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 September 30, 2023

OR

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

For the transition period from                      to                     

Commission File Number: 1-13395

______________________________________

SONIC AUTOMOTIVE, INC.

(Exact name of registrant as specified in its charter)

______________________________________

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

4401 Colwick Road									28211
Charlotte,			North Carolina
(Address of principal executive offices)									(Zip Code)

(704) 566-2400

(Registrant’s telephone number, including area code)

______________________________________

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Class A Common Stock, par value $0.01 per share

SAH

New York Stock Exchange

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

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

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

Large accelerated filer			☒			Accelerated filer			☐
Non-accelerated filer			☐			Smaller reporting company			☐
						Emerging growth company			☐

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

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

As of October 24, 2023, there were 21,857,279 shares of the registrant’s Class A Common Stock, par value $0.01 per share, and 12,029,375 shares of the registrant’s Class B Common Stock, par value $0.01 per share, outstanding.

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UNCERTAINTY OF FORWARD-LOOKING STATEMENTS AND INFORMATION

This report 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, 2022 and elsewhere in this report, 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 vehicle 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 subsidiaries;

•changes in laws and regulations governing the operation of automobile franchises, accounting standards, taxation requirements and environmental laws;

•changes in vehicle and parts import quotas, duties, tariffs or other restrictions, including supply shortages that could be caused by global political and economic factors 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, inflation, vehicle valuations, 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 recent or future acquisitions;

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

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

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 U.S. Securities and Exchange Commission.

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SONIC AUTOMOTIVE, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2023

TABLE OF CONTENTS

						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			6
			Notes to Unaudited Condensed Consolidated Financial Statements			7
Item 2.			Management’s Discussion and Analysis of Financial Condition and Results of Operations			18
Item 3.			Quantitative and Qualitative Disclosures About Market Risk			67
Item 4.			Controls and Procedures			68
PART II – OTHER INFORMATION						69
Item 1.			Legal Proceedings			69
Item 1A.			Risk Factors			70
Item 2.			Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities			71
Item 5.			Other Information			72
Item 6.			Exhibits			73
SIGNATURES						74

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PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

SONIC AUTOMOTIVE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

			Three Months Ended September 30,												Nine Months Ended September 30,
			2023						2022						2023						2022
			(Dollars and shares in millions, except per share amounts)
Revenues:
Retail new vehicles			$	1,573.5					$	1,371.8					$	4,624.4					$	4,067.4
Fleet new vehicles			23.2						32.0						70.4						70.0
Total new vehicles			1,596.7						1,403.8						4,694.8						4,137.4
Used vehicles			1,340.4						1,355.8						3,991.2						4,174.4
Wholesale vehicles			79.3						114.7						256.3						404.8
Total vehicles			3,016.4						2,874.3						8,942.3						8,716.6
Parts, service and collision repair			453.4						408.2						1,327.6						1,188.6
Finance, insurance and other, net			173.7						165.6						517.7						505.3
Total revenues			3,643.5						3,448.1						10,787.6						10,410.5
Cost of sales:
Retail new vehicles			(1,442.1)						(1,209.6)						(4,213.5)						(3,569.2)
Fleet new vehicles			(22.3)						(30.7)						(67.3)						(66.9)
Total new vehicles			(1,464.4)						(1,240.3)						(4,280.8)						(3,636.1)
Used vehicles			(1,288.1)						(1,304.9)						(3,877.4)						(4,029.1)
Wholesale vehicles			(80.7)						(116.8)						(255.8)						(404.2)
Total vehicles			(2,833.2)						(2,662.0)						(8,414.0)						(8,069.4)
Parts, service and collision repair			(228.1)						(205.4)						(669.0)						(600.2)
Total cost of sales			(3,061.3)						(2,867.4)						(9,083.0)						(8,669.6)
Gross profit			582.2						580.7						1,704.6						1,740.9
Selling, general and administrative expenses			(409.6)						(399.0)						(1,214.2)						(1,188.8)
Impairment charges			—						—						(62.6)						—
Depreciation and amortization			(35.2)						(32.8)						(105.7)						(94.0)
Operating income			137.4						148.9						322.1						458.1
Other income (expense):
Interest expense, floor plan			(17.4)						(9.6)						(48.9)						(20.6)
Interest expense, other, net			(29.0)						(22.9)						(86.2)						(65.1)
Other income (expense), net			0.2						—						0.3						0.1
Total other income (expense)			(46.2)						(32.5)						(134.8)						(85.6)
Income before taxes			91.2						116.4						187.3						372.5
Provision for income taxes - benefit (expense)			(22.8)						(29.1)						(47.8)						(93.1)
Net income			$	68.4					$	87.3					$	139.5					$	279.4
Basic earnings per common share:
Earnings per common share			$	1.96					$	2.28					$	3.94					$	7.09
Weighted-average common shares outstanding			34.9						38.3						35.4						39.4
Diluted earnings per common share:
Earnings per common share			$	1.92					$	2.23					$	3.85					$	6.90
Weighted-average common shares outstanding			35.6						39.2						36.2						40.5

    

See notes to unaudited condensed consolidated financial statements.

1

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SONIC AUTOMOTIVE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE OPERATIONS

(Unaudited)

			Three Months Ended September 30,												Nine Months Ended September 30,
			2023						2022						2023						2022
			(Dollars in millions)
Net income			$	68.4					$	87.3					$	139.5					$	279.4
Other comprehensive income (loss) before taxes:
Change in fair value and amortization of interest rate cap agreements			0.3						—						1.5						0.7
Total other comprehensive income (loss) before taxes			0.3						—						1.5						0.7
Provision for income tax benefit (expense) related to components of other comprehensive income (loss)			(0.1)						—						(0.4)						(0.2)
Other comprehensive income (loss)			0.2						—						1.1						0.5
Comprehensive income			$	68.6					$	87.3					$	140.6					$	279.9

See notes to unaudited condensed consolidated financial statements.

2

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SONIC AUTOMOTIVE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

			September 30, 2023						December 31, 2022
			(Dollars in millions, except per share amounts)
ASSETS
Current Assets:
Cash and cash equivalents			$	34.6					$	229.2
Receivables, net			431.5						462.4
Inventories			1,433.9						1,216.8
Other current assets			341.5						297.9
Total current assets			2,241.5						2,206.3
Property and Equipment, net			1,599.2						1,561.7
Goodwill			243.6						231.0
Other Intangible Assets, net			417.4						396.7
Operating Right-of-Use Lease Assets			189.2						260.7
Finance Right-of-Use Lease Assets			258.4						224.1
Other Assets			101.0						97.8
Total Assets			$	5,050.3					$	4,978.3
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Notes payable - floor plan - trade			$	121.2					$	114.9
Notes payable - floor plan - non-trade			1,266.2						1,112.7
Trade accounts payable			143.0						138.4
Operating short-term lease liabilities			31.7						36.4
Finance short-term lease liabilities			10.4						11.1
Other accrued liabilities			376.3						352.4
Current maturities of long-term debt			60.4						79.5
Total current liabilities			2,009.2						1,845.4
Long-Term Debt			1,623.1						1,672.2
Other Long-Term Liabilities			108.2						105.5
Operating Long-Term Lease Liabilities			176.1						231.4
Finance Long-Term Lease Liabilities			276.2						228.6
Commitments and Contingencies
Stockholders’ Equity:
Class A Convertible Preferred Stock, none issued			—						—
Class A Common Stock, $0.01 par value; 100,000,000 shares authorized; 68,541,841 shares issued and 21,857,279 shares outstanding at September 30, 2023; 67,574,922 shares issued and 24,204,324 shares outstanding at December 31, 2022			0.7						0.7
Class B Common Stock, $0.01 par value; 30,000,000 shares authorized; 12,029,375 shares issued and outstanding at September 30, 2023 and December 31, 2022			0.1						0.1
Paid-in capital			848.3						819.4
Retained earnings			1,210.1						1,100.3
Accumulated other comprehensive income (loss)			2.7						1.6
Treasury stock, at cost; 46,684,562 Class A Common Stock shares held at September 30, 2023 and 43,370,598 Class A Common Stock shares held at December 31, 2022			(1,204.4)						(1,026.9)
Total Stockholders’ Equity			857.5						895.2
Total Liabilities and Stockholders’ Equity			$	5,050.3					$	4,978.3

See notes to unaudited condensed consolidated financial statements.

3

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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 millions, except per share amounts)
Balance at June 30, 2022			67.1						$	0.7					(39.9)						$	(858.1)					12.0						$	0.1					$	804.6					$	1,223.5					$	(0.8)					$	1,170.0
Shares awarded under stock compensation plans			0.5						—						—						—						—						—						7.2						—						—						7.2
Purchases of treasury stock			—						—						(3.1)						(152.1)						—						—						—						—						—						(152.1)
Stock compensation expense			—						—						—						—						—						—						3.8						—						—						3.8
Net income			—						—						—						—						—						—						—						87.3						—						87.3
Class A dividends declared ($0.25 per share)			—						—						—						—						—						—						—						(6.3)						—						(6.3)
Class B dividends declared ($0.25 per share)			—						—						—						—						—						—						—						(3.0)						—						(3.0)
Balance at September 30, 2022			67.6						$	0.7					(43.0)						$	(1,010.2)					12.0						$	0.1					$	815.6					$	1,301.5					$	(0.8)					$	1,106.9

			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 millions, except per share amounts)
Balance at June 30, 2023			68.4						$	0.7					(45.0)						$	(1,117.6)					12.0						$	0.1					$	839.8					$	1,151.2					$	2.5					$	876.7
Shares awarded under stock compensation plans			0.1						—						—						—						—						—						1.8						—						—						1.8
Purchases of treasury stock			—						—						(1.7)						(86.8)						—						—						—						—						—						(86.8)
Effect of cash flow hedge instruments, net of tax expense of $0.1			—						—						—						—						—						—						—						—						0.2						0.2
Stock compensation expense			—						—						—						—						—						—						6.7						—						—						6.7
Net income			—						—						—						—						—						—						—						68.4						—						68.4
Class A dividends declared ($0.29 per share)			—						—						—						—						—						—						—						(6.0)						—						(6.0)
Class B dividends declared ($0.29 per share)			—						—						—						—						—						—						—						(3.5)						—						(3.5)
Balance at September 30, 2023			68.5						$	0.7					(46.7)						$	(1,204.4)					12.0						$	0.1					$	848.3					$	1,210.1					$	2.7					$	857.5

See notes to unaudited condensed consolidated financial statements.

4

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			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 millions, except per share amounts)
Balance at December 31, 2021			66.5						$	0.7					(37.8)						$	(765.0)					12.0						$	0.1					$	790.2					$	1,051.7					$	(1.3)					$	1,076.4
Shares awarded under stock compensation plans			1.1						—						—						—						—						—						8.5						—						—						8.5
Purchases of treasury stock			—						—						(5.2)						(245.2)						—						—						—						—						—						(245.2)
Effect of cash flow hedge instruments, net of tax expense of $0.2			—						—						—						—						—						—						—						—						0.5						0.5
Stock compensation expense			—						—						—						—						—						—						16.9						—						—						16.9
Net income			—						—						—						—						—						—						—						279.4						—						279.4
Class A dividends declared ($0.62 per share)			—						—						—						—						—						—						—						(22.1)						—						(22.1)
Class B dividends declared ($0.62 per share)			—						—						—						—						—						—						—						(7.5)						—						(7.5)
Balance at September 30, 2022			67.6						$	0.7					(43.0)						$	(1,010.2)					12.0						$	0.1					$	815.6					$	1,301.5					$	(0.8)					$	1,106.9

			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 millions, except per share amounts)
Balance at December 31, 2022			67.6						$	0.7					(43.4)						$	(1,026.9)					12.0						$	0.1					$	819.4					$	1,100.3					$	1.6					$	895.2
Shares awarded under stock compensation plans			0.9						—						—						—						—						—						11.6						—						—						11.6
Purchases of treasury stock			—						—						(3.3)						(177.5)						—						—						—						—						—						(177.5)
Effect of cash flow hedge instruments, net of tax expense of $0.4			—						—						—						—						—						—						—						—						1.1						1.1
Stock compensation expense			—						—						—						—						—						—						17.3						—						—						17.3
Net income			—						—						—						—						—						—						—						139.5						—						139.5
Class A dividends declared ($0.86 per share)			—						—						—						—						—						—						—						(19.4)						—						(19.4)
Class B dividends declared ($0.86 per share)			—						—						—						—						—						—						—						(10.3)						—						(10.3)
Balance at September 30, 2023			68.5						$	0.7					(46.7)						$	(1,204.4)					12.0						$	0.1					$	848.3					$	1,210.1					$	2.7					$	857.5

See notes to unaudited condensed consolidated financial statements.

5

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SONIC AUTOMOTIVE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

			Nine Months Ended September 30,
			2023						2022
			(Dollars in millions)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income			$	139.5					$	279.4
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of property and equipment			92.0						84.2
Debt issuance cost amortization			4.9						3.8
Stock-based compensation expense			17.3						16.9
Deferred income taxes			(10.5)						(10.4)
Asset impairment charges			62.6						—
Gain on disposal of dealerships and property and equipment			(18.1)						(0.5)
Other			0.3						1.5
Changes in assets and liabilities that relate to operations:
Receivables			49.2						43.5
Inventories			(230.7)						101.1
Other assets			(7.2)						107.5
Notes payable - floor plan – trade			6.3						5.3
Trade accounts payable and other liabilities			(1.4)						13.1
Total adjustments			(35.3)						366.0
Net cash provided by operating activities			104.2						645.4
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of businesses, net of cash acquired			(75.1)						(94.2)
Purchases of land, property and equipment			(153.6)						(197.6)
Proceeds from sales of property and equipment			5.1						15.7
Proceeds from sales of dealerships			52.2						—
Net cash used in investing activities			(171.4)						(276.1)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) on notes payable - floor plan - non-trade			153.5						(218.8)
Debt issuance costs			(1.6)						(0.5)
Principal payments of long-term debt			(71.5)						(42.1)
Principal payments of long-term lease liabilities			(11.7)						(6.4)
Purchases of treasury stock			(177.5)						(245.2)
Issuance of shares under stock compensation plans			11.6						8.5
Dividends paid			(30.2)						(25.2)
Net cash used in financing activities			(127.4)						(529.7)
NET DECREASE IN CASH AND CASH EQUIVALENTS			(194.6)						(160.4)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR			229.2						299.4
CASH AND CASH EQUIVALENTS, END OF PERIOD			$	34.6					$	139.0
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest, including amounts capitalized			$	115.0					$	68.7
Income taxes			$	73.4					$	95.2

See notes to unaudited condensed consolidated financial statements.

6

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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 nine months ended September 30, 2023 and 2022 are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States (the “U.S.”) (“GAAP”) for interim financial information and applicable rules and regulations of the U.S. Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by 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 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, 2022.

Recent Accounting Pronouncements – 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, 2022 for further discussion of recent accounting pronouncements.

Change in Accounting Principle – During the first quarter of 2023, Sonic voluntarily changed the date of its annual goodwill impairment test and other intangible assets impairment test from October 1 to April 30. This change is preferable under the circumstances as it provides Sonic with better alignment of the annual impairment test with the availability of final approved prospective financial information for use in projecting future cash flows in our impairment models. We intend to utilize the same valuation approach and do not expect the change in valuation date to produce different impairment results. This change is not applied retrospectively as it is impracticable to do so because retrospective application would require the application of significant estimates and assumptions with the use of hindsight. Accordingly, the change was applied prospectively, beginning with the April 30, 2023 impairment test date.

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. Certain amounts and percentages may not compute due to rounding.

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. 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 third-party vehicle financing and the sale of third-party 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 obligations are satisfied when the associated vehicle is delivered to a customer and customer acceptance has occurred, over time as the maintenance and repair services are performed, or at the time of wholesale and retail parts sales. 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, as 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 September 30, 2023 and December 31, 2022 include approximately $27.9 million and $38.7 million, respectively, related to contract assets from F&I retro revenues

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recognition, which are recorded in receivables, net. Changes in contract assets from December 31, 2022 to September 30, 2023 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, 2022 for further discussion of our revenue recognition policies and processes.

Earnings Per Share – The calculation of diluted earnings per share considers the potential dilutive effect of restricted stock units, restricted stock and stock options granted under Sonic’s stock compensation plans (and any non-forfeitable dividends paid on such awards), in addition to Class A Common Stock purchase warrants.

2. Business Acquisitions and Dispositions

During the nine months ended September 30, 2023, we acquired one business (consisting of five locations) in our Powersports Segment (as defined below) for an aggregate gross purchase price (including inventory acquired and subsequently funded by floor plan notes payable) of approximately $75.1 million. The preliminary allocation of the approximately $75.1 million aggregate gross purchase price included inventory of approximately $11.1 million, property and equipment of approximately $0.7 million, franchise assets of approximately $22.6 million, goodwill of approximately $11.9 million, real estate of approximately $29.0 million, other assets of approximately $0.1 million, and other liabilities of approximately $0.3 million.

During the nine months ended September 30, 2022, we acquired two business in our Franchised Dealerships Segment (as defined below) and two business included in our Powersports Segment (as defined below) for an aggregate gross purchase price (including inventory acquired and subsequently funded by floor plan notes payable) of approximately $79.5 million. During that period, we also recorded the impact of a $14.7 million post-close adjustment related to the acquisition of RFJ Auto Partners, Inc. and its subsidiaries completed in December 2021 (the “RFJ Acquisition”). The allocation of the approximately $79.5 million aggregate gross purchase price included inventory of approximately $31.0 million, property and equipment of approximately $0.5 million, franchise assets of approximately $33.2 million, goodwill of approximately $14.1 million, other assets of approximately $1.1 million, and liabilities of approximately $0.4 million. During the nine months ended September 30, 2023, we booked a post-close goodwill adjustment related to one businesses acquired in our Franchised Dealership Segment and one business in our Powersports Segment for a decrease of $0.4 million and an increase of $2.9 million, respectively.

During the nine months ended September 30, 2023, we disposed of one luxury franchised dealership, one domestic franchised dealership, and one mid-line import franchised dealership that generated net cash of approximately $52.2 million. We did not dispose of any stores during the nine months ended September 30, 2022.

Revenues and other activities associated with disposed franchised dealerships that remain in continuing operations were as follows:

			Three Months Ended September 30,												Nine Months Ended September 30,
			2023						2022						2023						2022
Income (loss) from operations			$	(0.3)					$	1.9					$	0.2					$	5.7
Gain (loss) on disposal			(0.3)						—						20.4						(0.1)
Pre-tax income (loss)			(0.6)						1.9						20.6						5.6
Total Revenues			$	—					$	38.6					$	70.1					$	119.0

On June 22, 2023, we announced a plan to indefinitely suspend operations at eight EchoPark locations and 14 related delivery/buy centers. In addition, during the three months ended September 30, 2023, we closed three Northwest Motorsport pre-owned locations within the EchoPark Segment (as defined below). In connection with these decisions, Sonic recorded a charge totaling approximately $75.2 million during the second quarter of 2023. This charge included impairments of $32.5 million related to fixed assets, $16.0 million related to right-of-use assets and $14.1 million related to cease-use accruals; $0.4 million related to lease exit charges; $10.0 million of inventory valuation adjustments (of which $5.8 million relates to stores with ongoing operations at EchoPark locations and $1.9 million relates to ongoing operations of Northwest Motorsport locations); and $2.2 million related to severance. During the third quarter of 2023, we recorded approximately $4.8 million in additional charges related to the EchoPark store closures, which included $3.9 million of lease exit charges and $0.9 million related to severance. The locations within our EchoPark Segment with indefinitely suspended operations or that were closed are not considered disposed and therefore are not included in the above table disclosing the effect of disposed franchised dealerships on continued operations.

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3. Inventories

Inventories consist of the following:

			September 30, 2023						December 31, 2022
			(In millions)
New vehicles			$	637.7					$	449.3
Used vehicles			523.4						534.0
Service loaners			173.9						143.8
Parts, accessories and other			98.9						89.7
Inventories			$	1,433.9					$	1,216.8

4. Property and Equipment

Property and equipment, net consists of the following:

			September 30, 2023						December 31, 2022
			(In millions)
Land			$	487.8					$	478.2
Buildings and improvements			1,404.0						1,365.3
Furniture, fixtures and equipment			557.3						504.1
Construction in progress			69.7						57.0
Total, at cost			2,518.8						2,404.6
Less accumulated depreciation			(907.7)						(842.9)
Subtotal			1,611.1						1,561.7
Less assets held for sale (1)			(11.9)						—
Property and equipment, net			$	1,599.2					$	1,561.7

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

In the three and nine months ended September 30, 2023, capital expenditures were approximately $78.1 million and $153.6 million, respectively, and in the three and nine months ended September 30, 2022, capital expenditures were approximately $97.3 million and $197.6 million, respectively. Capital expenditures in all periods were primarily related to real estate acquisitions, construction of new franchised dealerships and EchoPark and powersports stores, building improvements and equipment purchased for use in our franchised dealerships and EchoPark and powersports stores.

Fixed asset impairment charges for the nine months ended September 30, 2023 were approximately $32.5 million, the majority of which relate to our decisions to indefinitely suspend operations at certain locations with our EchoPark Segment and to close certain Northwest Motorsport stores. There were no fixed asset impairment charges for the nine months ended September 30, 2022.

5. Goodwill and Intangible Assets

In accordance with Accounting Standards Codification (“ASC”) Topic 350, “Intangibles - Goodwill and Other,” we test goodwill for impairment at least annually (as of April 30 of each year) or more frequently if indications of impairment exist. The ASC also states that if an entity determines, based on an assessment of certain qualitative factors, that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then a quantitative goodwill impairment test is unnecessary.

