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 ~~March 31,~~June 30, 2021

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 1-13395

SONIC AUTOMOTIVE, INC.

(Exact name of registrant as specified in its charter)

______________________________________


Delaware						56-2010790
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

4401 Colwick Road

28211

Charlotte,

North Carolina

(Address of principal executive offices)

(Zip Code)

(704) 566-2400

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Class A Common Stock, par value $0.01 per share

SAH

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☒	Accelerated filer	☐

Non-accelerated filer	☐	Smaller reporting company	☐

		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of ~~April~~July 26, 2021, there were ~~29,565,403~~29,686,573 shares of the registrant’s Class A Common Stock and 12,029,375 shares of the registrant’s Class B Common Stock outstanding.

UNCERTAINTY OF FORWARD-LOOKING STATEMENTS AND INFORMATION

This Quarterly Report on Form 10-Q contains, and written or oral statements made from time to time by us or by our authorized officers may contain, “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements address our future objectives, plans and goals, as well as our intent, beliefs and current expectations regarding future operating performance, results and events, and can generally be identified by words such as “may,” “will,” “should,” “could,” “believe,” “expect,” “estimate,” “anticipate,” “intend,” “plan,” “foresee” and other similar words or phrases.

These forward-looking statements are based on our current estimates and assumptions and involve various risks and uncertainties. As a result, you are cautioned that these forward-looking statements are not guarantees of future performance, and that actual results could differ materially from those projected in these forward-looking statements. Factors which may cause actual results to differ materially from our projections include those risks described in “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2020 and in “Item 1A. Risk Factors” of this report and elsewhere herein, as well as:

•the number of new and used vehicles sold in the United States as compared to our expectations and the expectations of the market;

•our ability to generate sufficient cash flows or to obtain additional financing to fund our EchoPark expansion, capital expenditures, our share repurchase program, dividends on our common stock, acquisitions and general operating activities;

•our business and growth strategies, including, but not limited to, our EchoPark store operations;

•the reputation and financial condition of vehicle manufacturers whose brands we represent, the financial incentives vehicle manufacturers offer and their ability to design, manufacture, deliver and market their vehicles successfully;

•our relationships with manufacturers, which may affect our ability to obtain desirable new vehicle models in inventory or to complete additional acquisitions or dispositions;

•the adverse resolution of one or more significant legal proceedings against us or our franchised dealerships or EchoPark stores;

•changes in laws and regulations governing the operation of automobile franchises, accounting standards, taxation requirements and environmental laws, including any change in law or regulations in response to the ~~COVID~~ COVID–19 pandemic;

•changes in vehicle and parts import quotas, duties, tariffs or other restrictions, including supply shortages that could be caused by the COVID-19 pandemic or other supply chain disruptions;

•the inability of vehicle manufacturers and their suppliers to obtain, produce and deliver vehicles or parts and accessories to meet demand at our franchised dealerships for sale and use in our parts, service and collision repair operations;

•general economic conditions in the markets in which we operate, including fluctuations in interest rates, employment levels, the level of consumer spending and consumer credit availability;

•high levels of competition in the retail automotive industry, which not only create pricing pressures on the products and services we offer, but also on businesses we may seek to acquire;

•our ability to successfully integrate potential future acquisitions;

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

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

•the severity and duration of the COVID-19 pandemic and the actions taken by vehicle manufacturers, governmental authorities, businesses or consumers in response to the pandemic, including in response to a worsening or ~~“second~~“next wave” of the ~~pandemic.~~pandemic as a result of the Delta variant or otherwise.

These forward-looking statements speak only as of the date of this report or when made, and we undertake no obligation to revise or update these statements to reflect subsequent events or circumstances, except as required under the federal securities laws and the rules and regulations of the Securities and Exchange Commission.

SONIC AUTOMOTIVE, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE THREE AND SIX MONTHS ENDED ~~MARCH 31,~~JUNE 30, 2021

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

SONIC AUTOMOTIVE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

Three Months Ended March 31,
2021 2020
(Dollars and shares in thousands, except per share amounts)
Revenues:
New vehicles $ 1,156,317 $ 959,489
Used vehicles 1,090,097 850,052
Wholesale vehicles 74,809 48,543
Total vehicles 2,321,223 1,858,084
Parts, service and collision repair 320,914 334,680
Finance, insurance and other, net 144,661 115,292
Total revenues 2,786,798 2,308,056
Cost of sales:
New vehicles (1,086,852) (914,074)
Used vehicles (1,059,229) (817,922)
Wholesale vehicles (73,960) (48,700)
Total vehicles (2,220,041) (1,780,696)
Parts, service and collision repair (165,864) (176,782)
Total cost of sales (2,385,905) (1,957,478)
Gross profit 400,893 350,578
Selling, general and administrative expenses (289,356) (282,156)
Impairment charges 0 (268,000)
Depreciation and amortization (23,687) (22,297)
Operating income (loss) 87,850 (221,875)
Other income (expense):
Interest expense, floor plan (5,113) (10,508)
Interest expense, other, net (10,285) (10,965)
Other income (expense), net 101 100
Total other income (expense) (15,297) (21,373)
Income (loss) from continuing operations before taxes 72,553 (243,248)
Provision for income taxes for continuing operations - benefit (expense) (18,864) 44,117
Income (loss) from continuing operations 53,689 (199,131)
Discontinued operations:
Income (loss) from discontinued operations before taxes 720 (285)
Provision for income taxes for discontinued operations - benefit (expense) (187) 83
Income (loss) from discontinued operations 533 (202)
Net income (loss) $ 54,222 $ (199,333)
Basic earnings (loss) per common share:
Earnings (loss) per share from continuing operations $ 1.29 $ (4.67)
Earnings (loss) per share from discontinued operations 0.02 (0.01)
Earnings (loss) per common share $ 1.31 $ (4.68)
Weighted-average common shares outstanding 41,541 42,615
Diluted earnings (loss) per common share:
Earnings (loss) per share from continuing operations $ 1.23 $ (4.67)
Earnings (loss) per share from discontinued operations 0.02 (0.01)
Earnings (loss) per common share $ 1.25 $ (4.68)
Weighted-average common shares outstanding 43,542 42,615


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
	(Dollars and shares in thousands, except per share amounts)
Revenues:
New vehicles	$	1,462,893	$	900,003	$	2,619,210	$	1,859,492
Used vehicles	1,266,696		808,877		2,356,794		1,658,930
Wholesale vehicles	84,807		33,175		159,614		81,718
Total vehicles	2,814,396		1,742,055		5,135,618		3,600,140
Parts, service and collision repair	360,596		259,058		681,509		593,738
Finance, insurance and other, net	177,254		110,773		321,916		226,064
Total revenues	3,352,246		2,111,886		6,139,043		4,419,942
Cost of sales:
New vehicles	(1,344,467)		(854,617)		(2,431,319)		(1,768,690)
Used vehicles	(1,231,943)		(781,506)		(2,291,171)		(1,599,428)
Wholesale vehicles	(80,280)		(33,601)		(154,240)		(82,303)
Total vehicles	(2,656,690)		(1,669,724)		(4,876,730)		(3,450,421)
Parts, service and collision repair	(184,748)		(134,779)		(350,612)		(311,560)
Total cost of sales	(2,841,438)		(1,804,503)		(5,227,342)		(3,761,981)
Gross profit	510,808		307,383		911,701		657,961
Selling, general and administrative expenses	(320,620)		(230,359)		(609,976)		(512,515)
Impairment charges	0		(833)		0		(268,833)
Depreciation and amortization	(24,761)		(22,647)		(48,448)		(44,944)
Operating income (loss)	165,427		53,544		253,277		(168,331)
Other income (expense):
Interest expense, floor plan	(4,329)		(6,314)		(9,441)		(16,822)
Interest expense, other, net	(10,077)		(9,797)		(20,363)		(20,762)
Other income (expense), net	0		0		100		100
Total other income (expense)	(14,406)		(16,111)		(29,704)		(37,484)
Income (loss) from continuing operations before taxes	151,021		37,433		223,573		(205,815)
Provision for income taxes for continuing operations - benefit (expense)	(37,030)		(6,437)		(55,893)		37,680
Income (loss) from continuing operations	113,991		30,996		167,680		(168,135)
Discontinued operations:
Income (loss) from discontinued operations before taxes	(204)		(289)		516		(573)
Provision for income taxes for discontinued operations - benefit (expense)	58		84		(129)		166
Income (loss) from discontinued operations	(146)		(205)		387		(407)
Net income (loss)	$	113,845	$	30,791	$	168,067	$	(168,542)
Basic earnings (loss) per common share:
Earnings (loss) per share from continuing operations	$	2.74	$	0.72	$	4.03	$	(3.93)
Earnings (loss) per share from discontinued operations	0		0		0.01		(0.01)
Earnings (loss) per common share	$	2.74	$	0.72	$	4.04	$	(3.94)
Weighted-average common shares outstanding	41,581		42,940		41,561		42,779
Diluted earnings (loss) per common share:
Earnings (loss) per share from continuing operations	$	2.63	$	0.71	$	3.86	$	(3.93)
Earnings (loss) per share from discontinued operations	0		0		0.01		(0.01)
Earnings (loss) per common share	$	2.63	$	0.71	$	3.87	$	(3.94)
Weighted-average common shares outstanding	43,424		43,575		43,483		42,779

See notes to unaudited condensed consolidated financial statements.

SONIC AUTOMOTIVE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE OPERATIONS

(Unaudited)


		Three Months Ended March 31,					Three Months Ended June 30,				Six Months Ended June 30,
		2021		2020					2021		2020		2021		2020
		(Dollars in thousands)				(Dollars in thousands)
Net income (loss)	Net income (loss)	$	54,222	$	(199,333)			Net income (loss)	$	113,845	$	30,791	$	168,067	$	(168,542)
Other comprehensive income (loss) before taxes:	Other comprehensive income (loss) before taxes:							Other comprehensive income (loss) before taxes:
Change in fair value and amortization of interest rate cap agreements	Change in fair value and amortization of interest rate cap agreements	411		361				Change in fair value and amortization of interest rate cap agreements	471		419		881		780
Amortization of terminated interest rate swap agreements	Amortization of terminated interest rate swap agreements	0		(797)				Amortization of terminated interest rate swap agreements	0		(835)		0		(1,632)
Total other comprehensive income (loss) before taxes	Total other comprehensive income (loss) before taxes	411		(436)				Total other comprehensive income (loss) before taxes	471		(416)		881		(852)
Provision for income tax benefit (expense) related to components of other comprehensive income (loss)	Provision for income tax benefit (expense) related to components of other comprehensive income (loss)	(168)		164				Provision for income tax benefit (expense) related to components of other comprehensive income (loss)	(124)		161		(291)		325
Other comprehensive income (loss)	Other comprehensive income (loss)	243		(272)				Other comprehensive income (loss)	347		(255)		590		(527)
Comprehensive income (loss)	Comprehensive income (loss)	$	54,465	$	(199,605)			Comprehensive income (loss)	$	114,192	$	30,536	$	168,657	$	(169,069)

See notes to unaudited condensed consolidated financial statements.

SONIC AUTOMOTIVE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


		March 31, 2021		December 31, 2020			June 30, 2021		December 31, 2020
		(Dollars in thousands)					(Dollars in thousands)
ASSETS	ASSETS					ASSETS
Current Assets:	Current Assets:					Current Assets:
Cash and cash equivalents	Cash and cash equivalents	$	77,233	$	170,313	Cash and cash equivalents	$	239,617	$	170,313
Receivables, net	Receivables, net	373,518		371,666		Receivables, net	356,850		371,666
Inventories	Inventories	1,232,253		1,247,254		Inventories	1,016,566		1,247,254
Other current assets	Other current assets	97,680		93,334		Other current assets	106,341		93,334
Total current assets	Total current assets	1,780,684		1,882,567		Total current assets	1,719,374		1,882,567
Property and Equipment, net	Property and Equipment, net	1,166,925		1,120,526		Property and Equipment, net	1,177,928		1,120,526
Goodwill	Goodwill	219,195		213,977		Goodwill	223,398		213,977
Other Intangible Assets, net	Other Intangible Assets, net	64,300		64,300		Other Intangible Assets, net	68,200		64,300
Operating Right-of-Use Lease Assets	Operating Right-of-Use Lease Assets	320,914		330,322		Operating Right-of-Use Lease Assets	313,941		330,322
Finance Right-of-Use Lease Assets	Finance Right-of-Use Lease Assets	65,216		60,121		Finance Right-of-Use Lease Assets	70,486		60,121
Other Assets	Other Assets	74,993		74,180		Other Assets	83,018		74,180
Total Assets	Total Assets	$	3,692,227	$	3,745,993	Total Assets	$	3,656,345	$	3,745,993

LIABILITIES AND STOCKHOLDERS’ EQUITY	LIABILITIES AND STOCKHOLDERS’ EQUITY					LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:	Current Liabilities:					Current Liabilities:
Notes payable - floor plan - trade	Notes payable - floor plan - trade	$	538,768	$	585,225	Notes payable - floor plan - trade	$	32,778	$	585,225
Notes payable - floor plan - non-trade	Notes payable - floor plan - non-trade	687,550		739,019		Notes payable - floor plan - non-trade	1,053,325		739,019
Trade accounts payable	Trade accounts payable	136,314		105,098		Trade accounts payable	146,634		105,098
Operating short-term lease liabilities	Operating short-term lease liabilities	40,685		42,339		Operating short-term lease liabilities	40,413		42,339
Finance short-term lease liabilities	Finance short-term lease liabilities	4,059		3,515		Finance short-term lease liabilities	12,920		3,515
Accrued interest	Accrued interest	4,105		8,496		Accrued interest	7,365		8,496
Other accrued liabilities	Other accrued liabilities	295,331		279,477		Other accrued liabilities	290,686		279,477
Current maturities of long-term debt	Current maturities of long-term debt	74,520		68,244		Current maturities of long-term debt	51,681		68,244
Total current liabilities	Total current liabilities	1,781,332		1,831,413		Total current liabilities	1,635,802		1,831,413
Long-Term Debt	Long-Term Debt	637,377		651,823		Long-Term Debt	634,712		651,823
Other Long-Term Liabilities	Other Long-Term Liabilities	90,311		88,753		Other Long-Term Liabilities	92,974		88,753
Operating Long-Term Lease Liabilities	Operating Long-Term Lease Liabilities	288,589		296,564		Operating Long-Term Lease Liabilities	281,636		296,564
Finance Long-Term Lease Liabilities	Finance Long-Term Lease Liabilities	67,388		62,290		Finance Long-Term Lease Liabilities	64,382		62,290
Deferred Income Taxes	Deferred Income Taxes	771		345		Deferred Income Taxes	485		345
Commitments and Contingencies	Commitments and Contingencies	0		0		Commitments and Contingencies	0		0
Stockholders’ Equity:	Stockholders’ Equity:					Stockholders’ Equity:
Class A Convertible Preferred Stock, NaN issued	Class A Convertible Preferred Stock, NaN issued	0		0		Class A Convertible Preferred Stock, NaN issued	0		0
Class A Common Stock, $0.01 par value; 100,000,000 shares authorized; 66,017,716 shares issued and 29,250,512 shares outstanding at March 31, 2021; 65,607,628 shares issued and 29,797,727 shares outstanding at December 31, 2020		660		656
Class B Common Stock, $0.01 par value; 30,000,000 shares authorized; 12,029,375 shares issued and outstanding at March 31, 2021 and December 31, 2020		121		121
Class A Common Stock, $0.01 par value; 100,000,000 shares authorized; 66,448,546 shares issued and 29,680,414 shares outstanding at June 30, 2021; 65,607,628 shares issued and 29,797,727 shares outstanding at December 31, 2020						Class A Common Stock, $0.01 par value; 100,000,000 shares authorized; 66,448,546 shares issued and 29,680,414 shares outstanding at June 30, 2021; 65,607,628 shares issued and 29,797,727 shares outstanding at December 31, 2020	664		656
Class B Common Stock, $0.01 par value; 30,000,000 shares authorized; 12,029,375 shares issued and outstanding at June 30, 2021 and December 31, 2020						Class B Common Stock, $0.01 par value; 30,000,000 shares authorized; 12,029,375 shares issued and outstanding at June 30, 2021 and December 31, 2020	121		121
Paid-in capital	Paid-in capital	771,079		767,599		Paid-in capital	781,829		767,599
Retained earnings	Retained earnings	771,864		721,770		Retained earnings	880,704		721,770
Accumulated other comprehensive income (loss)	Accumulated other comprehensive income (loss)	(3,373)		(3,616)		Accumulated other comprehensive income (loss)	(3,026)		(3,616)
Treasury stock, at cost; 36,767,204 Class A Common Stock shares held at March 31, 2021 and 35,809,901 Class A Common Stock shares held at December 31, 2020		(713,892)		(671,725)
Treasury stock, at cost; 36,768,132 Class A Common Stock shares held at June 30, 2021 and 35,809,901 Class A Common Stock shares held at December 31, 2020						Treasury stock, at cost; 36,768,132 Class A Common Stock shares held at June 30, 2021 and 35,809,901 Class A Common Stock shares held at December 31, 2020	(713,938)		(671,725)
Total Stockholders’ Equity	Total Stockholders’ Equity	826,459		814,805		Total Stockholders’ Equity	946,354		814,805
Total Liabilities and Stockholders’ Equity	Total Liabilities and Stockholders’ Equity	$	3,692,227	$	3,745,993	Total Liabilities and Stockholders’ Equity	$	3,656,345	$	3,745,993

See notes to unaudited condensed consolidated financial statements.

SONIC AUTOMOTIVE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)


	Class A Common Stock			Class A Treasury Stock			Class B Common Stock			Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Stockholders’ Equity
	Shares	Amount		Shares	Amount		Shares	Amount
	(Dollars and shares in thousands, except per share amounts)
Balance at March 31, 2020	65,199	$	652	(34,364)	$	(621,290)	12,029	$	121	$	758,327	$	586,511	$	(2,334)	$	721,987
Shares awarded under stock compensation plans	405	4		—	—		—	—		(5)		—		—		(1)
Purchases of treasury stock	—	—		(274)	(6,522)		—	—		—		—		—		(6,522)
Effect of cash flow hedge instruments, net of tax benefit of $161	—	—		—	—		—	—		—		—		(255)		(255)
Restricted stock amortization	—	—		—	—		—	—		2,971		—		—		2,971
Net income (loss)	—	—		—	—		—	—		—		30,791		—		30,791

Class A dividends declared ($0.10)	—	—		—	—		—	—		—		(3,066)		—		(3,066)
Class B dividends declared ($0.10)	—	—		—	—		—	—		—		(1,203)		—		(1,203)
Balance at June 30, 2020	65,604	$	656	(34,638)	$	(627,812)	12,029	$	121	$	761,293	$	613,033	$	(2,589)	$	744,702

Class A
Common Stock Class A
Treasury Stock Class B
Common Stock Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Stockholders’ Equity
Shares Amount Shares Amount Shares Amount
(Dollars and shares in thousands, except per share amounts)
Balance at December 31, 2019 64,734 $ 647 (33,629) $ (600,004) 12,029 $ 121 $ 755,904 $ 790,158 $ (2,062) $ 944,764
Shares awarded under stock compensation plans 465 5 — — — — (4) — — 1
Purchases of treasury stock — — (735) (21,286) — — — — — (21,286)
Effect of cash flow hedge instruments, net of tax benefit of $164 — — — — — — — — (272) (272)
Restricted stock amortization — — — — — — 2,427 — — 2,427
Net income (loss) — — — — — — — (199,333) — (199,333)
Class A dividends declared ($0.10) — — — — — — — (3,111) — (3,111)
Class B dividends declared ($0.10) — — — — — — — (1,203) — (1,203)
Balance at March 31, 2020 65,199 $ 652 (34,364) $ (621,290) 12,029 $ 121 $ 758,327 $ 586,511 $ (2,334) $ 721,987


	Class A Common Stock			Class A Treasury Stock			Class B Common Stock			Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Stockholders’ Equity
	Shares	Amount		Shares	Amount		Shares	Amount
	(Dollars and shares in thousands, except per share amounts)
Balance at March 31, 2021	66,018	$	660	(36,767)	$	(713,892)	12,029	$	121	$	771,079	$	771,864	$	(3,373)	$	826,459
Shares awarded under stock compensation plans	431	4		—	—		—	—		6,762		—		—		6,766
Purchases of treasury stock	—	—		(1)	(46)		—	—		—		—		—		(46)
Effect of cash flow hedge instruments, net of tax expense of $124	—	—		—	—		—	—		—		—		347		347
Restricted stock and stock option amortization	—	—		—	—		—	—		3,988		—		—		3,988
Net income (loss)	—	—		—	—		—	—		—		113,845		—		113,845

Class A dividends declared ($0.12)	—	—		—	—		—	—		—		(3,562)		—		(3,562)
Class B dividends declared ($0.12)	—	—		—	—		—	—		—		(1,443)		—		(1,443)
Balance at June 30, 2021	66,449	$	664	(36,768)	$	(713,938)	12,029	$	121	$	781,829	$	880,704	$	(3,026)	$	946,354

Class A
Common Stock Class A
Treasury Stock Class B
Common Stock Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Stockholders’ Equity
Shares Amount Shares Amount Shares Amount
(Dollars and shares in thousands, except per share amounts)
Balance at December 31, 2020 65,608 $ 656 (35,810) $ (671,725) 12,029 $ 121 $ 767,599 $ 721,770 $ (3,616) $ 814,805
Shares awarded under stock compensation plans 410 4 — — — — (4) — — 0
Purchases of treasury stock — — (957) (42,167) — — — — — (42,167)
Effect of cash flow hedge instruments, net of tax expense of $168 — — — — — — — — 243 243
Restricted stock and stock option amortization — — — — — — 3,484 — — 3,484
Net income (loss) — — — — — — — 54,222 — 54,222
Class A dividends declared ($0.10) — — — — — — — (2,925) — (2,925)
Class B dividends declared ($0.10) — — — — — — — (1,203) — (1,203)
Balance at March 31, 2021 66,018 $ 660 (36,767) $ (713,892) 12,029 $ 121 $ 771,079 $ 771,864 $ (3,373) $ 826,459

See notes to unaudited condensed consolidated financial statements.

SONIC AUTOMOTIVE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)



	Class A Common Stock			Class A Treasury Stock			Class B Common Stock			Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Stockholders’ Equity
	Shares	Amount		Shares	Amount		Shares	Amount
	(Dollars and shares in thousands, except per share amounts)
Balance at December 31, 2019	64,734	$	647	(33,629)	$	(600,004)	12,029	$	121	$	755,904	$	790,158	$	(2,062)	$	944,764
Shares awarded under stock compensation plans	870	9		—	—		—	—		(8)		—		—		1
Purchases of treasury stock	—	—		(1,009)	(27,808)		—	—		—		—		—		(27,808)
Effect of cash flow hedge instruments, net of tax benefit of $325	—	—		—	—		—	—		—		—		(527)		(527)
Restricted stock amortization	—	—		—	—		—	—		5,397		—		—		5,397
Net income (loss)	—	—		—	—		—	—		—		(168,542)		—		(168,542)

Class A dividends declared ($0.20)	—	—		—	—		—	—		—		(6,177)		—		(6,177)
Class B dividends declared ($0.20)	—	—		—	—		—	—		—		(2,406)		—		(2,406)
Balance at June 30, 2020	65,604	$	656	(34,638)	$	(627,812)	12,029	$	121	$	761,293	$	613,033	$	(2,589)	$	744,702



	Class A Common Stock			Class A Treasury Stock			Class B Common Stock			Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Stockholders’ Equity
	Shares	Amount		Shares	Amount		Shares	Amount
	(Dollars and shares in thousands, except per share amounts)
Balance at December 31, 2020	65,608	$	656	(35,810)	$	(671,725)	12,029	$	121	$	767,599	$	721,770	$	(3,616)	$	814,805
Shares awarded under stock compensation plans	841	8		—	—		—	—		6,757		—		—		6,765
Purchases of treasury stock	—	—		(958)	(42,213)		—	—		—		—		—		(42,213)
Effect of cash flow hedge instruments, net of tax expense of $291	—	—		—	—		—	—		—		—		590		590
Restricted stock and stock option amortization	—	—		—	—		—	—		7,473		—		—		7,473
Net income (loss)	—	—		—	—		—	—		—		168,067		—		168,067

Class A dividends declared ($0.22)	—	—		—	—		—	—		—		(6,499)		—		(6,499)
Class B dividends declared ($0.22)	—	—		—	—		—	—		—		(2,634)		—		(2,634)
Balance at June 30, 2021	66,449	$	664	(36,768)	$	(713,938)	12,029	$	121	$	781,829	$	880,704	$	(3,026)	$	946,354

See notes to unaudited condensed consolidated financial statements.

SONIC AUTOMOTIVE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

Three Months Ended March 31,
2021 2020
(Dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 54,222 $ (199,333)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization of property and equipment 22,202 21,540
Provision for bad debt expense 91 134
Debt issuance cost amortization 823 557
Stock-based compensation expense 3,484 2,427
Deferred income taxes (2,915) (53,999)
Net distributions from equity investee 171 448
Asset impairment charges 0 268,000
Loss (gain) on disposal of dealerships and property and equipment (25) (39)
Changes in assets and liabilities that relate to operations:
Receivables (1,943) 231,732
Inventories 16,530 (90,342)
Other assets 9,628 (89,114)
Notes payable - floor plan - trade (46,457) (33,579)
Trade accounts payable and other liabilities 34,419 (105,630)
Total adjustments 36,008 152,135
Net cash provided by (used in) operating activities 90,230 (47,198)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of businesses, net of cash acquired (8,817) 0
Purchases of land, property and equipment (67,663) (19,805)
Proceeds from sales of property and equipment 912 194
Proceeds from sales of dealerships 0 0
Net cash provided by (used in) investing activities (75,568) (19,611)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (repayments) borrowings on notes payable - floor plan - non-trade (51,469) 41,223
Borrowings on revolving credit facilities 4,906 460,916
Repayments on revolving credit facilities (4,906) (250,916)
Debt issuance costs (25) (24)
Principal payments and repurchase of long-term debt (8,968) (5,777)
Principal payments of long-term lease liabilities (930) (337)
Purchases of treasury stock (42,167) (21,286)
Issuance of shares under stock compensation plans 0 1
Dividends paid (4,183) (4,314)
Net cash provided by (used in) financing activities (107,742) 219,486
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (93,080) 152,677
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 170,313 29,103
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 77,233 $ 181,780
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid (received) during the period for:
Interest, including amount capitalized $ 19,140 $ 25,359
Income taxes $ (382) $ 3


	Six Months Ended June 30,
	2021		2020
	(Dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	168,067	$	(168,542)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization of property and equipment	45,392		43,462
Provision for bad debt expense	348		345

Debt issuance cost amortization	1,658		1,182

Stock-based compensation expense	7,473		5,397
Deferred income taxes	(5,962)		(60,035)
Net distributions from equity investee	(262)		465
Asset impairment charges	0		268,833
Loss (gain) on disposal of dealerships and property and equipment	(490)		2,364


Changes in assets and liabilities that relate to operations:
Receivables	14,467		139,305
Inventories	240,233		341,340
Other assets	10,514		(45,013)
Notes payable - floor plan – trade	(552,447)		(257,660)
Trade accounts payable and other liabilities	36,351		(43,695)
Total adjustments	(202,725)		396,290
Net cash provided by (used in) operating activities	(34,658)		227,748
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of businesses, net of cash acquired	(28,595)		0
Purchases of land, property and equipment	(105,091)		(61,733)
Proceeds from sales of property and equipment	739		163
Proceeds from sales of dealerships	3,798		(886)
Net cash provided by (used in) investing activities	(129,149)		(62,456)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (repayments) borrowings on notes payable - floor plan - non-trade	314,306		(64,121)
Borrowings on revolving credit facilities	4,906		460,916
Repayments on revolving credit facilities	(4,906)		(460,916)
Proceeds from issuance of long-term debt	0		53,135
Debt issuance costs	(4,638)		(1,252)
Principal payments and repurchase of long-term debt	(30,693)		(10,423)
Principal payments of long-term lease liabilities	(2,106)		(19,620)
Purchases of treasury stock	(42,213)		(27,808)

Issuance of shares under stock compensation plans	6,765		1
Dividends paid	(8,310)		(8,583)
Net cash provided by (used in) financing activities	233,111		(78,671)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	69,304		86,621
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR	170,313		29,103
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	239,617	$	115,724



SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid (received) during the period for:
Interest, including amount capitalized	$	29,635	$	34,939
Income taxes	$	54,377	$	79

See notes to unaudited condensed consolidated financial statements.

