Sonic Automotive Inc Q4 FY2025 Earnings Call

Good morning, and welcome to the Sonic Automotive Fourth Quarter 2025 Earnings Conference Call. This conference call is being recorded today, Wednesday, February 18, 2026. Presentation materials, which accompany management's discussion on the conference call can be accessed at the company's website at ir.sonicautomotive.com. At this time, I would like to refer to the safe harbor statement under the Private Securities and Litigation Reform Act of 1995. During this conference call, management may discuss financial projections, information or expectations about the company's products or market or otherwise make statements about the future. Such statements are forward-looking and subject to a number of risks and uncertainties that could cause actual results to differ materially from the statements made. These risks and uncertainties are detailed in the company's filings with the Securities and Exchange Commission. In addition, management may discuss certain non-GAAP financial measures as defined by the Securities and Exchange Commission. Please refer to the non-GAAP reconciliation tables in the company's current report on Form 8-K filed with the Securities and Exchange Commission earlier today. I would now like to introduce Mr. David Smith, Chairman and Chief Executive Officer of Sonic Automotive. Mr. Smith, you may begin your conference.

Thank you very much, and good morning, everyone. Welcome to the Sonic Automotive Fourth Quarter 2025 Earnings Call. Again, I'm David Smith, the company's Chairman and CEO. Joining me on today's call is our President, Jeff Dyke; our CFO, Heath Byrd; our EchoPark Chief Operating Officer, Tim Keen; and our VP of Investor Relations, Danny Wieland. I would like to open the call by thanking our amazing teammates for continuing to deliver a world-class guest experience for our customers. 2025 marked the third consecutive year of delivering all-time record customer satisfaction scores for our franchise dealership guests. And EchoPark once again retained the highest guest satisfaction rating among pre-owned vehicle retailers. We believe our strong relationships with our teammates, guests and manufacturer and lending partners are key to our future success. And as always, I would like to thank them all for their continued support and loyalty to the Sonic Automotive team. Turning now to our fourth quarter results. Reported GAAP EPS was $1.36 per share. Excluding the effect of certain items as detailed in our press release this morning, adjusted EPS for the fourth quarter was $1.52 per share, a 1% increase year-over-year. Consolidated total revenues were $3.9 billion, down 1% year-over-year. Fourth quarter record consolidated gross profit grew 4% and consolidated adjusted EBITDA was flat compared to the prior year fourth quarter. For the full year, reported GAAP EPS was $3.42 per share, and adjusted EPS was $6.60 per share, an 18% increase from 2024. Consolidated total revenues were an all-time annual record of $15.2 billion, up 7% year-over-year, and consolidated total gross profit was an all-time annual record of $2.4 billion, up 9% year-over-year. For 2025, consolidated adjusted EBITDA grew 10% to $615 million. Moving now to our fourth quarter franchise dealership segment results. We generated reported revenues of $3.4 billion, flat year-over-year and down 5% on a same-store basis, driven by an 11% decrease in same-store new vehicle retail volume, offset partially by a 5% increase in the same-store used vehicle retail volume year-over-year. Fourth quarter new vehicle volume faced headwinds from pull-forward consumer demand for electric vehicles ahead of the expiration of the federal tax credit in the third quarter, combined with strong luxury demand in the prior year fourth quarter. Reported franchise total gross profit was a fourth quarter record, up 4% and declined 2% on a same-store basis. Our fixed operations gross profit was a fourth quarter record, and F&I gross profit set an all-time quarterly record, up 8% and 6% year-over-year, respectively, on a reported basis. These two high-margin business lines continue to increase their share of our total gross profit pool, once again contributing over 75% of total gross profit for the fourth quarter, mitigating the tariff headwinds on new vehicle volume and margin to our overall profitability, while also leveraging our SG&A expenses more efficiently than incremental vehicle-related gross profit. Same-store new vehicle GPU was $3,033 per unit, down 7% year-over-year, but up 6% sequentially due to a higher luxury mix in the fourth quarter. On a reported basis, new vehicle GPU was $3,209 per unit, down 1% year-over-year and up $208 or 7% sequentially from the third quarter. On the used vehicle side of the franchise business, same-store used GPU decreased 2% year-over-year and decreased 10% sequentially from the third quarter to $1,379 per unit. Our F&I performance continues to be a strength with fourth quarter record franchised F&I GPU of $2,624 per unit, up 8% year-over-year and up 1% sequentially. Turning now to EchoPark. Adjusted segment income was a fourth quarter record $3.6 million, up 300% year-over-year, and adjusted EBITDA was a fourth quarter record $8.8 million, up 110% year-over-year. For the fourth quarter, we reported EchoPark revenues of $481 million, down 5% year-over-year and fourth quarter record gross profit of $54 million, up 9% year-over-year. EchoPark segment retail unit sales volume for the quarter decreased 6% year-over-year, and EchoPark segment total GPU was a fourth quarter record $3,420 per unit, up 15% per unit year-over-year and up 2% sequentially from the third quarter. For the full year, EchoPark segment adjusted EBITDA was an all-time record $49.2 million, up 78% year-over-year. Going forward, we remain focused on increasing our mix of non-auction sourced inventory to benefit consumer affordability and retail sales volume and GPU. When combined with the strategic adjustments we have made to our EchoPark business model, we believe we are well positioned to resume a disciplined store opening cadence for EchoPark beginning in late 2026, assuming used vehicle market conditions continue to improve. In the long term, we intend to expand our EchoPark platform to reach 90% of U.S. car buyers, selling over 1 million vehicles annually while continuing to provide a superior guest experience. We believe investment in brand marketing will be key to our long-term EchoPark growth plan, and we expect to begin to invest in this effort during 2026, potentially increasing advertising expense by $10 million to $20 million this year. Turning now to our Powersports segment. We generated fourth quarter record revenues of $36 million, up 19% year-over-year and fourth quarter record gross profit of $9 million, up 25% year-over-year. Fourth quarter combined new and used retail volume was up 18% year-over-year, and we are beginning to see the benefits of our investment in modernizing the Powersports business and the future growth opportunities it may provide. Finally, turning to our balance sheet. We ended the quarter with $702 million in available liquidity, including $306 million in combined cash and floor plan deposits on hand. Our focus on maintaining a strong balance sheet and liquidity position allows us to strategically deploy capital in a variety of ways to deliver value to our shareholders. During the fourth quarter, we repurchased approximately 600,000 shares of our common stock for approximately $38 million, bringing the full year share repurchase to 1.3 million shares for approximately $82 million. In addition, I'm pleased to report today that our Board of Directors approved a quarterly cash dividend of $0.38 per share payable on April 15, 2026, to all stockholders of record on March 13, 2026. We continue to work closely with our manufacturer partners to understand the potential impact of tariffs on vehicle production, pricing and volume forecast, vehicle affordability and consumer demand going forward. The full year 2026 outlook and guidance considers these uncertainties and represents our current expectations for 2026 financial results. As always, our team remains focused on executing our strategy and adapting to ongoing changes in the automotive retail environment while making strategic decisions to maximize long-term returns. This concludes our opening remarks, and we look forward to answering any questions you may have. Thank you very much.