In performing a quantitative test for impairment of goodwill, we primarily use the income approach method of valuation that includes the discounted cash flow (“DCF”) method that utilizes inputs, including projected revenues, margin, terminal growth rates, discount rates and a market capitalization reconciliation.

We completed our annual impairment testing as of April 30, 2023 and determined there was no impairment.

In evaluating the recoverability of our indefinite lived franchise assets, we utilized a multi-period excess earnings method (“MPEEM”) model using unobservable inputs (Level 3) to estimate the fair value of the franchise assets for each of our franchises with recorded franchise assets. The significant assumptions in our MPEEM model include projected revenue,

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projected operating margins, a discount rate (and estimates in the discount rate inputs) and residual growth rates. We completed our annual impairment testing as of April 30, 2023 and determined there was no impairment.

The changes in the carrying amount of goodwill for September 30, 2023 and December 31, 2022 were as follows:

			Franchised Dealerships Segment						EchoPark Segment						Powersports Segment						Total
			(In millions)
Balance at December 31, 2021 (1)			$	251.2					$	165.2					$	—					$	416.4
Additions through current year acquisitions			5.1						—						9.2						14.3
Reductions from impairment			—						(202.9)						—						(202.9)
Prior year acquisition allocations			(34.5)						37.7						—						3.2
Balance at December 31, 2022 (2)			$	221.8					$	—					$	9.2					$	231.0
Additions through current year acquisitions			—						—						11.9						11.9
Reductions from dispositions			(1.8)						—						—						(1.8)
Prior year acquisition allocations			(0.4)						—						2.9						2.5
Balance at September 30, 2023 (2)			$	219.6					$	—					$	24.0					$	243.6

(1)Net of accumulated impairment losses of $1.1 billion related to the Franchised Dealerships Segment.

(2)Net of accumulated impairment losses of $1.1 billion and $202.9 million related to the Franchised Dealerships Segment and the EchoPark Segment, respectively.

The carrying amount of indefinite lived franchise assets was approximately $417.4 million and $396.7 million as of September 30, 2023 and December 31, 2022, respectively. We did not record any impairment charges for the nine months ended September 30, 2023 and 2022.

6. Long-Term Debt

Long-term debt consists of the following:

			September 30, 2023						December 31, 2022
			(In millions)
2021 Revolving Credit Facility (1)			$	—					$	—
4.625% Senior Notes due 2029 (the “4.625% Notes”)			650.0						650.0
4.875% Senior Notes due 2031 (the “4.875% Notes”)			500.0						500.0
2019 Mortgage Facility (2)			315.0						327.0
Mortgage notes to finance companies - fixed rate, bearing interest from 2.05% to 7.03%			166.3						186.6
Mortgage notes to finance companies - variable rate, bearing interest at 1.50 to 2.90 percentage points above one-month or three-month LIBOR or SOFR			76.8						116.0
Subtotal			$	1,708.1					$	1,779.6
Debt issuance costs			(24.6)						(27.9)
Total debt			1,683.5						1,751.7
Less current maturities			(60.4)						(79.5)
Long-term debt			$	1,623.1					$	1,672.2

(1)The interest rate on the 2021 Revolving Credit Facility (as defined below) was 135 basis points above one-month Term SOFR (as defined below) at September 30, 2023 and 110 basis points above one-month Term SOFR at December 31, 2022.

(2)The interest rate on the 2019 Mortgage Facility (as defined below) was 160 basis points above one-month Term SOFR (as defined below) at September 30, 2023 and 135 basis points above one-month Term SOFR at December 31, 2022.

2021 Credit Facilities

On April 14, 2021, we entered into an amended and restated syndicated revolving credit facility (the “2021 Revolving Credit Facility”) and amended and restated syndicated new and used vehicle floor plan credit facilities (the “2021 Floor Plan

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Facilities” and, together with the 2021 Revolving Credit Facility, the “2021 Credit Facilities”). The amendment and restatement of the 2021 Credit Facilities extended the scheduled maturity dates to April 14, 2025. On October 8, 2021, we entered into an amendment to the 2021 Credit Facilities (the “Credit Facility Amendment”) to, among other things: (1) increase the aggregate commitments under the 2021 Revolving Credit Facility to $350.0 million (which may be increased at the Company’s option up to $400.0 million upon satisfaction of certain conditions) and the 2021 Floor Plan Facilities to $2.6 billion (which, under certain conditions, may be increased at the Company’s option up to $2.9 billion that may be allocated between the new vehicle revolving floor plan facility and the used vehicle revolving floor plan facility that comprise the 2021 Floor Plan Facilities as the Company requests, with no more than 40% of the aggregate commitments allocated to the commitments under the used vehicle revolving floor plan facility); and (2) permit the issuance of the 4.625% Notes and the 4.875% Notes. On October 7, 2022, we entered into an amendment to the 2021 Credit Facilities (the “Second Credit Facility Amendment”) to, among other things: (i) replace the 2021 Credit Facilities’ London InterBank Offered Rate (“LIBOR”)-based Eurodollar reference interest rate option with a reference interest rate option based upon one-month Term SOFR (as defined in the 2021 Credit Facilities) (the conversion of the interest rate benchmark from LIBOR to one-month Term SOFR included a 10-basis point credit spread adjustment); (ii) amend the provisions relating to the basis for inclusion of real property owned by the Company or certain of its subsidiaries in the borrowing base for the 2021 Revolving Credit Facility; (iii) amend the minimum amount for commitments under the 2021 Revolving Credit Facility and the proportion that such commitments under the 2021 Revolving Credit Facility may compose of the total commitments made by the lenders; and (iv) adjust aspects of the offset account used for voluntary reductions to interest under the 2021 Floor Plan Facilities.

As amended, availability under the 2021 Revolving Credit Facility is calculated as the lesser of $350.0 million or a borrowing base calculated based on certain eligible assets, less the aggregate amount of any outstanding letters of credit and borrowings under the 2021 Revolving Credit Facility (the “2021 Revolving Borrowing Base”). As of September 30, 2023, the 2021 Revolving Borrowing Base was $301.1 million based on balances as of such date. As of September 30, 2023, we had no outstanding borrowings and $12.2 million in outstanding letters of credit under the 2021 Revolving Credit Facility, resulting in $288.9 million remaining borrowing availability under the 2021 Revolving Credit Facility.

Our obligations under the 2021 Credit Facilities are guaranteed by the Company and certain of our subsidiaries and are secured by a pledge of substantially all of our and our subsidiaries’ assets. As of the dates presented in the accompanying unaudited condensed consolidated financial statements, the amounts outstanding under the 2021 Credit Facilities bear interest at variable rates based on specified percentages above LIBOR (subsequent to September 30, 2022, the Second Credit Facility Amendment replaced LIBOR with one-month term SOFR). We have agreed under the 2021 Credit Facilities not to pledge any assets to any third parties (other than those explicitly allowed to be pledged by the amended terms of the 2021 Credit Facilities), including other lenders, subject to certain stated exceptions, including floor plan financing arrangements. In addition, the 2021 Credit Facilities contain certain negative covenants, including covenants which could restrict or prohibit indebtedness, liens, the payment of dividends and other restricted payments, capital expenditures and material dispositions and acquisitions of assets, as well as other customary covenants and default provisions. Specifically, the 2021 Credit Facilities permit quarterly cash dividends on our Class A and Class B Common Stock up to $0.12 per share so long as no Event of Default (as defined in the 2021 Credit Facilities) has occurred and is continuing and provided that we remain in compliance with all financial covenants under the 2021 Credit Facilities. Additional dividends are permitted subject to limitations on restricted payments set forth in the 2021 Credit Facilities.

4.625% Notes

On October 27, 2021, we issued $650.0 million in aggregate principal amount of 4.625% Notes, which will mature on November 15, 2029. Sonic used the net proceeds from the issuance of the 4.625% Notes, along with the net proceeds of the 4.875% Notes, to fund the RFJ Acquisition and to repay existing debt.

The 4.625% Notes were issued under an Indenture, dated as of October 27, 2021 (the “2029 Indenture”), by and among the Company, certain subsidiary guarantors named therein (collectively, the “Guarantors”) and U.S. Bank National Association, as trustee (the “trustee”). The 4.625% Notes are unconditionally guaranteed, jointly and severally, on a senior unsecured basis initially by all of the Company’s domestic operating subsidiaries. The parent company has no independent assets or operations. The non-domestic operating subsidiary that is not a guarantor is considered minor. Under certain circumstances set forth in the 2029 Indenture, the guarantees of the certain subsidiaries of the Company comprising the EchoPark Business (as defined in the 2029 Indenture) may be released. The 2029 Indenture also provides substantial flexibility for the Company to enter into fundamental transactions involving the EchoPark Business. The 2029 Indenture provides that interest on the 4.625% Notes will be payable semi-annually in arrears on May 15 and November 15 of each year beginning May 15, 2022. The 2029 Indenture also contains other restrictive covenants and default provisions common for an issue of senior notes of this nature. The 4.625% Notes are redeemable by the Company under certain circumstances. For further discussion of the 4.625% Notes, see Note 6,

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“Long-Term Debt,” to the consolidated financial statements in Sonic’s Annual Report on Form 10-K for the year ended December 31, 2022.

4.875% Notes

On October 27, 2021, we issued $500.0 million in aggregate principal amount of 4.875% Notes, which will mature on November 15, 2031. Sonic used the net proceeds from the issuance of the 4.875% Notes, along with the net proceeds of the 4.625% Notes, to fund the RFJ Acquisition and to repay existing debt.

The 4.875% Notes were issued under an Indenture, dated as of October 27, 2021 (the “2031 Indenture”), by and among the Company, the Guarantors and the trustee. The 4.875% Notes are unconditionally guaranteed, jointly and severally, on a senior unsecured basis initially by all of the Company’s domestic operating subsidiaries. The parent company has no independent assets or operations. The non-domestic operating subsidiary that is not a guarantor is considered minor. Under certain circumstances set forth in the 2031 Indenture, the guarantees of the certain subsidiaries of the Company comprising the EchoPark Business (as defined in the 2031 Indenture) may be released. The 2031 Indenture also provides substantial flexibility for the Company to enter into fundamental transactions involving the Echo-Park Business. The 2031 Indenture provides that interest on the 4.875% Notes will be payable semi-annually in arrears on May 15 and November 15 of each year beginning May 15, 2022. The 2031 Indenture also contains other restrictive covenants and default provisions common for an issue of senior notes of this nature. The 4.875% Notes are redeemable by the Company under certain circumstances. For further discussion of the 4.875% 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, 2022.

2019 Mortgage Facility

On November 22, 2019, we entered into a delayed draw-term loan credit agreement, which was scheduled to mature on November 22, 2024 (the “2019 Mortgage Facility”). On October 11, 2021, we entered into an amendment to the 2019 Mortgage Facility to permit the consummation of the RFJ Acquisition and the issuance of the 4.625% Notes and the 4.875% Notes. On November 17, 2022, we entered into an amendment to the 2019 Mortgage Facility to, among other things, extend the scheduled maturity date to November 17, 2027.

On November 17, 2022, in connection with the closing of the amendment, the Company incurred a term loan under the 2019 Mortgage Facility with a principal amount of $320.0 million, with a portion of the proceeds used to repay the entire $77.6 million principal amount of the prior term loan. The $320.0 million borrowing amortizes on a fixed schedule through the maturity date. In addition, the lenders under the 2019 Mortgage Facility committed to providing, upon the terms set forth in the amendment and upon the pledging of sufficient collateral by the Company, delayed draw-term loans in an aggregate principal amount up to $78.0 million (the “Delayed Draw Credit Facility”), and revolving loans in an aggregate principal amount not to exceed $95.0 million outstanding. On November 18, 2022, the Company incurred a term loan under the Delayed Draw Credit Facility with a principal amount of $7.0 million. The aggregate commitments of the lenders under the 2019 Mortgage Facility equal a total of $500.0 million, upon satisfaction of the conditions set forth in the 2019 Mortgage Facility, including the appraisal and pledging of collateral of a specified value. The amendment also amended the 2019 Mortgage Facility to, among other things: (1) replace the 2019 Mortgage Facility’s LIBOR-based Eurodollar reference interest rate option with a reference interest rate option based upon one-month Term SOFR (as defined in the 2019 Mortgage Facility); and (2) make changes to the pricing grid for loans incurred under the 2019 Mortgage Facility, which price is based on an incremental interest margin calculated based on the Company’s Consolidated Total Lease Adjusted Leverage Ratio (as defined in the 2019 Mortgage Facility).

Under the 2019 Mortgage Facility, Sonic had an initial maximum borrowing limit of $500.0 million, which varies based on the appraised value of the collateral underlying the 2019 Mortgage Facility. Based on balances as of September 30, 2023, we had $315.0 million of outstanding borrowings under the 2019 Mortgage Facility.

Amounts outstanding under the 2019 Mortgage Facility bear interest at: (1) a specified rate above one-month Term SOFR, ranging from 1.25% to 2.25% per annum according to a performance-based pricing grid determined by the Company’s Consolidated Total Lease Adjusted Leverage Ratio 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 0.25% to 1.25% per annum according to the Performance Grid. Interest on the 2019 Mortgage Facility is paid monthly in arrears calculated using the Base Rate plus the Applicable Rate (as defined in the 2019 Mortgage Facility) according to the Performance Grid. Amortized principal payments are scheduled to be $4.0 million per quarter from the quarter ending March 31, 2023 through the quarter ending December 31, 2024 and $6.0 million per quarter from the quarter ending March 31, 2025 to the quarter ending September 30, 2027 with the remaining balance due on November 17, 2027. Prior to the November 17, 2027

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maturity date, the Company has the right to prepay the principal amount outstanding at any time without premium or penalty provided the prepayment amount exceeds $0.5 million. Additional dividends are permitted subject to limitations on restricted payments set forth in the 2021 Credit Facilities.

For further discussion of the 2019 Mortgage Facility, see Note 6, “Long-Term Debt,” to the consolidated financial statements in Sonic’s Annual Report on Form 10-K for the year ended December 31, 2022.

Mortgage Notes to Finance Companies

As of September 30, 2023, the weighted-average interest rate of our other outstanding mortgage notes (excluding the 2019 Mortgage Facility) was 5.24% and the total outstanding mortgage principal balance of these notes (excluding the 2019 Mortgage Facility) was approximately $243.1 million. These mortgage notes require monthly payments of principal and interest through their respective maturities, are secured by the underlying properties and contain certain cross-default provisions. Maturity dates for these mortgage notes range from 2024 to 2033.

Covenants

The 2021 Credit Facilities and the 2019 Mortgage Facility contain certain negative covenants, including covenants which could restrict or prohibit indebtedness, liens, the payment of dividends and other restricted payments, capital expenditures and material dispositions and acquisitions of assets, as well as other customary covenants and default provisions. The 2021 Credit Facilities and the 2019 Mortgage Facility also contain limitations on our ability to pledge assets to third parties, subject to certain stated exceptions.

We were in compliance with the financial covenants under the 2021 Credit Facilities and the 2019 Mortgage Facility as of September 30, 2023. Financial covenants include required specified ratios (as each is defined in the 2021 Credit Facilities and the 2019 Mortgage Facility) of:

			Covenant
			Minimum Consolidated Liquidity Ratio						Minimum Consolidated Fixed Charge Coverage Ratio						Maximum Consolidated Total Lease Adjusted Leverage Ratio
Required ratio			1.05						1.20						5.75
September 30, 2023 actual			1.27						1.60						2.87

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

After giving effect to the applicable restrictions on the payment of dividends under our debt agreements, as of September 30, 2023, we had approximately $245.7 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 September 30, 2023.

In addition, many of our facility leases are governed by a guarantee agreement between the landlord and us that contains financial and operating covenants. The financial covenants under the guarantee agreement are identical to those under the 2021 Credit Facilities and the 2019 Mortgage Facility with the exception of one additional financial covenant related to the ratio of EBITDAR to Rent (as defined in the guarantee agreement) with a required ratio of no less than 1.50 to 1.00. As of September 30, 2023, the ratio was 12.05 to 1.00.

7. Commitments and Contingencies

Guarantees and Indemnification Obligations

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

In connection with dealership dispositions and facility relocations, certain of our subsidiaries have assigned or sublet to the buyer their interests in real property leases associated with such dealerships. In general, the subsidiaries retain responsibility

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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 the 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 is difficult to quantify, our maximum exposure associated with these general indemnifications was approximately $8.0 million as of September 30, 2023 and there was not any material exposure with respect to these indemnifications at December 31, 2022. 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 September 30, 2023.

We also guarantee the floor plan commitments of our 50%-owned joint venture, and the amount of such guarantee at both September 30, 2023 and December 31, 2022 was approximately $4.3 million.

Legal Matters

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 is unable to predict with certainty the eventual outcome of any litigation, regulatory investigation or inquiry, in the opinion of management, Sonic does not believe it is reasonably possible that its current and threatened legal proceedings will have a material adverse effect on Sonic’s business, financial position or consolidated results of operations. Given the inherent unpredictability of these types of proceedings, however, it is possible that future adverse outcomes could have a material effect on Sonic’s financial results.

There were no significant liabilities recorded related to legal matters as of September 30, 2023 and December 31, 2022.

8. Fair Value Measurements

Assets and liabilities recorded at fair value in the accompanying unaudited condensed consolidated balance sheets as of September 30, 2023 and December 31, 2022 were as follows:

			Fair Value Based on Significant Other Observable Inputs (Level 2)
			September 30, 2023						December 31, 2022
			(In millions)
Assets:
Cash surrender value of life insurance policies (1)			$	41.3					$	38.2
Interest rate caps designated as hedges (2)			2.9						—
Total assets			$	44.2					$	38.2
Liabilities:
Deferred compensation plan (3)			$	24.5					$	21.1
Total liabilities			$	24.5					$	21.1

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

(2)As of September 30, 2023, approximately $2.1 million and $0.8 million were included in other current assets and other assets, respectively, in the accompanying unaudited condensed consolidated balance sheets.

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

In conjunction with the approximately $75.2 million charge recorded during the second quarter of 2023 and the subsequent $4.8 million charge recorded in the third quarter of 2023 related to our decisions to indefinitely suspend operations at certain EchoPark locations and to close certain Northwest Motorsport stores discussed above, Sonic was required to adjust certain real estate assets to fair value on a non-recurring basis. After $5.7 million of adjustments during the second quarter of 2023, the recorded balances were $55.5 million at June 30, 2023. The book value of such assets may be reevaluated as changes in circumstances require. There were no instances during the three months ended September 30, 2023 that required a fair value measurement of assets ordinarily measured at fair value on a non-recurring basis.

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SONIC AUTOMOTIVE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2023 and December 31, 2022, 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 September 30, 2023 and December 31, 2022, the fair value and the carrying value of Sonic’s significant fixed rate long-term debt were as follows:

			September 30, 2023												December 31, 2022
			Fair Value						Carrying Value						Fair Value						Carrying Value
			(In millions)
4.875% Notes (1)			$	397.5					$	500.0					$	390.3					$	500.0
4.625% Notes (1)			$	536.3					$	650.0					$	519.5					$	650.0
Mortgage Notes (2)			$	159.0					$	166.3					$	174.0					$	186.6

(1)As determined by market quotations from similar securities as of September 30, 2023 and December 31, 2022, respectively (Level 2).

(2)As determined by the DCF method (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, 2022.

9. Segment Information

As of September 30, 2023, Sonic had three 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”); (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”); and (3) retail locations that sell new and used powersports vehicles, perform vehicle maintenance, warranty and repair services, and arrange finance and insurance products (the “Powersports Segment”). Sonic has determined that its operating segments also represent its reportable segments.

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.

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SONIC AUTOMOTIVE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Reportable segment financial information for the three and nine months ended September 30, 2023 and 2022 were as follows:

			Three Months Ended September 30,												Nine Months Ended September 30,
			2023						2022						2023						2022
			(In millions)
Revenues:
Franchised Dealerships Segment revenues:
Retail new vehicles			$	1,546.7					$	1,359.6					$	4,550.9					$	4,047.1
Fleet new vehicles			23.2						32.0						70.4						70.0
Total new vehicles			1,569.9						1,391.6						4,621.3						4,117.1
Used vehicles			780.7						842.4						2,322.8						2,568.1
Wholesale vehicles			51.4						75.8						165.3						261.2
Parts, service and collision repair			431.8						404.7						1,289.0						1,183.4
Finance, insurance and other, net			126.0						125.8						375.4						382.1
Franchised Dealerships Segment revenues			$	2,959.8					$	2,840.3					$	8,773.8					$	8,511.9
EchoPark Segment revenues:
Retail new vehicles			$	—					$	1.6					$	1.0					$	7.3
Used vehicles			554.8						511.4						1,651.3						1,601.3
Wholesale vehicles			26.6						38.9						89.1						143.3
Finance, insurance and other, net			45.3						38.9						136.4						121.8
EchoPark Segment revenues			$	626.7					$	590.8					$	1,877.8					$	1,873.7
Powersports Segment revenues:
Retail new vehicles			$	26.8					$	10.6					$	72.5					$	13.0
Used vehicles			4.9						2.0						17.1						5.0
Wholesale vehicles			1.3						—						1.9						0.3
Parts, service and collision repair			21.6						3.5						38.6						5.2
Finance, insurance and other, net			2.4						0.9						5.9						1.4
Powersports Segment revenues			$	57.0					$	17.0					$	136.0					$	24.9
Total consolidated revenues			$	3,643.5					$	3,448.1					$	10,787.6					$	10,410.5

			Three Months Ended September 30,												Nine Months Ended September 30,
			2023						2022						2023						2022
			(In millions)
Segment Income (Loss) (1):
Franchised Dealerships Segment			$	101.5					$	146.3					$	357.2					$	472.2
EchoPark Segment			(16.9)						(31.1)						(116.5)						(100.6)
Powersports Segment			6.6						1.2						9.2						0.9
Total segment income			$	91.2					$	116.4					$	249.9					$	372.5
Impairment charges			—						—						(62.6)						—
Income before taxes			$	91.2					$	116.4					$	187.3					$	372.5

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

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SONIC AUTOMOTIVE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

			Three Months Ended September 30,												Nine Months Ended September 30,
			2023						2022						2023						2022
			(In millions)
Depreciation and Amortization:
Franchised Dealerships Segment			$	28.2					$	25.8					$	82.8					$	75.8
EchoPark Segment			6.1						6.8						20.4						17.7
Powersports Segment			0.9						0.2						2.5						0.5
Total depreciation and amortization			$	35.2					$	32.8					$	105.7					$	94.0

			Three Months Ended September 30,												Nine Months Ended September 30,
			2023						2022						2023						2022
			(In millions)
Floor Plan Interest Expense:
Franchised Dealerships Segment (1)			$	12.9					$	6.6					$	34.7					$	13.9
EchoPark Segment			4.3						3.0						13.6						6.7
Powersports Segment			0.2						—						0.6						—
Total floor plan interest expense			$	17.4					$	9.6					$	48.9					$	20.6

(1)Amount is net of interest earned on the floor plan deposit balance of $5.0 million and $0.9 million in the three months ended September 30, 2023 and 2022, respectively, and $13.8 million and $2.3 million in the nine months ended September 30, 2023 and 2022, respectively.

