ 70,948 $ 48,212 68.0 %
Gross profit (loss) $ 2,172 $ (440) $ 2,612 593.6 %
Unit sales 13,585 11,737 1,848 15.7 %
Revenue per unit $ 8,771 $ 6,045 $ 2,726 45.1 %
Gross profit (loss) per unit $ 160 $ (37) $ 197 532.4 %
Gross profit (loss) as a % of revenue 1.8 % (0.6) % 240 bps

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

Three Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit and per unit data)
Same store wholesale vehicle:
Revenue $ 62,956 $ 28,236 $ 34,720 123.0 %
Gross profit (loss) $ 4,199 $ (289) $ 4,488 1,552.9 %
Unit sales 6,753 4,773 1,980 41.5 %
Revenue per unit $ 9,323 $ 5,916 $ 3,407 57.6 %
Gross profit (loss) per unit $ 622 $ (61) $ 683 1,119.7 %
Gross profit (loss) as a % of revenue 6.7 % (1.0) % 770 bps
Six Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit and per unit data)
Same store wholesale vehicle:
Revenue $ 119,160 $ 70,339 $ 48,821 69.4 %
Gross profit (loss) $ 4,935 $ (338) $ 5,273 1,560.1 %
Unit sales 13,585 11,611 1,974 17.0 %
Revenue per unit $ 8,771 $ 6,058 $ 2,713 44.8 %
Gross profit (loss) per unit $ 363 $ (29) $ 392 1,351.7 %
Gross profit (loss) as a % of revenue 4.1 % (0.5) % 460 bps

We generally focus on maintaining used vehicle inventory days' supply in the 30- to 35-day range, which may fluctuate seasonally, in order to limit our exposure to market pricing volatility. On a trailing quarter vehicle cost of sales basis, our

SONIC AUTOMOTIVE, INC.

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

reported franchised dealerships used vehicle inventory days' supply was approximately 31 and 25days as of June 30, 2021 and 2020, 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 June 30, 2021 Compared to Three Months Ended June 30, 2020

Wholesale vehicle revenue increased 123.0%, driven primarily by a 57.6% increase in wholesale vehicle revenue per unit, as well as a 41.5% increase in wholesale vehicle unit sales volume due to increased demand in the wholesale auction market as a result of new vehicle inventory shortages during the second quarter of 2021. The increase in wholesale vehicle revenue was due in part to a reduction in wholesale auction activity during the second quarter of 2020 as a result of the impact the COVID-19 pandemic had on consumer demand. Wholesale vehicle gross profit increased approximately $4.5 million, primarily due to a $683 per unit, or 1,119.7%, increase in wholesale vehicle gross profit per unit.

Same Store Franchised Dealerships Segment Wholesale Vehicles -Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020

Wholesale vehicle revenue increased 69.4%, driven primarily by a 44.8% increase in wholesale vehicle revenue per unit, as well as a 17.0% increase in wholesale vehicle unit sales volume due to increased demand in the wholesale auction market as a result of new vehicle inventory shortages during the first and second quarters of 2021. The increase in wholesale vehicle revenue was due in part to a reduction in wholesale auction activity during the first and second quarters of 2020 as a result of the impact the COVID-19 pandemic had on consumer demand. Wholesale vehicle gross profit increased approximately $5.3 million, primarily due to a $392 per unit, or 1,351.7%, increase in wholesale vehicle gross profit per unit.

Fixed Operations -Franchised Dealerships Segment

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

Three Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands)
Total Fixed Operations revenue:
Same store $ 343,441 $ 247,134 $ 96,307 39.0 %
Acquisitions, open points, dispositions and holding company 2,677 4,864 (2,187) NM
Total as reported $ 346,118 $ 251,998 $ 94,120 37.3 %
Total Fixed Operations gross profit:
Same store $ 173,900 $ 121,946 $ 51,954 42.6 %
Acquisitions, open points, dispositions and holding company 1,678 2,519 (841) NM
Total as reported $ 175,578 $ 124,465 $ 51,113 41.1 %

NM = Not Meaningful

SONIC AUTOMOTIVE, INC.

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

Six Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands)
Total Fixed Operations revenue:
Same store $ 649,631 $ 568,429 $ 81,202 14.3 %
Acquisitions, open points, dispositions and holding company 4,563 8,070 (3,507) NM
Total as reported $ 654,194 $ 576,499 $ 77,695 13.5 %
Total Fixed Operations gross profit:
Same store $ 327,583 $ 278,411 $ 49,172 17.7 %
Acquisitions, open points, dispositions and holding company 3,261 4,150 (889) NM
Total as reported $ 330,844 $ 282,561 $ 48,283 17.1 %

NM = Not Meaningful

Our Franchised Dealerships Segment reported Fixed Operations results were as follows:
Three Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands)
Reported Fixed Operations:
Revenue
Customer pay $ 151,601 $ 110,444 $ 41,157 37.3 %
Warranty 57,993 49,326 8,667 17.6 %
Wholesale parts 39,600 26,352 13,248 50.3 %
Internal, sublet and other 96,924 65,876 31,048 47.1 %
Total revenue $ 346,118 $ 251,998 $ 94,120 37.3 %
Gross profit
Customer pay $ 87,275 $ 62,461 $ 24,814 39.7 %
Warranty 33,835 27,720 6,115 22.1 %
Wholesale parts 6,896 4,506 2,390 53.0 %
Internal, sublet and other 47,572 29,778 17,794 59.8 %
Total gross profit $ 175,578 $ 124,465 $ 51,113 41.1 %
Gross profit as a % of revenue
Customer pay 57.6 % 56.6 % 100 bps
Warranty 58.3 % 56.2 % 210 bps
Wholesale parts 17.4 % 17.1 % 30 bps
Internal, sublet and other 49.1 % 45.2 % 390 bps
Total gross profit as a % of revenue 50.7 % 49.4 % 130 bps

SONIC AUTOMOTIVE, INC.

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

Six Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands)
Reported Fixed Operations:
Revenue
Customer pay $ 284,885 $ 245,242 $ 39,643 16.2 %
Warranty 111,124 110,086 1,038 0.9 %
Wholesale parts 74,289 65,058 9,231 14.2 %
Internal, sublet and other 183,896 156,113 27,783 17.8 %
Total revenue $ 654,194 $ 576,499 $ 77,695 13.5 %
Gross profit
Customer pay $ 163,243 $ 137,054 $ 26,189 19.1 %
Warranty 64,763 61,466 3,297 5.4 %
Wholesale parts 13,002 11,173 1,829 16.4 %
Internal, sublet and other 89,836 72,868 16,968 23.3 %
Total gross profit $ 330,844 $ 282,561 $ 48,283 17.1 %
Gross profit as a % of revenue
Customer pay 57.3 % 55.9 % 140 bps
Warranty 58.3 % 55.8 % 250 bps
Wholesale parts 17.5 % 17.2 % 30 bps
Internal, sublet and other 48.9 % 46.7 % 220 bps
Total gross profit as a % of revenue 50.6 % 49.0 % 160 bps

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

Three Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands)
Same store Fixed Operations:
Revenue
Customer pay $ 149,262 $ 107,542 $ 41,720 38.8 %
Warranty 57,655 48,475 9,180 18.9 %
Wholesale parts 39,600 26,081 13,519 51.8 %
Internal, sublet and other 96,924 65,036 31,888 49.0 %
Total revenue $ 343,441 $ 247,134 $ 96,307 39.0 %
Gross profit
Customer pay $ 86,173 $ 60,828 $ 25,345 41.7 %
Warranty 33,676 27,237 6,439 23.6 %
Wholesale parts 6,896 4,487 2,409 53.7 %
Internal, sublet and other 47,155 29,394 17,761 60.4 %
Total gross profit $ 173,900 $ 121,946 $ 51,954 42.6 %
Gross profit as a % of revenue
Customer pay 57.7 % 56.6 % 110 bps
Warranty 58.4 % 56.2 % 220 bps
Wholesale parts 17.4 % 17.2 % 20 bps
Internal, sublet and other 48.7 % 45.2 % 350 bps
Total gross profit as a % of revenue 50.6 % 49.3 % 130 bps

SONIC AUTOMOTIVE, INC.