Our first question is from Jeff Lick with Stephens Inc.

Congrats on a standout quarter. It's pretty impressive results relative to the others in Q4. I was wondering if you could talk a little bit about EchoPark. I was just curious, if you think about the used car options that are out there right now, and there's obviously big players like Carvana, CarMax, and others. I'm just wondering, as you're starting to understand the EchoPark business better, where do you guys see how you fit into the used car ecosystem in terms of when someone is looking to buy a new car, a used car, where do you guys view as like where you really kind of over-index and solve a problem for a customer? Where do you fit in the used car ecosystem?

This is Jeff. We've always kind of looked at EchoPark as the Costco of the pre-owned world. There are 35 million to 40 million pre-owned cars sold every year in this country. And if you look at what Carvana is doing 500,000, 600,000, you look at CarMax in the 800,000, 900,000 range, there's a lot of room for us. And prior to COVID, we said we'd be at 90% coverage of the country and sell over 1 million vehicles. We feel very comfortable over the last 3 or 4 years. We worked very hard on the model. We can slowly and accurately build stores. Like we said, we're going to open 1 or 2 in the fourth quarter of this year. We'll open more in '27, and we will methodically grow the EchoPark business. But we're the low-cost provider in this arena. And when you look at how we price our vehicles and you compare to those two competitors, we're anywhere from $3,000 to $6,000 cheaper than those guys. And it gives us the ability to sell a lot of vehicles on a per rooftop basis versus our competitive set. And we're seeing that. We see it in the 17 stores that we have opened now. And we believe that being that low-cost provider and really taking care of our guests like we do with our great guest satisfaction scores, which are industry-leading, that combination is just going to be really hard to beat as we slowly begin to grow this brand.