			Three Months Ended September 30,												Nine Months Ended September 30,
			2023						2022						2023						2022
			(In millions)
Interest Expense, Other, Net:
Franchised Dealerships Segment			$	27.9					$	21.4					$	82.2					$	61.7
EchoPark Segment			0.7						1.1						2.5						3.0
Powersports Segment			0.4						0.4						1.5						0.4
Total interest expense, other, net			$	29.0					$	22.9					$	86.2					$	65.1

			Three Months Ended September 30,												Nine Months Ended September 30,
			2023						2022						2023						2022
			(In millions)
Capital Expenditures:
Franchised Dealerships Segment			$	72.1					$	43.8					$	137.3					$	95.8
EchoPark Segment			5.4						53.5						14.1						101.8
Powersports Segment			0.6						—						2.2						—
Total capital expenditures			$	78.1					$	97.3					$	153.6					$	197.6

			September 30, 2023						December 31, 2022
			(In millions)
Assets:
Franchised Dealerships Segment			$	3,806.0					$	4,091.7
EchoPark Segment			700.9						267.6
Powersports Segment			208.8						117.8
Corporate and other:
Cash and cash equivalents			34.6						229.2
Floor plan deposit balance			300.0						272.0
Total assets			$	5,050.3					$	4,978.3

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SONIC AUTOMOTIVE, INC.

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

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

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and related notes thereto, 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” included in our Annual Report on Form 10-K for the year ended December 31, 2022.

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. Certain amounts and percentages may not compute due to rounding.

Unless otherwise noted, all discussion of increases or decreases are for the three and nine months ended September 30, 2023 compared to the three and nine months ended September 30, 2022, respectively. 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. The following discussion of EchoPark Segment used vehicles, wholesale vehicles, and finance, insurance and other, net is on a reported basis, except where otherwise noted. 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. The following discussion of Powersports Segment new vehicles, used vehicles, wholesale vehicles, parts, service and collision repair, and finance, insurance and other, net is on a reported basis, except where otherwise noted.

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 three reportable segments as of September 30, 2023: (1) the Franchised Dealerships Segment; (2) the EchoPark Segment; and (3) the Powersports Segment. For management and operational reporting purposes, we group certain businesses together that share management and inventory (principally used vehicles) into “stores.” As of September 30, 2023, we operated 108 stores in the Franchised Dealerships Segment, 25 stores in the EchoPark Segment and 13 stores in the Powersports Segment. The Franchised Dealerships Segment consists of 134 new vehicle franchises (representing 28 different brands of cars and light trucks) and 16 collision repair centers in 18 states. As of September 30, 2023, we operated 25 EchoPark stores in 11 states, including 7 Northwest Motorsport pre-owned vehicle stores acquired in the RFJ Acquisition in December 2021 that are included in the EchoPark Segment.

The Franchised Dealerships Segment provides comprehensive sales and 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 third-party financing, extended warranties, service contracts, insurance and other aftermarket products (collectively, “F&I”) for our guests. The EchoPark Segment sells used cars and light trucks and arranges third-party F&I product sales for our guests in pre-owned vehicle specialty retail locations, and does not offer customer-facing Fixed Operations services. The Powersports Segment offers guests: (1) sales of both new and used powersports vehicles (such as motorcycles, personal watercraft and all-terrain vehicles); (2) Fixed Operations activities; and (3) F&I services. All three segments generally operate independently of one another with the exception of certain shared back-office functions and corporate overhead costs.

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SONIC AUTOMOTIVE, INC.

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

Executive Summary

Retail Automotive Industry Performance

The U.S. retail automotive industry’s total new vehicle (retail and fleet combined) seasonally adjusted annual rate of unit sales volume (the “total new vehicle SAAR”) increased 16% and 13% for the three and nine months ended September 30, 2023, respectively, to approximately 15.5 million vehicles in each period, compared to approximately 13.4 million and 13.7 million vehicles for the three and nine months ended September 30, 2022, respectively, according to the Power Information Network (“PIN”) from J.D. Power. We currently estimate the full year 2023 new vehicle industry volume will be between 15.5 million vehicles (an increase of 13% compared to 2022) and 16.0 million vehicles (an increase of 17% compared to 2022). The ongoing effects of supply chain disruptions as a result of the COVID-19 pandemic, availability of new and used vehicle inventory, interest rates, changes in consumer confidence, availability of consumer financing, manufacturer inventory production levels, incentive levels from automotive manufacturers or shifts in such levels, or timing of consumer demand as a result of natural disasters or other unforeseen circumstances could cause the actual 2023 new vehicle industry volume to vary from expectations. Many factors, including brand and geographic concentrations as well as the industry sales mix between retail and fleet new vehicle unit sales volume, have caused our past results to differ from the industry’s overall trend. Our new vehicle sales strategy focuses on our retail new vehicle sales (as opposed to fleet new vehicle sales) and, as a result, we believe it is appropriate to compare our retail new vehicle unit sales volume to the industry retail new vehicle seasonally adjusted annual rate of unit sales volume (the “retail new vehicle SAAR”) (which excludes fleet new vehicle sales). According to PIN from J.D. Power, the retail new vehicle SAAR increased 13% and 8%, to approximately 12.6 million and 12.7 million vehicles for the three and nine months ended September 30, 2023, respectively, from approximately 11.2 million and 11.8 million vehicles for the three and nine months ended September 30, 2022, respectively.

Impact of COVID-19 and Supply Chain Disruptions

The global automotive supply chain has been significantly disrupted since the onset of the COVID-19 pandemic, primarily related to the production of semiconductors and other components that are used in many modern automobiles, in addition to workforce-related production delays and stoppages. As a result, automobile manufacturing has operated for multiple years at lower than usual production levels, reducing the amount of new vehicle inventory and certain parts inventory available to our dealerships. These inventory constraints have led to low new and used vehicle inventory and a volatile new and used vehicle pricing environment. New vehicle and certain parts production levels have improved through the first nine months of 2023; however, there is a risk that higher production levels and new vehicle inventory on hand may not result in incremental retail new vehicle sales volume, which could cause new vehicle industry volume to vary from our expectations.

During the third quarter of 2023, the International Union, United Automobile, Aerospace and Agricultural Implement Workers of America (the “UAW”) commenced a labor strike against certain automobile manufacturers and automotive parts suppliers in North America. Depending on the length and severity of the UAW strike, certain manufacturers’ vehicle and parts inventory levels may decrease, causing disruption to our business and/or higher vehicle or parts prices for consumers. While we believe our diversified brand portfolio may somewhat mitigate the risk to our business, it is difficult to predict the potential length of the UAW strike and its potential impact on our business and financial results of operations.

Franchised Dealerships Segment

As a result of the acquisition, disposition, termination or closure of certain franchised dealership stores since the beginning of 2022, the change in reported amounts from period to period may not be indicative of the current or future operational or financial performance of our current group of operating stores.

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. Unless otherwise noted, all comparisons are to the prior year period.

Retail new vehicle revenue increased 15% and 12% during the three and nine months ended September 30, 2023, respectively, driven primarily by a 12% and 8% increase in retail new vehicle unit sales volume, respectively, and a 2% and 4% increase in retail new vehicle average selling prices, respectively. Retail new vehicle gross profit decreased 21% and 20% during the three and nine months ended September 30, 2023, respectively, due primarily to higher inventory invoice costs and increased price competition as a result of higher levels of available inventory, which drove lower retail new vehicle gross profit per unit. Retail new vehicle gross profit per unit decreased $1,988 per unit, or 30%, to $4,678 per unit during the three months ended September 30, 2023, and decreased $1,734 per unit, or 26%, to $5,056 per unit during the nine months ended September

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SONIC AUTOMOTIVE, INC.

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

30, 2023. We generally focus on maintaining Franchised Dealerships Segment new vehicle inventory days’ supply in the 30- to 40-day range, which may fluctuate seasonally, in order to limit our exposure to market pricing volatility. On a trailing quarter cost of sales basis, our reported Franchised Dealerships Segment new vehicle inventory days’ supply was approximately 33 and 19 days as of September 30, 2023 and 2022, respectively.

Retail used vehicle revenue decreased 7% and 9% during the three and nine months ended September 30, 2023, respectively, driven primarily by a 3% and 7% decrease in retail used vehicle unit sales volume, respectively. Retail used vehicle gross profit decreased 5% during both the three and nine months ended September 30, 2023, primarily due to the decrease in retail used vehicle unit sales volume. Retail used vehicle gross profit per unit decreased $36 per unit, or 2%, to $1,668 per unit during the three months ended September 30, 2023, and increased $30 per unit, or 2%, to $1,694 per unit during the nine months ended September 30, 2023. The primary driver of the decrease in retail used vehicle gross profit per unit during the three months ended September 30, 2023 was the decrease in retail used vehicle unit sales volume. Wholesale vehicle gross profit increased approximately $0.5 million and $2.5 million during the three and nine months ended September 30, 2023, respectively, due primarily to a $59 per unit, or 18%, decrease in wholesale vehicle gross profit per unit during the three months ended September 30, 2023 and a $139 per unit, or 101%, improvement in wholesale vehicle gross profit per unit during the nine months ended September 30, 2023. We generally focus on maintaining Franchised Dealerships Segment used vehicle inventory days’ supply in the 25- to 35-day range, which may fluctuate seasonally, in order to limit our exposure to market pricing volatility. On a trailing quarter cost of sales basis, our reported Franchised Dealerships Segment used vehicle inventory days’ supply was approximately 28 and 31 days as of September 30, 2023 and 2022, respectively.

Fixed Operations revenue increased 8% and 9% during the three and nine months ended September 30, 2023, respectively, and Fixed Operations gross profit increased 8% and 9% during the three and nine months ended September 30, 2023, respectively, driven primarily by higher repair order volume and higher parts and labor costs that were passed along to consumers. Fixed Operations gross margin increased 10 basis points, to 49.7%, during the three months ended September 30, 2023, and increased 10 basis points, to 49.6%, during the nine months ended September 30, 2023.

F&I revenue increased 3% and remained flat during the three and nine months ended September 30, 2023, respectively, driven primarily by decreases in F&I gross profit per retail unit. F&I gross profit per retail unit decreased $118 per unit, or 5%, to $2,407 per unit, and increased $8 per unit to $2,437 per unit, during the three and nine months ended September 30, 2023, respectively.

EchoPark Segment

The following discussion of EchoPark Segment used vehicles, wholesale vehicles, and finance, insurance and other, net is on a reported basis, except where otherwise noted. 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. Unless otherwise noted, all comparisons are to the prior year period.

On June 22, 2023, Sonic announced a plan to indefinitely suspend operations at eight EchoPark locations and 14 related delivery/buy centers. In addition, during the third quarter of 2023 we closed three Northwest Motorsport pre-owned locations within the EchoPark segment. In connection with these decisions, Sonic recorded a charge totaling approximately $75.2 million during the second quarter of 2023. This charge included impairments of $32.5 million related to fixed assets, $16.0 million related to right-of-use assets and $14.1 million related to cease-use accruals; $0.4 million related to lease exit charges; $10.0 million of inventory valuation adjustments (of which $5.8 million relates to stores with ongoing operations at EchoPark locations and $1.9 million relates to ongoing operations of Northwest Motorsport locations); and $2.2 million related to severance. During the third quarter of 2023, we recorded approximately $4.8 million in additional charges related to the EchoPark store closures, which included $3.9 million of lease exit charges and $0.9 million related to severance. We expect expenses related to the EchoPark store closures of approximately $1.5 million to $2.0 million per quarter (excluding any amounts related to exiting leased or owned properties).

Reported EchoPark Segment revenues increased 6% and remained flat during the three and nine months ended September 30, 2023, respectively, driven primarily by an increase in retail used vehicle unit sales volume, offset partially by a decrease in average unit selling prices. Reported total gross profit increased 22% during the three months ended September 30, 2023, primarily due to an increase in retail used vehicle gross profit per unit and higher retail used vehicle unit sales volume. Reported total gross profit decreased 11% during the nine months ended September 30, 2023 primarily due to a decrease in retail used vehicle gross profit (loss) per unit (including the effect of inventory valuation adjustments recorded in the second quarter of 2023), offset partially by higher retail used vehicle unit sales volume.

Reported retail used vehicle revenue increased 9% and 3% during the three and nine months ended September 30, 2023, respectively, driven primarily by an increase in retail used vehicle unit sales volume. F&I revenue increased 17% and 12%

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SONIC AUTOMOTIVE, INC.

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

during the three and nine months ended September 30, 2023, driven primarily by an increase in retail used vehicle unit sales volume, offset partially by a decrease in F&I gross profit per unit. Reported combined retail used vehicle and F&I gross profit per unit decreased $101 per unit, or 4%, to $2,767 per unit during the three months ended September 30, 2023, and decreased $680 per unit, or 25%, to $2,095 per unit during the nine months ended September 30, 2023, due primarily to higher inventory acquisition costs as a result of increases in wholesale auction prices during the three and nine months ended September 30, 2023.

Reported wholesale vehicle gross profit increased approximately $0.2 million during the three months ended September 30, 2023, primarily due to an increase in wholesale vehicle gross profit per unit, and decreased approximately $2.3 million during the nine months ended September 30, 2023, primarily due to a decrease in wholesale vehicle gross profit per unit. We generally focus on maintaining EchoPark Segment used vehicle inventory days’ supply in the 30- to 40-day range, which may fluctuate seasonally, in order to limit our exposure to market pricing volatility. On a trailing quarter cost of sales basis, our reported EchoPark Segment used vehicle inventory days’ supply was approximately 37 and 57 days as of September 30, 2023 and 2022, respectively.

Same market total revenues increased 73% and 50% during the three and nine months ended September 30, 2023, respectively, driven primarily by an increase in retail used vehicle unit sales volume. Same market total gross profit increased 126% and 92% during the three and nine months ended September 30, 2023, respectively, driven primarily by an increase in retail used vehicle unit sales volume.

Powersports Segment

The following discussion of Powersports Segment new vehicles, used vehicles, wholesale vehicles, parts, service and collision repair, and finance, insurance and other, net is on a reported basis, except where otherwise noted. In the third quarter of 2022, we acquired one powersports business with seven locations, and, in the first quarter of 2023, we acquired one powersports business with five locations.

In the three and nine months ended September 30, 2023, reported total revenue was $57.0 million and $136.0 million, respectively, and reported total gross profit was $20.8 million and $43.4 million, respectively.

Reported retail new vehicle revenue for the three and nine months ended September 30, 2023 was $26.8 million and $72.5 million, respectively, and reported retail new vehicle gross profit was $5.9 million and $14.3 million, respectively, based on a retail new vehicle average selling price of $19,271 and $18,618, respectively, and a retail new vehicle gross profit per unit of $4,213 per unit and $3,680 per unit, respectively. On a trailing quarter cost of sales basis, our reported Powersports Segment new vehicle inventory days’ supply was approximately 107 days as of September 30, 2023. We believe that in a normal production environment, the level of new vehicle inventory days’ supply in our Powersports Segment should be in the 90- to 120-day range, depending on seasonality.

Reported retail used vehicle revenue for the three and nine months ended September 30, 2023 was $4.9 million and $17.1 million, respectively, and reported retail used vehicle gross profit was $2.4 million and $4.7 million, respectively, based on a retail used vehicle average selling price of $5,807 and $8,683, respectively, and a retail used vehicle gross profit per unit of $2,833 per unit and $2,407 per unit, respectively. On a trailing quarter cost of sales basis, our reported Powersports Segment used vehicle inventory days’ supply was approximately 37 days as of September 30, 2023, due primarily to seasonally elevated sales in the quarter ended September 30, 2023. Going forward, we generally expect to maintain a used vehicle inventory days’ supply in our Powersports Segment in the 75- to 100-day range, depending on seasonality.

Reported Fixed Operations revenue for the three and nine months ended September 30, 2023 was $21.6 million and $38.6 million, respectively, and reported Fixed Operations gross profit was $10.2 million and $18.5 million, respectively. Customer pay revenue for the three and nine months ended September 30, 2023 was $4.5 million and $10.5 million, respectively, and customer pay gross profit was $2.7 million and $6.0 million, respectively. Warranty revenue for the three and nine months ended September 30, 2023 was $0.5 million and $1.3 million, respectively, and warranty gross profit was $0.3 million and $0.7 million, respectively. Wholesale parts revenue for the three and nine months ended September 30, 2023 was $0.2 million and $0.5 million, respectively. There was no wholesale parts gross profit for the three months ended September 30, 2023 and wholesale parts gross profit for the nine months ended September 30, 2023 was $0.1 million. Internal, sublet and other revenue for the three and nine months ended September 30, 2023 was $16.4 million and $26.3 million, respectively, and internal, sublet and other gross profit was $7.2 million and $11.7 million, respectively.

Reported F&I revenue for the three and nine months ended September 30, 2023 was $2.4 million and $5.9 million, respectively, based on F&I gross profit per retail unit of $1,075 per unit and $1,006 per unit, respectively.

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

Results of Operations – Consolidated

As a result of the acquisition, disposition, termination or closure of certain franchised dealership stores and EchoPark stores since the beginning of 2022, 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 Vehicles – Consolidated

New vehicle revenues include the sale of new vehicles, including new powersports vehicles, to retail customers, as well as the sale of fleet vehicles to businesses for use in their operations. 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 consumer demand. The automobile manufacturing industry is cyclical and historically has experienced periodic downturns characterized by oversupply and weak demand, both within specific brands and in the industry as a whole. 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 and powersports vehicles.

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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 nine months ended September 30, 2023 and 2022:

						Three Months Ended September 30,												Nine Months Ended September 30,
Brand						2023						2022						2023						2022
Luxury:
BMW						24		%				25		%				25		%				25		%
Mercedes						13		%				14		%				14		%				13		%
Audi						7		%				6		%				6		%				6		%
Lexus						5		%				5		%				5		%				5		%
Porsche						4		%				4		%				4		%				4		%
Land Rover						4		%				3		%				4		%				3		%
Cadillac						2		%				2		%				2		%				2		%
Volvo						1		%				1		%				1		%				1		%
MINI						1		%				1		%				1		%				—		%
Other Luxury (1)						1		%				—		%				—		%				—		%
Total Luxury						62		%				61		%				62		%				59		%
Mid-line Import:
Honda						11		%				8		%				11		%				8		%
Toyota						10		%				9		%				9		%				9		%
Volkswagen						2		%				2		%				2		%				2		%
Hyundai						1		%				2		%				1		%				2		%
Other Mid-line Import (2)						—		%				—		%				—		%				1		%
Total Mid-line Import						24		%				21		%				23		%				22		%
Domestic:
General Motors (3)						5		%				7		%				6		%				7		%
Chrysler						5		%				6		%				5		%				6		%
Ford						4		%				5		%				4		%				6		%
Total Domestic						14		%				18		%				15		%				19		%
Total						100		%				100		%				100		%				100		%

(1)Includes Alfa Romeo, Infiniti, Jaguar and Maserati.

(2)Includes Mazda, Nissan and Subaru.

(3)Includes Buick, Chevrolet and GMC.

The U.S. retail automotive industry’s new vehicle unit sales volume reflects all brands marketed or sold in the U.S. This industry sales volume includes brands we do not sell and markets in which we do not operate, therefore, changes in our new vehicle unit sales volume may not trend directly in line with changes in the industry new vehicle unit sales volume. We believe that the industry retail new vehicle unit sales volume is a more meaningful metric for comparing our new vehicle unit sales volume to the industry due to our minimal fleet vehicle business.

U.S. retail new vehicle SAAR, fleet new vehicle seasonally adjusted annual rate of unit sales volume (the “fleet new vehicle SAAR”) and total new vehicle SAAR were as follows:

			Three Months Ended September 30,												Better / (Worse)						Nine Months Ended September 30,												Better / (Worse)
			2023						2022						% Change						2023						2022						% Change
			(In millions of vehicles)
U.S. Retail new vehicle SAAR (1)			12.6						11.2						13		%				12.7						11.8						8		%
U.S. Fleet new vehicle SAAR			2.9						2.2						32		%				2.8						1.9						47		%
U.S. Total new vehicle SAAR (1)			15.5						13.4						16		%				15.5						13.7						13		%

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

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SONIC AUTOMOTIVE, INC.

