Jeff Dyke, president of Sonic Automotive Inc., said the publicly traded megadealer chain, based in Charlotte, North Carolina, will start rebuilding its EchoPark network of used-only dealerships – with some revisions.
Sonic closed many EchoPark locations starting in 2023, in response to the shortage of late-model used cars brought on by the COVID-19 pandemic and its aftermath. The used-car brand also started offering older used vehicles than it originally intended, since prices for “nearly new” used cars got so high.
Today, market conditions are improved for EchoPark. The volume of lease returns is recovering, reflecting a comeback in new-vehicle leasing beginning three years ago. In addition, demand for used vehicles is growing as customers avoid sky-high new-car prices.
For a change, Sonic plans to source some of its EchoPark inventory from Sonic’s franchised, new-vehicle dealerships, and rely less on wholesale auctions and off-rental fleets. Dyke says EchoPark will also grow more conservatively – at a pace dictated by available, used-car inventory.
Editor’s note: This interview was edited for brevity and clarity.
Sonic said in its latest quarterly conference call that it’s time to build EchoPark back up again. Can you discuss where you can grow?
Dyke: We started EchoPark in 2014, in the Denver market. It grew all the way to March 2020 – when COVID hit. But when EchoPark got started, and really got rolling, it was selling huge volume.
And the prime target for EchoPark inventory was off-lease cars, “nearly-new” cars?
Dyke: We focused on 1- to 4-year-old cars, under 50,000 miles. But when COVID hit, all new-car inventory dried up. And then nearly-new dried up – it was literally gone. We couldn’t buy ‘em.
How come all those no-longer-active locations didn’t cost you a ton of money, even after they were closed?
Dyke: Our model was a hub-and-spoke model. The hubs are big stores, like our store in North Houston. It’ll hold 1,500 cars, plus reconditioning – a lot of inventory. We used that big store to produce inventory for what we call delivery centers in smaller towns – smaller than we could afford to put a big hub in the town, but big enough that the town needed exposure to the EchoPark brand.
One money-saver was that some of those added EchoPark locations were retrofits, in former big-box retail stores, correct?
Dyke: We found we could spend $50,000, $75,000 getting signage up, and putting I.T. in. You could lease those for two years, or three years. … We built ourselves a little flexibility.
So, when you needed flexibility, the delivery centers were the first thing to go?
Dyke: If we had about 50 stores, we had roughly 20 big hubs and 30 delivery centers. We ended the leases and got rid of the delivery centers. So now, we’re down to 17 hubs.
The EchoPark stores that are operating are doing much better since you shrank the EchoPark network, right?
Dyke: After COVID, when inventory started to come back, I found I could buy enough inventory for the 17 locations. Right now, I could probably buy enough inventory to supply, maybe, 25 locations, but not 50.
You stressed in your recent conference call you would take it slow, building EchoPark back up.
Dyke: We’re going to be conservative. … What you will see us do is, we will open one or two EchoPark hub-type locations at the end of 2026. By September, October, November, December, somewhere in there, I would bet we get two new locations open, and on an annual basis, three to five stores a year. I could add 10 stores, but I’m not, not right away.
How hard — how expensive — will it be, opening up new EchoPark stores?
Dyke: It’s not going to be very difficult for us to get back into the growth mode, once there’s inventory – enough of it to support the stores we open.
Meanwhile, how are Sonic’s franchised, new-car stores doing?
Dyke: The franchised stores are doing great – quarterly all-time revenue; new, used, Fixed Ops, and F&I growth. … You couldn’t put the numbers on the page any better. We were on fire in Q3. The one blip on the screen was EchoPark. And we still make great money in EchoPark, in the stores where we’re operating.
What’s changed? The return of lease maturities?
Dyke: You will see a lot more off-lease cars … starting towards the end of next year. Towards 2027, it’s gangbusters.
What are the lessons learned from EchoPark?
Dyke: We just had a big EchoPark strategy meeting three weeks ago. The hub stores are beautiful, real nice. Going forward, we want EchoPark to be sort of the Costco of auto retail. … One of the lessons learned is, we are going to build a much cheaper facility – not necessarily cheaper-looking. But it’s going to be much more plain. We still want to provide a great customer experience. … EchoPark by far has the highest guest satisfaction score in the industry.
It sounds like EchoPark has evolved. Its locations didn’t used to source used vehicles from Sonic new-vehicle dealerships. But I take it, you’re going to start doing that?
Dyke: We still believe in the hub-and-spoke model … But you’re right. There has been a wall, as you say, between the franchise stores and EchoPark. The original thinking was, we wanted EchoPark to stand on its own two feet. But it is evolving. In the future, you will see the franchise stores be a little more of an inventory factory for the EchoPark stores. We’re getting to work on how we can take some of the loaner cars and the right types of excess inventory … and use that to support the nearly-new model [at EchoPark].
