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, 2019March 31, 2020
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)

Delaware56-2010790
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)

4401 Colwick Road28211
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 classTrading Symbol(s)Name of each exchange on which registered
Class A Common Stock, par value $0.01 per shareSAHNew 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 24, 2019,April 29, 2020, there were 31,099,43930,890,395 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, 20182019 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;
•changes in vehicle and parts import quotas, duties, tariffs or other restrictions;
•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 createscreate 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; and
•the rate and timing of overall economic recoveryexpansion or decline.contraction; and
•the severity and duration of the COVID-19 pandemic and the actions taken by governmental authorities, businesses or consumers in response to the pandemic.
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, 2019MARCH 31, 2020

TABLE OF CONTENTS
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PART I – FINANCIAL INFORMATION
Item 1. Financial Statements.
SONIC AUTOMOTIVE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended June 30,Six Months Ended June 30,Three Months Ended March 31,
201920182019201820202019
(Dollars and shares in thousands, except per share amounts)(Dollars and shares in thousands, except per share amounts)
Revenues:Revenues:Revenues:
New vehiclesNew vehicles$1,204,754 $1,238,571 $2,271,088 $2,419,416 New vehicles$959,489  $1,066,334  
Used vehiclesUsed vehicles885,627 762,572 1,705,992 1,471,618 Used vehicles850,052  820,366  
Wholesale vehiclesWholesale vehicles50,039 53,748 104,810 119,148 Wholesale vehicles48,543  54,770  
Total vehiclesTotal vehicles2,140,420 2,054,891 4,081,890 4,010,182 Total vehicles1,858,084  1,941,470  
Parts, service and collision repairParts, service and collision repair355,312 346,754 696,742 698,512 Parts, service and collision repair334,680  341,430  
Finance, insurance and other, netFinance, insurance and other, net118,349 104,104 224,587 197,829 Finance, insurance and other, net115,292  106,238  
Total revenuesTotal revenues2,614,081 2,505,749 5,003,219 4,906,523 Total revenues2,308,056  2,389,138  
Cost of Sales:Cost of Sales:Cost of Sales:
New vehiclesNew vehicles(1,148,354)(1,181,303)(2,160,892)(2,305,349)New vehicles(914,074) (1,012,538) 
Used vehiclesUsed vehicles(848,898)(725,263)(1,632,256)(1,397,538)Used vehicles(817,922) (783,358) 
Wholesale vehiclesWholesale vehicles(50,752)(57,105)(106,789)(126,929)Wholesale vehicles(48,700) (56,037) 
Total vehiclesTotal vehicles(2,048,004)(1,963,671)(3,899,937)(3,829,816)Total vehicles(1,780,696) (1,851,933) 
Parts, service and collision repairParts, service and collision repair(184,766)(179,703)(362,960)(361,833)Parts, service and collision repair(176,782) (178,194) 
Total cost of salesTotal cost of sales(2,232,770)(2,143,374)(4,262,897)(4,191,649)Total cost of sales(1,957,478) (2,030,127) 
Gross profitGross profit381,311 362,375 740,322 714,874 Gross profit350,578  359,011  
Selling, general and administrative expensesSelling, general and administrative expenses(294,532)(277,462)(541,626)(582,387)Selling, general and administrative expenses(282,156) (247,095) 
Impairment chargesImpairment charges— (10,317)(1,952)(13,960)Impairment charges(268,000) (1,952) 
Depreciation and amortizationDepreciation and amortization(23,806)(23,949)(46,456)(47,692)Depreciation and amortization(22,297) (22,649) 
Operating income (loss)Operating income (loss)62,973 50,647 150,288 70,835 Operating income (loss)(221,875) 87,315  
Other income (expense):Other income (expense):Other income (expense):
Interest expense, floor planInterest expense, floor plan(12,518)(11,945)(25,744)(22,622)Interest expense, floor plan(10,508) (13,226) 
Interest expense, other, netInterest expense, other, net(13,628)(13,375)(26,481)(26,831)Interest expense, other, net(10,965) (12,853) 
Other income (expense), netOther income (expense), net(5)17 95 106 Other income (expense), net100  100  
Total other income (expense)Total other income (expense)(26,151)(25,303)(52,130)(49,347)Total other income (expense)(21,373) (25,979) 
Income (loss) from continuing operations before taxesIncome (loss) from continuing operations before taxes36,822 25,344 98,158 21,488 Income (loss) from continuing operations before taxes(243,248) 61,336  
Provision for income taxes for continuing operations - benefit (expense)Provision for income taxes for continuing operations - benefit (expense)(10,071)(8,222)(29,058)(6,380)Provision for income taxes for continuing operations - benefit (expense)44,117  (18,987) 
Income (loss) from continuing operationsIncome (loss) from continuing operations26,751 17,122 69,100 15,108 Income (loss) from continuing operations(199,131) 42,349  
Discontinued operations:Discontinued operations:Discontinued operations:
Income (loss) from discontinued operations before taxesIncome (loss) from discontinued operations before taxes(213)(297)(393)(545)Income (loss) from discontinued operations before taxes(285) (180) 
Provision for income taxes for discontinued operations - benefit (expense)Provision for income taxes for discontinued operations - benefit (expense)61 80 114 148 Provision for income taxes for discontinued operations - benefit (expense)83  52  
Income (loss) from discontinued operationsIncome (loss) from discontinued operations(152)(217)(279)(397)Income (loss) from discontinued operations(202) (128) 
Net income (loss)Net income (loss)$26,599 $16,905 $68,821 $14,711 Net income (loss)$(199,333) $42,221  
Basic earnings (loss) per common share:Basic earnings (loss) per common share:Basic earnings (loss) per common share:
Earnings (loss) per share from continuing operationsEarnings (loss) per share from continuing operations$0.62 $0.40 $1.61 $0.35 Earnings (loss) per share from continuing operations$(4.67) $0.99  
Earnings (loss) per share from discontinued operationsEarnings (loss) per share from discontinued operations— — (0.01)(0.01)Earnings (loss) per share from discontinued operations(0.01) (0.01) 
Earnings (loss) per common shareEarnings (loss) per common share$0.62 $0.40 $1.60 $0.34 Earnings (loss) per common share$(4.68) $0.98  
Weighted-average common shares outstandingWeighted-average common shares outstanding43,066 42,662 42,953 42,725 Weighted-average common shares outstanding42,615  42,838  
Diluted earnings (loss) per common share:Diluted earnings (loss) per common share:Diluted earnings (loss) per common share:
Earnings (loss) per share from continuing operationsEarnings (loss) per share from continuing operations$0.62 $0.40 $1.60 $0.35 Earnings (loss) per share from continuing operations$(4.67) $0.99  
Earnings (loss) per share from discontinued operationsEarnings (loss) per share from discontinued operations(0.01)(0.01)— (0.01)Earnings (loss) per share from discontinued operations(0.01) (0.01) 
Earnings (loss) per common shareEarnings (loss) per common share$0.61 $0.39 $1.60 $0.34 Earnings (loss) per common share$(4.68) $0.98  
Weighted-average common shares outstandingWeighted-average common shares outstanding43,230 42,920 43,060 42,948 Weighted-average common shares outstanding42,615  42,888  




See notes to unaudited condensed consolidated financial statements.


1

SONIC AUTOMOTIVE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)

Three Months Ended June 30,Six Months Ended June 30,Three Months Ended March 31,
201920182019201820202019
(Dollars in thousands)(Dollars in thousands)
Net income (loss)Net income (loss)$26,599 $16,905 $68,821 $14,711 Net income (loss)$(199,333) $42,221  
Other comprehensive income (loss) before taxes:Other comprehensive income (loss) before taxes:Other comprehensive income (loss) before taxes:
Change in fair value of interest rate swap and interest rate cap agreementsChange in fair value of interest rate swap and interest rate cap agreements(1,400)1,197 (3,748)5,203 Change in fair value of interest rate swap and interest rate cap agreements361  (2,349) 
Amortization of terminated interest rate swap agreementsAmortization of terminated interest rate swap agreements(632)— (921)— Amortization of terminated interest rate swap agreements(797) (288) 
Total other comprehensive income (loss) before taxesTotal other comprehensive income (loss) before taxes(2,032)1,197 (4,669)5,203 Total other comprehensive income (loss) before taxes(436) (2,637) 
Provision for income tax benefit (expense) related to components of other comprehensive income (loss)Provision for income tax benefit (expense) related to components of other comprehensive income (loss)620 (326)1,396 (1,418)Provision for income tax benefit (expense) related to components of other comprehensive income (loss)164  776  
Other comprehensive income (loss)Other comprehensive income (loss)(1,412)871 (3,273)3,785 Other comprehensive income (loss)(272) (1,861) 
Comprehensive income (loss)Comprehensive income (loss)$25,187 $17,776 $65,548 $18,496 Comprehensive income (loss)$(199,605) $40,360  






See notes to unaudited condensed consolidated financial statements.


2

SONIC AUTOMOTIVE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)


June 30, 2019December 31, 2018March 31, 2020December 31, 2019
(Dollars in thousands)(Dollars in thousands)
ASSETSASSETSASSETS
Current Assets:Current Assets:Current Assets:
Cash and cash equivalentsCash and cash equivalents$2,140 $5,854 Cash and cash equivalents$181,780  $29,103  
Receivables, netReceivables, net364,026 438,186 Receivables, net200,876  432,742  
InventoriesInventories1,521,567 1,528,461 Inventories1,608,218  1,517,875  
Other current assetsOther current assets133,445 20,886 Other current assets138,912  37,890  
Total current assetsTotal current assets2,021,178 1,993,387 Total current assets2,129,786  2,017,610  
Property and Equipment, netProperty and Equipment, net1,130,942 1,178,489 Property and Equipment, net1,092,385  1,097,247  
GoodwillGoodwill487,306 509,592 Goodwill207,791  475,791  
Other Intangible Assets, netOther Intangible Assets, net64,300 69,705 Other Intangible Assets, net64,300  64,300  
Operating Right-of-Use Lease AssetsOperating Right-of-Use Lease Assets333,525 — Operating Right-of-Use Lease Assets344,148  337,842  
Finance Right-of-Use Lease AssetsFinance Right-of-Use Lease Assets38,928 — Finance Right-of-Use Lease Assets50,698  34,691  
Other AssetsOther Assets43,148 45,634 Other Assets87,636  43,554  
Total AssetsTotal Assets$4,119,327 $3,796,807 Total Assets$3,976,744  $4,071,035  
LIABILITIES AND STOCKHOLDERS’ EQUITYLIABILITIES AND STOCKHOLDERS’ EQUITYLIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:Current Liabilities:Current Liabilities:
Notes payable - floor plan - tradeNotes payable - floor plan - trade$753,239 $821,074 Notes payable - floor plan - trade$827,292  $860,871  
Notes payable - floor plan - non-tradeNotes payable - floor plan - non-trade714,609 712,966 Notes payable - floor plan - non-trade719,446  678,223  
Trade accounts payableTrade accounts payable128,579 114,263 Trade accounts payable78,394  135,217  
Operating short-term lease liabilitiesOperating short-term lease liabilities44,477 — Operating short-term lease liabilities43,139  43,332  
Finance short-term lease liabilitiesFinance short-term lease liabilities5,150 — Finance short-term lease liabilities20,225  1,564  
Accrued interestAccrued interest12,518 13,417 Accrued interest6,534  10,830  
Other accrued liabilitiesOther accrued liabilities243,869 257,823 Other accrued liabilities237,211  266,211  
Current maturities of long-term debtCurrent maturities of long-term debt62,968 26,304 Current maturities of long-term debt80,803  69,908  
Total current liabilitiesTotal current liabilities1,965,409 1,945,847 Total current liabilities2,013,044  2,066,156  
Long-Term DebtLong-Term Debt851,283 918,779 Long-Term Debt830,839  636,978  
Other Long-Term LiabilitiesOther Long-Term Liabilities68,265 75,887 Other Long-Term Liabilities66,287  73,746  
Operating Long-Term Lease LiabilitiesOperating Long-Term Lease Liabilities299,009 — Operating Long-Term Lease Liabilities311,371  304,151  
Finance Long-Term Lease LiabilitiesFinance Long-Term Lease Liabilities36,220 — Finance Long-Term Lease Liabilities33,216  36,313  
Deferred Income TaxesDeferred Income Taxes23,416 33,178 Deferred Income Taxes—  8,927  
Commitments and ContingenciesCommitments and ContingenciesCommitments and Contingencies
Stockholders’ Equity:Stockholders’ Equity:Stockholders’ Equity:
Class A Convertible Preferred Stock, none issuedClass A Convertible Preferred Stock, none issued— — Class A Convertible Preferred Stock, none issued—  —  
Class A Common Stock, $0.01 par value; 100,000,000 shares authorized; 64,728,106 shares issued and 31,099,439 shares outstanding at June 30, 2019; 64,197,385 shares issued and 30,721,226 shares outstanding at December 31, 2018647 642 
Class B Common Stock, $0.01 par value; 30,000,000 shares authorized; 12,029,375 shares issued and outstanding at June 30, 2019 and December 31, 2018121 121 
Class A Common Stock, $0.01 par value; 100,000,000 shares authorized; 65,199,247 shares issued and 30,834,793 shares outstanding at March 31, 2020; 64,733,667 shares issued and 31,105,000 shares outstanding at December 31, 2019Class A Common Stock, $0.01 par value; 100,000,000 shares authorized; 65,199,247 shares issued and 30,834,793 shares outstanding at March 31, 2020; 64,733,667 shares issued and 31,105,000 shares outstanding at December 31, 2019652  647  
Class B Common Stock, $0.01 par value; 30,000,000 shares authorized; 12,029,375 shares issued and outstanding at March 31, 2020 and December 31, 2019Class B Common Stock, $0.01 par value; 30,000,000 shares authorized; 12,029,375 shares issued and outstanding at March 31, 2020 and December 31, 2019121  121  
Paid-in capitalPaid-in capital750,532 745,052 Paid-in capital758,327  755,904  
Retained earningsRetained earnings723,469 670,691 Retained earnings586,511  790,158  
Accumulated other comprehensive income (loss)Accumulated other comprehensive income (loss)960 4,233 Accumulated other comprehensive income (loss)(2,334) (2,062) 
Treasury stock, at cost; 33,628,667 Class A Common Stock shares held at June 30, 2019 and 33,476,159 Class A Common Stock shares held at December 31, 2018(600,004)(597,623)
Treasury stock, at cost; 34,364,454 Class A Common Stock shares held at March 31, 2020 and 33,628,667 Class A Common Stock shares held at December 31, 2019Treasury stock, at cost; 34,364,454 Class A Common Stock shares held at March 31, 2020 and 33,628,667 Class A Common Stock shares held at December 31, 2019(621,290) (600,004) 
Total Stockholders’ EquityTotal Stockholders’ Equity875,725 823,116 Total Stockholders’ Equity721,987  944,764  
Total Liabilities and Stockholders’ EquityTotal Liabilities and Stockholders’ Equity$4,119,327 $3,796,807 Total Liabilities and Stockholders’ Equity$3,976,744  $4,071,035  




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 CapitalRetained EarningsAccumulated Other Comprehensive Income (Loss)Total Stockholders’ Equity
SharesAmountSharesAmountSharesAmount
(Dollars and shares in thousands, except per share amounts)
Balance at March 31, 201864,085 $641 (33,443)$(596,962)12,029 $121 $736,161 $624,535 $4,221 $768,717 
Shares awarded under stock compensation plans41 — — — — — 2 — — 2 
Purchases of treasury stock— — (1)(19)— — — — — (19)
Change in fair value of interest rate swap and interest rate cap agreements, net of tax expense of $288— — — — — — — — 871 871 
Restricted stock amortization— — — — — — 3,049 — — 3,049 
Net income (loss)— — — — — — — 16,905 — 16,905 
Class A dividends declared ($0.06)— — — — — — — (1,537)— (1,537)
Class B dividends declared ($0.06)— — — — — — — (1,008)— (1,008)
Balance at June 30, 201864,126 $641 (33,444)$(596,981)12,029 $121 $739,212 $638,895 $5,092 $786,980 
Class A
Common Stock		Class A
Treasury Stock		Class B
Common Stock		Paid-In CapitalRetained EarningsAccumulated Other Comprehensive Income (Loss)Total Stockholders’ Equity
SharesAmountSharesAmountSharesAmount
(Dollars and shares in thousands, except per share amounts)
Balance at December 31, 201864,197  $642  (33,476) $(597,623) 12,029  $121  $745,052  $670,691  $4,233  $823,116  
Shares awarded under stock compensation plans480  5  —  —  —  —  54  —  —  59  
Purchases of treasury stock—  —  (149) (2,333) —  —  —  —  —  (2,333) 
Effect of cash flow hedge instruments, net of tax benefit of $776—  —  —  —  —  —  —  —  (1,861) (1,861) 
Restricted stock amortization—  —  —  —  —  —  2,814  —  —  2,814  
Net income (loss)—  —  —  —  —  —  —  42,221  —  42,221  
Cumulative effect of change in accounting principle (1)—  —  —  —  —  —  —  (7,428) —  (7,428) 
Class A dividends declared ($0.10)—  —  —  —  —  —  —  (3,099) —  (3,099) 
Class B dividends declared ($0.10)—  —  —  —  —  —  —  (1,203) —  (1,203) 
Balance at March 31, 201964,677  $647  (33,625) $(599,956) 12,029  $121  $747,920  $701,182  $2,372  $852,286  



Class A
Common Stock		Class A
Treasury Stock		Class B
Common Stock		Paid-In CapitalRetained EarningsAccumulated Other Comprehensive Income (Loss)Total Stockholders’ EquityClass A
Common Stock		Class A
Treasury Stock		Class B
Common Stock		Paid-In CapitalRetained EarningsAccumulated Other Comprehensive Income (Loss)Total Stockholders’ Equity
SharesAmountSharesAmountSharesAmountAccumulated Other Comprehensive Income (Loss)SharesAmountSharesAmountSharesAmountPaid-In CapitalAccumulated Other Comprehensive Income (Loss)
(Dollars and shares in thousands, except per share amounts)(Dollars and shares in thousands, except per share amounts)
Balance at March 31, 201964,677 $647 (33,625)$(599,956)12,029 $121 $747,920 $701,182 $2,372 $852,286 
Balance at December 31, 2019Balance at December 31, 201964,734  $647  (33,629) $(600,004) 12,029  $121  $755,904  $790,158  $(2,062) $944,764  
Shares awarded under stock compensation plansShares awarded under stock compensation plans51 — — — — — — — — — Shares awarded under stock compensation plans465  5  —  —  —  —  (4) —  —  1  
Purchases of treasury stockPurchases of treasury stock— — (4)(48)— — — — — (48)Purchases of treasury stock—  —  (735) (21,286) —  —  —  —  —  (21,286) 
Change in fair value of interest rate swap and interest rate cap agreements, net of tax benefit of $620— — — — — — — — (1,412)(1,412)
Effect of cash flow hedge instruments, net of tax benefit of $164Effect of cash flow hedge instruments, net of tax benefit of $164—  —  —  —  —  —  —  —  (272) (272) 
Restricted stock amortizationRestricted stock amortization— — — — — — 2,612 — — 2,612 Restricted stock amortization—  —  —  —  —  —  2,427  —  —  2,427  
Net income (loss)Net income (loss)— — — — — — — 26,599 — 26,599 Net income (loss)—  —  —  —  —  —  —  (199,333) —  (199,333) 
Class A dividends declared ($0.10)Class A dividends declared ($0.10)— — — — — — — (3,109)— (3,109)Class A dividends declared ($0.10)—  —  —  —  —  —  —  (3,111) —  (3,111) 
Class B dividends declared ($0.10)Class B dividends declared ($0.10)— — — — — — — (1,203)— (1,203)Class B dividends declared ($0.10)—  —  —  —  —  —  —  (1,203) —  (1,203) 
Balance at June 30, 201964,728 $647 (33,629)$(600,004)12,029 $121 $750,532 $723,469 $960 $875,725 
Balance at March 31, 2020Balance at March 31, 202065,199  $652  (34,364) $(621,290) 12,029  $121  $758,327  $586,511  $(2,334) $721,987  

(1)See Note 1, “Summary of Significant Accounting Policies,” for further discussion.
















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 CapitalRetained EarningsAccumulated Other Comprehensive Income (Loss)Total Stockholders’ Equity
SharesAmountSharesAmountSharesAmount
(Dollars and shares in thousands, except per share amounts)
Balance at December 31, 201763,457 $635 (32,290)$(573,513)12,029 $121 $732,854 $625,356 $1,307 $786,760 
Shares awarded under stock compensation plans669 6 — — — — 347 — — 353 
Purchases of treasury stock— — (1,154)(23,468)— — — — — (23,468)
Change in fair value of interest rate swap and interest rate cap agreements, net of tax expense of $1,418— — — — — — — — 3,785 3,785 
Restricted stock amortization— — — — — — 6,011 — — 6,011 
Net income (loss)— — — — — — — 14,711 — 14,711 
Cumulative effect of change in accounting principle— — — — — — — 3,918 — 3,918 
Class A dividends declared ($0.06)— — — — — — — (3,646)— (3,646)
Class B dividends declared ($0.06)— — — — — — — (1,444)— (1,444)
Balance at June 30, 201864,126 $641 (33,444)$(596,981)12,029 $121 $739,212 $638,895 $5,092 $786,980 

Class A
Common Stock		Class A
Treasury Stock		Class B
Common Stock		Paid-In CapitalRetained EarningsAccumulated Other Comprehensive Income (Loss)Total Stockholders’ Equity
SharesAmountSharesAmountSharesAmount
(Dollars and shares in thousands, except per share amounts)
Balance at December 31, 201864,197 $642 (33,476)$(597,623)12,029 $121 $745,052 $670,691 $4,233 $823,116 
Shares awarded under stock compensation plans531 5 — — — — 54 — — 59 
Purchases of treasury stock— — (153)(2,381)— — — — — (2,381)
Change in fair value of interest rate swap and interest rate cap agreements, net of tax benefit of $1,396— — — — — — — — (3,273)(3,273)
Restricted stock amortization— — — — — — 5,426 — — 5,426 
Net income (loss)— — — — — — — 68,821 — 68,821 
Cumulative effect of change in accounting principle (1)— — — — — — — (7,428)— (7,428)
Class A dividends declared ($0.10)— — — — — — — (6,209)— (6,209)
Class B dividends declared ($0.10)— — — — — — — (2,406)— (2,406)
Balance at June 30, 201964,728 $647 (33,629)$(600,004)12,029 $121 $750,532 $723,469 $960 $875,725 
(1) See Note 1, “Summary of Significant Accounting Policies,” for further discussion.
 See notes to unaudited condensed consolidated financial statements.


5

SONIC AUTOMOTIVE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended June 30,
20192018
(Dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)$68,821 $14,711 
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization of property and equipment44,881 47,689 
Provision for bad debt expense205 283 
Other amortization3 310 
Debt issuance cost amortization1,189 1,217 
Stock-based compensation expense5,426 6,011 
Deferred income taxes(5,560)(6,188)
Net distributions from equity investee205 162 
Asset impairment charges1,952 13,960 
Loss (gain) on disposal of dealerships and property and equipment(46,065)(41,439)
Loss (gain) on exit of leased dealerships(170)2,564 
Changes in assets and liabilities that relate to operations:
Receivables82,537 151,391 
Inventories(31,566)(73,100)
Other assets(65,637)500 
Notes payable - floor plan - trade(67,835)(59,738)
Trade accounts payable and other liabilities(45,245)(20,225)
Total adjustments(125,680)23,397 
Net cash provided by (used in) operating activities(56,859)38,108 
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of land, property and equipment(51,234)(99,602)
Proceeds from sales of property and equipment2,301 12,584 
Proceeds from sales of dealerships121,337 122,404 
Net cash provided by (used in) investing activities72,404 35,386 
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (repayments) borrowings on notes payable - floor plan - non-trade1,643 11,135 
Borrowings on revolving credit facilities303,235 514,915 
Repayments on revolving credit facilities(303,235)(572,519)
Proceeds from issuance of long-term debt— 21,072 
Debt issuance costs2 (131)
Principal payments and repurchase of long-term debt(11,715)(18,344)
Purchases of treasury stock(2,381)(23,468)
Issuance of shares under stock compensation plans59 353 
Dividends paid(6,867)(4,705)
Net cash provided by (used in) financing activities(19,259)(71,692)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS(3,714)1,802 
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR5,854 6,352 
CASH AND CASH EQUIVALENTS, END OF PERIOD$2,140 $8,154 
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES:
Change in fair value of interest rate swap and interest rate cap agreements (net of tax benefit of $1,396 in the six months ended June 30, 2019 and net of tax expense of $1,418 in the six months ended June 30, 2018)$(3,273)$3,785 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid (received) during the period for:
Interest, including amount capitalized$53,143 $48,355 
Income taxes$41,305 $18,682 

Three Months Ended March 31,
20202019
(Dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)$(199,333) $42,221  
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization of property and equipment21,540  22,198  
Provision for bad debt expense134  159  
Debt issuance cost amortization557  591  
Stock-based compensation expense2,427  2,814  
Deferred income taxes(53,999) (2,816) 
Net distributions from equity investee448  379  
Asset impairment charges268,000  1,952  
Loss (gain) on disposal of dealerships and property and equipment(39) (46,785) 
Loss (gain) on exit of leased dealerships—  (170) 
Changes in assets and liabilities that relate to operations:
Receivables231,732  66,814  
Inventories(90,342) (40,210) 
Other assets(89,114) (66,967) 
Notes payable - floor plan - trade(33,579) (57,984) 
Trade accounts payable and other liabilities(105,630) (16,525) 
Total adjustments152,135  (136,550) 
Net cash provided by (used in) operating activities(47,198) (94,329) 
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of land, property and equipment(19,805) (30,619) 
Proceeds from sales of property and equipment194  1,125  
Proceeds from sales of dealerships—  121,700  
Net cash provided by (used in) investing activities(19,611) 92,206  
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (repayments) borrowings on notes payable - floor plan - non-trade41,223  9,841  
Borrowings on revolving credit facilities460,916  126,185  
Repayments on revolving credit facilities(250,916) (126,185) 
Debt issuance costs(24) —  
Principal payments and repurchase of long-term debt(5,777) (6,011) 
Principal payments of long-term lease liabilities(337) —  
Purchases of treasury stock(21,286) (2,333) 
Issuance of shares under stock compensation plans1  59  
Dividends paid(4,314) (2,565) 
Net cash provided by (used in) financing activities219,486  (1,009) 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS152,677  (3,132) 
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR29,103  5,854  
CASH AND CASH EQUIVALENTS, END OF PERIOD$181,780  $2,722  
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES:
Effect of cash flow hedge instruments (net of tax benefit of $164 and $776 in the three months ended March 31, 2020 and 2019, respectively)$(272) $(1,861) 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid (received) during the period for:
Interest, including amount capitalized$25,359  $26,945  
Income taxes$3  $10,277  




See notes to unaudited condensed consolidated financial statements.


65
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” andor “our”) for the three and six months ended June 30,March 31, 2020 and 2019 and 2018 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, third and fourth quarters. Additionally, the continued magnitude and impact of COVID-19 pandemic could impact earnings in the second, third and fourth quarters of 2020. 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, 2018.2019.
COVID 19 – The COVID-19 pandemic negatively impacted the global economy. As of March 31, 2020, the impact on the economy is primarily affecting demand as many countries around the world and states in the United States ("U.S.") have mandated restrictions on citizen movements (stay-at-home orders) or on retail trade at physical locations. As a result, many businesses have curtailed operations and furloughed or terminated many positions. In the U.S., the government passed several measures through the legislature that were signed by the President and enacted into law. Those measures include the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) and the Families First Coronavirus Response Act. Both Acts attempt to provide short-term relief to families and businesses as a result of the economic impacts of the COVID-19 pandemic.
Specifically related to Sonic, all our stores have been impacted by the crisis. As of March 31, 2020, the majority of our stores are not permitted to conduct retail sales of new and used vehicles at our physical locations. Those locations can offer virtual sales transactions with “contactless” delivery to customers. Due to the critical nature of automotive repair, our fixed operations have been deemed “essential” by governmental agencies and were able to continue to conduct business, but must maintain certain local standards for “social distancing”. As a result, in the last several weeks of March of 2020, we experienced 30%-50% declines in unit sales of new and used vehicles (as compared to the prior year period) and 15%-30% reductions in repair order activity in fixed operations. These trends have continued into April of 2020 and are expected to continue until at least through mid-May of 2020.
Based on these events, we evaluated our long-lived assets for impairment. This evaluation included reviews of fixed assets and related right-of-use assets, franchise assets and goodwill. As a result of this evaluation, we determined the carrying values of all long-lived assets to be recoverable at March 31, 2020 with the exception of goodwill related to our franchised dealership reporting unit. One of the primary factors which contributed to the conclusion that goodwill was impaired was the market value of Sonic's stock between the announcement date of the pandemic on March 11, 2020 to March 31, 2020. See Note 5 for further discussion.
The effects of the COVID-19 pandemic continue to evolve. While we currently expect to begin to see recovery in the last half of 2020, the outbreak may cause changes in customer behaviors, including a potential reduction in consumer spending for vehicles and automotive repairs. This may lead to increased asset recovery and valuation risks, such as impairment of additional long-lived assets. The uncertainties in the global economy may negatively impact our suppliers and other business partners, which may interrupt our supply chain and require other changes to our operations. These and other factors may adversely impact our revenues, operating income and earnings per share financial measures.
As a result of the pandemic and related stay-at-home orders, we have transitioned many of our teammates to remote work arrangements. In situations where the role does not permit remote work (ie. technicians), we have implemented staggered work hours and other social distancing 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 have been able to effectively maintain our back-office operations, financial reporting and internal control processes with minimal disruption.
Recent Accounting Pronouncements – In FebruaryJune 2016, the Financial Accounting Standards Board (the “FASB”) established Accounting Standards Codification (“ASC”) 842, “Leases,” by issuingissued Accounting Standards Update (“ASU”) 2016-02 (and subsequent amendments via ASU 2018-01, ASU 2018-10 and ASU 2018-11)2016-13, “Financial Instruments - Credit Losses (Accounting Standards Codification (“ASC”) Topic 326): Measurement of Credit Losses on Financial Instruments.” The amendment in order to increase transparency and comparability among organizations bythis update replaced the previous incurred loss impairment methodology of recognizing operating lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. Prior to adoption of the new lease standard, only leases classified as capital leases under ASC 840, “Leases,” were recorded in the consolidated balance sheets. Under ASC 842, “Leases,” an entity must classify leases as either finance leases (formerly capital leases) or operating leases, andcredit losses when a right-of-use asset (“ROU asset”) and lease liability are required to be recognized in the consolidated balance sheets for both finance and operating leasesloss is probable, with a term longer than 12 months. The new lease standardmethodology that reflects expected credit losses and requires consideration of a modified retrospective transition approachbroader range of reasonable and provides an optional transition methodsupportable information to either (1) record current existing leases as of the effective date; or (2) record leases existing as of the earliest comparative period presented in the financial statements by recasting comparative period financial statements. We adopted the new lease standard as of January 1, 2019 using the effective date as our date of application. As such, financial statement information and disclosures required under the new lease standard have not been provided for dates and periods prior to January 1, 2019. The new lease standard provides for a number of optional practical expedients in transition, which include: (1) not requiring an entity to reassess prior conclusions about lease identification, lease classification or initial direct costs; (2) allowing an entity to use a portfolio approach for similar lease assets; (3) allowing an entity to elect an accounting policy to choose not to separate non-lease components of an agreement from lease components (by asset class); (4) allowing the use of hindsight in estimating lease term or assessing impairment of ROU assets; and (5) not requiring an entity to reassess prior conclusions about land easements. We have elected all of the practical expedients permitted under the transition guidance within the new lease standard. The new lease standard also provides practical expedients for ongoing accounting. We have elected the short-term lease recognition exemption for our real estate and equipment leases, which means that for those leases that qualify (less than 1-year term), we will not recognize ROU assets or lease liabilities. We have also elected not to separate non-lease components of an agreement from lease components (by asset class).
The cumulative effect of the adoption of ASC 842, “Leases,” on our unaudited condensed consolidated balance sheet as of January 1, 2019 was the recognition of ROU assets of approximately $406.9 million (including approximately $18.9 million related to capital leases that was reclassified from property and equipment, net in the accompanying unaudited condensed consolidated balance sheet as of December 31, 2018) and lease liabilities of approximately $419.5 million (including approximately $20.6 million related to capital leases that was reclassified from current maturities of long-term debt and long-term debt in the accompanying unaudited condensed consolidated balance sheet as of December 31, 2018). Upon adoption of ASC 842, “Leases,” we evaluated ROU assets for impairment and determined that approximately $10.5 million of impairment was required related to newly recognized ROU assets that would have been impaired in previous periods. This impairment of the ROU asset as of January 1, 2019 was recorded, net of related income tax effects, as a $7.4 million reduction of beginning retained earnings. The adoption of ASC 842, “Leases,” did not have a material effect on our unaudited condensed consolidated statements of income or our unaudited condensed consolidated statements of cash flows. The effect of the adoption of ASC 842, “Leases,” on our unaudited condensed consolidated balance sheets as of January 1, 2019 and June 30, 2019 was as follows:

assess credit
76
SONIC AUTOMOTIVE, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Before Impact of ASC 842Effects of Adoption of ASC 842After Impact of ASC 842
December 31, 2018January 1, 2019
Balance Sheet(In thousands)
Assets:
Property and Equipment, net$1,178,489 $(18,948)$1,159,541 
Other Intangible Assets, net69,705(4,005)65,700 
Right-of-Use Assets— 406,918 406,918 
Liabilities:
Current lease liabilities$— $48,832 $48,832 
Other accrued liabilities257,823 (1,987)255,836 
Long-Term Debt918,779 (20,557)898,222 
Long-Term Lease Liabilities— 370,647 370,647 
Other Long-Term Liabilities75,887 (2,508)73,379 
Deferred Income Taxes33,178 (3,034)30,144 
Stockholders' Equity:
Retained earnings$670,691 $(7,428)$663,263 