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

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

			Three Months Ended September 30,												Better / (Worse)
			2023						2022						Change						% Change
			(In millions, except unit and per unit data)
Reported new vehicle:
Retail new vehicle revenue			$	1,573.5					$	1,371.8					$	201.7					15		%
Fleet new vehicle revenue			23.2						32.0						(8.8)						(28)		%
Total new vehicle revenue			$	1,596.7					$	1,403.8					$	192.9					14		%
Retail new vehicle gross profit			$	131.4					$	162.2					$	(30.8)					(19)		%
Fleet new vehicle gross profit			0.9						1.3						(0.4)						(31)		%
Total new vehicle gross profit			$	132.3					$	163.5					$	(31.2)					(19)		%
Retail new vehicle unit sales			28,260						24,776						3,484						14		%
Fleet new vehicle unit sales			469						672						(203)						(30)		%
Total new vehicle unit sales			28,729						25,448						3,281						13		%
Revenue per new retail unit			$	55,678					$	55,366					$	312					1		%
Revenue per new fleet unit			$	49,495					$	47,636					$	1,859					4		%
Total revenue per new unit			$	55,577					$	55,162					$	415					1		%
Gross profit per new retail unit			$	4,649					$	6,547					$	(1,898)					(29)		%
Gross profit per new fleet unit			$	2,046					$	1,955					$	91					5		%
Total gross profit per new unit			$	4,607					$	6,426					$	(1,819)					(28)		%
Retail gross profit as a % of revenue			8.4		%				11.8		%				(340)						bps
Fleet gross profit as a % of revenue			4.1		%				4.1		%				—						bps
Total new vehicle gross profit as a % of revenue			8.3		%				11.6		%				(330)						bps

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SONIC AUTOMOTIVE, INC.

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

			Nine Months Ended September 30,												Better / (Worse)
			2023						2022						Change						% Change
			(In millions, except unit and per unit data)
Reported new vehicle:
Retail new vehicle revenue			$	4,624.4					$	4,067.4					$	557.0					14		%
Fleet new vehicle revenue			70.4						70.0						0.4						1		%
Total new vehicle revenue			$	4,694.8					$	4,137.4					$	557.4					13		%
Retail new vehicle gross profit			$	410.9					$	498.2					$	(87.3)					(18)		%
Fleet new vehicle gross profit			3.1						3.1						—						—		%
Total new vehicle gross profit			$	414.0					$	501.3					$	(87.3)					(17)		%
Retail new vehicle unit sales			82,671						73,890						8,781						12		%
Fleet new vehicle unit sales			1,500						1,454						46						3		%
Total new vehicle unit sales			84,171						75,344						8,827						12		%
Revenue per new retail unit			$	55,938					$	55,046					$	892					2		%
Revenue per new fleet unit			$	46,918					$	48,176					$	(1,258)					(3)		%
Total revenue per new unit			$	55,777					$	54,913					$	864					2		%
Gross profit per new retail unit			$	4,970					$	6,742					$	(1,772)					(26)		%
Gross profit per new fleet unit			$	2,059					$	2,133					$	(74)					(3)		%
Total gross profit per new unit			$	4,918					$	6,653					$	(1,735)					(26)		%
Retail gross profit as a % of revenue			8.9		%				12.2		%				(330)						bps
Fleet gross profit as a % of revenue			4.4		%				4.4		%				—						bps
Total new vehicle gross profit as a % of revenue			8.8		%				12.1		%				(330)						bps

For further analysis of new vehicle results, see the tables and discussion under the headings “New Vehicles - Franchised Dealerships Segment” and “New Vehicles - Powersports Segment” in the Franchised Dealerships Segment and Powersports Segment sections, respectively, below.

Used Vehicles – Consolidated

Used vehicle revenues include the sale of used vehicles, including used powersports vehicles, to retail customers and at wholesale. Used vehicle revenues are directly affected by a number of factors, including consumer demand for used vehicles, the pricing and level of manufacturer incentives on new vehicles, the number and quality of trade-ins and lease turn-ins available to our dealerships, the availability and pricing of used vehicles acquired at wholesale auction and the availability of consumer credit.

As a result of low levels of new vehicle inventory and a heightened demand for used vehicles by automobile dealers and rental car companies at wholesale auction, used vehicle prices reached an all-time high in 2022 and remain elevated above historical levels. Depending on the mix of inventory sourcing (trade-ins or purchases from customers versus 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.

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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 September 30,												Better / (Worse)
			2023						2022						Change						% Change
			(In millions, except unit and per unit data)
Reported retail used vehicle:
Revenue			$	1,340.4					$	1,355.8					$	(15.4)					(1)		%
Gross profit			$	52.3					$	50.9					$	1.4					3		%
Unit sales			45,428						42,069						3,359						8		%
Revenue per unit			$	29,506					$	32,230					$	(2,724)					(8)		%
Gross profit per unit			$	1,150					$	1,211					$	(61)					(5)		%
Gross profit as a % of revenue			3.9		%				3.8		%				10						bps

			Nine Months Ended September 30,												Better / (Worse)
			2023						2022						Change						% Change
			(In millions, except unit and per unit data)
Reported retail used vehicle:
Revenue			$	3,991.2					$	4,174.4					$	(183.2)					(4)		%
Gross profit			$	113.8					$	145.3					$	(31.5)					(22)		%
Unit sales			133,931						128,906						5,025						4		%
Revenue per unit			$	29,801					$	32,383					$	(2,582)					(8)		%
Gross profit per unit			$	849					$	1,127					$	(278)					(25)		%
Gross profit as a % of revenue			2.9		%				3.5		%				(60)						bps

For further analysis of used vehicle results, see the tables and discussion under the headings “Used Vehicles - Franchised Dealerships Segment,” “Used Vehicles and F&I - EchoPark Segment” and “Used Vehicles - Powersports Segment” in the Franchised Dealerships Segment, EchoPark Segment and Powersports 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 March 2020, wholesale vehicle prices and supply at auction have experienced periods of volatility, impacting our wholesale vehicle revenues and related gross profit (loss), as well as our retail used vehicle revenues and related gross profit. We believe that the current wholesale vehicle price environment is not sustainable in the long term and expect that average wholesale vehicle pricing and related gross profit (loss) will continue to return toward long-term normalized levels in the fourth quarter of 2023, but may continue to experience volatility into 2024 or beyond. 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 expected gross profit levels and minimize inventory carrying risks.

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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 September 30,												Better / (Worse)
			2023						2022						Change						% Change
			(In millions, except unit and per unit data)
Reported wholesale vehicle:
Revenue			$	79.3					$	114.7					$	(35.4)					(31)		%
Gross profit (loss)			$	(1.4)					$	(2.1)					$	0.7					33		%
Unit sales			7,996						8,263						(267)						(3)		%
Revenue per unit			$	9,922					$	13,874					$	(3,952)					(28)		%
Gross profit (loss) per unit			$	(180)					$	(264)					$	84					32		%
Gross profit (loss) as a % of revenue			(1.8)		%				(1.9)		%				10						bps

			Nine Months Ended September 30,												Better / (Worse)
			2023						2022						Change						% Change
			(In millions, except unit and per unit data)
Reported wholesale vehicle:
Revenue			$	256.3					$	404.8					$	(148.5)					(37)		%
Gross profit (loss)			$	0.5					$	0.6					$	(0.1)					(17)		%
Unit sales			25,203						27,229						(2,026)						(7)		%
Revenue per unit			$	10,166					$	14,867					$	(4,701)					(32)		%
Gross profit (loss) per unit			$	24					$	17					$	7					41		%
Gross profit (loss) as a % of revenue			0.2		%				0.1		%				10						bps

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

Fixed Operations – Consolidated

Parts, service and collision repair revenues consist of repairs and maintenance requested and paid by customers (“customer pay”), warranty repairs (manufacturer-paid), wholesale parts (sales of parts and accessories to third-party automotive repair businesses) and internal, sublet and other. Parts and service revenue is driven by the volume and 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 relate to preparation and reconditioning work performed on vehicles in inventory that are later sold to a third party and may vary based on used vehicle inventory and sales volume from period to period. When that work is performed by one of our dealerships or stores, the work is classified as internal. In the event the work is performed by a third party on our behalf, it is classified as sublet.

We believe that, over time, vehicle quality will continue to improve, but vehicle complexity and the associated demand for repairs by qualified technicians at manufacturer-affiliated dealerships may result in market share gains that could offset any revenue lost from improvement in vehicle quality. We also believe that, over the long term, we have the ability to continue to optimize service capacity and customer retention at our dealerships and stores to further increase Fixed Operations revenues. Manufacturers continue to extend new vehicle warranty periods (in particular for battery electric vehicles, or “BEVs”) 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 repair work performed, as well as the improved quality and design of vehicles that may affect the level and frequency of future customer pay or warranty-related repair revenues.

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SONIC AUTOMOTIVE, INC.

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

Our consolidated reported Fixed Operations results were as follows:

			Three Months Ended September 30,												Better / (Worse)
			2023						2022						Change						% Change
			(In millions)
Reported Fixed Operations:
Revenue
Customer pay			$	209.7					$	171.9					$	37.8					22		%
Warranty			62.0						60.4						1.6						3		%
Wholesale parts			51.3						49.9						1.4						3		%
Internal, sublet and other			130.4						126.0						4.4						3		%
Total revenue			$	453.4					$	408.2					$	45.2					11		%
Gross profit
Customer pay			$	118.0					$	100.8					$	17.2					17		%
Warranty			36.6						34.2						2.4						7		%
Wholesale parts			9.1						9.1						—						—		%
Internal, sublet and other			61.6						58.7						2.9						5		%
Total gross profit			$	225.3					$	202.8					$	22.5					11		%
Gross profit as a % of revenue
Customer pay			56.3		%				58.6		%				(230)						bps
Warranty			58.9		%				56.7		%				220						bps
Wholesale parts			17.8		%				18.2		%				(40)						bps
Internal, sublet and other			47.2		%				46.6		%				60						bps
Total gross profit as a % of revenue			49.7		%				49.7		%				—						bps

			Nine Months Ended September 30,												Better / (Worse)
			2023						2022						Change						% Change
			(In millions)
Reported Fixed Operations:
Revenue
Customer pay			$	621.1					$	501.2					$	119.9					24		%
Warranty			180.1						168.2						11.9						7		%
Wholesale parts			159.3						149.9						9.4						6		%
Internal, sublet and other			367.1						369.3						(2.2)						(1)		%
Total revenue			$	1,327.6					$	1,188.6					$	139.0					12		%
Gross profit
Customer pay			$	348.0					$	290.2					$	57.8					20		%
Warranty			105.7						98.3						7.4						8		%
Wholesale parts			28.3						27.0						1.3						5		%
Internal, sublet and other			176.6						172.9						3.7						2		%
Total gross profit			$	658.6					$	588.4					$	70.2					12		%
Gross profit as a % of revenue
Customer pay			56.0		%				57.9		%				(190)						bps
Warranty			58.7		%				58.5		%				20						bps
Wholesale parts			17.8		%				18.0		%				(20)						bps
Internal, sublet and other			48.1		%				46.8		%				130						bps
Total gross profit as a % of revenue			49.6		%				49.5		%				10						bps

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

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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 third-party 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 third-party providers for originating these contracts. F&I revenues are recognized net of actual and estimated future chargebacks and other costs associated with originating contracts (as a result, reported F&I revenues and F&I gross profit are the same amount, resulting in a 100% gross margin for F&I). F&I revenues are affected by the level of new and retail 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 for each type of F&I product. 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.

Yield spread premium is another term for the commission earned by our dealerships for arranging vehicle financing for consumers. The amount of the commission could be zero, a flat fee or an actual spread between the interest rate charged to the consumer and the interest rate provided by the third-party direct financing source (e.g., a commercial bank, credit union or manufacturer captive finance company). We have established caps on the potential yield spread premium our dealerships can earn with all finance sources. We believe the yield spread premium we earn for arranging vehicle financing represents value to the consumer in numerous ways, including the following:

•lower cost, below-market financing is often available only from the manufacturers’ captives and franchised dealers;

•ease of access to multiple high-quality lending sources;

•lease-financing alternatives are largely available only from manufacturers’ captives or other indirect lenders;

•guests with substandard credit frequently do not have direct access to potential sources of sub-prime financing; and

•guests with significant “negative equity” in their current vehicle (i.e., the guest’s current vehicle is worth less than the balance of their vehicle loan or lease obligation) frequently are unable to pay off the loan on their current vehicle and finance the purchase or lease of a replacement new or used vehicle without the assistance of a franchised dealership’s network of lending sources.

Our consolidated reported F&I results were as follows:

			Three Months Ended September 30,												Better / (Worse)
			2023						2022						Change						% Change
			(In millions, except unit and per unit data)
Reported F&I:
Revenue			$	173.7					$	165.6					$	8.1					5		%
Total combined retail new and used vehicle unit sales			73,688						66,845						6,843						10		%
Gross profit per retail unit (excludes fleet)			$	2,357					$	2,477					$	(120)					(5)		%

			Nine Months Ended September 30,												Better / (Worse)
			2023						2022						Change						% Change
			(In millions, except unit and per unit data)
Reported F&I:
Revenue			$	517.7					$	505.3					$	12.4					2		%
Total combined retail new and used vehicle unit sales			216,602						202,796						13,806						7		%
Gross profit per retail unit (excludes fleet)			$	2,390					$	2,492					$	(102)					(4)		%

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

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SONIC AUTOMOTIVE, INC.

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

Results of Operations – Franchised Dealerships Segment

As a result of the acquisition, disposition, termination or closure of certain franchised dealership stores since the beginning of 2022, the change in reported amounts from period to period may not be indicative of the current or future operational or financial performance of our current group of operating stores. Please refer to the same store tables and discussion on the following pages for more meaningful comparison and discussion of financial results on a comparable store basis.

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SONIC AUTOMOTIVE, INC.

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

New Vehicles – Franchised Dealerships Segment

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

			Three Months Ended September 30,												Better / (Worse)
			2023						2022						Change						% Change
			(In millions, except unit data)
Retail new vehicle revenue:
Same store			$	1,538.1					$	1,341.9					$	196.2					15		%
Acquisitions, open points, dispositions and holding company			8.6						17.7						(9.1)						NM
Total as reported			$	1,546.7					$	1,359.6					$	187.1					14		%
Fleet new vehicle revenue:
Same store			$	23.2					$	32.0					$	(8.8)					(28)		%
Acquisitions, open points, dispositions and holding company			—						—						—						NM
Total as reported			$	23.2					$	32.0					$	(8.8)					(28)		%
Total new vehicle revenue:
Same store			$	1,561.3					$	1,373.9					$	187.4					14		%
Acquisitions, open points, dispositions and holding company			8.6						17.7						(9.1)						NM
Total as reported			$	1,569.9					$	1,391.6					$	178.3					13		%
Retail new vehicle gross profit:
Same store			$	125.0					$	158.8					$	(33.8)					(21)		%
Acquisitions, open points, dispositions and holding company			0.5						1.9						(1.4)						NM
Total as reported			$	125.5					$	160.7					$	(35.2)					(22)		%
Fleet new vehicle gross profit:
Same store			$	1.0					$	1.3					$	(0.3)					(23)		%
Acquisitions, open points, dispositions and holding company			(0.1)						—						(0.1)						NM
Total as reported			$	0.9					$	1.3					$	(0.4)					(31)		%
Total new vehicle gross profit:
Same store			$	126.0					$	160.1					$	(34.1)					(21)		%
Acquisitions, open points, dispositions and holding company			0.4						1.9						(1.5)						NM
Total as reported			$	126.4					$	162.0					$	(35.6)					(22)		%
Retail new vehicle unit sales:
Same store			26,727						23,816						2,911						12		%
Acquisitions, open points, dispositions and holding company			142						425						(283)						NM
Total as reported			26,869						24,241						2,628						11		%
Fleet new vehicle unit sales:
Same store			469						672						(203)						(30)		%
Acquisitions, open points, dispositions and holding company			—						—						—						NM
Total as reported			469						672						(203)						(30)		%
Total new vehicle unit sales:
Same store			27,196						24,488						2,708						11		%
Acquisitions, open points, dispositions and holding company			142						425						(283)						NM
Total as reported			27,338						24,913						2,425						10		%
NM = Not Meaningful

31

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SONIC AUTOMOTIVE, INC.

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

			Nine Months Ended September 30,												Better / (Worse)
			2023						2022						Change						% Change
			(In millions, except unit data)
Retail new vehicle revenue:
Same store			$	4,491.8					$	3,995.7					$	496.1					12		%
Acquisitions, open points, dispositions and holding company			59.1						51.4						7.7						NM
Total as reported			$	4,550.9					$	4,047.1					$	503.8					12		%
Fleet new vehicle revenue:
Same store			$	70.4					$	70.0					$	0.4					1		%
Acquisitions, open points, dispositions and holding company			—						—						—						NM
Total as reported			$	70.4					$	70.0					$	0.4					1		%
Total new vehicle revenue:
Same store			$	4,562.2					$	4,065.7					$	496.5					12		%
Acquisitions, open points, dispositions and holding company			59.1						51.4						7.7						NM
Total as reported			$	4,621.3					$	4,117.1					$	504.2					12		%
Retail new vehicle gross profit:
Same store			$	392.2					$	488.8					$	(96.6)					(20)		%
Acquisitions, open points, dispositions and holding company			4.3						5.7						(1.4)						NM
Total as reported			$	396.5					$	494.5					$	(98.0)					(20)		%
Fleet new vehicle gross profit:
Same store			$	3.1					$	3.1					$	—					—		%
Acquisitions, open points, dispositions and holding company			—						—						—						NM
Total as reported			$	3.1					$	3.1					$	—					—		%
Total new vehicle gross profit:
Same store			$	395.3					$	491.9					$	(96.6)					(20)		%
Acquisitions, open points, dispositions and holding company			4.3						5.7						(1.4)						NM
Total as reported			$	399.6					$	497.6					$	(98.0)					(20)		%
Retail new vehicle unit sales:
Same store			77,567						71,986						5,581						8		%
Acquisitions, open points, dispositions and holding company			1,199						1,199						—						NM
Total as reported			78,766						73,185						5,581						8		%
Fleet new vehicle unit sales:
Same store			1,500						1,454						46						3		%
Acquisitions, open points, dispositions and holding company			—						—						—						NM
Total as reported			1,500						1,454						46						3		%
Total new vehicle unit sales:
Same store			79,067						73,440						5,627						8		%
Acquisitions, open points, dispositions and holding company			1,199						1,199						—						NM
Total as reported			80,266						74,639						5,627						8		%
NM = Not Meaningful

32

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SONIC AUTOMOTIVE, INC.

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

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

			Three Months Ended September 30,												Better / (Worse)
			2023						2022						Change						% Change
			(In millions, except unit and per unit data)
Reported new vehicle:
Retail new vehicle revenue			$	1,546.7					$	1,359.6					$	187.1					14		%
Fleet new vehicle revenue			23.2						32.0						(8.8)						(28)		%
Total new vehicle revenue			$	1,569.9					$	1,391.6					$	178.3					13		%
Retail new vehicle gross profit			$	125.5					$	160.7					$	(35.2)					(22)		%
Fleet new vehicle gross profit			0.9						1.3						(0.4)						(31)		%
Total new vehicle gross profit			$	126.4					$	162.0					$	(35.6)					(22)		%
Retail new vehicle unit sales			26,869						24,241						2,628						11		%
Fleet new vehicle unit sales			469						672						(203)						(30)		%
Total new vehicle unit sales			27,338						24,913						2,425						10		%
Revenue per new retail unit			$	57,561					$	56,087					$	1,474					3		%
Revenue per new fleet unit			$	49,495					$	47,636					$	1,859					4		%
Total revenue per new unit			$	57,422					$	55,859					$	1,563					3		%
Gross profit per new retail unit			$	4,672					$	6,627					$	(1,955)					(30)		%
Gross profit per new fleet unit			$	2,046					$	1,955					$	91					5		%
Total gross profit per new unit			$	4,627					$	6,501					$	(1,874)					(29)		%
Retail gross profit as a % of revenue			8.1		%				11.8		%				(370)						bps
Fleet gross profit as a % of revenue			4.1		%				4.1		%				—						bps
Total new vehicle gross profit as a % of revenue			8.1		%				11.6		%				(350)						bps

			Nine Months Ended September 30,												Better / (Worse)
			2023						2022						Change						% Change
			(In millions, except unit and per unit data)
Reported new vehicle:
Retail new vehicle revenue			$	4,550.9					$	4,047.1					$	503.8					12		%
Fleet new vehicle revenue			70.4						70.0						0.4						1		%
Total new vehicle revenue			$	4,621.3					$	4,117.1					$	504.2					12		%
Retail new vehicle gross profit			$	396.5					$	494.5					$	(98.0)					(20)		%
Fleet new vehicle gross profit			3.1						3.1						—						—		%
Total new vehicle gross profit			$	399.6					$	497.6					$	(98.0)					(20)		%
Retail new vehicle unit sales			78,766						73,185						5,581						8		%
Fleet new vehicle unit sales			1,500						1,454						46						3		%
Total new vehicle unit sales			80,266						74,639						5,627						8		%
Revenue per new retail unit			$	57,778					$	55,299					$	2,479					4		%
Revenue per new fleet unit			$	46,918					$	48,164					$	(1,246)					(3)		%
Total revenue per new unit			$	57,575					$	55,160					$	2,415					4		%
Gross profit per new retail unit			$	5,034					$	6,757					$	(1,723)					(25)		%
Gross profit per new fleet unit			$	2,059					$	2,132					$	(73)					(3)		%
Total gross profit per new unit			$	4,978					$	6,667					$	(1,689)					(25)		%
Retail gross profit as a % of revenue			8.7		%				12.2		%				(350)						bps
Fleet gross profit as a % of revenue			4.4		%				4.4		%				—						bps
Total new vehicle gross profit as a % of revenue			8.6		%				12.1		%				(350)						bps

33

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SONIC AUTOMOTIVE, INC.

