Sonic's Q3 operating profit stable on rising revenue

Sonic Automotive Inc. reported steady third-quarter operating profit, and higher profit margins, as it continued to improve implementation of its True Price Strategy, which aims to limit negotiations on new-car purchases.Sonic did not yet release its net income for the third quarter in today’s report. The company said today it was waiting to calculate a newly identified tax gain, related to the extinguishment of certain convertible notes, before it would release those figures.Sonic’s operating profit, though, was essentially unchanged from a year earlier at $57.8 million, even as revenue rose 5 percent to $2.24 billion. In the second quarter, Sonic’s net plunged 68 percent, due to charges associated with retiring debt plus complications in rolling out True Price.True Price sets vehicle prices within $300 of the lowest acceptable transaction price. The program was rolled out to all of Sonic’s dealerships during the first quarter.The company said about 15 percent of the company’s 105 stores were still struggling with the True Price model. In the second quarter, about one-third of all stores had trouble with the change.Margins upSonic’s retail new-vehicle margin was 5.9 percent, up from 5.7 in the year-earlier period. Its used-vehicle margin was 7 percent, up from 6.7 percent.The company’s new-vehicle margins increased by about $100 per car, said Jeff Dyke, Sonic’s executive vice president of retail operations.“That’s millions and millions of dollars worth of gross for the company, and it helped our overall performance for the quarter,” he told Automotive News.The third-largest dealership group in the country also reported that it spent slightly more in the third quarter on operations. Sonic said operations expenses were 78.1 percent of gross profit, an increase from 77.3 percent in the year prior period.The company said roughly three-quarters of its operations costs in the third quarter went to implementing new initiatives, such as the “One Sonic-One Experience” customer service plan it also unveiled today.Tech spending payoffThe company said it has invested more than $45 million over the past four years -- and $1.5 million in the last quarter -- to launch the One Sonic-One Experience initiative. It will feature new technology to improve inventory management, pricing and customer relations.The program is expected to launch in mid-2014, Sonic said. The goal of the program is to streamline the process for buying vehicles. Sonic said it expects the program to allow customers to go through the purchasing process in less than 45 minutes once they’ve selected the vehicle they would like to buy.Sonic has spent years working to develop and upgrade its technology. President Scott Smith said One Sonic-One Experience is what the improvements were building toward.“It’s the brains and the logic behind it,” Smith told Automotive News.Sub-brandingAs part of One Sonic-One Experience, the company also plans to improve its branding and include Sonic as part of all its dealership names. But the company said what it called a “sub-branding” won’t be similar to the national branding push by rival AutoNation Inc.“Where you see AutoNation putting their name real big all over their facility -- that competes with the OEM brands. You won’t see us doing that,” Dyke said on a conference call with investors. “We’re going to stick with the names that we have in the local communities, where we’ve invested in those names.”The Sonic name will be added to the existing dealership name.Dyke said the company is in negotiations with automakers to implement the sub-branding strategy, and the company expects to begin to roll out the new strategy in mid-2014 when it launches One Sonic-One Experience.Sonic also said it plans to open new dedicated used-vehicle stores, with the first slated to open in the Denver area in late 2014.

Sonic's Q3 operating profit stable on rising revenue

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