And Jeff, this is Heath. I'll add one point: exactly what Jeff was alluding to is that, objectively, we are the lowest-cost provider. You can look at the data and the facts are there. Objectively, we have the best customer experience. We've won for the last 16 quarters with reputation.com comparing to Carvana, CarMax and others. And now that we are starting the expansion again in a disciplined way where we still have profitability going forward. You combine that with our brand initiative, which we mentioned earlier in the press release and in the statements. Now people know. I mean, I think the biggest thing is that we get our name out there, and you've got the two main things that people are looking for, and that's just going to give additional tailwinds to EchoPark, especially as the inventory is returning; it's going to be a really nice situation for growth for EchoPark.

Yes. Just a quick follow-up. You talked about non-auction sourcing. I'm just curious, you had a little bit of a hiccup with the commercial rental car fleet returns and that gumming up sourcing a little bit. Just any updates on where you're sourcing non-auction related and then how you see the sourcing unit availability for your business model in 2026?

Yes. We are. We're incentivizing our team to buy vehicles all over the country. And we're finally beginning to leverage our new car franchised dealerships for inventory. We've always kind of kept that separate. And we have found a way, we believe, to leverage that as lease returns begin to come back as we can trade for more cars out of those 111 franchise stores. And we'll begin to see the beginnings of all this and the inventory sort of feeding into EchoPark will start in March and April time frame of this year. And so we're very excited about that and reducing our dependence on the auction lanes. And that's happening, but it's methodically happening with a very strategic plan around that. And buying more cars off the street certainly is happening and engaging our experience guides in that kind of model is going to make a big difference for EchoPark as we go forward. It's a very important part of our growth plan.

Our next question is from John Babcock with Barclays.

I guess just first question while we're on EchoPark. When do you plan to do the advertising spend? And then also, is that going to be more focused on building the brand or driving trade-ins? How are you thinking about that? And then also, if you could just talk regionally about whether you're going to target certain regions or if this is going to be more of a broad-based nationwide type advertising?

The $10 million to $20 million is aimed at brand development and will be strategically focused on that. We plan to begin spending this money at the start of the second quarter. This includes creating commercials and other initiatives. We have many exciting ideas that we will present to the public, but we do not expect any tangible outcomes or public visibility until the fourth quarter when we resume launching stores. There will be an initial investment without immediate returns, which we don't expect to materialize until the fourth quarter or into 2027. Our marketing efforts will concentrate on our existing markets, and as we enter 2027, we will also start promoting our brand in regions where we are not currently present. We've observed that some of our competitors have successfully undertaken similar efforts. As Heath mentioned, we will bring the EchoPark brand to life and share with the public our pricing model and the excellent guest experience we offer. This combination, along with a stellar inventory selection, positions us advantageously. We believe we are well-prepared and see significant opportunities ahead, particularly given the high volume of pre-owned car sales in the country, which we are excited about.

And this is David. And something to note is that, remember, the first EchoPark store opened in 2014. So this is something that factually we know that when people know us, like in markets like Denver, that we get a far higher market share. We get more for our cars. They know about us. They refer their friends and family to us. We've got a lot of people who bought from us over and over again. So it's not something that we're wondering, well, what if we advertise, will it work? It absolutely works. They just need to know about us.

All right. That's very helpful. And then my last question, just on GPUs, fared pretty well in the fourth quarter. Just kind of curious how you're thinking about the cadence of that in '26.

Yes, this is Jeff. In terms of new cars, we estimate a franchise segment price of $2,700 to $3,000 per unit, which could be slightly higher in the first quarter, particularly around April during tax season. We are monitoring the impact of tariffs. Fortunately, our manufacturer partners from last year have significantly contributed to our industry despite their losses, and they will likely pass on those increased costs. The average retail selling price reached $60,000 in the third quarter and exceeded $62,000 in the fourth quarter, reflecting record-high prices. Although the affordability issue may not be evident in the early part of 2025, we expect it to become more pronounced in the summer months as new car prices continue to rise. This situation presents a unique opportunity for us with EchoPark, positioning us advantageously in the market for affordability as it relates to our used car operations. However, it is crucial to pay close attention to inflationary trends and how new car pricing will evolve as we approach late spring and early summer, especially as manufacturers begin to transfer costs to consumers in a more noticeable manner than in 2025.