Adoption
of ASC 842 as of
January 1, 2019		New
Leases		Modifications (1)AmortizationAs Reported June 30, 2019
(In thousands)
Right-of-Use Assets:
Finance Leases$18,948 $38 $21,514 $(1,572)$38,928 
Operating Leases387,970 — (33,710)(20,735)333,525 
Total Right-of-Use Assets$406,918 $38 $(12,196)$(22,307)$372,453 
Current Lease Liabilities:
Finance Leases$728 $3 $4,552 $(133)$5,150 
Operating Leases48,104 89 (1,615)(2,101)44,477 
Total Current Lease Liabilities$48,832 $92 $2,937 $(2,234)$49,627 
Long-Term Lease Liabilities:
Finance Leases$19,829 $35 $16,935 $(579)$36,220 
Operating Leases350,818 — (32,200)(19,609)299,009 
Total Long-Term Lease Liabilities$370,647 $35 $(15,265)$(20,188)$335,229 
(1) Includes the impact of remeasurements related to lease terminations and changes in assumptions around the probability of exercise of extension options.
Three Months Ended June 30, 2019Six Months Ended June 30, 2019
Lease Expense(In thousands)
Finance lease expense:
Amortization of right-of-use assets$862 $1,572 
Interest on lease liabilities1,339 2,515 
Operating lease expense (1)17,057 35,054 
Short-term lease expense (1)473 900 
Variable lease expense683 797 
Sublease income(3,806)(7,384)
Total$16,608 $33,454 
(1) Included in operating cash flows in the accompanying unaudited condensed consolidated statements of cash flows.
8
SONIC AUTOMOTIVE, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended June 30, 2019Six Months Ended June 30, 2019
(In thousands)
Other Information
Cash paid for amounts included in the measurement of lease liabilities:
      Financing cash flows for finance leases$502 $782 
      Operating cash flows for finance leases$1,339 $2,515 
      Operating cash flows for operating leases$18,315 $36,784 
Right-of-use assets obtained in exchange for lease liabilities:
      Finance leases$9,290 $19,273 
      Operating leases (1)$1,541 $(9,170)

(1) Includes the impact of reclassification of right-of-use assets from operating leases to finance leases due to remeasurement.
June 30, 2019
Other Information
Weighted-average remaining lease term (in years):
      Finance leases11.22
      Operating leases9.66
Weighted-average discount rate:
      Finance leases18.33 %
      Operating leases6.87 %

Undiscounted Lease Cash Flows Under ASC 842 as of June 30, 2019
FinanceOperatingReceipts from Subleases
Year Ending December 31,(In thousands)
2019$6,965 $33,956 $(8,045)
20206,535 63,257 (11,545)
20216,667 55,960 (9,299)
20226,667 48,103 (6,612)
20236,719 46,335 (6,612)
Thereafter49,922 235,548 (9,744)
Total$83,475 $483,159 $(51,857)
Less: Present value discount(42,105)(139,673)
Lease liabilities$41,370 $343,486 
For comparison purposes the following table provides the future minimum lease payments as presented in our Annual Report on Form 10-K for the year ended December 31, 2018 in accordance with ASC 840, “Leases,”.
Undiscounted Lease Cash Flows Under ASC 842 as of December 31, 2018
FinanceOperatingReceipts from Subleases
Year Ending December 31,(In thousands)
2019$6,985 $82,177 $(13,430)
20207,165 66,023 (10,508)
20217,357 51,501 (8,534)
20227,374 37,152 (7,232)
20237,609 33,486 (7,013)
Thereafter482,390 127,026 (13,116)
Total minimum lease payments (receipts)$518,880 $397,365 $(59,833)
Less: Present value discount(498,291)
Lease liabilities$20,589 
Current portion of lease liabilities$643 
Long-term portion of lease liabilities$19,946 

9
SONIC AUTOMOTIVE, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The majority of our leases are related to dealership properties that are subject to long-term lease arrangements. In addition, we have certain equipment leases and contracts containing embedded leased assets that have been evaluated and included in the ROU assets and lease liabilities above as appropriate.
We recognize a ROU asset and a lease liability at the lease commencement date. For operating leases, the lease liability is initially and subsequently measured at the present value of the unpaid lease payments at the lease commencement date. For finance leases, the lease liability is initially measured in the same manner and date as for operating leases, and is subsequently measured at amortized cost using the effective interest method.
The ROU asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for lease payments made at or before the lease commencement date, plus any initial direct costs incurred or previously recognized favorable lease assets, less any lease incentives received or previously recognized lease exit accruals. For operating leases, the ROU asset is subsequently measured throughout the lease term at the carrying amount of the lease liability, plus initial direct costs, plus (minus) any prepaid (accrued) lease payments, less the unamortized balance of lease incentives received. Lease expense for lease payments is recognized on a straight-line basis over the lease term. For finance leases, the ROU asset is subsequently amortized using the straight-line method from the lease commencement date to the earlier of the end of its useful life or the end of the lease term unless the lease transfers ownership of the underlying asset to us or we are reasonably certain to exercise an option to purchase the underlying asset. In those cases, the ROU asset is amortized over the useful life of the underlying asset. Amortization of the ROU asset is recognized and presented separately from interest expense on the lease liability.
Variable lease payments associated with our leases are recognized when the event, activity or circumstance in the lease agreement on which those payments are assessed occurs. Variable lease payments are presented as operating expense in our consolidated financial statements of income in the same line item as expense arising from fixed lease payments (operating leases) or amortization of the ROU asset (finance leases).
ROU assets for operating and finance leases are periodically reduced by impairment losses. We use the long-lived assets impairment guidance in ASC 360, “Property, Plant, and Equipment,” to determine whether an ROU asset is impaired and, if so, the amount of the impairment loss to recognize.
The Company monitors for events or changes in circumstances that require a reassessment of one of its leases. When a reassessment results in the remeasurement of a lease liability, a corresponding adjustment is made to the carrying amount of the corresponding ROU asset unless doing so would reduce the carrying amount of the ROU asset to an amount less than zero. In that case, the amount of the adjustment that would result in a negative ROU asset balance, is recorded in profit or loss.
Key estimates and judgments include how we determine: (1) the discount rate used to discount the unpaid lease payments to present value; (2) the expected lease term, including any extension options; and (3) future lease payments.
ASC 842, “Leases,” requires a lessee to discount its unpaid lease payments using the interest rate implicit in the lease or, if that rate cannot be readily determined, its incremental borrowing rate. Generally, we cannot determine the interest rate implicit in the lease because we do not have access to the lessor’s estimated residual value or the amount of the lessor’s deferred initial direct costs. Therefore, we generally use our incremental borrowing rate as the discount rate for the lease. We determined the discount rate for our leases based on the risk-free rate as of the measurement date for varying maturities corresponding to the remaining lease term, adjusted for the risk-premium attributed to Sonic’s corporate credit rating for a secured or collateralized instrument.
Many of our lease arrangements have one or multiple options to extend the lease term (typically five- to ten-year options), which were considered in the calculation of the ROU assets and lease liabilities if it was reasonably certain that an extension option would be exercised. The lease term for all of the Company’s leases includes the noncancellable period of the lease plus any additional periods covered by our option to extend the lease that we are reasonably certain to exercise. We determined the probability of the exercise of a lease extension option based on our long-term strategic business outlook and the condition and remaining useful life of the fixed assets at the location subject to the lease agreement, among other factors.
The majority of our lease agreements require fixed monthly payments (subject to either specific or index-based escalations in future periods) while other agreements require variable lease payments based on changes in the London Interbank Offer Rate (“LIBOR”). Lease payments included in the measurement of the lease liability comprise the: (1) fixed payments, including in-substance fixed payments, owed over the lease term, which include termination penalties we would owe if the lease term assumes Company exercise of a termination option; (2) variable lease payments that depend on an index or rate, initially measured using the index or rate at the lease commencement date; and (3) the exercise price of our option to purchase the underlying asset if we are reasonably certain to exercise the option. Our leases do not typically contain residual value guarantees.
10
SONIC AUTOMOTIVE, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In certain situations, we have entered into sublease agreements whereby we sublease all or a portion of a leased real estate asset to a third party. To the extent that we have a sublease related to a lease agreement for an asset that we are no longer using in operations, we have reduced the ROU asset by the net deficiency in expected cash flows from that sublease (either due to partial monthly sublease proceeds or a sublease term less than the remaining master lease term). As of December 31, 2018, the net liability related to these lease exit accruals was approximately $4.6 million as discussed in Note 7, “Commitments and Contingencies.” Upon the adoption of ASC 842, “Leases,” this balance was reclassified from other accrued liabilities and other long-term liabilities to a reduction in right-of-use assets in the accompanying unaudited condensed consolidated balance sheets.
Prior to the adoption of ASC 842, “Leases,” we had recorded definite life intangible assets related to favorable lease assets acquired in business combinations. As of December 31, 2018, the net unamortized balance related to these definite life intangible assets was approximately $4.0 million. Upon adoption of ASC 842, “Leases,” this balance was reclassified from other intangible assets, net to right-of-use assets in the accompanying unaudited condensed consolidated balance sheets as of June 30, 2019 and continues to be amortized over the remaining lease term.
As part of the lease standard implementation process, we assessed our existing real estate and equipment lease agreements, identified certain lease components embedded within existing service contracts, evaluated transition guidance and practical expedient elections, implemented lease accounting software and designed internal controls over lease accounting under the new standard.
In August 2017, the FASB issued ASU 2017-12, which amends the hedge accounting recognition and presentation requirements in ASC 815, “Derivatives and Hedging.”estimates. This ASU expands and refines hedge accounting for both non-financial and financial risk components and aligns the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. It also includes certain targeted improvements to simplify the application of current guidance related to hedge accounting. For public companies, this ASU is effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2018. The2019. We adopted this ASU as of January 1, 2020 and the effects of this ASU did not materially impact our consolidated financial statements.
In February 2018, the FASB issued ASU 2018-02, which allows the reclassification of stranded tax effects, as a result of the Tax Cuts and Jobs Acts of 2017, from accumulated other comprehensive income to retained earnings. For public companies, this ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The effects of this ASU did not materially impact our consolidated financial statements.
In June 2018, the FASB issued ASU 2018-07 to expand the scope of ASC 718, Compensation - “Stock - Compensation,” to include share-based payment transactions for acquiring goods and services from non-employees. For public companies, this ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The effects of this ASU did not materially impact ourunaudited condensed consolidated financial statements.
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 from Contracts with CustomersRecognition – As of January 1, 2018, we adopted ASC 606, “Revenue from Contracts with Customers.” Under this standard, revenueRevenue 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. The standardASC 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). Upon adoption, we accelerated the timing of revenue recognition related to: (1) service and collision repair orders that are incomplete as of a reporting date (“work in process”) and (2) certain
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SONIC AUTOMOTIVE, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Certain retrospective finance and insurance revenue is earned in periods subsequent to the completion of the initial performance obligation (“F&I retro revenues”). Work in process revenues are recognized over time based on the completed work to date and
F&I retro revenues are recognized when the product contract has been executed with the end customer and are estimated each reporting period based on the expected value method using historical and projected data.data, which results in the acceleration of revenue recognition. F&I retro revenues, which represent variable consideration, subject to constraint, are to be included in the transaction price and recognized when or as the performance obligation is satisfied. 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 the sales price must be reasonably expected to be collected.
Receivables, net in the accompanying unaudited condensed consolidated balance sheets as of June 30, 2019March 31, 2020 and December 31, 20182019 include approximately $4.8$3.6 million and $4.7$5.1 million, respectively, related to work in process and contract assets related to F&I retro revenues of approximately $5.9$5.2 million and $5.4$12.9 million, respectively. Changes in contract assets from December 31, 20182019 to June 30, 2019March 31, 2020 were primarily due to ordinary business activity.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, 20182019 for further discussion of our revenue recognition policies and processes.
Income Tax Expense – The overall effective tax rate from continuing operations was 27.4% and 29.6%18.2% for the three and six months ended June 30, 2019, respectively,March 31, 2020, and 32.4% and 29.7%31.0% for the three and six months ended June 30, 2018.March 31, 2019. Income tax expense for the three months ended June 30, 2019March 31, 2020 includes a $0.4$51.3 million benefit, including the effect of non-deductible amounts, related to the $268.0 million goodwill impairment charge, a $0.5 million discrete benefit related to the favorable resolution of certainvested or exercised stock compensation awards, offset partially by a $0.1 million discrete charge related to changes in uncertain tax matters.positions. Income tax expense for the sixthree months ended June 30,March 31, 2019 includes a $1.5 million discrete charge for non-deductible executive officer compensation related to executive transition costs, a $0.2 million discrete charge related to changes in uncertain tax positions, and a $0.2 million discrete charge related to vested or exercised stock compensation awards, offset partially by a $0.4 million discrete benefit related to the favorable resolution of certain tax matters. Income tax expense for the three months ended June 30, 2018 includes a $0.6 million discrete charge for non-deductible book goodwill related to dealership dispositions during the period. Income tax expense for the six months ended June 30, 2018 includes a $0.9 million discrete benefit related to vested or exercised stock compensation awards, offset partially by a $0.2 million discrete charge related to changes in uncertain tax positions and a $0.6 million discrete charge for non-deductible book goodwill related to dealership dispositions during the period.awards. 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. Sonic expects the annual effective tax rate in future periods to fall within a range of 26.0% to 29.0% before the impact, if any, of changes in valuation allowances related to deferred income tax assets or discrete tax adjustments.

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SONIC AUTOMOTIVE, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 in addition to Class A Common Stock purchase warrants.(and any non-forfeitable dividends paid on such awards).
2. Business Dispositions
We did 0t dispose of any dealerships during the three months ended March 31, 2020. We disposed of one1 luxury franchised dealership and three3 mid-line import franchised dealerships during the sixthree months ended June 30,March 31, 2019 that generated net cash of approximately $121.3$121.7 million. WeThe results of operations of each of these disposed dealerships remain in continuing operations in the accompanying unaudited condensed consolidated statements of two luxury franchised dealerships and four mid-line import franchised dealerships during the six months ended June 30, 2018 that generated net cash of approximately $122.4 million. Additionally, we terminated one luxury franchised dealership and ceased operations at a previously acquired pre-owned store in Florida during the six months ended June 30, 2018.income.
Revenues and other activities associated with disposed franchised dealerships that remain in continuing operations were as follows:
Three Months Ended June 30,Six Months Ended June 30,Three Months Ended March 31,
201920182019201820202019
(In thousands)(In thousands)
Income (loss) from operationsIncome (loss) from operations$(339)$739 $(1,842)$(5,505)Income (loss) from operations$(160) $(2,553) 
Gain (loss) on disposalGain (loss) on disposal(356)38,422 46,394 39,613 Gain (loss) on disposal2  46,750  
Lease exit accrual adjustments and chargesLease exit accrual adjustments and charges— 2 169 (18)Lease exit accrual adjustments and charges—  170  
Pre-tax income (loss)Pre-tax income (loss)$(695)$39,163 $44,721 $34,090 Pre-tax income (loss)$(158) $44,367  
Total revenuesTotal revenues$— $30,751 $26,473 $108,777 Total revenues$—  $106,774  

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SONIC AUTOMOTIVE, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Revenues and other activities associated with disposed franchised dealerships classified as discontinued operations were as follows:
Three Months Ended June 30,Six Months Ended June 30,Three Months Ended March 31,
201920182019201820202019
(In thousands)(In thousands)
Income (loss) from operationsIncome (loss) from operations$(213)$(191)$(393)$(330)Income (loss) from operations$(285) $(180) 
Lease exit accrual adjustments and chargesLease exit accrual adjustments and charges— (106)— (215)Lease exit accrual adjustments and charges—  —  
Pre-tax income (loss)Pre-tax income (loss)$(213)$(297)$(393)$(545)Pre-tax income (loss)$(285) $(180) 
Total revenuesTotal revenues$— $— $— $— Total revenues$—  $—  
3. Inventories
Inventories consist of the following:
June 30, 2019December 31, 2018March 31, 2020December 31, 2019
(In thousands)(In thousands)
New vehiclesNew vehicles$1,001,471 $1,027,727 New vehicles$1,072,318  $983,123  
Used vehiclesUsed vehicles311,417 293,179 Used vehicles324,526  319,791  
Service loanersService loaners147,451 141,542 Service loaners152,254  152,278  
Parts, accessories and otherParts, accessories and other61,228 66,013 Parts, accessories and other59,120  62,683  
Net inventoriesNet inventories$1,521,567 $1,528,461 Net inventories$1,608,218  $1,517,875  

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SONIC AUTOMOTIVE, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4. Property and Equipment
Property and equipment, net consists of the following:
June 30, 2019December 31, 2018March 31, 2020December 31, 2019
(In thousands)(In thousands)
LandLand$382,349 $381,527 Land$373,963  $373,301  
Building and improvements (1)Building and improvements (1)994,101 989,872 Building and improvements (1)976,904  969,609  
Software and computer equipment97,258 116,348 
Parts and service equipment119,895 108,040 
Office equipment and fixtures107,392 96,622 
Company vehicles9,207 9,139 
Furniture, fixtures and equipmentFurniture, fixtures and equipment352,574  346,260  
Construction in progressConstruction in progress32,390 59,523 Construction in progress53,214  50,928  
Total, at costTotal, at cost1,742,592 1,761,071 Total, at cost1,756,655  1,740,098  
Less accumulated depreciationLess accumulated depreciation(589,108)(575,720)Less accumulated depreciation(638,030) (616,611) 
SubtotalSubtotal1,153,484 1,185,351 Subtotal1,118,625  1,123,487  
Less assets held for sale (2)(22,542)(6,862)
Less assets held for sale (1)Less assets held for sale (1)(26,240) (26,240) 
Property and equipment, netProperty and equipment, net$1,130,942 $1,178,489 Property and equipment, net$1,092,385  $1,097,247  
(1) As discussed in Note 1, “Summary of Significant Accounting Policies,” due to the adoption of ASC 842, “Leases,” effective January 1, 2019, previously existing capital lease assets have been reclassified from property and equipment, net, to right-of-use assets in the accompanying unaudited condensed consolidated balance sheets as of June 30, 2019.
(2) Classified in other current assets in the accompanying unaudited condensed consolidated balance sheets.
In the three and six months ended June 30,March 31, 2020 and 2019, capital expenditures were approximately $20.6$19.8 million and $51.2 million, respectively, and in the three and six months ended June 30, 2018, capital expenditures were approximately $33.9 million and $99.6$30.6 million, respectively. Capital expenditures in all periods were primarily related to real estate acquisitions, 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, 2019March 31, 2020 and December 31, 20182019 consists of real property not currently used in operations that we expect to dispose of in the next 12 months.
There were no0 fixed asset impairment charges for the three months ended June 30, 2019.March 31, 2020. Impairment charges for the sixthree months ended June 30,March 31, 2019, were approximately $2.0 million, related to fair value adjustments of real estate at former EchoPark locations classified as held for sale.
5. Goodwill and Intangible Assets
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 adjustment of long-livedthe reporting unit. Accordingly, we recorded a non-cash goodwill impairment charge of $268.0 million and a corresponding income tax benefit of $51.3 million to reduce the carrying value to fair value as of March 31, 2020. We utilized the Discounted Cash Flows ("DCF") method, using unobservable inputs (Level 3) to estimate Sonic's enterprise value as of March 31, 2020 and reconciled the discounted cash flows to Sonic's market capitalization, using quoted market price inputs (Level 1). The significant assumptions in our DCF model include projected earnings, a discount rate (and estimates in the discount rate inputs), control premium factors and residual growth rates.
The carrying amount of goodwill was approximately $207.8 million and $475.8 million as of March 31, 2020 and December 31, 2019, respectively. The carrying amount of goodwill for our franchised dealership reporting unit was $147.8 million and $415.8 million as of March 31, 2020 and December 31, 2019, respectively. The carrying amount of goodwill for our EchoPark reporting unit was $60.0 million as of March 31, 2020 and December 31, 2019. The total carrying amount of goodwill is net of accumulated impairment losses of approximately $1.1 billion and $797.6 million as of March 31, 2020 and December 31, 2019, respectively. The carrying amount of franchise assets held for salewas approximately $64.3 million as of both March 31, 2020 and December 31, 2019, respectively.
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SONIC AUTOMOTIVE, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
related to real estate at former EchoPark locations. Impairment charges for the three and six months ended June 30, 2018 were approximately $10.3 million and $14.0 million, respectively, which include the write-off of certain costs associated with internally developed software as well as the write-off of capitalized costs associated with the abandonment of certain construction projects.
5. Goodwill and Intangible Assets
The carrying amount of goodwill was approximately $487.3 million and $509.6 million as of June 30, 2019 and December 31, 2018, respectively. The carrying amount of goodwill is net of accumulated impairment losses of approximately $797.6 million as of both June 30, 2019 and December 31, 2018. The carrying amount of franchise assets was approximately $64.3 million and $65.7 million as of June 30, 2019 and December 31, 2018, respectively. The changes in the carrying amount of both goodwill and franchise assets are related to the disposition of several franchised dealerships during thesix monthsendedJune 30, 2019. At December 31, 2018, we had approximately $4.0 million of definite life intangible assets related to favorable lease agreements. As discussed in Note 1, “Summary of Significant Accounting Policies,” due to the adoption of ASC 842, “Leases,” effective January 1, 2019, previously existing definite life intangible assets have been reclassified from other intangible assets, net to right-of-use assets in the accompanying unaudited condensed consolidated balance sheets as of June 30, 2019.
6. Long-Term Debt
Long-term debt consists of the following:
June 30, 2019December 31, 2018March 31, 2020December 31, 2019
(In thousands)(In thousands)
2016 Revolving Credit Facility (1)2016 Revolving Credit Facility (1)$— $— 2016 Revolving Credit Facility (1)$210,000  $—  
5.0% Senior Subordinated Notes due 2023 (the “5.0% Notes”)289,273 289,273 
6.125% Senior Subordinated Notes due 2027 (the “6.125% Notes”)6.125% Senior Subordinated Notes due 2027 (the “6.125% Notes”)250,000 250,000 6.125% Senior Subordinated Notes due 2027 (the “6.125% Notes”)250,000  250,000  
2019 Mortgage Facility (2)2019 Mortgage Facility (2)109,088  109,088  
Mortgage notes to finance companies - fixed rate, bearing interest from 3.51% to 7.03%Mortgage notes to finance companies - fixed rate, bearing interest from 3.51% to 7.03%208,788 215,196 Mortgage notes to finance companies - fixed rate, bearing interest from 3.51% to 7.03%191,248  194,535  
Mortgage notes to finance companies - variable rate, bearing interest at 1.50 to 2.90 percentage points above one-month or three-month LIBORMortgage notes to finance companies - variable rate, bearing interest at 1.50 to 2.90 percentage points above one-month or three-month LIBOR175,933 180,959 Mortgage notes to finance companies - variable rate, bearing interest at 1.50 to 2.90 percentage points above one-month or three-month LIBOR158,855  161,345  
Other (2)— 20,589 
SubtotalSubtotal$923,994 $956,017 Subtotal$919,191  $714,968  
Debt issuance costsDebt issuance costs(9,743)(10,934)Debt issuance costs(7,549) (8,082) 
Total debtTotal debt$914,251 $945,083 Total debt911,642  706,886  
Less current maturities of long-term debt(62,968)(26,304)
Less current maturitiesLess current maturities(80,803) (69,908) 
Long-term debtLong-term debt$851,283 $918,779 Long-term debt$830,839  $636,978  
(1)The interest rate on the 2016 Revolving Credit Facility (as defined below) was 200 basis points175 and 250150 basis points above LIBOR at June 30, 2019March 31, 2020 and December 31, 2018,2019, respectively.
(2) As discussed in Note 1, “Summary of Significant Accounting Policies,” due toThe interest rate on the adoption of ASC 842, “Leases,” effective January 1, 2019 previously existing capital lease liabilities have been reclassified from current maturities of long-term debtMortgage Facility (as defined below) was 175 and long-term debt to current lease liabilities200 basis points above the London Interbank Offer Rate ("LIBOR") at March 31, 2020 and long-term lease liabilities in the accompanying unaudited condensed consolidated balance sheets as of June 30, 2019.December 31, 2019, respectively.
2016 Credit Facilities
On November 30, 2016, we entered into an amended and restated syndicated revolving credit facility (the “2016 Revolving Credit Facility”) and amended and restated syndicated new and used vehicle floor plan credit facilities (the “2016 Floor Plan Facilities” and, together with the 2016 Revolving Credit Facility, the “2016 Credit Facilities”), which are scheduled to mature on November 30, 2021. The amendment and restatement of the 2016 Credit Facilities extended the scheduled maturity date, increased availability under the 2016 Revolving Credit Facility by $25.0 million and increased availability under the 2016 Floor Plan Facilities by $215.0 million, among other things.

