Sonic Automotive delivered record revenues and net income in its third quarter, but is tapping the brakes on adding stores to its EchoPark Automotive stand-alone used-car brand until mid-2023 while it realigns the brand with the changing economic environment.

Sonic CEO David Smith said the company remains committed to expanding EchoPark’s reach to within 90% of the U.S. population by 2025, compared to reaching “over 50%” of the population currently.

But he also said the company is taking a “disciplined approach” to EchoPark’s future expansion.

On Sept. 30, the company operated 52 EchoPark stores in 21 states, which includes 11 Northwest Motorsport pre-owned stores that Sonic acquired in December. Sonic expanded EchoPark’s distribution network in the quarter when it opened a new delivery center in Tulsa, Okla., and a retail hub near Sacramento, Calif.

 “We're going to get back on track when we're seeing some huge progress in some of our EchoPark stores that (EchoPark COO) Tim Keen and the team have been working on, and (Sonic president) Jeff Dyke,” Smith said during the company’s conference call detailing its third-quarter earnings results.

“We're going to see that to fruition before we start rolling out a bunch of other additional locations.”

EchoPark revenue and unit sales tumble

Sonic’s total revenues in the quarter that ended Sept. 30, grew 12% to $3.4 billion and its net income of $87.3 million was up 3%, compared to the same quarter in 2021.

But, EchoPark’s revenue of $607.8 million reflected an 8% decline when compared to the third quarter of 2021 and its retail used unit sales dropped 27% to 15,422 compared to the year-ago quarter.

Still, EchoPark’s gross profit of $48.6 million reflected a record 88% increase compared to the year-ago period.

Expecting lower vehicle prices

Dyke, who was also on the call, said the company will pause the opening of new EchoPark stores until after the second quarter of 2023 when it expects used-vehicle prices, which have already dropped, to decline even further.

He said the average wholesale price of vehicles EchoPark acquires at auction is “just below $26,000” down from $31,500.

Rental car companies are no longer fiercely competing for vehicles at auctions, some competitors are “struggling” and the economy is slowing, leading to a belief that average wholesale prices for EchoPark inventory will fall to the $23,000 to $24,000 range by the middle of next year, Dyke said.

“That’s where the average monthly payment gets to back to where it was pre-Covid in the $450 range,” Dyke said.

“Last quarter our average customer paid $630 with warranties and everything wrapped in. That’s still too close to the new car payment.”

As part of EchoPark’s realignment, the company is expanding its inventory of 5-plus year-old vehicles, which helps it reach more customers, improve consumer affordability and acquire more vehicles from non-auction sources, all of which improves profitability, Smith said.

Lithia & Driveway

Lithia & Driveway, which held its earnings call on Oct. 19, said used-vehicle retail sales volume and average selling price rose in the three-month period that ended Sept. 30, but its average gross profit per used unit fell, in that time period.

Lithia & Driveway CEO Bryan DeBoer said as used vehicle inventory is beginning to loosen “we’re starting to see some correlation between those drops in GPUs” and “hopefully volume increases as well.”

In the quarter, the company’s used unit retail sales grew 6.4% to 81,215 and its average used-vehicle selling price of $30,361 was 11.5% higher than the average used vehicle selling price in the year-ago quarter, the company reported. But at the same time, its average gross profit per used vehicle retailed in the quarter fell 18.6% to $2,478.

On a same store basis, used unit sales dipped 2.8% to 72,292 and average used-vehicle selling price rose 10.3%  to $30,158 in the quarter. Average gross profit per used vehicle retailed slid 21.3% to $2,419 in the three-month period.

DeBoer also said its important to note that used-vehicle margins are “basically back” to levels seen prior to the pandemic and that finance and insurance per used vehicle retailed remains strong.

“We’re not seeing weakness,” he said during call. “In fact, in the quarter we were we were up almost $100 per unit, which is a nice number that helps offset some of the decline on GPUs.”

Vehicle sourcing

DeBoer said about 74% of Lithia & Driveway’s used-vehicle inventory is acquired from consumers down from 75%, auction vehicles make up about 16% of its inventory, up from 13% and Driveway’s omni-channel environment generates 10%, he said.

DeBoer also said the company’s “value autos” described as vehicles with 80,000 miles on their odometers, have less exposure to market swings because they’re lower priced and typically are the scarcest.

“On the opposite side, you have CPO which is probably the most volatile as new-car inventories return to some level of normality and as manufacturers begin to think about how to incentivize over supply and those type of things in the coming quarters,” he said.

Lithia & Driveway’s total revenue in its first quarter that ended Sept. 30, increased 18.2% to $7.29 billion and its net income increased 6.9% to $330.3 million compared with its third quarter of 2021.

For the first nine months of the year, the company’s total revenue was up 28.6% to $21.01 billion and its net income improved 31.4% to $1.01 billion.

When compared to the year-ago quarter, the company’s overall new retail unit sales grew 4.3% to 69,743 and average gross profit per new retail unit rose 10.9% to $5,789.

For the first nine months of 2022, Lithia & Driveway’s new unit retail sales increased 3.8% to 203,437 and its average gross profit per new retail unit increased 42.8% to $5,975