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

Six Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands)
Same store Fixed Operations:
Revenue
Customer pay $ 281,195 $ 241,032 $ 40,163 16.7 %
Warranty 110,284 109,311 973 0.9 %
Wholesale parts 74,289 64,600 9,689 15.0 %
Internal, sublet and other 183,863 153,486 30,377 19.8 %
Total revenue $ 649,631 $ 568,429 $ 81,202 14.3 %
Gross profit
Customer pay $ 161,464 $ 134,920 $ 26,544 19.7 %
Warranty 64,297 60,910 3,387 5.6 %
Wholesale parts 13,002 11,124 1,878 16.9 %
Internal, sublet and other 88,820 71,457 17,363 24.3 %
Total gross profit $ 327,583 $ 278,411 $ 49,172 17.7 %
Gross profit as a % of revenue
Customer pay 57.4 % 56.0 % 140 bps
Warranty 58.3 % 55.7 % 260 bps
Wholesale parts 17.5 % 17.2 % 30 bps
Internal, sublet and other 48.3 % 46.6 % 170 bps
Total gross profit as a % of revenue 50.4 % 49.0 % 140 bps

Same Store Franchised Dealerships Segment Fixed Operations -Three Months Ended June 30, 2021 Compared to Three Months Ended June 30, 2020

Fixed Operations revenue increased approximately $96.3 million, or 39.0%, and Fixed Operations gross profit increased approximately $52.0 million, or 42.6%. Customer pay gross profit increased approximately $25.3 million, or 41.7%, warranty gross profit increased approximately $6.4 million, or 23.6%, wholesale parts gross profit increased approximately $2.4 million, or 53.7%, and internal, sublet and other gross profit increased approximately $17.8 million, or 60.4%. While our Fixed Operations business was not specifically restricted by state and local shelter-in-place or stay-at-home orders, consumer behavior was disrupted by such orders beginning in March 2020 and we experienced lower levels of Fixed Operations activity in the second quarter of 2020. We expect consumer activity to continue to improve as we proceed through 2021, and anticipate a continuing recovery in Fixed Operations activity (in particular, related to customer pay repairs) above pre-pandemic levels in the latter half of 2021.

Same Store Franchised Dealerships Segment Fixed Operations -Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020

Fixed Operations revenue increased approximately $81.2 million, or 14.3%, and Fixed Operations gross profit increased approximately $49.2 million, or 17.7%. Customer pay gross profit increased approximately $26.5 million, or 19.7%, warranty gross profit increased approximately $3.4 million, or 5.6%, wholesale parts gross profit increased approximately $1.9 million, or 16.9%, and internal, sublet and other gross profit increased approximately $17.4 million, or 24.3%. While our Fixed Operations business was not specifically restricted by state and local shelter-in-place or stay-at-home orders, consumer behavior was disrupted by such orders beginning in March 2020 and we experienced lower levels of Fixed Operations activity in the second quarter of 2020. We expect consumer activity to continue to improve as we proceed through 2021, and anticipate a continuing recovery in Fixed Operations activity (in particular, related to customer pay repairs) above pre-pandemic levels in the latter half of 2021.

F&I -Franchised Dealerships Segment

Finance, insurance and other, net revenues include commissions for arranging vehicle financing and insurance, sales of third-party extended warranties and service contracts for vehicles, and sales of other aftermarket products. In connection with

SONIC AUTOMOTIVE, INC.

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

vehicle financing, extended warranties and service contracts, other aftermarket products and insurance contracts, we receive commissions from the providers for originating contracts. F&I revenues are recognized net of estimated chargebacks and other costs associated with originating contracts (as a result, F&I revenues and F&I gross profit are the same amount). F&I revenues are affected by the level of new and 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. 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.

The following tables provide a reconciliation of Franchised Dealerships Segment reported basis and same store basis for F&I:
Three Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit and per unit data)
Total F&I revenue:
Same store $ 116,657 $ 74,522 $ 42,135 56.5 %
Acquisitions, open points, dispositions and holding company 7,403 5,879 1,524 NM
Total as reported $ 124,060 $ 80,401 $ 43,659 54.3 %
Total F&I gross profit per retail unit (excludes fleet):
Same store $ 1,984 $ 1,726 $ 258 14.9 %
Reported $ 2,110 $ 1,839 $ 271 14.7 %
Total combined new and used retail unit sales:
Same store 58,793 43,182 15,611 36.2 %
Acquisitions, open points, dispositions and holding company - 532 (532) NM
Total as reported 58,793 43,714 15,079 34.5 %

NM = Not Meaningful

Six Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit and per unit data)
Total F&I revenue:
Same store $ 208,903 $ 152,213 $ 56,690 37.2 %
Acquisitions, open points, dispositions and holding company 12,683 11,216 1,467 NM
Total as reported $ 221,586 $ 163,429 $ 58,157 35.6 %
Total F&I gross profit per retail unit (excludes fleet):
Same store $ 1,902 $ 1,698 $ 204 12.0 %
Reported $ 2,017 $ 1,798 $ 219 12.2 %
Total combined new and used retail unit sales:
Same store 109,846 89,642 20,204 22.5 %
Acquisitions, open points, dispositions and holding company - 1,249 (1,249) NM
Total as reported 109,846 90,891 18,955 20.9 %

NM = Not Meaningful

SONIC AUTOMOTIVE, INC.

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

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

Three Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit and per unit data)
Reported F&I:
Revenue $ 124,060 $ 80,401 $ 43,659 54.3 %
Unit sales 58,793 43,714 15,079 34.5 %
Gross profit per retail unit (excludes fleet) $ 2,110 $ 1,839 $ 271 14.7 %
Six Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit and per unit data)
Reported F&I:
Revenue $ 221,586 $ 163,429 $ 58,157 35.6 %
Unit sales 109,846 90,891 18,955 20.9 %
Gross profit per retail unit (excludes fleet) $ 2,017 $ 1,798 $ 219 12.2 %
Our Franchised Dealerships Segment same store F&I results were as follows:
Three Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit and per unit data)
Same store F&I:
Revenue $ 116,657 $ 74,522 $ 42,135 56.5 %
Unit sales 58,793 43,182 15,611 36.2 %
Gross profit per retail unit (excludes fleet) $ 1,984 $ 1,726 $ 258 14.9 %
Six Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit and per unit data)
Same store F&I:
Revenue $ 208,903 $ 152,213 $ 56,690 37.2 %
Unit sales 109,846 89,642 20,204 22.5 %
Gross profit per retail unit (excludes fleet) $ 1,902 $ 1,698 $ 204 12.0 %

Same Store Franchised Dealerships Segment F&I -Three Months Ended June 30, 2021 Compared to Three Months Ended June 30, 2020

F&I revenues increased approximately $42.1 million, or 56.5%, due to a 36.2% increase in retail new and used vehicle unit sales volume and an increase in F&I gross profit per retail unit. F&I gross profit per retail unit increased $258 per unit, or 14.9%, to $1,984 per unit, primarily due to an increase in gross profit per contract and an increase in the other aftermarket contract penetration rate.

Finance contract revenue increased 67.6%, primarily due to a 31.6% increase in finance contract volume as a result of higher retail new and used vehicle unit sales volume, as well as a 27.3% increase in gross profit per finance contract, partially offset by a 270-basis point decrease in the finance contract penetration rate. Service contract revenue increased 42.1%, primarily due to a 35.3% increase in service contract volume as a result of higher retail new and used vehicle unit sales volume, as well as a 5.0% increase in gross profit per service contract, partially offset by a 20-basis point decrease in the service contract penetration rate. Other aftermarket contract revenue increased 63.1%, primarily due to a 50.4% increase in other aftermarket contract volume, as well as an 8.4% increase in gross profit per other aftermarket contract and a 1,460-basis point increase in the other aftermarket contract penetration rate.