Actually, as a quick follow-on to that, are you starting to see indications that the OEMs are planning to push on more costs? I don't know if you have any additional commentary there.

Absolutely. They're lowering margin rebates that we get. The prices are going up. There's no question that you're going to see that. They're not going to sit back and lose billions and billions of dollars. They can't. It's just not going to happen. And so it's going to be really interesting to see the elasticity in new car pricing as we move forward over the next 6 months. And look, January was a hell of a month. Without the snowstorms, it would have been a magnificent month. So we'll see. I don't know if it's the tax stuff that's helping that. But definitely, prices are higher. And so maybe there's some great elasticity, but it does bring in the affordability discussion, and it really rings the bell from a used car perspective. We're going to have that gap that we've been missing between new car and pre-owned cars again. And that's just going to be fantastic for the industry and really, really good for EchoPark.

Our next question is from Rajat Gupta with JPMorgan.

I just wanted to quickly follow up on the EchoPark commentary. Just given the store openings later this year, the increase in advertising, it looks like the year-over-year growth should accelerate in the back half. Are you setting up for 2027 to be an even stronger year from a growth rate perspective than the high single digits this year? Is that the right takeaway from these investments?

Yes. 100%.

Got it. Okay. That's helpful. And maybe I want to pivot to like parts and services. Understandably, warranty comps were tough here in the fourth quarter. Could you give us an update on where you ended up with respect to same-store technician growth? And any targets for 2026 that you're going after there? I would be curious.

Since March of 2024, when we began focusing on our technicians, we have added over 400 technicians. This has significantly contributed to our success in fixed operations. Currently, we are in Houston for our annual meeting, which is entirely centered on fixed operations and our potential for substantial growth in this area. We believe we have the capacity to achieve $100 million per month in fixed operations gross, totaling $1.2 billion annually. In 2025, we generated just over $1 billion. We are very enthusiastic about this opportunity. Many customers, approximately 50%, do not return to a new car dealership for vehicle servicing, and we believe we can draw in a lot of these customers. We have the time to sell, the foundational support, and the technicians to capitalize on this potential in the coming year or two.

Understood. And then just on your balance sheet leverage, just a question on capital allocation. It looks like the way you define it, it's 2.1 in terms of net debt to EBITDA based on the add-backs are allowed from rating agencies. I'm curious how much could you stretch? And would you plan to stretch that in '26 or in the medium term to maybe deploy more capital into either more M&A or buybacks?

Yes. Based on that rate, we believe we are among the top in terms of leverage ratio, and we feel good about it. Our aim is to maintain a strong balance sheet. While we could go up to a 3.5 leverage ratio, we can execute our plans for next year while keeping that low leverage ratio. If a beneficial acquisition arises that requires some debt funding, we have the capacity to pursue that as well. We have sufficient resources to implement our plan for 2026. In 2025, we had a significant acquisition that made up the bulk of our capital expenditure. Additionally, we've increased returns to shareholders through dividends by over $200 in recent years, aiming for a payout ratio of 20% to 25%. For share repurchases, we plan to take action when we see favorable opportunities that provide the best returns. Moreover, we intend to reinvest in the business, particularly as we expand EchoPark with new stores. Overall, we are very comfortable with our balance sheet, all our covenants, and have the necessary resources to execute our plans for 2026 and into 2027.

And Rajat, this is David. I want to mention that M&A opportunities in our industry often arise quickly, and we are excited about our significant acquisition of the JLR stores last year. It has proven to be a fantastic acquisition, and it came together rapidly. We hope to encounter more opportunities like that which will help us grow the business and increase earnings.

Our next question is from Bret Jordan with Jefferies.

I guess down in '26 roughly by the amount of your marketing advertising expense. Do you see that inflecting positively in '27? Or is there ongoing rollout expense as you start rebuilding the business?

You broke up right there at the beginning. Is that on EchoPark?

Yes, Slide 13.

Yes. I was wondering, do you see that in '27 accelerating as you're sort of passing this initial marketing expense?