Availability under the 2016 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 2016 Revolving Credit Facility (the “2016 Revolving Borrowing Base”). The 2016 Revolving Credit Facility may be increased at our option up to $300.0 million upon satisfaction of certain conditions. As of June 30, 2019,March 31, 2020, the 2016 Revolving Borrowing Base was approximately $217.2$196.5 million based on balances as of such date.date which will go into effect upon filing of this Form 10-Q for the period ended March 31, 2020. As of June 30, 2019,March 31, 2020, we had no$210.0 million in outstanding borrowings and approximately $14.6$13.0 million in outstanding letters of credit under the 2016 Revolving Credit Facility, resulting in total0 remaining borrowing availability of approximately $202.6 million under the 2016 Revolving Credit Facility.
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SONIC AUTOMOTIVE, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The 2016 Floor Plan Facilities are comprised of a new vehicle revolving floor plan facility (the( as amended, the “2016 New Vehicle Floor Plan Facility”) and a used vehicle revolving floor plan facility (the(as amended, the “2016 Used Vehicle Floor Plan Facility”), subject to a borrowing base, in a combined amount of up to $1.015 billion. We may, under certain conditions, request an increase in the 2016 Floor Plan Facilities to a maximum borrowing limit of up to $1.265 billion, which shall be allocated between the 2016 New Vehicle Floor Plan Facility and the 2016 Used Vehicle Floor Plan Facility as we request, with no more than 30% of the aggregate commitments allocated to the commitments under the 2016 Used Vehicle Floor Plan Facility. Outstanding obligations under the 2016 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. The amounts outstanding under the 2016 Credit Facilities bear interest at variable rates based on specified percentages above LIBOR.
We agreed under the 2016 Credit Facilities not to pledge any assets to any third parties (other than those explicitly allowed underto be pledged by the amended terms of the 2016 Credit Facilities), including other lenders, subject to certain stated exceptions, including floor plan financing arrangements. In addition, the 2016 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 2016 Credit Facilities permit cash dividends on our Class A and Class B Common Stock so long as no event of
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SONIC AUTOMOTIVE, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
default (as defined in the 2016 Credit Facilities) has occurred and is continuing and provided that we remain in compliance with all financial covenants under the 2016 Credit Facilities.
5.0% Notes
On May 9, 2013, we issued $300.0 million in aggregate principal amount of unsecured senior subordinated 5.0% Notes which mature on May 15, 2023. The 5.0% Notes were issued at a price of 100.0% of the principal amount thereof. Balances outstanding under the 5.0% 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. Interest on the 5.0% Notes is payable semi-annually in arrears on May 15 and November 15 of each year. During 2016, we repurchased approximately $10.7 million of the outstanding 5.0% Notes for approximately $10.6 million in cash, plus accrued and unpaid interest related thereto.
We may redeem the remaining outstanding 5.0% Notes, in whole or in part, at any time on at the following redemption prices, which are expressed as percentages of the principal amount:
Redemption Price
Beginning on May 15, 2019101.667 %
Beginning on May 15, 2020100.833 %
Beginning on May 15, 2021 and thereafter100.000 %
The indenture governing the 5.0% Notes provides that holders of the 5.0% Notes may require us to repurchase the 5.0% Notes at a purchase price equal to 101.0% of the aggregate principal amount of the 5.0% Notes, plus accrued and unpaid interest, if any, to the date of purchase if we undergo a Change of Control (as defined in the indenture governing the 5.0% Notes).
The indenture governing the 5.0% Notes contains certain specified restrictive covenants. We have agreed not to pledge any assets to any third-party lender of senior subordinated debt except under certain limited circumstances. We also have agreed to certain other limitations or prohibitions concerning the incurrence of other indebtedness, guarantees, liens, certain types of investments, certain transactions with affiliates, mergers, consolidations, issuance of preferred stock, cash dividends to stockholders, distributions, redemptions and the sale, assignment, lease, conveyance or disposal of certain assets. Specifically, the indenture governing the 5.0% Notes limits our ability to pay quarterly cash dividends on our Class A and Class B Common Stock in excess of $0.10 per share. We may only pay quarterly cash dividends on our Class A and Class B Common Stock if we comply with the terms of the indenture governing the 5.0% Notes. We were in compliance with all restrictive covenants in the indenture governing the 5.0% Notes as of June 30, 2019.
Our obligations under the 5.0% Notes may be accelerated by the holders of 25% of the outstanding principal amount of the 5.0% Notes then outstanding if certain events of default occur, including: (1) defaults in the payment of principal or interest when due; (2) defaults in the performance, or breach, of our covenants under the 5.0% Notes; and (3) certain defaults under other agreements under which we or our subsidiaries have outstanding indebtedness in excess of $50.0 million.
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SONIC AUTOMOTIVE, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
6.125% Notes
On March 10, 2017, we issued $250.0 million in aggregate principal amount of unsecured senior subordinated 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. Interest on the 6.125% Notes is payable semi-annually in arrears on March 15 and September 15 of each year.
We may redeem the 6.125% Notes, in whole or in part, at any time on or after March 15, 2022 at the following redemption prices, which are expressed as percentages of the principal amount:
Redemption Price
Beginning on March 15, 2022103.063 %
Beginning on March 15, 2023102.042 %
Beginning on March 15, 2024101.021 %
Beginning on March 15, 2025 and thereafter100.000 %
Before March 15, 2022, we may redeem all or a part of the 6.125% Notes at a redemption price equal to 100.0% of the aggregate principal amount of the 6.125% Notes redeemed, plus the Applicable Premium (as defined in the indenture governing the 6.125% Notes) and any accrued and unpaid interest, if any, to the redemption date. In addition, on or before March 15, 2020, we may redeem up to 35% of the aggregate principal amount of the 6.125% Notes at a redemption price equal to 106.125% of the aggregate principal amount of the 6.125% Notes redeemed, plus accrued and unpaid interest, if any, to the redemption date with proceeds from certain equity offerings. The indenture governing the 6.125% Notes also provides that holders of the 6.125% Notes may require us to repurchase the 6.125% Notes at a purchase price equal to 101.0% of the aggregate principal amount of the 6.125% Notes, plus accrued and unpaid interest, if any, to the date of purchase if we undergo a Change of Control (as defined in the indenture governing the 6.125% Notes).
The indenture governing the 6.125% Notes contains certain specified restrictive covenants. We have agreed not to pledge any assets to any third-party lender of senior subordinated debt except under certain limited circumstances. We also have agreed to certain other limitations or prohibitions concerning the incurrence of other indebtedness, guarantees, liens, certain types of investments, certain transactions with affiliates, mergers, consolidations, issuance of preferred stock, cash dividends to stockholders, distributions, redemptions and the sale, assignment, lease, conveyance or disposal of certain assets. Specifically, the indenture governing the 6.125% Notes limits our ability to pay quarterly cash dividends on our Class A and Class B Common Stock in excess of $0.12 per share. We may only pay quarterly cash dividends on our Class A and Class B Common Stock if we comply with the terms of the indenture governing the 6.125% Notes. We were in compliance with all restrictive covenants in the indenture governing the 6.125% Notes as of June 30, 2019.March 31, 2020.
Our obligations under the 6.125% Notes may be accelerated by the holders of 25% of the outstanding principal amount of the 6.125% Notes then outstanding if certain events of default occur, including: (1) defaults in the payment of principal or interest when due; (2) defaults in the performance, or breach, of our covenants under the 6.125% Notes; and (3) certain defaults under other agreements under which we or our subsidiaries have outstanding indebtedness in excess of $50.0 million.
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 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 appraisal value of certain eligible real estate designated by Sonic and owned by certain of our subsidiaries. Based on balances as of March 31, 2020, we had approximately $109.1 million of outstanding borrowings, resulting in total remaining borrowing availability of approximately $3.1 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
11
SONIC AUTOMOTIVE, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(as defined in the 2019 Mortgage Facility), ranging from 0.50% to 1.75% per annum according to the Performance Grid. Interest on the 2019 Mortgage Facility is paid monthly in arrears calculated using the Base Rate plus the Applicable Rate (as defined in the 2019 Mortgage Facility) according to the Performance Grid. Repayment of principal is paid quarterly commencing on March 31, 2020 through September 30, 2024 at a rate of 2.50% of the aggregate initial principal amount. A balloon payment of the remaining balance will be due at the November 22, 2024 maturity date. Prior to the November 22, 2024 maturity date, the Company reserves the right to prepay the principal amount outstanding at any time without premium or penalty provided the prepayment amount exceeds $0.5 million.
The 2019 Mortgage 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 2019 Mortgage Facility permits quarterly cash dividends on our Class A and Class B Common Stock up to $0.10 per share so long as no Event of Default (as defined in the 2019 Mortgage Facility) has occurred and is continuing and provided that we remain in compliance with all financial covenants under the 2019 Mortgage Facility.
Mortgage Notes to Finance Companies
As of June 30, 2019,March 31, 2020, the weighted-average interest rate of our other outstanding mortgage notes (excluding the 2019 Mortgage Facility) was 4.64%4.01% and the total outstanding mortgage principal balance of these notes (excluding the 2019 Mortgage Facility) was approximately $384.7$350.1 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 20192020 and 2033.
Covenants
UnderWe agreed under the 2016 Credit Facilities we agreedand the 2019 Mortgage Facility not to pledge any assets to any third parties (other than those explicitly allowed underto be pledged by the amended terms of the 2016 Credit Facilities)Facilities and the 2019 Mortgage Facility), including other lenders, subject to certain stated exceptions, including floor plan financing arrangements. In addition, the 2016 Credit Facilities and the 2019 Mortgage Facility contain certain 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.
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We were in compliance with the financial covenants under the 2016 Credit Facilities and the 2019 Mortgage Facility as of June 30, 2019. The financialMarch 31, 2020. Financial covenants include required specified ratios (as each is defined in the 2016 Credit Facilities)Facilities and the 2019 Mortgage Facility) of:
CovenantCovenant
Minimum Consolidated Liquidity RatioMinimum Consolidated Fixed Charge Coverage RatioMaximum Consolidated Total Lease Adjusted Leverage RatioMinimum Consolidated Liquidity RatioMinimum Consolidated Fixed Charge Coverage RatioMaximum Consolidated Total Lease Adjusted Leverage Ratio
Required ratioRequired ratio1.05 1.20 5.75 Required ratio1.051.205.75
June 30, 2019 actual1.17 1.55 4.20 
March 31, 2020 actualMarch 31, 2020 actual1.071.703.69
The 2016 Credit Facilities and the 2019 Mortgage 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 2016 Credit Facilities.Facilities and the 2019 Mortgage Facility.
After giving effect to the applicable restrictions on the payment of dividends under our debt agreements, as of June 30, 2019,March 31, 2020, we had approximately $206.8$274.1 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, 2019.March 31, 2020.
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 2016 Credit Facilities and the 2019 Mortgage 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, 2019,March 31, 2020, the ratio was 4.505.80 to 1.00.
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Derivative Instruments and Hedging Activities
Prior to March 9, 2018, we had outstanding interest rate cash flow swap agreements to effectively convert a portion of our LIBOR-based variable rate debt to a fixed rate (these interest rate cash flow swap agreements were terminated on March 9, 2018 with a net $4.8 million payment to us from the counterparties, thatwhich is being amortized into income as a reduction of interest expense, other, net in the accompanying unaudited condensed consolidated statements of income on a ratable basis over the initialoriginal term of the interest rate swap agreements)these agreements (through July 1, 2020)). As of both June 30, 2019March 31, 2020 and December 31, 2018,2019, we had interest rate cap agreements to limit our exposure to increases in LIBOR rates above certain levels. Under the terms of these interest rate cash flow swap agreements and interest rate cap agreements, interest rates reset monthly. We paid cash premiums of approximately $2.8$2.5 million and $1.9$2.8 million in the years ended December 31, 20182019 and 2017,2018, respectively, upon entering into new interest rate cap agreements.agreements, and the cash premiums were reflected in operating cash flows for the period in which the premiums were paid. The total unamortized premium amounts related to the outstanding interest rate caps were approximately $4.3$3.4 million and $4.6$3.7 million as of June 30, 2019March 31, 2020 and December 31, 2018,2019, respectively, and will be amortized into interest expense, other, net in the accompanying unaudited condensed consolidated statements of income over the remaining term of the interest rate cap agreements. The fair value of the outstanding interest rate cap positions at June 30, 2019March 31, 2020 was a netan asset of approximately $0.7 million, with approximately $0.4 million included in other current assets and approximately $0.3$0.1 million, included in other assets in the accompanying unaudited condensed consolidated balance sheets.sheet as of such date. The fair value of the outstanding interest rate cap positions at December 31, 20182019 was a net asset of approximately $4.8 million, with approximately $1.8 million included in other current assets and approximately $3.0$0.1 million, included in other assets in the accompanying unaudited condensed consolidated balance sheets.sheet as of such date.
Under the terms of the interest rate cap agreements, we will receive interest based on the following:
Notional
Amount		Notional
Amount		Cap Rate (1)Receive Rate (2)Start DateEnd DateNotional
Amount		Cap Rate (1)Receive Rate (1) (2)Start DateEnd Date
(In millions)(In millions)(In millions)
$375.0 2.000%  one-month LIBORJuly 1, 2018June 30, 2019312.5  2.000%one-month LIBORJuly 1, 2019June 30, 2020
$375.0 3.000%  one-month LIBORJuly 1, 2018June 30, 2019250.0  3.000%one-month LIBORJuly 1, 2019June 30, 2020
$312.5 2.000%  one-month LIBORJuly 1, 2019June 30, 2020225.0  3.000%one-month LIBORJuly 1, 2020June 30, 2021
$250.0 3.000%  one-month LIBORJuly 1, 2019June 30, 2020150.0  2.000%one-month LIBORJuly 1, 2020July 1, 2021
$225.0 3.000%  one-month LIBORJuly 1, 2020June 30, 2021250.0  3.000%one-month LIBORJuly 1, 2021July 1, 2022
$150.0 2.000%  one-month LIBORJuly 1, 2020July 1, 2021
$250.0 3.000%  one-month LIBORJuly 1, 2021July 1, 2022
(1)Under these interest rate cap agreements,caps, no payment from the counterparty will occur unless the stated receive rate exceeds the stated cap rate, in which case a net payment to us from the counterparty, based on the spread between the
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receive rate and the cap rate, will be recognized as a reduction of interest expense, other, net in the accompanying unaudited condensed consolidated statements of income.
(2)The one-month LIBOR rate was approximately 2.398%0.993% at June 30, 2019.March 31, 2020.

The interest rate caps are designated as cash flow hedges, and the changes in the fair value of these instruments are recorded in other comprehensive income (loss) in the accompanying unaudited condensed consolidated statements of comprehensive income and are disclosed in the supplemental schedule of non-cash financing activities in the accompanying unaudited condensed consolidated statements of cash flows. TheFor the three months ended March 31, 2020, we did 0t have incremental interest income (the excess of interest received aboveover interest paid) related to the cap rate)interest rate caps. For the three months ended March 31, 2019, incremental interest income (the excess of interest received over interest paid) related to the interest rate caps was approximately $0.5$0.4 million and $0.9 million for the three and six months ended June 30, 2019, respectively, and is included inas a reduction of interest expense, other, net in the accompanying unaudited condensed consolidated statements of income, and disclosed in the supplemental disclosures of cash flow information in the accompanying unaudited condensed consolidated statements of cash flows. The incremental interest expense (the excess of interest paid over interest received on interest rate swaps, offset partially by interest received above the cap rate) related to interest rate swaps and interest rate caps was approximately $0 and $0.1 million for the three and six months ended June 30, 2018, respectively, andamount is included in interest expense, other, net in the accompanying unaudited condensed consolidated statements of income, and disclosed in the supplemental disclosures of cash flow information in the accompanying unaudited condensed consolidated statements of cash flows. The estimated net benefit expected to be reclassified out of accumulated other comprehensive income (loss) into results of operations during the next 12 months is approximately $2.4$0.7 million.
7. Commitments and Contingencies
Lease Exit Accruals
A significant number of our dealership properties are leased under long-term operating lease arrangements. Prior to January 1, 2019, when leased properties were no longer utilized in operations, we recorded lease exit accruals. These situations could include the relocation of an existing facility or the sale of a dealership when the buyer will not be subleasing the property for either the remaining term of the lease or for an amount equal to our obligation under the lease, or situations in which a facility is closed as a result of the associated franchise being terminated by us or the manufacturer and no other operations continue on the leased property. The lease exit accruals represent the present value of the lease payments, net of estimated sublease rentals, for the remaining life of the operating leases and other accruals necessary to satisfy lease commitments to the landlords. As of December 31, 2018, the net liability related to these lease exit accruals was approximately $4.6 million. As discussed in Note 1, “Summary of Significant Accounting Policies,” due to the adoption of ASC 842, “Leases,” effective January 1, 2019, previously existing lease exit accruals have been reclassified from other accrued liabilities and other long-term liabilities to a reduction in right-of-use assets in the accompanying unaudited condensed consolidated balance sheet as of June 30, 2019. Since January 1, 2019, ROU assets have been evaluated for impairment consistent with the guidance of ASC 842, “Leases,” which is similar to our historical practice of recording lease exit accruals. However, since January 1, 2019, instead of recording lease exit accruals, the result has been the reduction of the related ROU asset as an impairment charge.
A summary of the activity of operating lease exit accruals consists of the following:
(In thousands)
Balance at December 31, 2018$4,634 
Effect of adoption of ASC 842, “Leases”(4,634)
Balance at June 30, 2019$— 
Legal and Other Proceedings
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
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of these matters could have a material adverse effect on Sonic’s business, financial condition, results of operations, cash flows or prospects.
Included in other accrued liabilities and other long-term liabilities in the accompanying unaudited condensed consolidated balance sheet as of June 30, 2019March 31, 2020 was approximately $1.4$0.4 million and $0.3$0.2 million, respectively, in reserves that Sonic was holding for pending proceedings. Included in other accrued liabilities and other long-term liabilities in the
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accompanying unaudited condensed consolidated balance sheet as of December 31, 20182019 was approximately $2.1$1.2 million and $0.3 million, respectively, for such reserves. Except as reflected in such 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 Sonic’s operating lease agreements, Sonic’s 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, Sonic has 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 Sonic’s subsidiaries have assigned or sublet to the buyer their interests in real property leases associated with such dealerships.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 Sonic’s dealerships, Sonic generally agrees 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 Sonic’s exposure with respect to environmental remediation and repairs is difficult to quantify, Sonic’s maximum exposure associated with these general indemnifications was approximately $28.0$43.3 million and $13.2$46.5 million at June 30, 2019March 31, 2020 and December 31, 2018,2019, 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, 2019.March 31, 2020.
Sonic also guarantees the floor plan commitments of its 50%-owned joint venture, the amount of which was approximately $4.3 million at both June 30, 2019March 31, 2020 and December 31, 2018.2019.
8. Fair Value Measurements
In determining fair value, Sonic uses various valuation approaches, including market, income and/or cost approaches. “Fair Value Measurements and Disclosures” in the ASC establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of Sonic. Unobservable inputs are inputs that reflect Sonic’s assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy is broken down into three levels based on the reliability of inputs as follows:
Level 1 – Valuations based on quoted prices in active markets for identical assets or liabilities that Sonic has the ability to access. Assets utilizing Level 1 inputs include marketable securities that are actively traded, including Sonic’s stock or public bonds.
Level 2 – Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly. Assets and liabilities utilizing Level 2 inputs include cash flow swap instruments and deferred compensation plan balances.
Level 3 – Valuations based on inputs that are unobservable and significant to the overall fair value measurement. Asset and liability measurements utilizing Level 3 inputs include those used in estimating fair value of non-financial assets and non-financial liabilities in purchase acquisitions, those used in assessing impairment of right-of-use assets ("ROU assets"), property, plant and equipment and other intangibles and those used in the reporting unit valuation in the annual goodwill impairment evaluation.
The availability of observable inputs can vary and is affected by a wide variety of factors. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment required by Sonic in determining fair value is greatest for assets and liabilities
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categorized in Level 3. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement is disclosed is determined based on the lowest level input (Level 3 being the lowest level) that is significant to the fair value measurement.
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Fair value is a market-based measure considered from the perspective of a market participant who holds the asset or owes the liability rather than an entity-specific measure. Therefore, even when market assumptions are not readily available, Sonic’s own assumptions are set to reflect those that market participants would use in pricing the asset or liability at the measurement date. Sonic uses inputs that are current as of the measurement date, including during periods when the market may be abnormally high or abnormally low. Accordingly, fair value measurements can be volatile based on various factors that may or may not be within Sonic’s control.
Assets and liabilities recorded at fair value in the accompanying unaudited condensed consolidated balance sheets as of June 30, 2019March 31, 2020 and December 31, 20182019 are as follows:
Fair Value Based on Significant Other Observable Inputs (Level 2)Fair Value Based on Significant Other Observable Inputs (Level 2)
June 30, 2019December 31, 2018March 31, 2020December 31, 2019
(In thousands)(In thousands)
Assets:Assets:Assets:
Cash surrender value of life insurance policies (1)Cash surrender value of life insurance policies (1)$31,836 $31,395 Cash surrender value of life insurance policies (1)$32,209  $32,799  
Interest rate caps designated as hedges (2)Interest rate caps designated as hedges (2)703 4,839 Interest rate caps designated as hedges (2)88  97  
Total assetsTotal assets$32,539 $36,234 Total assets$32,297  $32,896  
Liabilities:Liabilities:Liabilities:
Deferred compensation plan (3)Deferred compensation plan (3)$17,602 $19,848 Deferred compensation plan (3)$17,934  $17,890  
Total liabilitiesTotal liabilities$17,602 $19,848 Total liabilities$17,934  $17,890  
(1)Included in other assets in the accompanying unaudited condensed consolidated balance sheets.
(2)As of June 30,both March 31, 2020 and December 31, 2019, approximately $0.4$0.1 million and $0.3 million werewas included in other current assets and other assets, respectively, in the accompanying unaudited condensed consolidated balance sheets. As of December 31, 2018, approximately $1.8 million and $3.0 million were included in other current assets and other assets, respectively, in the accompanying unaudited condensed consolidated balance sheets.sheet.
(3)Included in other long-term liabilities in the accompanying unaudited condensed consolidated balance sheets.

There were no instances$268.0 million of impairment charges related to long-lived intangible assets assessed during the sixthree months ended June 30, 2019March 31, 2020 which required a fair value measurement of assets ordinarily measured at fair value on a non-recurring basis. Therefore, the carrying value of assets measured atGoodwill has been adjusted for fair value on a non-recurring basisthrough impairment charges using Level 1 and Level 3 fair value inputs as discussed in the accompanying unaudited condensed consolidated balance sheet as of June 30, 2019 has not changed since December 31, 2018. TheseNote 5, "Goodwill and Intangible Assets." Remaining intangible and long-lived assets will be evaluated as of the annual valuation assessment date of October 1, 20192020 or as events or changes in circumstances require.
As of June 30, 2019March 31, 2020 and December 31, 2018,2019, 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.
At June 30, 2019March 31, 2020 and December 31, 2018,2019, the fair value and carrying value of Sonic’s significant fixed rate long-term debt were as follows:
June 30, 2019December 31, 2018March 31, 2020December 31, 2019
Fair ValueCarrying ValueFair ValueCarrying ValueFair ValueCarrying ValueFair ValueCarrying Value
(In thousands)(In thousands)
5.0% Notes (1)$290,719 $289,273 $262,515 $289,273 
6.125% Notes (1)6.125% Notes (1)$246,250 $250,000 $216,250 $250,000 6.125% Notes (1)$207,500  $250,000  $261,250  $250,000  
Mortgage Notes (2)Mortgage Notes (2)$210,435 $208,788 $218,402 $215,196 Mortgage Notes (2)$194,265  $191,248  $195,962  $194,535  
Other (2) (3)$— $— $20,437 $20,588 
(1)As determined by market quotations as of June 30, 2019March 31, 2020 and December 31, 2018,2019, respectively (Level 1).
(2)As determined by discounted cash flows (Level 3) based on estimated current market interest rates for comparable instruments.
(3) As discussed in Note 1, “Summary of Significant Accounting Policies,” due to the adoption of ASC 842, “Leases,” effective January 1, 2019, previously existing capital lease liabilities have been reclassified from current maturities of long-term debt and long-term debt to current lease liabilities and long-term lease liabilities in the accompanying unaudited condensed consolidated balance sheet as of June 30, 2019.

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9. Accumulated Other Comprehensive Income (Loss)
The changes in accumulated other comprehensive income (loss) by component for the sixthree months ended June 30, 2019March 31, 2020 are as follows:
Gains and
(Losses) on
Cash Flow
Hedges		Defined
Benefit
Pension
Plan		Total
Accumulated
Other
Comprehensive
Income (Loss)		Gains and
(Losses) on
Cash Flow
Hedges		Defined
Benefit
Pension
Plan		Total
Accumulated
Other
Comprehensive
Income (Loss)
(In thousands)(In thousands)
Balance at December 31, 2018$3,034 $1,199 $4,233 
Balance at December 31, 2019Balance at December 31, 2019$(1,326) $(736) $(2,062) 
Other comprehensive income (loss) before reclassifications (1)Other comprehensive income (loss) before reclassifications (1)(1,988)— (1,988)Other comprehensive income (loss) before reclassifications (1)294  —  294  
Amounts reclassified out of accumulated other comprehensive income (loss) (2)Amounts reclassified out of accumulated other comprehensive income (loss) (2)(1,285)— (1,285)Amounts reclassified out of accumulated other comprehensive income (loss) (2)(566) —  (566) 
Net current-period other comprehensive income (loss)Net current-period other comprehensive income (loss)(3,273)— (3,273)Net current-period other comprehensive income (loss)(272) —  (272) 
Balance at June 30, 2019$(239)$1,199 $960 
Balance at March 31, 2020Balance at March 31, 2020$(1,598) $(736) $(2,334) 
(1)Net of tax expense of $67 related to cash flow hedges.
(2)Net of tax benefit of $871$231 related to losses on cash flow hedges.
(2) Net of tax benefit of $525 related to losses on cash flow hedges.
See the heading “Derivative Instruments and Hedging Activities” in Note 6, “Long-Term Debt,” for further discussion of Sonic’s cash flow hedges. 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, 2018.2019.
10. Segment Information
As of June 30, 2019,March 31, 2020, Sonic had two2 operating segments comprised of: (1) retail automotive franchises that sell new vehicles and buy and sell used vehicles, sell replacement parts, perform vehicle repair and maintenance services, and arrange finance and insurance products (the “Franchised Dealerships Segment”); and (2) pre-owned vehicle specialty retail locations that provide customers an opportunity to search buy, service,our nationwide inventory, purchase a pre-owned vehicle, select finance and insurance products and sell pre-owned vehiclestheir current vehicle to us (the “EchoPark Segment”). Sonic has determined that its operating segments also represent its reportable segments.
The operatingreportable 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’sSonic'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. Sonic has determined that its operating segments also represent its reportable segments.
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Reportable segment revenues and segment income (loss)financial information for the three and six months ended June 30,March 31, 2020 and 2019 and 2018 are as follows:
Three Months Ended June 30,Six Months Ended June 30,
2019201820192018
(In thousands)
Revenues:
Franchised Dealerships Segment$2,322,400 $2,325,583 $4,461,971 $4,594,852 
EchoPark Segment291,681 180,166 541,248 311,671 
Total consolidated revenues$2,614,081 $2,505,749 $5,003,219 $4,906,523 
Three Months Ended March 31,
20202019
Segment Revenues:(In thousands, except unit data)
Franchised Dealerships Segment revenues:
New vehicles$959,489  $1,066,334  
Used vehicles566,888  603,949  
Wholesale vehicles42,440  52,533  
Parts, service and collision repair324,501  336,225  
Finance, insurance and other, net83,029  80,521  
Franchised Dealerships Segment revenues$1,976,347  $2,139,562  
EchoPark Segment revenues:
Used vehicles$283,164  $216,417  
Wholesale vehicles6,103  2,237  
Parts, service and collision repair10,179  5,205  
Finance, insurance and other, net32,263  25,717  
EchoPark Segment revenues$331,709  $249,576  
Total consolidated revenues$2,308,056  $2,389,138  

Three Months Ended March 31,
20202019
Segment Income (Loss) (1):(In thousands)
Franchised Dealerships Segment (2)$22,656  $61,182  
EchoPark Segment2,096  2,106  
Total segment income (loss)$24,752  $63,288  
Impairment charges (3)(268,000) (1,952) 
Income (loss) from continuing operations before taxes$(243,248) $61,336  
Retail New and Used Vehicle Unit Sales Volume:
Franchised Dealerships Segment47,762  52,609  
EchoPark Segment13,986  11,051  
Total retail new and used vehicle unit sales volume61,748  63,660  

(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 March 31, 2019, the above amount includes a pre-tax net gain on the disposal of franchised dealerships of approximately $46.7 million, offset partially by approximately $6.3 million of pre-tax executive transition costs.
(3)For the three months ended March 31, 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 has adversely affected our business. For the three months ended March 31, 2019, the above amount includes approximately $1.9 million of pre-tax fair value adjustments to real estate at former EchoPark locations classified as held for sale.
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Three Months Ended March 31,
20202019
(In thousands)
Impairment Charges:
Franchised Dealerships Segment$268,000  $26  
EchoPark Segment—  1,926  
Total impairment charges$268,000  $1,952  

Three Months Ended March 31,
20202019
(In thousands)
Depreciation and amortization:
Franchised Dealerships Segment$19,589  $20,237  
EchoPark Segment2,708  2,412  
Total depreciation and amortization$22,297  $22,649  

Three Months Ended March 31,
20202019
(In thousands)
Floor Plan Interest Expense:
Franchised Dealerships Segment$9,608  $12,505  
EchoPark Segment900  721  
Total floor plan interest expense$10,508  $13,226  

Three Months Ended March 31,
20202019
(In thousands)
Interest Expense, Other, Net:
Franchised Dealerships Segment$10,599  $12,414  
EchoPark Segment366  439  
Total interest expense, other, net$10,965  $12,853  

Three Months Ended March 31,
20202019
(In thousands)
Capital expenditures:
Franchised Dealerships Segment$17,249  $25,229  
EchoPark Segment2,556  5,390  
Total capital expenditures$19,805  $30,619  

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March 31, 2020December 31, 2019
(In thousands)
Assets:
Franchised Dealerships Segment assets$3,550,745  $3,797,878  
EchoPark Segment assets244,219  244,054  
Corporate and other:
Cash and cash equivalents181,780  29,103  
Total assets$3,976,744  $4,071,035  

11. Lease Accounting
The majority of our leases are related to dealership properties that are subject to long-term lease arrangements. In addition, we have certain equipment leases and contracts containing embedded leased assets that have been evaluated and included in the recorded ROU asset and lease liabilities as appropriate.
As a result of the adoption of ASC 842, “Leases,” on January 1, 2019, we are required to recognize a ROU asset and a lease liability in the accompanying unaudited condensed consolidated balance sheets at the lease commencement date. For operating leases, the lease liability is initially and subsequently measured at the present value of the unpaid lease payments at the lease commencement date. For finance leases, the lease liability is initially measured in the same manner and date as for operating leases, and is subsequently measured at reduced cost using the effective interest method.
The ROU asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for lease payments made at or before the lease commencement date, plus any initial direct costs incurred or previously recognized favorable lease assets, less any lease incentives received or previously recognized lease exit accruals. For operating leases, the ROU asset is subsequently measured throughout the lease term at the carrying amount of the lease liability, plus initial direct costs, plus (minus) any prepaid (accrued) lease payments, less the unamortized balance of lease incentives received. Lease expense for lease payments is recognized on a straight-line basis over the lease term. For finance leases, the ROU asset is reduced using the straight-line method from the lease commencement date to the earlier of the end of its useful life or the end of the lease term unless the lease transfers ownership of the underlying asset to us or we are reasonably certain to exercise an option to purchase the underlying asset. In those cases, the ROU asset is reduced over the expected useful life of the underlying asset. Expense related to the reduction of the ROU asset is recognized and presented separately from interest expense on the lease liability.
Variable lease payments associated with our leases are recognized when the event, activity or circumstance in the lease agreement on which those payments are assessed occurs. Variable lease payments are presented as operating expense in our unaudited condensed consolidated statements of income in the same line item as expense arising from fixed lease payments (operating leases) or expense related to the reduction of the ROU asset (finance leases).
ROU assets for operating and finance leases are periodically reduced by impairment losses. We use the long-lived assets impairment guidance in ASC 360, “Property, Plant, and Equipment,” to determine whether the ROU asset is impaired and, if so, the amount of the impairment loss to recognize.
We regularly monitor events or changes in circumstances that may require a reassessment of one of our leases. When a reassessment results in the remeasurement of a lease liability, a corresponding adjustment is made to the carrying amount of the corresponding ROU asset unless doing so would reduce the carrying amount of the ROU asset to an amount less than zero. In that case, the amount of the adjustment that would result in a negative ROU asset balance is recorded in profit or loss.
Key estimates and judgments related to the measurement and recording of ROU assets and lease liabilities include how we determine: (1) the discount rate used to discount the unpaid lease payments to present value; and (2) the expected lease term, including any extension options.
ASC 842, “Leases,” requires a lessee to discount its unpaid lease payments using the interest rate implicit in the lease or, if that rate cannot be readily determined, its incremental borrowing rate. Generally, we cannot determine the interest rate implicit in the lease because we do not have access to the lessor’s estimated residual value or the amount of the lessor’s deferred initial direct costs. Therefore, we generally use our incremental borrowing rate as the discount rate for the lease. We determined the discount rate for our leases based on the risk-free rate as of the measurement date for varying maturities corresponding to the remaining lease term, adjusted for the risk-premium attributed to Sonic’s corporate credit rating for a secured or collateralized instrument.
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SONIC AUTOMOTIVE, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Many of our lease arrangements have one or more existing renewal options to extend the lease term (typically in five- to ten-year increments), which were considered in the calculation of the ROU assets and lease liabilities if we determined that it was reasonably certain that an extension option would be exercised. The lease term for all of the Company’s leases includes the noncancellable period of the lease plus any additional periods covered by our option to extend the lease that we are reasonably certain to exercise. We determined the probability of the exercise of a lease extension option based on our long-term strategic business outlook and the condition and remaining useful life of the fixed assets at the location subject to the lease agreement, among other factors.
The majority of our lease agreements require fixed monthly payments (subject to either specific or index-based escalations in future periods) while other agreements require variable lease payments based on changes in LIBOR or any replacement thereof. Lease payments included in the measurement of the lease liability comprise the: (1) fixed lease payments, including in-substance fixed payments, owed over the lease term, which include termination penalties we would owe if the estimated lease term assumes that we would be likely to exercise a termination option prior to the earliest expiration date; (2) variable lease payments that depend on an index or rate, initially measured using the index or rate at the lease commencement date; and (3) the exercise price of our option to purchase the underlying asset if we are reasonably certain to exercise the option. Our leases do not typically contain residual value guarantees.

In certain situations, we have entered into sublease agreements whereby we sublease all or a portion of a leased real estate asset to a third party. To the extent that we have a sublease related to a lease agreement for an asset that we are no longer using in operations, we have reduced the ROU asset by any applicable net deficiency in expected cash flows from that sublease (either due to partial monthly sublease proceeds or a sublease term less than the remaining master lease term).
Following is information related to changes in our ROU asset and lease liability balances and other financial information for the three months ended March 31, 2020:
As Reported December 31, 2019New
Leases		Modifications (1)Reduction / AmortizationAs Reported March 31, 2020
(In thousands)
ROU Assets:
Finance Leases$34,691  $—  $16,763  $(756) $50,698  
Operating Leases337,842  —  17,191  (10,885) 344,148  
Total ROU Assets$372,533  $—  $33,954  $(11,641) $394,846  
Current Lease Liabilities:
Finance Leases$1,564  $—  $18,588  $73  $20,225  
Operating Leases43,332  —  402  (595) 43,139  
Total Current Lease Liabilities$44,896  $—  $18,990  $(522) $63,364  
Long-Term Lease Liabilities:
Finance Leases$36,313  $—  $(2,687) $(410) $33,216  
Operating Leases304,151  —  17,651  (10,431) 311,371  
Total Long-Term Lease Liabilities$340,464  $—  $14,964  $(10,841) $344,587  
(1)Includes the impact of remeasurements related to lease terminations and changes in assumptions around the probability of exercise of extension options.
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SONIC AUTOMOTIVE, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31,
20202019
(In thousands)
Lease Expense:
Finance lease expense:
Reduction of ROU assets$756  $709  
Interest on lease liabilities1,344  1,176  
Operating lease expense (1)16,610  17,997  
Short-term lease expense (1)420  427  
Variable lease expense718  114  
Sublease income(3,099) (3,578) 
Total$16,749  $16,845  
(1)Included in operating cash flows in the accompanying unaudited condensed consolidated statement of cash flows as of March 31, 2020.
Three Months Ended March 31,
20202019
(In thousands)
Other Information:
Cash paid for amounts included in the measurement of lease liabilities
Financing cash flows for finance leases$337  $281  
Operating cash flows for finance leases$1,344  $1,176  
Operating cash flows for operating leases$16,753  $18,469  
ROU assets obtained in exchange for lease liabilities
Finance leases$6,728  $9,983  
Operating leases (1)$27,226  $(10,711) 

(1)Includes the impact of reclassification of ROU assets from operating leases to finance leases due to remeasurement.
March 31, 2020March 31, 2019
Other Information:
Weighted-average remaining lease term (in years)
Finance leases7.811.4
Operating leases9.69.8
Weighted-average discount rate
Finance leases16.52 %18.31 %
Operating leases6.56 %6.86 %

Undiscounted Lease Cash Flows Under ASC 842 as of March 31, 2020
FinanceOperatingReceipts from Subleases
Year Ending December 31,(In thousands)
Remainder of 2020$23,572  $48,808  $(8,343) 
20216,075  60,674  (8,228) 
20226,083  54,358  (6,103) 
20236,144  52,687  (6,103) 
20246,263  47,219  (5,042) 
Thereafter43,103  223,118  (4,270) 
Total$91,240  $486,864  $(38,089) 
Less: Present value discount(37,799) (132,354) 
Lease liabilities$53,441  $354,510  

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SONIC AUTOMOTIVE, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended June 30,Six Months Ended June 30,
2019201820192018
(In thousands)
Segment income (loss) (1):
Franchised Dealerships Segment (2)$48,326 $66,049 $121,856 $89,885 
EchoPark Segment (3)2,129 (27,347)2,688 (41,672)
Total segment income (loss)50,455 38,702 124,544 48,213 
Interest expense, other, net(13,628)(13,375)(26,481)(26,831)
Other income (expense), net(5)17 95 106 
Income (loss) from continuing operations before taxes$36,822 $25,344 $98,158 $21,488 

(1) Segment income (loss) for each segment is defined as operating income (loss) less interest expense, floor plan.
(2) For the three months ended June 30, 2018, the above amount includes approximately $38.0 million of net gain on the disposal of franchised dealerships and approximately $2.6 million of benefit related to lease exit adjustments, offset partially by approximately $10.3 million of impairment expense and approximately $3.1 million of storm-related physical damage and legal costs.
For the six months ended June 30, 2019, the above amount includes approximately $46.7 million of net gain on the disposal of franchised dealerships and approximately $6.3 million of executive transition costs. For the six months ended June 30, 2018, the above amount includes approximately $39.2 million of net gain on the disposal of franchised dealerships, offset partially by approximately $4.6 million of storm-related physical damage and legal costs, approximately $2.2 million of lease exit charges and approximately $14.0 million of impairment expense.