SONIC AUTOMOTIVE, INC.

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

Same Store Franchised Dealerships Segment F&I -Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020

F&I revenues increased approximately $56.7 million, or 37.2%, due to a 22.5% increase in retail new and used vehicle unit sales volume and an increase in F&I gross profit per retail unit. F&I gross profit per retail unit increased $204 per unit, or 12.0%, to $1,902 per unit, primarily due to an increase in gross profit per contract and an increase in the other aftermarket contract penetration rate.

Finance contract revenue increased 43.4%, primarily due to a 21.2% increase in finance contract volume as a result of higher retail new and used vehicle unit sales volume, as well as an 18.3% increase in gross profit per finance contract, partially offset by an 80-basis point decrease in the finance contract penetration rate. Service contract revenue increased 31.5%, primarily due to a 24.8% increase in service contract volume as a result of higher retail new and used vehicle unit sales volume, as well as a 5.4% increase in gross profit per service contract and a 70-basis point increase in the service contract penetration rate. Other aftermarket contract revenue increased 40.8%, primarily due to a 31.5% increase in other aftermarket contract volume, as well as a 7.1% increase in gross profit per other aftermarket contract and a 1,030-basis point increase in the other aftermarket contract penetration rate.

Results of Operations -EchoPark Segment

Unless otherwise noted, all discussion of increases or decreases are for the three and six months ended June 30, 2021 compared to the three and six months ended June 30, 2020. 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.

Used Vehicles and F&I -EchoPark Segment

Based on the way we manage the 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 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 unit, which includes both front-end retail used vehicle gross profit (loss) and F&I gross profit per unit sold.

See the discussion under the heading 'Results of Operations - Franchised Dealerships Segment' for additional discussion of the macro drivers of used vehicle revenues and F&I revenues.

SONIC AUTOMOTIVE, INC.

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

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

Three Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit data)
Total used vehicle revenue:
Same market $ 368,857 $ 273,178 $ 95,679 35.0 %
New markets 136,315 - 136,315 NM
Total as reported $ 505,172 $ 273,178 $ 231,994 84.9 %
Total used vehicle gross profit (loss):
Same market $ (17,118) $ (6,545) $ (10,573) (161.5) %
New markets (3,349) 3,500 (6,849) NM
Total as reported $ (20,467) $ (3,045) $ (17,422) (572.2) %
Total used vehicle unit sales:
Same market 15,382 13,207 2,175 16.5 %
New markets 5,879 - 5,879 NM
Total as reported 21,261 13,207 8,054 61.0 %
NM = Not Meaningful
Six Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit data)
Total used vehicle revenue:
Same market $ 716,654 $ 556,353 $ 160,301 28.8 %
New markets 217,081 (10) 217,091 NM
Total as reported $ 933,735 $ 556,343 $ 377,392 67.8 %
Total used vehicle gross profit (loss):
Same market $ (18,633) $ (10,703) $ (7,930) (74.1) %
New markets (2,963) 7,475 (10,438) NM
Total as reported $ (21,596) $ (3,228) $ (18,368) (569.0) %
Total used vehicle unit sales:
Same market 31,189 27,193 3,996 14.7 %
New markets 9,742 - 9,742 NM
Total as reported 40,931 27,193 13,738 50.5 %
NM = Not Meaningful

SONIC AUTOMOTIVE, INC.

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

The following tables provide a reconciliation of EchoPark Segment reported basis, same market basis and new market basis for F&I:
Three Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands)
Total F&I revenue:
Same market $ 39,007 $ 30,259 $ 8,748 28.9 %
New markets 14,187 113 14,074 NM
Total as reported $ 53,194 $ 30,372 $ 22,822 75.1 %
NM = Not Meaningful
Six Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands)
Total F&I revenue:
Same market $ 77,473 $ 62,430 $ 15,043 24.1 %
New markets 22,857 205 22,652 NM
Total as reported $ 100,330 $ 62,635 $ 37,695 60.2 %
NM = Not Meaningful
Our EchoPark Segment reported retail used vehicle and F&I results were as follows:
Three Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit and per unit data)
Reported used vehicle and F&I:
Used vehicle revenue $ 505,172 $ 273,178 $ 231,994 84.9 %
Used vehicle gross profit (loss) $ (20,467) $ (3,045) $ (17,422) (572.2) %
Used vehicle unit sales 21,261 13,207 8,054 61.0 %
Used vehicle revenue per unit $ 23,761 $ 20,684 $ 3,077 14.9 %
F&I revenue $ 53,194 $ 30,372 $ 22,822 75.1 %
Combined used vehicle gross profit and F&I revenue $ 32,727 $ 27,327 $ 5,400 19.8 %
Total used vehicle and F&I gross profit per unit $ 1,539 $ 2,069 $ (530) (25.6) %
Six Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit and per unit data)
Reported used vehicle and F&I:
Used vehicle revenue $ 933,735 $ 556,343 $ 377,392 67.8 %
Used vehicle gross profit (loss) $ (21,596) $ (3,228) $ (18,368) (569.0) %
Used vehicle unit sales 40,931 27,193 13,738 50.5 %
Used vehicle revenue per unit $ 22,812 $ 20,459 $ 2,353 11.5 %
F&I revenue $ 100,330 $ 62,635 $ 37,695 60.2 %
Combined used vehicle gross profit and F&I revenue $ 78,734 $ 59,407 $ 19,327 32.5 %
Total used vehicle and F&I gross profit per unit $ 1,924 $ 2,185 $ (261) (11.9) %

SONIC AUTOMOTIVE, INC.

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

Our EchoPark Segment same market retail used vehicle and F&I results were as follows:
Three Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit and per unit data)
Same market used vehicle and F&I:
Used vehicle revenue $ 368,857 $ 273,178 $ 95,679 35.0 %
Used vehicle gross profit (loss) $ (17,118) $ (6,545) $ (10,573) (161.5) %
Used vehicle unit sales 15,382 13,207 2,175 16.5 %
Used vehicle revenue per unit $ 23,980 $ 20,684 $ 3,296 15.9 %
F&I revenue $ 39,007 $ 30,259 $ 8,748 28.9 %
Combined used vehicle gross profit and F&I revenue $ 21,889 $ 23,714 $ (1,825) (7.7) %
Total used vehicle and F&I gross profit per unit $ 1,423 $ 1,796 $ (373) (20.8) %
Six Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit and per unit data)
Same market used vehicle and F&I:
Used vehicle revenue $ 716,654 $ 556,353 $ 160,301 28.8 %
Used vehicle gross profit (loss) $ (18,633) $ (10,703) $ (7,930) (74.1) %
Used vehicle unit sales 31,189 27,193 3,996 14.7 %
Used vehicle revenue per unit $ 22,978 $ 20,459 $ 2,519 12.3 %
F&I revenue $ 77,473 $ 62,430 $ 15,043 24.1 %
Combined used vehicle gross profit and F&I revenue $ 58,840 $ 51,727 $ 7,113 13.8 %
Total used vehicle and F&I gross profit per unit $ 1,887 $ 1,902 $ (15) (0.8) %

Same Market EchoPark Segment Used Vehicles and F&I -Three Months Ended June 30, 2021 Compared to Three Months Ended June 30, 2020

Retail used vehicle revenue increased approximately $95.7 million, or 35.0%, driven by a $3,296 per unit, or 15.9%, increase in retail used vehicle revenue per unit, as well as a 16.5% increase in retail used vehicle unit sales volume due to increased consumer demand for used vehicles and EchoPark market share gains. Combined retail used vehicle gross profit and F&I revenue decreased approximately $1.8 million, or 7.7%, driven primarily by a 161.5% increase in retail used vehicle gross loss, offset partially by an $8.7 million, or 28.9%, increase in F&I revenue. Total retail used vehicle and F&I gross profit per unit decreased approximately $373 per unit, or 20.8%, due to the increased cost of inventory at wholesale auction as a result of high levels of short-term demand in wholesale markets due to new vehicle inventory shortages as a result of vehicle manufacturer supply chain and production delays as a result of the COVID-19 pandemic. Finance contract gross profit increased approximately $2.5 million, or 29.8%, due to a 16.0% increase in total finance contracts and an 11.9% increase in F&I gross profit per unit. Service contract gross profit increased approximately $2.1 million, or 28.9%, due to a 29.6% increase in total service contracts, as well as a 600-basis point increase in the service contract penetration rate. Other aftermarket product contract gross profit increased approximately $1.3 million, or 26.6%, due to a 27.6% increase in total other aftermarket product contracts and an 890-basis point increase in the other aftermarket product contract penetration rate.