Yes. That's exactly how you should look at it. We're going to have some initial spend here while we get prepared for launch. That's really not going to happen until the fourth quarter as we begin to open a few stores. And then we'll have a cadence of stores that we can open next year and a different level of spend that we'll talk about as we begin to grow the brand across the country and focus on driving our $1 million-plus sales and our 90% coverage. And as we go through the quarters, we'll continue to update you guys on where we are in the progress that we're making. We gave you a $10 million to $20 million range, kind of we can narrow that gap a little bit as we get towards the fourth quarter for you, but that's exactly how you should look at it.

And just to add to that, Bret, this is Danny. We guided to high single-digit volume growth for EchoPark in '26. But as Jeff said earlier, that really doesn't reflect any benefits from this brand investment. So you can look at that as accelerating in '27 and beyond as we get the benefits of the brand investment and increase our store base. So that will help drive both the volume-based growth that we're projecting as well as some EBITDA leverage in '27 and beyond.

Okay. Great. And then a question on Q4, some of your peers talked about luxury consumers acting a little softer than normal for that seasonal period. And you guys didn't mention that. Do you see any behavioral change, whether it's people pushing back on these high ASPs in luxury or in the parts and service? Or is there any move to decline recommended services? Anything at the consumer we should read through?

I'm concerned about the tariffs and how pricing will be affected as we approach early summer. If you had looked at our performance in October and November, you might have thought we were in for a tough fourth quarter. However, December turned out to be exceptional, one of those fantastic Sonic Decembers we anticipate. We had strong sales across the board, especially in our luxury segment, with an impressive average selling price exceeding 62 thousand. Our team was well-prepared with the right inventory mix, and our manufacturing partners supported us effectively. Overall, it was a fantastic quarter, capped off by a great December. January also started off strong, even though a snowstorm caused some disruptions. When we report, we'll dive deeper into our first-quarter performance, but despite the weather, January remained strong.

If we've not had that, right?

No, had we not had that, wow. And so we'll see. I am cautioning and concerned about what is going to happen, how far, how much elasticity can we deal with or can the consumer deal with from a new car perspective. And something is going to have to give here. The prices are just getting too high. And now it didn't show up in January. It's really not showing up in February. We'll see. I think a lot of people are counting on big tax returns. We'll learn a lot this summer. Great news is the service business is great and has lots of upside. The F&I business is great. And then the used car business should just be fantastic as that gap widens. You really want your average retail selling price for a used car to be half that of a new car, and we're beginning to see that gap come back. And during COVID, it got all the way to 80%, 90%, sometimes 100% depending on the brand. So a lot of great opportunities as we move into the year, but a big caution on exactly what's going to happen from a pricing perspective on new.

Do you have insight into what the original equipment manufacturers will be passing through in terms of higher prices on a similar SKU basis? If the BMW X Series was priced at 50, is it now 55 with the new pricing adjustments?

Based on what I've observed, we're experiencing increases of 3% to 5%, which translates to a normalized increase of about 1% to 2%. Manufacturers are certainly passing on some costs but are also effectively reducing unnecessary spending and cutting programs that are not essential. I've engaged with various dealer boards, and this topic has been a significant discussion point with manufacturer partners. They are making sound financial decisions to avoid affecting pricing and margins. However, tariffs are quite high for some brands, leading to inevitable price adjustments that are already occurring. Margins are likely to be affected, as evidenced by manufacturers incurring substantial losses in the billions last year. This situation is not sustainable and is bound to change as we progress through this year. We need to monitor this closely. I had previously highlighted this concern during the third and fourth quarters, urging everyone to keep an eye on these metrics. In particular, we should watch new car pricing trends as we move forward, especially in the luxury segment, as luxury buyers may start to resist price increases.

Our next question is from Christopher Pierce with Needham & Company.

I was curious about the fixed operations and whether you could discuss the subscription aspect of this business. I understand that you're working on bringing customers back into the sales funnel. When customers purchase vehicles, there's an option for three years of service as a prebuy. Is this trend noticeable and does it instill confidence in the growth of the business, or is it currently too minor to be a significant factor?