SONIC AUTOMOTIVE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies

Basis of Presentation – The accompanying unaudited condensed consolidated financial statements of Sonic Automotive, Inc. and its wholly owned subsidiaries (“Sonic,” the “Company,” “we,” “us” or “our”) for the three and six months ended ~~March 31,~~June 30, 2021 and 2020 are unaudited and have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and applicable rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The accompanying unaudited condensed consolidated financial statements reflect, in the opinion of management, all material normal, recurring adjustments necessary to fairly state the financial position, results of operations and cash flows for the periods presented. The operating results for interim periods are not necessarily indicative of the results to be expected for the entire fiscal year or future interim periods, because the first quarter historically has contributed less operating profit than the second and third quarters, while the fourth quarter historically has contributed the highest operating profit of any quarter. Additionally, the ongoing COVID-19 pandemic could impact earnings for the remainder of 2021 and beyond. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes thereto included in Sonic’s Annual Report on Form 10-K for the year ended December 31, 2020.

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

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

All of our store operations were impacted by the COVID-19 pandemic to varying degrees. During parts of the first half of 2020, the majority of our stores were not permitted to conduct retail sales of new and used vehicles at our physical locations. Those locations could offer virtual sales transactions with “contactless” delivery to customers but experienced lower consumer demand as a result of the initial onset of the pandemic and state and local governmental restrictions on business and consumer activities. Due to the critical nature of automotive repair, our fixed operations were deemed “essential” by governmental agencies and have largely been able to continue to conduct business so far, while adjusting operations to comply with state and local standards for safety and social distancing to promote the health and safety of our teammates and guests. As of ~~March 31,~~June 30, 2021, most of such restrictions had been relaxed; however, our stores remain subject to both external and self-imposed health and safety policies and practices that may affect the way we sell vehicles and interact with our guests in the future. These restrictions may be tightened again if conditions relating to the pandemic worsen as a result of variants.

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

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

SONIC AUTOMOTIVE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

Recent Accounting Pronouncements – In March 2020, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) 2020-04, “Reference Rate Reform (Accounting Standards Codification (“ASC”) Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” ASU 2020-04 provides optional guidance for a limited period of time to ease potential accounting impact associated with transitioning away from reference rates that are expected to be discontinued, such as the London InterBank Offered Rate (“LIBOR”). The amendments in this ASU apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be

~~SONIC AUTOMOTIVE, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

discontinued. The amendments in ASU 2020-04 could be adopted beginning January 1, 2020 and are effective through December 31, 2022. ~~Other than the 2021 Credit Agreement (as defined herein), we~~We do not currently have any contracts that have been modified, amended or renegotiated to accommodate a transition to a new reference rate, but we will continue to evaluate any such modifications or amendments to our contracts to determine the applicability of this standard on our unaudited condensed consolidated financial statements and related financial statement disclosures. ~~See Note 11, Subsequent Events, for a discussion of the amendment, restatement and consolidation of the 2016 Credit Facilities subsequent to March 31, 2021.~~

Principles of Consolidation – All of our dealership and non-dealership subsidiaries are wholly owned and consolidated in the accompanying unaudited condensed consolidated financial statements, except for one 50%-owned dealership that is accounted for under the equity method. All material intercompany balances and transactions have been eliminated in the accompanying unaudited condensed consolidated financial statements.

Revenue Recognition – Revenue is recognized when a customer obtains control of promised goods or services and in an amount that reflects the consideration that the entity expects to receive in exchange for those goods or services. ASC Topic 606, “Revenue from Contracts with Customers,” applies a five-step model that includes: (1) identifying the contract(s) with the customer; (2) identifying the performance obligation(s) in the contract(s); (3) determining the transaction price; (4) allocating the transaction price to the performance obligation(s) in the contract(s); and (5) recognizing revenue as the performance obligation(s) are satisfied. The standard also requires disclosure of the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. We do not include the cost of obtaining contracts within the related revenue streams since we elected the practical expedient to expense the costs to obtain a contract when incurred.

Management has evaluated our established business processes, revenue transaction streams and accounting policies, and identified our material revenue streams to be: (1) the sale of new vehicles; (2) the sale of used vehicles to retail customers; (3) the sale of wholesale used vehicles at third-party auctions; (4) the arrangement of vehicle financing and the sale of service, warranty and other insurance contracts; and (5) the performance of vehicle maintenance and repair services and the sale of related parts and accessories. Generally, performance conditions are satisfied when the associated vehicle is either delivered or returned to a customer and customer acceptance has occurred, or over time as the maintenance and repair services are performed. We do not have any revenue streams with significant financing components as payments are typically received within a short period of time following completion of the performance obligation(s).

Retrospective finance and insurance revenues (“F&I retro revenues”) are recognized when the product contract has been executed with the end customer and the transaction price is estimated each reporting period based on the expected value method using historical and projected data. F&I retro revenues can vary based on a variety of factors, including number of contracts and history of cancellations and claims. Accordingly, we utilize this historical and projected data to constrain the consideration to the extent that it is probable that a significant reversal in the amount of cumulative revenue will not occur when the uncertainty associated with the variable consideration is subsequently resolved.

We record revenue when vehicles are delivered to customers, when vehicle service work is performed and when parts are delivered. Conditions for completing a sale include having an agreement with the customer, including pricing, and it being probable that the proceeds from the sale will be collected.

The accompanying unaudited condensed consolidated balance sheets as of ~~March 31,~~June 30, 2021 and December 31, 2020 include approximately ~~$14.5~~$22.0 million and $21.7 million, respectively, related to contract assets from F&I retro revenues recognition. Changes in contract assets from December 31, 2020 to ~~March 31,~~June 30, 2021 were primarily due to ordinary business activity, including the receipt of cash for amounts earned and recognized in prior periods. Please refer to Note 1, “Description of Business and Summary of Significant Accounting Policies,” to the consolidated financial statements in Sonic’s Annual Report on Form 10-K for the year ended December 31, 2020 for further discussion of our revenue recognition policies and processes.

Income Taxes – The overall effective tax rate from continuing operations was ~~26.0%~~24.5% and 25.0% for the three and six months ended ~~March 31,~~June 30, 2021, respectively, and ~~18.2%~~17.2% and 18.3% for the three and six months ended ~~March 31, 2020.~~June 30, 2020,

SONIC AUTOMOTIVE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

respectively. Income tax expense for the three months ended ~~March 31,~~June 30, 2021 includes a ~~$1.5~~$1.3 million discrete benefit related to vested or exercised stock compensation awards. Income tax expense for the six months ended June 30, 2021 includes a $2.8 million discrete benefit related to vested or exercised stock compensation awards. Income tax benefit for the three months ended ~~March 31,~~June 30, 2020 includes a ~~$51.3~~$3.4 million discrete benefit related to the favorable resolution of certain tax matters and other adjustments, offset partially by a $0.3 million discrete charge related to vested or exercised stock compensation awards. Income tax benefit for the six months ended June 30, 2020 includes a $55.8 million benefit, including the effect of non-deductible amounts, related to the $268.0 million goodwill impairment charge recognized in such quarter, ~~and~~ a ~~$0.5~~$0.2 million discrete benefit related to vested or exercised stock compensation awards and a $0.2 million discrete benefit related to the favorable resolution a of certain tax matter, offset partially by a ~~$0.1~~$1.4 million discrete charge related to changes in uncertain tax positions. Sonic’s effective tax rate varies from year to year based on the level of taxable income, the distribution of taxable income between states in which the Company operates and other tax adjustments.

~~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 (and any non-forfeitable dividends paid on such awards).

2. Business Acquisitions and Dispositions

We acquired ~~1 pre-owned business~~2 businesses to be included in our EchoPark segment during the ~~three~~six months ended ~~March 31,~~June 30, 2021 for a gross purchase price (including inventory acquired and subsequently funded by floor plan notes payable) of approximately ~~$8.8~~$28.6 million. We did not acquire any businesses during the ~~three~~six months ended ~~March 31,~~June 30, 2020.

We disposed of 1 luxury franchised dealership during the six months ended June 30, 2021 that generated net cash of approximately $3.8 million. We did not dispose of any dealerships during the ~~three~~six months ended ~~March 31, 2021 and~~June 30, 2020. We terminated 1 luxury franchised dealership during the six months ended June 30, 2020.

3. Inventories

Inventories consist of the following:

March 31, 2021 December 31, 2020
(In thousands)
New vehicles $ 602,724 $ 648,448
Used vehicles 442,744 413,209
Service loaners 129,184 128,531
Parts, accessories and other 57,601 57,066
Net inventories $ 1,232,253 $ 1,247,254


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

4. Property and Equipment

Property and equipment, net consists of the following:

March 31, 2021 December 31, 2020
(In thousands)
Land $ 377,978 $ 375,297
Building and improvements 1,046,004 1,028,016
Furniture, fixtures and equipment 391,968 365,222
Construction in progress 55,799 34,767
Total, at cost 1,871,749 1,803,302
Less accumulated depreciation (695,130) (673,082)
Subtotal 1,176,619 1,130,220
Less assets held for sale (1) (9,694) (9,694)
Property and equipment, net $ 1,166,925 $ 1,120,526


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

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

In the three and six months ended ~~March 31,~~June 30, 2021, capital expenditures were approximately $37.4 million and $105.1 million, respectively, and in the three and six months ended June 30, 2020, capital expenditures were approximately ~~$67.7~~$41.9 million and ~~$19.8~~$61.7 million, respectively. Capital expenditures in all periods were primarily related to real estate acquisitions,

SONIC AUTOMOTIVE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

There were 0 fixed asset impairment charges for the ~~three~~six months ended ~~March 31, 2021 and 2020.~~June 30, 2021. Impairment charges for the six months ended June 30, 2020 were approximately $0.8 million, related to the abandonment of certain construction projects.

~~SONIC AUTOMOTIVE, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

5. Goodwill and Intangible Assets

The carrying amount of goodwill was approximately ~~$219.2~~$223.4 million and $214.0 million as of ~~March 31,~~June 30, 2021 and December 31, 2020, respectively. The carrying amount of goodwill for our franchised dealership reporting unit was ~~$147.2~~approximately $147.1 million and $147.3 million as of ~~March 31,~~June 30, 2021 and December 31, 2020, respectively. The carrying amount of goodwill for our EchoPark reporting unit was ~~$72.0~~approximately $76.3 million and $66.7 million as of ~~March 31,~~June 30, 2021 and December 31, 2020, respectively. The total carrying amount of goodwill is net of accumulated impairment losses of approximately $1.1 billion as of both ~~March 31,~~June 30, 2021 and December 31, 2020. The carrying amount of indefinite lived franchise assets was approximately $68.2 million and $64.3 million as of ~~both March 31,~~June 30, 2021 and December 31, ~~2020.~~2020, respectively.

Pursuant to the applicable accounting pronouncements, we were required to evaluate the recoverability of our long-lived assets at the end of the first quarter of 2020 as a result of the effects of the COVID-19 pandemic on our operations and market value. Based on this evaluation, we determined the carrying value of our franchised dealership reporting unit goodwill was greater than the fair value of the reporting unit. Accordingly, we recorded a non-cash goodwill impairment charge of ~~$268~~$268.0 million and a corresponding income tax benefit of ~~$51.3~~$55.8 million to reduce the carrying value to fair value as of March 31, 2020. We did not record any impairment charges for the three and six months ended ~~March 31,~~June 30, 2021.

6. Long-Term Debt

Long-term debt consists of the following:

March 31, 2021 December 31, 2020
(In thousands)
2016 Revolving Credit Facility (1) $ 0 $ 0
6.125% Senior Subordinated Notes due 2027 (the “6.125% Notes”) 250,000 250,000
2019 Mortgage Facility (2) 98,179 100,906
Mortgage notes to finance companies - fixed rate, bearing interest from 2.41% to 7.03% 208,461 212,135
Mortgage notes to finance companies - variable rate, bearing interest at 1.50 to 2.90 percentage points above one-month or three-month LIBOR 162,322 164,889
Subtotal $ 718,962 $ 727,930
Debt issuance costs (7,065) (7,863)
Total debt 711,897 720,067
Less current maturities (74,520) (68,244)
Long-term debt $ 637,377 $ 651,823


	June 30, 2021		December 31, 2020
	(In thousands)
2021 Revolving Credit Facility (1)	$	0	$	0

6.125% Senior Subordinated Notes due 2027	250,000		250,000
2019 Mortgage Facility (2)	95,452		100,906
Mortgage notes to finance companies - fixed rate, bearing interest from 2.41% to 7.03%	204,746		212,135
Mortgage notes to finance companies - variable rate, bearing interest at 1.50 to 2.90 percentage points above one-month or three-month LIBOR	147,038		164,889


Subtotal	$	697,236	$	727,930
Debt issuance costs	(10,843)		(7,863)
Total debt	686,393		720,067
Less current maturities	(51,681)		(68,244)
Long-term debt	$	634,712	$	651,823

(1)The interest rate on the ~~2016~~2021 Revolving Credit Facility (as defined below) was 100 and 150 basis points above LIBOR at ~~both March 31,~~June 30, 2021 and December 31, 2020.

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

~~2016~~2021 Credit Facilities

On ~~November 30, 2016,~~April 14, 2021, we entered into an amended and restated syndicated revolving credit facility (the ~~“2016~~“2021 Revolving Credit Facility”) and amended and restated syndicated new and used vehicle floor plan credit facilities (the ~~“2016~~“2021 Floor Plan Facilities” and, together with the ~~2016~~2021 Revolving Credit Facility, the ~~“2016~~“2021 Credit Facilities”). The amendment and restatement of the ~~2016~~2021 Credit Facilities extended the scheduled maturity ~~date,~~dates to April 14, 2025, increased availability under the ~~2016~~2021 Revolving Credit Facility by ~~$25.0~~$4.5 million and increased availability under the ~~2016~~2021 Floor Plan Facilities by ~~$215.0~~$584.0 million, among other things. ~~On September 17, 2020, the 2016 Credit Facilities were amended to extend their scheduled maturity date for one additional year to November 30, 2022.~~

SONIC AUTOMOTIVE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Availability under the ~~2016~~2021 Revolving Credit Facility is calculated as the lesser of ~~$245.5~~$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~~2021 Revolving Credit Facility (the ~~“2016~~“2021 Revolving Borrowing Base”). The ~~2016~~2021 Revolving Credit Facility may be increased at our option up to ~~$295.5~~$300.0 million upon satisfaction of certain conditions. As of ~~March 31,~~June 30, 2021, the ~~2016~~2021 Revolving Borrowing Base was approximately ~~$231.1~~$236.6 million based on balances as of such date. As of ~~March 31,~~June 30, 2021, we had 0 outstanding borrowings and approximately $12.3 million in outstanding letters of credit under the ~~2016~~2021 Revolving Credit Facility, resulting in ~~$218.8~~$224.3 million remaining borrowing availability under the ~~2016~~2021 Revolving Credit Facility.

~~SONIC AUTOMOTIVE, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

The ~~2016~~2021 Floor Plan Facilities are comprised of a new vehicle revolving floor plan facility (as amended, the ~~“2016~~“2021 New Vehicle Floor Plan Facility”) and a used vehicle revolving floor plan facility (as amended, the ~~“2016~~“2021 Used Vehicle Floor Plan Facility”), subject to a borrowing base, in a combined amount of up to ~~$966.0 million.~~$1.55 billion. We may, under certain conditions, request an increase in the ~~2016~~2021 Floor Plan Facilities to a maximum borrowing limit of up to ~~$1.216~~$1.8 billion, which shall be allocated between the ~~2016~~2021 New Vehicle Floor Plan Facility and the ~~2016~~2021 Used Vehicle Floor Plan Facility as we request, with no more than 40% of the aggregate commitments allocated to the commitments under the ~~2016~~2021 Used Vehicle Floor Plan Facility. During the second quarter of 2020, we amended the 2016 Floor Plan Facilities to convert the 2016 Used Vehicle Floor Plan Facility from a borrowing base calculation of availability to a vehicle identification number (“VIN”)-specific floor plan borrowing and payoff process, which provides additional borrowing flexibility. Outstanding obligations under the ~~2016~~2021 Floor Plan Facilities are guaranteed by us and certain of our subsidiaries and are secured by a pledge of substantially all of our and our subsidiaries’ assets. As of the dates presented in the accompanying unaudited condensed consolidated financial statements, the amounts outstanding under the ~~2016~~2021 Credit Facilities bear interest at variable rates based on specified percentages above LIBOR.

We have agreed under the ~~2016~~2021 Credit Facilities not to pledge any assets to any third parties (other than those explicitly allowed to be pledged by the amended terms of the ~~2016~~2021 Credit Facilities), including other lenders, subject to certain stated exceptions, including floor plan financing arrangements. In addition, the ~~2016~~2021 Credit Facilities contain certain negative covenants, including covenants which could restrict or prohibit indebtedness, liens, the payment of dividends, capital expenditures and material dispositions and acquisitions of assets, as well as other customary covenants and default provisions. Specifically, the ~~2016~~2021 Credit Facilities permit quarterly cash dividends on our Class A and Class B Common Stock up to $0.12 per share so long as no Event of Default (as defined in the ~~2016~~2021 Credit Facilities) has occurred and is continuing and provided that we remain in compliance with all financial covenants under the ~~2016~~2021 Credit Facilities.

~~See Note 11, Subsequent Events, for a discussion of the amendment, restatement and consolidation of the 2016 Credit Facilities subsequent to March 31, 2021.~~

6.125% Notes

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

For further discussion of ~~Sonic’s~~the 6.125% Notes, see Note 6, “Long-Term Debt,” to the consolidated financial statements in Sonic’s Annual Report on Form 10-K for the year ended December 31, 2020.

2019 Mortgage Facility

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

Under the 2019 Mortgage Facility, Sonic has a maximum borrowing limit of $112.2 million, which varies based on the appraised value of the collateral underlying the 2019 Mortgage Facility. The amount available for borrowing under the 2019 Mortgage Facility is subject to compliance with a borrowing base. The borrowing base is calculated based on 75% of the appraised value of certain eligible real estate designated by Sonic and owned by certain of our subsidiaries. Based on balances as of ~~March 31,~~June 30, 2021, we had approximately ~~$98.2~~$95.5 million of outstanding borrowings under the 2019 Mortgage Facility, resulting in total remaining borrowing availability of approximately ~~$14.0~~$16.7 million under the 2019 Mortgage Facility.

Amounts outstanding under the 2019 Mortgage Facility bear interest at (1) a specified rate above LIBOR (as defined in the 2019 Mortgage Facility), ranging from 1.50% to 2.75% per annum according to a performance-based pricing grid determined by the Company’s Consolidated Total Lease Adjusted Leverage Ratio (as defined in the 2019 Mortgage Facility) as of the last day of the immediately preceding fiscal quarter (the “Performance Grid”); or (2) a specified rate above the Base Rate (as defined in the 2019 Mortgage Facility), ranging from 0.50% to 1.75% per annum according to the Performance Grid.

For further discussion of ~~Sonic’s~~the 2019 Mortgage Facility, see Note 6, “Long-Term Debt,” to the consolidated financial statements in Sonic’s Annual Report on Form 10-K for the year ended December 31, 2020.

1011

SONIC AUTOMOTIVE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Mortgage Notes to Finance Companies

As of ~~March 31,~~June 30, 2021, the weighted-average interest rate of our other outstanding mortgage notes (excluding the 2019 Mortgage Facility) was ~~3.50%~~3.54% and the total outstanding mortgage principal balance of these notes (excluding the 2019 Mortgage Facility) was approximately ~~$370.8~~$351.8 million. These mortgage notes require monthly payments of principal and interest through their respective maturities, are secured by the underlying properties and contain certain cross-default provisions. Maturity dates for these mortgage notes range between 2021 and 2033.

2020 Line of Credit Facility

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

The 2020 Line of Credit Facility has borrowing availability of up to $54.1 million which can be used for general corporate purposes. The amount available for borrowing under the 2020 Line of Credit Facility is directly tied to the appraised value of certain real estate properties of the Company, which are used as collateral for any funds drawn under the 2020 Line of Credit Facility. As of ~~March~~June 30, 2021 and December 31, ~~2021,~~2020, we had 0 outstanding borrowings under the 2020 Line of Credit Facility, resulting in $54.1 million remaining borrowing availability under the 2020 Line of Credit Facility.

The 2020 Line of Credit Facility contains usual and customary representations and warranties, and usual and customary affirmative and negative covenants, including covenants which could restrict or prohibit indebtedness, liens, the payment of dividends and other restricted payments, capital expenditures and material dispositions and acquisitions of assets, as well as other customary covenants and default provisions. Specifically, the 2020 Line of Credit Facility permits quarterly cash dividends on our Class A and Class B Common Stock up to ~~$0.10~~$0.12 per share so long as no Event of Default (as defined in the 2020 Line of Credit Facility) has occurred and is continuing and provided that we remain in compliance with all financial covenants under the 2020 Line of Credit Facility.

Covenants

We have agreed under the ~~2016~~2021 Credit Facilities, the 2019 Mortgage Facility and the 2020 Line of Credit Facility not to pledge any assets to any third parties (other than those explicitly allowed to be pledged by the amended terms of the ~~2016~~2021 Credit Facilities, the 2019 Mortgage Facility and the 2020 Line of Credit Facility), including other lenders, subject to certain stated exceptions, including floor plan financing arrangements. In addition, the ~~2016~~2021 Credit Facilities, the 2019 Mortgage Facility and the 2020 Line of Credit Facility contain certain negative covenants, including certain covenants which could restrict or prohibit indebtedness, liens, the payment of dividends and other restricted payments, capital expenditures and material dispositions and acquisitions of assets, as well as other customary covenants and default provisions.

We were in compliance with the financial covenants under the ~~2016~~2021 Credit Facilities, the 2019 Mortgage Facility and the 2020 Line of Credit Facility as of ~~March 31,~~June 30, 2021. Financial covenants include required specified ratios (as each is defined in the ~~2016~~2021 Credit Facilities, the 2019 Mortgage Facility and the 2020 Line of Credit Facility) of:


		Covenant				Covenant
		Minimum Consolidated Liquidity Ratio	Minimum Consolidated Fixed Charge Coverage Ratio	Maximum Consolidated Total Lease Adjusted Leverage Ratio		Minimum Consolidated Liquidity Ratio	Minimum Consolidated Fixed Charge Coverage Ratio	Maximum Consolidated Total Lease Adjusted Leverage Ratio
Required ratio	Required ratio	1.05	1.20	5.75	Required ratio	1.05	1.20	5.75
March 31, 2021 actual		1.15	2.32	2.47
June 30, 2021 actual					June 30, 2021 actual	1.19	2.21	1.34

The ~~2016~~2021 Credit Facilities, the 2019 Mortgage Facility and the 2020 Line of Credit Facility contain events of default, including cross defaults to other material indebtedness, change of control events and other events of default customary for syndicated commercial credit facilities. Upon the future occurrence of an event of default, we could be required to immediately repay all outstanding amounts under the ~~2016~~2021 Credit Facilities, the 2019 Mortgage Facility and the 2020 Line of Credit Facility.

After giving effect to the applicable restrictions on the payment of dividends under our debt agreements, as of ~~March 31,~~June 30, 2021, we had approximately ~~$290.0~~$348.9 million of net income and retained earnings free of such restrictions. We were in compliance with all restrictive covenants under our debt agreements as of ~~March 31,~~June 30, 2021.

In addition, many of our facility leases are governed by a guarantee agreement between the landlord and us that contains financial and operating covenants. The financial covenants under the guarantee agreement are identical to those under the ~~2016~~ 2021

SONIC AUTOMOTIVE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Credit Facilities, the 2019 Mortgage Facility and the 2020 Line of Credit Facility with the exception of one additional financial

~~SONIC AUTOMOTIVE, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

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 ~~March 31,~~June 30, 2021, the ratio was ~~8.01~~10.05 to 1.00.

7. Commitments and Contingencies

Legal and Other Proceedings

In the ordinary course of business, Sonic is involved, and expects to continue to be involved, in various legal and administrative proceedings arising out of the conduct of its business, including regulatory investigations and private civil actions brought by plaintiffs purporting to represent a potential class or for which a class has been certified. Although Sonic vigorously defends itself in all legal and administrative proceedings, the outcomes of pending and future proceedings arising out of the conduct of Sonic’s business, including litigation with customers, employment-related lawsuits, contractual disputes, class actions, purported class actions and actions brought by governmental authorities, cannot be predicted with certainty. An unfavorable resolution of one or more of these matters could have a material adverse effect on Sonic’s business, financial condition, results of operations, cash flows or prospects. When we believe that a loss is probable and reasonably estimable, we make an accrual for our estimated probable losses. Such reserves are presently immaterial, both individually and in the aggregate. Other than as reflected in our recognized reserves, Sonic is currently unable to estimate a range of reasonably possible loss, or a range of reasonably possible loss in excess of the amount accrued, for pending proceedings.

Guarantees and Indemnification Obligations

In accordance with the terms of our operating lease agreements, our dealership subsidiaries, acting as lessees, generally agree to indemnify the lessor from certain exposure arising as a result of the use of the leased premises, including environmental exposure and repairs to leased property upon termination of the lease. In addition, we have generally agreed to indemnify the lessor in the event of a breach of the lease by the lessee.

In connection with dealership dispositions and facility relocations, certain of our subsidiaries have assigned or sublet to the buyer their interests in real property leases associated with such ~~dealerships.~~dealerships or facilities. In general, the subsidiaries retain responsibility for the performance of certain obligations under such leases, including rent payments and repairs to leased property upon termination of the lease, to the extent that the assignee or sublessee does not perform. In the event an assignee or a sublessee does not perform its obligations, Sonic remains liable for such obligations.