Same Market EchoPark Segment Used Vehicles and F&I -Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020

Retail used vehicle revenue increased approximately $160.3 million, or 28.8%, driven primarily by a 14.7% increase in retail used vehicle unit sales volume as well as a $2,519 per unit, or 12.3%, increase in retail used vehicle revenue per unit. Combined retail used vehicle gross profit and F&I revenue increased approximately $7.1 million, or 13.8%, driven primarily by a $15.0 million, or 24.1% increase in F&I revenue, and higher retail used vehicle unit sales volume. Total retail used vehicle and F&I gross profit per unit decreased approximately $15 per unit, or 0.8%, due to the increased cost of inventory at wholesale auction as a result of high levels of short-term demand in wholesale markets due to new vehicle inventory shortages as a result of vehicle manufacturer supply chain and production delays as a result of the COVID-19 pandemic. Finance contract gross profit increased approximately $3.6 million, or 20.7%, due to a 14.7% increase in total finance contracts and a 5.2% increase in

SONIC AUTOMOTIVE, INC.

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

F&I gross profit per unit. Service contract gross profit increased approximately $4.2 million, or 27.3%, due to a 26.1% increase in total service contracts, as well as a 530-basis point increase in the service contract penetration rate. Other aftermarket product contract gross profit increased approximately $2.2 million, or 22.4%, due to a 22.9% increase in total other aftermarket product contracts and a 650-basis point increase in the other aftermarket product contract penetration rate.

Wholesale Vehicles -EchoPark Segment

See the discussion under the heading 'Results of Operations - Franchised Dealerships Segment' for additional discussion of the macro drivers of wholesale vehicle revenues.

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

Three Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit data)
Total wholesale vehicle revenue:
Same market $ 14,951 $ 4,666 $ 10,285 220.4 %
New markets 6,900 - 6,900 NM
Total as reported $ 21,851 $ 4,666 $ 17,185 368.3 %
Total wholesale vehicle gross profit (loss):
Same market $ 2,288 $ (69) $ 2,357 3,415.9 %
New markets 805 - 805 NM
Total as reported $ 3,093 $ (69) $ 3,162 4,582.6 %
Total wholesale vehicle unit sales:
Same market 1,847 1,454 393 27.0 %
New markets 1,031 - 1,031 NM
Total as reported 2,878 1,454 1,424 97.9 %
NM = Not Meaningful
Six Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit data)
Total wholesale vehicle revenue:
Same market $ 30,722 $ 10,770 $ 19,952 185.3 %
New markets 9,732 - 9,732 NM
Total as reported $ 40,454 $ 10,770 $ 29,684 275.6 %
Total wholesale vehicle gross profit (loss):
Same market $ 2,410 $ (145) $ 2,555 1,762.1 %
New markets 792 - 792 NM
Total as reported $ 3,202 $ (145) $ 3,347 2,308.3 %
Total wholesale vehicle unit sales:
Same market 4,151 3,219 932 29.0 %
New markets 1,588 - 1,588 NM
Total as reported 5,739 3,219 2,520 78.3 %

NM = Not Meaningful

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 June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit and per unit data)
Reported wholesale vehicle:
Revenue $ 21,851 $ 4,666 $ 17,185 368.3 %
Gross profit (loss) $ 3,093 $ (69) $ 3,162 4,582.6 %
Unit sales 2,878 1,454 1,424 97.9 %
Revenue per unit $ 7,592 $ 3,209 $ 4,383 136.6 %
Gross profit (loss) per unit $ 1,075 $ (47) $ 1,122 2,387.2 %
Gross profit (loss) as a % of revenue 14.2 % (1.5) % 1,570 bps
Six Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit and per unit data)
Reported wholesale vehicle:
Revenue $ 40,454 $ 10,770 $ 29,684 275.6 %
Gross profit (loss) $ 3,202 $ (145) $ 3,347 2,308.3 %
Unit sales 5,739 3,219 2,520 78.3 %
Revenue per unit $ 7,049 $ 3,346 $ 3,703 110.7 %
Gross profit (loss) per unit $ 558 $ (45) $ 603 1,340.0 %
Gross profit (loss) as a % of revenue 7.9 % (1.3) % 920 bps
Our EchoPark Segment same market wholesale vehicle results were as follows:
Three Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit and per unit data)
Same market wholesale vehicle:
Revenue $ 14,951 $ 4,666 $ 10,285 220.4 %
Gross profit (loss) $ 2,288 $ (69) $ 2,357 3,415.9 %
Unit sales 1,847 1,454 393 27.0 %
Revenue per unit $ 8,095 $ 3,209 $ 4,886 152.3 %
Gross profit (loss) per unit $ 1,239 $ (47) $ 1,286 2,736.2 %
Gross profit (loss) as a % of revenue 15.3 % (1.5) % 1,680 bps
Six Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit and per unit data)
Same market wholesale vehicle:
Revenue $ 30,722 $ 10,770 $ 19,952 185.3 %
Gross profit (loss) $ 2,410 $ (145) $ 2,555 1,762.1 %
Unit sales 4,151 3,219 932 29.0 %
Revenue per unit $ 7,401 $ 3,346 $ 4,055 121.2 %
Gross profit (loss) per unit $ 581 $ (45) $ 626 1,391.1 %
Gross profit (loss) as a % of revenue 7.8 % (1.3) % 910 bps

Same Market EchoPark Segment Wholesale Vehicles -Three Months Ended June 30, 2021 Compared to Three Months Ended June 30, 2020

Same market wholesale vehicle revenue increased 220.4% and same market wholesale vehicle gross profit improved by 3,415.9%, due primarily to higher trade-in volume, which drove a 27.0% increase in same market wholesale vehicle unit sales

SONIC AUTOMOTIVE, INC.

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

volume and a 2,736.2% increase in same market wholesale vehicle gross profit per unit, due to excess demand in the wholesale auction market driving higher average pricing. Given EchoPark's retail inventory mix, the majority of vehicles acquired from customers 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. However, a successful acquisition of a customer's trade-in vehicle often facilitates a retail used vehicle sale transaction that otherwise may not have occurred, driving higher overall gross profit. Our overall EchoPark inventory acquisition and pricing strategy reduces the risk of aged inventory that must be sold at auction (which would typically have a higher wholesale vehicle gross loss per unit) and increases the volume of trade-ins that we obtain from guests.

Same Market EchoPark Segment Wholesale Vehicles -Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020

Same market wholesale vehicle revenue increased 185.3% and same market wholesale vehicle gross profit improved by 1,762.1%, due primarily to higher trade-in volume, which drove a 29.0% increase in same market wholesale vehicle unit sales volume and a 1,391.1% increase in same market wholesale vehicle gross profit per unit, due to excess demand in the wholesale auction market driving higher average pricing. Given EchoPark's retail inventory mix, the majority of vehicles acquired from customers 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. However, a successful acquisition of a customer's trade-in vehicle often facilitates a retail used vehicle sale transaction that otherwise may not have occurred, driving higher overall gross profit. Our overall EchoPark inventory acquisition and pricing strategy reduces the risk of aged inventory that must be sold at auction (which would typically have a higher wholesale vehicle gross loss per unit) and increases the volume of trade-ins that we obtain from guests.