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

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

			Three Months Ended September 30,												Better / (Worse)
			2023						2022						Change						% Change
			(In millions, except unit and per unit data)
Same store new vehicle:
Retail new vehicle revenue			$	1,538.1					$	1,341.9					$	196.2					15		%
Fleet new vehicle revenue			23.2						32.0						(8.8)						(28)		%
Total new vehicle revenue			$	1,561.3					$	1,373.9					$	187.4					14		%
Retail new vehicle gross profit			$	125.0					$	158.8					$	(33.8)					(21)		%
Fleet new vehicle gross profit			1.0						1.3						(0.3)						(23)		%
Total new vehicle gross profit			$	126.0					$	160.1					$	(34.1)					(21)		%
Retail new vehicle unit sales			26,727						23,816						2,911						12		%
Fleet new vehicle unit sales			469						672						(203)						(30)		%
Total new vehicle unit sales			27,196						24,488						2,708						11		%
Revenue per new retail unit			$	57,547					$	56,345					$	1,202					2		%
Revenue per new fleet unit			$	49,495					$	47,636					$	1,859					4		%
Total revenue per new unit			$	57,408					$	56,106					$	1,302					2		%
Gross profit per new retail unit			$	4,678					$	6,666					$	(1,988)					(30)		%
Gross profit per new fleet unit			$	2,046					$	1,955					$	91					5		%
Total gross profit per new unit			$	4,633					$	6,537					$	(1,904)					(29)		%
Retail gross profit as a % of revenue			8.1		%				11.8		%				(370)						bps
Fleet gross profit as a % of revenue			4.1		%				4.1		%				—						bps
Total new vehicle gross profit as a % of revenue			8.1		%				11.7		%				(360)						bps

			Nine Months Ended September 30,												Better / (Worse)
			2023						2022						Change						% Change
			(In millions, except unit and per unit data)
Same store new vehicle:
Retail new vehicle revenue			$	4,491.8					$	3,995.7					$	496.1					12		%
Fleet new vehicle revenue			70.4						70.0						0.4						1		%
Total new vehicle revenue			$	4,562.2					$	4,065.7					$	496.5					12		%
Retail new vehicle gross profit			$	392.2					$	488.8					$	(96.6)					(20)		%
Fleet new vehicle gross profit			3.1						3.1						—						—		%
Total new vehicle gross profit			$	395.3					$	491.9					$	(96.6)					(20)		%
Retail new vehicle unit sales			77,567						71,986						5,581						8		%
Fleet new vehicle unit sales			1,500						1,454						46						3		%
Total new vehicle unit sales			79,067						73,440						5,627						8		%
Revenue per new retail unit			$	57,908					$	55,507					$	2,401					4		%
Revenue per new fleet unit			$	46,918					$	48,164					$	(1,246)					(3)		%
Total revenue per new unit			$	57,700					$	55,361					$	2,339					4		%
Gross profit per new retail unit			$	5,056					$	6,790					$	(1,734)					(26)		%
Gross profit per new fleet unit			$	2,059					$	2,132					$	(73)					(3)		%
Total gross profit per new unit			$	5,000					$	6,698					$	(1,698)					(25)		%
Retail gross profit as a % of revenue			8.7		%				12.2		%				(350)						bps
Fleet gross profit as a % of revenue			4.4		%				4.4		%				—						bps
Total new vehicle gross profit as a % of revenue			8.7		%				12.1		%				(340)						bps

34

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SONIC AUTOMOTIVE, INC.

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

Same Store Franchised Dealerships Segment Retail New Vehicles – Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022

Retail new vehicle revenue increased 15%, due primarily to a 12% increase in retail new vehicle unit sales volume, as well as a 2% increase in retail new vehicle average selling prices. Retail new vehicle gross profit decreased approximately $33.8 million, or 21%, as a result of lower retail new vehicle gross profit per unit, due primarily to higher inventory invoice costs and increased price competition as a result of higher levels of available inventory. Retail new vehicle gross profit per unit decreased $1,988 per unit, or 30%, to $4,678 per unit, due primarily to higher inventory invoice costs and increased price competition as a result of higher levels of available inventory than in the prior year period.

Same Store Franchised Dealerships Segment Retail New Vehicles – Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022

Retail new vehicle revenue increased 12%, due primarily to an 8% increase in retail new vehicle unit sales volume, as well as a 4% increase in retail new vehicle average selling prices. Retail new vehicle gross profit decreased approximately $96.6 million, or 20%, as a result of lower retail new vehicle gross profit per unit, due primarily to higher inventory invoice costs and increased price competition as a result of higher levels of available inventory. Retail new vehicle gross profit per unit decreased $1,734 per unit, or 26%, to $5,056 per unit, due primarily to higher inventory invoice costs and increased price competition as a result of higher levels of available inventory than in the prior year period.

Used Vehicles – Franchised Dealerships Segment

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

			Three Months Ended September 30,												Better / (Worse)
			2023						2022						Change						% Change
			(In millions, except unit data)
Retail used vehicle revenue:
Same store			$	775.4					$	829.2					$	(53.8)					(6)		%
Acquisitions, open points, dispositions and holding company			5.3						13.2						(7.9)						NM
Total as reported			$	780.7					$	842.4					$	(61.7)					(7)		%
Retail used vehicle gross profit:
Same store			$	42.3					$	44.5					$	(2.2)					(5)		%
Acquisitions, open points, dispositions and holding company			0.3						0.9						(0.6)						NM
Total as reported			$	42.6					$	45.4					$	(2.8)					(6)		%
Retail used vehicle unit sales:
Same store			25,371						26,122						(751)						(3)		%
Acquisitions, open points, dispositions and holding company			170						525						(355)						NM
Total as reported			25,541						26,647						(1,106)						(4)		%

NM = Not Meaningful

35

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SONIC AUTOMOTIVE, INC.

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

			Nine Months Ended September 30,												Better / (Worse)
			2023						2022						Change						% Change
			(In millions, except unit data)
Retail used vehicle revenue:
Same store			$	2,288.8					$	2,524.3					$	(235.5)					(9)		%
Acquisitions, open points, dispositions and holding company			34.0						43.8						(9.8)						NM
Total as reported			$	2,322.8					$	2,568.1					$	(245.3)					(10)		%
Retail used vehicle gross profit:
Same store			$	126.4					$	133.5					$	(7.1)					(5)		%
Acquisitions, open points, dispositions and holding company			1.5						2.5						(1.0)						NM
Total as reported			$	127.9					$	136.0					$	(8.1)					(6)		%
Retail used vehicle unit sales:
Same store			74,631						80,221						(5,590)						(7)		%
Acquisitions, open points, dispositions and holding company			1,214						1,660						(446)						NM
Total as reported			75,845						81,881						(6,036)						(7)		%
NM = Not Meaningful

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

			Three Months Ended September 30,												Better / (Worse)
			2023						2022						Change						% Change
			(In millions, except unit and per unit data)
Reported retail used vehicle:
Revenue			$	780.7					$	842.4					$	(61.7)					(7)		%
Gross profit			$	42.6					$	45.4					$	(2.8)					(6)		%
Unit sales			25,541						26,647						(1,106)						(4)		%
Revenue per unit			$	30,567					$	31,615					$	(1,048)					(3)		%
Gross profit per unit			$	1,666					$	1,704					$	(38)					(2)		%
Gross profit as a % of revenue			5.4		%				5.4		%				—						bps

			Nine Months Ended September 30,												Better / (Worse)
			2023						2022						Change						% Change
			(In millions, except unit and per unit data)
Reported retail used vehicle:
Revenue			$	2,322.8					$	2,568.1					$	(245.3)					(10)		%
Gross profit			$	127.9					$	136.0					$	(8.1)					(6)		%
Unit sales			75,845						81,881						(6,036)						(7)		%
Revenue per unit			$	30,625					$	31,364					$	(739)					(2)		%
Gross profit per unit			$	1,685					$	1,661					$	24					1		%
Gross profit as a % of revenue			5.5		%				5.3		%				20						bps

36

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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 September 30,												Better / (Worse)
			2023						2022						Change						% Change
			(In millions, except unit and per unit data)
Same store retail used vehicle:
Revenue			$	775.4					$	829.2					$	(53.8)					(7)		%
Gross profit			$	42.3					$	44.5					$	(2.2)					(5)		%
Unit sales			25,371						26,122						(751)						(3)		%
Revenue per unit			$	30,563					$	31,742					$	(1,179)					(4)		%
Gross profit per unit			$	1,668					$	1,704					$	(36)					(2)		%
Gross profit as a % of revenue			5.5		%				5.4		%				10						bps

			Nine Months Ended September 30,												Better / (Worse)
			2023						2022						Change						% Change
			(In millions, except unit and per unit data)
Same store retail used vehicle:
Revenue			$	2,288.8					$	2,524.3					$	(235.5)					(9)		%
Gross profit			$	126.4					$	133.5					$	(7.1)					(5)		%
Unit sales			74,631						80,221						(5,590)						(7)		%
Revenue per unit			$	30,669					$	31,467					$	(798)					(3)		%
Gross profit per unit			$	1,694					$	1,664					$	30					2		%
Gross profit as a % of revenue			5.5		%				5.3		%				20						bps

Same Store Franchised Dealerships Segment Retail Used Vehicles – Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022

Retail used vehicle revenue decreased approximately $53.8 million, or 7%, driven primarily by a 3% decrease in retail used vehicle unit sales volume, as well as a 4% decrease in retail used vehicle average selling prices. Retail used vehicle gross profit decreased approximately $2.2 million, or 5%, driven primarily by the decrease in retail used vehicle unit sales volume and a $36 per unit, or 2%, decrease in retail used vehicle gross profit per unit during the third quarter of 2023.

Same Store Franchised Dealerships Segment Retail Used Vehicles – Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022

Retail used vehicle revenue decreased approximately $235.5 million, or 9%, driven primarily by a 7% decrease in retail used vehicle unit sales volume, as well as a 3% decrease in retail used vehicle average selling prices. Retail used vehicle gross profit decreased approximately $7.1 million, or 5%, driven primarily by the decrease in retail used vehicle unit sales volume, partially offset by a $30 per unit, or 2%, increase in retail used vehicle gross profit per unit during the nine months ended September 30, 2023.

37

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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 September 30,												Better / (Worse)
			2023						2022						Change						% Change
			(In millions, except unit data)
Total wholesale vehicle revenue:
Same store			$	51.3					$	75.1					$	(23.8)					(32)		%
Acquisitions, open points, dispositions and holding company			0.1						0.7						(0.6)						NM
Total as reported			$	51.4					$	75.8					$	(24.4)					(32)		%
Total wholesale vehicle gross profit (loss):
Same store			$	(1.4)					$	(1.9)					$	0.5					26		%
Acquisitions, open points, dispositions and holding company			(0.1)						(0.2)						0.1						NM
Total as reported			$	(1.5)					$	(2.1)					$	0.6					29		%
Total wholesale vehicle unit sales:
Same store			5,131						5,738						(607)						(11)		%
Acquisitions, open points, dispositions and holding company			32						75						(43)						NM
Total as reported			5,163						5,813						(650)						(11)		%
NM = Not Meaningful

			Nine Months Ended September 30,												Better / (Worse)
			2023						2022						Change						% Change
			(In millions, except unit data)
Total wholesale vehicle revenue:
Same store			$	163.3					$	258.2					$	(94.9)					(37)		%
Acquisitions, open points, dispositions and holding company			2.0						3.0						(1.0)						NM
Total as reported			$	165.3					$	261.2					$	(95.9)					(37)		%
Total wholesale vehicle gross profit (loss):
Same store			$	—					$	(2.5)					$	2.5					100		%
Acquisitions, open points, dispositions and holding company			(0.8)						(0.5)						(0.3)						NM
Total as reported			$	(0.8)					$	(3.0)					$	2.2					73		%
Total wholesale vehicle unit sales:
Same store			15,921						18,164						(2,243)						(12)		%
Acquisitions, open points, dispositions and holding company			241						272						(31)						NM
Total as reported			16,162						18,436						(2,274)						(12)		%
NM = Not Meaningful

38

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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 September 30,												Better / (Worse)
			2023						2022						Change						% Change
			(In millions, except unit and per unit data)
Reported wholesale vehicle:
Revenue			$	51.4					$	75.8					$	(24.4)					(32)		%
Gross profit (loss)			$	(1.5)					$	(2.1)					$	0.6					29		%
Unit sales			5,163						5,813						(650)						(11)		%
Revenue per unit			$	9,987					$	13,028					$	(3,041)					(23)		%
Gross profit (loss) per unit			$	(288)					$	(356)					$	68					19		%
Gross profit (loss) as a % of revenue			(2.9)		%				(2.7)		%				(20)						bps

    

			Nine Months Ended September 30,												Better / (Worse)
			2023						2022						Change						% Change
			(In millions, except unit and per unit data)
Reported wholesale vehicle:
Revenue			$	165.3					$	261.2					$	(95.9)					(37)		%
Gross profit (loss)			$	(0.8)					$	(3.0)					$	2.2					73		%
Unit sales			16,162						18,436						(2,274)						(12)		%
Revenue per unit			$	10,232					$	14,170					$	(3,938)					(28)		%
Gross profit (loss) per unit			$	(38)					$	(163)					$	125					77		%
Gross profit (loss) as a % of revenue			(0.4)		%				(1.2)		%				80						bps

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

			Three Months Ended September 30,												Better / (Worse)
			2023						2022						Change						% Change
			(In millions, except unit and per unit data)
Same store wholesale vehicle:
Revenue			$	51.3					$	75.1					$	(23.8)					(32)		%
Gross profit (loss)			$	(1.4)					$	(1.9)					$	0.5					26		%
Unit sales			5,131						5,738						(607)						(11)		%
Revenue per unit			$	9,994					$	13,086					$	(3,092)					(24)		%
Gross profit (loss) per unit			$	(274)					$	(333)					$	59					18		%
Gross profit (loss) as a % of revenue			(2.7)		%				(2.5)		%				(20)						bps

			Nine Months Ended September 30,												Better / (Worse)
			2023						2022						Change						% Change
			(In millions, except unit and per unit data)
Same store wholesale vehicle:
Revenue			$	163.3					$	258.2					$	(94.9)					(37)		%
Gross profit (loss)			$	—					$	(2.5)					$	2.5					100		%
Unit sales			15,921						18,164						(2,243)						(12)		%
Revenue per unit			$	10,255					$	14,210					$	(3,955)					(28)		%
Gross profit (loss) per unit			$	1					$	(138)					$	139					101		%
Gross profit (loss) as a % of revenue			—		%				(1.0)		%				100						bps

39

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SONIC AUTOMOTIVE, INC.

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

Same Store Franchised Dealerships Segment Wholesale Vehicles – Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022

Wholesale vehicle revenue decreased approximately $23.8 million, or 32%, driven primarily by a 24% decrease in wholesale vehicle revenue per unit and an 11% decrease in wholesale vehicle unit sales volume during the third quarter of 2023. Wholesale vehicle gross loss decreased approximately $0.5 million, driven primarily by a $59 per unit, or 18%, decrease in wholesale vehicle gross loss per unit as a result of higher wholesale auction prices.

Same Store Franchised Dealerships Segment Wholesale Vehicles – Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022

Wholesale vehicle revenue decreased approximately $94.9 million, or 37%, driven primarily by a 28% decrease in wholesale vehicle revenue per unit and a 12% decrease in wholesale vehicle unit sales volume during the first nine months of 2023. Wholesale vehicle gross profit (loss) improved approximately $2.5 million, driven primarily by a $139 per unit, or 101%, improvement in wholesale vehicle gross profit (loss) per unit during the first nine months of 2023.

Fixed Operations – Franchised Dealerships Segment

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

			Three Months Ended September 30,												Better / (Worse)
			2023						2022						Change						% Change
			(In millions)
Total Fixed Operations revenue:
Same store			$	429.2					$	399.0					$	30.2					8		%
Acquisitions, open points, dispositions and holding company			2.6						5.7						(3.1)						NM
Total as reported			$	431.8					$	404.7					$	27.1					7		%
Total Fixed Operations gross profit:
Same store			$	213.4					$	198.0					$	15.4					8		%
Acquisitions, open points, dispositions and holding company			1.7						3.0						(1.3)						NM
Total as reported			$	215.1					$	201.0					$	14.1					7		%

NM = Not Meaningful

			Nine Months Ended September 30,												Better / (Worse)
			2023						2022						Change						% Change
			(In millions)
Total Fixed Operations revenue:
Same store			$	1,272.7					$	1,166.9					$	105.8					9		%
Acquisitions, open points, dispositions and holding company			16.3						16.5						(0.2)						NM
Total as reported			$	1,289.0					$	1,183.4					$	105.6					9		%
Total Fixed Operations gross profit:
Same store			$	630.9					$	577.1					$	53.8					9		%
Acquisitions, open points, dispositions and holding company			9.2						8.6						0.6						NM
Total as reported			$	640.1					$	585.7					$	54.4					9		%

NM = Not Meaningful

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SONIC AUTOMOTIVE, INC.

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

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

			Three Months Ended September 30,												Better / (Worse)
			2023						2022						Change						% Change
			(In millions)
Reported Fixed Operations:
Revenue
Customer pay			$	205.2					$	186.6					$	18.6					10		%
Warranty			61.5						60.0						1.5						3		%
Wholesale parts			51.1						49.7						1.4						3		%
Internal, sublet and other			114.0						108.4						5.6						5		%
Total revenue			$	431.8					$	404.7					$	27.1					7		%
Gross profit
Customer pay			$	115.3					$	105.5					$	9.8					9		%
Warranty			36.3						34.0						2.3						7		%
Wholesale parts			9.1						9.0						0.1						1		%
Internal, sublet and other			54.4						52.5						1.9						4		%
Total gross profit			$	215.1					$	201.0					$	14.1					7		%
Gross profit as a % of revenue
Customer pay			56.2		%				56.6		%				(40)						bps
Warranty			59.0		%				56.6		%				240						bps
Wholesale parts			17.8		%				18.2		%				(40)						bps
Internal, sublet and other			47.7		%				48.4		%				(70)						bps
Total gross profit as a % of revenue			49.8		%				49.7		%				10						bps

			Nine Months Ended September 30,												Better / (Worse)
			2023						2022						Change						% Change
			(In millions)
Reported Fixed Operations:
Revenue
Customer pay			$	610.6					$	549.2					$	61.4					11		%
Warranty			178.8						167.1						11.7						7		%
Wholesale parts			158.8						149.3						9.5						6		%
Internal, sublet and other			340.8						317.8						23.0						7		%
Total revenue			$	1,289.0					$	1,183.4					$	105.6					9		%
Gross profit
Customer pay			$	342.0					$	306.5					$	35.5					12		%
Warranty			105.0						97.7						7.3						7		%
Wholesale parts			28.2						26.8						1.4						5		%
Internal, sublet and other			164.9						154.7						10.2						7		%
Total gross profit			$	640.1					$	585.7					$	54.4					9		%
Gross profit as a % of revenue
Customer pay			56.0		%				55.8		%				20						bps
Warranty			58.7		%				58.5		%				20						bps
Wholesale parts			17.8		%				18.0		%				(20)						bps
Internal, sublet and other			48.4		%				48.7		%				(30)						bps
Total gross profit as a % of revenue			49.7		%				49.5		%				20						bps

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SONIC AUTOMOTIVE, INC.

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

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

			Three Months Ended September 30,												Better / (Worse)
			2023						2022						Change						% Change
			(In millions)
Same store Fixed Operations:
Revenue
Customer pay			$	203.9					$	184.2					$	19.7					11		%
Warranty			61.0						59.0						2.0						3		%
Wholesale parts			51.0						49.2						1.8						4		%
Internal, sublet and other			113.3						106.6						6.7						6		%
Total revenue			$	429.2					$	399.0					$	30.2					8		%
Gross profit
Customer pay			$	114.5					$	104.3					$	10.2					10		%
Warranty			36.0						33.4						2.6						8		%
Wholesale parts			9.1						8.9						0.2						2		%
Internal, sublet and other			53.8						51.4						2.4						5		%
Total gross profit			$	213.4					$	198.0					$	15.4					8		%
Gross profit as a % of revenue
Customer pay			56.2		%				56.6		%				(40)						bps
Warranty			59.1		%				56.7		%				240						bps
Wholesale parts			17.8		%				18.1		%				(30)						bps
Internal, sublet and other			47.5		%				48.2		%				(70)						bps
Total gross profit as a % of revenue			49.7		%				49.6		%				10						bps

			Nine Months Ended September 30,												Better / (Worse)
			2023						2022						Change						% Change
			(In millions)
Same store Fixed Operations:
Revenue
Customer pay			$	603.2					$	542.4					$	60.8					11		%
Warranty			175.7						164.1						11.6						7		%
Wholesale parts			157.6						147.9						9.7						7		%
Internal, sublet and other			336.2						312.5						23.7						8		%
Total revenue			$	1,272.7					$	1,166.9					$	105.8					9		%
Gross profit
Customer pay			$	337.9					$	303.1					$	34.8					11		%
Warranty			103.4						96.2						7.2						7		%
Wholesale parts			28.0						26.5						1.5						6		%
Internal, sublet and other			161.6						151.3						10.3						7		%
Total gross profit			$	630.9					$	577.1					$	53.8					9		%
Gross profit as a % of revenue
Customer pay			56.0		%				55.9		%				10						bps
Warranty			58.8		%				58.6		%				20						bps
Wholesale parts			17.7		%				17.9		%				(20)						bps
Internal, sublet and other			48.1		%				48.4		%				(30)						bps
Total gross profit as a % of revenue			49.6		%				49.5		%				10						bps

42

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SONIC AUTOMOTIVE, INC.