In accordance with the terms of agreements entered into for the sale of our dealerships, we generally agree to indemnify the buyer from certain liabilities and costs arising subsequent to the date of sale, including environmental exposure and exposure resulting from the breach of representations or warranties made in accordance with the agreements. While our exposure with respect to environmental remediation and repairs is difficult to quantify, our maximum exposure associated with these general indemnifications was approximately $4.0 million and $25.0 million at ~~both March 31,~~June 30, 2021 and December 31, ~~2020.~~2020, respectively. These indemnifications typically expire within a period of one to three years following the date of sale. The estimated fair value of these indemnifications was not material and the amount recorded for this contingency was not significant at ~~March 31,~~June 30, 2021.

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

SONIC AUTOMOTIVE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

8. Fair Value Measurements

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

Fair Value Based on Significant Other Observable Inputs (Level 2)
March 31, 2021 December 31, 2020
(In thousands)
Assets:
Cash surrender value of life insurance policies (1) $ 35,940 $ 35,739
Total assets $ 35,940 $ 35,739
Liabilities:
Deferred compensation plan (2) $ 21,644 $ 20,685
Total liabilities $ 21,644 $ 20,685

~~SONIC AUTOMOTIVE, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~


	Fair Value Based on Significant Other Observable Inputs (Level 2)
	June 30, 2021		December 31, 2020
	(In thousands)
Assets:
Cash surrender value of life insurance policies (1)	$	37,928	$	35,739

Total assets	$	37,928	$	35,739

Liabilities:


Deferred compensation plan (2)	$	22,784	$	20,685
Total liabilities	$	22,784	$	20,685

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

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

There were 0 instances during the ~~three~~six months ended ~~March 31,~~June 30, 2021 which required a fair value measurement of assets ordinarily measured at fair value on a non-recurring basis. These assets will be evaluated as of the annual valuation assessment date of October 1, 2021 or as events or changes in circumstances require.

As of ~~March 31,~~June 30, 2021 and December 31, 2020, the fair values of Sonic’s financial instruments, including receivables, notes receivable from finance contracts, notes payable – floor plan, trade accounts payable, borrowings under the revolving credit facilities and certain mortgage notes, approximated their carrying values due either to length of maturity or existence of variable interest rates that approximate prevailing market rates.

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

March 31, 2021 December 31, 2020
Fair Value Carrying Value Fair Value Carrying Value
(In thousands)
6.125% Notes (1) $ 258,125 $ 250,000 $ 263,438 $ 250,000


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

(1)As determined by market quotations from similar securities as of ~~March 31,~~June 30, 2021 and December 31, 2020, respectively (Level 2).

For further discussion of Sonic’s fair value measurements, see Note 11, “Fair Value Measurements,” to the consolidated financial statements in Sonic’s Annual Report on Form 10-K for the year ended December 31, 2020.

9. Accumulated Other Comprehensive Income (Loss)

The changes in accumulated other comprehensive income (loss) related to our cash flow hedges and defined benefit pension plan for the three and six months ended ~~March 31,~~June 30, 2021 are presently immaterial, both individually and in the aggregate.

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

10. Segment Information

As of ~~March 31,~~June 30, 2021, Sonic had 2 operating segments: (1) retail automotive franchises that sell new vehicles and buy and sell used vehicles, sell replacement parts, perform vehicle maintenance, warranty and repair services, and arrange finance and insurance products (the “Franchised Dealerships Segment”); and (2) pre-owned vehicle specialty retail locations that provide guests an opportunity to search our nationwide inventory, purchase a ~~pre-owned~~ vehicle, select finance and insurance products and sell their current vehicle to us (the “EchoPark Segment”). Sonic has determined that its operating segments also represent its reportable segments.

SONIC AUTOMOTIVE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The reportable segments identified above are the business activities of Sonic for which discrete financial information is available and for which operating results are regularly reviewed by Sonic’s chief operating decision maker to assess operating performance and allocate resources. Sonic’s chief operating decision maker is a group of three individuals consisting of: (1) the Company’s Chief Executive Officer; (2) the Company’s President; and (3) the Company’s Chief Financial Officer.

~~SONIC AUTOMOTIVE, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

Reportable segment financial information for the three and six months ended ~~March 31,~~June 30, 2021 and 2020 were as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
	(In thousands)
Segment Revenues:
Franchised Dealerships Segment revenues:
New vehicles	$	1,461,984	$	900,003	$	2,618,301	$	1,859,492
Used vehicles	761,524		535,699		1,423,059		1,102,587
Wholesale vehicles	62,956		28,509		119,160		70,948
Parts, service and collision repair	346,118		251,998		654,194		576,499
Finance, insurance and other, net	124,060		80,401		221,586		163,429
Franchised Dealerships Segment revenues	$	2,756,642	$	1,796,610	$	5,036,300	$	3,772,955

EchoPark Segment revenues:
New vehicles	$	909	$	0	$	909	$	0
Used vehicles	505,172		273,178		933,735		556,343
Wholesale vehicles	21,851		4,666		40,454		10,770
Parts, service and collision repair	14,478		7,060		27,315		17,239
Finance, insurance and other, net	53,194		30,372		100,330		62,635
EchoPark Segment revenues	$	595,604	$	315,276	$	1,102,743	$	646,987

Total consolidated revenues	$	3,352,246	$	2,111,886	$	6,139,043	$	4,419,942

Three Months Ended March 31,
2021 2020
(In thousands)
Segment Revenues:
Franchised Dealerships Segment revenues:
New vehicles $ 1,156,317 $ 959,489
Used vehicles 661,534 566,888
Wholesale vehicles 56,204 42,440
Parts, service and collision repair 308,077 324,501
Finance, insurance and other, net 97,525 83,029
Franchised Dealerships Segment revenues $ 2,279,657 $ 1,976,347
EchoPark Segment revenues:
Used vehicles $ 428,563 $ 283,164
Wholesale vehicles 18,605 6,103
Parts, service and collision repair 12,837 10,179
Finance, insurance and other, net 47,136 32,263
EchoPark Segment revenues $ 507,141 $ 331,709
Total consolidated revenues $ 2,786,798 $ 2,308,056


		Three Months Ended March 31,					Three Months Ended June 30,				Six Months Ended June 30,
		2021		2020					2021		2020		2021		2020
		(In thousands, except unit data)				(In thousands, except unit data)
Segment Income (Loss) (1):	Segment Income (Loss) (1):							Segment Income (Loss) (1):
Franchised Dealerships Segment	Franchised Dealerships Segment	$	70,543	$	22,656			Franchised Dealerships Segment	$	165,415	$	35,689	$	235,957	$	58,346
EchoPark Segment	EchoPark Segment	2,010		2,096				EchoPark Segment	(14,394)		2,577		(12,384)		4,672
Total segment income (loss)	Total segment income (loss)	$	72,553	$	24,752			Total segment income (loss)	$	151,021	$	38,266	$	223,573	$	63,018
Impairment charges (2)	Impairment charges (2)	0		(268,000)				Impairment charges (2)	0		(833)		0		(268,833)
Income (loss) from continuing operations before taxes	Income (loss) from continuing operations before taxes	$	72,553	$	(243,248)			Income (loss) from continuing operations before taxes	$	151,021	$	37,433	$	223,573	$	(205,815)

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 Segment	Franchised Dealerships Segment	51,594		47,762				Franchised Dealerships Segment	59,038		43,864		110,632		91,626
EchoPark Segment	EchoPark Segment	19,670		13,986				EchoPark Segment	21,275		13,207		40,945		27,193
Total retail new and used vehicle unit sales volume	Total retail new and used vehicle unit sales volume	71,264		61,748				Total retail new and used vehicle unit sales volume	80,313		57,071		151,577		118,819

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

(2)For the three months ended ~~March 31,~~June 30, 2020, the above amount includes a pre-tax impairment charge of approximately $0.8 million related to the abandonment of certain construction projects. For the six months ended June 30, 2020, the above amount includes a pre-tax impairment charge of approximately $268.0 million related to adjustments in fair value of goodwill for the Franchised Dealerships Segment as a result of the ~~effects~~economic disruptions due to the worldwide spread of COVID-19 which had adversely affected our business, as well as a pre-tax impairment charge of approximately $0.8 million related to the ~~COVID-19 pandemic on our operations and market value.~~

Three Months Ended March 31,
2021 2020
(In thousands)
Impairment Charges:
Franchised Dealerships Segment $ 0 $ 268,000
EchoPark Segment 0 0
Total impairment charges $ 0 $ 268,000

abandonment of certain construction projects.

1415

SONIC AUTOMOTIVE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


		Three Months Ended March 31,					Three Months Ended June 30,				Six Months Ended June 30,
		2021		2020					2021		2020		2021		2020
		(In thousands)				(In thousands)
Depreciation and Amortization:
Impairment Charges:								Impairment Charges:
Franchised Dealerships Segment	Franchised Dealerships Segment	$	20,376	$	19,589			Franchised Dealerships Segment	$	0	$	833	$	0	$	268,833
EchoPark Segment	EchoPark Segment	3,311		2,708				EchoPark Segment	0		0		0		0
Total depreciation and amortization		$	23,687	$	22,297
Total impairment charges								Total impairment charges	$	0	$	833	$	0	$	268,833


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
	(In thousands)
Depreciation and Amortization:
Franchised Dealerships Segment	$	20,616	$	19,895	$	40,992	$	39,484
EchoPark Segment	4,145		2,752		7,456		5,460
Total depreciation and amortization	$	24,761	$	22,647	$	48,448	$	44,944


		Three Months Ended March 31,					Three Months Ended June 30,				Six Months Ended June 30,
		2021		2020					2021		2020		2021		2020
		(In thousands)				(In thousands)
Floor Plan Interest Expense:	Floor Plan Interest Expense:							Floor Plan Interest Expense:
Franchised Dealerships Segment	Franchised Dealerships Segment	$	4,117	$	9,608			Franchised Dealerships Segment	$	3,155	$	5,675	$	7,271	$	15,283
EchoPark Segment	EchoPark Segment	996		900				EchoPark Segment	1,174		639		2,170		1,539
Total floor plan interest expense	Total floor plan interest expense	$	5,113	$	10,508			Total floor plan interest expense	$	4,329	$	6,314	$	9,441	$	16,822


		Three Months Ended March 31,					Three Months Ended June 30,				Six Months Ended June 30,
		2021		2020					2021		2020		2021		2020
		(In thousands)				(In thousands)
Interest Expense, Other, Net:	Interest Expense, Other, Net:							Interest Expense, Other, Net:
Franchised Dealerships Segment	Franchised Dealerships Segment	$	9,958	$	10,599			Franchised Dealerships Segment	$	9,723	$	9,556	$	19,682	$	20,156
EchoPark Segment	EchoPark Segment	327		366				EchoPark Segment	354		241		681		606
Total interest expense, other, net	Total interest expense, other, net	$	10,285	$	10,965			Total interest expense, other, net	$	10,077	$	9,797	$	20,363	$	20,762


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
	(In thousands)
Capital Expenditures:
Franchised Dealerships Segment	$	25,506	$	35,388	$	71,677	$	52,637
EchoPark Segment	11,923		6,540		33,414		9,096
Total capital expenditures	$	37,429	$	41,928	$	105,091	$	61,733


	June 30, 2021		December 31, 2020
	(In thousands)
Assets:
Franchised Dealerships Segment assets	$	2,742,475	$	3,096,811
EchoPark Segment assets	674,253		478,869
Corporate and other:
Cash and cash equivalents	239,617		170,313


Other corporate assets	0		0
Total assets	$	3,656,345	$	3,745,993

Three Months Ended March 31,
2021 2020
(In thousands)
Capital Expenditures:
Franchised Dealerships Segment $ 46,171 $ 17,249
EchoPark Segment 21,492 2,556
Total capital expenditures $ 67,663 $ 19,805

March 31, 2021 December 31, 2020
(In thousands)
Assets:
Franchised Dealerships Segment assets $ 3,054,643 $ 3,096,811
EchoPark Segment assets 560,346 478,869
Corporate and other:
Cash and cash equivalents 77,233 170,313
Other corporate assets 5 0
Total assets $ 3,692,227 $ 3,745,993

~~SONIC AUTOMOTIVE, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~11. Subsequent Events~~

On April 14, 2021, Sonic entered into an Fifth Amended, Restated and Consolidated Credit Agreement, dated as of April 14, 2021, among Sonic, the subsidiaries of Sonic named therein, each lender a party thereto and Bank of America, N.A., as administrative agent, revolving swing line lender, new vehicle swing line lender, used vehicle swing line lender and an l/c issuer (the “2021 Credit Agreement”). The 2021 Credit Agreement provides for a revolving credit facility (the “Revolving Facility”), a new vehicle floor plan inventory finance facility (the “New Vehicle Floor Plan Facility”) and a used vehicle floor plan inventory finance facility (the “Used Vehicle Floor Plan Facility” and, together with the New Vehicle Floor Plan Facility, the “Floor Plan Facility”). The Revolving Facility and the Floor Plan Facility (together, the “2021 Credit Facilities”) replace the 2016 Credit Facilities and each has a maturity date of April 14, 2025. The initial borrowing limits under the Revolving Facility and Floor Plan Facility are $250.0 million and $1.6 billion, respectively.

Subsequent to March 31, 2021 Sonic’s Board of Directors approved an increase to the Company’s quarterly cash dividend, to $0.12 per share, payable on July 15, 2021 to all stockholders of record on June 15, 2021, in addition Sonic’s Board of Directors increased the Company’s share repurchase authorization by $250.0 million.

SONIC AUTOMOTIVE, INC.

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

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and related notes thereto and “Item 1A. Risk Factors” in this report, as well as the consolidated financial statements and related notes thereto, “Item 1A. Risk Factors” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing in our Annual Report on Form 10-K for the year ended December 31, 2020.

Unless otherwise noted, we present the discussion in this Management’s Discussion and Analysis of Financial Condition and Results of Operations on a consolidated basis. To the extent that we believe a discussion of the differences among reportable segments will enhance a reader’s understanding of our financial condition, cash flows and other changes in financial condition and results of operations, the differences are discussed separately.

Unless otherwise noted, all discussion of increases or decreases are for the three and six months ended ~~March 31,~~June 30, 2021 compared to the three and six months ended ~~March 31,~~June 30, 2020. The following discussion of Franchised Dealerships Segment new vehicles, used vehicles, wholesale vehicles, parts, service and collision repair, and finance, insurance and other, net, is on a same store basis, except where otherwise noted. All currently operating franchised dealership stores are included within the same store group as of the first full month following the first anniversary of the store’s opening or acquisition. All currently operating EchoPark stores in a local geographic market are included within the same market group as of the first full month following the first anniversary of the ~~market's~~market’s opening.

Overview

We are one of the largest automotive retailers in the U.S. (as measured by reported total revenue). As a result of the way we manage our business, we had two reportable segments as of ~~March 31,~~June 30, 2021: (1) the Franchised Dealerships Segment and (2) the EchoPark Segment. For management and operational reporting purposes, we group certain businesses together that share management and inventory (principally used vehicles) into “stores.” As of ~~March 31,~~June 30, 2021, we operated 84 stores in the Franchised Dealerships Segment and 2125 stores in the EchoPark Segment. The Franchised Dealerships Segment consists of 9695 new vehicle franchises (representing 21 different brands of cars and light trucks) and 14 collision repair centers in 12 states.

The Franchised Dealerships Segment provides comprehensive services, including (1) sales of both new and used cars and light trucks; (2) sales of replacement parts and performance of vehicle maintenance, manufacturer warranty repairs, and paint and collision repair services (collectively, “Fixed Operations”); and (3) arrangement of extended warranties, service contracts, financing, insurance and other aftermarket products (collectively, “finance and insurance” or “F&I”) for our guests. The EchoPark Segment sells used cars and light trucks and arranges F&I product sales for our guests in pre-owned vehicle specialty retail locations. Our EchoPark business generally operates independently from our franchised dealerships business (except for certain shared back-office functions and corporate overhead costs). Sales operations for EchoPark began in the fourth quarter of 2014, and, as of ~~March 31,~~June 30, 2021, we operated 2125 EchoPark stores in 1112 states. During 2020, we announced an accelerated EchoPark growth plan in which we plan to open 25 additional EchoPark stores annually from 2021 to 2025 as we build out an expected 140-plus point nationwide EchoPark distribution network by ~~2025.~~2025, which we expect will allow EchoPark to reach 90% of the U.S. population by that time.

Executive Summary

Results in the three and six months ended ~~March 31,~~June 30, 2021 benefit from a favorable comparison to the prior year ~~ago quarter,~~period, where the onset of the COVID-19 pandemic caused significant disruption to our industry and business. The U.S. retail automotive industry’s total new vehicle (retail and fleet combined) seasonally adjusted annual rate of sales (“SAAR”) increased ~~12.7%~~50.4% and 28.8%, in the three and six months ended June 30, 2021, respectively, to ~~16.9~~17.0 million vehicles in both periods, compared to 11.3 million and 13.2 million vehicles in the three and six months ended ~~March 31, 2021, compared to 15.0 million vehicles in the three months ended March 31,~~June 30, 2020, respectively, according to data from Bloomberg Finance L.P., provided by Stephens Inc. For 2021, analysts’ industry expectation for the total new vehicle SAAR ranges from 14.5 million vehicles (flat compared to 2020) to 16.0 million vehicles (an increase of 10.3% compared to 2020). We estimate the 2021 total new vehicle SAAR will be between 15.5 million vehicles (an increase of 6.9% compared to 2020) and 16.0 million vehicles (an increase of 10.3% compared to 2020). The ongoing effects of the COVID-19 pandemic, changes in consumer confidence, availability of consumer financing, interest rates, additional federal relief spending by the U.S government, manufacturer inventory production levels, incentive levels from automotive manufacturers or shifts in ~~level,~~such levels, availability of new and used vehicle inventory, or timing of consumer demand as a result of natural disasters or other unforeseen circumstances could cause the actual 2021 total new vehicle SAAR to vary from our expectation. For example, a material portion of our revenue is generated from our stores in Texas, nearly all of which were affected by the extreme winter weather and related power outages experienced in February 2021. Many factors, including brand and geographic concentrations

SONIC AUTOMOTIVE, INC.

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

as well as the industry sales mix between retail and fleet new vehicle unit sales volume, have caused our past results to differ from the industry’s overall trend. Our new vehicle sales strategy focuses on our retail new

~~SONIC AUTOMOTIVE, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

vehicle sales (as opposed to fleet new vehicle sales) and, as a result, we believe it is appropriate to compare our retail new vehicle unit sales volume to the retail new vehicle SAAR (which excludes fleet new vehicle sales). According to the Power Information Network (“PIN”) from J.D. Power, industry retail new vehicle SAAR was ~~14.3~~15.6 million vehicles for the three months ended ~~March 31,~~June 30, 2021, an increase of ~~23.3%~~50.0% from ~~11.6~~10.4 million vehicles in the prior year period, and 15.0 million vehicles for the six months ended June 30, 2021, an increase of 36.4% from 11.0 million vehicles in the prior year period.

Franchised Dealerships Segment

As a result of the disposition, termination or closure of several franchised dealerships ~~stores~~ subsequent to January 1, 2020, the change in consolidated reported amounts from period to period may not be indicative of the current or future operational or financial performance of our current group of operating stores.

New vehicle revenue increased ~~21.6%~~63.7% and 42.0% during the three and six months ended ~~March 31,~~June 30, 2021, respectively, primarily driven by a ~~13.8%~~55.3% and 33.6% increase in new vehicle unit sales ~~volume.~~volume, respectively. New vehicle gross profit increased ~~52.8%~~166.4% and 108.8% during the three and six months ended ~~March 31,~~June 30, 2021, ~~primarily driven by~~respectively, due to higher new vehicle unit sales volume and a ~~34.4%~~71.5% and 56.2% increase in new vehicle gross profit per unit, ~~due primarily to~~respectively, as a ~~6.9% increase in new vehicle~~result of higher average selling ~~price.~~prices. New vehicle gross profit per unit increased ~~$724~~$1,595 per unit, or ~~34.4%~~71.5%, to ~~$2,831~~$3,827 per unit in the three months ended ~~March 31,~~June 30, 2021, and increased $1,218 per unit, or 56.2%, to $3,385 per unit in the six months ended June 30, 2021, due primarily to higher average selling prices due to inventory shortages ~~in certain makes and models~~ as a result of vehicle manufacturer supply chain disruptions and production delays during the COVID-19 pandemic. As a result of the new vehicle inventory shortages, our new vehicle inventories are at historic lows. Many of the new vehicles are being delivered to customers shortly after the vehicles arrive at our stores, As of June 30, 2021, our days’ supply of new vehicle inventory was 15 days compared to a days’ supply of inventory as of June 30, 2020 of 64 days. The third quarter of 2021 could face volume pressures if availability continues to decline.

Retail used vehicle revenue increased ~~18.0%~~43.3% and 30.3% during the three and six months ended ~~March 31,~~June 30, 2021, ~~primarily~~respectively, driven by ~~an 11.0%~~a 20.5% and 13.1% increase in retail used vehicle unit sales volume, respectively, and higher average selling ~~price.~~prices. Retail used vehicle gross profit ~~decreased 5.8%~~increased 96.7% and 40.8% during the three and six months ended ~~March 31,~~June 30, 2021, respectively, due to ~~a decrease~~higher retail used vehicle unit sales volume and an increase in retail used vehicle gross profit per unit of ~~$142~~63.3% and 24.5%, respectively. Retail used vehicle gross profit per unit increased $715 per unit, or ~~11.3%~~63.3%, to ~~$1,112~~$1,844 per unit during the three months ended June 30, 2021, and increased $292 per unit, or 24.5%, to $1,486 per unit during the six months ended June 30, 2021, as a result of higher ~~cost~~average selling prices due in part to shortages of new vehicle inventory. Wholesale vehicle gross profit improved by approximately ~~$0.8~~$4.5 million and $5.3 million in the three and six months ended ~~March 31,~~June 30, 2021, respectively, due primarily to a ~~33.6%~~57.6% and 44.8% increase in average wholesale vehicle revenue per unit, respectively, as a result of increased demand in the wholesale auction market as a result of new vehicle inventory shortages. In the past, we have focused on maintaining used vehicle inventory days’ supply in the 30- to 35-day range, which may fluctuate seasonally, in order to limit our exposure to market pricing volatility. Our reported franchised dealerships used vehicle inventory days’ supply was approximately 2731 and 2925 days as of ~~March 31,~~June 30, 2021 and 2020, respectively.

Fixed Operations revenue ~~decreased 4.7%~~increased 39.0% and 14.3% during the three and six months ended June 30, 2021, respectively, and Fixed Operations gross profit ~~decreased 1.8%~~increased 42.6% and 17.7% during the three and six months ended ~~March 31,~~June 30, 2021, ~~driven primarily by lower consumer demand for repairs as a result of shelter-in-place and stay-at-home orders related to the COVID-19 pandemic.~~respectively. Fixed Operations gross margin increased ~~150~~130 and 140 basis points, ~~to 50.2%,~~ during the three and six months ended ~~March 31,~~June 30, 2021, respectively, to 50.6% and 50.4%, respectively, driven primarily by an increase in customer pay revenue contribution and higher customer pay gross margin.

F&I revenue increased ~~18.7%~~56.5% and 37.2% during the three and six months ended ~~March 31,~~June 30, 2021, respectively, driven primarily by ~~an increase~~increases in F&I gross profit per retail unit. F&I gross profit per retail unit increased ~~$135~~$258 per unit, or ~~8.1%~~14.9%, to ~~$1,807~~$1,984 per unit in the three months ended ~~March 31,~~June 30, 2021. F&I gross profit per retail unit increased $204 per unit, or 12.0%, to $1,902 per unit in the six months ended June 30, 2021. We believe that our proprietary software applications, playbook processes and guest-centric selling approach enable us to optimize F&I gross profit and penetration rates (the number of F&I products sold per vehicle) across our F&I product lines. We believe that we will continue to increase revenue in this area as we refine our processes, train our associates and continue to sell a high volume of retail new and used vehicles at our stores.

SONIC AUTOMOTIVE, INC.

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

EchoPark Segment

~~Total~~Reported total EchoPark revenues increased ~~52.9%~~88.9% and 70.4% in the three and six months ended ~~March 31,~~June 30, 2021, respectively, driven primarily by ~~the opening~~continued expansion of ~~ten new EchoPark stores in the last year,~~our nationwide distribution network and increases in retail used vehicle unit sales volume and average selling ~~price. Total~~prices. Reported total gross profit increased ~~44.3%~~33.7% and 39.4% in the three and six months ended ~~March 31,~~June 30, 2021, respectively, due primarily to higher retail used vehicle unit sales volume and ~~a 2.0%~~an increase in ~~total~~F&I per retail unit. Reported combined retail used vehicle and F&I gross profit per unit decreased 25.6% and 11.9% in the three and six months ended June 30, 2021, respectively, to ~~$2,339~~$1,539 and $1,924 per ~~unit.~~unit, respectively, as a result of higher inventory acquisition costs due to increased demand in the wholesale auction market.

Retail used vehicle revenue increased ~~51.3%~~84.9% and 67.8% in the three and six months ended June 30, 2021, respectively. F&I revenue increased ~~46.1%~~75.1% and 60.2% during the three and six months ended ~~March 31,~~June 30, 2021, respectively, driven primarily by a ~~40.6%~~61.0% and 50.5% increase in retail used vehicle unit sales volume, respectively, and ~~an increase~~increases in retail used vehicle average selling ~~price.~~prices. Combined retail used vehicle and F&I gross profit per unit ~~increased $45~~decreased $530 per unit, or ~~2.0%~~25.6%, to ~~$2,339~~$1,539 per unit during the three months ended ~~March 31,~~June 30, 2021, and decreased $261 per unit, or 12%, to $1,924 per unit during the six months ended June 30, 2021.

Wholesale vehicle gross profit improved by approximately ~~$0.2~~$3.2 million ~~or 252.7%,~~and $3.3 million during the three and six months ended ~~March 31,~~June 30, 2021, respectively, due in part to higher average wholesale prices as a result of increased demand for used vehicles at auction. We generally focus on maintaining used vehicle inventory days’ supply in the 30- to ~~35-day~~40-day range, which may fluctuate seasonally, in order to limit our exposure to market pricing volatility. Our used vehicle inventory days’ supply at our EchoPark stores was approximately 4047 and 3438 days as of ~~March 31,~~June 30, 2021 and 2020, respectively. The elevated level of used inventory days’ supply as of ~~March 31,~~June 30, 2021 was due primarily to the opening of several new EchoPark stores, which require additional inventory on hand but are not yet generating retail used vehicle sales at the rate of a more mature store.

~~SONIC AUTOMOTIVE, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

All currently operating EchoPark stores in a local geographic market are included within the same market group as of the first full month following the first anniversary of the ~~market's~~market’s opening. EchoPark same market total revenues increased ~~19.4%~~37.5% and 30.8% during the three and six months ended ~~March 31,~~June 30, 2021, respectively, driven primarily by ~~an 8.2%~~a 16.5% and 14.7% increase in retail used vehicle unit sales volume during the three and ~~an increase~~six months ended June 30, 2021, respectively, and increases in retail used vehicle average selling ~~price. Same~~prices. EchoPark same market total gross profit increased ~~19.3%~~3.0% during the three months ended ~~March 31,~~June 30, 2021, due primarily to higher retail used vehicle unit sales volume, ~~and an 1.8% increase~~offset partially by a 20.8% decrease in total gross profit per unit, to ~~$2,336~~$1,423 per unit. EchoPark same market total gross profit increased 19.6% during the six months ended June 30, 2021, due primarily to higher retail used vehicle unit sales volume, partially offset by a 0.8% decrease in total gross profit per unit, to $1,887 per unit.