(3) For the three months ended June 30, 2018, the above amount includes approximately $23.3 million of non-recurring compensation-related charges.

For the six months ended June 30, 2019, the above amount includes approximately $1.9 million of impairment expense. For the six months ended June 30, 2018, the above amount includes approximately $32.5 million of non-recurring compensation-related charges.


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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, 2018.2019.
Except to the extent that differences among operating segments are material to an understanding of our business taken as a whole, we present the discussion in this Management’s Discussion and Analysis of Financial Condition and Results of Operations on a consolidated basis.
Overview
We are one of the largest automotive retailers in the United States (as measured by total revenue). As a result of the way we manage our business, we had two operatingreportable segments as of June 30, 2019:March 31, 2020: (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, 2019,March 31, 2020, we operated 9286 stores in the Franchised Dealerships Segment and eightnine stores in the EchoPark Segment. The Franchised Dealerships Segment consists of 10499 new vehicle franchises (representing 2321 different brands of cars and light trucks) and 15 collision repair centers in 1312 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 customers. The EchoPark Segment sells used cars and light trucks and arranges F&I product sales for our customers in pre-owned vehicle specialty retail locations. Our EchoPark business operates independently from our franchised dealerships business. Sales operations in our first EchoPark market in Denver, Colorado began in the fourth quarter of 2014. As of June 30, 2019,March 31, 2020, we had three EchoPark stores in operation in Colorado, four in Texas, one in North Carolina and one in North Carolina.California. By the end of 2020, we expect to open three additional EchoPark stores. We believe that the continued expansion of our EchoPark business will provide long-term benefits to the Company, our stockholders and our guests.
Beginning in the middle of March 2020 the novel coronavirus (“COVID-19”) pandemic began to adversely impact our business operations. All of the markets in which we currently operate are under various levels of “shelter-in-place” or “stay-at-home” orders from state and local governmental authorities, which in many cases significantly restrict our business operations and suppress consumer activity, in particular related to our vehicle sales activities. As a result, we saw significant declines in new and used vehicle unit sales volume, including a year-over-year decline of approximately 50% during the second half of March 2020 as compared to the second half of March 2019, and our parts and service business is currently operating below full capacity, despite automotive repair having been deemed an essential service in all of the markets in which we operate. We currently expect these trends to continue into the second quarter with the expectation that the majority of shelter-in-place and stay-at-home orders will be lifted in the latter half of the second quarter of 2020. If the shelter-in-place and stay-at-home orders are extended or there is a second wave of shut-downs in the second half of the year due to another outbreak of COVID-19, we would again expect to face headwinds on the demand side of our business.
As a result of these developments and the impact of COVID-19, we took various actions in an attempt to mitigate the financial impact of COVID-19 on our business during the first quarter of 2020. We have placed approximately 1,700 associates on unpaid leave, terminated an additional 1,200 associates, implemented additional compensation expense reductions, and instituted a hiring freeze. We have also taken actions to reduce our advertising expenses and non-essential spending, and postponed certain capital expenditures. We have taken steps to shore up our liquidity position and continue to evaluate opportunities for further expense reduction and additional sources of liquidity as we navigate the COVID-19 pandemic.
Executive Summary
The U.S. retail automotive industry’s total new vehicle (retail and fleet combined) seasonally adjusted annual rate of sales (“SAAR”) decreased 1.2%12.4%, to 14.9 million vehicles, in the three months ended March 31, 2020, compared to 17.0 million vehicles in the three months ended June 30,March 31, 2019, compared to 17.2 million vehicles in the three months ended June 30, 2018, according to data from Bloomberg Financial Markets, provided by Stephens Inc. For 2019,Prior to COVID-19, analysts’ average industry expectation for the total new vehicle SAAR ranges in 2020 ranged
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SONIC AUTOMOTIVE, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
from 16.816.0 million to 17.0 million vehicles. We currently estimateIt is difficult to anticipate what the 2019total new vehicle SAAR willmay be between 16.5 millionin 2020 and 17.0 million vehicles. Changesbeyond due to the rapidly evolving circumstances around the COVID-19 pandemic and related economic impact. Further changes in consumer confidence, replacement demand as a result of natural disasters,unemployment levels, availability of consumer financing, manufacturer inventory production levels or incentive levels from automotive manufacturers or government programs could cause actual 20192020 total new vehicle SAAR to vary from current expectations. Many factors, including brand and geographic concentrations as well as the industry sales mix between retail and fleet new vehicle unit sales volume, have caused our past results to differ from the industry’s overall trend. As a result of our minimalSince we do not participate in any material manner in fleet new vehicle unit sales, volume, 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, retail new vehicle SAAR was 13.511.6 million vehicles for the three months ended June 30, 2019,March 31, 2020, a decrease of 0.7% from the prior year period, and 13.1 million vehicles for the six months ended June 30, 2019, a decrease of 3.0%8.7% from the prior year period.
As a result of the disposition, termination or closure of several franchised dealerships and EchoPark stores since June 30, 2018, the change in consolidated reported amounts from period to period may not be indicative of the actual operational or financial performance of our current group of operating stores. Unless otherwise noted, all discussion of increases or decreases are for the three and six months ended June 30,March 31, 2019, and are compared to the same prior year period, as applicable. The following discussion of new vehicles, used vehicles, wholesale vehicles, parts, service and collision repair, and finance, insurance and other, net are on a same store basis, except where otherwise noted. All currently operating continuing operations stores (both our franchised dealerships and EchoPark stores) are included within the same store group in the first full month following the first anniversary of the store’s opening or acquisition.
New vehicle revenue increased 2.6% during the three months ended June 30, 2019, due to higher average selling prices, offset partially by a 2.4% decrease in new vehicle unit sales volume, and decreased 0.9% during the six months ended June 30,
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SONIC AUTOMOTIVE, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
2019, driven primarily by a 5.2% decrease in new vehicle unit sales volume. New vehicle gross profit increased 1.6% during the three months ended June 30, 2019, driven primarily by a 4.1% increase in new vehicle gross profit per unit, and decreased 0.5% during the six months ended June 30, 2019, offset partially by a 5.0% increase in new vehicle gross profit per unit. New vehicle gross profit per unit increased $78 per unit, or 4.1%, to $1,983 per unit in the three months ended June 30, 2019, and increased $98 per unit, or 5.0%, to $2,059 per unit in the six months ended June 30, 2019.
Retail used vehicle revenue increased 13.5% and 14.1% during the three and six months ended June 30, 2019, respectively. Retail used vehicle unit sales volume increased 13.5% during both the three and six months ended June 30, 2019, primarily driven by increased volumes at our franchised dealerships and EchoPark stores. Retail used vehicle unit sales volume at our EchoPark stores increased 42.9% and 55.8% in the three and six months ended June 30, 2019, respectively, and increased 6.1% and 4.2% at our franchised dealerships in the three and six months ended June 30, 2019, respectively. Retail used vehicle gross profit decreased 0.4% during the three months ended June 30, 2019, primarily driven by lower retail used vehicle gross profit per unit as a result of the increasing impact of the EchoPark inventory acquisition and pricing strategy on consolidated results as EchoPark unit sales volume continues to grow. Retail used vehicle gross profit increased 1.2% during the six months ended June 30, 2019, primarily driven by an increase in retail used vehicle unit sales volume. Retail used vehicle gross profit per unit decreased $125 per unit, or 12.2%, to $897 per unit in the three months ended June 30, 2019 and decreased $112 per unit, or 10.8%, to $921 per unit in the six months ended June 30, 2019, driven primarily by a shift in the inventory acquisition and pricing strategy at our EchoPark stores which reduces front-end gross profit per unit but increases unit sales volume and F&I gross profit, more than offsetting the decrease in front-end gross profit. Wholesale vehicle gross loss decreased approximately $2.4 million during the three months ended June 30, 2019, primarily driven by a decrease in wholesale vehicle gross loss per unit of $335, or 81.3%. Wholesale vehicle gross loss decreased approximately $5.2 million during the six months ended June 30, 2019, primarily driven by higher wholesale vehicle gross loss in the first quarter of 2018 as a result of market pricing declines, inventory supply and allocation challenges related to the Houston market following the effects of Hurricane Harvey. We focus on maintaining used vehicle inventory days’ supply in the 30 to 40 day range in order to limit our exposure to market pricing volatility. Our used vehicle inventory days’ supply was approximately 28 and 29 days as of June 30, 2019 and 2018, respectively.
Fixed Operations revenue increased 6.0% and 4.2% during the three and six months ended June 30, 2019, respectively. Fixed Operations gross profit increased 6.4% and 4.2% during the three and six months ended June 30, 2019, respectively, driven primarily by a 7.9% and 6.6% increase in customer pay (as hereinafter defined) gross profit, respectively. Fixed Operations gross margin increased 20-basis points, to 48.2%, during the three months ended June 30, 2019 and was 48.0%, flat for the six months ended June 30, 2019. 
F&I revenue increased 13.6% and 13.8% during the three and six months ended June 30, 2019, respectively, driven primarily by an increase in F&I gross profit per retail unit. F&I gross profit per retail unit increased $108 per unit, or 7.0%, to $1,644 per unit, for the three months ended June 30, 2019, and increased $127 per unit, or 8.4%, to $1,631 per unit, for the six months ended June 30, 2019. We believe that our proprietary software applications, playbook processes, customer-centric selling approach and our EchoPark inventory acquisition and pricing strategy enable us to maximize gross profit per F&I contract and penetration rates (the number of F&I products sold per vehicle) across our F&I product lines. We believe that we will continue to increase revenue in this area as we refine our processes, train our associates and continue to sell high levels of retail new and used vehicles at our stores.
The tables below list other items of interest that affected reported amounts in the accompanying unaudited condensed consolidated statements of income:
Three Months Ended June 30, 2019Three Months Ended June 30, 2018
(Amounts are before the effect of income taxes)Franchised Dealerships SegmentEchoPark SegmentTotalFranchised Dealerships SegmentEchoPark SegmentTotalIncome Statement Line Impacted
(In thousands)
Gain on franchise disposals$— $— $— $38,048 $— $38,048 SG&A expenses 
Long-term compensation charges— — — — (23,333)(23,333)SG&A expenses 
Impairment charges— — — (10,315)— (10,315)Impairment charges 
Lease exit adjustments— — — 2,579 — 2,579 SG&A expenses 
Legal and storm damage charges— — — (3,064)— (3,064)SG&A expenses 



24
SONIC AUTOMOTIVE, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Six Months Ended June 30, 2019Six Months Ended June 30, 2018
(Amounts are before the effect of income taxes)Franchised Dealerships SegmentEchoPark SegmentTotalFranchised Dealerships SegmentEchoPark SegmentTotalIncome Statement Line Impacted
(In thousands)
Gain on franchise disposals$46,680 $— $46,680 $39,239 $— $39,239 SG&A expenses 
Executive transition costs(6,264)— (6,264)— — — SG&A expenses 
Long-term compensation charges— — — — (32,522)(32,522)SG&A expenses 
Impairment charges— (1,926)(1,926)(13,876)(82)(13,958)Impairment charges 
Lease exit adjustments— — — (2,235)— (2,235)SG&A expenses 
Legal and storm damage charges— — — (4,564)— (4,564)SG&A expenses 

The following table depicts the breakdown of our new vehicle revenues from continuing operations by brand for the three and six months ended June 30, 2019 and 2018:
Three Months Ended June 30,Six Months Ended June 30,
Brand2019201820192018
Luxury:
BMW24.0 %19.3 %22.7 %19.2 %
Mercedes12.0 %11.1 %12.1 %11.0 %
Audi6.9 %6.6 %6.8 %6.4 %
Lexus4.6 %6.1 %4.8 %5.7 %
Land Rover4.1 %4.3 %4.5 %4.6 %
Porsche2.6 %2.4 %2.9 %2.4 %
Cadillac2.4 %2.3 %2.3 %2.4 %
MINI1.1 %1.3 %1.1 %1.3 %
Other luxury (1)2.8 %3.1 %2.8 %2.9 %
Total Luxury60.5 %56.5 %60.0 %55.9 %
Mid-line Import:
Honda16.5 %17.1 %16.5 %17.4 %
Toyota9.4 %10.4 %9.4 %10.6 %
Volkswagen1.6 %2.1 %1.6 %2.1 %
Hyundai1.6 %1.6 %1.6 %1.5 %
Other imports (2)0.8 %1.9 %1.4 %1.8 %
Total Mid-line Import29.9 %33.1 %30.5 %33.4 %
Domestic:
Ford5.0 %5.6 %4.9 %6.0 %
General Motors (“GM”) (3)4.6 %4.8 %4.6 %4.7 %
Total Domestic9.6 %10.4 %9.5 %10.7 %
Total100.0 %100.0 %100.0 %100.0 %
(1) Includes Volvo, Acura, Infiniti and Jaguar.
(2) Includes Nissan, Kia and Subaru.
(3) Includes Buick, Chevrolet and GMC.
Results of Operations
As a result of the disposition, termination or closure of several franchised dealerships and EchoPark stores since June 30, 2018, the change in consolidated reported amounts from period to period may not be indicative of the actual 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.
Unless otherwise noted, all discussion of increases or decreases are for the three and six months ended June 30, 2019March 31, 2020 and are compared to the same prior year period, as applicable.period. The following discussion of new vehicles, used vehicles, wholesale
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SONIC AUTOMOTIVE, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
vehicles, parts, service and collision repair, and finance, insurance and other, net are on a same store basis, except where otherwise noted. All currently operating stores (both our franchised dealerships and EchoPark stores) are included within the same store group in the first full month following the first anniversary of the store’s opening or acquisition.
See “Future Liquidity Outlook” section for further discussion related to actions taken to preserve and increase liquidity.
Franchised Dealerships Segment
New vehicle revenue decreased 4.7% during the three months ended March 31, 2020, driven by a 6.1% decrease in new vehicle unit sales volume. New vehicle gross profit decreased 12.1% during the three months ended March 31, 2020, driven primarily by a 6.4% decrease in new vehicle gross profit per unit. New vehicle gross profit per unit decreased $144 per unit, or 6.4%, to $2,093 per unit in the three months ended March 31, 2020.
Retail used vehicle revenue decreased 1.8% during the three months ended March 31, 2020. Retail used vehicle unit sales volume increased 1.5% during the three months ended March 31, 2020. Retail used vehicle gross profit decreased 1.0% during the three months ended March 31, 2020, primarily driven by a decrease in retail used vehicle gross profit per unit. Retail used vehicle gross profit per unit decreased $32 per unit, or 2.5%, to $1,240 per unit in the three months ended March 31, 2020. Wholesale vehicle gross loss decreased approximately $0.9 million, or 91.9%, during the three months ended March 31, 2020, primarily driven by a decrease in wholesale vehicle gross loss per unit of $124, or 91.2%. 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. Our reported franchised dealerships used vehicle inventory days’ supply was approximately 29 and 27 days as of March 31, 2020 and 2019, respectively.
Fixed Operations revenue increased 1.5% during the three months ended March 31, 2020. Fixed Operations gross profit increased 2.0% during the three months ended March 31, 2020, driven primarily by a 5.3% increase in customer pay (as hereinafter defined) gross profit. Fixed Operations gross margin increased 30 basis points, to 48.7%, during the three months ended March 31, 2020, driven primarily by higher levels of customer pay revenue and an increase in customer pay gross margin. 
F&I revenue increased 6.9% during the three months ended March 31, 2020, driven primarily by an increase in F&I gross profit per retail unit. F&I gross profit per retail unit increased $150 per unit, or 9.9%, to $1,671 per unit, in the three months ended March 31, 2020. We believe that our proprietary software applications, playbook processes and customer-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.
EchoPark Segment
Retail used vehicle revenue increased 22.6% during the three months ended March 31, 2020. Retail used vehicle unit sales volume increased 18.2% during the three months ended March 31, 2020. Combined retail used vehicle and F&I gross profit per unit decreased $126 per unit, or 5.5%, to $2,172 per unit during the three months ended March 31, 2020.
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SONIC AUTOMOTIVE, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Wholesale vehicle gross loss was flat. 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. Our used vehicle inventory days’ supply at our EchoPark stores was approximately 34 and 29 days as of March 31, 2020 and 2019, respectively.

Results of Operations – Consolidated
The following table lists other items of interest that affected reported amounts in the accompanying unaudited condensed consolidated statements of income:
Three Months Ended March 31, 2020Three Months Ended March 31, 2019
(Amounts are before the effect of income taxes)Franchised Dealerships SegmentEchoPark SegmentTotalFranchised Dealerships SegmentEchoPark SegmentTotalIncome Statement Line Impacted
(In thousands)
Gain (loss) on franchise disposals$—  $—  $—  $46,680  $—  $46,680  SG&A expenses  
Executive transition costs—  —  —  (6,264) —  (6,264) SG&A expenses  
Impairment charges(268,000) —  (268,000) —  (1,926) (1,926) Impairment charges  

The following table depicts the breakdown of our new vehicle revenues from continuing operations by brand for the three months ended March 31, 2020 and 2019:
Three Months Ended March 31,
Brand20202019
Luxury:
BMW25.2 %21.2 %
Mercedes13.4 %12.2 %
Audi6.1 %6.7 %
Lexus4.8 %5.1 %
Land Rover4.3 %4.9 %
Porsche3.0 %3.2 %
Cadillac2.2 %2.2 %
MINI1.0 %1.0 %
Other luxury (1)2.3 %3.0 %
Total Luxury62.3 %59.5 %
Mid-line Import:
Honda14.8 %17.5 %
Toyota8.7 %8.7 %
Volkswagen0.9 %1.9 %
Hyundai1.1 %1.5 %
Other imports (2)0.5 %1.5 %
Total Mid-line Import26.0 %31.1 %
Domestic:
Ford5.9 %4.8 %
General Motors (“GM”) (3)5.8 %4.6 %
Total Domestic11.7 %9.4 %
Total100.0 %100.0 %
(1)Includes Acura, Infiniti, Jaguar, Smart and Volvo.
(2)Includes Kia, Nissan, Scion and Subaru.
(3)Includes Buick, Chevrolet and GMC.
Results of Operations
Unless otherwise noted, all discussion of increases or decreases are for the three months ended March 31, 2020 and are compared to the same prior year period. The following discussion of new vehicles, used vehicles, wholesale vehicles, parts,
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
service and collision repair, and finance, insurance and other, net are on a same store basis, except where otherwise noted. All currently operating stores (both our franchised dealerships and EchoPark stores) are included within the same store group in the first full month following the first anniversary of the store’s opening or acquisition.

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 United States. The total and retail new vehicle SAAR below reflect all brands marketed or sold in the United States. 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.
Three Months Ended June 30,Better / (Worse)Six Months Ended June 30,Better / (Worse)
2019 2018 % Change20192018% Change
(In millions of vehicles)
Retail SAAR (1)13.5 13.6 (0.7)%13.1 13.5 (3.0)%
Fleet SAAR3.5 3.6 (2.8)%3.9 3.6 8.3 %
Total SAAR (2)17.0 17.2 (1.2)%17.0 17.1 (0.6)%
Three Months Ended March 31,Better / (Worse)
20202019% Change
(In millions of vehicles)
Retail new vehicle SAAR (1)11.6  12.7  (8.7)%
Fleet new vehicle SAAR3.3  4.3  (23.3)%
Total new vehicle SAAR (1)14.9  17.0  (12.4)%
(1)Source: PIN from J.D. Power
(2) Source: Bloomberg Financial Markets, provided by Stephens Inc.
The following tables providetable provides a reconciliation of consolidated same storereported basis and reportedsame store basis for total new vehicles (combined retail and fleet data):
Three Months Ended June 30,Better / (Worse)
2019 2018 Change% Change
(In thousands, except unit data)
Total new vehicle revenue:
Same store$1,200,352 $1,170,278 $30,074 2.6 %
Acquisitions, open points and dispositions4,402 68,293 (63,891)NM
Total as reported$1,204,754 $1,238,571 $(33,817)(2.7)%
Total new vehicle gross profit:
Same store$55,803 $54,904 $899 1.6 %
Acquisitions, open points and dispositions597 2,364 (1,767)NM
Total as reported$56,400 $57,268 $(868)(1.5)%
Total new vehicle unit sales:
Same store28,134 28,826 (692)(2.4)%
Acquisitions, open points and dispositions62 2,051 (1,989)NM
Total as reported28,196 30,877 (2,681)(8.7)%
NM = Not Meaningful

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Six Months Ended June 30,Better / (Worse)
2019 2018 Change% Change
(In thousands, except unit data)
Total new vehicle revenue:
Same store$2,248,029 $2,267,998 $(19,969)(0.9)%
Acquisitions, open points and dispositions23,059 151,418 (128,359)NM
Total as reported$2,271,088 $2,419,416 $(148,328)(6.1)%
Total new vehicle gross profit:
Same store$108,763 $109,282 $(519)(0.5)%
Acquisitions, open points and dispositions1,433 4,785 (3,352)NM
Total as reported$110,196 $114,067 $(3,871)(3.4)%
Total new vehicle unit sales:
Same store52,829 55,736 (2,907)(5.2)%
Acquisitions, open points and dispositions564 4,641 (4,077)NM
Total as reported53,393 60,377 (6,984)(11.6)%
NM = Not Meaningful
Our consolidated reported new vehicle results (combined retail and fleet data) are as follows:
Three Months Ended June 30,Better / (Worse)
2019 2018 Change% Change
(In thousands, except unit and per unit data)
Reported new vehicle:
Revenue$1,204,754 $1,238,571 $(33,817)(2.7)%
Gross profit$56,400 $57,268 $(868)(1.5)%
Unit sales28,196 30,877 (2,681)(8.7)%
Revenue per unit$42,728 $40,113 $2,615 6.5 %
Gross profit per unit$2,000 $1,855 $145 7.8 %
Gross profit as a % of revenue4.7 %4.6 %10 bps

Six Months Ended June 30,Better / (Worse)
2019 2018 Change% Change
(In thousands, except unit and per unit data)
Reported new vehicle:
Revenue$2,271,088 $2,419,416 $(148,328)(6.1)%
Gross profit$110,196 $114,067 $(3,871)(3.4)%
Unit sales53,393 60,377 (6,984)(11.6)%
Revenue per unit$42,535 $40,072 $2,463 6.1 %
Gross profit per unit$2,064 $1,889 $175 9.3 %
Gross profit as a % of revenue4.9 %4.7 %20 bps

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Our consolidated same store new vehicle results (combined retail and fleet data) are as follows:
Three Months Ended June 30,Better / (Worse)
2019 2018 Change% Change
(In thousands, except unit and per unit data)
Same store new vehicle:
Revenue$1,200,352 $1,170,278 $30,074 2.6 %
Gross profit$55,803 $54,904 $899 1.6 %
Unit sales28,134 28,826 (692)(2.4)%
Revenue per unit$42,666 $40,598 $2,068 5.1 %
Gross profit per unit$1,983 $1,905 $78 4.1 %
Gross profit as a % of revenue4.6 %4.7 %(10)bps

Six Months Ended June 30,Better / (Worse)
2019 2018 Change% Change
(In thousands, except unit and per unit data)
Same store new vehicle:
Revenue$2,248,029 $2,267,998 $(19,969)(0.9)%
Gross profit$108,763 $109,282 $(519)(0.5)%
Unit sales52,829 55,736 (2,907)(5.2)%
Revenue per unit$42,553 $40,692 $1,861 4.6 %
Gross profit per unit$2,059 $1,961 $98 5.0 %
Gross profit as a % of revenue4.8 %4.8 %— 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 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 auction and the availability of consumer credit.

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The following tables provides a reconciliation of consolidated same store basis and reported basis for retail used vehicles:
Three Months Ended June 30,Better / (Worse)
2019 2018 Change% Change
(In thousands, except unit data)
Total used vehicle revenue:
Same store$826,666 $728,393 $98,273 13.5 %
Acquisitions, open points and dispositions58,961 34,179 24,782 NM
Total as reported$885,627 $762,572 $123,055 16.1 %
Total used vehicle gross profit:
Same store$34,540 $34,677 $(137)(0.4)%
Acquisitions, open points and dispositions2,189 2,632 (443)NM
Total as reported$36,729 $37,309 $(580)(1.6)%
Total used vehicle unit sales:
Same store38,517 33,930 4,587 13.5 %
Acquisitions, open points and dispositions2,941 1,849 1,092 NM
Total as reported41,458 35,779 5,679 15.9 %
NM = Not Meaningful
Six Months Ended June 30,Better / (Worse)
2019 2018 Change% Change
(In thousands, except unit data)
Total used vehicle revenue:
Same store$1,591,287 $1,394,490 $196,797 14.1 %
Acquisitions, open points and dispositions114,705 77,128 37,577 NM
Total as reported$1,705,992 $1,471,618 $234,374 15.9 %
Total used vehicle gross profit:
Same store$68,263 $67,477 $786 1.2 %
Acquisitions, open points and dispositions5,473 6,603 (1,130)NM
Total as reported$73,736 $74,080 $(344)(0.5)%
Total used vehicle unit sales:
Same store74,126 65,293 8,833 13.5 %
Acquisitions, open points and dispositions5,795 4,225 1,570 NM
Total as reported79,921 69,518 10,403 15.0 %
NM = Not Meaningful
Our consolidated reported used vehicle results are as follows:
Three Months Ended June 30,Better / (Worse)
2019 2018 Change% Change
(In thousands, except unit and per unit data)
Reported used vehicle:
Revenue$885,627 $762,572 $123,055 16.1 %
Gross profit$36,729 $37,309 $(580)(1.6)%
Unit sales41,458 35,779 5,679 15.9 %
Revenue per unit$21,362 $21,313 $49 0.2 %
Gross profit per unit$886 $1,043 $(157)(15.1)%
Gross profit as a % of revenue4.1 %4.9 %(80)bps

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Six Months Ended June 30,Better / (Worse)
2019 2018 Change% Change
(In thousands, except unit and per unit data)
Reported used vehicle:
Revenue$1,705,992 $1,471,618 $234,374 15.9 %
Gross profit$73,736 $74,080 $(344)(0.5)%
Unit sales79,921 69,518 10,403 15.0 %
Revenue per unit$21,346 $21,169 $177 0.8 %
Gross profit per unit$923 $1,066 $(143)(13.4)%
Gross profit as a % of revenue4.3 %5.0 %(70)bps
Our consolidated same store used vehicle results are as follows:
Three Months Ended June 30,Better / (Worse)
2019 2018 Change% Change
(In thousands, except unit and per unit data)
Same store used vehicle:
Revenue$826,666 $728,393 $98,273 13.5 %
Gross profit$34,540 $34,677 $(137)(0.4)%
Unit sales38,517 33,930 4,587 13.5 %
Revenue per unit$21,462 $21,468 $(6)—%
Gross profit per unit$897 $1,022 $(125)(12.2)%
Gross profit as a % of revenue4.2 %4.8 %(60)bps

Six Months Ended June 30,Better / (Worse)
2019 2018 Change% Change
(In thousands, except unit and per unit data)
Same store used vehicle:
Revenue$1,591,287 $1,394,490 $196,797 14.1 %
Gross profit$68,263 $67,477 $786 1.2 %
Unit sales74,126 65,293 8,833 13.5 %
Revenue per unit$21,467 $21,357 $110 0.5 %
Gross profit per unit$921 $1,033 $(112)(10.8)%
Gross profit as a % of revenue4.3 %4.8 %(50)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 highly correlated with new and used vehicle retail sales and the associated trade-in volume. 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.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following tables provide a reconciliation of consolidated same store basis and reported basis for wholesale vehicles:

Three Months Ended June 30,Better / (Worse)
2019 2018 Change% Change
(In thousands, except unit data)
Total wholesale vehicle revenue:
Same store$48,270 $48,127 $143 0.3 %
Acquisitions, open points and dispositions1,769 5,621 (3,852)NM
Total as reported$50,039 $53,748 $(3,709)(6.9)%
Total wholesale vehicle gross profit (loss):
Same store$(631)$(3,074)$2,443 79.5 %
Acquisitions, open points and dispositions(82)(283)201 NM
Total as reported$(713)$(3,357)$2,644 78.8 %
Total wholesale vehicle unit sales:
Same store8,230 7,460 770 10.3 %
Acquisitions, open points and dispositions416 982 (566)NM
Total as reported8,646 8,442 204 2.4 %
NM = Not Meaningful
Six Months Ended June 30,Better / (Worse)
2019 2018 Change% Change
(In thousands, except unit data)
Total wholesale vehicle revenue:
Same store$101,394 $108,446 $(7,052)(6.5)%
Acquisitions, open points and dispositions3,416 10,702 (7,286)NM
Total as reported$104,810 $119,148 $(14,338)(12.0)%
Total wholesale vehicle gross profit (loss):
Same store$(1,773)$(6,955)$5,182 74.5 %
Acquisitions, open points and dispositions(206)(826)620 NM
Total as reported$(1,979)$(7,781)$5,802 74.6 %
Total wholesale vehicle unit sales:
Same store16,618 16,327 291 1.8 %
Acquisitions, open points and dispositions675 1,795 (1,120)NM
Total as reported17,293 18,122 (829)(4.6)%
NM = Not Meaningful
Our consolidated reported wholesale vehicle results are as follows:
Three Months Ended June 30,Better / (Worse)
2019 2018 Change% Change
(In thousands, except unit and per unit data)
Reported wholesale vehicle:
Revenue$50,039 $53,748 $(3,709)(6.9)%
Gross profit (loss)$(713)$(3,357)$2,644 78.8 %
Unit sales8,646 8,442 204 2.4 %
Revenue per unit$5,788 $6,367 $(579)(9.1)%
Gross profit (loss) per unit$(82)$(398)$316 79.4 %
Gross profit (loss) as a % of revenue(1.4)%(6.2)%480 bps

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Six Months Ended June 30,Better / (Worse)
2019 2018 Change% Change
(In thousands, except unit and per unit data)
Reported wholesale vehicle:
Revenue$104,810 $119,148 $(14,338)(12.0)%
Gross profit (loss)$(1,979)$(7,781)$5,802 74.6 %
Unit sales17,293 18,122 (829)(4.6)%
Revenue per unit$6,061 $6,575 $(514)(7.8)%
Gross profit (loss) per unit$(114)$(429)$315 73.4 %
Gross profit (loss) as a % of revenue(1.9)%(6.5)%460 bps

Our consolidated same store wholesale vehicle results are as follows:
Three Months Ended June 30,Better / (Worse)
2019 2018 Change% Change
(In thousands, except unit and per unit data)
Same store wholesale vehicle:
Revenue$48,270 $48,127 $143 0.3 %
Gross profit (loss)$(631)$(3,074)$2,443 79.5 %
Unit sales8,230 7,460 770 10.3 %
Revenue per unit$5,865 $6,451 $(586)(9.1)%
Gross profit (loss) per unit$(77)$(412)$335 81.3 %
Gross profit (loss) as a % of revenue(1.3)%(6.4)%510 bps