Fixed Operations -EchoPark Segment

Parts, service and collision repair revenues consist of internal, sublet and other work related to preparation and reconditioning performed on vehicles in inventory that are later sold to a third party. When that work is performed by one of our 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. Our EchoPark stores do not currently perform warranty or customer pay repairs or maintenance work.

The following tables provide a reconciliation of EchoPark Segment reported basis, same market basis and new market basis for Fixed Operations:

Three Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands)
Total Fixed Operations revenue:
Same market $ 10,602 $ 7,060 $ 3,542 50.2 %
New markets 3,876 - 3,876 NM
Total as reported $ 14,478 $ 7,060 $ 7,418 105.1 %
Total Fixed Operations gross profit (loss):
Same market $ (4) $ (186) $ 182 97.8 %
New markets 274 - 274 NM
Total as reported $ 270 $ (186) $ 456 245.2 %

NM = Not Meaningful

SONIC AUTOMOTIVE, INC.

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

Six Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands)
Total Fixed Operations revenue:
Same market $ 21,248 $ 17,205 $ 4,043 23.5 %
New markets 6,067 34 6,033 (17,744.1) %
Total as reported $ 27,315 $ 17,239 $ 10,076 58.4 %
Total Fixed Operations gross profit (loss):
Same market $ (27) $ (383) $ 356 93.0 %
New markets 80 - 80 100.0 %
Total as reported $ 53 $ (383) $ 436 113.8 %
Our EchoPark Segment reported Fixed Operations results were as follows:
Three Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands)
Total Reported Fixed Operations:
Revenue $ 14,478 $ 7,060 $ 7,418 105.1 %
Gross profit (loss) $ 270 $ (186) $ 456 245.2 %
Gross profit (loss) as a % of revenue 1.9 % (2.6) % 450 bps
Six Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands)
Total Reported Fixed Operations:
Revenue $ 27,315 $ 17,239 $ 10,076 58.4 %
Gross profit (loss) $ 53 $ (383) $ 436 113.8 %
Gross profit (loss) as a % of revenue 0.2 % (2.2) % 240 bps

Our EchoPark Segment same market Fixed Operations results were as follows:

Three Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands)
Total Same market Fixed Operations:
Revenue $ 10,602 $ 7,060 $ 3,542 50.2 %
Gross profit (loss) $ (4) $ (186) $ 182 97.8 %
Gross profit (loss) as a % of revenue - % (2.6) % 260 bps
Six Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands)
Total Same store Fixed Operations:
Revenue $ 21,248 $ 17,205 $ 4,043 23.5 %
Gross profit (loss) $ (27) $ (383) $ 356 93.0 %
Gross profit (loss) as a % of revenue (0.1) % (2.2) % 210 bps

SONIC AUTOMOTIVE, INC.

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

Same Market EchoPark Segment Fixed Operations -Three Months Ended June 30, 2021 Compared to Three Months Ended June 30, 2020

Same market Fixed Operations revenue increased approximately $3.5 million, or 50.2%, primarily due to a 16.5% increase in retail used vehicle unit sales volume, driving higher levels of reconditioning work.

Same Market EchoPark Segment Fixed Operations -Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020

Same market Fixed Operations revenue increased approximately $4.0 million, or 23.5%, primarily due to a 14.7% increase in retail used vehicle unit sales volume, driving higher levels of reconditioning work.

Segment Results Summary

In the following tables of financial data, total segment income of the reportable segments is reconciled to consolidated income (loss) from continuing operations before taxes and impairment charges. See above for tables and discussion of results by reportable segment.

Three Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit data)
Segment Revenues:
Franchised Dealerships Segment revenues:
New vehicles $ 1,461,984 $ 900,003 $ 561,981 62.4 %
Used vehicles 761,524 535,699 225,825 42.2 %
Wholesale vehicles 62,956 28,509 34,447 120.8 %
Parts, service and collision repair 346,118 251,998 94,120 37.3 %
Finance, insurance and other, net 124,060 80,401 43,659 54.3 %
Franchised Dealerships Segment revenues $ 2,756,642 $ 1,796,610 $ 960,032 53.4 %
EchoPark Segment revenues:
New vehicles $ 909 $ - $ 909 100.0 %
Used vehicles 505,172 273,178 231,994 84.9 %
Wholesale vehicles 21,851 4,666 17,185 368.3 %
Parts, service and collision repair 14,478 7,060 7,418 105.1 %
Finance, insurance and other, net 53,194 30,372 22,822 75.1 %
EchoPark Segment revenues $ 595,604 $ 315,276 $ 280,328 88.9 %
Total consolidated revenues $ 3,352,246 $ 2,111,886 $ 1,240,360 58.7 %
Segment Income (Loss) (1):
Franchised Dealerships Segment $ 165,415 $ 35,689 $ 129,726 363.5 %
EchoPark Segment (14,394) 2,577 (16,971) (658.6) %
Total segment income (loss) $ 151,021 $ 38,266 $ 112,755 294.7 %
Impairment charges (2) - (833) 833 100.0 %
Income (loss) from continuing operations before taxes $ 151,021 $ 37,433 $ 113,588 303.4 %
Retail New and Used Vehicle Unit Sales Volume:
Franchised Dealerships Segment 59,038 43,864 15,174 34.6 %
EchoPark Segment 21,275 13,207 8,068 61.1 %
Total retail new and used vehicle unit sales volume 80,313 57,071 23,242 40.7 %

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

(2)For the three months ended June 30, 2020, the above amount includes a pre-tax impairment charge of approximately $0.8 million related to the abandonment of certain construction projects within the Franchised Dealerships Segment.

SONIC AUTOMOTIVE, INC.

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

Six Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit data)
Segment Revenues:
Franchised Dealerships Segment revenues:
New vehicles $ 2,618,301 $ 1,859,492 $ 758,809 40.8 %
Used vehicles 1,423,059 1,102,587 320,472 29.1 %
Wholesale vehicles 119,160 70,948 48,212 68.0 %
Parts, service and collision repair 654,194 576,499 77,695 13.5 %
Finance, insurance and other, net 221,586 163,429 58,157 35.6 %
Franchised Dealerships Segment revenues $ 5,036,300 $ 3,772,955 $ 1,263,345 33.5 %
EchoPark Segment revenues:
New vehicles $ 909 $ - $ 909 100.0 %
Used vehicles 933,735 556,343 377,392 67.8 %
Wholesale vehicles 40,454 10,770 29,684 275.6 %
Parts, service and collision repair 27,315 17,239 10,076 58.4 %
Finance, insurance and other, net 100,330 62,635 37,695 60.2 %
EchoPark Segment revenues $ 1,102,743 $ 646,987 $ 455,756 70.4 %
Total consolidated revenues $ 6,139,043 $ 4,419,942 $ 1,719,101 38.9 %
Segment Income (Loss) (1):
Franchised Dealerships Segment $ 235,957 $ 58,346 $ 177,611 304.4 %
EchoPark Segment (12,384) 4,672 (17,056) (365.1) %
Total segment income (loss) $ 223,573 $ 63,018 $ 160,555 254.8 %
Impairment charges (2) - (268,833) 268,833 100.0 %
Income (loss) from continuing operations before taxes $ 223,573 $ (205,815) $ 429,388 208.6 %
Retail New and Used Vehicle Unit Sales Volume:
Franchised Dealerships Segment 110,632 91,626 19,006 20.7 %
EchoPark Segment 40,945 27,193 13,752 50.6 %
Total retail new and used vehicle unit sales volume 151,577 118,819 32,758 27.6 %

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

(2)For the six months ended June 30, 2020, the above amount includes a pre-tax impairment charge of approximately $268.0 million related to adjustments in fair value of goodwill for the Franchised Dealerships Segment as a result of the economic disruptions due to the worldwide spread of COVID-19 which had adversely affected our business, as well as a pre-tax impairment charge of approximately $0.8 million related to the abandonment of certain construction projects within the Franchised Dealerships Segment.