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

Same Store Franchised Dealerships Segment Fixed Operations – Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022

Fixed Operations revenue increased approximately $30.2 million, or 8%, and Fixed Operations gross profit increased approximately $15.4 million, or 8%. Customer pay gross profit increased approximately $10.2 million, or 10%, warranty gross profit increased approximately $2.6 million, or 8%, wholesale parts gross profit increased approximately $0.2 million, or 2%, and internal, sublet and other gross profit increased approximately $2.4 million, or 5%. As consumer activity and vehicle miles driven have continued to improve from pandemic-induced lows in early 2020, we have experienced a recovery in Fixed Operations activity (in particular, related to customer pay repairs) above pre-pandemic levels, and expect to continue to see elevated levels in the remainder of 2023, compared to the prior year period.

Same Store Franchised Dealerships Segment Fixed Operations – Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022

Fixed Operations revenue increased approximately $105.8 million, or 9%, and Fixed Operations gross profit increased approximately $53.8 million, or 9%. Customer pay gross profit increased approximately $34.8 million, or 11%, warranty gross profit increased approximately $7.2 million, or 7%, wholesale parts gross profit increased approximately $1.5 million, or 6%, and internal, sublet and other gross profit increased approximately $10.3 million, or 7%. As consumer activity and vehicle miles driven have continued to improve from pandemic-induced lows in early 2020, we have experienced a recovery in Fixed Operations activity (in particular, related to customer pay repairs) above pre-pandemic levels, and expect to continue to see elevated levels in the remainder of 2023, compared to the prior year period.

F&I – Franchised Dealerships Segment

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

			Three Months Ended September 30,												Better / (Worse)
			2023						2022						Change						% Change
			(In millions, except unit and per unit data)
Total F&I revenue:
Same store			$	125.4					$	122.2					$	3.2					3		%
Acquisitions, open points, dispositions and holding company			0.6						3.6						(3.0)						NM
Total as reported			$	126.0					$	125.8					$	0.2					—		%
Total F&I gross profit per retail unit (excludes fleet):
Same store			$	2,407					$	2,525					$	(118)					(5)		%
Reported			$	2,403					$	2,473					$	(70)					(3)		%
Total combined retail new and used vehicle unit sales:
Same store			52,098						49,938						2,160						4		%
Acquisitions, open points, dispositions and holding company			312						950						(638)						NM
Total as reported			52,410						50,888						1,522						3		%

NM = Not Meaningful

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SONIC AUTOMOTIVE, INC.

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

			Nine Months Ended September 30,												Better / (Worse)
			2023						2022						Change						% Change
			(In millions, except unit and per unit data)
Total F&I revenue:
Same store			$	370.9					$	369.7					$	1.2					—		%
Acquisitions, open points, dispositions and holding company			4.5						12.4						(7.9)						NM
Total as reported			$	375.4					$	382.1					$	(6.7)					(2)		%
Total F&I gross profit per retail unit (excludes fleet):
Same store			$	2,437					$	2,429					$	8					—		%
Reported			$	2,428					$	2,464					$	(36)					(1)		%
Total combined retail new and used vehicle unit sales:
Same store			152,198						152,207						(9)						—		%
Acquisitions, open points, dispositions and holding company			2,413						2,859						(446)						NM
Total as reported			154,611						155,066						(455)						—		%

NM = Not Meaningful

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

			Three Months Ended September 30,												Better / (Worse)
			2023						2022						Change						% Change
			(In millions, except unit and per unit data)
Reported F&I:
Revenue			$	126.0					$	125.8					$	0.2					—		%
Total combined retail new and used vehicle unit sales			52,410						50,888						1,522						3		%
Gross profit per retail unit (excludes fleet)			$	2,403					$	2,473					$	(70)					(3)		%

			Nine Months Ended September 30,												Better / (Worse)
			2023						2022						Change						% Change
			(In millions, except unit and per unit data)
Reported F&I:
Revenue			$	375.4					$	382.1					$	(6.7)					(2)		%
Total combined retail new and used vehicle unit sales			154,611						155,066						(455)						—		%
Gross profit per retail unit (excludes fleet)			$	2,428					$	2,464					$	(36)					(1)		%

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

			Three Months Ended September 30,												Better / (Worse)
			2023						2022						Change						% Change
			(In millions, except unit and per unit data)
Same store F&I:
Revenue			$	125.4					$	122.2					$	3.2					3		%
Total combined retail new and used vehicle unit sales			52,098						49,938						2,160						4		%
Gross profit per retail unit (excludes fleet)			$	2,407					$	2,525					$	(118)					(5)		%

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SONIC AUTOMOTIVE, INC.

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

			Nine Months Ended September 30,												Better / (Worse)
			2023						2022						Change						% Change
			(In millions, except unit and per unit data)
Same store F&I:
Revenue			$	370.9					$	369.7					$	1.2					—		%
Total combined retail new and used vehicle unit sales			152,198						152,207						(9)						—		%
Gross profit per retail unit (excludes fleet)			$	2,437					$	2,429					$	8					—		%

Same Store Franchised Dealerships Segment F&I – Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022

F&I revenue increased approximately $3.2 million, or 3%, due primarily to a decrease in F&I gross profit per retail unit, partially offset by an increase in F&I in combined retail new and used vehicle unit sales volume. F&I gross profit per retail unit decreased $118 per unit, or 5%, to $2,407 per unit, due primarily to a decrease in finance and service contract penetration rates, offset partially by a higher other aftermarket contract penetration rate.

Finance contract revenue for combined new and used vehicles decreased 1%, due primarily due to a 70-basis point decrease in the finance contract penetration rate and a 4% decrease in gross profit per finance contract. We believe the decrease in the finance contract penetration rate is a result of higher average interest rates driving some customers to switch to a cash purchase or to obtain their own outside financing, particularly for used vehicles. Service contract revenue for combined new and used vehicles increased 31%, due primarily to an 65% increase in gross profit per service contract, partially offset by a 1,380-basis point decrease in the service contract penetration rate. Other aftermarket contract revenue for combined new and used vehicles was flat, due primarily to a 6% decrease in gross profit per other aftermarket contract that was offset by a 440-basis point increase in the other aftermarket contract penetration rate.

Same Store Franchised Dealerships Segment F&I – Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022

F&I revenue increased approximately $1.2 million due primarily to a increase in F&I gross profit per retail unit and a decrease in total combined retail new and used vehicle unit sales volume. F&I gross profit per retail unit increased $8 per unit to $2,437 per unit, due primarily to a decrease in the finance, service and other aftermarket contract penetration rates.

Finance contract revenue for combined new and used vehicles decreased 7%, due primarily to a 190-basis point decrease in the finance contract penetration rate and a 4% decrease in gross profit per finance contract. We believe the decrease in the finance contract penetration rate is a result of higher average interest rates driving some customers to switch to a cash purchase or to obtain their own outside financing, particularly for used vehicles. Service contract revenue for combined new and used vehicles increased 8%, due primarily to a 15% increase in gross profit per service contract partially offset by a 280-basis point decrease in the service contract penetration rate. Other aftermarket contract revenue for combined new and used vehicles increased 8%, due primarily to a 11% increase in gross profit per other aftermarket contract, partially offset by an 400-basis point decrease in the other aftermarket contract penetration rate.

Results of Operations – EchoPark Segment

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. Same market results may vary significantly from reported results due to the closure of stores that are no longer included in same market results.

On June 22, 2023, Sonic announced a plan to indefinitely suspend operations at eight EchoPark locations and 14 related delivery/buy centers. In addition, during the third quarter of 2023, we closed three Northwest Motorsport pre-owned locations within the EchoPark Segment.

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SONIC AUTOMOTIVE, INC.

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

Used Vehicles and F&I – EchoPark Segment

Our EchoPark 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 retail 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 retail unit, which includes both front-end retail used vehicle gross profit (loss) per unit and F&I gross profit per retail unit sold. See the discussion under the heading “Results of Operations - Consolidated” for additional discussion of the macro drivers of used vehicle revenues and F&I revenues.

All Fixed Operations activity at our EchoPark stores supports our used vehicle inventory reconditioning operations and EchoPark stores do not currently perform customer pay repairs or maintenance work and are not permitted to perform manufacturer-paid warranty repairs. As such, reconditioning amounts that are classified as Fixed Operations revenues and cost of sales in our Franchised Dealerships Segment are presented as used vehicle cost of sales for the EchoPark Segment.

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

			Three Months Ended September 30,												Better / (Worse)
			2023						2022						Change						% Change
			(In millions, except unit data)
Total retail used vehicle revenue:
Same market			$	469.9					$	268.0					$	201.9					75		%
New markets/closed markets			84.9						243.4						(158.5)						NM
Total as reported			$	554.8					$	511.4					$	43.4					9		%
Total retail used vehicle gross profit (loss):
Same market			$	5.0					$	(2.0)					$	7.0					350		%
New markets/closed markets			2.3						6.9						(4.6)						NM
Total as reported			$	7.3					$	4.9					$	2.4					49		%
Total retail used vehicle unit sales:
Same market			17,480						9,412						8,068						86		%
New markets/closed markets			1,570						5,833						(4,263)						NM
Total as reported			19,050						15,245						3,805						25		%
NM = Not Meaningful

46

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SONIC AUTOMOTIVE, INC.

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

			Nine Months Ended September 30,												Better / (Worse)
			2023						2022						Change						% Change
			(In millions, except unit data)
Total retail used vehicle revenue:
Same market			$	1,274.1					$	818.6					$	455.5					56		%
New markets/closed markets			377.2						782.7						(405.5)						NM
Total as reported			$	1,651.3					$	1,601.3					$	50.0					3		%
Total retail used vehicle gross profit (loss):
Same market			$	(4.3)					$	(13.7)					$	9.4					69		%
New markets/closed markets			(14.5)						21.6						(36.1)						NM
Total as reported			$	(18.8)					$	7.9					$	(26.7)					(338)		%
Total retail used vehicle unit sales:
Same market			46,997						27,911						19,086						68		%
New markets/closed markets			9,117						18,761						(9,644)						NM
Total as reported			56,114						46,672						9,442						20		%
NM = Not Meaningful

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

			Three Months Ended September 30,												Better / (Worse)
			2023						2022						Change						% Change
			(In millions)
Total F&I revenue:
Same market			$	41.7					$	22.8					$	18.9					83		%
New markets/closed markets			3.6						16.1						(12.5)						NM
Total as reported			$	45.3					$	38.9					$	6.4					16		%
NM = Not Meaningful

			Nine Months Ended September 30,												Better / (Worse)
			2023						2022						Change						% Change
			(In millions)
Total F&I revenue:
Same market			$	114.9					$	70.0					$	44.9					64		%
New markets/closed markets			21.5						51.8						(30.3)						NM
Total as reported			$	136.4					$	121.8					$	14.6					12		%
NM = Not Meaningful

47

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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 September 30,												Better / (Worse)
			2023						2022						Change						% Change
			(In millions, except unit and per unit data)
Reported retail used vehicle and F&I:
Retail used vehicle revenue			$	554.8					$	511.4					$	43.4					9		%
Retail used vehicle gross profit (loss)			$	7.3					$	4.9					$	2.4					49		%
Retail used vehicle unit sales			19,050						15,245						3,805						25		%
Retail used vehicle revenue per unit			$	29,125					$	33,546					$	(4,421)					(13)		%
F&I revenue			$	45.3					$	38.9					$	6.4					17		%
Combined retail used vehicle gross profit and F&I revenue			$	52.6					$	43.8					$	8.8					20		%
Combined retail used vehicle and F&I gross profit per unit			$	2,767					$	2,868					$	(101)					(4)		%

			Nine Months Ended September 30,												Better / (Worse)
			2023						2022						Change						% Change
			(In millions, except unit and per unit data)
Reported retail used vehicle and F&I:
Retail used vehicle revenue			$	1,651.3					$	1,601.3					$	50.0					3		%
Retail used vehicle gross profit (loss)			$	(18.8)					$	7.9					$	(26.7)					(338)		%
Retail used vehicle unit sales			56,114						46,672						9,442						20		%
Retail used vehicle revenue per unit			$	29,428					$	34,308					$	(4,880)					(14)		%
F&I revenue			$	136.4					$	121.8					$	14.6					12		%
Combined retail used vehicle gross profit and F&I revenue			$	117.6					$	129.7					$	(12.1)					(9)		%
Combined retail used vehicle and F&I gross profit per unit			$	2,095					$	2,775					$	(680)					(25)		%

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

			Three Months Ended September 30,												Better / (Worse)
			2023						2022						Change						% Change
			(In millions, except unit and per unit data)
Same market retail used vehicle and F&I:
Retail used vehicle revenue			$	469.9					$	268.0					$	201.9					75		%
Retail used vehicle gross profit (loss)			$	5.0					$	(2.0)					$	7.0					350		%
Retail used vehicle unit sales			17,480						9,412						8,068						86		%
Retail used vehicle revenue per unit			$	26,884					$	28,479					$	(1,595)					(6)		%
F&I revenue			$	41.7					$	22.8					$	18.9					83		%
Combined retail used vehicle gross profit and F&I revenue			$	46.7					$	20.8					$	25.9					125		%
Combined retail used vehicle and F&I gross profit per unit			$	2,672					$	2,209					$	463					21		%

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

			Nine Months Ended September 30,												Better / (Worse)
			2023						2022						Change						% Change
			(In millions, except unit and per unit data)
Same market retail used vehicle and F&I:
Retail used vehicle revenue			$	1,274.1					$	818.6					$	455.5					56		%
Retail used vehicle gross profit (loss)			$	(4.3)					$	(13.7)					$	9.4					69		%
Retail used vehicle unit sales			46,997						27,911						19,086						68		%
Retail used vehicle revenue per unit			$	27,110					$	29,329					$	(2,219)					(8)		%
F&I revenue			$	114.9					$	70.0					$	44.9					64		%
Combined retail used vehicle gross profit and F&I revenue			$	110.6					$	56.3					$	54.3					96		%
Combined retail used vehicle and F&I gross profit per unit			$	2,352					$	2,015					$	337					17		%

Same Market EchoPark Segment Retail Used Vehicles and F&I – Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022

Retail used vehicle revenue increased approximately $201.9 million, or 75%, due primarily to an 86% increase in retail used vehicle unit sales volume, offset partially by a 6% decrease in retail used vehicle revenue per unit. Combined retail used vehicle gross profit and F&I revenue increased approximately $25.9 million, or 125%, due primarily to an $18.9 million, or 83%, increase in F&I revenue. The increase in combined retail used vehicle and F&I gross profit per unit was due primarily to improvements in inventory acquisition costs and more efficient allocation of used vehicle inventory across a smaller number of operating locations in the three months ended September 30, 2023.

Same Market EchoPark Segment Retail Used Vehicles and F&I – Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022

Retail used vehicle revenue increased approximately $455.5 million, or 56%, due primarily to a 68% increase in retail used vehicle unit sales volume, offset partially by an 8% decrease in retail used vehicle revenue per unit. Combined retail used vehicle gross profit and F&I revenue increased approximately $54.3 million, or 96%, due primarily to a $44.9 million, or 64%, increase in F&I revenue. The increase in combined retail used vehicle and F&I gross profit per unit was due primarily to improvements in inventory acquisition costs and more efficient allocation of used vehicle inventory across a smaller number of operating locations in the nine months ended September 30, 2023.

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SONIC AUTOMOTIVE, INC.

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

Wholesale Vehicles – EchoPark Segment

See the discussion under the heading “Results of Operations – Consolidated” 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/closed market basis for wholesale vehicles:

			Three Months Ended September 30,												Better / (Worse)
			2023						2022						Change						% Change
			(In millions, except unit data)
Total wholesale vehicle revenue:
Same market			$	16.0					$	14.8					$	1.2					8		%
New markets/closed markets			10.6						24.1						(13.5)						NM
Total as reported			$	26.6					$	38.9					$	(12.3)					(32)		%
Total wholesale vehicle gross profit (loss):
Same market			$	—					$	(0.1)					$	0.1					100		%
New markets/closed markets			0.2						0.1						0.1						NM
Total as reported			$	0.2					$	—					$	0.2					100		%
Total wholesale vehicle unit sales:
Same market			2,305						1,495						810						54		%
New markets/closed markets			435						954						(519)						NM
Total as reported			2,740						2,449						291						12		%
NM = Not Meaningful

			Nine Months Ended September 30,												Better / (Worse)
			2023						2022						Change						% Change
			(In millions, except unit data)
Total wholesale vehicle revenue:
Same market			$	56.4					$	73.0					$	(16.6)					(23)		%
New markets/closed markets			32.7						70.3						(37.6)						NM
Total as reported			$	89.1					$	143.3					$	(54.2)					(38)		%
Total wholesale vehicle gross profit (loss):
Same market			$	1.1					$	2.0					$	(0.9)					(45)		%
New markets/closed markets			0.2						1.6						(1.4)						NM
Total as reported			$	1.3					$	3.6					$	(2.3)					(64)		%
Total wholesale vehicle unit sales:
Same market			7,010						5,828						1,182						20		%
New markets/closed markets			1,881						2,964						(1,083)						NM
Total as reported			8,891						8,792						99						1		%
NM = Not Meaningful

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SONIC AUTOMOTIVE, INC.

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

Our EchoPark Segment reported wholesale vehicle results were as follows:

			Three Months Ended September 30,												Better / (Worse)
			2023						2022						Change						% Change
			(In millions, except unit and per unit data)
Reported wholesale vehicle:
Revenue			$	26.6					$	38.9					$	(12.3)					(32)		%
Gross profit (loss)			$	0.2					$	—					$	0.2					100		%
Unit sales			2,740						2,449						291						12		%
Revenue per unit			$	9,652					$	15,873					$	(6,221)					(39)		%
Gross profit (loss) per unit			$	23					$	(44)					$	67					NM
Gross profit (loss) as a % of revenue			0.2		%				(0.3)		%				50						bps
NM = Not Meaningful

			Nine Months Ended September 30,												Better / (Worse)
			2023						2022						Change						% Change
			(In millions, except unit and per unit data)
Reported wholesale vehicle:
Revenue			$	89.1					$	143.3					$	(54.2)					(38)		%
Gross profit (loss)			$	1.3					$	3.6					$	(2.3)					(64)		%
Unit sales			8,891						8,792						99						1		%
Revenue per unit			$	10,014					$	16,307					$	(6,293)					(39)		%
Gross profit (loss) per unit			$	143					$	394					$	(251)					(64)		%
Gross profit (loss) as a % of revenue			1.4		%				2.4		%				(100)						bps

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

			Three Months Ended September 30,												Better / (Worse)
			2023						2022						Change						% Change
			(In millions, except unit and per unit data)
Same market wholesale vehicle:
Revenue			$	16.0					$	14.8					$	1.2					8		%
Gross profit (loss)			$	—					$	(0.1)					$	0.1					100		%
Unit sales			2,305						1,495						810						54		%
Revenue per unit			$	6,910					$	9,871					$	(2,961)					(30)		%
Gross profit (loss) per unit			$	15					$	(86)					$	101					117		%
Gross profit (loss) as a % of revenue			0.2		%				(0.9)		%				110						bps

			Nine Months Ended September 30,												Better / (Worse)
			2023						2022						Change						% Change
			(In millions, except unit and per unit data)
Same market wholesale vehicle:
Revenue			$	56.4					$	73.0					$	(16.6)					(23)		%
Gross profit (loss)			$	1.1					$	2.0					$	(0.9)					(45)		%
Unit sales			7,010						5,828						1,182						20		%
Revenue per unit			$	8,049					$	12,539					$	(4,490)					(36)		%
Gross profit (loss) per unit			$	170					$	349					$	(179)					(51)		%
Gross profit (loss) as a % of revenue			2.1		%				2.8		%				(70)						bps

Same Market EchoPark Segment Wholesale Vehicles – Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022

Same market wholesale vehicle revenue increased approximately $1.2 million, or 8%, due primarily to a 54% increase in wholesale vehicle unit sales volume, offset partially by a 30% decrease in wholesale vehicle revenue per unit. As we adjust the

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SONIC AUTOMOTIVE, INC.

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

inventory mix of nearly-new versus older model year vehicles sold at retail going forward, the levels of wholesale vehicle revenue and gross profit may vary.

Same Market EchoPark Segment Wholesale Vehicles – Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022

Same market wholesale vehicle revenue decreased approximately $16.6 million, or 23%, due primarily to a 36% decrease in wholesale vehicle revenue per unit, offset partially by a 20% increase in wholesale vehicle unit sales volume. As we adjust the inventory mix of nearly-new versus older model year vehicles sold at retail going forward, the levels of wholesale vehicle revenue and gross profit may vary.