Six Months Ended June 30,Better / (Worse)
2019 2018 Change% Change
(In thousands, except unit and per unit data)
Same store wholesale vehicle:
Revenue$101,394 $108,446 $(7,052)(6.5)%
Gross profit (loss)$(1,773)$(6,955)$5,182 74.5 %
Unit sales16,618 16,327 291 1.8 %
Revenue per unit$6,101 $6,642 $(541)(8.1)%
Gross profit (loss) per unit$(107)$(426)$319 74.9 %
Gross profit (loss) as a % of revenue(1.7)%(6.4)%470 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, 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, vehicle quality, manufacturer recalls, customer loyalty and prepaid maintenance programs. Internal, sublet and other primarily relates to preparation and reconditioning work performed on vehicles that are sold to customers. 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 franchised dealerships will offset any revenue lost from improvement in vehicle quality. We also believe that, over the long term, we have the ability to continue to add service capacity at our dealerships and stores to further increase 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,
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SONIC AUTOMOTIVE, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
combined with the extended manufacturer warranties on certified pre-owned vehicles, should facilitate long-term 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 following tables provide a reconciliation of consolidated same store basis and reported basis for Fixed Operations:
Three Months Ended June 30,Better / (Worse)
2019 2018 Change% Change
(In thousands)
Total Fixed Operations revenue:
Same store$352,385 $332,282 $20,103 6.0 %
Acquisitions, open points and dispositions2,927 14,472 (11,545)NM  
Total as reported$355,312 $346,754 $8,558 2.5 %
Total Fixed Operations gross profit:
Same store$169,794 $159,577 $10,217 6.4 %
Acquisitions, open points and dispositions752 7,474 (6,722)NM
Total as reported$170,546 $167,051 $3,495 2.1 %
NM = Not Meaningful
Six Months Ended June 30,Better / (Worse)
2019 2018 Change% Change
(In thousands)
Total Fixed Operations revenue:
Same store$687,573 $659,839 $27,734 4.2 %
Acquisitions, open points and dispositions9,169 38,673 (29,504)NM  
Total as reported$696,742 $698,512 $(1,770)(0.3)%
Total Fixed Operations gross profit:
Same store$329,802 $316,447 $13,355 4.2 %
Acquisitions, open points and dispositions3,980 20,232 (16,252)NM
Total as reported$333,782 $336,679 $(2,897)(0.9)%
NM = Not Meaningful
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SONIC AUTOMOTIVE, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Our consolidated reported Fixed Operations results are as follows:
Three Months Ended June 30,Better / (Worse)
2019 2018 Change% Change
(In thousands)
Reported Fixed Operations:
Revenue
Customer pay$142,113 $140,351 $1,762 1.3 %
Warranty69,809 63,888 5,921 9.3 %
Wholesale parts40,027 40,844 (817)(2.0)%
Internal, sublet and other103,363 101,671 1,692 1.7 %
Total revenue$355,312 $346,754 $8,558 2.5 %
Gross profit
Customer pay$77,652 $75,100 $2,552 3.4 %
Warranty39,039 35,871 3,168 8.8 %
Wholesale parts6,872 6,900 (28)(0.4)%
Internal, sublet and other46,983 49,180 (2,197)(4.5)%
Total gross profit$170,546 $167,051 $3,495 2.1 %
Gross profit as a % of revenue
Customer pay54.6 %53.5 %110 bps
Warranty55.9 %56.1 %(20)bps
Wholesale parts17.2 %16.9 %30 bps
Internal, sublet and other45.5 %48.4 %(290)bps
Total gross profit as a % of revenue48.0 %48.2 %(20)bps

Six Months Ended June 30,Better / (Worse)
2019 2018 Change% Change
(In thousands)
Reported Fixed Operations:
Revenue
Customer pay$279,834 $282,706 $(2,872)(1.0)%
Warranty138,782 131,489 7,293 5.5 %
Wholesale parts79,325 83,345 (4,020)(4.8)%
Internal, sublet and other198,801 200,972 (2,171)(1.1)%
Total revenue$696,742 $698,512 $(1,770)(0.3)%
Gross profit
Customer pay$151,978 $151,449 $529 0.3 %
Warranty77,447 73,772 3,675 5.0 %
Wholesale parts13,668 14,165 (497)(3.5)%
Internal, sublet and other90,689 97,293 (6,604)(6.8)%
Total gross profit$333,782 $336,679 $(2,897)(0.9)%
Gross profit as a % of revenue
Customer pay54.3 %53.6 %70 bps
Warranty55.8 %56.1 %(30)bps
Wholesale parts17.2 %17.0 %20 bps
Internal, sublet and other45.6 %48.4 %(280)bps
Total gross profit as a % of revenue47.9 %48.2 %(30)bps
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SONIC AUTOMOTIVE, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Our consolidated same store Fixed Operations results are as follows:
Three Months Ended June 30,Better / (Worse)
2019 2018 Change% Change
(In thousands)
Same store Fixed Operations:
Revenue
Customer pay$141,061 $134,096 $6,965 5.2 %
Warranty70,283 62,323 7,960 12.8 %
Wholesale parts39,696 39,057 639 1.6 %
Internal, sublet and other101,345 96,806 4,539 4.7 %
Total revenue$352,385 $332,282 $20,103 6.0 %
Gross profit
Customer pay$77,079 $71,426 $5,653 7.9 %
Warranty39,247 34,874 4,373 12.5 %
Wholesale parts6,813 6,557 256 3.9 %
Internal, sublet and other46,655 46,720 (65)(0.1)%
Total gross profit$169,794 $159,577 $10,217 6.4 %
Gross profit as a % of revenue
Customer pay54.6 %53.3 %130 bps
Warranty55.8 %56.0 %(20)bps
Wholesale parts17.2 %16.8 %40 bps
Internal, sublet and other46.0 %48.3 %(230)bps
Total gross profit as a % of revenue48.2 %48.0 %20 bps

Six Months Ended June 30,Better / (Worse)
2019 2018 Change% Change
(In thousands)
Same store Fixed Operations:
Revenue
Customer pay$277,155 $264,824 $12,331 4.7 %
Warranty137,720 126,537 11,183 8.8 %
Wholesale parts78,277 79,069 (792)(1.0)%
Internal, sublet and other194,421 189,409 5,012 2.6 %
Total revenue$687,573 $659,839 $27,734 4.2 %
Gross profit
Customer pay$150,513 $141,236 $9,277 6.6 %
Warranty76,859 70,778 6,081 8.6 %
Wholesale parts13,449 13,347 102 0.8 %
Internal, sublet and other88,981 91,086 (2,105)(2.3)%
Total gross profit$329,802 $316,447 $13,355 4.2 %
Gross profit as a % of revenue
Customer pay54.3 %53.3 %100 bps
Warranty55.8 %55.9 %(10)bps
Wholesale parts17.2 %16.9 %30 bps
Internal, sublet and other45.8 %48.1 %(230)bps
Total gross profit as a % of revenue48.0 %48.0 %— bps


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.

35
SONIC AUTOMOTIVE, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 finance contracts, 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. F&I revenues are affected by the level of new and used vehicle unit sales, 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 consolidated same store basis and reported basis for F&I:  

Three Months Ended June 30,Better / (Worse)Three Months Ended March 31,Better / (Worse)
2019 2018 Change% Change20202019Change% Change
(In thousands, except unit and per unit data)(In thousands, except unit data)
Total F&I revenue:
Total new vehicle revenue:Total new vehicle revenue:
Same storeSame store$108,818 $95,816 $13,002 13.6 %Same store$959,491  $1,006,903  $(47,412) (4.7)%
Acquisitions, open points and dispositionsAcquisitions, open points and dispositions9,531 8,288 1,243 NMAcquisitions, open points and dispositions(2) 59,431  (59,433) NM
Total as reportedTotal as reported$118,349 $104,104 $14,245 13.7 %Total as reported$959,489  $1,066,334  $(106,845) (10.0)%
Total F&I gross profit per retail unit (excludes fleet):
Same store$1,644 $1,536 $108 7.0 %
Reported$1,710 $1,572 $138 8.8 %
Total combined new and used retail unit sales:
Total new vehicle gross profit:Total new vehicle gross profit:
Same store Same store66,210 62,363 3,847 6.2 %Same store$45,465  $51,752  $(6,287) (12.1)%
Acquisitions, open points and dispositionsAcquisitions, open points and dispositions3,003 3,875 (872)NM  Acquisitions, open points and dispositions(50) 2,044  (2,094) NM
Total as reportedTotal as reported69,213 66,238 2,975 4.5 %Total as reported$45,415  $53,796  $(8,381) (15.6)%
Total new vehicle unit sales:Total new vehicle unit sales:
Same storeSame store21,724  23,133  (1,409) (6.1)%
Acquisitions, open points and dispositionsAcquisitions, open points and dispositions—  2,064  (2,064) NM
Total as reportedTotal as reported21,724  25,197  (3,473) (13.8)%
NM = Not Meaningful
25
SONIC AUTOMOTIVE, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Our consolidated reported new vehicle results (combined retail and fleet data) are as follows:
Three Months Ended March 31,Better / (Worse)
20202019Change% Change
(In thousands, except unit and per unit data)
Reported new vehicle:
Revenue$959,489  $1,066,334  $(106,845) (10.0)%
Gross profit$45,415  $53,796  $(8,381) (15.6)%
Unit sales21,724  25,197  (3,473) (13.8)%
Revenue per unit$44,167  $42,320  $1,847  4.4 %
Gross profit per unit$2,091  $2,135  $(44) (2.1)%
Gross profit as a % of revenue4.7 %5.0 %(30) bps


Six Months Ended June 30,Better / (Worse)
2019 2018 Change% Change
(In thousands, except unit and per unit data)
Total F&I revenue:
Same store$205,936 $180,977 $24,959 13.8 %
Acquisitions, open points and dispositions18,651 16,852 1,799 NM
Total as reported$224,587 $197,829 $26,758 13.5 %
Total F&I gross profit per retail unit (excludes fleet):
Same store$1,631 $1,504 $127 8.4 %
Reported$1,694 $1,532 $162 10.6 %
Total combined new and used retail unit sales:
 Same store126,235 120,333 5,902 4.9 %
Acquisitions, open points and dispositions6,359 8,821 (2,462)(27.9)%
Total as reported132,594 129,154 3,440 2.7 %
Our consolidated same store new vehicle results (combined retail and fleet data) are as follows:
Three Months Ended March 31,Better / (Worse)
20202019Change% Change
(In thousands, except unit and per unit data)
Same store new vehicle:
Revenue$959,491  $1,006,903  $(47,412) (4.7)%
Gross profit$45,465  $51,752  $(6,287) (12.1)%
Unit sales21,724  23,133  (1,409) (6.1)%
Revenue per unit$44,167  $43,527  $640  1.5 %
Gross profit per unit$2,093  $2,237  $(144) (6.4)%
Gross profit as a % of revenue4.7 %5.1 %(40) 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 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 starting 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.

26
SONIC AUTOMOTIVE, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following table provides a reconciliation of consolidated reported basis and same store basis for retail used vehicles:
Three Months Ended March 31,Better / (Worse)
20202019Change% Change
(In thousands, except unit data)
Total used vehicle revenue:
Same store$832,190  $793,460  $38,730  4.9 %
Acquisitions, open points and dispositions17,862  26,906  (9,044) NM
Total as reported$850,052  $820,366  $29,686  3.6 %
Total used vehicle gross profit:
Same store$30,444  $32,351  $(1,907) (5.9)%
Acquisitions, open points and dispositions1,686  4,657  (2,971) NM
Total as reported$32,130  $37,008  $(4,878) (13.2)%
Total used vehicle unit sales:
Same store39,105  36,692  2,413  6.6 %
Acquisitions, open points and dispositions919  1,771  (852) NM
Total as reported40,024  38,463  1,561  4.1 %
NM = Not Meaningful
Our consolidated reported retail used vehicle results are as follows:
Three Months Ended March 31,Better / (Worse)
20202019Change% Change
(In thousands, except unit and per unit data)
Reported used vehicle:
Revenue$850,052  $820,366  $29,686  3.6 %
Gross profit$32,130  $37,008  $(4,878) (13.2)%
Unit sales40,024  38,463  1,561  4.1 %
Revenue per unit$21,239  $21,329  $(90) (0.4)%
Gross profit per unit$803  $962  $(159) (16.5)%
Gross profit as a % of revenue3.8 %4.5 %(70) bps

Our consolidated same store retail used vehicle results are as follows:
Three Months Ended March 31,Better / (Worse)
20202019Change% Change
(In thousands, except unit and per unit data)
Same store used vehicle:
Revenue$832,190  $793,460  $38,730  4.9 %
Gross profit$30,444  $32,351  $(1,907) (5.9)%
Unit sales39,105  36,692  2,413  6.6 %
Revenue per unit$21,281  $21,625  $(344) (1.6)%
Gross profit per unit$779  $882  $(103) (11.7)%
Gross profit as a % of revenue3.7 %4.1 %(40) 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.
27
SONIC AUTOMOTIVE, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Wholesale Vehicles – Consolidated

Wholesale vehicle revenues are affected by retail new and used vehicle unit sales volume and the associated trade-in volume. 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.

The following table provides a reconciliation of consolidated reported basis and same store basis for wholesale vehicles:

Three Months Ended March 31,Better / (Worse)
20202019Change% Change
(In thousands, except unit data)
Total wholesale vehicle revenue:
Same store$48,313  $52,004  $(3,691) (7.1)%
Acquisitions, open points and dispositions230  2,766  (2,536) NM
Total as reported$48,543  $54,770  $(6,227) (11.4)%
Total wholesale vehicle gross profit (loss):
Same store$(154) $(1,083) $929  85.8 %
Acquisitions, open points and dispositions(3) (184) 181  NM
Total as reported$(157) $(1,267) $1,110  87.6 %
Total wholesale vehicle unit sales:
Same store8,586  7,972  614  7.7 %
Acquisitions, open points and dispositions89  675  (586) NM
Total as reported8,675  8,647  28  0.3 %
NM = Not Meaningful
Our consolidated reported wholesale vehicle results are as follows:
Three Months Ended March 31,Better / (Worse)
20202019Change% Change
(In thousands, except unit and per unit data)
Reported wholesale vehicle:
Revenue$48,543  $54,770  $(6,227) (11.4)%
Gross profit (loss)$(157) $(1,267) $1,110  87.6 %
Unit sales8,675  8,647  28  0.3 %
Revenue per unit$5,596  $6,334  $(738) (11.7)%
Gross profit (loss) per unit$(18) $(147) $129  87.8 %
Gross profit (loss) as a % of revenue(0.3)%(2.3)%200  bps

Our consolidated same store wholesale vehicle results are as follows:
Three Months Ended March 31,Better / (Worse)
20202019Change% Change
(In thousands, except unit and per unit data)
Same store wholesale vehicle:
Revenue$48,313  $52,004  $(3,691) (7.1)%
Gross profit (loss)$(154) $(1,083) $929  85.8 %
Unit sales8,586  7,972  614  7.7 %
Revenue per unit$5,627  $6,523  $(896) (13.7)%
Gross profit (loss) per unit$(18) $(136) $118  86.8 %
Gross profit (loss) as a % of revenue(0.3)%(2.1)%180  bps

28
SONIC AUTOMOTIVE, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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, 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, 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 that are later sold to customers. 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 franchised dealerships will offset any revenue lost from improvement in vehicle quality. We also believe that, over the long term, we have the ability to continue to add 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 long-term 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 following table provides a reconciliation of consolidated reported basis and same store basis for Fixed Operations:
Three Months Ended March 31,Better / (Worse)
20202019Change% Change
(In thousands)
Total Fixed Operations revenue:
Same store$336,725  $327,562  $9,163  2.8 %
Acquisitions, open points and dispositions(2,045) 13,868  (15,913) NM  
Total as reported$334,680  $341,430  $(6,750) (2.0)%
Total Fixed Operations gross profit:
Same store$159,055  $155,851  $3,204  2.1 %
Acquisitions, open points and dispositions(1,157) 7,385  (8,542) NM
Total as reported$157,898  $163,236  $(5,338) (3.3)%
NM = Not Meaningful
29
SONIC AUTOMOTIVE, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Our consolidated reported Fixed Operations results are as follows:
Three Months Ended March 31,Better / (Worse)
20202019Change% Change
(In thousands)
Reported Fixed Operations:
Revenue
Customer pay$135,056  $137,721  $(2,665) (1.9)%
Warranty60,760  68,973  (8,213) (11.9)%
Wholesale parts38,706  39,297  (591) (1.5)%
Internal, sublet and other100,158  95,439  4,719  4.9 %
Total revenue$334,680  $341,430  $(6,750) (2.0)%
Gross profit
Customer pay$74,595  $74,326  $269  0.4 %
Warranty33,746  38,407  (4,661) (12.1)%
Wholesale parts6,667  6,796  (129) (1.9)%
Internal, sublet and other42,890  43,707  (817) (1.9)%
Total gross profit$157,898  $163,236  $(5,338) (3.3)%
Gross profit as a % of revenue
Customer pay55.2 %54.0 %120  bps
Warranty55.5 %55.7 %(20) bps
Wholesale parts17.2 %17.3 %(10) bps
Internal, sublet and other42.8 %45.8 %(300) bps
Total gross profit as a % of revenue47.2 %47.8 %(60) bps

Our consolidated same store Fixed Operations results are as follows:
Three Months Ended March 31,Better / (Worse)
20202019Change% Change
(In thousands)
Same store Fixed Operations:
Revenue
Customer pay$137,147  $133,233  $3,914  2.9 %
Warranty61,313  65,474  (4,161) (6.4)%
Wholesale parts38,706  38,157  549  1.4 %
Internal, sublet and other99,559  90,698  8,861  9.8 %
Total revenue$336,725  $327,562  $9,163  2.8 %
Gross profit
Customer pay$75,729  $71,929  $3,800  5.3 %
Warranty33,907  36,525  (2,618) (7.2)%
Wholesale parts6,667  6,565  102  1.6 %
Internal, sublet and other42,752  40,832  1,920  4.7 %
Total gross profit$159,055  $155,851  $3,204  2.1 %
Gross profit as a % of revenue
Customer pay55.2 %54.0 %120  bps
Warranty55.3 %55.8 %(50) bps
Wholesale parts17.2 %17.2 %—  bps
Internal, sublet and other42.9 %45.0 %(210) bps
Total gross profit as a % of revenue47.2 %47.6 %(40) bps
30
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, 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 table provides a reconciliation of consolidated reported basis and same store basis for F&I:

Three Months Ended March 31,Better / (Worse)
20202019Change% Change
(In thousands, except unit and per unit data)
Total F&I revenue:
Same store$109,054  $99,384  $9,670  9.7 %
Acquisitions, open points and dispositions6,238  6,854  (616) NM
Total as reported$115,292  $106,238  $9,054  8.5 %
Total F&I gross profit per retail unit (excludes fleet):
Same store$1,810  $1,669  $141  8.4 %
Reported$1,885  $1,676  $209  12.5 %
Total combined new and used retail unit sales:
 Same store60,244  59,546  698  1.2 %
Acquisitions, open points and dispositions919  3,835  (2,916) NM  
Total as reported61,163  63,381  (2,218) (3.5)%
NM = Not Meaningful
Our consolidated reported F&I results are as follows:
Three Months Ended March 31,Better / (Worse)
20202019Change% Change
(In thousands, except unit and per unit data)
Reported F&I:
Revenue$115,292  $106,238  $9,054  8.5 %
Unit sales61,163  63,381  (2,218) (3.5)%
Gross profit per retail unit (excludes fleet)$1,885  $1,676  $209  12.5 %

31
SONIC AUTOMOTIVE, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Our consolidated same store F&I results are as follows:
Three Months Ended March 31,Better / (Worse)
20202019Change% Change
(In thousands, except unit and per unit data)
Same store F&I:
Revenue$109,054  $99,384  $9,670  9.7 %
Unit sales60,244  59,546  698  1.2 %
Gross profit per retail unit (excludes fleet)$1,810  $1,669  $141  8.4 %


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.

36
SONIC AUTOMOTIVE, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


Results of Operations -– Franchised Dealerships Segment
As a result of the disposition, termination or closure of several franchised dealerships since June 30, 2018,March 31, 2019, the change in reported amounts from period to period may not be indicative of the actual 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.
Unless otherwise noted, all discussion of increases or decreases are for the three and six months ended June 30, 2019March 31, 2020 and are compared to the same prior year period, as applicable.period. The following discussion of new vehicles, used vehicles, wholesale vehicles, parts, service and collision repair, and finance, insurance and other, net are on a same store basis, except where otherwise noted. All currently operating continuing operations stores are included within the same store group in the first full month following the first anniversary of the store’s opening or acquisition.
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 weak demand, both within specific brands and in the industry as a whole and for individual brands.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.

The following tables provide a reconciliation of Franchised Dealerships Segment same store basis and reported basis for total new vehicles (combined retail and fleet data):
Three Months Ended June 30,Better / (Worse)
2019 2018 Change% Change
(In thousands, except unit data)
Total new vehicle revenue:
Same store$1,200,352 $1,170,278 $30,074 2.6 %
Acquisitions, open points and dispositions4,402 68,293 (63,891)NM
Total as reported$1,204,754 $1,238,571 $(33,817)(2.7)%
Total new vehicle gross profit:
Same store$55,803 $54,904 $899 1.6 %
Acquisitions, open points and dispositions597 2,364 (1,767)NM
Total as reported$56,400 $57,268 $(868)(1.5)%
Total new vehicle unit sales:
Same store28,134 28,826 (692)(2.4)%
Acquisitions, open points and dispositions62 2,051 (1,989)NM
Total as reported28,196 30,877 (2,681)(8.7)%
NM = Not Meaningful
3732
SONIC AUTOMOTIVE, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Six Months Ended June 30,Better / (Worse)
2019 2018 Change% Change
(In thousands, except unit data)
Total new vehicle revenue:
Same store$2,248,029 $2,267,998 $(19,969)(0.9)%
Acquisitions, open points and dispositions23,059 151,418 (128,359)NM
Total as reported$2,271,088 $2,419,416 $(148,328)(6.1)%
Total new vehicle gross profit:
Same store$108,763 $109,282 $(519)(0.5)%
Acquisitions, open points and dispositions1,433 4,785 (3,352)NM
Total as reported$110,196 $114,067 $(3,871)(3.4)%
Total new vehicle unit sales:
Same store52,829 55,736 (2,907)(5.2)%
Acquisitions, open points and dispositions564 4,641 (4,077)NM
Total as reported53,393 60,377 (6,984)(11.6)%
NM = Not Meaningful
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 March 31,Better / (Worse)
20202019Change% Change
(In thousands, except unit data)
Total new vehicle revenue:
Same store$959,491  $1,006,903  $(47,412) (4.7)%
Acquisitions, open points and dispositions(2) 59,431  (59,433) NM
Total as reported959,489  1,066,334  (106,845) (10.0)%
Total new vehicle gross profit:
Same store$45,465  $51,752  $(6,287) (12.1)%
Acquisitions, open points and dispositions(50) 2,044  (2,094) NM
Total as reported$45,415  $53,796  $(8,381) (15.6)%
Total new vehicle unit sales:
Same store21,724  23,133  (1,409) (6.1)%
Acquisitions, open points and dispositions—  2,064  (2,064) NM
Total as reported21,724  25,197  (3,473) (13.8)%
NM = Not Meaningful
Our Franchised Dealerships Segment reported new vehicle results (combined retail and fleet data) are as follows:
Three Months Ended June 30,Better / (Worse)Three Months Ended March 31,Better / (Worse)
2019 2018 Change% Change20202019Change% Change
(In thousands, except unit and per unit data)(In thousands, except unit and per unit data)
Reported new vehicle:Reported new vehicle:Reported new vehicle:
RevenueRevenue$1,204,754 $1,238,571 $(33,817)(2.7)%Revenue$959,489  $1,066,334  $(106,845) (10.0)%
Gross profitGross profit$56,400 $57,268 $(868)(1.5)%Gross profit$45,415  $53,796  $(8,381) (15.6)%
Unit salesUnit sales28,196 30,877 (2,681)(8.7)%Unit sales21,724  25,197  (3,473) (13.8)%
Revenue per unitRevenue per unit$42,728 $40,113 $2,615 6.5 %Revenue per unit$44,167  $42,320  $1,847  4.4 %
Gross profit per unitGross profit per unit$2,000 $1,855 $145 7.8 %Gross profit per unit$2,091  $2,135  $(44) (2.1)%
Gross profit as a % of revenueGross profit as a % of revenue4.7 %4.6 %10 bpsGross profit as a % of revenue4.7 %5.0 %(30) bps

Six Months Ended June 30,Better / (Worse)
2019 2018 Change% Change
(In thousands, except unit and per unit data)
Reported new vehicle:
Revenue$2,271,088 $2,419,416 $(148,328)(6.1)%
Gross profit$110,196 $114,067 $(3,871)(3.4)%
Unit sales53,393 60,377 (6,984)(11.6)%
Revenue per unit$42,535 $40,072 $2,463 6.1 %
Gross profit per unit$2,064 $1,889 $175 9.3 %
Gross profit as a % of revenue4.9 %4.7 %20 bps

Our Franchised Dealerships Segment same store new vehicle results (combined retail and fleet data) are as follows:
Three Months Ended March 31,Better / (Worse)
20202019Change% Change
(In thousands, except unit and per unit data)
Same store new vehicle:
Revenue$959,491  $1,006,903  $(47,412) (4.7)%
Gross profit$45,465  $51,752  $(6,287) (12.1)%
Unit sales21,724  23,133  (1,409) (6.1)%
Revenue per unit$44,167  $43,527  $640  1.5 %
Gross profit per unit$2,093  $2,237  $(144) (6.4)%
Gross profit as a % of revenue4.7 %5.1 %(40) bps

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Our Franchised Dealerships Segment same store new vehicle results (combined retail and fleet data) are as follows:
Three Months Ended June 30,Better / (Worse)
2019 2018 Change% Change
(In thousands, except unit and per unit data)
Same store new vehicle:
Revenue$1,200,352 $1,170,278 $30,074 2.6 %
Gross profit$55,803 $54,904 $899 1.6 %
Unit sales28,134 28,826 (692)(2.4)%
Revenue per unit$42,666 $40,598 $2,068 5.1 %
Gross profit per unit$1,983 $1,905 $78 4.1 %
Gross profit as a % of revenue4.6 %4.7 %(10)bps

Six Months Ended June 30,Better / (Worse)
2019 2018 Change% Change
(In thousands, except unit and per unit data)
Same store new vehicle:
Revenue$2,248,029 $2,267,998 $(19,969)(0.9)%
Gross profit$108,763 $109,282 $(519)(0.5)%
Unit sales52,829 55,736 (2,907)(5.2)%
Revenue per unit$42,553 $40,692 $1,861 4.6 %
Gross profit per unit$2,059 $1,961 $98 5.0 %
Gross profit as a % of revenue4.8 %4.8 %— bps

Same Store Franchised Dealerships Segment New Vehicles -– Three Months Ended June 30, 2019March 31, 2020 Compared to Three Months Ended June 30, 2018March 31, 2019
New vehicle revenue increased 2.6% due to higher average selling prices, whiledecreased 4.7% and new vehicle unit sales volume decreased 2.4%6.1%, primarily driven primarily by decreases in new vehicle unit sales volume at our Ford, HondaCalifornia and GM dealerships.Nevada dealerships, which were negatively impacted by governmental orders restricting vehicle sales activity for most of the second half of March 2020 due to COVID-19. New vehicle gross profit increaseddecreased approximately $0.9$6.3 million, or 1.6%, primarily driven by increases in new vehicle gross profit at our BMW, Mercedes and Honda dealerships, offset partially by decreases in new vehicle gross profit at our Land Rover, Ford and GM dealerships.12.1%. New vehicle gross profit per unit increased $78decreased $144 per unit, or 4.1%6.4%, to $2,093 per unit, primarily driven by increases in new vehicle gross profit per unit at our BMW, Mercedes and Honda dealerships, offset partially by decreases in new vehicle gross profit per unit at our BMW, Land Rover Ford and GM dealerships.
Franchised Dealerships Segment New Vehicles - Six Months Ended June 30, 2019 Compared to Six Months Ended June 30, 2018
New vehicle revenue decreased 0.9% and new vehicle unit sales volume decreased 5.2%, driven primarily by lower industry retail unit sales volume and, more specifically, by decreases in new vehicle unit sales volume at our Toyota, Ford and GM dealerships. New vehicle gross profit decreased approximately $0.5 million, or 0.5%, primarily driven by decreases in new vehicle gross profit at our Land Rover, Ford and GM dealerships, offset partially by increases in new vehicle gross profit at our BMW, Mercedes and Honda dealerships. New vehicle gross profit per unit increased $98 per unit, or 5.0%, primarily driven by increases in new vehicle gross profit per unit at our BMW, Mercedes and Honda dealerships, offset partially by decreases in new vehicle gross profit per unit at our Land Rover, Ford and GMPorsche dealerships.
Used Vehicles – Franchised Dealerships Segment

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 auction and the availability of consumer credit.

The following table provides a reconciliation of Franchised Dealerships Segment reported basis and same store basis for retail used vehicles:
Three Months Ended March 31,Better / (Worse)
20202019Change% Change
(In thousands, except unit data)
Total used vehicle revenue:
Same store$566,889  $577,043  $(10,154) (1.8)%
Acquisitions, open points and dispositions(1) 26,906  (26,907) NM
Total as reported$566,888  $603,949  $(37,061) (6.1)%
Total used vehicle gross profit:
Same store$32,288  $32,608  $(320) (1.0)%
Acquisitions, open points and dispositions26  4,130  (4,104) NM
Total as reported$32,314  $36,738  $(4,424) (12.0)%
Total used vehicle unit sales:
Same store26,038  25,641  397  1.5 %
Acquisitions, open points and dispositions—  1,771  (1,771) NM
Total as reported26,038  27,412  (1,374) (5.0)%
NM = Not Meaningful
Our Franchised Dealerships Segment reported retail used vehicle results are as follows:
Three Months Ended March 31,Better / (Worse)
20202019Change% Change
(In thousands, except unit and per unit data)
Reported used vehicle:
Revenue$566,888  $603,949  $(37,061) (6.1)%
Gross profit$32,314  $36,738  $(4,424) (12.0)%
Unit sales26,038  27,412  (1,374) (5.0)%
Revenue per unit$21,772  $22,032  $(260) (1.2)%
Gross profit per unit$1,241  $1,340  $(99) (7.4)%
Gross profit as a % of revenue5.7 %6.1 %(40) bps

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The following tables provide a reconciliation ofOur Franchised Dealerships Segment same store basis and reported basis for retail used vehicles:
Three Months Ended June 30,Better / (Worse)
2019 2018 Change% Change
(In thousands, except unit data)
Total used vehicle revenue:
Same store$634,051 $587,143 $46,908 8.0 %
Acquisitions, open points and dispositions3,039 22,609 (19,570)NM
Total as reported$637,090 $609,752 $27,338 4.5 %
Total used vehicle gross profit:
Same store$36,583 $36,301 $282 0.8 %
Acquisitions, open points and dispositions871 2,944 (2,073)NM
Total as reported$37,454 $39,245 $(1,791)(4.6)%
Total used vehicle unit sales:
Same store28,760 27,102 1,658 6.1 %
Acquisitions, open points and dispositions111 1,218 (1,107)NM
Total as reported28,871 28,320 551 1.9 %
NM = Not Meaningful
Six Months Ended June 30,Better / (Worse)
2019 2018 Change% Change
(In thousands, except unit data)
Total used vehicle revenue:
Same store$1,229,585 $1,154,799 $74,786 6.5 %
Acquisitions, open points and dispositions11,454 54,304 (42,850)NM
Total as reported$1,241,039 $1,209,103 $31,936 2.6 %
Total used vehicle gross profit:
Same store$70,419 $68,412 $2,007 2.9 %
Acquisitions, open points and dispositions3,772 7,073 (3,301)NM
Total as reported$74,191 $75,485 $(1,294)(1.7)%
Total used vehicle unit sales:
Same store55,747 53,499 2,248 4.2 %
Acquisitions, open points and dispositions536 3,042 (2,506)NM
Total as reported56,283 56,541 (258)(0.5)%
NM = Not Meaningful
Our Franchised Dealerships Segment reported used vehicle results are as follows:
Three Months Ended June 30,Better / (Worse)Three Months Ended March 31,Better / (Worse)
2019 2018 Change% Change20202019Change% Change
(In thousands, except unit and per unit data)(In thousands, except unit and per unit data)
Reported used vehicle:
Same store used vehicle:Same store used vehicle:
RevenueRevenue$637,090 $609,752 $27,338 4.5 %Revenue$566,889  $577,043  $(10,154) (1.8)%
Gross profitGross profit$37,454 $39,245 $(1,791)(4.6)%Gross profit$32,288  $32,608  $(320) (1.0)%
Unit salesUnit sales28,871 28,320 551 1.9 %Unit sales26,038  25,641  397  1.5 %
Revenue per unitRevenue per unit$22,067 $21,531 $536 2.5 %Revenue per unit$21,772  $22,505  $(733) (3.3)%
Gross profit per unitGross profit per unit$1,297 $1,386 $(89)(6.4)%Gross profit per unit$1,240  $1,272  $(32) (2.5)%
Gross profit as a % of revenueGross profit as a % of revenue5.9 %6.4 %(50)bpsGross profit as a % of revenue5.7 %5.7 %—  bps

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Six Months Ended June 30,Better / (Worse)
2019 2018 Change% Change
(In thousands, except unit and per unit data)
Reported used vehicle:
Revenue$1,241,039 $1,209,103 $31,936 2.6 %
Gross profit$74,191 $75,485 $(1,294)(1.7)%
Unit sales56,283 56,541 (258)(0.5)%
Revenue per unit$22,050 $21,385 $665 3.1 %
Gross profit per unit$1,318 $1,335 $(17)(1.3)%
Gross profit as a % of revenue6.0 %6.2 %(20)bps
Our Franchised Dealerships Segment same store used vehicle results are as follows:
Three Months Ended June 30,Better / (Worse)
2019 2018 Change% Change
(In thousands, except unit and per unit data)
Same store used vehicle:
Revenue$634,051 $587,143 $46,908 8.0 %
Gross profit$36,583 $36,301 $282 0.8 %
Unit sales28,760 27,102 1,658 6.1 %
Revenue per unit$22,046 $21,664 $382 1.8 %
Gross profit per unit$1,272 $1,339 $(67)(5.0)%
Gross profit as a % of revenue5.8 %6.2 %(40)bps

Six Months Ended June 30,Better / (Worse)
2019 2018 Change% Change
(In thousands, except unit and per unit data)
Same store used vehicle:
Revenue$1,229,585 $1,154,799 $74,786 6.5 %
Gross profit$70,419 $68,412 $2,007 2.9 %
Unit sales55,747 53,499 2,248 4.2 %
Revenue per unit$22,057 $21,585 $472 2.2 %
Gross profit per unit$1,263 $1,279 $(16)(1.3)%
Gross profit as a % of revenue5.7 %5.9 %(20)bps

Same Store
Franchised Dealerships Segment Used Vehicles -– Three Months Ended June 30, 2019March 31, 2020 Compared to Three Months Ended June 30, 2018March 31, 2019
Retail used vehicle revenue increased 8.0%, driven primarily by a 6.1% increase indecreased 1.8% and retail used vehicle unit sales volume as a resultincreased 1.5% in spite of increases in retail usedgovernmental orders restricting vehicle unit sales volume at our Honda, Toyota and Audi dealerships.activity for most of the second half of March 2020 due to COVID-19. Retail used vehicle gross profit increaseddecreased approximately $0.3 million,, or 0.8%1.0%, driven primarily by increasesa decrease in retail used vehicle gross profit per unit at our Mercedes, Porsche and Toyota dealerships, offset partially by decreases in retail used vehicle gross profit at our BMW, GM and MINI dealerships. Retail used vehicle gross profit per unit decreased $67of approximately $32 per unit, or (5.0)%, driven primarily by decreases in retail used vehicle gross profit per unit at our BMW, GM and MINI dealerships.2.5%.