Results of Operations – Consolidated

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


		Three Months Ended March 31, 2021						Three Months Ended March 31, 2020								Three Months Ended June 30, 2021						Three Months Ended June 30, 2020
(Amounts are before the effect of income taxes, except tax items)	(Amounts are before the effect of income taxes, except tax items)	Franchised Dealerships Segment		EchoPark Segment		Total		Franchised Dealerships Segment		EchoPark Segment		Total		Operations Statement Line Impacted	(Amounts are before the effect of income taxes, except tax items)	Franchised Dealerships Segment		EchoPark Segment		Total		Franchised Dealerships Segment		EchoPark Segment		Total		Operations Statement Line Impacted
		(In thousands)														(In thousands)

Impairment charges	Impairment charges	$	—	$	—	$	—	$	(268,000)	$	—	$	(268,000)	Impairment charges	Impairment charges	$	—	$	—	$	—	$	(833)	$	—	$	(833)	Impairment charges

Non-recurring tax benefit															Non-recurring tax benefit	$	—	$	—	$	—	$	3,175	$	—	$	3,175	Income taxes



	Six Months Ended June 30, 2021						Six Months Ended June 30, 2020
(Amounts are before the effect of income taxes, except tax items)	Franchised Dealerships Segment		EchoPark Segment		Total		Franchised Dealerships Segment		EchoPark Segment		Total		Operations Statement Line Impacted
	(In thousands)




Impairment charges	$	—	$	—	$	—	$	(268,833)	$	—	$	(268,833)	Impairment charges

Non-recurring tax benefit	$	—	$	—	$	—	$	54,470	$	—	$	54,470	Income taxes

~~The following table depicts the breakdown of our new vehicle revenues from continuing operations by brand for the three months ended March 31, 2021 and 2020:~~

Three Months Ended March 31,
Brand 2021 2020
Luxury:
BMW 23.8 % 25.2 %
Mercedes 12.8 % 13.4 %
Audi 7.2 % 6.1 %
Lexus 5.1 % 4.8 %
Land Rover 4.5 % 4.3 %
Porsche 3.7 % 3.0 %
Cadillac 3.0 % 2.2 %
MINI 0.9 % 1.0 %
Other luxury (1) 2.5 % 2.3 %
Total Luxury 63.5 % 62.3 %
Mid-line Import:
Honda 13.1 % 14.8 %
Toyota 9.1 % 8.7 %
Volkswagen 1.2 % 0.9 %
Hyundai 1.0 % 1.1 %
Nissan 0.4 % 0.5 %
Total Mid-line Import 24.8 % 26.0 %
Domestic:
Ford 5.9 % 5.9 %
General Motors (2) 5.8 % 5.8 %
Total Domestic 11.7 % 11.7 %
Total 100.0 % 100.0 %

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

~~(2)Includes Buick, Chevrolet and GMC.~~

SONIC AUTOMOTIVE, INC.

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

The following table depicts the breakdown of our Franchised Dealerships Segment new vehicle revenues by brand for the three and six months ended June 30, 2021 and 2020:


	Three Months Ended June 30,				Six Months Ended June 30,
Brand	2021		2020		2021		2020
Luxury:
BMW	26.6	%	21.9	%	25.4	%	23.6	%
Mercedes	12.2	%	13.3	%	12.4	%	13.3	%
Audi	7.6	%	6.4	%	7.4	%	6.2	%
Lexus	4.7	%	4.1	%	4.8	%	4.4	%
Land Rover	3.9	%	6.1	%	4.2	%	5.2	%
Porsche	3.7	%	3.5	%	3.7	%	3.2	%
Cadillac	2.4	%	2.1	%	2.6	%	2.2	%
MINI	1.2	%	1.0	%	1.1	%	1.0	%
Other luxury (1)	3.0	%	3.0	%	2.9	%	2.7	%
Total Luxury	65.3	%	61.4	%	64.5	%	61.8	%
Mid-line Import:
Honda	14.7	%	14.3	%	14.0	%	14.6	%
Toyota	7.6	%	8.7	%	8.3	%	8.7	%
Volkswagen	1.5	%	1.1	%	1.4	%	1.1	%
Hyundai	1.0	%	1.2	%	1.0	%	1.1	%
Nissan	0.8	%	0.5	%	0.5	%	0.4	%
Total Mid-line Import	25.6	%	25.8	%	25.2	%	25.9	%
Domestic:
Ford	4.6	%	6.9	%	5.2	%	6.4	%
General Motors (2)	4.5	%	5.9	%	5.1	%	5.9	%
Total Domestic	9.1	%	12.8	%	10.3	%	12.3	%
Total	100.0	%	100.0	%	100.0	%	100.0	%

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

(2)Includes Buick, Chevrolet and GMC.

SONIC AUTOMOTIVE, INC.

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

Results of Operations

Results of Operations – Consolidated

New Vehicles – Consolidated

The retail automotive industry uses the total new vehicle SAAR to measure the annual amount of expected new vehicle unit sales activity (both retail and fleet sales) within the U.S. The total and retail new vehicle SAAR below reflect all brands marketed or sold in the U.S. The total and retail new vehicle SAAR include brands we do not sell and markets in which we do not operate; therefore, our new vehicle sales may not trend directly in line with the total and retail new vehicle SAAR. We believe that the retail new vehicle SAAR is a more meaningful metric for comparing our new vehicle unit sales volume to the industry due to our minimal fleet vehicle business.

Beginning in the middle of March 2020, COVID-19 began to adversely impact the retail automotive industry and consequentially also our business operations by severely impacting the demand portion of our business. State and local governmental authorities in all of the markets in which we currently operate began to put in place various levels of shelter-in-place or stay-at-home orders in the middle of March 2020, which in many cases significantly restricted our business operations and suppressed consumer activity, in particular related to our vehicle sales activities. While ~~most~~the majority of these ~~shelter-in-place and stay-at-home orders~~restrictions have been relaxed ~~since they were initially implemented, most remained~~and consumer demand has rebounded significantly, the timing and rate of improvement in ~~place to varying degrees through the end of the first quarter of 2021 in most of~~demand has not been uniform across the markets in which we operate. Further, disruptions in the automotive supply chain have caused lower than expected levels of vehicle production, which, combined with consumer demand for new vehicles, drove lower than typical levels of new vehicle inventory during the second quarter of 2021. Low levels of new vehicle inventory have resulted in higher average selling prices for new vehicles and may have had a negative impact on the retail new vehicle SAAR for the three months ended June 30, 2021.

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


		Three Months Ended March 31,		Better / (Worse)		Three Months Ended June 30,			Better / (Worse)	Six Months Ended June 30,			Better / (Worse)
		2021	2020	% Change				2021	2020	% Change		2021	2020	% Change
		(In millions of vehicles)						(In millions of vehicles)
Retail new vehicle SAAR (1)	Retail new vehicle SAAR (1)	14.3	11.6	23.3	%		Retail new vehicle SAAR (1)	15.6	10.4	50.0	%	15.0	11.0	36.4	%
Fleet new vehicle SAAR	Fleet new vehicle SAAR	2.6	3.4	(23.5)	%		Fleet new vehicle SAAR	1.4	0.9	55.6	%	2.0	2.2	(9.1)	%
Total new vehicle SAAR (2)	Total new vehicle SAAR (2)	16.9	15.0	12.7	%		Total new vehicle SAAR (2)	17.0	11.3	50.4	%	17.0	13.2	28.8	%

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

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

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

Three Months Ended March 31, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit and per unit data)
Reported new vehicle:
Revenue $ 1,156,317 $ 959,489 $ 196,828 20.5 %
Gross profit $ 69,465 $ 45,415 $ 24,050 53.0 %
Unit sales 24,358 21,724 2,634 12.1 %
Revenue per unit $ 47,472 $ 44,167 $ 3,305 7.5 %
Gross profit per unit $ 2,852 $ 2,091 $ 761 36.4 %
Gross profit as a % of revenue 6.0 % 4.7 % 130 bps


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

SONIC AUTOMOTIVE, INC.

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



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

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

Used Vehicles – Consolidated

Used vehicle revenues are directly affected by a number of factors, including the pricing and level of manufacturer incentives on new vehicles, the number and quality of trade-ins and lease turn-ins, the availability and pricing of used vehicles acquired at wholesale auction and the availability of consumer credit. As with new vehicles, COVID-19 began to adversely impact the retail automotive industry and consequentially also our business operations beginning in the middle of March 2020, by severely impacting the demand portion of our business. State and local governmental authorities in all of the markets in which we

~~SONIC AUTOMOTIVE, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

currently operate began to put in place various levels of shelter-in-place or stay-at-home orders in the middle of March 2020, which in many cases significantly restricted our business operations and suppressed consumer activity, in particular related to our vehicle sales activities. While ~~most~~the majority of these ~~shelter-in-place and stay-at-home orders~~restrictions have been relaxed ~~since they were initially implemented, most remained~~and consumer demand has rebounded significantly, the timing and rate of improvement in ~~place to varying degrees through the end of the first quarter of 2021 in most of~~demand has not been uniform across the markets in which we operate.

As a result of low levels of new vehicle inventory and a recovery in demand for used vehicles (both by retail consumers and dealers at wholesale auction), used vehicle prices reached an all-time high during the second quarter of 2021. Depending on the mix of inventory sourcing (trade-in vs. wholesale auction), the days’ supply of used vehicle inventory, and the pricing strategy employed by the dealership, retail used vehicle gross profit per unit and retail used vehicle gross profit as a percentage of revenue may vary significantly from historical levels given the current used vehicle environment.

SONIC AUTOMOTIVE, INC.

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

Our consolidated reported retail used vehicle results were as follows:

Three Months Ended March 31, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit and per unit data)
Reported used vehicle:
Revenue $ 1,090,097 $ 850,052 $ 240,045 28.2 %
Gross profit $ 30,868 $ 32,130 $ (1,262) (3.9) %
Unit sales 46,906 40,024 6,882 17.2 %
Revenue per unit $ 23,240 $ 21,239 $ 2,001 9.4 %
Gross profit per unit $ 658 $ 803 $ (145) (18.1) %
Gross profit as a % of revenue 2.8 % 3.8 % (100) bps


	Three Months Ended June 30,						Better / (Worse)
	2021			2020			Change		% Change
	(In thousands, except unit and per unit data)
Reported used vehicle:
Revenue	$	1,266,696		$	808,877		$	457,819	56.6	%
Gross profit	$	34,753		$	27,371		$	7,382	27.0	%
Unit sales	49,811			37,180			12,631		34.0	%
Revenue per unit	$	25,430		$	21,756		$	3,674	16.9	%
Gross profit per unit	$	698		$	736		$	(38)	(5.2)	%
Gross profit as a % of revenue	2.7		%	3.4		%	(70)		bps



	Six Months Ended June 30,						Better / (Worse)
	2021			2020			Change		% Change
	(In thousands, except unit and per unit data)
Reported used vehicle:
Revenue	$	2,356,794		$	1,658,930		$	697,864	42.1	%
Gross profit	$	65,623		$	59,502		$	6,121	10.3	%
Unit sales	96,717			77,204			19,513		25.3	%
Revenue per unit	$	24,368		$	21,488		$	2,880	13.4	%
Gross profit per unit	$	679		$	771		$	(92)	(11.9)	%
Gross profit as a % of revenue	2.8		%	3.6		%	(80)		bps

For further analysis of used vehicle results, see the tables and discussion under the headings “Used Vehicles – Franchised Dealerships Segment” and “Used Vehicles and F&I – EchoPark Segment” in the Franchised Dealerships Segment and EchoPark Segment sections, respectively, below.

Wholesale Vehicles – Consolidated

Wholesale vehicle revenues are affected by retail new and used vehicle unit sales volume and the associated trade-in volume, as well as short-term, temporary and seasonal fluctuations in wholesale auction pricing. Since the onset of the COVID-19 pandemic in March of 2020, wholesale vehicle prices and supply at auction have experienced periods of volatility, impacting our wholesale vehicle revenues and gross profit (loss), as well as retail used vehicle revenues and related gross profit. During 2021, wholesale vehicle gross profit increased significantly as a result of increased demand for used vehicles due in part to low levels of new vehicle inventory. We believe that the current wholesale vehicle price environment is not sustainable in the long-term and expect that wholesale vehicle pricing and related gross profit (loss) will return toward long-term normalized levels. Wholesale vehicle revenues are also significantly affected by our corporate inventory management strategy and policies, which are designed to optimize our total used vehicle inventory and minimize inventory carrying risks.

SONIC AUTOMOTIVE, INC.

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

Our consolidated reported wholesale vehicle results were as follows:

Three Months Ended March 31, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit and per unit data)
Reported wholesale vehicle:
Revenue $ 74,809 $ 48,543 $ 26,266 54.1 %
Gross profit (loss) $ 849 $ (157) $ 1,006 640.8 %
Unit sales 9,693 8,675 1,018 11.7 %
Revenue per unit $ 7,718 $ 5,596 $ 2,122 37.9 %
Gross profit (loss) per unit $ 88 $ (18) $ 106 588.9 %
Gross profit (loss) as a % of revenue 1.1 % (0.3) % 140 bps


	Three Months Ended June 30,						Better / (Worse)
	2021			2020			Change		% Change
	(In thousands, except unit and per unit data)
Reported wholesale vehicle:
Revenue	$	84,807		$	33,175		$	51,632	155.6	%
Gross profit (loss)	$	4,527		$	(426)		$	4,953	1,162.7	%
Unit sales	9,631			6,281			3,350		53.3	%
Revenue per unit	$	8,806		$	5,282		$	3,524	66.7	%
Gross profit (loss) per unit	$	470		$	(68)		$	538	791.2	%
Gross profit (loss) as a % of revenue	5.3		%	(1.3)		%	660		bps



	Six Months Ended June 30,						Better / (Worse)
	2021			2020			Change		% Change
	(In thousands, except unit and per unit data)
Reported wholesale vehicle:
Revenue	$	159,614		$	81,718		$	77,896	95.3	%
Gross profit (loss)	$	5,374		$	(585)		$	5,959	1,018.6	%
Unit sales	19,324			14,956			4,368		29.2	%
Revenue per unit	$	8,260		$	5,464		$	2,796	51.2	%
Gross profit (loss) per unit	$	278		$	(39)		$	317	812.8	%
Gross profit (loss) as a % of revenue	3.4		%	(0.7)		%	410		bps

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

~~SONIC AUTOMOTIVE, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

Fixed Operations – Consolidated

Parts, service and collision repair revenues consist of customer requested repair orders (“customer pay”), warranty repairs (manufacturer-paid), wholesale parts, and internal, sublet and other. Parts and service revenue is driven by the mix of warranty repairs versus customer pay repairs, available service capacity (a combination of service bay count and technician availability), vehicle quality, manufacturer recalls, customer loyalty and prepaid or manufacturer-paid maintenance programs. Internal, sublet and other primarily relates to preparation and reconditioning work performed on vehicles in inventory that are later sold to a third party. When that work is performed by one of our dealerships or stores, the work is classified as internal. In the event the work is performed by a third party on our behalf, it is classified as sublet.

We believe that, over time, vehicle quality will continue to improve, but vehicle complexity and the associated demand for repairs by qualified technicians at manufacturer-affiliated dealerships may result in market share gains that could offset any revenue lost from improvement in vehicle quality. We also believe that, over the long term, we have the ability to continue to ~~add~~optimize service capacity at our dealerships and stores to further increase Fixed Operations revenues. Manufacturers continue to extend new vehicle warranty periods and have also begun to include regular maintenance items in the warranty or complimentary maintenance program coverage. These factors, over the long term, combined with the extended manufacturer warranties on certified pre-owned vehicles, should facilitate growth in our parts and service business. Barriers to long-term growth may include reductions in the rate paid by manufacturers to dealers for warranty work performed, as well as the improved quality of vehicles that may affect the level and frequency of future customer pay or warranty-related revenues.

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

SONIC AUTOMOTIVE, INC.

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

Our consolidated reported Fixed Operations results were as follows:

Three Months Ended March 31, Better / (Worse)
2021 2020 Change % Change
(In thousands)
Reported Fixed Operations:
Revenue
Customer pay $ 133,567 $ 135,056 $ (1,489) (1.1) %
Warranty 53,131 60,760 (7,629) (12.6) %
Wholesale parts 34,689 38,706 (4,017) (10.4) %
Internal, sublet and other 99,527 100,158 (631) (0.6) %
Total revenue $ 320,914 $ 334,680 $ (13,766) (4.1) %
Gross profit
Customer pay $ 75,973 $ 74,595 $ 1,378 1.8 %
Warranty 30,928 33,746 (2,818) (8.4) %
Wholesale parts 6,105 6,667 (562) (8.4) %
Internal, sublet and other 42,044 42,890 (846) (2.0) %
Total gross profit $ 155,050 $ 157,898 $ (2,848) (1.8) %
Gross profit as a % of revenue
Customer pay 56.9 % 55.2 % 170 bps
Warranty 58.2 % 55.5 % 270 bps
Wholesale parts 17.6 % 17.2 % 40 bps
Internal, sublet and other 42.2 % 42.8 % (60) bps
Total gross profit as a % of revenue 48.3 % 47.2 % 110 bps


	Three Months Ended June 30,						Better / (Worse)
	2021			2020			Change		% Change
	(In thousands)
Reported Fixed Operations:
Revenue
Customer pay	$	152,071		$	110,600		$	41,471	37.5	%
Warranty	58,172			49,326			8,846		17.9	%
Wholesale parts	39,601			26,352			13,249		50.3	%
Internal, sublet and other	110,752			72,780			37,972		52.2	%
Total revenue	$	360,596		$	259,058		$	101,538	39.2	%

Gross profit
Customer pay	$	87,397		$	62,467		$	24,930	39.9	%
Warranty	33,947			27,720			6,227		22.5	%
Wholesale parts	6,896			4,506			2,390		53.0	%
Internal, sublet and other	47,608			29,586			18,022		60.9	%
Total gross profit	$	175,848		$	124,279		$	51,569	41.5	%

Gross profit as a % of revenue
Customer pay	57.5		%	56.5		%	100		bps
Warranty	58.4		%	56.2		%	220		bps
Wholesale parts	17.4		%	17.1		%	30		bps
Internal, sublet and other	43.0		%	40.7		%	230		bps
Total gross profit as a % of revenue	48.8		%	48.0		%	80		bps



	Six Months Ended June 30,						Better / (Worse)
	2021			2020			Change		% Change
	(In thousands)
Reported Fixed Operations:
Revenue
Customer pay	$	285,637		$	245,656		$	39,981	16.3	%
Warranty	111,303			110,086			1,217		1.1	%
Wholesale parts	74,290			65,058			9,232		14.2	%
Internal, sublet and other	210,279			172,938			37,341		21.6	%
Total revenue	$	681,509		$	593,738		$	87,771	14.8	%

Gross profit
Customer pay	$	163,370		$	137,061		$	26,309	19.2	%
Warranty	64,875			61,466			3,409		5.5	%
Wholesale parts	13,002			11,173			1,829		16.4	%
Internal, sublet and other	89,650			72,478			17,172		23.7	%
Total gross profit	$	330,897		$	282,178		$	48,719	17.3	%

Gross profit as a % of revenue
Customer pay	57.2		%	55.8		%	140		bps
Warranty	58.3		%	55.8		%	250		bps
Wholesale parts	17.5		%	17.2		%	30		bps
Internal, sublet and other	42.6		%	41.9		%	70		bps
Total gross profit as a % of revenue	48.6		%	47.5		%	110		bps

SONIC AUTOMOTIVE, INC.

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

For further analysis of Fixed Operations results, see the tables and discussion under the headings “Fixed Operations – Franchised Dealerships Segment” and “Fixed Operations – EchoPark Segment” in the Franchised Dealerships Segment and EchoPark Segment sections, respectively, below.

~~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 vehicle financing, extended warranties and service contracts, other aftermarket products and insurance contracts, we receive commissions from the providers for originating contracts. F&I revenues are recognized net of estimated chargebacks and other costs associated with originating contracts (as a result, F&I revenues and F&I gross profit are the same amount). F&I revenues are affected by the level of new and used vehicle unit sales volume, the age and average selling price of vehicles sold, the level of manufacturer financing specials or leasing incentives and our F&I penetration rate. The F&I penetration rate represents the number of finance contracts, extended warranties and service contracts, other aftermarket products or insurance contracts that we are able to originate per vehicle sold, expressed as a percentage.

Our consolidated reported F&I results were as follows:

Three Months Ended March 31, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit and per unit data)
Reported F&I:
Revenue $ 144,661 $ 115,292 $ 29,369 25.5 %
Unit sales 70,723 61,163 9,560 15.6 %
Gross profit per retail unit (excludes fleet) $ 2,045 $ 1,885 $ 160 8.5 %


	Three Months Ended June 30,				Better / (Worse)
	2021		2020		Change		% Change
	(In thousands, except unit and per unit data)
Reported F&I:
Revenue	$	177,254	$	110,773	$	66,481	60.0	%
Unit sales	80,068		56,921		23,147		40.7	%
Gross profit per retail unit (excludes fleet)	$	2,214	$	1,946	$	268	13.8	%



	Six Months Ended June 30,				Better / (Worse)
	2021		2020		Change		% Change
	(In thousands, except unit and per unit data)
Reported F&I:
Revenue	$	321,916	$	226,064	$	95,852	42.4	%
Unit sales	150,791		118,084		32,707		27.7	%
Gross profit per retail unit (excludes fleet)	$	2,135	$	1,914	$	221	11.5	%

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

Results of Operations – Franchised Dealerships Segment

As a result of the disposition, termination or closure of several franchised dealerships subsequent to ~~the three months ended March 31,~~January 1, 2020, the change in reported amounts from period to period may not be indicative of the ~~actual~~current or future operational or financial performance of our current group of operating stores. Please refer to the same store tables and discussion on the following pages for more meaningful comparison and discussion of financial results on a comparable store basis.

New Vehicles – Franchised Dealerships Segment

New vehicle revenues include the sale of new vehicles to retail customers, as well as the sale of fleet vehicles. New vehicle revenues and gross profit can be influenced by vehicle manufacturer incentives to consumers (which vary from cash-back incentives to low interest rate financing, among other things), the availability of consumer credit and the level and type of manufacturer-to-dealer incentives, as well as manufacturers providing adequate inventory allocations to our dealerships to meet customer demands. The automobile manufacturing industry is cyclical and historically has experienced periodic downturns characterized by oversupply and ~~weak~~weakening demand, both within specific brands and in the industry as a whole. As an automotive retailer, we seek to mitigate the effects of this sales cycle by maintaining a diverse brand mix of dealerships. Our brand diversity allows us to offer a broad range of products at a wide range of prices from lower-priced/economy vehicles to luxury vehicles.

2326

SONIC AUTOMOTIVE, INC.

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

The following ~~table provides~~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)
2021 2020 Change % Change
(In thousands, except unit data)
Total new vehicle revenue:
Same store $ 1,156,317 $ 950,589 $ 205,728 21.6 %
Acquisitions, open points and dispositions — 8,900 (8,900) NM
Total as reported $ 1,156,317 $ 959,489 $ 196,828 20.5 %
Total new vehicle gross profit:
Same store $ 68,956 $ 45,115 $ 23,841 52.8 %
Acquisitions, open points and dispositions 509 300 209 NM
Total as reported $ 69,465 $ 45,415 $ 24,050 53.0 %
Total new vehicle unit sales:
Same store 24,358 21,410 2,948 13.8 %
Acquisitions, open points and dispositions — 314 (314) NM
Total as reported 24,358 21,724 2,634 12.1 %

~~NM = Not Meaningful~~


	Three Months Ended June 30,				Better / (Worse)
	2021		2020		Change		% Change
	(In thousands, except unit data)
Total new vehicle revenue:
Same store	$	1,461,984	$	892,958	$	569,026	63.7	%
Acquisitions, open points, dispositions and holding company	—		7,045		(7,045)		NM
Total as reported	$	1,461,984	$	900,003	$	561,981	62.4	%

Total new vehicle gross profit:
Same store	$	116,692	$	43,811	$	72,881	166.4	%
Acquisitions, open points, dispositions and holding company	1,634		1,575		59		NM
Total as reported	$	118,326	$	45,386	$	72,940	160.7	%

Total new vehicle unit sales:
Same store	30,488		19,631		10,857		55.3	%
Acquisitions, open points, dispositions and holding company	—		260		(260)		NM
Total as reported	30,488		19,891		10,597		53.3	%
NM = Not Meaningful



	Six Months Ended June 30,				Better / (Worse)
	2021		2020		Change		% Change
	(In thousands, except unit data)
Total new vehicle revenue:
Same store	$	2,618,301	$	1,843,548	$	774,753	42.0	%
Acquisitions, open points, dispositions and holding company	—		15,944		(15,944)		NM
Total as reported	$	2,618,301	$	1,859,492	$	758,809	40.8	%

Total new vehicle gross profit:
Same store	$	185,648	$	88,926	$	96,722	108.8	%
Acquisitions, open points, dispositions and holding company	2,142		1,876		266		NM
Total as reported	$	187,790	$	90,802	$	96,988	106.8	%

Total new vehicle unit sales:
Same store	54,846		41,041		13,805		33.6	%
Acquisitions, open points, dispositions and holding company	—		574		(574)		NM
Total as reported	54,846		41,615		13,231		31.8	%
NM = Not Meaningful

SONIC AUTOMOTIVE, INC.

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

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


	Three Months Ended June 30,						Better / (Worse)
	2021			2020			Change		% Change
	(In thousands, except unit and per unit data)
Reported new vehicle:
Revenue	$	1,461,984		$	900,003		$	561,981	62.4	%
Gross profit	$	118,326		$	45,386		$	72,940	160.7	%
Unit sales	30,488			19,891			10,597		53.3	%
Revenue per unit	$	47,953		$	45,247		$	2,706	6.0	%
Gross profit per unit	$	3,881		$	2,282		$	1,599	70.1	%
Gross profit as a % of revenue	8.1		%	5.0		%	310		bps



	Six Months Ended June 30,						Better / (Worse)
	2021			2020			Change		% Change
	(In thousands, except unit and per unit data)
Reported new vehicle:
Revenue	$	2,618,301		$	1,859,492		$	758,809	40.8	%
Gross profit	$	187,790		$	90,802		$	96,988	106.8	%
Unit sales	54,846			41,615			13,231		31.8	%
Revenue per unit	$	47,739		$	44,683		$	3,056	6.8	%
Gross profit per unit	$	3,424		$	2,182		$	1,242	56.9	%
Gross profit as a % of revenue	7.2		%	4.9		%	230		bps

Our Franchised Dealerships Segment same store new vehicle results (combined retail and fleet data) were as follows:

Three Months Ended March 31, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit and per unit data)
Same store new vehicle:
Revenue $ 1,156,317 $ 950,589 $ 205,728 21.6 %
Gross profit $ 68,956 $ 45,115 $ 23,841 52.8 %
Unit sales 24,358 21,410 2,948 13.8 %
Revenue per unit $ 47,472 $ 44,399 $ 3,073 6.9 %
Gross profit per unit $ 2,831 $ 2,107 $ 724 34.4 %
Gross profit as a % of revenue 6.0 % 4.7 % 130 bps


	Three Months Ended June 30,						Better / (Worse)
	2021			2020			Change		% Change
	(In thousands, except unit and per unit data)
Same store new vehicle:
Revenue	$	1,461,984		$	892,958		$	569,026	63.7	%
Gross profit	$	116,692		$	43,811		$	72,881	166.4	%
Unit sales	30,488			19,631			10,857		55.3	%
Revenue per unit	$	47,953		$	45,487		$	2,466	5.4	%
Gross profit per unit	$	3,827		$	2,232		$	1,595	71.5	%
Gross profit as a % of revenue	8.0		%	4.9		%	310		bps



	Six Months Ended June 30,						Better / (Worse)
	2021			2020			Change		% Change
	(In thousands, except unit and per unit data)
Same store new vehicle:
Revenue	$	2,618,301		$	1,843,548		$	774,753	42.0	%
Gross profit	$	185,648		$	88,926		$	96,722	108.8	%
Unit sales	54,846			41,041			13,805		33.6	%
Revenue per unit	$	47,739		$	44,920		$	2,819	6.3	%
Gross profit per unit	$	3,385		$	2,167		$	1,218	56.2	%
Gross profit as a % of revenue	7.1		%	4.8		%	230		bps

2428

SONIC AUTOMOTIVE, INC.