Results of Operations – Powersports Segment

Our Powersports Segment consists of eight stores acquired during 2022 and five stores acquired in the first quarter of 2023. As a result of the timing of acquisitions in our Powersports Segment, we believe presentation and discussion of same store results is not meaningful. The following discussion of new vehicles, used vehicles, wholesale vehicles, parts, service and collision repair, and finance, insurance and other, net is on a reported basis, except where otherwise noted. Our Powersports Segment results are subject to seasonal variations, such that the second and third quarters are generally expected to contribute higher revenues and segment income than the first and fourth quarters.

New Vehicles – Powersports Segment

Our Powersports Segment reported retail new vehicle results were as follows:

			Three Months Ended September 30,												Better / (Worse)
			2023						2022						Change						% Change
			(In millions, except unit and per unit data)
Reported retail new vehicle:
Revenue			$	26.8					$	10.6					$	16.2					153		%
Gross profit			$	5.9					$	2.1					$	3.8					181		%
Unit sales			1,391						490						901						184		%
Revenue per unit			$	19,271					$	21,537					$	(2,266)					(11)		%
Gross profit per unit			$	4,213					$	4,304					$	(91)					(2)		%
Gross profit as a % of revenue			21.9		%				20.0		%				190						bps

			Nine Months Ended September 30,												Better / (Worse)
			2023						2022						Change						% Change
			(In millions, except unit and per unit data)
Reported retail new vehicle:
Revenue			$	72.5					$	13.0					$	59.5					458		%
Gross profit			$	14.3					$	2.7					$	11.6					430		%
Unit sales			3,894						579						3,315						573		%
Revenue per unit			$	18,618					$	22,553					$	(3,935)					(17)		%
Gross profit per unit			$	3,680					$	4,742					$	(1,062)					(22)		%
Gross profit as a % of revenue			19.8		%				21.0		%				(120)						bps

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SONIC AUTOMOTIVE, INC.

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

Reported Powersports Segment Retail New Vehicles – Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022

Reported retail new vehicle revenue increased approximately $16.2 million and reported retail new vehicle gross profit increased approximately $3.8 million, due primarily to the timing of acquisitions. Reported retail new vehicle gross profit per unit decreased $91 per unit, or 2%, to $4,213 per unit, due primarily to the timing of acquisitions and changes in brand mix.

Reported Powersports Segment Retail New Vehicles – Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022

Reported retail new vehicle revenue increased approximately $59.5 million and reported retail new vehicle gross profit increased approximately $11.6 million, due primarily to the timing of acquisitions. Reported retail new vehicle gross profit per unit decreased $1,062 per unit, or 22%, to $3,680 per unit, due primarily to the timing of acquisitions and changes in brand mix.

Used Vehicles – Powersports Segment

Our Powersports Segment reported retail used vehicle results were as follows:

			Three Months Ended September 30,												Better / (Worse)
			2023						2022						Change						% Change
			(In millions, except unit and per unit data)
Reported retail used vehicle:
Revenue			$	4.9					$	2.0					$	2.9					145		%
Gross profit			$	2.4					$	0.6					$	1.8					300		%
Unit sales			837						177						660						373		%
Revenue per unit			$	5,807					$	11,562					$	(5,755)					(50)		%
Gross profit per unit			$	2,833					$	3,328					$	(495)					(15)		%
Gross profit as a % of revenue			48.8		%				28.8		%				2,000						bps

			Nine Months Ended September 30,												Better / (Worse)
			2023						2022						Change						% Change
			(In millions, except unit and per unit data)
Reported retail used vehicle:
Revenue			$	17.1					$	5.0					$	12.1					242		%
Gross profit			$	4.7					$	1.4					$	3.3					236		%
Unit sales			1,972						353						1,619						459		%
Revenue per unit			$	8,683					$	14,144					$	(5,461)					(39)		%
Gross profit per unit			$	2,407					$	3,677					$	(1,270)					(35)		%
Gross profit as a % of revenue			27.7		%				26.0		%				170						bps

Reported Powersports Segment Retail Used Vehicles – Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022

Reported retail used vehicle revenue increased approximately $2.9 million and reported retail used vehicle gross profit increased approximately $1.8 million, due primarily to the timing of acquisitions. Reported retail used vehicle gross profit per unit decreased $495 per unit, or 15%, to $2,833 per unit, due primarily to the timing of acquisitions and changes in brand mix.

Reported Powersports Segment Retail Used Vehicles – Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022

Reported retail used vehicle revenue increased approximately $12.1 million and reported retail used vehicle gross profit increased approximately $3.3 million, due primarily to the timing of acquisitions. Reported retail used vehicle gross profit per unit decreased $1,270 per unit, or 35%, to $2,407 per unit, due primarily to the timing of acquisitions and changes in brand mix.

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SONIC AUTOMOTIVE, INC.

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

Wholesale Vehicles – Powersports Segment

Our Powersports Segment reported wholesale vehicle results were as follows: 

			Three Months Ended September 30,												Better / (Worse)
			2023						2022						Change						% Change
			(In millions, except unit and per unit data)
Reported wholesale vehicle:
Revenue			$	1.3					$	—					$	1.3					100		%
Gross profit (loss)			$	(0.1)					$	—					$	(0.1)					(100)		%
Unit sales			93						9						84						933		%
Revenue per unit			$	14,282					$	4,011					$	10,271					256		%
Gross profit (loss) per unit			$	(188)					$	—					$	(188)					(100)		%
Gross profit (loss) as a % of revenue			(1.3)		%				—		%				(130)						bps

			Nine Months Ended September 30,												Better / (Worse)
			2023						2022						Change						% Change
			(In millions, except unit and per unit data)
Reported wholesale vehicle:
Revenue			$	1.9					$	0.3					$	1.6					533		%
Gross profit (loss)			$	—					$	—					$	—					—		%
Unit sales			150						29						121						417		%
Revenue per unit			$	12,157					$	7,342					$	4,815					66		%
Gross profit (loss) per unit			$	(344)					$	(2,095)					$	1,751					84		%
Gross profit (loss) as a % of revenue			(2.8)		%				(1.0)		%				(180)						bps

Reported Powersports Segment Wholesale Vehicles – Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022

Reported wholesale vehicle revenue increased approximately $1.3 million, due to the timing of acquisitions. Reported wholesale vehicle gross profit decreased approximately $0.1 million.

Reported Powersports Segment Wholesale Vehicles – Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022

Reported wholesale vehicle revenue increased approximately $1.6 million, due to the timing of acquisitions. Reported wholesale vehicle gross profit was flat.

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SONIC AUTOMOTIVE, INC.

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

Fixed Operations – Powersports Segment

Our Powersports Segment reported Fixed Operations results were as follows:

			Three Months Ended September 30,												Better / (Worse)
			2023						2022						Change						% Change
			(In millions)
Reported Fixed Operations:
Revenue
Customer pay			$	4.5					$	1.6					$	2.9					181		%
Warranty			0.5						0.2						0.3						150		%
Wholesale parts			0.2						0.1						0.1						100		%
Internal, sublet and other			16.4						1.6						14.8						925		%
Total revenue			$	21.6					$	3.5					$	18.1					517		%
Gross profit
Customer pay			$	2.7					$	0.9					$	1.8					200		%
Warranty			0.3						0.2						0.1						50		%
Wholesale parts			—						—						—						—		%
Internal, sublet and other			7.2						0.7						6.5						929		%
Total gross profit			$	10.2					$	1.8					$	8.4					467		%
Gross profit as a % of revenue
Customer pay			59.7		%				57.4		%				230						bps
Warranty			56.5		%				65.9		%				(940)						bps
Wholesale parts			15.3		%				15.9		%				(60)						bps
Internal, sublet and other			43.9		%				43.8		%				10						bps
Total gross profit as a % of revenue			47.1		%				51.8		%				(470)						bps

			Nine Months Ended September 30,												Better / (Worse)
			2023						2022						Change						% Change
			(In millions)
Reported Fixed Operations:
Revenue
Customer pay			$	10.5					$	3.1					$	7.4					239		%
Warranty			1.3						0.4						0.9						225		%
Wholesale parts			0.5						0.1						0.4						400		%
Internal, sublet and other			26.3						1.6						24.7						NM
Total revenue			$	38.6					$	5.2					$	33.4					642		%
Gross profit
Customer pay			$	6.0					$	1.9					$	4.1					216		%
Warranty			0.7						0.3						0.4						133		%
Wholesale parts			0.1						—						0.1						100		%
Internal, sublet and other			11.7						0.5						11.2						NM
Total gross profit			$	18.5					$	2.7					$	15.8					585		%
Gross profit as a % of revenue
Customer pay			56.6		%				61.6		%				(500)						bps
Warranty			58.2		%				69.9		%				(1,170)						bps
Wholesale parts			17.9		%				15.5		%				240						bps
Internal, sublet and other			44.5		%				31.3		%				1,320						bps
Total gross profit as a % of revenue			47.8		%				51.1		%				(330)						bps

NM = Not Meaningful

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

Reported Powersports Segment Fixed Operations – Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022

Reported Fixed Operations revenue increased approximately $18.1 million and reported Fixed Operations gross profit increased approximately $8.4 million. Customer pay revenue increased approximately $2.9 million and customer pay gross profit increased approximately $1.8 million. Warranty revenue increased approximately $0.3 million and warranty gross profit increased approximately $0.1 million. Wholesale parts revenue increased approximately $0.1 million and wholesale parts gross profit was flat. Internal, sublet and other revenue increased approximately $14.8 million and internal, sublet and other gross profit increased approximately $6.5 million.

Reported Powersports Segment Fixed Operations – Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022

Reported Fixed Operations revenue increased approximately $33.4 million and reported Fixed Operations gross profit increased approximately $15.8 million. Customer pay revenue increased approximately $7.4 million and customer pay gross profit increased approximately $4.1 million. Warranty revenue increased approximately $0.9 million and warranty gross profit increased approximately $0.4 million. Wholesale parts revenue increased approximately $0.4 million and wholesale parts gross profit increased approximately $0.1 million. Internal, sublet and other revenue increased approximately $24.7 million and internal, sublet and other gross profit increased approximately $11.2 million.

F&I – Powersports Segment

Our Powersports Segment reported F&I results were as follows:

			Three Months Ended September 30,												Better / (Worse)
			2023						2022						Change						% Change
			(In millions, except unit and per unit data)
Reported F&I:
Revenue			$	2.4					$	0.9					$	1.5					167		%
Unit sales			2,228						667						1,561						234		%
Gross profit per retail unit (excludes fleet)			$	1,075					$	1,297					$	(222)					(17)		%

			Nine Months Ended September 30,												Better / (Worse)
			2023						2022						Change						% Change
			(In millions, except unit and per unit data)
Reported F&I:
Revenue			$	5.9					$	1.4					$	4.5					321		%
Unit sales			5,866			—			932			—			4,934						529		%
Gross profit per retail unit (excludes fleet)			$	1,006					$	1,445					$	(439)					(30)		%

Reported Powersports Segment F&I – Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022

Reported F&I revenue increased $1.5 million and reported F&I gross profit per retail unit decreased $222 per unit, or 17%, to $1,075 per unit, due primarily to changes in brand mix. The combined new and used vehicle finance contract penetration rate was 35%, the combined new and used vehicle service contract penetration rate was 22% and the total other aftermarket contract penetration rate was 29%.

Reported Powersports Segment F&I – Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022

Reported F&I revenue increased $4.5 million and reported F&I gross profit per retail unit decreased $439 per unit, or 30%, to $1,006 per unit, due primarily to changes in brand mix. The combined new and used vehicle finance contract penetration rate was 41%, the combined new and used vehicle service contract penetration rate was 25% and the total other aftermarket contract penetration rate was 39%.

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SONIC AUTOMOTIVE, INC.

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

Segment Results Summary

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

			Three Months Ended September 30,												Better / (Worse)
			2023						2022						Change						% Change
			(In millions, except unit data)
Segment Revenues:
Franchised Dealerships Segment revenues:
Retail new vehicles			$	1,546.7					$	1,359.6					$	187.1					14		%
Fleet new vehicles			23.2						32.0						(8.8)						(28)		%
Total new vehicles			1,569.9						1,391.6						178.3						13		%
Used vehicles			780.7						842.4						(61.7)						(7)		%
Wholesale vehicles			51.4						75.8						(24.4)						(32)		%
Parts, service and collision repair			431.8						404.7						27.1						7		%
Finance, insurance and other, net			126.0						125.8						0.2						—		%
Franchised Dealerships Segment revenues			$	2,959.8					$	2,840.3					$	119.5					4		%
EchoPark Segment revenues:
Retail new vehicles			$	—					$	1.6					$	(1.6)					(100)		%
Used vehicles			554.8						511.4						43.4						8		%
Wholesale vehicles			26.6						38.9						(12.3)						(32)		%
Finance, insurance and other, net			45.3						38.9						6.4						16		%
EchoPark Segment revenues			$	626.7					$	590.8					$	35.9					6		%
Powersports Segment revenues:
Retail new vehicles			$	26.8					$	10.6					$	16.2					153		%
Used vehicles			4.9						2.0						2.9						145		%
Wholesale vehicles			1.3						—						1.3						100		%
Parts, service and collision repair			21.6						3.5						18.1						517		%
Finance, insurance and other, net			2.4						0.9						1.5						167		%
Powersports Segment revenues			$	57.0					$	17.0					$	40.0					235		%
Total consolidated revenues			$	3,643.5					$	3,448.1					$	195.4					6		%
Segment Income (Loss) (1):
Franchised Dealerships Segment			$	101.5					$	146.3					$	(44.8)					(31)		%
EchoPark Segment			(16.9)						(31.1)						14.2						46		%
Powersports Segment			6.6						1.2						5.4						450		%
Income before taxes			$	91.2					$	116.4					$	(25.2)					(22)		%
Segment Retail New and Used Vehicle Unit Sales Volume:
Franchised Dealerships Segment			52,410						50,888						1,522						3		%
EchoPark Segment			19,050						15,290						3,760						25		%
Powersports Segment			2,228						667						1,561						234		%
Total retail new and used vehicle unit sales volume			73,688						66,845						6,843						10		%

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

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SONIC AUTOMOTIVE, INC.

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

			Nine Months Ended September 30,												Better / (Worse)
			2023						2022						Change						% Change
			(In millions, except unit data)
Segment Revenues:
Franchised Dealerships Segment revenues:
Retail new vehicles			$	4,550.9					$	4,047.1					$	503.8					12		%
Fleet new vehicles			70.4						70.0						0.4						1		%
Total new vehicles			4,621.3						4,117.1						504.2						12		%
Used vehicles			2,322.8						2,568.1						(245.3)						(10)		%
Wholesale vehicles			165.3						261.2						(95.9)						(37)		%
Parts, service and collision repair			1,289.0						1,183.4						105.6						9		%
Finance, insurance and other, net			375.4						382.1						(6.7)						(2)		%
Franchised Dealerships Segment revenues			$	8,773.8					$	8,511.9					$	261.9					3		%
EchoPark Segment revenues:
Retail new vehicles			$	1.0					$	7.3					$	(6.3)					(86)		%
Used vehicles			1,651.3						1,601.3						50.0						3		%
Wholesale vehicles			89.1						143.3						(54.2)						(38)		%
Finance, insurance and other, net			136.4						121.8						14.6						12		%
EchoPark Segment revenues			$	1,877.8					$	1,873.7					$	4.1					—		%
Powersports Segment revenues:
Retail new vehicles			$	72.5					$	13.0					$	59.5					458		%
Used vehicles			17.1						5.0						12.1						242		%
Wholesale vehicles			1.9						0.3						1.6						533		%
Parts, service and collision repair			38.6						5.2						33.4						642		%
Finance, insurance and other, net			5.9						1.4						4.5						322		%
Powersports Segment revenues			$	136.0					$	24.9					$	111.1					446		%
Total consolidated revenues			$	10,787.6					$	10,410.5					$	377.1					4		%
Segment Income (Loss) (1):
Franchised Dealerships Segment			$	357.2					$	472.2					$	(115.0)					(24)		%
EchoPark Segment			(116.5)						(100.6)						(15.9)						(16)		%
Powersports Segment			9.2						0.9						8.3						922		%
Total segment income (loss)			249.9						372.5						(122.6)						(33)		%
Impairment charges			(62.6)						—						(62.6)						100		%
Income before taxes			$	187.3					$	372.5					$	(185.2)					(50)		%
Segment Retail New and Used Vehicle Unit Sales Volume:
Franchised Dealerships Segment			154,611						155,066						(455)						—		%
EchoPark Segment			56,125						46,798						9,327						20		%
Powersports Segment			5,866						932						4,934						529		%
Total retail new and used vehicle unit sales volume			216,602						202,796						13,806						7		%

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

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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 generally 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 the 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. Typically, SG&A expenses as a percentage of gross profit are highest in the first quarter of the year, due to the seasonal nature of our business and the effects of certain payroll taxes and fringe benefits that occur early in the year.

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

			Three Months Ended September 30,												Better / (Worse)
			2023						2022						Change						% Change
			(In millions)
SG&A expenses:
Compensation			$	256.0					$	255.2					$	(0.8)					—		%
Advertising			22.5						21.1						(1.4)						(7)		%
Rent			11.7						11.9						0.2						2		%
Other			119.4						110.8						(8.6)						(8)		%
Total SG&A expenses			$	409.6					$	399.0					$	(10.6)					(3)		%
SG&A expenses as a % of gross profit:
Compensation			44.0		%				43.9		%				(10)						bps
Advertising			3.9		%				3.6		%				(30)						bps
Rent			2.0		%				2.1		%				10						bps
Other			20.5		%				19.1		%				(140)						bps
Total SG&A expenses as a % of gross profit			70.4		%				68.7		%				(170)						bps

			Nine Months Ended September 30,												Better / (Worse)
			2023						2022						Change						% Change
			(In millions)
SG&A expenses:
Compensation			$	775.8					$	774.1					$	(1.7)					—		%
Advertising			71.4						72.8						1.4						2		%
Rent			34.5						38.3						3.8						10		%
Other			332.5						303.6						(28.9)						(10)		%
Total SG&A expenses			$	1,214.2					$	1,188.8					$	(25.4)					(2)		%
SG&A expenses as a % of gross profit:
Compensation			45.5		%				44.5		%				(100)						bps
Advertising			4.2		%				4.2		%				—						bps
Rent			2.0		%				2.2		%				20						bps
Other			19.5		%				17.4		%				(210)						bps
Total SG&A expenses as a % of gross profit			71.2		%				68.3		%				(290)						bps

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SONIC AUTOMOTIVE, INC.

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

Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022

Overall SG&A expenses increased in both dollar amount and as a percentage of gross profit, primarily due to higher IT and salary expenses, $0.9 million in severance charges, and $3.9 million in lease exit charges. Compensation expense was flat in both dollar amount and as a percentage of gross profit. Advertising expense increased in both dollar amount and as a percentage of gross profit as a result of adapting our advertising spending to current retail automotive market conditions, including higher inventory availability and lower new vehicle gross profit levels. Rent expense decreased in both dollar amount and as a percentage of gross profit, primarily due to the purchase of several properties that were previously leased. Other SG&A expenses increased in both dollar amount and as a percentage of gross profit, primarily due to higher IT expenses, $0.9 million in severance charges, and $3.9 million in lease exit charges.

Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022

Overall SG&A expenses increased in both dollar amount and as a percentage of gross profit, primarily due to higher IT and salary expenses, $3.1 million in severance charges, $3.9 million in lease exit charges and $1.9 million in hail damage, offset partially by a $20.7 million gain on the disposal of franchises. Compensation expense was flat in dollar amount and increased as a percentage of gross profit primarily due to lower new vehicle gross profit and lower new vehicle gross profit per unit. Advertising expense decreased in dollar amount and was flat as a percentage of gross profit as a result of adapting our advertising spending to the current retail automotive environment. Rent expense decreased in both dollar amount and as a percentage of gross profit, primarily due to the purchase of several properties that were previously leased. Other SG&A expenses increased in both dollar amount and as a percentage of gross profit, primarily due to higher IT expenses, $3.1 million in severance charges, $3.9 million in lease exit charges and $1.9 million in hail damage, offset partially by a $20.7 million gain on the disposal of franchises.

Impairment Charges – Consolidated

There were no impairment charges for the three months ended September 30, 2023. Impairment charges were approximately $62.6 million for the nine months ended September 30, 2023, related to fixed assets, lease right-of-use assets, and other contractual obligations related to abandoned property as a result of our decisions to indefinitely suspend operations at certain EchoPark locations and to close certain Northwest Motorsport stores during the second and third quarters of 2023. There were no impairment charges for the three and nine months ended September 30, 2022.

Depreciation and Amortization – Consolidated

Depreciation and amortization expense increased approximately $2.4 million, or 7%, and $11.7 million, or 12%, during the three and nine months ended September 30, 2023, respectively, due primarily to acquisitions and completed construction projects and purchases of fixed assets for use in our franchised dealerships and EchoPark stores.

Interest Expense, Floor Plan – Consolidated

We typically maintain a floor plan deposit balance (as shown in the table below under the heading “Liquidity and Capital Resources”) that earns interest income based on the agreed upon floor plan interest rate, effectively reducing the net used vehicle floor plan interest expense. The below discussion of interest expense, floor plan includes the effect of interest income earned on the floor plan deposit balance, unless otherwise noted. Our interest expense, floor plan fluctuates with changes in our outstanding borrowing and associated interest rates, which are variable based on SOFR or the U.S. prime rate, plus a rate spread.

Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022

Interest expense, floor plan for new vehicles increased approximately $9.0 million. The average interest rate applied to the new vehicle floor plan increased in the three months ended September 30, 2023, resulting in $6.5 million of the overall increase. The average new vehicle floor plan notes payable balance increased approximately $319.8 million, which resulted in $2.5 million of the overall increase.