Wholesale Vehicles –Franchised Dealerships Segment Used Vehicles - Six Months Ended June 30, 2019 Compared to Six Months Ended June 30, 2018
Retail used vehicle revenue increased 6.5%, driven primarily by a 4.2% increase in retail used vehicle unit sales volume as a result of increases in retail used vehicle unit sales volume at our Honda, Toyota and Mercedes dealerships. Retail used vehicle gross profit increased approximately $2.0 million, or 2.9%, driven primarily by increases in retail used vehicle gross profit per unit at our BMW, Mercedes and Toyota dealerships. Retail used vehicle gross profit per unit decreased $16 per unit,
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or 1.3%, driven primarily by decreases in retail used vehicle gross profit per unit at our Volkswagen, Ford and MINI dealerships.
Wholesale Vehicles - Franchised Dealerships Segment

Wholesale vehicle revenues are highly correlated withaffected by retail new and used vehicle retailunit sales volume and the associated trade-in volume. 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.inventory and minimize inventory carrying risks.

The following tables providetable provides a reconciliation of Franchised Dealerships Segment same storereported basis and reportedsame store basis for wholesale vehicles:
Three Months Ended June 30,Better / (Worse)Three Months Ended March 31,Better / (Worse)
2019 2018 Change% Change20202019Change% Change
(In thousands, except unit data)(In thousands, except unit data)
Total wholesale vehicle revenue:Total wholesale vehicle revenue:Total wholesale vehicle revenue:
Same storeSame store$43,393 $43,718 $(325)(0.7)%Same store$42,440  $49,767  $(7,327) (14.7)%
Acquisitions, open points and dispositionsAcquisitions, open points and dispositions327 2,757 (2,430)NMAcquisitions, open points and dispositions—  2,766  (2,766) NM
Total as reportedTotal as reported$43,720 $46,475 $(2,755)(5.9)%Total as reported$42,440  $52,533  $(10,093) (19.2)%
Total wholesale vehicle gross profit (loss):Total wholesale vehicle gross profit (loss):Total wholesale vehicle gross profit (loss):
Same storeSame store$(587)$(3,367)$2,780 82.6 %Same store$(83) $(1,020) $937  91.9 %
Acquisitions, open points and dispositionsAcquisitions, open points and dispositions(83)(300)217 NMAcquisitions, open points and dispositions—  (184) 184  NM
Total as reportedTotal as reported$(670)$(3,667)$2,997 81.7 %Total as reported$(83) $(1,204) $1,121  93.1 %
Total wholesale vehicle unit sales:Total wholesale vehicle unit sales:Total wholesale vehicle unit sales:
Same storeSame store6,938 6,676 262 3.9 %Same store6,910  7,473  (563) (7.5)%
Acquisitions, open points and dispositionsAcquisitions, open points and dispositions22 425 (403)NMAcquisitions, open points and dispositions—  675  (675) NM
Total as reportedTotal as reported6,960 7,101 (141)(2.0)%Total as reported6,910  8,148  (1,238) (15.2)%
NM = Not Meaningful
Six Months Ended June 30,Better / (Worse)
2019 2018 Change% Change
(In thousands, except unit data)
Total wholesale vehicle revenue:
Same store$94,689 $96,969 $(2,280)(2.4)%
Acquisitions, open points and dispositions1,564 7,688 (6,124)NM
Total as reported$96,253 $104,657 $(8,404)(8.0)%
Total wholesale vehicle gross profit (loss):
Same store$(1,678)$(7,664)$5,986 78.1 %
Acquisitions, open points and dispositions(196)(784)588 NM
Total as reported$(1,874)$(8,448)$6,574 77.8 %
Total wholesale vehicle unit sales:
Same store14,909 14,338 571 4.0 %
Acquisitions, open points and dispositions199 1,210 (1,011)NM
Total as reported15,108 15,548 (440)(2.8)%
NM = Not Meaningful
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Our Franchised Dealerships Segment reported wholesale vehicle results are as follows:
Three Months Ended June 30,Better / (Worse)Three Months Ended March 31,Better / (Worse)
2019 2018 Change% Change20202019Change% Change
(In thousands, except unit and per unit data)(In thousands, except unit and per unit data)
Reported wholesale vehicle:Reported wholesale vehicle:Reported wholesale vehicle:
RevenueRevenue$43,720 $46,475 $(2,755)(5.9)%Revenue$42,440  $52,533  $(10,093) (19.2)%
Gross profit (loss)Gross profit (loss)$(670)$(3,667)$2,997 81.7 %Gross profit (loss)$(83) $(1,204) $1,121  93.1 %
Unit salesUnit sales6,960 7,101 (141)(2.0)%Unit sales6,910  8,148  (1,238) (15.2)%
Revenue per unitRevenue per unit$6,282 $6,545 $(263)(4.0)%Revenue per unit$6,142  $6,447  $(305) (4.7)%
Gross profit (loss) per unitGross profit (loss) per unit$(96)$(516)$420 81.4 %Gross profit (loss) per unit$(12) $(148) $136  91.9 %
Gross profit (loss) as a % of revenueGross profit (loss) as a % of revenue(1.5)%(7.9)%640 bpsGross profit (loss) as a % of revenue(0.2)%(2.3)%210  bps

Six Months Ended June 30,Better / (Worse)
2019 2018 Change% Change
(In thousands, except unit and per unit data)
Reported wholesale vehicle:
Revenue$96,253 $104,657 $(8,404)(8.0)%
Gross profit (loss)$(1,874)$(8,448)$6,574 77.8 %
Unit sales15,108 15,548 (440)(2.8)%
Revenue per unit$6,371 $6,731 $(360)(5.3)%
Gross profit (loss) per unit$(124)$(543)$419 77.2 %
Gross profit (loss) as a % of revenue(1.9)%(8.1)%620 bps

Our Franchised Dealerships Segment same store wholesale vehicle results are as follows:
Three Months Ended June 30,Better / (Worse)Three Months Ended March 31,Better / (Worse)
2019 2018 Change% Change20202019Change% Change
(In thousands, except unit and per unit data)(In thousands, except unit and per unit data)
Same store wholesale vehicle:Same store wholesale vehicle:Same store wholesale vehicle:
RevenueRevenue$43,393 $43,718 $(325)(0.7)%Revenue$42,440  $49,767  $(7,327) (14.7)%
Gross profit (loss)Gross profit (loss)$(587)$(3,367)$2,780 82.6 %Gross profit (loss)$(83) $(1,020) $937  91.9 %
Unit salesUnit sales6,938 6,676 262 3.9 %Unit sales6,910  7,473  (563) (7.5)%
Revenue per unitRevenue per unit$6,254 $6,549 $(295)(4.5)%Revenue per unit$6,142  $6,660  $(518) (7.8)%
Gross profit (loss) per unitGross profit (loss) per unit$(85)$(504)$419 83.1 %Gross profit (loss) per unit$(12) $(136) $124  91.2 %
Gross profit (loss) as a % of revenueGross profit (loss) as a % of revenue(1.4)%(7.7)%630 bpsGross profit (loss) as a % of revenue(0.2)%(2.0)%180  bps

Six Months Ended June 30,Better / (Worse)
2019 2018 Change% Change
(In thousands, except unit and per unit data)
Same store wholesale vehicle:
Revenue$94,689 $96,969 $(2,280)(2.4)%
Gross profit (loss)$(1,678)$(7,664)$5,986 78.1 %
Unit sales14,909 14,338 571 4.0 %
Revenue per unit$6,351 $6,763 $(412)(6.1)%
Gross profit (loss) per unit$(113)$(535)$422 78.9 %
Gross profit (loss) as a % of revenue(1.8)%(7.9)%610 bps

We generally focus on maintaining used vehicle inventory days’ supply in the 30- to 40-35- 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 approximatelyapproximately 29 and 27 and 26 days as
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of June 30,March 31, 2020 and 2019, and 2018, 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.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, 2019March 31, 2020 Compared to Three Months Ended June 30, 2018

March 31, 2019
Wholesale vehicle revenue and wholesale vehicle gross loss decreased while14.7%, driven primarily by a 7.5% decrease in wholesale vehicle unit sales volume, increasedas well as a 7.8% decrease in the three months ended June 30, 2019.wholesale vehicle revenue per unit. The decrease in wholesale vehicle revenue is due in part to a reduction in wholesale auction activity due to the economic shutdown caused by the outbreak of COVID-19. Wholesale vehicle gross loss wasand gross loss per unit decreased 91.9% and 91.2%, respectively, primarily due to a prior year initiative to tighten a policy of wholesaling aged or undesirable units at auction in a more timely manner, thereby achieving a better wholesale vehicle gross loss per unit and improved inventory levels and quality.
Fixed Operations –Franchised Dealerships Segment Wholesale Vehicles - Six Months Ended June 30, 2019 Compared to Six Months Ended June 30, 2018
Wholesale vehicle revenue and wholesale vehicle gross loss decreased, while wholesale vehicle unit sales volume increased in the six months ended June 30, 2019. The decrease in wholesale vehicle gross loss was primarily due to a prior year initiative to tighten a policy of wholesaling aged or undesirable units at auction in a timely manner, thereby achieving a better wholesale vehicle gross loss per unit and improved inventory levels and quality. In addition, we experienced higher wholesale vehicle gross loss in the first quarter of 2018 as a result of market pricing declines, inventory supply and allocation challenges related to the Houston market following the effects of Hurricane Harvey.
Fixed Operations - Franchised Dealerships Segment
Parts, service and collision repair revenues consist of customer pay repairs, warranty repairs, 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, 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 that are later sold to customers. When that work is performed by one of our dealerships, 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 franchised dealerships will offset any revenue lost from improvement in vehicle quality. We also believe that, over the long term, we have the ability to continue to add service capacity at our dealerships to further
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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 long-term 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 following tables providetable provides a reconciliation of Franchised Dealerships Segment same storereported basis and reportedsame store basis for Fixed Operations:
Three Months Ended June 30,Better / (Worse)Three Months Ended March 31,Better / (Worse)
2019 2018 Change% Change20202019Change% Change
(In thousands)(In thousands)
Total Fixed Operations revenue:Total Fixed Operations revenue:Total Fixed Operations revenue:
Same storeSame store$346,223 $328,312 $17,911 5.5 %Same store$327,151  $322,358  $4,793  1.5 %
Acquisitions, open points and dispositionsAcquisitions, open points and dispositions1,114 13,931 (12,817)NMAcquisitions, open points and dispositions(2,650) 13,867  (16,517) NM
Total as reportedTotal as reported$347,337 $342,243 $5,094 1.5 %Total as reported$324,501  $336,225  $(11,724) (3.5)%
Total Fixed Operations gross profit:Total Fixed Operations gross profit:Total Fixed Operations gross profit:
Same storeSame store$169,919 $159,049 $10,870 6.8 %Same store$159,213  $156,060  $3,153  2.0 %
Acquisitions, open points and dispositionsAcquisitions, open points and dispositions789 7,432 (6,643)NMAcquisitions, open points and dispositions(1,117) 7,386  (8,503) NM
Total as reportedTotal as reported$170,708 $166,481 $4,227 2.5 %Total as reported$158,096  $163,446  $(5,350) (3.3)%
NM = Not Meaningful
Our Franchised Dealerships Segment reported Fixed Operations results are as follows:
Three Months Ended March 31,Better / (Worse)
20202019Change% Change
(In thousands)
Reported Fixed Operations:
Revenue
Customer pay$134,798  $137,569  $(2,771) (2.0)%
Warranty60,760  68,973  (8,213) (11.9)%
Wholesale parts38,706  39,297  (591) (1.5)%
Internal, sublet and other90,237  90,386  (149) (0.2)%
Total revenue$324,501  $336,225  $(11,724) (3.5)%
Gross profit
Customer pay$74,593  $74,324  $269  0.4 %
Warranty33,746  38,407  (4,661) (12.1)%
Wholesale parts6,667  6,796  (129) (1.9)%
Internal, sublet and other43,090  43,919  (829) (1.9)%
Total gross profit$158,096  $163,446  $(5,350) (3.3)%
Gross profit as a % of revenue
Customer pay55.3 %54.0 %130  bps
Warranty55.5 %55.7 %(20) bps
Wholesale parts17.2 %17.3 %(10) bps
Internal, sublet and other47.8 %48.6 %(80) bps
Total gross profit as a % of revenue48.7 %48.6 %10  bps

44
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SONIC AUTOMOTIVE, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Six Months Ended June 30,Better / (Worse)
2019 2018 Change% Change
(In thousands)
Total Fixed Operations revenue:
Same store$677,243 $651,814 $25,429 3.9 %
Acquisitions, open points and dispositions6,320 37,479 (31,159)NM
Total as reported$683,563 $689,293 $(5,730)(0.8)%
Total Fixed Operations gross profit:
Same store$330,095 $314,895 $15,200 4.8 %
Acquisitions, open points and dispositions4,059 19,889 (15,830)NM
Total as reported$334,154 $334,784 $(630)(0.2)%
NM = Not Meaningful
Our Franchised Dealerships Segment reported Fixed Operations results are as follows:
Three Months Ended June 30,Better / (Worse)
2019 2018 Change% Change
(In thousands)
Reported Fixed Operations:
Revenue
Customer pay$141,944 $140,059 $1,885 1.3 %
Warranty69,809 63,888 5,921 9.3 %
Wholesale parts40,027 40,844 (817)(2.0)%
Internal, sublet and other95,557 97,452 (1,895)(1.9)%
Total revenue$347,337 $342,243 $5,094 1.5 %
Gross profit
Customer pay$77,653 $75,024 $2,629 3.5 %
Warranty39,039 35,871 3,168 8.8 %
Wholesale parts6,872 6,900 (28)(0.4)%
Internal, sublet and other47,144 48,686 (1,542)(3.2)%
Total gross profit$170,708 $166,481 $4,227 2.5 %
Gross profit as a % of revenue
Customer pay54.7 %53.6 %110 bps
Warranty55.9 %56.1 %(20)bps
Wholesale parts17.2 %16.9 %30 bps
Internal, sublet and other49.3 %50.0 %(70)bps
Total gross profit as a % of revenue49.1 %48.6 %50 bps

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SONIC AUTOMOTIVE, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Six Months Ended June 30,Better / (Worse)
2019 2018 Change% Change
(In thousands)
Reported Fixed Operations:
Revenue
Customer pay$279,513 $281,980 $(2,467)(0.9)%
Warranty138,782 131,489 7,293 5.5 %
Wholesale parts79,325 83,345 (4,020)(4.8)%
Internal, sublet and other185,943 192,479 (6,536)(3.4)%
Total revenue$683,563 $689,293 $(5,730)(0.8)%
Gross profit
Customer pay$151,977 $151,223 $754 0.5 %
Warranty77,447 73,772 3,675 5.0 %
Wholesale parts13,668 14,165 (497)(3.5)%
Internal, sublet and other91,062 95,624 (4,562)(4.8)%
Total gross profit$334,154 $334,784 $(630)(0.2)%
Gross profit as a % of revenue
Customer pay54.4 %53.6 %80 bps
Warranty55.8 %56.1 %(30)bps
Wholesale parts17.2 %17.0 %20 bps
Internal, sublet and other49.0 %49.7 %(70)bps
Total gross profit as a % of revenue48.9 %48.6 %30 bps
Our Franchised Dealerships Segment same store Fixed Operations results are as follows:
Three Months Ended June 30,Better / (Worse)Three Months Ended March 31,Better / (Worse)
2019 2018 Change% Change20202019Change% Change
(In thousands)(In thousands)
Same store Fixed Operations:Same store Fixed Operations:Same store Fixed Operations:
RevenueRevenueRevenue
Customer payCustomer pay$140,950 $133,977 $6,973 5.2 %Customer pay$136,913  $133,081  $3,832  2.9 %
WarrantyWarranty70,283 62,323 7,960 12.8 %Warranty61,313  65,474  (4,161) (6.4)%
Wholesale partsWholesale parts39,696 39,057 639 1.6 %Wholesale parts38,706  38,157  549  1.4 %
Internal, sublet and otherInternal, sublet and other95,294 92,955 2,339 2.5 %Internal, sublet and other90,219  85,646  4,573  5.3 %
Total revenueTotal revenue$346,223 $328,312 $17,911 5.5 %Total revenue$327,151  $322,358  $4,793  1.5 %
Gross profitGross profitGross profit
Customer payCustomer pay$77,078 $71,421 $5,657 7.9 %Customer pay$75,728  $71,926  $3,802  5.3 %
WarrantyWarranty39,247 34,874 4,373 12.5 %Warranty33,907  36,525  (2,618) (7.2)%
Wholesale partsWholesale parts6,813 6,557 256 3.9 %Wholesale parts6,667  6,565  102  1.6 %
Internal, sublet and otherInternal, sublet and other46,781 46,197 584 1.3 %Internal, sublet and other42,911  41,044  1,867  4.5 %
Total gross profitTotal gross profit$169,919 $159,049 $10,870 6.8 %Total gross profit$159,213  $156,060  $3,153  2.0 %
Gross profit as a % of revenueGross profit as a % of revenueGross profit as a % of revenue
Customer payCustomer pay54.7 %53.3 %140 bpsCustomer pay55.3 %54.0 %130  bps
WarrantyWarranty55.8 %56.0 %(20)bpsWarranty55.3 %55.8 %(50) bps
Wholesale partsWholesale parts17.2 %16.8 %40 bpsWholesale parts17.2 %17.2 %—  bps
Internal, sublet and otherInternal, sublet and other49.1 %49.7 %(60)bpsInternal, sublet and other47.6 %47.9 %(30) bps
Total gross profit as a % of revenueTotal gross profit as a % of revenue49.1 %48.4 %70 bpsTotal gross profit as a % of revenue48.7 %48.4 %30  bps

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SONIC AUTOMOTIVE, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Six Months Ended June 30,Better / (Worse)
2019 2018 Change% Change
(In thousands)
Same store Fixed Operations:
Revenue
Customer pay$276,944 $264,489 $12,455 4.7 %
Warranty137,720 126,537 11,183 8.8 %
Wholesale parts78,277 79,069 (792)(1.0)%
Internal, sublet and other184,302 181,719 2,583 1.4 %
Total revenue$677,243 $651,814 $25,429 3.9 %
Gross profit
Customer pay$150,512 $141,167 $9,345 6.6 %
Warranty76,859 70,778 6,081 8.6 %
Wholesale parts13,449 13,347 102 0.8 %
Internal, sublet and other89,275 89,603 (328)(0.4)%
Total gross profit$330,095 $314,895 $15,200 4.8 %
Gross profit as a % of revenue
Customer pay54.3 %53.4 %90 bps
Warranty55.8 %55.9 %(10)bps
Wholesale parts17.2 %16.9 %30 bps
Internal, sublet and other48.4 %49.3 %(90)bps
Total gross profit as a % of revenue48.7 %48.3 %40 bps

Same Store Franchised Dealerships Segment Fixed Operations -– Three Months Ended June 30, 2019March 31, 2020 Compared to Three Months Ended June 30, 2018March 31, 2019

Fixed Operations revenue increased approximately $17.9$4.8 million, or 5.5%1.5%, and Fixed Operations gross profit increased approximately $10.9$3.2 million, or 6.8%2.0%, driven primarily by an increase in customer pay gross profit of approximately $5.7$3.8 million, or 7.9%5.3%, as a result of a strategic emphasis on maximizing growth opportunities in the customer pay business. In addition, warranty gross profit increaseddecreased approximately $4.4$2.6 million, or 12.5%7.2%, wholesale parts gross profit increased approximately $0.3$0.1 million, or 3.9%1.6%, and internal, sublet and other gross profit increased approximately $0.6$1.9 million, or 1.3%4.5%. While Fixed Operations business is not restricted by state and local shelter-in-place or stay-at-home orders, consumer behavior has temporarily changed as a result of COVID-19 and we experienced a decrease in Fixed Operations activity in the second half of March 2020.
F&I –Franchised Dealerships Segment Fixed Operations - Six Months Ended June 30, 2019 Compared to Six Months Ended June 30, 2018

Fixed Operations revenue increased approximately $25.4 million, or 3.9%, and Fixed Operations gross profit increased approximately $15.2 million, or 4.8%. Customer pay gross profit increased approximately $9.3 million, or 6.6%, warranty gross profit increased approximately $6.1 million, or 8.6%, wholesale parts gross profit increased approximately $0.1 million, or 0.8%, and internal, sublet and other gross profit decreased approximately $0.3 million, or 0.4%.
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 finance contracts,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.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, 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.

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SONIC AUTOMOTIVE, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following tables providetable provides a reconciliation of Franchised Dealerships Segment reported basis and same store basis and reported basis for F&I:
Three Months Ended June 30,Better / (Worse)Three Months Ended March 31,Better / (Worse)
2019 2018 Change% Change20202019Change% Change
(In thousands, except unit and per unit data)(In thousands, except unit and per unit data)
Total F&I revenue:Total F&I revenue:Total F&I revenue:
Same storeSame store$86,687 $81,868 $4,819 5.9 %Same store$78,830  $73,737  $5,093  6.9 %
Acquisitions, open points and dispositionsAcquisitions, open points and dispositions2,820 6,675 (3,855)NMAcquisitions, open points and dispositions4,199  6,784  (2,585) NM
Total as reportedTotal as reported$89,507 $88,543 $964 1.1 %Total as reported$83,029  $80,521  $2,508  3.1 %
Total F&I gross profit per retail unit (excludes fleet):Total F&I gross profit per retail unit (excludes fleet):Total F&I gross profit per retail unit (excludes fleet):
Same storeSame store$1,536 $1,474 $62 4.2 %Same store$1,671  $1,521  $150  9.9 %
ReportedReported$1,581 $1,506 $75 5.0 %Reported$1,760  $1,539  $221  14.4 %
Total combined new and used retail unit sales:Total combined new and used retail unit sales:Total combined new and used retail unit sales:
Same storeSame store56,453 55,535 918 1.7 %Same store47,177  48,495  (1,318) (2.7)%
Acquisitions, open points and dispositionsAcquisitions, open points and dispositions173 3,244 (3,071)NM  Acquisitions, open points and dispositions—  3,835  (3,835) NM  
Total as reportedTotal as reported56,626 58,779 (2,153)(3.7)%Total as reported47,177  52,330  (5,153) (9.8)%
NM = Not Meaningful

Six Months Ended June 30,Better / (Worse)
2019 2018 Change% Change
(In thousands, except unit and per unit data)
Total F&I revenue:
Same store$163,765 $158,345 $5,420 3.4 %
Acquisitions, open points and dispositions6,263 14,039 (7,776)NM
Total as reported$170,028 $172,384 $(2,356)(1.4)%
Total F&I gross profit per retail unit (excludes fleet):
Same store$1,518 $1,459 $59 4.0 %
Reported$1,561 $1,484 $77 5.2 %
Total combined new and used retail unit sales:
 Same store107,856 108,539 (683)(0.6)%
Acquisitions, open points and dispositions1,100 7,638 (6,538)NM  
Total as reported108,956 116,177 (7,221)(6.2)%
NM = Not MeaningfulOur consolidated reported F&I results are as follows:
Three Months Ended March 31,Better / (Worse)
20202019Change% Change
(In thousands, except unit and per unit data)
Reported F&I:
Revenue$83,029  $80,521  $2,508  3.1 %
Unit sales47,177  52,330  (5,153) (9.8)%
Gross profit per retail unit (excludes fleet)$1,760  $1,539  $221  14.4 %

Our consolidated same store F&I results are as follows:
Three Months Ended March 31,Better / (Worse)
20202019Change% Change
(In thousands, except unit and per unit data)
Same store F&I:
Revenue$78,830  $73,737  $5,093  6.9 %
Unit sales47,177  48,495  (1,318) (2.7)%
Gross profit per retail unit (excludes fleet)$1,671  $1,521  $150  9.9 %

Same Store Franchised Dealerships Segment F&I – Three Months Ended March 31, 2020 Compared to Three Months Ended March 31, 2019
Franchised Dealerships Segment F&I - Three Months Ended June 30, 2019 Compared to Three Months Ended June 30, 2018
F&I revenues increased approximately $4.8$5.1 million, or 5.9%6.9%, and F&I gross profit per retail unit increased $62$150 per unit, or 4.2%9.9%, to $1,536$1,671 per unit. The growth in F&I revenues and F&I gross profit per retail unit was primarily due to an increase in gross profit per finance contract and an increase in retail used vehicle unit sales volume.volume combined with an increase in gross profit per finance contract.
Finance contract revenue increased 11.7%3.6%, primarily due to an 8.6%a 7.5% increase in gross profit per finance contract, partially offset by a 2.9% increase3.6% decrease in finance contract volume as a result of higherlower retail usednew vehicle unit sales volume and a 90-basis70-basis point increasedecrease in the finance contract penetration rate. Service contract revenue increased 10.0%4.1%, primarily due to a 7.5% increase in gross profit per service contract, a 2.3%5.5% increase in service contract volume as a result of higher retail used vehicle unit sales volume and a 20-basis280-basis point increase in the service contract penetration rate.rate, partially offset by a 1.3% decrease in gross profit per service contract. Other aftermarket contract revenue increased 14.6% primarilyremained flat due to a 10.9%2.1% increase in other aftermarket contact volume offset by a 2.0% decrease in gross profit per other aftermarket contract, a 3.4% increase in other aftermarket contract volume and a 230-basis point increase in thecontract. The other aftermarket contract penetration rate.

rate increased 670-basis points. Consistent with
4839
SONIC AUTOMOTIVE, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Franchised Dealerships Segment F&I - Six Months Ended June 30, 2019 Compared to Six Months Ended June 30, 2018
F&I revenues increased approximately $5.4 million, or 3.4%, and F&I gross profit per retail unit increased $59 per unit, or 4.0%, to $1,518 per unit. The growth in F&I revenues and F&I gross profit per retail unit was primarily due to an increase in gross profit per finance contract, gross profit per service contractother revenue and gross profit per other aftermarket contract due to additional product offeringsstreams, F&I revenue and increased visibility into performance drivers provided by our proprietary internal software applications.
Finance contract revenue increased 7.0% primarily due to a 6.1% increase in gross profit per finance contractwere adversely impacted by the effect on lower new and a 110-basis point increaseused vehicle sales of the COVID-19 pandemic in the finance contract penetration rate. Service contract revenue increased 8.6% due primarily to an 8.4% increase in gross profit per service contract and a 30-basis point increase in the service contract penetration rate. Other aftermarket contract revenue increased 13.1%, primarily driven by an 11.8% increase in gross profit per other aftermarket contract and a 230-basis point increase in the other aftermarket contract penetration rate.second half of March 2020.

Results of Operations -– EchoPark Segment
Unless otherwise noted, all discussion of increases or decreases are for the three and six months ended June 30, 2019March 31, 2020 and are compared to the same prior year period, as applicable.period. The following discussion of used vehicles and F&I, wholesale vehicles, and parts, service and collision repair are on a same store basis, except where otherwise noted. All currently operating continuing operations stores are included within the same store group in the first full month following the first anniversary of the store’s opening or acquisition.
The EchoPark Segment same store results consist of the results of operations from threeeight EchoPark stores, four in Texas, three in Colorado and three EchoPark storesone in TexasNorth Carolina, for the three and six months ended June 30, 2019March 31, 2020 compared to the same prior year period, as applicable. Due to the ongoing expansion of our EchoPark Segment, same store results may vary significantly from reported results due to stores that began operations or were acquired in the last 12 months.