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 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

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

Three Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands)
SG&A expenses:
Compensation $ 213,842 $ 140,266 $ (73,576) (52.5) %
Advertising 15,345 8,087 (7,258) (89.7) %
Rent 13,665 13,223 (442) (3.3) %
Other 77,768 68,783 (8,985) (13.1) %
Total SG&A expenses $ 320,620 $ 230,359 $ (90,261) (39.2) %
SG&A expenses as a % of gross profit:
Compensation 41.9 % 45.6 % 370 bps
Advertising 3.0 % 2.6 % (40) bps
Rent 2.7 % 4.3 % 160 bps
Other 15.2 % 22.4 % 720 bps
Total SG&A expenses as a % of gross profit 62.8 % 74.9 % 1,210 bps
Six Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands)
SG&A expenses:
Compensation $ 402,333 $ 314,688 $ (87,645) (27.9) %
Advertising 27,515 22,222 (5,293) (23.8) %
Rent 27,409 27,088 (321) (1.2) %
Other 152,719 148,517 (4,202) (2.8) %
Total SG&A expenses $ 609,976 $ 512,515 $ (97,461) (19.0) %
SG&A expenses as a % of gross profit:
Compensation 44.1 % 47.8 % 370 bps
Advertising 3.0 % 3.4 % 40 bps
Rent 3.0 % 4.1 % 110 bps
Other 16.8 % 22.6 % 580 bps
Total SG&A expenses as a % of gross profit 66.9 % 77.9 % 1,100 bps

Three Months Ended June 30, 2021 Compared to Three Months Ended June 30, 2020

Overall SG&A expenses increased in dollar amount but decreased as a percentage of gross profit, primarily due to higher compensation levels as a result of higher vehicle unit sales volume and higher overall gross profit levels. Compensation expense increased in dollar amount but decreased as a percentage of gross profit, primarily due to increased sales associate productivity during 2021 as well as higher gross profit levels. Advertising expense increased in both dollar amount and as a percentage of gross profit, due primarily to changes we made to optimize our marketing spend during the initial months of the pandemic. Rent expense increased in dollar amount but decreased as a percentage of gross profit, due primarily to higher levels of gross profit. Other SG&A expenses increased in dollar amount but decreased as a percentage of gross profit, due primarily to higher gross profit levels and temporary reductions in expenses during the second quarter of 2020 as a result of the initial onset of the pandemic.

SONIC AUTOMOTIVE, INC.

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

Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020

Overall SG&A expenses increased in dollar amount but decreased as a percentage of gross profit, primarily due to higher compensation levels as a result of higher vehicle unit sales volume and higher overall gross profit levels. Compensation expense increased in dollar amount but decreased as a percentage of gross profit, primarily due to increased sales associate productivity during 2021 as well as higher gross profit levels. Advertising expense increased in dollar amount but decreased as a percentage of gross profit, due primarily to a focused marketing strategy. Rent expense increased in dollar amount but decreased as a percentage of gross profit, due primarily to higher levels of gross profit. Other SG&A expenses increased in dollar amount but decreased as a percentage of gross profit, due primarily to higher gross profit levels and increased spending in relation to higher sales as compared to the prior year period.

Impairment Charges -Consolidated

We did not record any impairment charges for the three and six months ended June 30, 2021. Impairment charges were approximately $0.8 million for the three months ended June 30, 2020, related to the abandonment of certain construction projects in our Franchised Dealerships Segment. Impairment charges for the six months ended June 30, 2020 were approximately $268.8 million, primarily related to fair value adjustments to goodwill in our Franchised Dealerships Segment.

Depreciation and Amortization -Consolidated

Depreciation expense increased approximately $2.1 million, or 9.3%, during the three months ended June 30, 2021, and $3.5 million, or 7.8%, during the six months ended June 30, 2021, due primarily to the opening or acquisition of additional EchoPark stores and construction projects completed and placed in service in our Franchised Dealerships Segment.

Interest Expense, Floor Plan -Consolidated

Three Months Ended June 30, 2021 Compared to Three Months Ended June 30, 2020

Interest expense, floor plan for new vehicles decreased approximately $2.8 million, or 55.1%. The average new vehicle floor plan interest rate was 0.81%, down from 1.57% in the three months ended June 30, 2020, resulting in a decrease in new vehicle floor plan interest expense of approximately $2.1 million. The average new vehicle floor plan notes payable balance decreased approximately $173.7 million, which decreased new vehicle floor plan interest expense by approximately $0.7 million.

Interest expense, floor plan for used vehicles increased approximately $0.8 million, or 65.5%. The average used vehicle floor plan interest rate was 1.67%, down from 1.89% in the three months ended June 30, 2020, resulting in a decrease in used vehicle floor plan interest expense of approximately $0.3 million. The average used vehicle floor plan notes payable balance increased approximately $230.2 million, which increased used vehicle floor plan interest expense by approximately $1.1 million.

Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020

Interest expense, floor plan for new vehicles decreased approximately $8.3 million, or 59.5%. The average new vehicle floor plan interest rate was 1.00%, down from 2.12% in the six months ended June 30, 2020, resulting in a decrease in new vehicle floor plan interest expense of approximately $6.5 million. The average new vehicle floor plan notes payable balance decreased approximately $182.5 million, which decreased new vehicle floor plan interest expense by approximately $1.8 million.

Interest expense, floor plan for used vehicles increased approximately $1.0 million, or 33.8%. The average used vehicle floor plan interest rate was 1.71%, down from 2.30% in the six months ended June 30, 2020, resulting in a decrease in used vehicle floor plan interest expense of approximately $1.3 million. The average used vehicle floor plan notes payable balance increased approximately $197.9 million, which increased used vehicle floor plan interest expense by approximately $2.3 million.

SONIC AUTOMOTIVE, INC.

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

Interest Expense, Other, Net -Consolidated

Interest expense, other, net is summarized in the tables below:
Three Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands)
Stated/coupon interest $ 7,501 $ 8,741 $ 1,240 14.2 %
Deferred loan cost amortization 834 624 (210) (33.7) %
Interest rate hedge expense (benefit) 471 (380) (851) (223.9) %
Capitalized interest (564) (124) 440 354.8 %
Interest on finance lease liabilities 1,676 1,337 (339) (25.4) %
Other interest 159 (401) (560) (139.7) %
Total interest expense, other, net $ 10,077 $ 9,797 $ (280) (2.9) %
Six Months Ended June 30, Better / (Worse)
2021 2020 Change % Change
(In thousands)
Stated/coupon interest $ 15,147 $ 17,955 $ 2,808 15.6 %
Deferred loan cost amortization 1,658 1,182 (476) (40.3) %
Interest rate hedge expense (benefit) 881 (808) (1,689) (209.0) %
Capitalized interest (974) (545) 429 78.7 %
Interest on finance lease liabilities 3,332 2,681 (651) (24.3) %
Other interest 319 297 (22) (7.4) %
Total interest expense, other, net $ 20,363 $ 20,762 $ 399 1.9 %

Interest expense, other, net increased approximately $0.3 million and decreased approximately $0.4 million during the three and six months ended June 30, 2021, respectively, primarily due to a decrease in outstanding borrowings on our revolving credit facility and lower mortgage debt, offset by a lower benefit from interest rate hedge instruments and an increase in interest associated with finance lease liabilities.

Income Taxes

The overall effective tax rate from continuing operations was 24.5% and 25.0% for the three and six months ended June 30, 2021, respectively, and 17.2% and 18.3% for the three and six months ended June 30, 2020, respectively. Income tax expense for the three months ended June 30, 2021 includes a $1.3 million discrete benefit related to vested or exercised stock compensation awards. Income tax expense for the six months ended June 30, 2021 includes a $2.8 million discrete benefit related to vested or exercised stock compensation awards. Income tax benefit for the three months ended June 30, 2020 includes a $3.4 million discrete benefit related to the favorable resolution of certain tax matters and other adjustments, offset partially by a $0.3 million discrete charge related to vested or exercised stock compensation awards. Income tax benefit for the six months ended June 30, 2020 includes a $55.8 million benefit, including the effect of non-deductible amounts, related to the $268.0 million goodwill impairment charge recognized in such quarter, and a $0.2 million discrete benefit related to vested or exercised stock compensation awards and a $0.2 million discrete benefit related to the favorable resolution of a certain tax matter, offset partially by a $1.4 million discrete charge related to changes in uncertain tax positions. Sonic's 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.

