New-car dealership chain Sonic Automotive Inc. unveiled a much more ambitious game plan for its EchoPark brand of standalone used-car dealerships.
“EchoPark continues to outperform our expectations,” said CEO David Smith, in a conference call to announce second-quarter results on July 30.
Smith said Sonic now plans to open “140-plus” EchoPark locations nationwide by 2025, up from just 10 today, and much bigger than a previously announced five-year plan of “at least 25.”
The move is part of a trend where some of the nation’s biggest auto retail groups are creating networks of branded, nationwide used-car locations. That’s for several reasons.
First and foremost, used cars command higher profit margins than new. Second, even before the coronavirus, new-vehicle sales were expected to experience a cyclical downturn.
Also, high new-car prices are driving many shoppers to buy used instead, even if they could afford new. In addition, high unemployment because of the pandemic has accelerated the trend to used vehicles. Finally, in the short term new vehicles are in short supply, also thanks to the pandemic.
The EchoPark concept has evolved since Sonic launched it in 2014. The latest development is that Sonic is adopting a structure of regional, somewhat more full-service EchoPark “hubs.” In turn, the hubs will have satellite “delivery and buy” centers.
At the relatively bare-bones delivery and buy centers, customers can take delivery of a car or truck they bought online. If they have a trade-in, they can also sell it at the center. Customers could also sell a used car, without buying a car from EchoPark, the company said.
The EchoPark hub locations also buy and sell cars, and also recondition used cars taken in trade or bought at auctions. Reconditioned cars are retailed in the EchoPark network, or potentially at Sonic new-vehicle dealerships, Sonic said.
Price is not negotiable at EchoPark locations. Nor do the EchoPark locations offer service and parts. EchoPark locations can and do refer service customers to Sonic Automotive’s full-service, franchised new-car dealerships if one is nearby, Smith said.
Previously, Sonic planned to build bigger EchoPark locations on greenfield sites, offering a lot more extra services, like free delivery to the customer’s location, free “fancy” coffee and other customer perks that added up to a lot of unnecessary cost, Smith said in a phone interview following up on the conference call.
“We basically said yes to everything,” he said. “But the expenses get out of line, and customers and not willing to pay for all that stuff.”
The first thing to go was the greenfield sites, Smith said. “We can take an existing old dealership, or an existing old facility, maybe a Big Box store, and turn it into a sales center and reconditioning center,” he said.
It’s even cheaper to build or retrofit a satellite delivery and buy center, where a customer can take delivery of a car or truck they purchased online, and-or sell their trade-in, Smith said.
Sonic President Jeff Dyke said in the conference call the company estimates it can add around 20 EchoPark delivery and buy centers per year, and around three to five EchoPark hub locations.
Dyke said free delivery to the customer’s location is not part of the plan, partly because it’s expensive, and partly Sonic believes customers want a knowledgeable person to acquaint them with their new purchase, instead of a driver who merely drops off the keys.
“No, we’re not going to deliver the last mile,” he said. “That’s where you add a lot of complexity, and a lot of cost.”