Used Vehicles and F&I -– EchoPark Segment
Based on the way we manage the EchoPark Segment, our operating strategy focuses on maximizing total used-related gross profit (based on a combination of retail used vehicle unit sales volume, front-end retail used vehicle gross profit per unit and F&I gross profit per unit) rather than realizing traditional levels of front-end retail used vehicle gross profit 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 and F&I gross profit per unit sold.
See the discussion in Franchised Dealerships Segment Results of Operations for a discussion of the macro drivers of used vehicle revenues and F&I revenues.
The following tables providetable provides a reconciliation of EchoPark Segment same storereported basis and reportedsame store basis for retail used vehicles:
Three Months Ended June 30,Better / (Worse)Three Months Ended March 31,Better / (Worse)
2019 2018 Change% Change20202019Change% Change
(In thousands, except unit data)(In thousands, except unit data)
Total used vehicle revenue:Total used vehicle revenue:Total used vehicle revenue:
Same storeSame store$192,615 $141,250 $51,365 36.4 %Same store$265,301  $216,417  $48,884  22.6 %
Acquisitions, open points and closuresAcquisitions, open points and closures55,922 11,570 44,352 NMAcquisitions, open points and closures17,863  —  17,863  NM
Total as reportedTotal as reported$248,537 $152,820 $95,717 62.6 %Total as reported$283,164  $216,417  $66,747  30.8 %
Total used vehicle gross profit (loss):Total used vehicle gross profit (loss):Total used vehicle gross profit (loss):
Same storeSame store$(2,043)$(1,624)$(419)(25.8)%Same store$(1,844) $(257) $(1,587) (617.5)%
Acquisitions, open points and closuresAcquisitions, open points and closures1,318 (312)1,630 NMAcquisitions, open points and closures1,660  527  1,133  NM
Total as reportedTotal as reported$(725)$(1,936)$1,211 62.6 %Total as reported$(184) $270  $(454) (168.1)%
Total used vehicle unit sales:Total used vehicle unit sales:Total used vehicle unit sales:
Same storeSame store9,757 6,828 2,929 42.9 %Same store13,067  11,051  2,01618.2 %
Acquisitions, open points and closuresAcquisitions, open points and closures2,830 631 2,199 NMAcquisitions, open points and closures919  —  919  NM
Total as reportedTotal as reported12,587 7,459 5,128 68.7 %Total as reported13,986  11,051  2,93526.6 %
NM = Not Meaningful

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SONIC AUTOMOTIVE, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Six Months Ended June 30,Better / (Worse)
2019 2018 Change% Change
(In thousands, except unit data)
Total used vehicle revenue:
Same store$361,702 $239,691 $122,011 50.9 %
Acquisitions, open points and closures103,251 22,824 80,427 NM
Total as reported$464,953 $262,515 $202,438 77.1 %
Total used vehicle gross profit (loss):
Same store$(2,156)$(935)$(1,221)(130.6)%
Acquisitions, open points and closures1,701 (470)2,171 NM
Total as reported$(455)$(1,405)$950 67.6 %
Total used vehicle unit sales:
Same store18,379 11,794 6,585 55.8 %
Acquisitions, open points and closures5,259 1,183 4,076 NM
Total as reported23,638 12,977 10,661 82.2 %
NM = Not Meaningful

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SONIC AUTOMOTIVE, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following tables providetable provides a reconciliation of EchoPark Segment same storereported basis and reportedsame store basis for F&I:
Three Months Ended June 30,Better / (Worse)Three Months Ended March 31,Better / (Worse)
2019 2018 Change% Change20202019Change% Change
(In thousands)(In thousands)
Total F&I revenue:Total F&I revenue:Total F&I revenue:
Same storeSame store$22,131 $13,948 $8,183 58.7 %Same store$30,224  $25,647  $4,577  17.8 %
Acquisitions, open points and closuresAcquisitions, open points and closures6,711 1,613 5,098 NMAcquisitions, open points and closures2,039  70  1,969  NM
Total as reportedTotal as reported$28,842 $15,561 $13,281 85.3 %Total as reported$32,263  $25,717  $6,546  25.5 %
NM = Not Meaningful

Six Months Ended June 30,Better / (Worse)
2019 2018 Change% Change
(In thousands)
Total F&I revenue:
Same store$42,171 $22,632 $19,539 86.3 %
Acquisitions, open points and closures12,388 2,813 9,575 NM
Total as reported$54,559 $25,445 $29,114 114.4 %
NM = Not Meaningful

Our EchoPark Segment reported retail used vehicle and F&I results are as follows:
Three Months Ended June 30,Better / (Worse)Three Months Ended March 31,Better / (Worse)
2019 2018 Change% Change20202019Change% Change
(In thousands, except unit and per unit data)(In thousands, except unit and per unit data)
Reported used vehicle and F&I:Reported used vehicle and F&I:Reported used vehicle and F&I:
Used vehicle revenueUsed vehicle revenue$248,537 $152,820 $95,717 62.6 %Used vehicle revenue$283,164  $216,417  $66,747  30.8 %
Used vehicle gross profit (loss)Used vehicle gross profit (loss)$(725)$(1,936)$1,211 62.6 %Used vehicle gross profit (loss)$(184) $270  $(454) (168.1)%
Used vehicle unit salesUsed vehicle unit sales12,587 7,459 5,128 68.7 %Used vehicle unit sales13,986  11,051  2,935  26.6 %
Used vehicle revenue per unitUsed vehicle revenue per unit$19,746 $20,488 $(742)(3.6)%Used vehicle revenue per unit$20,246  $19,583  $663  3.4 %
F&I revenueF&I revenue$28,842 $15,561 $13,281 85.3 %F&I revenue$32,263  $25,717  $6,546  25.5 %
Combined used vehicle gross profit and F&I revenueCombined used vehicle gross profit and F&I revenue$28,117 $13,625 $14,492 106.4 %Combined used vehicle gross profit and F&I revenue$32,079  $25,987  $6,092  23.4 %
Total used vehicle and F&I gross profit per unitTotal used vehicle and F&I gross profit per unit$2,234 $1,827 $407 22.3 %Total used vehicle and F&I gross profit per unit$2,294  $2,352  $(58) (2.5)%

50
SONIC AUTOMOTIVE, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Six Months Ended June 30,Better / (Worse)
2019 2018 Change% Change
(In thousands, except unit and per unit data)
Reported used vehicle and F&I:
Used vehicle revenue$464,953 $262,515 $202,438 77.1 %
Used vehicle gross profit (loss)$(455)$(1,405)$950 67.6 %
Used vehicle unit sales23,638 12,977 10,661 82.2 %
Used vehicle revenue per unit$19,670 $20,229 $(559)(2.8)%
F&I revenue$54,559 $25,445 $29,114 114.4 %
Combined used vehicle gross profit and F&I revenue$54,104 $24,040 $30,064 125.1 %
Total used vehicle and F&I gross profit per unit$2,289 $1,853 $436 23.5 %

Our EchoPark Segment same store retail used vehicle and F&I results are as follows:
Three Months Ended June 30,Better / (Worse)Three Months Ended March 31,Better / (Worse)
2019 2018 Change% Change20202019Change% Change
(In thousands, except unit and per unit data)(In thousands, except unit and per unit data)
Same store used vehicle and F&I:Same store used vehicle and F&I:Same store used vehicle and F&I:
Used vehicle revenueUsed vehicle revenue$192,615 $141,250 $51,365 36.4 %Used vehicle revenue$265,301  $216,417  $48,884  22.6 %
Used vehicle gross profit (loss)Used vehicle gross profit (loss)$(2,043)$(1,624)$(419)(25.8)%Used vehicle gross profit (loss)$(1,844) $(257) $(1,587) (617.5)%
Used vehicle unit salesUsed vehicle unit sales9,757 6,828 2,929 42.9 %Used vehicle unit sales13,067  11,051  2,016  18.2 %
Used vehicle revenue per unitUsed vehicle revenue per unit$19,741 $20,687 $(946)(4.6)%Used vehicle revenue per unit$20,303  $19,583  $720  3.7 %
F&I revenueF&I revenue$22,131 $13,948 $8,183 58.7 %F&I revenue$30,224  $25,647  $4,577  17.8 %
Combined used vehicle gross profit and F&I revenueCombined used vehicle gross profit and F&I revenue$20,088 $12,324 $7,764 63.0 %Combined used vehicle gross profit and F&I revenue$28,380  $25,390  $2,990  11.8 %
Total used vehicle and F&I gross profit per unitTotal used vehicle and F&I gross profit per unit$2,059 $1,805 $254 14.1 %Total used vehicle and F&I gross profit per unit$2,172  $2,298  $(126) (5.5)%

Six Months Ended June 30,Better / (Worse)
2019 2018 Change% Change
(In thousands, except unit and per unit data)
Same store used vehicle and F&I:
Used vehicle revenue$361,702 $239,691 $122,011 50.9 %
Used vehicle gross profit (loss)$(2,156)$(935)$(1,221)(130.6)%
Used vehicle unit sales18,379 11,794 6,585 55.8 %
Used vehicle revenue per unit$19,680 $20,323 $(643)(3.2)%
F&I revenue$42,171 $22,632 $19,539 86.3 %
Combined used vehicle gross profit and F&I revenue$40,015 $21,697 $18,318 84.4 %
Total used vehicle and F&I gross profit per unit$2,177 $1,840 $337 18.3 %

Same Store EchoPark Segment Used Vehicles and F&I -– Three Months Ended June 30, 2019March 31, 2020 Compared to Three Months Ended June 30, 2018March 31, 2019

Because our EchoPark stores do not provide customer-facing vehicle repair services, in certain markets, EchoPark has not been deemed an essential business under state and local restrictive orders. As such, EchoPark retail used vehicle unit sales volume has been negatively impacted by COVID-19 and related shelter-in-place or stay-at-home orders. However, we are permitted to complete online vehicle sales transactions with no-contact home deliveries in such markets.
Retail used vehicle revenue increased by approximately $51.4$48.9 million, or 36.4%22.6%, driven primarily by a 42.9%an 18.2% increase in retail used vehicle unit sales volume as our EchoPark stores continue to mature. Combinedand a 3.7% increase in retail used vehicle and F&Irevenue per unit. Retail used vehicle gross profit per unitloss increased approximately $254 per unit,$1.6 million, or 14.1%617.5%, to $2,059 per unit, driven primarilyoffset partially by an increase in F&I gross profit, partially offset by lower retailrevenue of approximately $4.6 million, and an 11.8% increase in combined used vehicle gross profit.profit and F&I revenue, increased approximately $8.2 million, or 58.7%, driven primarily by higher retail used vehicle unit sales volume andvolume. Service contract gross profit increased 7.6% due primarily to a 500-basis240-basis point increase in finance contract penetration rate, a 670-basis point increase inthe service contract penetration rate and a 650-basis point increase in other aftermarket contract penetration rate. F&I penetration rates are generally higher in our EchoPark Segment than in our Franchised Dealerships Segment as a result of lower vehicle pricing relative to market price and the unique approach that our associates use to present F&I product value to our guests.

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EchoPark Segment Used Vehicles and F&I - Six Months Ended June 30, 2019 Compared to Six Months Ended June 30, 2018

Retail used vehicle revenuecontract penetration rate. Other aftermarket contract gross profit increased by approximately $122.0 million, or 50.9%4.8%, driven primarily by a 55.8% increase in retail used vehicle unit sales volume as our EchoPark stores continue to mature. Combined retail used vehicle and F&I gross profit per unit increased approximately $337 per unit, or 18.3%, to $2,177 per unit, driven primarily by an increase in F&I gross profit, partially offset by lower retail used vehicle gross profit. F&I revenue increased approximately $19.5 million, or 86.3%, driven primarily by higher retail used vehicle unit sales volume and a 590-basis750-basis point increase in finance contract penetration rate, a 700-basis point increase in service contract penetration rate and a 370-basis point increase inthe other aftermarket contract penetration rate. F&I penetration rates are generally higher in our EchoPark Segment than for used vehicle sales in our Franchised Dealerships Segment as a resultSegment. Overall gross profit from front-end sales and F&I were negatively impacted by the reduction in sales that occurred in the second half of lower vehicle pricing relative to market price andMarch 2020 that was precipitated by the unique approach that our associates use to present F&I product value to our guests.impact of the COVID-19 pandemic.
Wholesale Vehicles -– EchoPark Segment
See the discussion in Franchised Dealerships Segment Results of Operations for a discussion of the macro drivers of wholesale vehicle revenues.
The following tables providetable provides a reconciliation of EchoPark Segment same storereported basis and reportedsame store basis for wholesale vehicles:
Three Months Ended June 30,Better / (Worse)Three Months Ended March 31,Better / (Worse)
2019 2018 Change% Change20202019Change% Change
(In thousands, except unit data)(In thousands, except unit data)
Total wholesale vehicle revenue:Total wholesale vehicle revenue:Total wholesale vehicle revenue:
Same storeSame store$4,878 $4,409 $469 10.6 %Same store$5,873  $2,237  $3,636  162.5 %
Acquisitions, open points and closuresAcquisitions, open points and closures1,441 2,864 (1,423)NMAcquisitions, open points and closures230  —  230  NM
Total as reportedTotal as reported$6,319 $7,273 $(954)(13.1)%Total as reported$6,103  $2,237  $3,866  172.8 %
Total wholesale vehicle gross profit (loss):Total wholesale vehicle gross profit (loss):Total wholesale vehicle gross profit (loss):
Same storeSame store$(45)$293 $(338)(115.4)%Same store$(71) $(63) $(8) (12.7)%
Acquisitions, open points and closuresAcquisitions, open points and closures2 17 (15)NMAcquisitions, open points and closures(3) —  (3) NM
Total as reportedTotal as reported$(43)$310 $(353)(113.9)%Total as reported$(74) $(63) $(11) (17.5)%
Total wholesale vehicle unit sales:Total wholesale vehicle unit sales:Total wholesale vehicle unit sales:
Same storeSame store1,292 784 508 64.8 %Same store1,676  499  1,177  235.9 %
Acquisitions, open points and closuresAcquisitions, open points and closures394 557 (163)NMAcquisitions, open points and closures89  —  89  NM
Total as reportedTotal as reported1,686 1,341 345 25.7 %Total as reported1,765  499  1,266  253.7 %
NM = Not Meaningful

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Six Months Ended June 30,Better / (Worse)
2019 2018 Change% Change
(In thousands, except unit data)
Total wholesale vehicle revenue:
Same store$6,705 $11,477 $(4,772)(41.6)%
Acquisitions, open points and closures1,852 3,014 (1,162)NM
Total as reported$8,557 $14,491 $(5,934)(40.9)%
Total wholesale vehicle gross profit (loss):
Same store$(95)$709 $(804)(113.4)%
Acquisitions, open points and closures(10)(42)32 NM
Total as reported$(105)$667 $(772)(115.7)%
Total wholesale vehicle unit sales:
Same store1,709 1,989 (280)(14.1)%
Acquisitions, open points and closures476 585 (109)NM
Total as reported2,185 2,574 (389)(15.1)%
NM = Not Meaningful
Our EchoPark Segment reported wholesale vehicle results are as follows:
Three Months Ended June 30,Better / (Worse)Three Months Ended March 31,Better / (Worse)
2019 2018 Change% Change20202019Change% Change
(In thousands, except unit and per unit data)(In thousands, except unit and per unit data)
Reported wholesale vehicle:Reported wholesale vehicle:Reported wholesale vehicle:
RevenueRevenue$6,319 $7,273 $(954)(13.1)%Revenue$6,103  $2,237  $3,866  172.8 %
Gross profit (loss)Gross profit (loss)$(43)$310 $(353)(113.9)%Gross profit (loss)$(74) $(63) $(11) (17.5)%
Unit salesUnit sales1,686 1,341 345 25.7 %Unit sales1,765  499  1,266  253.7 %
Revenue per unitRevenue per unit$3,748 $5,424 $(1,676)(30.9)%Revenue per unit$3,458  $4,483  $(1,025) (22.9)%
Gross profit (loss) per unitGross profit (loss) per unit$(26)$231 $(257)(111.3)%Gross profit (loss) per unit$(42) $(126) $84  66.7 %
Gross profit (loss) as a % of revenueGross profit (loss) as a % of revenue(0.7)%4.3 %(500)bpsGross profit (loss) as a % of revenue(1.2)%(2.8)%160  bps

Six Months Ended June 30,Better / (Worse)
2019 2018 Change% Change
(In thousands, except unit and per unit data)
Reported wholesale vehicle:
Revenue$8,557 $14,491 $(5,934)(40.9)%
Gross profit (loss)$(105)$667 $(772)(115.7)%
Unit sales2,185 2,574 (389)(15.1)%
Revenue per unit$3,916 $5,630 $(1,714)(30.4)%
Gross profit (loss) per unit$(48)$259 $(307)(118.5)%
Gross profit (loss) as a % of revenue(1.2)%4.6 %(580)bps

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Our EchoPark Segment same store wholesale vehicle results are as follows:
Three Months Ended June 30,Better / (Worse)Three Months Ended March 31,Better / (Worse)
2019 2018 Change% Change20202019Change% Change
(In thousands, except unit and per unit data)(In thousands, except unit and per unit data)
Same store wholesale vehicle:Same store wholesale vehicle:Same store wholesale vehicle:
RevenueRevenue$4,878 $4,409 $469 10.6 %Revenue$5,873  $2,237  $3,636  162.5 %
Gross profit (loss)Gross profit (loss)$(45)$293 $(338)(115.4)%Gross profit (loss)$(71) $(63) $(8) (12.7)%
Unit salesUnit sales1,292 784 508 64.8 %Unit sales1,676  499  1,177  235.9 %
Revenue per unitRevenue per unit$3,776 $5,624 $(1,848)(32.9)%Revenue per unit$3,504  $4,483  $(979) (21.8)%
Gross profit (loss) per unitGross profit (loss) per unit$(35)$374 $(409)(109.4)%Gross profit (loss) per unit$(42) $(126) $84  66.7 %
Gross profit (loss) as a % of revenueGross profit (loss) as a % of revenue(0.9)%6.6 %(750)bpsGross profit (loss) as a % of revenue(1.2)%(2.8)%160  bps

Six Months Ended June 30,Better / (Worse)
2019 2018 Change% Change
(In thousands, except unit and per unit data)
Same store wholesale vehicle:
Revenue$6,705 $11,477 $(4,772)(41.6)%
Gross profit (loss)$(95)$709 $(804)(113.4)%
Unit sales1,709 1,989 (280)(14.1)%
Revenue per unit$3,923 $5,770 $(1,847)(32.0)%
Gross profit (loss) per unit$(56)$356 $(412)(115.7)%
Gross profit (loss) as a % of revenue(1.4)%6.2 %(760)bps

Same Store EchoPark Segment Wholesale Vehicles -– Three Months Ended June 30, 2019March 31, 2020 Compared to Three Months Ended June 30, 2018March 31, 2019

Wholesale vehicle revenue increased due to increased wholesale vehicle unit sales volume, partially offset by a decrease in wholesale vehicle revenue per unit. Wholesale vehicle gross profit decreased as a result of the evolution of our customer trade-in vehicle appraisal strategy, which has enabled us to trade for more customer vehicles.loss was flat. Given EchoPark’s retail inventory mix, ultimately 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, affecting our wholesale gross profit (loss). 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 gross loss per unit), and increases the volume of trade-ins that we obtain from customers.

EchoPark Segment Wholesale Vehicles - Six Months Ended June 30, 2019 Compared We generally focus on maintaining used vehicle inventory days’ supply in the 30- to Six Months Ended June 30, 2018
Wholesale35-day range, which may fluctuate seasonally, in order to limit out exposure to market pricing volatility. Our used vehicle revenue and wholesale vehicle unit sales volume decreased as a result of a shift in our inventory acquisition and pricing strategydays’ supply at our EchoPark stores during the second quarterwas approximately 34 and 29 days as of 2018. Prior to this, EchoPark inventory was subject to increased risk of agingMarch 31, 2020 and wholesale loss, which drove higher wholesale transaction volumes. Wholesale vehicle gross profit decreased as a result of the evolution of our customer trade-in vehicle appraisal strategy, which has enabled us to trade for more customer vehicles. Given EchoPark’s retail inventory mix, ultimately 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, affecting our wholesale gross profit (loss). 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.2019, respectively.
Fixed Operations -– EchoPark Segment

Parts, service and collision repair revenues primarily consist of internal, sublet and other work related to inventory preparation and reconditioning performed on vehicles that are later sold to customers. 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.

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The following tables providetable provides a reconciliation of EchoPark Segment same storereported basis and reportedsame store basis for Fixed Operations:
Three Months Ended June 30,Better / (Worse)Three Months Ended March 31,Better / (Worse)
2019 2018 Change% Change20202019Change% Change
(In thousands)(In thousands)
Total Fixed Operations revenue:Total Fixed Operations revenue:Total Fixed Operations revenue:
Same storeSame store$6,162 $3,970 $2,192 55.2 %Same store$9,574  $5,204  $4,370  84.0 %
Acquisitions, open points and closuresAcquisitions, open points and closures1,813 541 1,272 235.1 %Acquisitions, open points and closures605  1  604  NM  
Total as reportedTotal as reported$7,975 $4,511 $3,464 76.8 %Total as reported$10,179  $5,205  $4,974  95.6 %
Total Fixed Operations gross profit (loss):Total Fixed Operations gross profit (loss):Total Fixed Operations gross profit (loss):
Same storeSame store$(125)$528 $(653)(123.7)%Same store$(158) $(209) $51  24.4 %
Acquisitions, open points and closuresAcquisitions, open points and closures(37)42 (79)(188.1)%Acquisitions, open points and closures(40) (1) (39) NM  
Total as reportedTotal as reported$(162)$570 $(732)(128.4)%Total as reported$(198) $(210) $12  5.7 %

NM = Not Meaningful
Six Months Ended June 30,Better / (Worse)
2019 2018 Change% Change
(In thousands)
Total Fixed Operations revenue:
Same store$10,330 $8,025 $2,305 28.7 %
Acquisitions, open points and closures2,849 1,194 1,655 138.6 %
Total as reported$13,179 $9,219 $3,960 43.0 %
Total Fixed Operations gross profit (loss):
Same store$(293)$1,552 $(1,845)(118.9)%
Acquisitions, open points and closures(79)343 (422)(123.0)%
Total as reported$(372)$1,895 $(2,267)(119.6)%
Our EchoPark Segment reported Fixed Operations results are as follows:
Three Months Ended June 30,Better / (Worse)
2019 2018 Change% Change
(In thousands)
Total reported Fixed Operations:
Revenue$7,975 $4,511 $3,464 76.8 %
Gross profit (loss)$(162)$570 $(732)(128.4)%
Gross profit (loss) as a % of revenue(2.0)%12.6 %(1,460)bps

Six Months Ended June 30,Better / (Worse)
2019 2018 Change% Change
(In thousands)
Total reported Fixed Operations:
Revenue$13,179 $9,219 $3,960 43.0 %
Gross profit (loss)$(372)$1,895 $(2,267)(119.6)%
Gross profit (loss) as a % of revenue(2.8)%20.6 %(2,340)bps

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Our EchoPark Segment reported Fixed Operations results are as follows:
Three Months Ended March 31,Better / (Worse)
20202019Change% Change
(In thousands)
Total reported Fixed Operations:
Revenue$10,179  $5,205  $4,974  95.6 %
Gross profit (loss)$(198) $(210) $12  5.7 %
Gross profit (loss) as a % of revenue(1.9)%(4.0)%210  bps

Our EchoPark Segment same store Fixed Operations results are as follows: 
Three Months Ended June 30,Better / (Worse)Three Months Ended March 31,Better / (Worse)
2019 2018 Change% Change20202019Change% Change
(In thousands)(In thousands)
Total same store Fixed Operations:Total same store Fixed Operations:Total same store Fixed Operations:
RevenueRevenue$6,162 $3,970 $2,192 55.2 %Revenue$9,574  $5,204  $4,370  84.0 %
Gross profit (loss)Gross profit (loss)$(125)$528 $(653)(123.7)%Gross profit (loss)$(158) $(209) $51  24.4 %
Gross profit (loss) as a % of revenueGross profit (loss) as a % of revenue(2.0)%13.3 %(1,530)bpsGross profit (loss) as a % of revenue(1.7)%(4.0)%230  bps

Six Months Ended June 30,Better / (Worse)
2019 2018 Change% Change
(In thousands)
Total same store Fixed Operations:
Revenue$10,330 $8,025 $2,305 28.7 %
Gross profit (loss)$(293)$1,552 $(1,845)(118.9)%
Gross profit (loss) as a % of revenue(2.8)%19.3 %(2,210)bps

Same Store EchoPark Segment Fixed Operations -– Three Months Ended June 30, 2019March 31, 2020 Compared to Three Months Ended June 30, 2018March 31, 2019
Fixed Operations revenue increased approximately $2.2$4.4 million, or 55.2%, and Fixed Operations gross profit decreased approximately $0.7 million, or 123.7%84.0%, primarily due to higher vehicle unit sales volume (and resulting inventory requirements) and lower levels of required reconditioning per vehicle based on a shift in our inventory acquisition and pricing strategy during the second quarter of 2018.
EchoPark Segment Fixed Operations - Six Months Ended June 30, 2019 Compared to Six Months Ended June 30, 2018
Fixed Operations revenue increased approximately $2.3 million, or 28.7%, and Fixed Operations gross profit decreased approximately $1.8 million, or 118.9%, primarily due to higher vehicle unit sales volume (and resulting inventory requirements) and lower levels of required reconditioning per vehicle based on a shift in our inventory acquisition and pricing strategy during the second quarter of 2018.

.
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Segment Results Summary
In the following tablestable of financial data, total segment income (loss) of the operatingreportable segments is reconciled to consolidated operating income (loss) less interest expense, floor plan: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)Three Months Ended March 31,Better / Worse
20192018Change% Change20202019Change% Change
Segment Revenues:Segment Revenues:(In thousands, except unit data)
Franchised Dealerships Segment revenues:Franchised Dealerships Segment revenues:
New vehiclesNew vehicles$959,489  $1,066,334  $(106,845) (10.0)%
Used vehiclesUsed vehicles566,888  603,949  (37,061) (6.1)%
Wholesale vehiclesWholesale vehicles42,440  52,533  (10,093) (19.2)%
Parts, service and collision repairParts, service and collision repair324,501  336,225  (11,724) (3.5)%
Finance, insurance and other, netFinance, insurance and other, net83,029  80,521  2,508  3.1 %
Franchised Dealerships Segment revenuesFranchised Dealerships Segment revenues$1,976,347  $2,139,562  $(163,215) (7.6)%
(In thousands, except unit data)
Revenues:
Franchised Dealerships Segment$2,322,400 $2,325,583 $(3,183)(0.1)%
EchoPark Segment revenues:EchoPark Segment revenues:
Used vehiclesUsed vehicles$283,164  $216,417  $66,747  30.8 %
Wholesale vehiclesWholesale vehicles6,103  2,237  3,866  172.8 %
Parts, service and collision repairParts, service and collision repair10,179  5,205  4,974  95.6 %
Finance, insurance and other, netFinance, insurance and other, net32,263  25,717  6,546  25.5 %
EchoPark Segment revenuesEchoPark Segment revenues$331,709  $249,576  $82,133  32.9 %
Total consolidated revenuesTotal consolidated revenues$2,308,056  $2,389,138  $(81,082) (3.4)%
Segment Income (Loss) (1):Segment Income (Loss) (1):
Franchised Dealerships Segment (2)Franchised Dealerships Segment (2)$22,656  $61,182  $(38,526) (63.0)%
EchoPark SegmentEchoPark Segment291,681 180,166 111,515 61.9 %EchoPark Segment2,096  2,106  (10) (0.5)%
Total revenues$2,614,081 $2,505,749 $108,332 4.3 %
Segment income (loss) (1):
Franchised Dealerships Segment (2)$48,326 $66,049 $(17,723)(26.8)%
EchoPark Segment (3)2,129 (27,347)29,476 107.8 %
Total segment income (loss)Total segment income (loss)50,455 38,702 11,753 30.4 %Total segment income (loss)$24,752  $63,288  $(38,536) (60.9)%
Interest expense, other, net(13,628)(13,375)(253)(1.9)%
Other income (expense), net(5)17 (22)(129.4)%
Impairment charges (3)Impairment charges (3)(268,000) (1,952) (266,048) (13629.5)%
Income (loss) from continuing operations before taxesIncome (loss) from continuing operations before taxes$36,822 $25,344 $11,478 45.3 %Income (loss) from continuing operations before taxes$(243,248) $61,336  $(304,584) (496.6)%
Retail new and used vehicle unit sales volume:
Retail New and Used Vehicle Unit Sales Volume:Retail New and Used Vehicle Unit Sales Volume:
Franchised Dealerships SegmentFranchised Dealerships Segment57,067 59,197 (2,130)(3.6)%Franchised Dealerships Segment47,762  52,609  (4,847) (9.2)%
EchoPark SegmentEchoPark Segment12,587 7,459 5,128 68.7 %EchoPark Segment13,986  11,051  2,935  26.6 %
Total retail new and used vehicle unit sales volumeTotal retail new and used vehicle unit sales volume69,654 66,656 2,998 4.5 %Total retail new and used vehicle unit sales volume61,748  63,660  (1,912) (3.0)%

(1)Segment income (loss) for each segment is defined as operating income (loss) less interest expense, floor plan.from continuing operations before taxes and impairment charges.
(2)For the three months ended June 30, 2018, March 31, 2019, the above amount includes approximately $38.0 million ofa pre-tax net gain on the disposal of franchised dealerships andof approximately $2.6$46.7 million, of benefit related to lease exit adjustments, offset partially by approximately $10.3$6.3 million of impairment expense and approximately $3.1 million of storm-related physical damage and legalpre-tax executive transition costs.
(3)For the three months ended June 30, 2018,March 31, 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 has adversely affected our business. For the three months ended March 31, 2019, the above amount includes approximately $23.3$1.9 million of non-recurring compensation-related charges.pre-tax fair value adjustments to real estate at former EchoPark locations classified as held for sale.
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Six Months Ended June 30,Better / (Worse)
20192018Change% Change
(In thousands, except unit data)
Revenues:
Franchised Dealerships Segment$4,461,971 $4,594,852 $(132,881)(2.9)%
EchoPark Segment541,248 311,671 229,577 73.7 %
Total revenues$5,003,219 $4,906,523 $96,696 2.0 %
Segment income (loss) (1):
Franchised Dealerships Segment (2)$121,856 $89,885 $31,971 35.6 %
EchoPark Segment (3)2,688 (41,672)44,360 106.5 %
Total segment income (loss)124,544 48,213 76,331 158.3 %
Interest expense, other, net(26,481)(26,831)350 1.3 %
Other income (expense), net95 106 (11)(10.4)%
Income (loss) from continuing operations before taxes$98,158 $21,488 $76,670 356.8 %
Retail new and used vehicle unit sales volume:
Franchised Dealerships Segment109,676 116,918 (7,242)(6.2)%
EchoPark Segment23,638 12,977 10,661 82.2 %
Total retail new and used vehicle unit sales volume133,314 129,895 3,419 2.6 %

(1) Segment income (loss) for each segment is defined as operating income (loss) less interest expense, floor plan.

(2) For the six months ended June 30, 2019, the above amount includes approximately $46.7 million of net gain on the disposal of franchised dealerships, offset partially by approximately $6.3 million of executive transition costs. For the six months ended June 30, 2018, the above amount includes approximately $39.2 million of net gain on the disposal of franchised dealerships, offset partially by approximately $4.6 million of storm-related physical damage and legal costs, approximately $2.2 million of lease exit charges, and approximately $14.0 million of impairment expense.

(3) For the six months ended June 30, 2019, the above amount includes approximately $1.9 million of impairment charges related to fair value adjustments of real estate at former locations classified as held for sale. For the six months ended June 30, 2018, the above amount includes approximately $32.5 million of non-recurring compensation-related charges.