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

Same Store Franchised Dealerships Segment New Vehicles – Three Months Ended ~~March 31,~~June 30, 2021 Compared to Three Months Ended ~~March 31,~~June 30, 2020

New vehicle revenue increased ~~21.6%~~63.7% due primarily to a ~~13.8%~~higher average selling prices and a 55.3% increase in new vehicle unit sales volume, ~~and higher average selling price,~~ which was driven by a favorable comparison due to the impact of COVID-19 on the ~~year-ago quarter.~~prior year quarter results. New vehicle gross profit increased approximately ~~$23.8~~$72.9 million, or ~~52.8%~~166.4%, as a result of increased new vehicle unit sales volume and higher new vehicle gross profit per unit. New vehicle gross profit per unit increased ~~$724~~$1,595 per unit, or ~~34.4%~~71.5%, to ~~$2,831~~$3,827 per unit, due primarily to inventory shortages ~~in certain makes and models~~ as a result of vehicle manufacturer supply chain and production delays as a result of the COVID-19 pandemic, which have generally increased the average selling ~~price~~prices of such vehicles.

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

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

Used Vehicles – Franchised Dealerships Segment

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


		Three Months Ended March 31,				Better / (Worse)					Three Months Ended June 30,				Better / (Worse)
		2021		2020		Change		% Change			2021		2020		Change		% Change
		(In thousands, except unit data)									(In thousands, except unit data)
Total used vehicle revenue:	Total used vehicle revenue:									Total used vehicle revenue:
Same store	Same store	$	661,534	$	560,796	$	100,738	18.0	%	Same store	$	761,524	$	531,335	$	230,189	43.3	%
Acquisitions, open points and dispositions		—		6,092		(6,092)		NM
Acquisitions, open points, dispositions and holding company										Acquisitions, open points, dispositions and holding company	—		4,364		(4,364)		NM
Total as reported	Total as reported	$	661,534	$	566,888	$	94,646	16.7	%	Total as reported	$	761,524	$	535,699	$	225,825	42.2	%

Total used vehicle gross profit:	Total used vehicle gross profit:									Total used vehicle gross profit:
Same store	Same store	$	30,273	$	32,141	$	(1,868)	(5.8)	%	Same store	$	52,647	$	26,759	$	25,888	96.7	%
Acquisitions, open points and dispositions		1,723		173		1,550		NM
Acquisitions, open points, dispositions and holding company										Acquisitions, open points, dispositions and holding company	2,573		3,657		(1,084)		NM
Total as reported	Total as reported	$	31,996	$	32,314	$	(318)	(1.0)	%	Total as reported	$	55,220	$	30,416	$	24,804	81.5	%

Total used vehicle unit sales:	Total used vehicle unit sales:									Total used vehicle unit sales:
Same store	Same store	27,236		25,635		1,601		6.2	%	Same store	28,550		23,701		4,849		20.5	%
Acquisitions, open points and dispositions		—		403		(403)		NM
Acquisitions, open points, dispositions and holding company										Acquisitions, open points, dispositions and holding company	—		272		(272)		NM
Total as reported	Total as reported	27,236		26,038		1,198		4.6	%	Total as reported	28,550		23,973		4,577		19.1	%

NM = Not Meaningful

~~Our Franchised Dealerships Segment reported retail used vehicle results were as follows:~~

Three Months Ended March 31, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit and per unit data)
Reported used vehicle:
Revenue $ 661,534 $ 566,888 $ 94,646 16.7 %
Gross profit $ 31,996 $ 32,314 $ (318) (1.0) %
Unit sales 27,236 26,038 1,198 4.6 %
Revenue per unit $ 24,289 $ 21,772 $ 2,517 11.6 %
Gross profit per unit $ 1,175 $ 1,241 $ (66) (5.3) %
Gross profit as a % of revenue 4.8 % 5.7 % (90) bps

2529

SONIC AUTOMOTIVE, INC.

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



	Six Months Ended June 30,				Better / (Worse)
	2021		2020		Change		% Change
	(In thousands, except unit data)
Total used vehicle revenue:
Same store	$	1,423,059	$	1,092,131	$	330,928	30.3	%
Acquisitions, open points, dispositions and holding company	—		10,456		(10,456)		NM
Total as reported	$	1,423,059	$	1,102,587	$	320,472	29.1	%

Total used vehicle gross profit:
Same store	$	82,920	$	58,900	$	24,020	40.8	%
Acquisitions, open points, dispositions and holding company	4,299		3,830		469		NM
Total as reported	$	87,219	$	62,730	$	24,489	39.0	%

Total used vehicle unit sales:
Same store	55,786		49,336		6,450		13.1	%
Acquisitions, open points, dispositions and holding company	—		675		(675)		NM
Total as reported	55,786		50,011		5,775		11.5	%
NM = Not Meaningful

Our Franchised Dealerships Segment ~~same store~~reported retail used vehicle results were as follows:

Three Months Ended March 31, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit and per unit data)
Same store used vehicle:
Revenue $ 661,534 $ 560,796 $ 100,738 18.0 %
Gross profit $ 30,273 $ 32,141 $ (1,868) (5.8) %
Unit sales 27,236 25,635 1,601 6.2 %
Revenue per unit $ 24,289 $ 21,876 $ 2,413 11.0 %
Gross profit per unit $ 1,112 $ 1,254 $ (142) (11.3) %
Gross profit as a % of revenue 4.6 % 5.7 % (110) bps


	Three Months Ended June 30,						Better / (Worse)
	2021			2020			Change		% Change
	(In thousands, except unit and per unit data)
Reported used vehicle:
Revenue	$	761,524		$	535,699		$	225,825	42.2	%
Gross profit	$	55,220		$	30,416		$	24,804	81.5	%
Unit sales	28,550			23,973			4,577		19.1	%
Revenue per unit	$	26,673		$	22,346		$	4,327	19.4	%
Gross profit per unit	$	1,934		$	1,269		$	665	52.4	%
Gross profit as a % of revenue	7.3		%	5.7		%	160		bps

~~Same Store~~ ~~Franchised Dealerships Segment Used Vehicles~~ – ~~Three Months Ended March 31, 2021 Compared to Three Months Ended March 31, 2020~~

Retail used vehicle revenue increased 18.0% and retail used vehicle unit sales volume increased 6.2%. Retail used vehicle revenue per unit increased 11.0% as a result of recovering consumer demand as the impact of the COVID-19 pandemic begins to subside and higher industry used vehicle prices. Retail used vehicle gross profit decreased approximately $1.9 million, or 5.8%, driven primarily by a 11.3%, or $142 per unit, decrease in retail used vehicle gross profit per unit as a result of higher cost of inventory due in part to increased demand in the wholesale auction market as a result of new vehicle inventory shortages.

~~Wholesale Vehicles~~ – ~~Franchised Dealerships Segment~~

~~The following table provides a reconciliation of Franchised Dealerships Segment reported basis and same store basis for wholesale vehicles:~~

Three Months Ended March 31, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit data)
Total wholesale vehicle revenue:
Same store $ 56,204 $ 42,103 $ 14,101 33.5 %
Acquisitions, open points and dispositions — 337 (337) NM
Total as reported $ 56,204 $ 42,440 $ 13,764 32.4 %
Total wholesale vehicle gross profit (loss):
Same store $ 736 $ (49) $ 785 1,602.0 %
Acquisitions, open points and dispositions — (34) 34 NM
Total as reported $ 736 $ (83) $ 819 986.7 %
Total wholesale vehicle unit sales:
Same store 6,832 6,838 (6) (0.1) %
Acquisitions, open points and dispositions — 72 (72) NM
Total as reported 6,832 6,910 (78) (1.1) %

~~NM = Not Meaningful~~


	Six Months Ended June 30,						Better / (Worse)
	2021			2020			Change		% Change
	(In thousands, except unit and per unit data)
Reported used vehicle:
Revenue	$	1,423,059		$	1,102,587		$	320,472	29.1	%
Gross profit	$	87,219		$	62,730		$	24,489	39.0	%
Unit sales	55,786			50,011			5,775		11.5	%
Revenue per unit	$	25,509		$	22,047		$	3,462	15.7	%
Gross profit per unit	$	1,563		$	1,254		$	309	24.6	%
Gross profit as a % of revenue	6.1		%	5.7		%	40		bps

2630

SONIC AUTOMOTIVE, INC.

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

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


	Three Months Ended June 30,						Better / (Worse)
	2021			2020			Change		% Change
	(In thousands, except unit and per unit data)
Same store used vehicle:
Revenue	$	761,524		$	531,335		$	230,189	43.3	%
Gross profit	$	52,647		$	26,759		$	25,888	96.7	%
Unit sales	28,550			23,701			4,849		20.5	%
Revenue per unit	$	26,673		$	22,418		$	4,255	19.0	%
Gross profit per unit	$	1,844		$	1,129		$	715	63.3	%
Gross profit as a % of revenue	6.9		%	5.0		%	190		bps



	Six Months Ended June 30,						Better / (Worse)
	2021			2020			Change		% Change
	(In thousands, except unit and per unit data)
Same store used vehicle:
Revenue	$	1,423,059		$	1,092,131		$	330,928	30.3	%
Gross profit	$	82,920		$	58,900		$	24,020	40.8	%
Unit sales	55,786			49,336			6,450		13.1	%
Revenue per unit	$	25,509		$	22,137		$	3,372	15.2	%
Gross profit per unit	$	1,486		$	1,194		$	292	24.5	%
Gross profit as a % of revenue	5.8		%	5.4		%	40		bps

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

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

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

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

SONIC AUTOMOTIVE, INC.

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

Wholesale Vehicles – Franchised Dealerships Segment

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


	Three Months Ended June 30,				Better / (Worse)
	2021		2020		Change		% Change
	(In thousands, except unit data)
Total wholesale vehicle revenue:
Same store	$	62,956	$	28,236	$	34,720	123.0	%
Acquisitions, open points, dispositions and holding company	—		273		(273)		NM
Total as reported	$	62,956	$	28,509	$	34,447	120.8	%

Total wholesale vehicle gross profit (loss):
Same store	$	4,199	$	(289)	$	4,488	1,552.9	%
Acquisitions, open points, dispositions and holding company	(2,765)		(68)		(2,697)		NM
Total as reported	$	1,434	$	(357)	$	1,791	501.7	%

Total wholesale vehicle unit sales:
Same store	6,753		4,773		1,980		41.5	%
Acquisitions, open points, dispositions and holding company	—		54		(54)		NM
Total as reported	6,753		4,827		1,926		39.9	%
NM = Not Meaningful



	Six Months Ended June 30,				Better / (Worse)
	2021		2020		Change		% Change
	(In thousands, except unit data)
Total wholesale vehicle revenue:
Same store	$	119,160	$	70,339	$	48,821	69.4	%
Acquisitions, open points, dispositions and holding company	—		609		(609)		NM
Total as reported	$	119,160	$	70,948	$	48,212	68.0	%

Total wholesale vehicle gross profit (loss):
Same store	$	4,935	$	(338)	$	5,273	1,560.1	%
Acquisitions, open points, dispositions and holding company	(2,763)		(102)		(2,661)		NM
Total as reported	$	2,172	$	(440)	$	2,612	593.6	%

Total wholesale vehicle unit sales:
Same store	13,585		11,611		1,974		17.0	%
Acquisitions, open points, dispositions and holding company	—		126		(126)		NM
Total as reported	13,585		11,737		1,848		15.7	%
NM = Not Meaningful

SONIC AUTOMOTIVE, INC.

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

Our Franchised Dealerships Segment reported wholesale vehicle results were as follows:

Three Months Ended March 31, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit and per unit data)
Reported wholesale vehicle:
Revenue $ 56,204 $ 42,440 $ 13,764 32.4 %
Gross profit (loss) $ 736 $ (83) $ 819 986.7 %
Unit sales 6,832 6,910 (78) (1.1) %
Revenue per unit $ 8,227 $ 6,142 $ 2,085 33.9 %
Gross profit (loss) per unit $ 108 $ (12) $ 120 1,000.0 %
Gross profit (loss) as a % of revenue 1.3 % (0.2) % 150 bps


	Three Months Ended June 30,						Better / (Worse)
	2021			2020			Change		% Change
	(In thousands, except unit and per unit data)
Reported wholesale vehicle:
Revenue	$	62,956		$	28,509		$	34,447	120.8	%
Gross profit (loss)	$	1,434		$	(357)		$	1,791	501.7	%
Unit sales	6,753			4,827			1,926		39.9	%
Revenue per unit	$	9,323		$	5,906		$	3,417	57.9	%
Gross profit (loss) per unit	$	212		$	(74)		$	286	386.5	%
Gross profit (loss) as a % of revenue	2.3		%	(1.3)		%	360		bps



	Six Months Ended June 30,						Better / (Worse)
	2021			2020			Change		% Change
	(In thousands, except unit and per unit data)
Reported wholesale vehicle:
Revenue	$	119,160		$	70,948		$	48,212	68.0	%
Gross profit (loss)	$	2,172		$	(440)		$	2,612	593.6	%
Unit sales	13,585			11,737			1,848		15.7	%
Revenue per unit	$	8,771		$	6,045		$	2,726	45.1	%
Gross profit (loss) per unit	$	160		$	(37)		$	197	532.4	%
Gross profit (loss) as a % of revenue	1.8		%	(0.6)		%	240		bps

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

Three Months Ended March 31, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit and per unit data)
Same store wholesale vehicle:
Revenue $ 56,204 $ 42,103 $ 14,101 33.5 %
Gross profit (loss) $ 736 $ (49) $ 785 1,602.0 %
Unit sales 6,832 6,838 (6) (0.1) %
Revenue per unit $ 8,227 $ 6,157 $ 2,070 33.6 %
Gross profit (loss) per unit $ 108 $ (7) $ 115 1,642.9 %
Gross profit (loss) as a % of revenue 1.3 % (0.1) % 140 bps


	Three Months Ended June 30,						Better / (Worse)
	2021			2020			Change		% Change
	(In thousands, except unit and per unit data)
Same store wholesale vehicle:
Revenue	$	62,956		$	28,236		$	34,720	123.0	%
Gross profit (loss)	$	4,199		$	(289)		$	4,488	1,552.9	%
Unit sales	6,753			4,773			1,980		41.5	%
Revenue per unit	$	9,323		$	5,916		$	3,407	57.6	%
Gross profit (loss) per unit	$	622		$	(61)		$	683	1,119.7	%
Gross profit (loss) as a % of revenue	6.7		%	(1.0)		%	770		bps



	Six Months Ended June 30,						Better / (Worse)
	2021			2020			Change		% Change
	(In thousands, except unit and per unit data)
Same store wholesale vehicle:
Revenue	$	119,160		$	70,339		$	48,821	69.4	%
Gross profit (loss)	$	4,935		$	(338)		$	5,273	1,560.1	%
Unit sales	13,585			11,611			1,974		17.0	%
Revenue per unit	$	8,771		$	6,058		$	2,713	44.8	%
Gross profit (loss) per unit	$	363		$	(29)		$	392	1,351.7	%
Gross profit (loss) as a % of revenue	4.1		%	(0.5)		%	460		bps

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

SONIC AUTOMOTIVE, INC.

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

reported franchised dealerships used vehicle inventory days’ supply was approximately 2731 and 2925 days as of ~~March 31,~~June 30, 2021 and 2020, respectively. Wholesale vehicle revenue and wholesale vehicle unit sales volume fluctuations are typically a result of retail new and used vehicle unit sales volumes that generate additional trade-in vehicle volume that we are not always able to sell as retail used vehicles and choose to sell at auction. Whenever possible, we prefer to sell a used vehicle through retail channels rather than wholesaling the vehicle at auction due to the opportunity to sell F&I products and to avoid auction and transportation fees.~~Wholesale vehicle gross profit improved by approximately $0.8 million in the three months ended March 31, 2021, due primarily to a 33.6% increase in average wholesale revenue per unit.~~

Same Store Franchised Dealerships Segment Wholesale Vehicles – Three Months Ended ~~March 31,~~June 30, 2021 Compared to Three Months Ended ~~March 31,~~June 30, 2020

Wholesale vehicle revenue increased ~~33.5%~~123.0%, driven primarily by ~~an 33.6%~~a 57.6% increase in wholesale vehicle revenue per unit, as well as a ~~result of~~41.5% increase in wholesale vehicle unit sales volume due to increased demand in the wholesale auction market as a result of new vehicle inventory ~~shortages.~~shortages during the second quarter of 2021. The increase in wholesale vehicle revenue was due in part to a reduction in wholesale auction activity during the second quarter of 2020 as a result of the impact the COVID-19 pandemic had on consumer demand. Wholesale vehicle gross profit increased approximately $4.5 million, primarily due to a ~~$115~~$683 per unit, or 1,119.7%, increase in wholesale vehicle gross profit per unit.

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

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

~~SONIC AUTOMOTIVE, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

Fixed Operations – Franchised Dealerships Segment

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


		Three Months Ended March 31,				Better / (Worse)					Three Months Ended June 30,				Better / (Worse)
		2021		2020		Change		% Change			2021		2020		Change		% Change
		(In thousands)									(In thousands)
Total Fixed Operations revenue:	Total Fixed Operations revenue:									Total Fixed Operations revenue:
Same store	Same store	$	306,190	$	321,295	$	(15,105)	(4.7)	%	Same store	$	343,441	$	247,134	$	96,307	39.0	%
Acquisitions, open points and dispositions		1,887		3,206		(1,319)		NM
Acquisitions, open points, dispositions and holding company										Acquisitions, open points, dispositions and holding company	2,677		4,864		(2,187)		NM
Total as reported	Total as reported	$	308,077	$	324,501	$	(16,424)	(5.1)	%	Total as reported	$	346,118	$	251,998	$	94,120	37.3	%

Total Fixed Operations gross profit:	Total Fixed Operations gross profit:									Total Fixed Operations gross profit:
Same store	Same store	$	153,682	$	156,465	$	(2,783)	(1.8)	%	Same store	$	173,900	$	121,946	$	51,954	42.6	%
Acquisitions, open points and dispositions		1,583		1,631		(48)		NM
Acquisitions, open points, dispositions and holding company										Acquisitions, open points, dispositions and holding company	1,678		2,519		(841)		NM
Total as reported	Total as reported	$	155,265	$	158,096	$	(2,831)	(1.8)	%	Total as reported	$	175,578	$	124,465	$	51,113	41.1	%

NM = Not Meaningful

~~Our Franchised Dealerships Segment reported Fixed Operations results were as follows:~~

Three Months Ended March 31, Better / (Worse)
2021 2020 Change % Change
(In thousands)
Reported Fixed Operations:
Revenue
Customer pay $ 133,285 $ 134,798 $ (1,513) (1.1) %
Warranty 53,131 60,760 (7,629) (12.6) %
Wholesale parts 34,689 38,706 (4,017) (10.4) %
Internal, sublet and other 86,972 90,237 (3,265) (3.6) %
Total revenue $ 308,077 $ 324,501 $ (16,424) (5.1) %
Gross profit
Customer pay $ 75,968 $ 74,593 $ 1,375 1.8 %
Warranty 30,928 33,746 (2,818) (8.4) %
Wholesale parts 6,105 6,667 (562) (8.4) %
Internal, sublet and other 42,264 43,090 (826) (1.9) %
Total gross profit $ 155,265 $ 158,096 $ (2,831) (1.8) %
Gross profit as a % of revenue
Customer pay 57.0 % 55.3 % 170 bps
Warranty 58.2 % 55.5 % 270 bps
Wholesale parts 17.6 % 17.2 % 40 bps
Internal, sublet and other 48.6 % 47.8 % 80 bps
Total gross profit as a % of revenue 50.4 % 48.7 % 170 bps

2834

SONIC AUTOMOTIVE, INC.

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



	Six Months Ended June 30,				Better / (Worse)
	2021		2020		Change		% Change
	(In thousands)
Total Fixed Operations revenue:
Same store	$	649,631	$	568,429	$	81,202	14.3	%
Acquisitions, open points, dispositions and holding company	4,563		8,070		(3,507)		NM
Total as reported	$	654,194	$	576,499	$	77,695	13.5	%

Total Fixed Operations gross profit:
Same store	$	327,583	$	278,411	$	49,172	17.7	%
Acquisitions, open points, dispositions and holding company	3,261		4,150		(889)		NM
Total as reported	$	330,844	$	282,561	$	48,283	17.1	%
NM = Not Meaningful

Our Franchised Dealerships Segment reported Fixed Operations results were as follows:


	Three Months Ended June 30,						Better / (Worse)
	2021			2020			Change		% Change
	(In thousands)
Reported Fixed Operations:
Revenue
Customer pay	$	151,601		$	110,444		$	41,157	37.3	%
Warranty	57,993			49,326			8,667		17.6	%
Wholesale parts	39,600			26,352			13,248		50.3	%
Internal, sublet and other	96,924			65,876			31,048		47.1	%
Total revenue	$	346,118		$	251,998		$	94,120	37.3	%

Gross profit
Customer pay	$	87,275		$	62,461		$	24,814	39.7	%
Warranty	33,835			27,720			6,115		22.1	%
Wholesale parts	6,896			4,506			2,390		53.0	%
Internal, sublet and other	47,572			29,778			17,794		59.8	%
Total gross profit	$	175,578		$	124,465		$	51,113	41.1	%

Gross profit as a % of revenue
Customer pay	57.6		%	56.6		%	100		bps
Warranty	58.3		%	56.2		%	210		bps
Wholesale parts	17.4		%	17.1		%	30		bps
Internal, sublet and other	49.1		%	45.2		%	390		bps
Total gross profit as a % of revenue	50.7		%	49.4		%	130		bps

SONIC AUTOMOTIVE, INC.

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



	Six Months Ended June 30,						Better / (Worse)
	2021			2020			Change		% Change
	(In thousands)
Reported Fixed Operations:
Revenue
Customer pay	$	284,885		$	245,242		$	39,643	16.2	%
Warranty	111,124			110,086			1,038		0.9	%
Wholesale parts	74,289			65,058			9,231		14.2	%
Internal, sublet and other	183,896			156,113			27,783		17.8	%
Total revenue	$	654,194		$	576,499		$	77,695	13.5	%

Gross profit
Customer pay	$	163,243		$	137,054		$	26,189	19.1	%
Warranty	64,763			61,466			3,297		5.4	%
Wholesale parts	13,002			11,173			1,829		16.4	%
Internal, sublet and other	89,836			72,868			16,968		23.3	%
Total gross profit	$	330,844		$	282,561		$	48,283	17.1	%

Gross profit as a % of revenue
Customer pay	57.3		%	55.9		%	140		bps
Warranty	58.3		%	55.8		%	250		bps
Wholesale parts	17.5		%	17.2		%	30		bps
Internal, sublet and other	48.9		%	46.7		%	220		bps
Total gross profit as a % of revenue	50.6		%	49.0		%	160		bps

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


		Three Months Ended March 31,						Better / (Worse)					Three Months Ended June 30,						Better / (Worse)
		2021			2020			Change		% Change			2021			2020			Change		% Change
		(In thousands)											(In thousands)
Same store Fixed Operations:	Same store Fixed Operations:											Same store Fixed Operations:
Revenue	Revenue											Revenue
Customer pay	Customer pay	$	131,932		$	133,490		$	(1,558)	(1.2)	%	Customer pay	$	149,262		$	107,542		$	41,720	38.8	%
Warranty	Warranty	52,629			60,837			(8,208)		(13.5)	%	Warranty	57,655			48,475			9,180		18.9	%
Wholesale parts	Wholesale parts	34,689			38,518			(3,829)		(9.9)	%	Wholesale parts	39,600			26,081			13,519		51.8	%
Internal, sublet and other	Internal, sublet and other	86,940			88,450			(1,510)		(1.7)	%	Internal, sublet and other	96,924			65,036			31,888		49.0	%
Total revenue	Total revenue	$	306,190		$	321,295		$	(15,105)	(4.7)	%	Total revenue	$	343,441		$	247,134		$	96,307	39.0	%

Gross profit	Gross profit											Gross profit
Customer pay	Customer pay	$	75,291		$	74,092		$	1,199	1.6	%	Customer pay	$	86,173		$	60,828		$	25,345	41.7	%
Warranty	Warranty	30,621			33,673			(3,052)		(9.1)	%	Warranty	33,676			27,237			6,439		23.6	%
Wholesale parts	Wholesale parts	6,105			6,637			(532)		(8.0)	%	Wholesale parts	6,896			4,487			2,409		53.7	%
Internal, sublet and other	Internal, sublet and other	41,665			42,063			(398)		(0.9)	%	Internal, sublet and other	47,155			29,394			17,761		60.4	%
Total gross profit	Total gross profit	$	153,682		$	156,465		$	(2,783)	(1.8)	%	Total gross profit	$	173,900		$	121,946		$	51,954	42.6	%

Gross profit as a % of revenue	Gross profit as a % of revenue											Gross profit as a % of revenue
Customer pay	Customer pay	57.1		%	55.5		%	160		bps		Customer pay	57.7		%	56.6		%	110		bps
Warranty	Warranty	58.2		%	55.3		%	290		bps		Warranty	58.4		%	56.2		%	220		bps
Wholesale parts	Wholesale parts	17.6		%	17.2		%	40		bps		Wholesale parts	17.4		%	17.2		%	20		bps
Internal, sublet and other	Internal, sublet and other	47.9		%	47.6		%	30		bps		Internal, sublet and other	48.7		%	45.2		%	350		bps
Total gross profit as a % of revenue	Total gross profit as a % of revenue	50.2		%	48.7		%	150		bps		Total gross profit as a % of revenue	50.6		%	49.3		%	130		bps

SONIC AUTOMOTIVE, INC.