Interest expense, floor plan for used vehicles decreased approximately $1.2 million including the effect of interest income earned on the floor plan deposit balance which caused $4.2 million of this decrease. Excluding the effect of interest income earned on the floor plan deposit balance, interest expense, floor plan for used vehicles increased approximately $3.0 million. Excluding the effect of interest income earned on the floor plan deposit balance, the average interest rate applied to the used vehicle floor plan increased in the three months ended September 30, 2023, driving $3.4 million of the overall increase.

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SONIC AUTOMOTIVE, INC.

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

The average used vehicle floor plan notes payable balance decreased approximately $42.4 million, which reduced used vehicle floor plan interest expense by approximately $0.4 million.

Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022

Interest expense, floor plan for new vehicles increased approximately $26.6 million. The average interest rate applied to the new vehicle floor plan increased in the nine months ended September 30, 2023, resulting in $22.3 million of the overall increase. The average new vehicle floor plan notes payable balance increased approximately $271.3 million, which resulted in $4.3 million of the overall increase.

Interest expense, floor plan for used vehicles increased approximately $1.6 million, including the effect of interest income earned on the floor plan deposit balance which reduced the increase by approximately $11.7 million. Excluding the effect of interest income earned on the floor plan deposit balance, interest expense, floor plan for used vehicles increased approximately $13.3 million. Excluding the effect of interest income earned on the floor plan deposit balance, the average interest rate applied to the used vehicle floor plan increased in the nine months ended September 30, 2023, resulting in $15.3 million of the overall increase. The average used vehicle floor plan notes payable balance decreased approximately $79.7 million, which reduced used vehicle floor plan interest expense by approximately $2.0 million.

Interest Expense, Other, Net – Consolidated

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

			Three Months Ended September 30,												Better / (Worse)
			2023						2022						Change						% Change
			(In millions)
Stated/coupon interest			$	22.9					$	18.0					$	(4.9)					(27)		%
Deferred loan cost amortization			1.6						1.5						(0.1)						(7)		%
Interest rate hedge expense (benefit)			0.2						—						(0.2)						(100)		%
Capitalized interest			(0.5)						(0.2)						0.3						150		%
Interest on finance lease liabilities			4.8						3.7						(1.1)						(30)		%
Other interest			—						(0.1)						(0.1)						(100)		%
Total interest expense, other, net			$	29.0					$	22.9					$	(6.1)					(27)		%

			Nine Months Ended September 30,												Better / (Worse)
			2023						2022						Change						% Change
			(In millions)
Stated/coupon interest			$	68.3					$	52.0					$	(16.3)					(31)		%
Deferred loan cost amortization			4.9						3.8						(1.1)						(29)		%
Interest rate hedge expense (benefit)			0.9						0.7						(0.2)						(29)		%
Capitalized interest			(1.6)						(1.0)						0.6						60		%
Interest on finance lease liabilities			13.7						9.3						(4.4)						(47)		%
Other interest			—						0.3						0.3						100		%
Total interest expense, other, net			$	86.2					$	65.1					$	(21.1)					(32)		%

Interest expense, other, net increased approximately $6.1 million, or 27%, during the three months ended September 30, 2023 and increased approximately $21.1 million, or 32%, during the nine months ended September 30, 2023. These increases were primarily related to higher interest rates on variable rate mortgage debt and higher interest on finance lease liabilities as a result of a rising interest rate environment, combined with increased borrowings under the 2019 Mortgage Facility.

Income Taxes

The overall effective income tax rate was 25.0% and 25.5% for the three and nine months ended September 30, 2023, respectively, and 25.0% for both the three and nine months ended September 30, 2022. Sonic’s effective income 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.

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SONIC AUTOMOTIVE, INC.

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

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 September 30, 2023 and expect to be in compliance for at least the next 12 months. We closely monitor our available liquidity and projected future operating results in order to remain in compliance with the restrictive covenants under the 2021 Credit Facilities, the 2019 Mortgage Facility, the indentures governing the 4.625% Notes and the 4.875% 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 September 30, 2023, we had approximately $245.7 million of net income and retained earnings free of such restrictions. Cash flows provided by our dealerships are derived from various sources. The primary sources include individual consumers, automobile manufacturers, automobile manufacturers’ 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, their contractual obligations and capital requirements, and their ability to provide us with cash.

We had the following liquidity resources available as of September 30, 2023 and December 31, 2022:

			September 30, 2023						December 31, 2022
			(In millions)
Cash and cash equivalents			$	34.6					$	229.2
Floor plan deposit balance			300.0						272.0
Availability under the 2021 Revolving Credit Facility			288.9						292.9
Availability under the 2019 Mortgage Facility			173.0						—
Total available liquidity resources			$	796.5					$	794.1

We maintain a floor plan deposit balance (as shown in the table above) that offsets interest based on the agreed upon floor plan interest rate, effectively reducing the net used vehicle 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 $300.0 million as of September 30, 2023 and $272.0 million as of December 31, 2022 are classified as other current assets in the accompanying unaudited condensed consolidated balance sheets as of September 30, 2023 and December 31, 2022.

Floor Plan Facilities

We finance all of our new and certain of our used vehicle inventory through standardized floor plan facilities with (1) certain manufacturer captive finance companies (classified as notes payable - floor plan - trade in the accompanying unaudited condensed consolidated balance sheets) and (2) a syndicate of manufacturer-affiliated finance companies and commercial banks (classified as notes payable - floor plan - non-trade in the accompanying unaudited condensed consolidated balance sheets). These floor plan facilities are due on demand and currently bear interest at variable rates based on either one-month Term SOFR or prime plus an additional spread, as applicable. The weighted-average interest rate for our combined new and used vehicle floor plan facilities was 4.96% and 3.42% for the three months ended September 30, 2023 and 2022, respectively, and 4.87% and 2.40% for the nine months ended September 30, 2023 and 2022, respectively. Excluding the effect of interest income earned on the floor plan deposit balance, the weighted-average interest rate for our combined new and used vehicle floor plan facilities was 6.39% and 3.73% for the three months ended September 30, 2023 and 2022, respectively, and 6.24% and 2.64% for the nine months ended September 30, 2023 and 2022, 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 $14.7 million and $12.6 million in manufacturer assistance in the three months ended September 30, 2023 and 2022, respectively, and approximately $42.9 million and $38.1 million in manufacturer assistance in the nine months ended September 30, 2023 and 2022, respectively. We recognized in cost of sales approximately $14.5 million and

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SONIC AUTOMOTIVE, INC.

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

$13.9 million in manufacturer assistance in the three months ended September 30, 2023 and 2022, respectively, and approximately $42.3 million and $39.4 million in manufacturer assistance in the nine months ended September 30, 2023 and 2022, 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, mortgage notes and credit facilities and compliance with debt covenants.

Capital Expenditures

Our capital expenditures include the purchase of land and buildings, the construction of new franchised dealerships, EchoPark and powersports stores and collision repair centers, building improvements and equipment purchased for use in our franchised dealerships and EchoPark and powersports stores. We selectively construct new or improve existing franchised 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 nine months ended September 30, 2023 were approximately $153.6 million, including approximately $137.3 million related to our Franchised Dealerships Segment, approximately $14.1 million related to our EchoPark Segment and approximately $2.2 million related to our Powersports Segment. Of the total capital expenditures, approximately $71.1 million was related to facility construction projects, approximately $14.0 million was related to acquisitions of real estate (land and buildings) and approximately $68.5 million was for other fixed assets utilized in our operations.

All of the $153.6 million in gross capital expenditures in the nine months ended September 30, 2023 was funded through existing cash balances. As of September 30, 2023, commitments for facility construction projects totaled approximately $40.9 million, nearly all of which is expected to be completed in the next 12 months.

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 months ended September 30, 2023, we repurchased approximately 1.7 million shares of our Class A Common Stock for approximately $86.7 million in open-market transactions at prevailing market prices and in connection with tax withholding on the vesting of equity compensation awards. During the nine months ended September 30, 2023, we repurchased approximately 3.3 million shares of our Class A Common Stock for approximately $177.5 million in open-market transactions at prevailing market prices and in connection with tax withholding on the vesting of equity compensation awards. As of September 30, 2023, our total remaining share repurchase authorization was approximately $286.8 million. Under the 2021 Credit Facilities, share repurchases are permitted to the extent that no Event of Default exists and we do not exceed the restrictions set forth in our debt agreements. After giving effect to the applicable restrictions on share repurchases and certain other transactions under our debt agreements, as of September 30, 2023, we had approximately $245.7 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 by our Board of Directors and management to be 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 September 30, 2023, our Board of Directors approved a cash dividend of $0.29 per share on all outstanding shares of Class A and Class B Common Stock as of September 15, 2023, which was paid on October 13, 2023. Subsequent to September 30, 2023, our Board of Directors approved a cash dividend of $0.30 per share on all outstanding shares of Class A and Class B Common Stock as of December 15, 2023 to be paid on January 12, 2024. The 2021 Credit Facilities permit quarterly cash dividends on our Class A and Class B Common Stock up to $0.12 per share so long as no Event of Default has occurred and is continuing and provided that we remain in compliance with all financial covenants under the 2021 Credit Facilities. Additional dividends are permitted subject to the limitations on restricted payments set forth in the 2021 Credit Facilities. The 2029 Indenture and the 2031 Indenture also contain restrictions on our ability to pay dividends. After giving effect to the applicable restrictions on share repurchases and certain other transactions under our debt agreements, as of September 30, 2023, we had approximately $245.7 million of net income and retained earnings free of such restrictions. The

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

declaration and 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 and covenant compliance, share repurchases, the current economic environment and other factors considered by our Board of Directors to be relevant. These factors are considered each quarter and will be scrutinized as our Board of Directors determines our dividend policy in the future. There is no guarantee that additional dividends will be declared and paid at any time in the future. See Note 6, “Long-Term Debt,” to the accompanying unaudited condensed consolidated financial statements for a description of restrictions on the payment of dividends.

Cash Flows

Cash Flows from Operating Activities – Net cash provided by operating activities in the nine months ended September 30, 2023 was approximately $104.2 million. This provision of cash was comprised primarily of net income less non-cash items, a decrease in receivables, an increase in trade accounts payable and other liabilities and an increase in notes payable – floor plan – trade, offset partially by an increase in inventories. Net cash provided by operating activities in the nine months ended September 30, 2022 was approximately $645.4 million. This provision of cash was comprised primarily of net income less non-cash items, a decrease in inventories, a decrease in receivables, and an increase in notes payable – floor plan – trade, offset partially by a decrease in trade accounts payable and other liabilities.

Cash Flows from Investing Activities – Net cash used in investing activities in the nine months ended September 30, 2023 was approximately $171.4 million. This use of cash was comprised primarily of the purchase of a powersports business (including real property), net of cash acquired, and purchases of land, property and equipment, partially offset by the proceeds from the sale of four franchised dealerships. Net cash used in investing activities in the nine months ended September 30, 2022 was approximately $276.1 million. This use of cash was comprised primarily of purchases of land, property and equipment and purchases of businesses, net of cash acquired.

Cash Flows from Financing Activities – Net cash used in financing activities in the nine months ended September 30, 2023 was approximately $127.4 million. This use of cash was comprised primarily of purchases of treasury stock and payments on long-term debt, offset partially by net borrowings on notes payable – floor plan – non-trade. Net cash used in financing activities in the nine months ended September 30, 2022 was approximately $529.7 million. This use of cash was comprised primarily of net repayments on notes payable – floor plan – non-trade, purchases 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 in the accompanying unaudited condensed consolidated balance sheets as notes payable - floor plan - trade (with the change in balance being reflected in operating cash flows). Our dealerships that obtain floor plan financing from a syndicate of manufacturer-affiliated finance companies and commercial banks record their obligation in the accompanying unaudited condensed consolidated balance sheets as notes payable - floor plan - non-trade (with the change in balance being reflected in 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 provided by combined trade and non-trade floor plan financing was approximately $159.8 million in the nine months ended September 30, 2023. Net cash used in combined trade and non-trade floor plan financing was approximately $213.5 million in the nine months ended September 30, 2022. Accordingly, if all changes in floor plan notes payable were classified as an operating activity (to align changes in floor plan liability balances with the associated changes in inventory balances for cash flow classification), the result would have been net cash provided by operating activities of approximately $257.7 million in the nine months ended September 30, 2023 and net cash provided by operating activities of approximately $426.6 million in the nine months ended September 30, 2022.

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

One metric that management uses to measure operating performance is Adjusted EBITDA, a non-GAAP financial measure, for each of the Company’s reportable segments and on a consolidated basis. This non-GAAP financial measure is reconciled to net income (the most directly comparable GAAP financial measure) in the table below:

			Three Months Ended September 30, 2023																								Three Months Ended September 30, 2022
			Franchised Dealerships Segment						EchoPark Segment						Powersports Segment						Total						Franchised Dealerships Segment						EchoPark Segment						Powersports Segment						Total
			(In millions)
Net income																					$	68.4																							$	87.3
Provision for income taxes																					22.8																								29.1
Income (loss) before taxes			$	101.5					$	(16.9)					$	6.6					$	91.2					$	146.3					$	(31.1)					$	1.2					$	116.4
Non-floor plan interest (1)			26.2						0.7						0.4						27.3						19.9						1.1						0.4						21.4
Depreciation & amortization (2)			29.9						6.1						0.9						36.9						27.3						6.7						0.3						34.3
Stock-based compensation expense			6.7						—						—						6.7						3.8						—						—						3.8
Loss (gain) on exit of leased dealerships			—						3.9						—						3.9						—						—						—						—
Severance and long-term compensation charges			—						0.9						—						0.9						—						—						—						—
Acquisition and disposition related (gain) loss			0.2						0.1						—						0.3						0.5						—						—						0.5
Adjusted EBITDA (3)			$	164.5					$	(5.2)					$	7.9					$	167.2					$	197.8					$	(23.3)					$	1.9					$	176.4

(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.

(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 debt discount amortization, net of premium and other amortization.

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

			Nine Months Ended September 30, 2023																								Nine Months Ended September 30, 2022
			Franchised Dealerships Segment						EchoPark Segment						Discontinued Operations						Total						Franchised Dealerships Segment						EchoPark Segment						Discontinued Operations						Total
			(In millions)
Net income																					$	139.5																							$	279.4
Provision for income taxes																					47.8																								93.1
Income (loss) before taxes			$	357.2					$	(179.1)					$	9.2					$	187.3					$	472.2					$	(100.6)					$	0.9					$	372.5
Non-floor plan interest (1)			77.4						2.5						1.6						81.5						58.0						3.0						0.2						61.2
Depreciation & amortization (2)			87.6						20.4						2.4						110.4						79.6						17.6						0.5						97.7
Stock-based compensation expense			17.3						—						—						17.3						12.4						—						—						12.4
Loss (gain) on exit of leased dealerships			—						4.3						—						4.3						—						—						—						—
Impairment charges			—						62.6						—						62.6						—						—						—						—
Severance and long-term compensation charges			—						5.1						—						5.1						4.4						—						—						4.4
Acquisition and disposition related (gain) loss			(20.7)						0.3						—						(20.4)						(0.5)						—						—						(0.5)
Hail and storm damage charges			1.9						—						—						1.9						—						—						—						—
Used vehicle inventory valuation adjustment			—						10.0						—						10.0						—						—						—						—
Adjusted EBITDA (3)			$	520.7					$	(73.9)					$	13.2					$	460.0					$	626.1					$	(80.0)					$	1.6					$	547.7

(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.

(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 debt discount amortization, net of premium and other amortization.

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

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

Seasonality

Our operations are subject to seasonal variations. Due in part to our brand mix and the seasonal nature of automotive retail, 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. Due to the abnormal effects of the COVID-19 pandemic on the automotive supply chain and inventory levels, in addition to the effects of a potential economic recession, this historical seasonality did not play out in 2022 and may not hold true for the year ending December 31, 2023. 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.

Future Liquidity Outlook

We believe our best sources of liquidity for operations and debt service remain cash flows generated from operations combined with the availability of borrowings under our floor plan facilities (or any replacements thereof), the 2021 Credit Facilities (or any replacements thereof), the 2019 Mortgage Facility (or any replacements thereof) and real estate mortgage financing, selected dealership and other asset sales and our ability to raise funds in the capital markets through offerings of debt or equity securities. Because the majority of our consolidated assets are held by our dealership subsidiaries, the majority of our cash flows from operations are generated by these subsidiaries. As a result, our cash flows and our ability to service our obligations depend to a substantial degree on the results of operations of these subsidiaries, their contractual obligations and capital requirements, and their ability to provide us with cash.

We do not currently anticipate any materially negative changes to our cost of, or access to, capital over the next 12 months.

Off-Balance Sheet Arrangements

Guarantees and Indemnification Obligations

In connection with the operation and disposition of our dealerships, we have entered into various guarantees and indemnification obligations. When we sell dealerships, we attempt to assign any related lease to the buyer of the dealership to eliminate any future liability. However, if we are unable to assign the related leases to the buyer, we will attempt to sublease the leased properties to the buyer at a rate equal to the terms of the original leases. In the event we are unable to sublease the properties to the buyer with terms at least equal to our leases, we may be required to record lease exit accruals. As of September 30, 2023, our future gross minimum lease payments related to properties subleased to buyers of sold dealerships totaled approximately $8.0 million. Future sublease payments expected to be received related to these lease payments were approximately $7.9 million at September 30, 2023.

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 is difficult to quantify, our maximum exposure associated with these general indemnifications was approximately $8.0 million as of September 30, 2023 and there was not any material exposure with respect to these indemnifications as of December 31, 2022. 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 September 30, 2023.

We also guarantee the floor plan commitments of our 50%-owned joint venture, and the amount of such guarantee at both September 30, 2023 and December 31, 2022 was approximately $4.3 million. We expect the aggregate amount of the obligations we guarantee to fluctuate based on dealership disposition activity. Although we seek to mitigate our exposure in connection with these matters, these guarantees and indemnification obligations, including environmental exposures and the financial performance of lease assignees and sublessees, cannot be predicted with certainty. An unfavorable resolution of one or more of these matters could have a material adverse effect on our liquidity and capital resources.

See Note 7, “Commitments and Contingencies,” to the accompanying unaudited condensed consolidated financial statements and Note 12, “Commitments and Contingencies,” to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2022 for further discussion regarding these guarantees and indemnification obligations.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Interest Rate Risk

Our variable rate floor plan facilities, the 2021 Revolving Credit Facility, the 2019 Mortgage Facility and our other variable rate notes expose us to risks caused by fluctuations in the applicable interest rates. The total net outstanding balance of our variable rate instruments was approximately $1.5 billion at September 30, 2023. A decrease of 100 basis points in the underlying interest rates would have reduced interest expense by approximately $10.0 million while a 100-basis point rise in rates would have increased interest expense by approximately $7.4 million for the nine months ended September 30, 2023. Of those changes, approximately $7.0 million of the decrease and approximately $4.5 million of the increase would have resulted from floor plan net of offset. The difference between these amounts results from the mitigating effect of our interest rate hedges.

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. To the extent that we cannot recapture this exchange rate volatility in prices charged to customers or if this volatility negatively impacts consumer demand for our products, this volatility could adversely affect our future operating results.

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Item 4. Controls and Procedures.

Disclosure Controls and Procedures – Under the supervision and with the participation of our management, including our Chief Executive Officer (“CEO”) and 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) as of September 30, 2023. Based upon that evaluation, our CEO and our CFO concluded that our disclosure controls and procedures were effective as of September 30, 2023.

Changes in Internal Control Over Financial Reporting – There were no changes in our internal control over financial reporting during the quarter ended September 30, 2023, 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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PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

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

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Item 1A. Risk Factors.

There have been no material changes in our risk factors from those included in “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022.

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Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities.

The following table sets forth information about the shares of Class A Common Stock we repurchased during the three months ended September 30, 2023;

			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 millions, except per share data)
July 2023			—						$	—					—						$	373.5
August 2023			1.1						$	50.87					1.1						$	314.5
September 2023			0.5						$	52.51					0.5						$	286.8
Total			1.7												1.7

(1)On July 28, 2022, 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 millions)
July 2022 authorization			$	500.0
Total active program repurchases prior to September 30, 2023			(213.2)
Current remaining availability as of September 30, 2023			$	286.8

See “Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations” for additional discussion of restrictions on share repurchases and payment of dividends.

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Item 5. Other Information.

Insider Trading Arrangements

During the quarter ended September 30, 2023, none of our directors or officers (as defined in Rule 16a-1(f) of the Securities Exchange Act of 1934, as amended) adopted, modified or terminated a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement” (as each term is defined in Item 408 of Regulation S-K).

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Item 6. Exhibits.

Exhibit No.						Description
3.1						Amended and Restated Certificate of Incorporation of Sonic Automotive, Inc., dated August 7, 1997 (incorporated by reference to Exhibit 3.1 to the Annual Report on Form 10-K for the year ended December 31, 2020 (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						Certificate of Amendment to the Amended and Restated Certificate of Incorporation of Sonic Automotive, Inc., dated May 16, 2023 (incorporated by reference to Exhibit 3.6 to the Quarterly Report on Form 10-Q for the quarter ended June 30, 2023 (File No. 001-13395))
3.7						Amended and Restated Bylaws of Sonic Automotive, Inc., dated February 10, 2021 (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed February 12, 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.
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.

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SIGNATURES

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

			SONIC AUTOMOTIVE, INC.
October 26, 2023			By:			/s/ DAVID BRUTON SMITH
						David Bruton Smith
						Chairman and Chief Executive Officer
October 26, 2023			By:			/s/ HEATH R. BYRD
						Heath R. Byrd
						Executive Vice President and Chief Financial Officer

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