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, insurance, training, legal and IT expenses, which may not change in proportion to gross profit levels.
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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)
20192018Change% Change
(In thousands)
SG&A expenses:
Compensation$181,197 $197,641 $16,444 8.3 %
Advertising15,402 16,270 868 5.3 %
Rent13,336 13,702 366 2.7 %
Other84,597 49,849 (34,748)(69.7)%
Total SG&A expenses$294,532 $277,462 $(17,070)(6.2)%
SG&A expenses as a % of gross profit:
Compensation47.5 %54.5 %700 bps
Advertising4.0 %4.5 %50 bps
Rent3.5 %3.8 %30 bps
Other22.2 %13.8 %(840)bps
Total SG&A expenses as a % of gross profit77.2 %76.6 %(60)bps


Six Months Ended June 30,Better / (Worse)Three Months Ended March 31,Better / (Worse)
20192018Change% Change20202019Change% Change
(In thousands)(In thousands)
SG&A expenses:SG&A expenses:SG&A expenses:
CompensationCompensation$365,381 $382,678 $17,297 4.5 %Compensation$174,422  $184,185  $9,763  5.3 %
AdvertisingAdvertising30,453 32,287 1,834 5.7 %Advertising14,135  15,050  915  6.1 %
RentRent28,586 35,570 6,984 19.6 %Rent13,865  15,250  1,385  9.1 %
OtherOther117,206 131,852 14,646 11.1 %Other79,734  32,610  (47,124) (144.5)%
Total SG&A expensesTotal SG&A expenses$541,626 $582,387 $40,761 7.0 %Total SG&A expenses$282,156  $247,095  $(35,061) (14.2)%
SG&A expenses as a % of gross profit:SG&A expenses as a % of gross profit:SG&A expenses as a % of gross profit:
CompensationCompensation49.4 %53.5 %410 bpsCompensation49.8 %51.3 %150  bps
AdvertisingAdvertising4.1 %4.5 %40 bpsAdvertising4.0 %4.2 %20  bps
RentRent3.9 %5.0 %110 bpsRent4.0 %4.2 %20  bps
OtherOther15.8 %18.5 %270 bpsOther22.7 %9.1 %(1,360) bps
Total SG&A expenses as a % of gross profitTotal SG&A expenses as a % of gross profit73.2 %81.5 %830 bpsTotal SG&A expenses as a % of gross profit80.5 %68.8 %(1,170) bps


Three Months Ended June 30, 2019 Compared to Three Months Ended June 30, 2018
Overall SG&A expenses increased both in dollar amount and as a percentage of gross profit, primarily due to a net gain on the disposal of franchised dealershipsan increase in the prior year period,variable other SG&A expense, offset partially by non-recurring compensation-related chargesa decrease in the prior year period.fixed compensation expense. Compensation expense decreased both in dollar amount and as a percentage of gross profit, primarily due to non-recurring compensation-related charges in the prior year period, offset partially by a higherlower level of variable sales expenses in the current year periodcompensation expense due to higherlower levels of sales activity and related gross profit. Advertising expense decreased both in dollar amount and as a percentage of gross profit, due primarily to decreased marketing needs as we focused on targeted advertising where we would expect the best returns for our business.a result of lower vehicle sales volume due to COVID-19. Rent expense decreased both in dollar amount and as a percentage of gross profit, primarily due to the disposal of several franchised dealerships offset partially by a benefit related to lease exit adjustments in the prior year period.year-over-year. Other SG&A expenses increased both in dollar amount and as a percentage of gross profit due primarily to a net benefit from the gain on the disposal of franchised dealerships in the prior year period, offset partially by storm-related physical damage costs in the prior year period.
year. For the three months ended June 30, 2018,March 31, 2019, SG&A expenses include approximately $38.0 million ofa net gain on the disposal of franchised dealerships andof approximately $2.6$46.7 million, offset partially by approximately $6.3 million of benefitexecutive transition costs.
Impairment Charges – Consolidated
Impairment charges increased approximately $266.0 million during the three months ended March 31, 2020. Impairment charges for the three months ended March 31, 2020 were related to lease exitfair value adjustments offset partially byto goodwill. Impairment charges for the three months ended March 31, 2019 are related to fair value adjustments of real estate at former EchoPark locations classified as held for sale.
Depreciation and Amortization – Consolidated
Depreciation expense decreased approximately $0.4 million, or 1.6% during the three months ended March 31, 2020, due primarily to the disposition and aging of assets.
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approximately $23.3 million of non-recurring compensation-related charges and approximately $3.1 million of storm-related physical damage and legal costs.
Six Months Ended June 30, 2019 Compared to Six Months Ended June 30, 2018
Overall SG&A expenses decreased both in dollar amount and as a percentage of gross profit, primarily due to non-recurring compensation-related charges in the prior year period and a higher net gain on the disposal of franchised dealerships in the current year period. Compensation expense decreased both in dollar amount and as a percentage of gross profit, primarily due to non-recurring compensation-related charges in the prior year period, offset partially by a higher level of variable sales expenses in the current year period due to higher levels of sales activity and related gross profit. Advertising expense decreased both in dollar amount and as a percentage of gross profit, as we focused on targeted advertising where we would expect the best returns for our business. Rent expense decreased both in dollar amount and as a percentage of gross profit, primarily due to the disposal of franchised dealerships and lease exit charges in the prior year period. Other SG&A expenses decreased both in dollar amount and as a percentage of gross profit due primarily to a higher net gain on the disposal of franchised dealerships in the current year period and storm-related physical damage and legal costs in the prior year period, in addition to lower training and IT expenses in the current year period as a result of strategic cost-reduction initiatives.
For the six months ended June 30, 2019, SG&A expenses include approximately $46.7 million of net gain on the disposal of franchised dealerships, offset partially by approximately $6.3 million of executive transition costs. For the six months ended June 30, 2018, SG&A expenses include approximately $39.2 million of net gain on the disposal of franchised dealerships, offset partially by approximately $32.5 million of non-recurring compensation-related charges, approximately $4.6 million of storm-related physical damage and legal costs and approximately $2.2 million of lease exit charges.
Impairment Charges - Consolidated
Impairment charges decreased approximately $10.3 million and $12.0 million during the three and six months ended June 30, 2019, respectively. There were no impairment charges for the three months ended June 30, 2019. Impairment charges for the six months ended June 30, 2019 were related to fair value adjustment of long-lived assets held for sale related to real estate at former EchoPark locations. Impairment charges for the six months ended June 30, 2018 include the write-off of certain costs associated with internally developed software as well as the write-off of capitalized costs associated with the abandonment of certain construction projects.
Depreciation and Amortization - Consolidated
Depreciation expense decreased approximately $0.1 million, or 0.6%, and $1.2 million or 2.6% during the three and six months ended June 30, 2019, respectively. The decreases were due primarily to the disposition of four franchised dealerships in the first quarter of 2019.
Interest Expense, Floor Plan -– Consolidated
Three Months Ended June 30, 2019 Compared to Three Months Ended June 30, 2018
Interest expense, floor plan for new vehicles increaseddecreased approximately $0.2$2.8 million, or 2.0%23.8%. The average new vehicle floor plan notes payable balance decreasedincreased approximately $10.1$0.3 million, which did not significantly impact new vehicle floor plan interest expense. The average new vehicle floor plan interest rate was 2.58%, down from 3.39% in the three months ended March 31, 2019, resulting in a decrease in new vehicle floor plan interest expense of approximately $0.1 million. The average new vehicle floor plan interest rate was 3.14%, up from 3.06% in the prior year period, resulting in an increase in new vehicle floor plan interest expense of approximately $0.3$2.8 million.
Interest expense, floor plan for used vehicles increased approximately $0.4$0.1 million, or 28.6%4.5%. The average used vehicle floor plan notes payable balance increased approximately $27.3$34.6 million, resulting in an increasedecrease in used vehicle floor plan interest expense of approximately $0.2 million. The average used vehicle floor plan interest rate was 3.17%, up from 2.84% in the prior year period, resulting in an increase in used vehicle floor plan interest expense of approximately $0.2 million.
Six Months Ended June 30, 2019 Compared to Six Months Ended June 30, 2018
Interest expense, floor plan for new vehicles increased approximately $2.5 million, or 12.3%. The average new vehicle floor plan notes payable balance decreased approximately $4.6 million, resulting in a decrease in new vehicle floor plan interest expense of approximately $0.1 million. The average new vehicle floor plan interest rate was 3.28%, up from 2.92% in the prior year period, resulting in an increase in new vehicle floor plan interest expense of approximately $2.6 million.
Interest expense, floor plan for used vehicles increased approximately $0.7 million, or 26.3%. The average used vehicle floor plan notes payable balance increased approximately $22.8 million, resulting in an increase in used vehicle floor plan
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
interest expense of approximately $0.3 million. The average used vehicle floor plan interest rate was 3.12%2.73%, updown from 2.78%3.07% in the prior year period,three months ended March 31, 2019, resulting in an increasedecrease in used vehicle floor plan interest expense of approximately $0.4$0.2 million.
Interest Expense, Other, Net -– Consolidated
Interest expense, other, net is summarized in the tables below:
Three Months Ended June 30,Better / (Worse)Three Months Ended March 31,Better / (Worse)
20192018Change% Change20202019Change% Change
(In thousands)(In thousands)
Stated/coupon interestStated/coupon interest$12,468 $13,010 $542 4.2 %Stated/coupon interest$9,214  $12,439  $3,225  25.9 %
Deferred loan cost amortizationDeferred loan cost amortization598 619 21 3.4 %Deferred loan cost amortization557  591  34  5.8 %
Interest rate hedge expense (benefit)Interest rate hedge expense (benefit)(917)(139)778 559.7 %Interest rate hedge expense (benefit)(427) (597) (170) (28.5)%
Capitalized interestCapitalized interest(205)(329)(124)(37.7)%Capitalized interest(420) (679) (259) (38.1)%
Interest on finance lease liabilitiesInterest on finance lease liabilities1,339 — (1,339)(100.0)%Interest on finance lease liabilities1,344  1,176  (168) (14.3)%
Other interestOther interest345 214 (131)(61.2)%Other interest697  (77) (774) (1,005.2)%
Total interest expense, other, netTotal interest expense, other, net$13,628 $13,375 $(253)(1.9)%Total interest expense, other, net$10,965  $12,853  $1,888  14.7 %

Six Months Ended June 30,Better / (Worse)
20192018Change% Change
(In thousands)
Stated/coupon interest$24,907 $25,755 $848 3.3 %
Deferred loan cost amortization1,189 1,217 28 2.3 %
Interest rate hedge expense (benefit)(1,514)50 1,564 3,128.0 %
Capitalized interest(884)(649)235 36.2 %
Interest on finance lease liabilities2,515 — (2,515)(100.0)%
Other interest268 458 190 41.5 %
Total interest expense, other, net$26,481 $26,831 $350 1.3 %

Interest expense, other, net increaseddecreased approximately $0.3$1.9 million during the three months ended June 30, 2019,March 31, 2020, primarily due to an increase inlower stated/coupon interest expense related to finance leases (formerly known as capital leases prior to the adoptionrepurchase of ASC 842, “Leases”the remaining 5.0% Senior Subordinated Notes due 2023 (the "5.0% Notes") that were entered into during the second half of 2018,on December 30, 2019, offset partially by an increase in netother interest rate hedge receipts. Interest expense, other, net decreased approximately $0.4 million during the six months ended June 30, 2019, primarily due to an increase in net interest rate hedge receipts and lower stated/coupon interest related to a decrease in mortgage notes payable balances, offset partially by an increase in interest expense related to finance leases (formerly known as capital leases prior to the adoption of ASC 842, “Leases”) that were entered into during the second half of 2018.capitalized interest.
Income Taxes
The overall effective tax rate from continuing operations was 27.4% and 29.6%18.2% for the three and six months ended June 30, 2019, respectively,March 31, 2020, and 32.4% and 29.7%31.0% for the three and six months ended June 30, 2018.March 31, 2019. Income tax expense for the three months ended June 30, 2019March 31, 2020 includes a $0.4$51.3 million benefit related to the $268.0 million goodwill impairment charge and a $0.5 million discrete benefit related to the favorable resolution of certainvested or exercised stock compensation awards, offset partially by a $0.1 million discrete charge related to changes in uncertain tax matters.positions. Income tax expense for the sixthree months ended June 30,March 31, 2019 includes a $1.5 million discrete charge for non-deductible executive officer compensation related to executive transition costs, a $0.2 million discrete charge related to changes in uncertain tax positions, and a $0.2 million discrete charge related to vested or exercised stock compensation awards, offset partially by a $0.4 million discrete benefit related to the favorable resolution of certain tax matters. Income tax expense for the three months ended June 30, 2018 includes a $0.6 million discrete charge for non-deductible book goodwill related to dealership dispositions during the period. Income tax expense for the six months ended June 30, 2018 includes a $0.9 million discrete benefit related to vested or exercised stock compensation awards, offset partially by a $0.2 million discrete charge related to changes in uncertain tax positions and a $0.6 million discrete charge for non-deductible book goodwill related to dealership dispositions during the period.awards. 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. Sonic expects the annual effective tax rate in future periods to fall within a range of 26.0% to 29.0% before the impact, if any, of changes in valuation allowances related to deferred income tax assets or discrete tax adjustments.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
We require cash to fund debt service, operating 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 March 31, 2020 and expect to be in compliance for at least the next twelve months. We closely monitor our available liquidity and projected future operating results in order to remain in compliance with the restrictive covenants under the 2016 Credit Facilities, the 2019 Mortgage 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 or lease arrangements. After giving effect to the applicable restrictions on the payment of dividends under our debt agreements, as of June 30, 2019,March 31, 2020, we had approximately $206.8$274.1 million of net income and retained earnings free of such restrictions. Cash flows provided by our dealerships are derived from various sources. The primary sources include individual consumers, automobile manufacturers, automobile manufacturers’
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
captive finance subsidiaries and finance companies.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, 2019March 31, 2020 and December 31, 2018:2019:
June 30, 2019December 31, 2018March 31, 2020December 31, 2019
(In thousands)(In thousands)
Cash and cash equivalentsCash and cash equivalents$2,140 $5,854 Cash and cash equivalents$181,780  $29,103  
Availability under the 2016 Revolving Credit FacilityAvailability under the 2016 Revolving Credit Facility202,575 223,922 Availability under the 2016 Revolving Credit Facility—  230,689  
Availability under our used vehicle floor plan facilitiesAvailability under our used vehicle floor plan facilities2,245 1,979 Availability under our used vehicle floor plan facilities26,613  17,090  
Availability under the 2019 Mortgage FacilityAvailability under the 2019 Mortgage Facility3,090  3,090  
Floor plan deposit balanceFloor plan deposit balance95,046 — Floor plan deposit balance100,000  —  
Total available liquidity resourcesTotal available liquidity resources$302,006 $231,755 Total available liquidity resources$311,483  $279,972  
We participate in a program with two of our manufacturer-affiliated finance companies wherein we maintain a deposit balance (included in the table above) with the lender that earns interest based on the agreed upon rate. 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 balance of approximately $95.0$100.0 million as of June 30, 2019March 31, 2020 is classified in other current assets in the accompanying unaudited condensed consolidated balance sheet as of June 30, 2019.March 31, 2020. There was no deposit balance as of December 31, 2018.2019.
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 either LIBOR or the prime rate. The weighted-average interest rate for our combined new and used vehicle floor plan facilities was 3.15%2.60% and 3.03%3.38% in the three months ended June 30,March 31, 2020 and 2019, and 2018, respectively, and 3.26% and 2.90% in the six months ended June 30, 2019 and 2018, respectively.
We receive floor plan assistance from certain manufacturers. Floor plan assistance received is capitalized in inventory and charged against cost of sales when the associated inventory is sold. We received approximately $9.9$10.0 million and $10.3$9.3 million in floor plan assistance in the three months ended June 30,March 31, 2020 and 2019, and 2018, respectively, and approximately $19.2 million and $20.7 million in floor plan assistance in the six months ended June 30, 2019 and 2018, respectively. We recognized in cost of sales approximately $9.0 million in manufacturer floor plan assistance in cost of sales of approximately $10.3 million and $10.6 million inboth the three months ended June 30, 2019March 31, 2020 and 2018, respectively, and approximately $19.3 million and $20.7 million in the six months ended June 30, 2019 and 2018, respectively. 2019. Interest payments under each of our floor plan facilities are due monthly and we generally are 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.
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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 alternatively, through our credit facilities.
Capital expenditures in the sixthree months ended June 30, 2019March 31, 2020 were approximately $51.2 million.$19.8 million, including approximately $17.2 million related to our Franchised Dealerships Segment and approximately $2.6 million related to our EchoPark Segment, all of which was funded through cash flows from operations. Of this amount, approximately $42.0$14.9 million was related to facility construction projects, while fixed assets utilized in our store operations accounted for the remaining $9.2 million of capital expenditures.
All of the capital expenditures in the six months ended June 30, 2019 were funded through cash from operations.$4.9 million. As of June 30, 2019,March 31, 2020, commitments for facility construction projects totaled approximately $26.3$25.4 million. 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.
StockShare Repurchase Program
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SONIC AUTOMOTIVE, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 sixthree months ended June 30, 2019,March 31, 2020, we repurchased approximately 0.20.7 million shares of our Class A Common Stock for approximately $2.4$21.3 million in open-market transactions at prevailing market prices and in connection with tax withholding on the vesting of equity compensation awards. As of June 30, 2019,March 31, 2020, our total remaining repurchase authorization was approximately $81.2$59.9 million. Under the 2016 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 theour debt agreements. After giving effect to the applicable restrictions on share repurchases and certain other transactions under our debt agreements, as of June 30, 2019,March 31, 2020, we had at least $206.8approximately $274.1 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, 2019,March 31, 2020, our Board of Directors approved a cash dividend of $0.10 per share on all outstanding shares of Class A and Class B Common Stock as of March 13, 2020, which was paid on April 15, 2020. Subsequent to March 31, 2020, our Board of Directors approved a cash dividend of $0.10 per share on all outstanding shares of Class A and Class B Common Stock as of June 14, 2019, which was15, 2020 to be paid on July 15, 2019. Subsequent to June 30, 2019, our Board of Directors approved a cash dividend of $0.10 per share on all outstanding shares of Class A and Class B Common Stock as of September 13, 2019 to be paid on October 15, 2019.2020. Under the 2016 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 indenturesindenture governing the 5.0% Notes and the 6.125% Notes also contain 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, 2019,March 31, 2020, we had at least $206.8approximately $274.1 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.
Cash Flows
Net cash used in operating activities in the sixthree months ended June 30, 2019March 31, 2020 was approximately $56.9$47.2 million. This use of cash was comprised primarily of an increase in other assets and an increase in receivables, offset partially by increases in notes payable – floor plan – trade and inventories and a decrease in cash inflows related to operating profits. In the three months ended March 31, 2019, net cash used in operating activities was approximately $94.3 million. This use of cash was comprised primarily of an increase in other assets and a decrease in notes payable – floor plan – trade, and inventories, offset partially by a decreasedecreases in receivables and cash inflows related to operating profits. In
Net cash used in investing activities in the sixthree months ended June 30, 2018, net cash provided by operating activitiesMarch 31, 2020 was approximately $38.1$19.6 million. This provisionuse of cash was comprised primarily of cash inflows related to operating profitspurchases of land, property and a decrease in receivables,equipment, offset partially by an increase in inventoriesproceeds from sales of property and a decrease in notes payable – floor plan – trade.
equipment. Net cash provided by investing activities in the sixthree months ended June 30,March 31, 2019 was approximately $72.4$92.2 million. This provision of cash was comprised primarily of proceeds from the sale of four franchised dealerships and property and equipment, offset partially by purchases of land, property and equipment.

Net cash provided by investingfinancing activities in the six
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SONIC AUTOMOTIVE, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
three months ended June 30, 2018March 31, 2020 was approximately $35.4$219.5 million. This provision of cash was comprised primarily of proceeds from the salenet borrowings on revolving credit facilities and net borrowings of five franchised dealerships,notes payable – floor plan – non-trade, offset partially by purchases of land, propertytreasury stock and equipment.
payments on long-term debt. Net cash used in financing activities in the sixthree months ended June 30,March 31, 2019 was approximately $19.3 million. This use of cash was comprised primarily of payments on long-term debt, dividends paid and purchases of treasury stock, offset partially by net borrowings on notes payable - floor plan - non-trade. Net cash used in financing activities in the six months ended June 30, 2018 was approximately $71.7$1.0 million. This use of cash was comprised primarily of net payments on revolving credit facilities, purchasesborrowings of treasury stock andnotes payable – floor plan – non-trade, offset partially by payments on long-term debt offset partially by proceeds from mortgage notes.and purchases of treasury stock.
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
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SONIC AUTOMOTIVE, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 flow.flows. Net cash provided by combined trade and non-trade floor plan financing used in combined trade and non-trade floor plan financing was approximately $7.6 million in the three months ended March 31, 2020. Net cash used in combined trade and non-trade floor plan financing was approximately $66.2 million and $48.6$48.1 million in the sixthree months ended June 30, 2019 and 2018, respectively.March 31, 2019. Accordingly, if all changes in floor plan notes payable were classified as an operating activity, the result would have been net cash used in operating activities of approximately $55.2$6.0 million and $84.5 million in the sixthree months ended June 30,March 31, 2020 and 2019, and net cash provided by operating activities of approximately $49.2 million in the six months ended June 30, 2018.respectively.
One factor that management uses to measure cash flow generation or use is the Adjusted EBITDA, a non-GAAP financial measure, for each of the Company’s operatingreportable segments. That measure is provided and reconciled to the nearest comparable GAAP financial measure in the tablestable below:
Three Months Ended June 30, 2019Three Months Ended June 30, 2018Three Months Ended March 31, 2020Three Months Ended March 31, 2019
Franchised Dealerships SegmentEchoPark SegmentDiscontinued OperationsTotalFranchised Dealerships SegmentEchoPark SegmentDiscontinued OperationsTotalFranchised Dealerships SegmentEchoPark SegmentDiscontinued OperationsTotalFranchised Dealerships SegmentEchoPark SegmentDiscontinued OperationsTotal
(In thousands)(In thousands)
Net income (loss)Net income (loss)$26,599 $16,905 Net income (loss)$(199,333) $42,221  
Provision for income taxesProvision for income taxes10,010 8,142 Provision for income taxes(44,200) 18,935  
Income (loss) before taxesIncome (loss) before taxes$35,129 $1,693 $(213)$36,609 $53,176 $(27,832)$(297)$25,047 Income (loss) before taxes$(245,344) $2,096  $(285) $(243,533) $61,156  $180  $(180) $61,156  
Non-floor plan interest (1)Non-floor plan interest (1)12,013 426 — 12,439 11,757 401 106 12,264 Non-floor plan interest (1)10,043  365  —  10,408  11,829  433  —  12,262  
Depreciation & amortization (2)Depreciation & amortization (2)22,322 2,674 — 24,996 23,393 1,925 — 25,318 Depreciation & amortization (2)20,144  2,708  —  22,852  20,824  2,418  —  23,242  
Stock-based compensation expenseStock-based compensation expense2,612 — — 2,612 3,049 — — 3,049 Stock-based compensation expense2,427  —  —  2,427  2,814  —  —  2,814  
Loss (gain) on exit of leased dealershipsLoss (gain) on exit of leased dealerships(170)— — (170)2,337 12 215 2,564 Loss (gain) on exit of leased dealerships—  —  —  —  (170) —  —  (170) 
Asset impairment chargesAsset impairment charges— — — — 10,317 — — 10,317 Asset impairment charges268,000  —  —  268,000  26  1,926  —  1,952  
Loss (gain) on debt extinguishment— — — — — — — — 
Long-term compensation charges— — — — — 23,333 — 23,333 
Loss (gain) on franchise disposalsLoss (gain) on franchise disposals356 — — 356 (38,047)— — (38,047)Loss (gain) on franchise disposals—  —  —  —  (46,750) —  —  (46,750) 
Adjusted EBITDA (3)Adjusted EBITDA (3)$72,262 $4,793 $(213)$76,842 $65,982 $(2,161)$24 $63,845 Adjusted EBITDA (3)$55,270  $5,169  $(285) $60,154  $49,729  $4,957  $(180) $54,506  
(1)Includes the following line items from the accompanying unaudited condensed consolidated statements of income, net of any amortization of debt issuance costs or net debt discount/premium included in (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.
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Six Months Ended June 30, 2019Six Months Ended June 30, 2018
Franchised Dealerships SegmentEchoPark SegmentDiscontinued OperationsTotalFranchised Dealerships SegmentEchoPark SegmentDiscontinued OperationsTotal
(In thousands)
Net income (loss)$68,821 $14,711 
Provision for income taxes28,944 6,232 
Income (loss) before taxes$96,284 $1,874 $(393)$97,765 $64,006 $(42,518)$(545)$20,943 
Non-floor plan interest (1)24,428 864 — 25,292 24,819 795 221 25,835 
Depreciation & amortization (2)42,560 5,085 — 47,645 45,630 3,586 — 49,216 
Stock-based compensation expense5,426 — — 5,426 6,011 — — 6,011 
Loss (gain) on exit of leased dealerships(170)— — (170)2,337 12 215 2,564 
Asset impairment charges26 1,926 — 1,952 13,878 82 — 13,960 
Loss (gain) on debt extinguishment— — — — — — — — 
Long-term compensation charges— — — — — 32,522 — 32,522 
Loss (gain) on franchise disposals(46,394)— — (46,394)(39,238)— — (39,238)
Adjusted EBITDA (3)$122,160 $9,749 $(393)$131,516 $117,443 $(5,521)$(109)$111,813 
(1) Includes the following line items from the accompanying unaudited condensed consolidated statements of income, net of any amortization of debt issuance costs or net debt discount/premium included in (2) below: interest expense, other, net; interest expense, non-cash, convertible debt; 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, net debt discount/premium amortization and other amortization.
(3) Adjusted EBITDA is a non-GAAP 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) and, the 2016 Credit Facilities (or any replacements thereof), the 2019 Mortgage Facility (or any replacements thereof), real estate mortgage financing, 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 and their ability to provide us with cash.
We believe the second quarter of 2020 will be challenging from an operational standpoint due to the anticipated lower level of sales activity resulting from the COVID-19 pandemic. We have taken actions to increase overall liquidity by ensuring all vehicles that are available for flooring are floored, negotiating with landlords and other vendors for payment abatements or deferrals, reviewing our portfolio of unencumbered owned real estate for mortgage opportunities, taking advantage of certain federal and state programs for the deferral of payment of certain types of taxes (income, payroll, sales, withholding and property), seeking amendments to our outstanding credit facilities and exploring sources of liquidity provided through various governmental programs.
Currently, the effects of the COVID-19 pandemic have not affected our cost of or access to capital and funding sources. We do not anticipate any materially negative changes to our cost of or access to capital over the near or longer term other than
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the expectation that operating results for the second quarter of 2020 will be significantly less than those from the prior year period.
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. 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.
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 $28.0$43.3 million and $13.2$46.5 million at June 30, 2019March 31, 2020 and December 31, 2018,2019, respectively. These indemnifications typically expire within a period of one to three years following the date of sale. The
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estimated fair value of these indemnifications was not material and the amount recorded for this contingency was not significant at June 30, 2019.March 31, 2020.
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, 2019March 31, 2020 and December 31, 2018.2019.
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, 20182019 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, 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 remains stable throughout the year.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Interest Rate Risk
Our variable rate floor plan facilities, the 2016 Revolving Credit Facility, the 2019 Mortgage 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 $893.8 million$1.5 billion at June 30, 2019.March 31, 2020. An increase in interest rates of 100 basis points would have caused a change in interest expense of approximately $5.5approximately $5.0 million in the sixthree months ended June 30, 2019.March 31, 2020. Of the total change in interest expense, approximately $4.6$4.0 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 sixthree months ended June 30, 2019March 31, 2020 due to the leases containing LIBOR floors which were above the LIBOR rate during the sixthree months ended June 30, 2019.March 31, 2020.
We also have interest rate cap agreements designated as hedging instruments to limit our exposure to increases in LIBOR rates above certain levels. Under the terms of these interest rate caps, interest rates reset monthly. The fair value of the outstanding interest rate cap positions at June 30, 2019March 31, 2020 was an asset of approximately $0.7 million, with approximately $0.4 million included in other current assets and approximately $0.3$0.1 million, included in other assets in the accompanying unaudited condensed consolidated balance sheets.sheet as of such date. During the six months ended June 30, 2018, we terminated all of our previously outstanding interest rate cash flow swap agreements for net cash proceeds of approximately $4.8 million, which will beis being amortized into income as a reduction of interest expense, other, net in the accompanying unaudited condensed consolidated statements of income on a ratable basis over the original term of thesethe agreements (through July 1, 2020). The fair value of the outstanding interest rate cap positions at December 31, 20182019 was a net asset of approximately $4.8 million, with approximately $1.8 million included in other current assets and approximately $3.0$0.1 million, included in other assets in the accompanying unaudited condensed consolidated balance sheets.sheet as of such date. See Note 6, “Long-Term Debt,” to the accompanying unaudited condensed consolidated financial statements for a discussion of our outstanding interest rate instruments.
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,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 United States. 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.
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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 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) as of June 30, 2019.March 31, 2020. Based upon that evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of June 30, 2019.March 31, 2020.
Changes in Internal Control over Financial Reporting – We implemented the new lease standard as of January 1, 2019. As a result, we made significant modifications to internal control over financial reporting during the first quarter of 2019, including changes to accounting policies and procedures, operational processes and documentation practices.
Other than the items described above, thereThere has been no change in our internal control over financial reporting during the three months ended June 30, 2019,March 31, 2020, that has materially affected, or is 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.
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PART II – OTHER INFORMATION

Item 1. Legal Proceedings.
We are involved, and expect to continue to be involved, in various legal and administrative proceedings arising out of the conduct of our 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 we vigorously defend ourselves in all legal and administrative proceedings, the outcomes of pending and future proceedings arising out of the conduct of our 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 our business, financial condition, results of operations, cash flows or prospects.
Included in other accrued liabilities and other long-term liabilities in the accompanying unaudited condensed consolidated balance sheet as of June 30, 2019March 31, 2020 was approximately $1.4$0.4 million and $0.3$0.2 million, respectively, in reserves that we were holding for pending proceedings. Except as reflected in such reserves, we are 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.
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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, 2018,2019, except as noted below.
Our business maycould be adversely affected by import product restrictionsthe effects of widespread public health epidemics.
The automotive manufacturing supply chain spans the globe. As such, supply chain disruptions resulting from natural disasters, adverse weather and foreign trade risks that may impair our ability to sell foreign vehicles profitably.
A significant portion of our new vehicle business involves the sale of vehicles, parts, or vehicles composed of parts that are manufactured outside the United States. As a result, our operations are subject to risks of importing merchandise, including fluctuations in the relative values of currencies, import duties or tariffs, exchange controls, trade restrictions, work stoppages, and general political and socioeconomic conditions in other countries. The United States or the countries from which our products are imported may, from time to time, impose new quotas, duties, tariffs or other restrictions, or adjust presently prevailing quotas, duties or tariffs, whichevents may affect the flow of inventory or parts to us or our manufacturing partners. For example, in early 2020, the worldwide spread of COVID-19 led to widespread disruptions to travel and economic activity, including automobile manufacturing and supply chain shut-downs. The extent to which COVID-19 may continue to adversely impact our business depends on future developments, which are highly uncertain and unpredictable, depending upon the severity and duration of the outbreak and the effectiveness of actions taken globally to contain or mitigate its effects. Any resulting financial impact cannot be estimated reasonably at this time, but may materially adversely affect our business, results of operations, financial condition and cash flows. Even after the COVID-19 pandemic has subsided, we may experience materially adverse impacts to our business due to any resulting economic recession or depression. Additionally, concerns over the economic impact of COVID-19 have caused extreme volatility in financial and other capital markets which has and may continue to adversely impact our stock price and our ability to purchase imported vehicles and/or parts at reasonable prices, which may negatively affect the consumer-affordability of certain new vehicles and reduce demand for certain vehicle makes and models.
Reforms to and uncertainty regarding the London InterBank Offered Rate (“LIBOR”) may adversely affect our business, financial condition and results of operations.
The United Kingdom Financial Conduct Authority announced in July 2017 that it will no longer persuade or require banks to submit rates for LIBOR after 2021. This announcement, in conjunction with financial benchmark reforms more generally and changes in the interbank lending markets, have resulted in uncertainty about the future of LIBOR and certain other rates or indices which have historically been used as interest rate “benchmarks” in financial contracts, including, but not limited to, floor plan notes payable, variable-rate mortgage notes, interest rate swap agreements and interest rate cap agreements. These actions and uncertainties may have the effect of triggering future changes in the rules or methodologies used to calculate benchmarks or lead to the discontinuation or unavailability of benchmarks. Additionally, there can be no assurance that we and other market participants will be adequately prepared for an actual discontinuation of benchmarks, including LIBOR, that existing assets and liabilities based on or linked to benchmarks will transition successfully to alternative reference rates or benchmarks or of the timing of adoption and degree of integration of such alternative reference rates or benchmarks in theaccess capital markets. The discontinuation of benchmarks, including LIBOR, may have an unpredictable impact on the contractual mechanics of financial contracts (including, but not limited to, interest rates to be paid to or by us), require renegotiation of outstanding financial assets and liabilities, cause significant disruption to financial markets that are relevant to our business, increase the risk of litigation and/or increase expenses related to the transition to alternative reference rates or benchmarks, among other adverse consequences. Additionally, any transition from current benchmarks may alter the Company’s risk profiles and models, valuation tools, cost of financing and effectiveness of hedging strategies. Reforms to and uncertainty regarding transitions from current benchmarks may adversely affect our business, financial condition or results of operations.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

The following table sets forth information aboutSee Note 6, “Long-Term Debt,” to the sharesaccompanying unaudited condensed consolidated financial statements for a description of Class A Common Stock we repurchased duringrestrictions on the three months ended June 30, 2019:payment of dividends.
Total Number of Shares PurchasedAverage Price Paid per ShareTotal 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 20194 $14.81 4 $81,194 
May 2019— $— — $81,194 
June 2019— $— — $81,194 
Total4 4 


(1) On February 13, 2017, 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)
February 2017 authorization$100,000 
Total active program repurchases prior to June 30, 2019(18,806)
Current remaining availability as of June 30, 2019$
81,194 

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.



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Item 6. Exhibits.

Exhibit No.Description
3.1 
Amended and Restated Certificate of Incorporation of Sonic Automotive, Inc., dated August 7, 1997 (incorporated by reference to Exhibit 3.1 to the Quarterly Report on Form 10-Q for the quarter ended March 31, 2017 (File No. 001-13395)).
3.2 
Certificate of Designation, Preferences and Rights of Class A Convertible Preferred Stock, dated March 20, 1998 (incorporated by reference to Exhibit 3.2 to the Quarterly Report on Form 10-Q for the quarter ended March 31, 2017 (File No. 001-13395)).
3.3 
3.4 
3.5 
10.1 10.1*
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.
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.

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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 25, 2019May 11, 2020By:/s/ DAVID BRUTON SMITH
David Bruton Smith
Chief Executive Officer
July 25, 2019May 11, 2020By:/s/ HEATH R. BYRD
Heath R. Byrd
Executive Vice President and Chief Financial Officer

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