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



	Six Months Ended June 30,						Better / (Worse)
	2021			2020			Change		% Change
	(In thousands)
Same store Fixed Operations:
Revenue
Customer pay	$	281,195		$	241,032		$	40,163	16.7	%
Warranty	110,284			109,311			973		0.9	%
Wholesale parts	74,289			64,600			9,689		15.0	%
Internal, sublet and other	183,863			153,486			30,377		19.8	%
Total revenue	$	649,631		$	568,429		$	81,202	14.3	%

Gross profit
Customer pay	$	161,464		$	134,920		$	26,544	19.7	%
Warranty	64,297			60,910			3,387		5.6	%
Wholesale parts	13,002			11,124			1,878		16.9	%
Internal, sublet and other	88,820			71,457			17,363		24.3	%
Total gross profit	$	327,583		$	278,411		$	49,172	17.7	%

Gross profit as a % of revenue
Customer pay	57.4		%	56.0		%	140		bps
Warranty	58.3		%	55.7		%	260		bps
Wholesale parts	17.5		%	17.2		%	30		bps
Internal, sublet and other	48.3		%	46.6		%	170		bps
Total gross profit as a % of revenue	50.4		%	49.0		%	140		bps

Same Store Franchised Dealerships Segment Fixed Operations – Three Months Ended ~~March 31,~~June 30, 2021 Compared to Three Months Ended ~~March 31,~~June 30, 2020

Fixed Operations revenue ~~decreased~~increased approximately ~~$15.1~~$96.3 million, or ~~4.7%~~39.0%, and Fixed Operations gross profit ~~decreased~~increased approximately ~~$2.8~~$52.0 million, or ~~1.8%, driven primarily by lower levels of warranty repair activity.~~42.6%. Customer pay gross profit increased approximately ~~$1.2~~$25.3 million, or ~~1.6%~~41.7%, warranty gross profit ~~decreased~~increased approximately ~~$3.1~~$6.4 million, or ~~9.1%~~23.6%, wholesale parts gross profit ~~decreased~~increased approximately ~~$0.5~~$2.4 million, or ~~8.0%~~53.7%, and internal, sublet and other gross profit ~~decreased~~increased approximately ~~$0.4~~$17.8 million, or ~~0.9%~~60.4%. While our Fixed Operations business was not specifically restricted by state and local shelter-in-place or stay-at-home orders, consumer behavior was disrupted by such orders beginning in March 2020 and we experienced lower levels of Fixed Operations activity in the second quarter of 2020. We expect consumer activity to continue to improve as we proceed through 2021, and anticipate a continuing recovery in Fixed Operations activity (in particular, related to customer pay repairs) ~~toward~~above pre-pandemic levels in the latter half of 2021.

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

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

F&I – Franchised Dealerships Segment

SONIC AUTOMOTIVE, INC.

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

vehicle financing, extended warranties and service contracts, other aftermarket products and insurance contracts, we receive commissions from the providers for originating contracts. F&I revenues are recognized net of estimated chargebacks and other costs associated with originating contracts (as a result, F&I revenues and F&I gross profit are the same amount). F&I revenues are affected by the level of new and used vehicle unit sales volume, the age and average selling price of vehicles sold, the level of manufacturer financing specials or leasing incentives and our F&I penetration rate. The F&I penetration rate represents the number of finance contracts, extended warranties and service contracts, other aftermarket products or insurance contracts that we are able to originate per vehicle sold, expressed as a percentage.

The following tables provide a reconciliation of Franchised Dealerships Segment reported basis and same store basis for F&I:


	Three Months Ended June 30,				Better / (Worse)
	2021		2020		Change		% Change
	(In thousands, except unit and per unit data)
Total F&I revenue:
Same store	$	116,657	$	74,522	$	42,135	56.5	%
Acquisitions, open points, dispositions and holding company	7,403		5,879		1,524		NM
Total as reported	$	124,060	$	80,401	$	43,659	54.3	%

Total F&I gross profit per retail unit (excludes fleet):
Same store	$	1,984	$	1,726	$	258	14.9	%
Reported	$	2,110	$	1,839	$	271	14.7	%

Total combined new and used retail unit sales:
Same store	58,793		43,182		15,611		36.2	%
Acquisitions, open points, dispositions and holding company	—		532		(532)		NM
Total as reported	58,793		43,714		15,079		34.5	%

NM = Not Meaningful



	Six Months Ended June 30,				Better / (Worse)
	2021		2020		Change		% Change
	(In thousands, except unit and per unit data)
Total F&I revenue:
Same store	$	208,903	$	152,213	$	56,690	37.2	%
Acquisitions, open points, dispositions and holding company	12,683		11,216		1,467		NM
Total as reported	$	221,586	$	163,429	$	58,157	35.6	%

Total F&I gross profit per retail unit (excludes fleet):
Same store	$	1,902	$	1,698	$	204	12.0	%
Reported	$	2,017	$	1,798	$	219	12.2	%

Total combined new and used retail unit sales:
Same store	109,846		89,642		20,204		22.5	%
Acquisitions, open points, dispositions and holding company	—		1,249		(1,249)		NM
Total as reported	109,846		90,891		18,955		20.9	%

NM = Not Meaningful

SONIC AUTOMOTIVE, INC.

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

~~The following table provides a reconciliation of Franchised Dealerships Segment reported basis and same store basis for F&I:~~

Three Months Ended March 31, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit and per unit data)
Total F&I revenue:
Same store $ 92,246 $ 77,692 $ 14,554 18.7 %
Acquisitions, open points and dispositions 5,279 5,337 (58) NM
Total as reported $ 97,525 $ 83,029 $ 14,496 17.5 %
Total F&I gross profit per retail unit (excludes fleet):
Same store $ 1,807 $ 1,672 $ 135 8.1 %
Reported $ 1,910 $ 1,760 $ 150 8.5 %
Total combined new and used retail unit sales:
Same store 51,053 46,460 4,593 9.9 %
Acquisitions, open points and dispositions — 717 (717) NM
Total as reported 51,053 47,177 3,876 8.2 %

~~NM = Not Meaningful~~

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


		Three Months Ended March 31,				Better / (Worse)					Three Months Ended June 30,				Better / (Worse)
		2021		2020		Change		% Change			2021		2020		Change		% Change
		(In thousands, except unit and per unit data)									(In thousands, except unit and per unit data)
Reported F&I:	Reported F&I:									Reported F&I:
Revenue	Revenue	$	97,525	$	83,029	$	14,496	17.5	%	Revenue	$	124,060	$	80,401	$	43,659	54.3	%
Unit sales	Unit sales	51,053		47,177		3,876		8.2	%	Unit sales	58,793		43,714		15,079		34.5	%
Gross profit per retail unit (excludes fleet)	Gross profit per retail unit (excludes fleet)	$	1,910	$	1,760	$	150	8.5	%	Gross profit per retail unit (excludes fleet)	$	2,110	$	1,839	$	271	14.7	%



	Six Months Ended June 30,				Better / (Worse)
	2021		2020		Change		% Change
	(In thousands, except unit and per unit data)
Reported F&I:
Revenue	$	221,586	$	163,429	$	58,157	35.6	%
Unit sales	109,846		90,891		18,955		20.9	%
Gross profit per retail unit (excludes fleet)	$	2,017	$	1,798	$	219	12.2	%

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


	Three Months Ended June 30,				Better / (Worse)
	2021		2020		Change		% Change
	(In thousands, except unit and per unit data)
Same store F&I:
Revenue	$	116,657	$	74,522	$	42,135	56.5	%
Unit sales	58,793		43,182		15,611		36.2	%
Gross profit per retail unit (excludes fleet)	$	1,984	$	1,726	$	258	14.9	%


		Three Months Ended March 31,				Better / (Worse)					Six Months Ended June 30,				Better / (Worse)
		2021		2020		Change		% Change			2021		2020		Change		% Change
		(In thousands, except unit and per unit data)									(In thousands, except unit and per unit data)
Same store F&I:	Same store F&I:									Same store F&I:
Revenue	Revenue	$	92,246	$	77,692	$	14,554	18.7	%	Revenue	$	208,903	$	152,213	$	56,690	37.2	%
Unit sales	Unit sales	51,053		46,460		4,593		9.9	%	Unit sales	109,846		89,642		20,204		22.5	%
Gross profit per retail unit (excludes fleet)	Gross profit per retail unit (excludes fleet)	$	1,807	$	1,672	$	135	8.1	%	Gross profit per retail unit (excludes fleet)	$	1,902	$	1,698	$	204	12.0	%

Same Store Franchised Dealerships Segment F&I – Three Months Ended ~~March 31,~~June 30, 2021 Compared to Three Months Ended ~~March 31,~~June 30, 2020

F&I revenues increased approximately ~~$14.6~~$42.1 million, or ~~18.7%~~56.5%, due to a ~~9.9%~~36.2% increase in retail new and used vehicle unit sales volume and an increase in F&I gross profit per retail unit. F&I gross profit per retail unit increased ~~$135~~$258 per unit, or ~~8.1%~~14.9%, to ~~$1,807~~$1,984 per unit, primarily due to ~~increases~~an increase in ~~the service~~gross profit per contract and an increase in the other aftermarket contract penetration ~~rates.~~rate.

Finance contract revenue increased ~~21.5%~~67.6%, primarily due to a ~~11.1%~~31.6% increase in finance contract volume as a result of higher retail new and used vehicle unit sales volume, as well as a ~~9.4%~~27.3% increase in gross profit per finance contract, ~~and an 80-basis~~partially offset by a 270-basis point ~~increase~~decrease in the finance contract penetration rate. Service contract revenue increased ~~20.8%~~42.1%, primarily due to a ~~14.6%~~35.3% increase in service contract volume as a result of higher retail new and used vehicle unit sales volume, as well as a ~~5.5%~~5.0% increase in gross profit per service contract, ~~and~~partially offset by a ~~150-basis~~20-basis point ~~increase~~decrease in the service contract penetration rate. Other aftermarket contract revenue increased ~~20.0%~~63.1%, primarily due to a ~~14.1%~~50.4% increase in other aftermarket ~~contact~~contract volume, as well as an 8.4% increase in gross profit per other aftermarket contract and a 1,460-basis point increase in the other aftermarket contract penetration rate.

3039

SONIC AUTOMOTIVE, INC.

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

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

F&I revenues increased approximately $56.7 million, or 37.2%, due to a ~~5.2%~~22.5% increase in retail new and used vehicle unit sales volume and an increase in F&I gross profit per retail unit. F&I gross profit per retail unit increased $204 per unit, or 12.0%, to $1,902 per unit, primarily due to an increase in gross profit per contract and an increase in the other aftermarket contract penetration rate.

Finance contract revenue increased 43.4%, primarily due to a 21.2% increase in finance contract volume as a result of higher retail new and used vehicle unit sales volume, as well as an 18.3% increase in gross profit per finance contract, partially offset by an 80-basis point decrease in the finance contract penetration rate. Service contract revenue increased 31.5%, primarily due to a 24.8% increase in service contract volume as a result of higher retail new and used vehicle unit sales volume, as well as a 5.4% increase in gross profit per service contract and a 70-basis point increase in the service contract penetration rate. Other aftermarket contract revenue increased 40.8%, primarily due to a 31.5% increase in other aftermarket contract volume, as well as a 7.1% increase in gross profit per other aftermarket contract and a ~~550-basis~~1,030-basis point increase in the other aftermarket contract penetration rate.

Results of Operations – EchoPark Segment

Unless otherwise noted, all discussion of increases or decreases are for the three and six months ended June 30, 2021 compared to the three and six months ended June 30, 2020. All currently operating EchoPark stores in a local geographic market are included within the same market group as of the first full month following the first anniversary of the market’s opening.

Used Vehicles and F&I – EchoPark Segment

Based on the way we manage the EchoPark Segment, our operating strategy focuses on maximizing total used vehicle-related gross profit (based on a combination of retail used vehicle unit sales volume, front-end retail used vehicle gross profit (loss) per unit and F&I gross profit per unit) rather than realizing traditional levels of front-end retail used vehicle gross profit (loss) per unit. As such, we believe the best per unit measure of gross profit performance at our EchoPark stores is a combined total gross profit per unit, which includes both front-end retail used vehicle gross profit (loss) and F&I gross profit per unit sold.

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

SONIC AUTOMOTIVE, INC.

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

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

Three Months Ended March 31, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit data)
Total used vehicle revenue:
Same market $ 333,577 $ 283,164 $ 50,413 17.8 %
New markets 94,986 — 94,986 NM
Total as reported $ 428,563 $ 283,164 $ 145,399 51.3 %
Total used vehicle gross profit (loss):
Same market $ (1,485) $ (184) $ (1,301) (707.1) %
New markets 357 — 357 NM
Total as reported $ (1,128) $ (184) $ (944) (513.0) %
Total used vehicle unit sales:
Same market 15,128 13,986 1,142 8.2 %
New markets 4,542 — 4,542 NM
Total as reported 19,670 13,986 5,684 40.6 %

~~NM = Not Meaningful~~


	Three Months Ended June 30,				Better / (Worse)
	2021		2020		Change		% Change
	(In thousands, except unit data)
Total used vehicle revenue:
Same market	$	368,857	$	273,178	$	95,679	35.0	%
New markets	136,315		—		136,315		NM
Total as reported	$	505,172	$	273,178	$	231,994	84.9	%

Total used vehicle gross profit (loss):
Same market	$	(17,118)	$	(6,545)	$	(10,573)	(161.5)	%
New markets	(3,349)		3,500		(6,849)		NM
Total as reported	$	(20,467)	$	(3,045)	$	(17,422)	(572.2)	%

Total used vehicle unit sales:
Same market	15,382		13,207		2,175		16.5	%
New markets	5,879		—		5,879		NM
Total as reported	21,261		13,207		8,054		61.0	%
NM = Not Meaningful



	Six Months Ended June 30,				Better / (Worse)
	2021		2020		Change		% Change
	(In thousands, except unit data)
Total used vehicle revenue:
Same market	$	716,654	$	556,353	$	160,301	28.8	%
New markets	217,081		(10)		217,091		NM
Total as reported	$	933,735	$	556,343	$	377,392	67.8	%

Total used vehicle gross profit (loss):
Same market	$	(18,633)	$	(10,703)	$	(7,930)	(74.1)	%
New markets	(2,963)		7,475		(10,438)		NM
Total as reported	$	(21,596)	$	(3,228)	$	(18,368)	(569.0)	%

Total used vehicle unit sales:
Same market	31,189		27,193		3,996		14.7	%
New markets	9,742		—		9,742		NM
Total as reported	40,931		27,193		13,738		50.5	%
NM = Not Meaningful

SONIC AUTOMOTIVE, INC.

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

The following ~~table provides~~tables provide a reconciliation of EchoPark Segment reported basis, same market basis and new market basis for F&I:


	Three Months Ended June 30,				Better / (Worse)
	2021		2020		Change		% Change
	(In thousands)
Total F&I revenue:
Same market	$	39,007	$	30,259	$	8,748	28.9	%
New markets	14,187		113		14,074		NM
Total as reported	$	53,194	$	30,372	$	22,822	75.1	%

Three Months Ended March 31, Better / (Worse)
2021 2020 Change % Change
(In thousands)
Total F&I revenue:
Same market $ 36,823 $ 32,263 $ 4,560 14.1 %
New markets 10,313 — 10,313 NM
Total as reported $ 47,136 $ 32,263 $ 14,873 46.1 %

NM = Not Meaningful



	Six Months Ended June 30,				Better / (Worse)
	2021		2020		Change		% Change
	(In thousands)
Total F&I revenue:
Same market	$	77,473	$	62,430	$	15,043	24.1	%
New markets	22,857		205		22,652		NM
Total as reported	$	100,330	$	62,635	$	37,695	60.2	%
NM = Not Meaningful

Our EchoPark Segment reported retail used vehicle and F&I results were as follows:


	Three Months Ended June 30,				Better / (Worse)
	2021		2020		Change		% Change
	(In thousands, except unit and per unit data)
Reported used vehicle and F&I:
Used vehicle revenue	$	505,172	$	273,178	$	231,994	84.9	%
Used vehicle gross profit (loss)	$	(20,467)	$	(3,045)	$	(17,422)	(572.2)	%
Used vehicle unit sales	21,261		13,207		8,054		61.0	%
Used vehicle revenue per unit	$	23,761	$	20,684	$	3,077	14.9	%
F&I revenue	$	53,194	$	30,372	$	22,822	75.1	%
Combined used vehicle gross profit and F&I revenue	$	32,727	$	27,327	$	5,400	19.8	%
Total used vehicle and F&I gross profit per unit	$	1,539	$	2,069	$	(530)	(25.6)	%



	Six Months Ended June 30,				Better / (Worse)
	2021		2020		Change		% Change
	(In thousands, except unit and per unit data)
Reported used vehicle and F&I:
Used vehicle revenue	$	933,735	$	556,343	$	377,392	67.8	%
Used vehicle gross profit (loss)	$	(21,596)	$	(3,228)	$	(18,368)	(569.0)	%
Used vehicle unit sales	40,931		27,193		13,738		50.5	%
Used vehicle revenue per unit	$	22,812	$	20,459	$	2,353	11.5	%
F&I revenue	$	100,330	$	62,635	$	37,695	60.2	%
Combined used vehicle gross profit and F&I revenue	$	78,734	$	59,407	$	19,327	32.5	%
Total used vehicle and F&I gross profit per unit	$	1,924	$	2,185	$	(261)	(11.9)	%

SONIC AUTOMOTIVE, INC.

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

~~Our EchoPark Segment reported retail used vehicle and F&I results were as follows:~~

Three Months Ended March 31, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit and per unit data)
Reported used vehicle and F&I:
Used vehicle revenue $ 428,563 $ 283,164 $ 145,399 51.3 %
Used vehicle gross profit (loss) $ (1,128) $ (184) $ (944) (513.0) %
Used vehicle unit sales 19,670 13,986 5,684 40.6 %
Used vehicle revenue per unit $ 21,788 $ 20,246 $ 1,542 7.6 %
F&I revenue $ 47,136 $ 32,263 $ 14,873 46.1 %
Combined used vehicle gross profit and F&I revenue $ 46,008 $ 32,079 $ 13,929 43.4 %
Total used vehicle and F&I gross profit per unit $ 2,339 $ 2,294 $ 45 2.0 %

Our EchoPark Segment same market retail used vehicle and F&I results were as follows:

Three Months Ended March 31, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit and per unit data)
Same market used vehicle and F&I:
Used vehicle revenue $ 333,577 $ 283,164 $ 50,413 17.8 %
Used vehicle gross profit (loss) $ (1,485) $ (184) $ (1,301) (707.1) %
Used vehicle unit sales 15,128 13,986 1,142 8.2 %
Used vehicle revenue per unit $ 22,050 $ 20,246 $ 1,804 8.9 %
F&I revenue $ 36,823 $ 32,263 $ 4,560 14.1 %
Combined used vehicle gross profit and F&I revenue $ 35,338 $ 32,079 $ 3,259 10.2 %
Total used vehicle and F&I gross profit per unit $ 2,336 $ 2,294 $ 42 1.8 %


	Three Months Ended June 30,				Better / (Worse)
	2021		2020		Change		% Change
	(In thousands, except unit and per unit data)
Same market used vehicle and F&I:
Used vehicle revenue	$	368,857	$	273,178	$	95,679	35.0	%
Used vehicle gross profit (loss)	$	(17,118)	$	(6,545)	$	(10,573)	(161.5)	%
Used vehicle unit sales	15,382		13,207		2,175		16.5	%
Used vehicle revenue per unit	$	23,980	$	20,684	$	3,296	15.9	%
F&I revenue	$	39,007	$	30,259	$	8,748	28.9	%
Combined used vehicle gross profit and F&I revenue	$	21,889	$	23,714	$	(1,825)	(7.7)	%
Total used vehicle and F&I gross profit per unit	$	1,423	$	1,796	$	(373)	(20.8)	%



	Six Months Ended June 30,				Better / (Worse)
	2021		2020		Change		% Change
	(In thousands, except unit and per unit data)
Same market used vehicle and F&I:
Used vehicle revenue	$	716,654	$	556,353	$	160,301	28.8	%
Used vehicle gross profit (loss)	$	(18,633)	$	(10,703)	$	(7,930)	(74.1)	%
Used vehicle unit sales	31,189		27,193		3,996		14.7	%
Used vehicle revenue per unit	$	22,978	$	20,459	$	2,519	12.3	%
F&I revenue	$	77,473	$	62,430	$	15,043	24.1	%
Combined used vehicle gross profit and F&I revenue	$	58,840	$	51,727	$	7,113	13.8	%
Total used vehicle and F&I gross profit per unit	$	1,887	$	1,902	$	(15)	(0.8)	%

Same Market EchoPark Segment Used Vehicles and F&I – Three Months Ended ~~March 31,~~June 30, 2021 Compared to Three Months Ended ~~March 31,~~June 30, 2020

Retail used vehicle revenue increased approximately ~~$50.4~~$95.7 million, or ~~17.8%~~35.0%, driven ~~primarily~~ by a ~~$1,804~~$3,296 per unit, or ~~8.9%~~15.9%, increase in retail used vehicle revenue per unit, as well as ~~an 8.2%~~a 16.5% increase in retail used vehicle unit sales volume due to increased consumer demand ~~as a result of improving economic conditions.~~for used vehicles and EchoPark market share gains. Combined retail used vehicle gross profit and F&I revenue ~~increased~~decreased approximately ~~$3.3~~$1.8 million, or ~~10.2%~~7.7%, driven primarily by ~~higher~~a 161.5% increase in retail used vehicle ~~unit sales volume and a $4.6~~gross loss, offset partially by an $8.7 million, or ~~14.1%~~28.9%, increase in F&I revenue. Total retail used vehicle and F&I gross profit per unit ~~increased $42~~decreased approximately $373 per unit, or ~~1.8%~~20.8%, due to ~~$2,336 per unit~~the increased cost of inventory at wholesale auction as ~~our stores continue~~a result of high levels of short-term demand in wholesale markets due to ~~mature~~new vehicle inventory shortages as a result of vehicle manufacturer supply chain and ~~improve their F&I sales effectiveness.~~production delays as a result of the COVID-19 pandemic. Finance contract gross profit increased approximately ~~$0.7~~$2.5 million, or ~~8.2%~~29.8%, due to a ~~8.7%~~16.0% increase in total finance contracts and ~~a 40-basis point~~an 11.9% increase in ~~the finance contract penetration rate.~~F&I gross profit per unit. Service contract gross profit increased approximately ~~$1.6~~$2.1 million, or ~~20.6%~~28.9%, due to ~~an 18.0%~~a 29.6% increase in total service contracts, as well as a ~~500-basis~~600-basis point increase in the service contract penetration rate. Other aftermarket product contract gross profit increased approximately ~~$0.5~~$1.3 million, or ~~10.9%~~26.6%, due to a ~~12.3%~~27.6% increase in total other aftermarket product contracts and ~~a 350-basis~~an 890-basis point increase in the other aftermarket product contract penetration rate.

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

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

SONIC AUTOMOTIVE, INC.

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

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

Wholesale Vehicles – EchoPark Segment

See the discussion under the heading ~~"Results~~“Results of Operations -– Franchised Dealerships ~~Segment"~~Segment” for additional discussion of the macro drivers of wholesale vehicle revenues.

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


	Three Months Ended June 30,				Better / (Worse)
	2021		2020		Change		% Change
	(In thousands, except unit data)
Total wholesale vehicle revenue:
Same market	$	14,951	$	4,666	$	10,285	220.4	%
New markets	6,900		—		6,900		NM
Total as reported	$	21,851	$	4,666	$	17,185	368.3	%

Total wholesale vehicle gross profit (loss):
Same market	$	2,288	$	(69)	$	2,357	3,415.9	%
New markets	805		—		805		NM
Total as reported	$	3,093	$	(69)	$	3,162	4,582.6	%

Total wholesale vehicle unit sales:
Same market	1,847		1,454		393		27.0	%
New markets	1,031		—		1,031		NM
Total as reported	2,878		1,454		1,424		97.9	%
NM = Not Meaningful



	Six Months Ended June 30,				Better / (Worse)
	2021		2020		Change		% Change
	(In thousands, except unit data)
Total wholesale vehicle revenue:
Same market	$	30,722	$	10,770	$	19,952	185.3	%
New markets	9,732		—		9,732		NM
Total as reported	$	40,454	$	10,770	$	29,684	275.6	%

Total wholesale vehicle gross profit (loss):
Same market	$	2,410	$	(145)	$	2,555	1,762.1	%
New markets	792		—		792		NM
Total as reported	$	3,202	$	(145)	$	3,347	2,308.3	%

Total wholesale vehicle unit sales:
Same market	4,151		3,219		932		29.0	%
New markets	1,588		—		1,588		NM
Total as reported	5,739		3,219		2,520		78.3	%
NM = Not Meaningful

SONIC AUTOMOTIVE, INC.