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 June 30, 2021 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 compliance

SONIC AUTOMOTIVE, INC.

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

with the restrictive covenants under the 2021 Credit Facilities, the 2019 Mortgage Facility, the 2020 Line of Credit Facility, the indenture governing the 6.125% 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 June 30, 2021, we had approximately $348.9 million of net income and retained earnings free of such restrictions. Cash flows provided by our franchised dealerships and EchoPark stores 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 to a substantial degree on the results of operations of these subsidiaries and their ability to provide us with cash.

We had the following liquidity resources available as of June 30, 2021 and December 31, 2020:
June 30, 2021 December 31, 2020
(In thousands)
Cash and cash equivalents $ 239,617 $ 170,313
Availability under the 2021 Revolving Credit Facility (1) 224,318 214,672
Availability under the 2019 Mortgage Facility 16,726 11,272
Availability under the 2020 Line of Credit Facility 54,141 56,973
Floor plan deposit balance 75,000 73,180
Total available liquidity resources $ 609,802 $ 526,410

(1) The balance as of December 31, 2020 was under the Company's prior revolving credit facility, which was replaced by the 2021 Revolving Credit Facility.

We participate in a program with two of our lender partners wherein we maintain a deposit balance (included in the table above) with the lender that earns interest based on the agreed upon rate, effectively reducing the net 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 of approximately $75.0 million and $73.2 million as of June 30, 2021 and December 31, 2020, respectively, are classified in other current assets in the accompanying unaudited condensed consolidated balance sheets as of June 30, 2021 and December 31, 2020.

Floor Plan Facilities

We finance our new and certain of our used vehicle inventory through standardized floor plan facilities with manufacturer captive finance companies and a syndicate of manufacturer-affiliated finance companies and commercial banks. These floor plan facilities are due on demand and bear interest at variable rates based on LIBOR or prime plus an additional spread, as applicable. The weighted-average interest rate for our new and used vehicle floor plan facilities was 1.07%and 1.62% in the three months ended June 30, 2021 and 2020, respectively, and 1.20% and 2.14% in the six months ended June 30, 2021 and 2020, 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 $11.5 millionand $6.2 million in manufacturer assistance in the three months ended June 30, 2021 and 2020, respectively, and approximately $22.3 million and $16.2 million in manufacturer assistance in the six months ended June 30, 2021 and 2020, respectively. We recognized in cost of sales approximately $13.7 million and $8.7 million in manufacturer assistance in the three months ended June 30, 2021 and 2020, respectively, and approximately $25.0 million and $17.7 million in manufacturer assistance in the six months ended June 30, 2021 and 2020, 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 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 stores and collision repair centers, building improvements and equipment purchased for use in our franchised dealerships and EchoPark stores. We selectively construct new or improve existing 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 six months ended June 30, 2021 were approximately $105.1 million, including approximately $71.7 million related to our Franchised Dealerships Segment and approximately $33.4 million related to our EchoPark Segment. Of this amount, approximately $59.2 million was related to facility construction projects, $7.4 million was related to real estate acquisitions and $38.5 million was for other fixed assets utilized in our store operations.

All of the $105.1 million in gross capital expenditures in the six months ended June 30, 2021 was funded through cash from operations. As of June 30, 2021, commitments for facility construction projects totaled approximately $34.6 million, nearly all of which is expected to be completed in the next 12 months. We expect investments related to capital expenditures to be partly dependent upon our overall liquidity position and the availability of mortgage financing to fund significant capital projects.

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 six months ended June 30, 2021, we repurchased approximately 1.0 million shares of our Class A Common Stock for approximately $42.2 million in open-market transactions at prevailing market prices and in connection with tax withholding on the vesting of equity compensation awards. During the second quarter of 2021, our Board of Directors increased our share repurchase authorization by $250.0 million. As of June 30, 2021, our total remaining share repurchase authorization was approximately $277.3 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 June 30, 2021, we had approximately $348.9 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 and 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 June 30, 2021, our Board of Directors approved a cash dividend of $0.12 per share on all outstanding shares of Class A and Class B Common Stock as of June 15, 2021, which was paid on July 15, 2021. Subsequent to June 30, 2021, our Board of Directors approved a cash dividend of $0.12 per share on all outstanding shares of Class A and Class B Common Stock as of September 15, 2021 to be paid on October 15, 2021. Under the 2021 Credit Facilities, dividends are permitted to the extent that no event of default exists and we are in compliance with the financial covenants contained therein. The indenture governing the 6.125% Notes also contains 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 June 30, 2021, we had approximately $348.9 million of net income and retained earnings free of such restrictions. The payment of any future dividend is subject to the business judgment of our Board of Directors, taking into consideration our historical and projected results of operations, financial condition, cash flows, capital requirements, covenant compliance and share repurchases, the current economic environment and other factors considered 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

Net cash used in operating activities in the six months ended June 30, 2021 was approximately $34.7 million. This use 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 inventories and an increase in trade accounts payable and other liabilities. In the six months ended June 30, 2020, net cash provided by operating activities was approximately $227.7 million. This provision of cash was comprised primarily of a decrease in notes payable - floor plan - trade and inventories and an increase in other assets, offset partially by a decrease in receivables and cash inflows related to operating profits.

Net cash used in investing activities in the six months ended June 30, 2021 was approximately $129.1 million. This use of cash was comprised primarily of purchases of land, property and equipment and purchases of businesses, net of cash acquired. Net cash used in investing activities in the six months ended June 30, 2020 was approximately $62.5 million. This use of cash was comprised primarily of purchases of land, property and equipment.

Net cash provided by financing activities in the six months ended June 30, 2021 was approximately $233.1 million. This provision of cash was comprised primarily of a net borrowing of 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 six months ended June 30, 2020 was approximately $78.7 million. This use of cash was comprised primarily of net repayments of notes payable - floor plan - non-trade and purchases of treasury stock, offset partially by proceeds from the issuance of long-term debt.

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 as trade floor plan liabilities (with the resulting change being reflected as operating cash flows). Our dealerships that obtain floor plan financing from a syndicate of manufacturer-affiliated finance companies and commercial banks record their obligation as non-trade floor plan liabilities (with the resulting change being reflected as 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 combined trade and non-trade floor plan financing was approximately $238.1 million in the six months ended June 30, 2021. Net cash used in combined trade and non-trade floor plan financing was approximately $321.8 million in the six months ended June 30, 2020. Accordingly, if all changes in floor plan notes payable were classified as an operating activity, the result would have been net cash provided by operating activities of approximately $279.6 million in the six months ended June 30, 2021 and net cash provided by operating activities of approximately $163.6 million in the six months ended June 30, 2020.

One factor that management uses to measure cash flow generation or use is Adjusted EBITDA, a non-GAAP financial measure, for each of the Company's reportable segments. That measure is provided and reconciled to the nearest comparable GAAP financial measure in the tables below:

Three Months Ended June 30, 2021 Three Months Ended June 30, 2020
Franchised Dealerships Segment EchoPark Segment Discontinued Operations Total Franchised Dealerships Segment EchoPark Segment Discontinued Operations Total
(In thousands)
Net income (loss) $ 113,845 $ 30,791
Provision for income taxes 36,972 6,353
Income (loss) before taxes $ 165,415 $ (14,394) $ (204) $ 150,817 $ 34,856 $ 2,577 $ (289) $ 37,144
Non-floor plan interest (1) 8,895 348 - 9,243 8,938 234 - 9,172
Depreciation & amortization (2) 21,444 4,152 - 25,596 20,514 2,758 - 23,272
Stock-based compensation expense 3,989 - - 3,989 2,971 - - 2,971
Asset impairment charges - - - - 833 - - 833
Long-term compensation charges - 500 - 500 - - - -
Loss (gain) on franchise and real estate disposals (400) (23) - (423) 1,117 - - 1,117
Adjusted EBITDA (3) $ 199,343 $ (9,417) $ (204) $ 189,722 $ 69,229 $ 5,569 $ (289) $ 74,509

(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; interest expense, non-cash, convertible debt; and interest expense/amortization, non-cash, cash flow swaps.