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

~~The following table provides a reconciliation of EchoPark Segment reported basis, same market basis and new market basis for wholesale vehicles:~~

Three Months Ended March 31, Better / (Worse)
2021 2020 Change % Change
(In thousands, except unit data)
Total wholesale vehicle revenue:
Same market $ 15,555 $ 6,103 $ 9,452 154.9 %
New markets 3,050 — 3,050 NM
Total as reported $ 18,605 $ 6,103 $ 12,502 204.9 %
Total wholesale vehicle gross profit (loss):
Same market $ 122 $ (74) $ 196 264.9 %
New markets (9) — (9) NM
Total as reported $ 113 $ (74) $ 187 252.7 %
Total wholesale vehicle unit sales:
Same market 2,230 1,765 465 26.3 %
New markets 631 — 631 NM
Total as reported 2,861 1,765 1,096 62.1 %

~~NM = Not Meaningful~~

Our EchoPark Segment reported wholesale vehicle results were as follows:


	Three Months Ended June 30,						Better / (Worse)
	2021			2020			Change		% Change
	(In thousands, except unit and per unit data)
Reported wholesale vehicle:
Revenue	$	21,851		$	4,666		$	17,185	368.3	%
Gross profit (loss)	$	3,093		$	(69)		$	3,162	4,582.6	%
Unit sales	2,878			1,454			1,424		97.9	%
Revenue per unit	$	7,592		$	3,209		$	4,383	136.6	%
Gross profit (loss) per unit	$	1,075		$	(47)		$	1,122	2,387.2	%
Gross profit (loss) as a % of revenue	14.2		%	(1.5)		%	1,570		bps


		Three Months Ended March 31,						Better / (Worse)					Six Months Ended June 30,						Better / (Worse)
		2021			2020			Change		% Change			2021			2020			Change		% 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:
Revenue	Revenue	$	18,605		$	6,103		$	12,502	204.9	%	Revenue	$	40,454		$	10,770		$	29,684	275.6	%
Gross profit (loss)	Gross profit (loss)	$	113		$	(74)		$	187	252.7	%	Gross profit (loss)	$	3,202		$	(145)		$	3,347	2,308.3	%
Unit sales	Unit sales	2,861			1,765			1,096		62.1	%	Unit sales	5,739			3,219			2,520		78.3	%
Revenue per unit	Revenue per unit	$	6,503		$	3,458		$	3,045	88.1	%	Revenue per unit	$	7,049		$	3,346		$	3,703	110.7	%
Gross profit (loss) per unit	Gross profit (loss) per unit	$	39		$	(42)		$	81	192.9	%	Gross profit (loss) per unit	$	558		$	(45)		$	603	1,340.0	%
Gross profit (loss) as a % of revenue	Gross profit (loss) as a % of revenue	0.6		%	(1.2)		%	180		bps		Gross profit (loss) as a % of revenue	7.9		%	(1.3)		%	920		bps

Our EchoPark Segment same market wholesale vehicle results were as follows:


	Three Months Ended June 30,						Better / (Worse)
	2021			2020			Change		% Change
	(In thousands, except unit and per unit data)
Same market wholesale vehicle:
Revenue	$	14,951		$	4,666		$	10,285	220.4	%
Gross profit (loss)	$	2,288		$	(69)		$	2,357	3,415.9	%
Unit sales	1,847			1,454			393		27.0	%
Revenue per unit	$	8,095		$	3,209		$	4,886	152.3	%
Gross profit (loss) per unit	$	1,239		$	(47)		$	1,286	2,736.2	%
Gross profit (loss) as a % of revenue	15.3		%	(1.5)		%	1,680		bps


		Three Months Ended March 31,						Better / (Worse)					Six Months Ended June 30,						Better / (Worse)
		2021			2020			Change		% Change			2021			2020			Change		% Change
		(In thousands, except unit and per unit data)											(In thousands, except unit and per unit data)
Same market wholesale vehicle:	Same market wholesale vehicle:											Same market wholesale vehicle:
Revenue	Revenue	$	15,555		$	6,103		$	9,452	154.9	%	Revenue	$	30,722		$	10,770		$	19,952	185.3	%
Gross profit (loss)	Gross profit (loss)	$	122		$	(74)		$	196	264.9	%	Gross profit (loss)	$	2,410		$	(145)		$	2,555	1,762.1	%
Unit sales	Unit sales	2,230			1,765			465		26.3	%	Unit sales	4,151			3,219			932		29.0	%
Revenue per unit	Revenue per unit	$	6,975		$	3,458		$	3,517	101.7	%	Revenue per unit	$	7,401		$	3,346		$	4,055	121.2	%
Gross profit (loss) per unit	Gross profit (loss) per unit	$	55		$	(42)		$	97	231.0	%	Gross profit (loss) per unit	$	581		$	(45)		$	626	1,391.1	%
Gross profit (loss) as a % of revenue	Gross profit (loss) as a % of revenue	0.8		%	(1.2)		%	200		bps		Gross profit (loss) as a % of revenue	7.8		%	(1.3)		%	910		bps

Same Market EchoPark Segment Wholesale Vehicles – Three Months Ended ~~March 31,~~June 30, 2021 Compared to Three Months Ended ~~March 31,~~June 30, 2020

Same market wholesale vehicle revenue increased ~~154.9%~~220.4% and same market wholesale vehicle gross profit improved by ~~264.9%~~3,415.9%, due primarily to ~~new store openings,~~higher trade-in volume, which drove a ~~26.3%~~27.0% increase in same market wholesale vehicle unit sales ~~volume and a 231.0% increase in~~

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

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

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

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

Fixed Operations – EchoPark Segment

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

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

Three Months Ended March 31, Better / (Worse)
2021 2020 Change % Change
(In thousands)
Total Fixed Operations revenue:
Same market $ 10,103 $ 10,145 $ (42) (0.4) %
New markets 2,734 34 2,700 NM
Total as reported $ 12,837 $ 10,179 $ 2,658 26.1 %
Total Fixed Operations gross profit (loss):
Same market $ 7 $ (197) $ 204 103.6 %
New markets (222) (1) (221) NM
Total as reported $ (215) $ (198) $ (17) (8.6) %


	Three Months Ended June 30,				Better / (Worse)
	2021		2020		Change		% Change
	(In thousands)
Total Fixed Operations revenue:
Same market	$	10,602	$	7,060	$	3,542	50.2	%
New markets	3,876		—		3,876		NM
Total as reported	$	14,478	$	7,060	$	7,418	105.1	%

Total Fixed Operations gross profit (loss):
Same market	$	(4)	$	(186)	$	182	97.8	%
New markets	274		—		274		NM
Total as reported	$	270	$	(186)	$	456	245.2	%

NM = Not Meaningful

SONIC AUTOMOTIVE, INC.

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



	Six Months Ended June 30,				Better / (Worse)
	2021		2020		Change		% Change
	(In thousands)
Total Fixed Operations revenue:
Same market	$	21,248	$	17,205	$	4,043	23.5	%
New markets	6,067		34		6,033		(17,744.1)	%
Total as reported	$	27,315	$	17,239	$	10,076	58.4	%

Total Fixed Operations gross profit (loss):
Same market	$	(27)	$	(383)	$	356	93.0	%
New markets	80		—		80		100.0	%
Total as reported	$	53	$	(383)	$	436	113.8	%

Our EchoPark Segment reported Fixed Operations results were as follows:


	Three Months Ended June 30,						Better / (Worse)
	2021			2020			Change		% Change
	(In thousands)
Total Reported Fixed Operations:
Revenue	$	14,478		$	7,060		$	7,418	105.1	%
Gross profit (loss)	$	270		$	(186)		$	456	245.2	%
Gross profit (loss) as a % of revenue	1.9		%	(2.6)		%	450		bps


		Three Months Ended March 31,						Better / (Worse)
		2021			2020			Change		% Change			Six Months Ended June 30,						Better / (Worse)
		(In thousands)											2021			2020			Change		% Change
Total reported Fixed Operations:
													(In thousands)
Total Reported Fixed Operations:												Total Reported Fixed Operations:
Revenue	Revenue	$	12,837		$	10,179		$	2,658	26.1	%	Revenue	$	27,315		$	17,239		$	10,076	58.4	%
Gross profit (loss)	Gross profit (loss)	$	(215)		$	(198)		$	(17)	(8.6)	%	Gross profit (loss)	$	53		$	(383)		$	436	113.8	%
Gross profit (loss) as a % of revenue	Gross profit (loss) as a % of revenue	(1.7)		%	(1.9)		%	20		bps		Gross profit (loss) as a % of revenue	0.2		%	(2.2)		%	240		bps

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


		Three Months Ended March 31,						Better / (Worse)					Three Months Ended June 30,						Better / (Worse)
		2021			2020			Change		% Change			2021			2020			Change		% Change
		(In thousands)											(In thousands)
Total same market Fixed Operations:
Total Same market Fixed Operations:												Total Same market Fixed Operations:
Revenue	Revenue	$	10,103		$	10,145		$	(42)	(0.4)	%	Revenue	$	10,602		$	7,060		$	3,542	50.2	%
Gross profit (loss)	Gross profit (loss)	$	7		$	(197)		$	204	103.6	%	Gross profit (loss)	$	(4)		$	(186)		$	182	97.8	%
Gross profit (loss) as a % of revenue	Gross profit (loss) as a % of revenue	0.1		%	(1.9)		%	200		bps		Gross profit (loss) as a % of revenue	—		%	(2.6)		%	260		bps



	Six Months Ended June 30,						Better / (Worse)
	2021			2020			Change		% Change
	(In thousands)
Total Same store Fixed Operations:
Revenue	$	21,248		$	17,205		$	4,043	23.5	%
Gross profit (loss)	$	(27)		$	(383)		$	356	93.0	%
Gross profit (loss) as a % of revenue	(0.1)		%	(2.2)		%	210		bps

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

Same Market EchoPark Segment Fixed Operations – Three Months Ended ~~March 31,~~June 30, 2021 Compared to Three Months Ended ~~March 31,~~June 30, 2020

Same market Fixed Operations revenue ~~was flat~~increased approximately $3.5 million, or 50.2%, primarily due to ~~lower levels of inventory reconditioning cost per unit, offset partially by an 8.2%~~a 16.5% increase in retail used vehicle unit sales ~~volume.~~volume, driving higher levels of reconditioning work.

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

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

Segment Results Summary

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


		Three Months Ended March 31,				Better / (Worse)					Three Months Ended June 30,				Better / (Worse)
		2021		2020		Change		% Change			2021		2020		Change		% Change
		(In thousands, except unit data)									(In thousands, except unit data)
Segment Revenues:	Segment Revenues:									Segment Revenues:
Franchised Dealerships Segment revenues:	Franchised Dealerships Segment revenues:									Franchised Dealerships Segment revenues:
New vehicles	New vehicles	$	1,156,317	$	959,489	$	196,828	20.5	%	New vehicles	$	1,461,984	$	900,003	$	561,981	62.4	%
Used vehicles	Used vehicles	661,534		566,888		94,646		16.7	%	Used vehicles	761,524		535,699		225,825		42.2	%
Wholesale vehicles	Wholesale vehicles	56,204		42,440		13,764		32.4	%	Wholesale vehicles	62,956		28,509		34,447		120.8	%
Parts, service and collision repair	Parts, service and collision repair	308,077		324,501		(16,424)		(5.1)	%	Parts, service and collision repair	346,118		251,998		94,120		37.3	%
Finance, insurance and other, net	Finance, insurance and other, net	97,525		83,029		14,496		17.5	%	Finance, insurance and other, net	124,060		80,401		43,659		54.3	%
Franchised Dealerships Segment revenues	Franchised Dealerships Segment revenues	$	2,279,657	$	1,976,347	$	303,310	15.3	%	Franchised Dealerships Segment revenues	$	2,756,642	$	1,796,610	$	960,032	53.4	%

EchoPark Segment revenues:	EchoPark Segment revenues:									EchoPark Segment revenues:
New vehicles										New vehicles	$	909	$	—	$	909	100.0	%
Used vehicles	Used vehicles	$	428,563	$	283,164	$	145,399	51.3	%	Used vehicles	505,172		273,178		231,994		84.9	%
Wholesale vehicles	Wholesale vehicles	18,605		6,103		12,502		204.9	%	Wholesale vehicles	21,851		4,666		17,185		368.3	%
Parts, service and collision repair	Parts, service and collision repair	12,837		10,179		2,658		26.1	%	Parts, service and collision repair	14,478		7,060		7,418		105.1	%
Finance, insurance and other, net	Finance, insurance and other, net	47,136		32,263		14,873		46.1	%	Finance, insurance and other, net	53,194		30,372		22,822		75.1	%
EchoPark Segment revenues	EchoPark Segment revenues	$	507,141	$	331,709	$	175,432	52.9	%	EchoPark Segment revenues	$	595,604	$	315,276	$	280,328	88.9	%

Total consolidated revenues	Total consolidated revenues	$	2,786,798	$	2,308,056	$	478,742	20.7	%	Total consolidated revenues	$	3,352,246	$	2,111,886	$	1,240,360	58.7	%

Segment Income (Loss) (1):	Segment Income (Loss) (1):									Segment Income (Loss) (1):
Franchised Dealerships Segment	Franchised Dealerships Segment	$	70,543	$	22,656	$	47,887	211.4	%	Franchised Dealerships Segment	$	165,415	$	35,689	$	129,726	363.5	%
EchoPark Segment	EchoPark Segment	2,010		2,096		(86)		(4.1)	%	EchoPark Segment	(14,394)		2,577		(16,971)		(658.6)	%
Total segment income (loss)	Total segment income (loss)	$	72,553	$	24,752	$	47,801	193.1	%	Total segment income (loss)	$	151,021	$	38,266	$	112,755	294.7	%
Impairment charges (2)	Impairment charges (2)	—		(268,000)		268,000		100.0	%	Impairment charges (2)	—		(833)		833		100.0	%
Income (loss) from continuing operations before taxes	Income (loss) from continuing operations before taxes	$	72,553	$	(243,248)	$	315,801	129.8	%	Income (loss) from continuing operations before taxes	$	151,021	$	37,433	$	113,588	303.4	%

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 Segment	Franchised Dealerships Segment	51,594		47,762		3,832		8.0	%	Franchised Dealerships Segment	59,038		43,864		15,174		34.6	%
EchoPark Segment	EchoPark Segment	19,670		13,986		5,684		40.6	%	EchoPark Segment	21,275		13,207		8,068		61.1	%
Total retail new and used vehicle unit sales volume	Total retail new and used vehicle unit sales volume	71,264		61,748		9,516		15.4	%	Total retail new and used vehicle unit sales volume	80,313		57,071		23,242		40.7	%

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

SONIC AUTOMOTIVE, INC.

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


	Six Months Ended June 30,				Better / (Worse)
	2021		2020		Change		% Change
	(In thousands, except unit data)
Segment Revenues:
Franchised Dealerships Segment revenues:
New vehicles	$	2,618,301	$	1,859,492	$	758,809	40.8	%
Used vehicles	1,423,059		1,102,587		320,472		29.1	%
Wholesale vehicles	119,160		70,948		48,212		68.0	%
Parts, service and collision repair	654,194		576,499		77,695		13.5	%
Finance, insurance and other, net	221,586		163,429		58,157		35.6	%
Franchised Dealerships Segment revenues	$	5,036,300	$	3,772,955	$	1,263,345	33.5	%

EchoPark Segment revenues:
New vehicles	$	909	$	—	$	909	100.0	%
Used vehicles	933,735		556,343		377,392		67.8	%
Wholesale vehicles	40,454		10,770		29,684		275.6	%
Parts, service and collision repair	27,315		17,239		10,076		58.4	%
Finance, insurance and other, net	100,330		62,635		37,695		60.2	%
EchoPark Segment revenues	$	1,102,743	$	646,987	$	455,756	70.4	%

Total consolidated revenues	$	6,139,043	$	4,419,942	$	1,719,101	38.9	%


Segment Income (Loss) (1):
Franchised Dealerships Segment	$	235,957	$	58,346	$	177,611	304.4	%
EchoPark Segment	(12,384)		4,672		(17,056)		(365.1)	%
Total segment income (loss)	$	223,573	$	63,018	$	160,555	254.8	%
Impairment charges (2)	—		(268,833)		268,833		100.0	%
Income (loss) from continuing operations before taxes	$	223,573	$	(205,815)	$	429,388	208.6	%

Retail New and Used Vehicle Unit Sales Volume:
Franchised Dealerships Segment	110,632		91,626		19,006		20.7	%
EchoPark Segment	40,945		27,193		13,752		50.6	%
Total retail new and used vehicle unit sales volume	151,577		118,819		32,758		27.6	%

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

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

~~SONIC AUTOMOTIVE, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

Selling, General and Administrative (“SG&A”) Expenses – Consolidated

Consolidated SG&A expenses are comprised of four major groups: compensation expense, advertising expense, rent expense and other expense. Compensation expense primarily relates to store personnel who are paid a commission or a salary plus commission and support personnel who are paid a fixed salary. Commissions paid to store personnel typically vary depending on gross profits realized and sales volume objectives. Due to the salary component for certain store and corporate personnel, gross profits and compensation expense do not change in direct proportion to one another. Advertising expense and other expense vary based on the level of actual or anticipated business activity and the number of dealerships in operation. Rent expense typically varies with the number of store locations owned, investments made for facility improvements and interest rates. Other expense includes various fixed and variable expenses, including gain on disposal of franchises, certain customer-related costs such as gasoline and service loaners, and insurance, training, legal and IT expenses, which may not change in proportion to gross profit levels.

SONIC AUTOMOTIVE, INC.

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

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


		Three Months Ended March 31,						Better / (Worse)					Three Months Ended June 30,						Better / (Worse)
		2021			2020			Change		% Change			2021			2020			Change		% Change
		(In thousands)											(In thousands)
SG&A expenses:	SG&A expenses:											SG&A expenses:
Compensation	Compensation	$	188,492		$	174,422		$	(14,070)	(8.1)	%	Compensation	$	213,842		$	140,266		$	(73,576)	(52.5)	%
Advertising	Advertising	12,169			14,135			1,966		13.9	%	Advertising	15,345			8,087			(7,258)		(89.7)	%
Rent	Rent	13,744			13,865			121		0.9	%	Rent	13,665			13,223			(442)		(3.3)	%
Other	Other	74,951			79,734			4,783		6.0	%	Other	77,768			68,783			(8,985)		(13.1)	%
Total SG&A expenses	Total SG&A expenses	$	289,356		$	282,156		$	(7,200)	(2.6)	%	Total SG&A expenses	$	320,620		$	230,359		$	(90,261)	(39.2)	%

SG&A expenses as a % of gross profit:	SG&A expenses as a % of gross profit:											SG&A expenses as a % of gross profit:
Compensation	Compensation	47.0		%	49.8		%	280		bps		Compensation	41.9		%	45.6		%	370		bps
Advertising	Advertising	3.0		%	4.0		%	100		bps		Advertising	3.0		%	2.6		%	(40)		bps
Rent	Rent	3.4		%	4.0		%	60		bps		Rent	2.7		%	4.3		%	160		bps
Other	Other	18.8		%	22.7		%	390		bps		Other	15.2		%	22.4		%	720		bps
Total SG&A expenses as a % of gross profit	Total SG&A expenses as a % of gross profit	72.2		%	80.5		%	830		bps		Total SG&A expenses as a % of gross profit	62.8		%	74.9		%	1,210		bps



	Six Months Ended June 30,						Better / (Worse)
	2021			2020			Change		% Change
	(In thousands)
SG&A expenses:
Compensation	$	402,333		$	314,688		$	(87,645)	(27.9)	%
Advertising	27,515			22,222			(5,293)		(23.8)	%
Rent	27,409			27,088			(321)		(1.2)	%
Other	152,719			148,517			(4,202)		(2.8)	%
Total SG&A expenses	$	609,976		$	512,515		$	(97,461)	(19.0)	%

SG&A expenses as a % of gross profit:
Compensation	44.1		%	47.8		%	370		bps
Advertising	3.0		%	3.4		%	40		bps
Rent	3.0		%	4.1		%	110		bps
Other	16.8		%	22.6		%	580		bps
Total SG&A expenses as a % of gross profit	66.9		%	77.9		%	1,100		bps

Three Months Ended ~~March 31,~~June 30, 2021 Compared to Three Months Ended ~~March 31,~~June 30, 2020

Overall SG&A expenses increased in dollar amount but decreased as a percentage of gross profit, primarily due to higher compensation levels as a result of higher vehicle unit sales volume and higher overall gross profit ~~levels and higher variable compensation expenses in 2021.~~levels. Compensation expense increased in dollar amount but decreased as a percentage of gross profit, primarily due to increased sales associate productivity during 2021 as well as higher gross profit levels. Advertising expense ~~decreased~~increased in both in dollar amount and as a percentage of gross profit, due primarily to ~~a focused effort on centralizing and reducing~~changes we made to optimize our marketing spend ~~in order to get~~during the ~~most efficient use~~initial months of ~~our advertising dollars.~~the pandemic. Rent expense ~~was flat as compared to the prior year period. Other SG&A expenses decreased both~~increased in dollar amount ~~and~~but decreased as a percentage of gross profit, due primarily to higher levels of gross profit. Other SG&A expenses increased in dollar amount but decreased as a ~~decrease~~percentage of gross profit, due primarily to higher gross profit levels and temporary reductions in ~~customer-related costs and other fixed costs as we focused on reducing loaner vehicle expense and other discretionary spending~~expenses during the ~~pandemic.~~

~~Impairment Charges~~ – ~~Consolidated~~

~~Impairment charges decreased approximately $268.0 million during the three months ended March 31, 2021, due to the absence~~second quarter of fair value adjustments to goodwill included in the previous period. We did not record any impairment charges for the three months ended March 31, 2021. Impairment charges were approximately $268.0 million for the three months ended March 31, 2020 ~~related to adjustments in fair value of goodwill for the Franchised Dealerships Segment~~ as a result of the ~~effects~~initial onset of the ~~COVID-19 pandemic on our operations and market value.~~pandemic.

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

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

Impairment Charges – Consolidated

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

Depreciation and Amortization – Consolidated

Depreciation expense increased approximately ~~$1.4~~$2.1 million, or ~~6.2%~~9.3%, during the three months ended ~~March 31,~~June 30, 2021, and $3.5 million, or 7.8%, during the six months ended June 30, 2021, due primarily to ~~higher inventory associated with~~ the opening or acquisition of additional EchoPark stores and construction projects completed and placed in service in our Franchised Dealerships Segment.

Interest Expense, Floor Plan – Consolidated

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

Interest expense, floor plan for new vehicles decreased approximately ~~$5.5~~$2.8 million, or ~~61.9%~~55.1%. The average new vehicle floor plan interest rate was ~~1.18%~~0.81%, down from ~~2.58%~~1.57% in the three months ended ~~March 31,~~June 30, 2020, resulting in a decrease in new vehicle floor plan interest expense of approximately ~~$4.2~~$2.1 million. The average new vehicle floor plan notes payable balance decreased approximately ~~$223.0~~$173.7 million, which decreased new vehicle floor plan interest expense by approximately ~~$1.3~~$0.7 million.

Interest expense, floor plan for used vehicles increased approximately ~~$0.1~~$0.8 million, or ~~8.8%~~65.5%. The average used vehicle floor plan interest rate was ~~1.83%~~1.67%, down from ~~2.73%~~1.89% in the three months ended ~~March 31,~~June 30, 2020, resulting in a decrease in used vehicle floor plan interest expense of approximately ~~$0.9~~$0.3 million. The average used vehicle floor plan notes payable balance increased approximately ~~$147.2~~$230.2 million, which increased used vehicle floor plan interest expense by approximately ~~$1.0~~$1.1 million.

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

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

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

SONIC AUTOMOTIVE, INC.

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

Interest Expense, Other, Net – Consolidated

Interest expense, other, net is summarized in the tables below:

Three Months Ended March 31, Better / (Worse)
2021 2020 Change % Change
(In thousands)
Stated/coupon interest $ 7,647 $ 9,214 $ 1,567 17.0 %
Discount/premium amortization — — — — %
Deferred loan cost amortization 823 557 (266) (47.8) %
Interest rate hedge expense (benefit) 411 (427) (838) (196.3) %
Capitalized interest (411) (420) (9) (2.1) %
Interest on finance lease liabilities 1,656 1,344 (312) (23.2) %
Other interest 159 697 538 77.2 %
Total interest expense, other, net $ 10,285 $ 10,965 $ 680 6.2 %


	Three Months Ended June 30,				Better / (Worse)
	2021		2020		Change		% Change
	(In thousands)
Stated/coupon interest	$	7,501	$	8,741	$	1,240	14.2	%

Deferred loan cost amortization	834		624		(210)		(33.7)	%
Interest rate hedge expense (benefit)	471		(380)		(851)		(223.9)	%
Capitalized interest	(564)		(124)		440		354.8	%
Interest on finance lease liabilities	1,676		1,337		(339)		(25.4)	%
Other interest	159		(401)		(560)		(139.7)	%
Total interest expense, other, net	$	10,077	$	9,797	$	(280)	(2.9)	%



	Six Months Ended June 30,				Better / (Worse)
	2021		2020		Change		% Change
	(In thousands)
Stated/coupon interest	$	15,147	$	17,955	$	2,808	15.6	%

Deferred loan cost amortization	1,658		1,182		(476)		(40.3)	%
Interest rate hedge expense (benefit)	881		(808)		(1,689)		(209.0)	%
Capitalized interest	(974)		(545)		429		78.7	%
Interest on finance lease liabilities	3,332		2,681		(651)		(24.3)	%
Other interest	319		297		(22)		(7.4)	%
Total interest expense, other, net	$	20,363	$	20,762	$	399	1.9	%

Interest expense, other, net increased approximately $0.3 million and decreased approximately ~~$0.7~~$0.4 million during the three and six months ended ~~March 31,~~June 30, 2021, respectively, primarily due to a decrease in ~~variable interest~~outstanding borrowings on our revolving credit facility and lower mortgage debt, ~~and~~offset by a ~~decrease in~~lower benefit from interest ~~expense related to borrowings on the 2016 Revolving Credit Facility, offset partially by~~rate hedge instruments and an increase in interest ~~rate hedge expense under our interest rate cap agreements and interest on~~associated with finance lease liabilities.

Income Taxes

The overall effective tax rate from continuing operations was ~~26.0%~~24.5% and 25.0% for the three and six months ended ~~March 31,~~June 30, 2021, respectively, and ~~18.2%~~17.2% and 18.3% for the three and six months ended ~~March 31, 2020.~~June 30, 2020, respectively. Income tax expense for the three months ended ~~March 31,~~June 30, 2021 includes a ~~$1.5~~$1.3 million discrete benefit related to vested or exercised stock compensation awards. Income tax expense for the six months ended June 30, 2021 includes a $2.8 million discrete benefit related to vested or exercised stock compensation awards. Income tax benefit for the three months ended ~~March 31,~~June 30, 2020 includes a ~~$51.3~~$3.4 million discrete benefit related to the favorable resolution of certain tax matters and other adjustments, offset partially by a $0.3 million discrete charge related to vested or exercised stock compensation awards. Income tax benefit for the six months ended June 30, 2020 includes a $55.8 million benefit, including the effect of non-deductible amounts, related to the $268.0 million goodwill impairment charge recognized in such quarter, and a ~~$0.5~~$0.2 million discrete benefit related to vested or exercised stock compensation awards and a $0.2 million discrete benefit related to the favorable resolution of a certain tax matter, offset partially by a ~~$0.1~~$1.4 million discrete charge related to changes in uncertain tax positions. Sonic’s effective tax rate varies from year to year based on the level of taxable income, the distribution of taxable income between states in which the Company operates and other tax adjustments.

Liquidity and Capital Resources

We require cash to fund debt service, lease obligations, working capital requirements, facility improvements and other capital improvements, and dividends on our common stock and to finance acquisitions and otherwise invest in our business. We rely on cash flows from operations, borrowings under our revolving credit and floor plan borrowing arrangements, real estate mortgage financing, asset sales and offerings of debt and equity securities to meet these requirements. We were in compliance with all restrictive covenants under our debt agreements as of ~~March 31,~~June 30, 2021 and expect to be in compliance for at least the

~~SONIC AUTOMOTIVE, INC.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

next 12 months. We closely monitor our available liquidity and projected future operating results in order to remain in compliance

SONIC AUTOMOTIVE, INC.

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

with the restrictive covenants under the 2021 Credit Facilities, the 2019 Mortgage Facility, the 2020 Line of Credit Facility, the indenture governing the 6.125% Notes and our other debt obligations and lease arrangements. However, our liquidity could be negatively affected if we fail to comply with the financial covenants in our existing debt obligations or lease arrangements. After giving effect to the applicable restrictions on the payment of dividends under our debt agreements, as of ~~March 31,~~June 30, 2021, we had approximately ~~$290.0~~$348.9 million of net income and retained earnings free of such restrictions. Cash flows provided by our franchised dealerships and EchoPark stores are derived from various sources. The primary sources include individual consumers, automobile manufacturers, automobile manufacturers’ captive finance subsidiaries and other financial institutions. Disruptions in these cash flows could have a material adverse impact on our operations and overall liquidity.

Because the majority of our consolidated assets are held by our dealership subsidiaries, the majority of our cash flows from operations are generated by these subsidiaries. As a result, our cash flows and our ability to service our obligations depend to a substantial degree on the results of operations of these subsidiaries and their ability to provide us with cash.

We had the following liquidity resources available as of ~~March 31,~~June 30, 2021 and December 31, 2020:

March 31, 2021 December 31, 2020
(In thousands)
Cash and cash equivalents $ 77,233 $ 170,313
Availability under the 2016 Revolving Credit Facility 218,796 214,672
Availability under our used vehicle floor plan facilities (1) — —
Availability under the 2019 Mortgage Facility 13,999 11,272
Availability under the 2020 Line of Credit Facility 54,141 56,973
Floor plan deposit balance 70,788 73,180
Total available liquidity resources $ 434,957 $ 526,410


	June 30, 2021		December 31, 2020
	(In thousands)
Cash and cash equivalents	$	239,617	$	170,313
Availability under the 2021 Revolving Credit Facility (1)	224,318		214,672

Availability under the 2019 Mortgage Facility	16,726		11,272
Availability under the 2020 Line of Credit Facility	54,141		56,973
Floor plan deposit balance	75,000		73,180
Total available liquidity resources	$	609,802	$	526,410

(1) AsThe balance as of ~~March~~December 31, ~~2021, there~~2020 was ~~approximately $19.2 million of availability~~ under the ~~VIN-specific amendment discussed in Note 6, “Long-Term Debt,” to~~Company’s prior revolving credit facility, which was replaced by the ~~accompanying unaudited condensed consolidated financial statements.~~2021 Revolving Credit Facility.

We participate in a program with two of our ~~manufacturer-affiliated finance companies~~lender partners wherein we maintain a deposit balance (included in the table above) with the lender that earns interest based on the agreed upon rate, effectively reducing the net floor plan interest expense with the lender. This deposit balance is not designated as a prepayment of notes payable – floor plan, nor is it our intent to use this amount to offset principal amounts owed under notes payable – floor plan in the future, although we have the right and ability to do so. The deposit balances of approximately ~~$70.8~~$75.0 million and $73.2 million as of ~~March 31,~~June 30, 2021 and December 31, 2020, respectively, are classified in other current assets in the accompanying unaudited condensed consolidated balance sheets as of ~~March 31,~~June 30, 2021 and December 31, ~~2020, respectively.~~2020.

Floor Plan Facilities

We finance our new and certain of our used vehicle inventory through standardized floor plan facilities with manufacturer captive finance companies and a syndicate of manufacturer-affiliated finance companies and commercial banks. These floor plan facilities are due on demand and bear interest at variable rates based on LIBOR or prime plus an additional spread, as applicable. The weighted-average interest rate for our new and used vehicle floor plan facilities was ~~1.34%~~1.07% and ~~2.60%~~1.62% in the three months ended ~~March 31,~~June 30, 2021 and 2020, respectively, and 1.20% and 2.14% in the six months ended June 30, 2021 and 2020, respectively.

We receive floor plan assistance in the form of direct payments or credits from certain manufacturers. Floor plan assistance received is capitalized in inventory and recorded as a reduction of cost of sales when the associated inventory is sold. We received approximately $~~10.9~~11.5 million and ~~$10.0~~$6.2 million in manufacturer assistance in the three months ended ~~March 31,~~June 30, 2021 and 2020, respectively, and approximately $22.3 million and $16.2 million in manufacturer assistance in the six months ended June 30, 2021 and 2020, respectively. We recognized in cost of sales approximately ~~$11.4~~$13.7 million and ~~$9.0~~$8.7 million in manufacturer assistance in the three months ended ~~March 31,~~June 30, 2021 and 2020, respectively, and approximately $25.0 million and $17.7 million in manufacturer assistance in the six months ended June 30, 2021 and 2020, respectively. Interest payments under each of our floor plan facilities are due monthly and we are generally not required to make principal repayments prior to the sale of the associated vehicles.

Long-Term Debt and Credit Facilities

See Note 6, “Long-Term Debt,” to the accompanying unaudited condensed consolidated financial statements for a discussion of our long-term debt and credit facilities and compliance with debt covenants.

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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 our credit facilities.

Capital expenditures in the ~~three~~six months ended ~~March 31,~~June 30, 2021 were approximately ~~$67.7~~$105.1 million, including approximately ~~$46.2~~$71.7 million related to our Franchised Dealerships Segment and approximately ~~$21.5~~$33.4 million related to our EchoPark Segment. Of this amount, approximately ~~$31.7~~$59.2 million was related to facility construction projects, ~~$5.6~~$7.4 million was related to real estate acquisitions and ~~$30.4~~$38.5 million was for other fixed assets utilized in our store operations.

OfAll of the ~~$67.7~~$105.1 million in gross capital expenditures in the ~~three~~six months ended ~~March 31,~~June 30, 2021 ~~nearly all~~ was funded through cash from operations. As of ~~March 31,~~June 30, 2021, commitments for facility construction projects totaled approximately ~~$49.3~~$34.6 million, nearly all of which is expected to be completed in the next 12 months. We expect investments related to capital expenditures to be partly dependent upon our overall liquidity position and the availability of mortgage financing to fund significant capital projects.

Share Repurchase Program

Our Board of Directors has authorized us to repurchase shares of our Class A Common Stock. Historically, we have used our share repurchase authorization to offset dilution caused by the exercise of stock options or the vesting of equity compensation awards and to maintain our desired capital structure. During the ~~three~~six months ended ~~March 31,~~June 30, 2021, we repurchased approximately 1.0 million shares of our Class A Common Stock for approximately $42.2 million in open-market transactions at prevailing market prices and in connection with tax withholding on the vesting of equity compensation awards. AsDuring the second quarter of ~~March 31, 2021, our total remaining repurchase authorization was approximately $27.3 million. Subsequent to March 31,~~ 2021, our Board of Directors increased our share repurchase authorization by $250.0 million. ~~After giving effect to such increase, we had $277.3 million available under~~As of June 30, 2021, our ~~authorized~~total remaining share repurchase ~~program.~~authorization was approximately $277.3 million. Under the 2021 Credit ~~Agreement,~~Facilities, share repurchases are permitted to the extent that no ~~Event~~event of ~~Default~~default exists, and we do not exceed the restrictions set forth in our debt agreements. After giving effect to the applicable restrictions on share repurchases and certain other transactions under our debt agreements, as of ~~March 31,~~June 30, 2021, we had approximately ~~$290.0~~$348.9 million of net income and retained earnings free of such restrictions.

Our share repurchase activity is subject to the business judgment of our Board of Directors and management, taking into consideration our historical and projected results of operations, financial condition, cash flows, capital requirements and covenant compliance, the current economic environment and other factors considered relevant. These factors are considered each quarter and will be scrutinized as our Board of Directors and management determine our share repurchase policy in the future.

Dividends

During the three months ended March 31, 2021, 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 15, 2021, which was paid on April 15, 2021. Subsequent to March 31,June 30, 2021, our Board of Directors approved a cash dividend of $0.12 per share on all outstanding shares of Class A and Class B Common Stock as of June 15, 2021, which was paid on July 15, 2021. Subsequent to June 30, 2021, our Board of Directors approved a cash dividend of $0.12 per share on all outstanding shares of Class A and Class B Common Stock as of September 15, 2021 to be paid on ~~July~~October 15, 2021. Under the 2021 Credit ~~Agreement,~~Facilities, dividends are permitted to the extent that no event of default exists and we are in compliance with the financial covenants contained therein. The indenture governing the 6.125% Notes also contains restrictions on our ability to pay dividends. After giving effect to the applicable restrictions on share repurchases and certain other transactions under our debt agreements, as of ~~March 31,~~June 30, 2021, we had approximately ~~$290.0~~$348.9 million of net income and retained earnings free of such restrictions. The payment of any future dividend is subject to the business judgment of our Board of Directors, taking into consideration our historical and projected results of operations, financial condition, cash flows, capital requirements, covenant compliance and share repurchases, the current economic environment and other factors considered relevant. These factors are considered each quarter and will be scrutinized as our Board of Directors determines our future dividend policy. There is no guarantee that additional dividends will be declared and paid at any time in the future. See Note 6, “Long-Term Debt,” to the accompanying unaudited condensed consolidated financial statements for a description of restrictions on the payment of dividends.

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

Cash Flows

Net cash used in operating activities in the six months ended June 30, 2021 was approximately $34.7 million. This use of cash was comprised primarily of net income less non-cash items and a decrease in notes payable – floor plan – trade, offset partially by a decrease in inventories and an increase in trade accounts payable and other liabilities. In the six months ended June 30, 2020, net cash provided by operating activities ~~in the three months ended March 31, 2021~~ was approximately ~~$90.2~~$227.7 million. This provision of cash was comprised primarily of ~~net income (less non-cash items), an increase in trade accounts payable and other liabilities and~~ a decrease in inventories, offset partially by an decrease in notes payable – floor plan – trade. In the three months ended March 31, 2020, net cash used in operating activities was approximately $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 an increase in other assets, offset partially by a decrease in receivables and cash inflows related to operating profits.

Net cash used in investing activities in the ~~three~~six months ended ~~March 31,~~June 30, 2021 was approximately $75.6 million. This use of cash was comprised primarily of purchases of land, property and equipment. Net cash used in investing activities in the three months ended March 31, 2020 was approximately $19.6$129.1 million. This use of cash was comprised primarily of purchases of land, property and equipment ~~offset partially by proceeds from sales~~and purchases of businesses, net of cash acquired. Net cash used in investing activities in the six months ended June 30, 2020 was approximately $62.5 million. This use of cash was comprised primarily of purchases of land, property and equipment.

Net cash provided by financing activities in the six months ended June 30, 2021 was approximately $233.1 million. This provision of cash was comprised primarily of a net borrowing of notes payable – floor plan – non-trade, offset partially by purchases of treasury stock and payments on long-term debt. Net cash used in financing activities in the ~~three~~six months ended ~~March 31, 2021~~June 30, 2020 was approximately ~~$107.7~~$78.7 million. This use of cash was comprised primarily of net repayments of notes payable – floor plan – non-trade and purchases of treasury stock. Net cash provided by financing activities in the three months ended March 31, 2020 was approximately $219.5 million. This provision of cash was comprised primarily of proceeds from net borrowings on revolving credit facilities and net borrowing of notes payable – floor plan – non-trade,stock, offset partially by ~~purchases~~proceeds from the issuance of ~~treasury stock and payments on~~ long-term debt.

We arrange our inventory floor plan financing through both manufacturer captive finance companies and a syndicate of manufacturer-affiliated finance companies and commercial banks. Our floor plan financed with manufacturer captives is recorded as trade floor plan liabilities (with the resulting change being reflected as operating cash flows). Our dealerships that obtain floor plan financing from a syndicate of manufacturer-affiliated finance companies and commercial banks record their obligation as non-trade floor plan liabilities (with the resulting change being reflected as financing cash flows). Due to the presentation differences for changes in trade floor plan financing and non-trade floor plan financing in the accompanying unaudited condensed consolidated statements of cash flows, decisions made by us to move dealership floor plan financing arrangements from one finance source to another may cause significant variations in operating and financing cash flows without affecting our overall liquidity, working capital or cash flows. Net cash used in combined trade and non-trade floor plan financing was approximately ~~$97.9~~$238.1 million in the ~~three~~six months ended ~~March 31,~~June 30, 2021. Net cash ~~provided by~~used in combined trade and non-trade floor plan financing was approximately ~~$7.6~~$321.8 million in the ~~three~~six months ended ~~March 31,~~June 30, 2020. Accordingly, if all changes in floor plan notes payable were classified as an operating activity, the result would have been net cash provided by operating activities of approximately ~~$38.8~~$279.6 million in the ~~three~~six months ended ~~March 31,~~June 30, 2021 and net cash ~~used in~~provided by operating activities ~~$6.0~~of approximately $163.6 million in the ~~three~~six months ended ~~March 31,~~June 30, 2020.

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

Three Months Ended March 31, 2021 Three Months Ended March 31, 2020
Franchised Dealerships Segment EchoPark Segment Discontinued Operations Total Franchised Dealerships Segment EchoPark Segment Discontinued Operations Total
(In thousands)
Net income (loss) $ 54,222 $ (199,333)
Provision for income taxes 19,051 (44,200)
Income (loss) before taxes $ 70,543 $ 2,010 $ 720 $ 73,273 $ (245,344) $ 2,096 $ (285) $ (243,533)
Non-floor plan interest (1) 9,127 334 — 9,461 10,043 365 — 10,408
Depreciation & amortization (2) 21,206 3,304 — 24,510 20,144 2,708 — 22,852
Stock-based compensation expense 3,485 — — 3,485 2,427 — — 2,427
Asset impairment charges — — — — 268,000 — — 268,000
Long-term compensation charges — 500 — 500 — — — —
Loss (gain) on franchise and real estate disposals (21) 14 — (7) — — — —
Adjusted EBITDA (3) $ 104,340 $ 6,162 $ 720 $ 111,222 $ 55,270 $ 5,169 $ (285) $ 60,154


	Three Months Ended June 30, 2021								Three Months Ended June 30, 2020
	Franchised Dealerships Segment		EchoPark Segment		Discontinued Operations		Total		Franchised Dealerships Segment		EchoPark Segment		Discontinued Operations		Total
	(In thousands)
Net income (loss)							$	113,845							$	30,791
Provision for income taxes							36,972								6,353
Income (loss) before taxes	$	165,415	$	(14,394)	$	(204)	$	150,817	$	34,856	$	2,577	$	(289)	$	37,144
Non-floor plan interest (1)	8,895		348		—		9,243		8,938		234		—		9,172
Depreciation & amortization (2)	21,444		4,152		—		25,596		20,514		2,758		—		23,272
Stock-based compensation expense	3,989		—		—		3,989		2,971		—		—		2,971

Asset impairment charges	—		—		—		—		833		—		—		833

Long-term compensation charges	—		500		—		500		—		—		—		—
Loss (gain) on franchise and real estate disposals	(400)		(23)		—		(423)		1,117		—		—		1,117
Adjusted EBITDA (3)	$	199,343	$	(9,417)	$	(204)	$	189,722	$	69,229	$	5,569	$	(289)	$	74,509

(1)Includes the following line items from the accompanying unaudited condensed consolidated statements of operations, net of any amortization of debt issuance costs or net debt discount/premium included in footnote (2) below: interest expense, other, net; interest expense, non-cash, convertible debt; and interest expense/amortization, non-cash, cash flow swaps.

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

(2)Includes the following line items from the accompanying unaudited condensed consolidated statements of cash flows: depreciation and amortization of property and equipment; debt issuance cost amortization; and net debt discount/premium amortization and other amortization.

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



	Six Months Ended June 30, 2021								Six Months Ended June 30, 2020
	Franchised Dealerships Segment		EchoPark Segment		Discontinued Operations		Total		Franchised Dealerships Segment		EchoPark Segment		Discontinued Operations		Total
	(In thousands)
Net income (loss)							$	168,067							$	(168,542)
Provision for income taxes							56,022								(37,846)
Income (loss) before taxes	$	235,957	$	(12,384)	$	516	$	224,089	$	(210,487)	$	4,672	$	(573)	$	(206,388)
Non-floor plan interest (1)	18,022		682		—		18,704		18,981		599		—		19,580
Depreciation & amortization (2)	42,650		7,456		—		50,106		40,658		5,466		—		46,124
Stock-based compensation expense	7,474		—		—		7,474		5,398		—		—		5,398

Asset impairment charges	—		—		—		—		268,833		—		—		268,833
Long-term compensation charges	—		1,000		—		1,000		—		—		—		—
Loss (gain) on franchise and real estate disposals	(421)		(9)		—		(430)		1,117		—		—		1,117
Adjusted EBITDA (3)	$	303,682	$	(3,255)	$	516	$	300,943	$	124,500	$	10,737	$	(573)	$	134,664

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

Future Liquidity Outlook

We believe our best sources of liquidity for operations and debt service remain cash flows generated from operations combined with the availability of borrowings under our floor plan facilities (or any replacements thereof), the ~~2016~~2021 Credit Facilities (which were amended, restated and consolidated subsequent to March 31, 2021 - see Note 11, “Subsequent Events,” to the accompanying unaudited condensed consolidated financial statements for further discussion)(or any replacements thereof), the 2019 Mortgage Facility (or any replacements thereof), the 2020 Line of Credit Facility (or any replacements thereof), real estate mortgage financing, and selected dealership and other asset sales and our ability to raise funds in the capital markets through offerings of debt or equity securities. Because the majority of our consolidated assets are held by our dealership subsidiaries, the majority of our cash flows from operations are generated by these subsidiaries. As a result, our cash flows and our ability to service our obligations depend to a substantial degree on the results of operations of these subsidiaries, their contractual obligations and capital requirements, and their ability to provide us with cash.

Currently, we do ~~note~~not believe that the effects of the COVID-19 pandemic have materially affected our cost of or access to capital and funding sources, but this could change if the pandemic and its impact on our business ~~worsens.~~worsen. We do not currently anticipate any materially negative changes to our cost of or access to capital over the next 12 months or after.

Off-Balance Sheet Arrangements

Guarantees and Indemnification Obligations

In connection with dealership dispositions and facility relocations, certain of our subsidiaries have assigned or sublet to the buyer their interests in real property leases associated with such dealerships or facilities. In general, the subsidiaries retain responsibility for the performance of certain obligations under such leases, including rent payments and repairs to leased property upon termination of the lease, to the extent that the assignee or sublessee does not perform. In the event an assignee or a sublessee does not perform its obligations, we remain liable for such obligations.

SONIC AUTOMOTIVE, INC.

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

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

See Note 7, “Commitments and Contingencies,” to the accompanying unaudited condensed consolidated financial statements and Note ~~11,~~12, “Commitments and Contingencies,” to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2020 for further discussion regarding these guarantees and indemnification obligations.

Seasonality

Our operations are subject to seasonal variations. The first quarter historically has contributed less operating profit than the second and third quarters, while the fourth quarter historically has contributed the highest operating profit of any quarter. Weather conditions and the timing of manufacturer incentive programs and model changeovers cause seasonality and may adversely affect vehicle demand and, consequently, our profitability. Comparatively, parts and service demand has historically remained stable throughout the year.

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SONIC AUTOMOTIVE, INC.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Interest Rate Risk

Our variable rate floor plan facilities, the ~~2016~~2021 Revolving Credit Facility, the 2019 Mortgage Facility, the 2020 Line of Credit Facility and our other variable rate notes expose us to risks caused by fluctuations in the applicable interest rates. The total outstanding balance of such variable instruments, after considering the effect of our interest rate caps (see below), was approximately ~~$1.1 billion~~$997.1 million at ~~March 31,~~June 30, 2021. An increase in interest rates of 100 basis points would have caused a change in interest expense of approximately ~~$8.6~~$14.8 million in the ~~three~~six months ended ~~March 31,~~June 30, 2021. Of the total change in interest expense, approximately ~~$8.0~~$13.5 million would have resulted from our floor plan facilities.

In addition to our variable rate debt, certain of our dealership lease facilities have monthly lease payments that fluctuate based on LIBOR interest rates. An increase in interest rates of 100 basis points would not have had a significant impact on rent expense in the ~~three~~six months ended ~~March 31,~~June 30, 2021 due to the leases containing LIBOR floors which were above the LIBOR rate during the ~~three~~six months ended ~~March 31,~~June 30, 2021.

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 March 31, 2021 was not material to the accompanying unaudited condensed consolidated balance sheet as of such date. The fair value of the outstanding interest rate cap positions at December 31, 2020 was not material to the accompanying unaudited condensed consolidated balance 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, our business is subject to foreign exchange rate risk that may influence automobile manufacturers’ ability to provide their products at competitive prices in the U.S. To the extent that we cannot recapture this exchange rate volatility in prices charged to customers or if this volatility negatively impacts consumer demand for our products, this volatility could adversely affect our future operating results.

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SONIC AUTOMOTIVE, INC.

Item 4. Controls and Procedures.

Disclosure Controls and Procedures – Under the supervision and with the participation of our management, including our Chief Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”), we evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934, as ~~amended)~~amended (the “Exchange Act”)) as of ~~March 31,~~June 30, 2021. Based upon that evaluation, our CEO and our CFO concluded that our disclosure controls and procedures were effective as of ~~March 31,~~June 30, 2021.

Changes in Internal Control over Financial Reporting – There were no changes in our internal control over financial reporting during the quarter ended ~~March 31,~~June 30, 2021, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Because of its inherent limitations, internal control over financial reporting can provide only reasonable assurance that the objectives of the control system are met and may not prevent or detect misstatements. In addition, any evaluation of the effectiveness of internal control over financial reporting in future periods is subject to risk that those internal controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

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SONIC AUTOMOTIVE, INC.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

For information regarding legal proceedings, see the discussion under the heading “Legal and Other Proceedings” in Note 7.7, “Commitments and ~~Contingencies”~~Contingencies,” to the accompanying unaudited condensed consolidated financial statements.

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SONIC AUTOMOTIVE, INC.

Item 1A. Risk Factors.

There have been no material changes in our risk factors from those included in “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2020, except as noted below.

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

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

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

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

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SONIC AUTOMOTIVE, INC.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

The following table sets forth information about the shares of Class A Common Stock we repurchased during the three months ended ~~March 31,~~June 30, 2021.

Issuer Purchases of Equity Securities
Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (1)
(In thousands, except per share data)
January 2021 — $ — — $ —
February 2021 575,832 $ 41.87 575,832 $ 45,307
March 2021 381,471 $ 47.10 381,471 $ 27,307
Total 957,303 957,303


Issuer Purchases of Equity Securities
	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (1)
	(In thousands, except per share data)
April 2021	928	$	49.34	45,788	$	277,261
May 2021	—	$	—	—	$	—
June 2021	—	$	—	—	$	—
Total	928			45,788

(1)On ~~February 13, 2017 and~~ July 31, 2020 and April 29, 2021, we announced that our Board of Directors had increased the dollar amount authorized for us to repurchase shares of our Class A Common Stock pursuant to our share repurchase program. Our share repurchase program does not have an expiration date and current remaining availability under the program is as follows:


	(In thousands)
~~February 2017~~July 2020 authorization	$	~~100,000~~60,000
~~July 2020~~April 2021 authorization	~~60,000~~250,000
Total active program repurchases prior to ~~March 31,~~June 30, 2021	~~(132,693)~~(32,700)
Current remaining availability as of ~~March 31,~~June 30, 2021	$	~~27,307~~277,300

See “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” for additional

discussion of restrictions on share repurchases and payment of dividends.

Subsequent to March 31, 2021, our Board of Directors increased our share repurchase authorization by $250.0 million. After giving effect to such increase, we had $277.3 million available under our authorized share repurchase program.

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SONIC AUTOMOTIVE, INC.

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~~Annual Report on Form ~~10-Q~~10-K for the ~~quarter~~year ended ~~March~~December 31, ~~2017~~20 20 (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						Certificate of Amendment to the Amended and Restated Certificate of Incorporation of Sonic Automotive, Inc., dated June 16, 1999 (incorporated by reference to Exhibit 3.3 to the Quarterly Report on Form 10-Q for the quarter ended March 31, 2017 (File No. 001-13395)).
3.4						Certificate of Amendment to the Amended and Restated Certificate of Incorporation of Sonic Automotive, Inc., dated April 18, 2017 (incorporated by reference to Exhibit 3.4 to the Quarterly Report on Form 10-Q for the quarter ended March 31, 2017 (File No. 001-13395)).
3.5						Certificate of Amendment to the Amended and Restated Certificate of Incorporation of Sonic Automotive, Inc., dated May 3, 2021 (incorporated by reference to Exhibit 4.4 to the Registration Statement on Form S-8 filed June 8, 2021 (File No. 333-256891)).
3.6						Amended and Restated Bylaws of Sonic Automotive, Inc., dated February 10, 2021 ~~(incorporated~~(incorporated by reference to Exhibit 3.1 3.1 to the Current Report on Form 8-K filed February 12, 2021 ~~(File~~(File No. 001-13395)).
10.1


						Sonic Automotive, Inc. 2012 Stock Incentive Plan, amended and restated as of February 10, 2021 (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed May 3, 2021 (File No. 001-13395)). (1)
~~10.1~~10.2						Fifth Amended, Restated and Consolidated Credit Agreement, dated as of April 14, 2021, among Sonic Automotive, Inc.; the subsidiaries of Sonic Automotive, Inc. named therein; each lender a party thereto; Bank of America, N.A., as administrative agent, revolving swing line lender, new vehicle swing line lender, used vehicle swing line lender and an l/c issuer. (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed April 20, 2021 (File No. 001-13395)).
~~10.2~~10.3						Form of Promissory Note, dated April 14, 2021, executed by Sonic Automotive, Inc., as borrower, in favor of each of the lenders to the Fifth Amended, Restated and Consolidated Credit Agreement. (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed April 20, 2021 (File No. 001-13395)).
~~10.3~~10.4						Fourth Amended and Restated Company Guaranty Agreement, dated as of April 14, 2021, by Sonic Automotive, Inc. to Bank of America, N.A., as administrative agent for each of the lenders. (incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K filed April 20, 2021 (File No. 001-13395)).
~~10.4~~10.5						Fifth Amended, Restated and Consolidated Subsidiary Guaranty Agreement, dated as of April 14, 2021, by the subsidiaries of Sonic Automotive, Inc. named therein, as guarantors, to Bank of America, N.A., as administrative agent for each of the lenders. (incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K filed April 20, 2021 (File No. 001-13395)).
~~10.5~~10.6						Fifth Amended and Restated Securities Pledge Agreement, dated as of April 14, 2021, among Sonic Automotive, Inc., the subsidiaries of Sonic Automotive, Inc. named therein and Bank of America, N.A., as administrative agent for the lenders. (incorporated by reference to Exhibit 10.5 to the Current Report on Form 8-K filed April 20, 2021 (File No. 001-13395)).
~~10.6~~10.7						Fifth Amended and Restated Escrow and Security Agreement, dated as of April 14, 2021, among Sonic Automotive, Inc., the subsidiaries of Sonic Automotive, Inc. named therein and Bank of America, N.A., as administrative agent for each of the lenders. (incorporated by reference to Exhibit 10.6 to the Current Report on Form 8-K filed April 20, 2021 (File No. 001-13395)).
~~10.7~~10.8						Fifth Amended and Restated Security Agreement, dated as of April 14, 2021, among Sonic Automotive, Inc., the subsidiaries of Sonic Automotive, Inc. named therein and Bank of America, N.A., as administrative agent for each of the lenders. (incorporated by reference to Exhibit 10.7 to the Current Report on Form 8-K filed April 20, 2021 (File No. 001-13395)).
31.1*						Certification of Principal Financial Officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*						Certification of Principal Executive Officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**						Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2**						Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS*						Inline XBRL Instance Document.
101.SCH*						Inline XBRL Taxonomy Extension Schema Document.
101.CAL*						Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*						Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*						Inline XBRL Taxonomy Extension Label Linkbase Document.

SONIC AUTOMOTIVE, INC.


101.PRE*						Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104*						Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

_______________________________

*Filed herewith.

**Furnished herewith.

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

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SONIC AUTOMOTIVE, INC.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	SONIC AUTOMOTIVE, INC.

~~April~~July 29, 2021	By:	/s/ DAVID BRUTON SMITH
		David Bruton Smith
		Chief Executive Officer

~~April~~July 29, 2021	By:	/s/ HEATH R. BYRD
		Heath R. Byrd
		Executive Vice President and Chief Financial Officer

4865


		Page
PART I – FINANCIAL INFORMATION		1
Item 1.	Financial Statements (Unaudited)	1
	Condensed Consolidated Statements of Operations	1
	Condensed Consolidated Statements of Comprehensive Operations	2
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Stockholders’ Equity	4
	Condensed Consolidated Statements of Cash Flows	56
	Notes to Unaudited Condensed Consolidated Financial Statements	67
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4258
Item 4.	Controls and Procedures	4359
PART II – OTHER INFORMATION		4460
Item 1.	Legal Proceedings	4460
Item 1A.	Risk Factors	4561
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4662
Item 6.	Exhibits	4763
SIGNATURES		4865