SONIC AUTOMOTIVE, INC.

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

(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 net debt discount/premium amortization and other amortization.

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

Six Months Ended June 30, 2021 Six Months Ended June 30, 2020
Franchised Dealerships Segment EchoPark Segment Discontinued Operations Total Franchised Dealerships Segment EchoPark Segment Discontinued Operations Total
(In thousands)
Net income (loss) $ 168,067 $ (168,542)
Provision for income taxes 56,022 (37,846)
Income (loss) before taxes $ 235,957 $ (12,384) $ 516 $ 224,089 $ (210,487) $ 4,672 $ (573) $ (206,388)
Non-floor plan interest (1) 18,022 682 - 18,704 18,981 599 - 19,580
Depreciation & amortization (2) 42,650 7,456 - 50,106 40,658 5,466 - 46,124
Stock-based compensation expense 7,474 - - 7,474 5,398 - - 5,398
Asset impairment charges - - - - 268,833 - - 268,833
Long-term compensation charges - 1,000 - 1,000 - - - -
Loss (gain) on franchise and real estate disposals (421) (9) - (430) 1,117 - - 1,117
Adjusted EBITDA (3) $ 303,682 $ (3,255) $ 516 $ 300,943 $ 124,500 $ 10,737 $ (573) $ 134,664

(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; interest expense, non-cash, convertible debt; and interest expense/amortization, non-cash, cash flow swaps.

(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 net debt discount/premium amortization and other amortization.

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

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), the 2020 Line of Credit Facility (or any replacements thereof), real estate mortgage financing, and 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.

Currently, we do not believe that the effects of the COVID-19 pandemic have materially affected our cost of or access to capital and funding sources, but this could change if the pandemic and its impact on our business worsen. 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 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.

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 or facilities. 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 sublessee does not perform. In the event an assignee or a sublessee does not perform its obligations, we remain liable for such obligations.

SONIC AUTOMOTIVE, INC.

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

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, our maximum exposure associated with these general indemnifications was approximately $4.0 million and $25.0 million at June 30, 2021 and December 31, 2020, respectively. These indemnifications typically expire within a period of one to three years following the date of sale. The estimated fair value of these indemnifications was not material and the amount recorded for this contingency was not significant at June 30, 2021.

We also guarantee the floor plan commitments of our 50%-owned joint venture, the amount of which was approximately $4.3 million at both June 30, 2021 and December 31, 2020.

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, 2020 for further discussion regarding these guarantees and indemnification obligations.

Seasonality

Our operations are subject to seasonal variations. 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. 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.

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, the 2020 Line of Credit 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 our interest rate caps (see below), was approximately $997.1 million at June 30, 2021. An increase in interest rates of 100 basis points would have caused a change in interest expense of approximately $14.8 million in the six months ended June 30, 2021. Of the total change in interest expense, approximately $13.5 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 interest rates. An increase in interest rates of 100 basis points would not have had a significant impact on rent expense in the six months ended June 30, 2021 due to the leases containing LIBOR floors which were above the LIBOR rate during the six months ended June 30, 2021.

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.

SONIC AUTOMOTIVE, INC.

Item 4. Controls and Procedures.

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 (the 'Exchange Act')) as of June 30, 2021. Based upon that evaluation, our CEO and our CFO concluded that our disclosure controls and procedures were effective as of June 30, 2021.

Changes in Internal Control over Financial Reporting - There were no changes in our internal control over financial reporting during the quarter ended June 30, 2021, that have materially affected, or are 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.

SONIC AUTOMOTIVE, INC.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

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

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, 2020, except as noted below.

Our Amended and Restated Certificate of Incorporation and our Amended and Restated Bylaws designate the state and federal courts of Delaware as the exclusive forums for certain claims against the Company which could increase the costs of bringing a claim or limit the ability of a stockholder to bring a claim in a judicial forum viewed by a stockholder as favorable.

Our Amended and Restated Certificate of Incorporation and our Amended and Restated Bylaws provide that the Court of Chancery of the State of Delaware is the sole and exclusive forum for claims for (1) any derivative action or proceeding brought on behalf of Sonic (other than derivative actions brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder); (2) any action asserting a claim of a breach of, or based on, a fiduciary duty owed by any current or former director, officer or other employee of Sonic to Sonic or Sonic's stockholders; (3) any action asserting a claim against Sonic or any current or former director, officer, or other employee or stockholder of Sonic arising pursuant to any provision of the Delaware General Corporation Law, our Amended and Restated Certificate of Incorporation or our Amended and Restated Bylaws; or (4) any action asserting a claim against Sonic governed by the internal affairs doctrine of the State of Delaware. Our Amended and Restated Certificate of Incorporation and our Amended and Restated Bylaws also provide that, unless the Board otherwise consents in writing, to the extent permitted by applicable law, the United States District Court for the District of Delaware shall be the sole and exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act of 1933, as amended (the 'Securities Act'), the Exchange Act or any ancillary claims related thereto which are subject to the ancillary jurisdiction of the federal courts.

The exclusive forum provisions of our Amended and Restated Certificate of Incorporation and our Amended and Restated Bylaws may increase the costs to bring a claim, discourage claims or limit a stockholder's ability to bring a claim in a judicial forum that he, she or it finds favorable for disputes with the Company or the Company's directors, officers or other employees. Such provisions may also discourage lawsuits against the Company or the Company's directors, officers and other employees. The Delaware courts or the United States District Court for the District of Delaware may also reach different judgments or results than would other courts, including courts where a stockholder considering an action may be located or would otherwise choose to bring the action, and such judgments may be more or less favorable to us than to our stockholders.

While the Delaware Supreme Court ruled in March 2020 that federal forum selection provisions requiring claims under the Securities Act be brought in federal court are 'facially valid' under Delaware law, there is uncertainty as to whether courts in other jurisdictions will enforce provisions such as those contemplated in our Amended and Restated Certificate of Incorporation and our Amended and Restated Bylaws, including whether a court would enforce the provision requiring claims arising under the Securities Act or the Exchange Act to be brought in the United States District Court for the District of Delaware. If the exclusive forum provisions of our Amended and Restated Certificate of Incorporation and our Amended and Restated Bylaws are found to be unenforceable in a particular action, we or a stockholder may incur additional costs associated with resolving such an action or the validity of the exclusive forum clause on appeal.

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 June 30, 2021.

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 thousands, except per share data)
April 2021 928 $ 49.34 45,788 $ 277,261
May 2021 - $ - - $ -
June 2021 - $ - - $ -
Total 928 45,788

(1)On July 31, 2020 and April 29, 2021, 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 thousands)
July 2020 authorization $ 60,000
April 2021 authorization 250,000
Total active program repurchases prior to June 30, 2021 (32,700)
Current remaining availability as of June 30, 2021 $ 277,300

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.

SONIC AUTOMOTIVE, INC.

Item 6. Exhibits.
Exhibit No. Description
3.1
3.2
3.3
3.4
3.5
3.6
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
31.1*
31.2*
32.1**
32.2**
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.

SONIC AUTOMOTIVE, INC.

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.

(1)Indicates a management contract or compensatory plan or arrangement.

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.
July 29, 2021 By: /s/ DAVID BRUTON SMITH
David Bruton Smith
Chief Executive Officer
July 29, 2021 By: /s/ HEATH R. BYRD
Heath R. Byrd
Executive Vice President and Chief Financial Officer