No. I mean I think that we have an opportunity to sell more products like that for sure to bring the customer back. But the industry as a whole is doing something wrong if 10 customers come in and buy cars and 5 of them don't come back to a dealership to have their vehicle serviced. And it's like 50-50. And we think we can attract a lot of customers. We've got the time to sell. We've got the base. We've got the technicians, and we're going to take advantage of that as we move forward here over the next year or 2.

We've got to get the perception versus reality where the customer knows that our prices are actually competitive or better than the independent down the street.

And I was going to say literally, the marketing is a new concept from the Sonic perspective. We have a focus to sales force. We have a focused campaign now, which we used to never have that on the service side. So that, coupled with having products, warranty products that drive the consumer back to the franchise dealer, those two things are going to help our market share.

And one other point there. We guided to mid-single-digit percent growth in fixed ops on a same-store basis. Fourth quarter, our warranty was only up 2% year-over-year. That had been growing 20%, 30%, 40% year-over-year for the last several quarters. So we're finally seeing kind of a normalized level there. But we think that these opportunities on the customer pay side are what's going to drive sustained mid-single-digit growth above that long-term 2%, 3% average, but continued opportunity with the additional technicians, the marketing efforts, the efficiency of selling the hours and loading the base. There's some real upside there in that piece of the business. That just crested $1 billion in gross for the first time this year. So it's the larger numbers with a mid-single-digit percentage is significant opportunity from a gross profit growth perspective.

Is this something that the OEMs can assist with as well? I understand that the cars are becoming smarter. Instead of just a check engine light, there can be messages indicating what needs to be done, including maybe the price. Do the OEMs contribute to this aspect as the cars get smarter, or is it entirely up to you to handle and execute this?

Yes, 100%. You sit down and talk with many of our OEM partners. They see the exact same issue, and it's at the top of discussion with all of them is how do we drive more customers that we're selling cars to now back into our service drive and what products do we need to use in order to make that happen. I had this exact conversation with the leadership of Toyota and Lexus not too long ago. It is a big, big focus point. And we need to drive more customers that we're selling cars to back into our service drive. And we can do it. The industry needs to do it, but we're certainly going to make that happen at Sonic Automotive. And it's awareness, as David was saying earlier, it's making sure that our door rates and our pricing are in the right areas in terms of being competitive with the mom-and-pops up and down the street. That data is readily available for us all now, and I think you'll see us make a big impact as we move forward.

And I think it sounds like you're also thinking of the technology side of it where the customers will have apps for their BMW and Mercedes, Porsche, et cetera. And the app will tell them, okay, come on in, and that's going to drive a lot of business for us.

Okay. So that's something that's not quite happening now, but can get better. Okay. Got it. 100%. Okay. And then just one on EchoPark. Do you feel like you need like a buy button on EchoPark given what digitally only like what Carvana is seeing as far as growth in units? Or is it just about conveying the value to customers, conveying the price and then versus peers. And from there, that should get the customers in the store, and that has consistently got the customers in the store in your older locations?

Part of that $10 million to $20 million spend is you will see a launch of the EchoPark app, which we're incredibly excited about. And we're building and investing in a digital retail solution that we think will be industry-leading once complete. We've got a great team that's dedicated to that. And we're very, very excited about that exact opportunity for EchoPark. Yes, we need it. We need in an omnichannel environment, whether the customer wants to come in and test drive the car or sit at home in their underwear and buy a car. We need to be in a position where we can take care of that guest all the way through that buying journey. And it's great because at EchoPark, they can come, they can test drive a car. Many of our competitors, you can't even test drive a car, you just got to buy it. And we want to put ourselves in a position where they can do all of that, and that is part of that spend. So great, great question, much appreciated.

Our next question is from Michael Ward with Citi.

What are some of the variables you mentioned that are giving you confidence to step up the growth again at EchoPark? Can you talk about those?

This is Heath. One significant factor is the return of inventory, which will play a major role. We have consistently stated that as inventory starts to return, it will likely take the next year or two to reach the 2019 levels. Additionally, we've discovered that we can achieve strong EBITDA even with lower sales volumes. The internal efficiencies we've developed give us confidence to pursue growth. As for our branding at older locations, we are able to command higher prices and achieve better GPU due to the effective word-of-mouth marketing over time. These factors, combined with the return of inventory and our learnings from operating in a lower unit environment, provide us with the confidence to grow again.

We've said for the last few years, as soon as inventory begins to return, you're going to see us methodically start and strategically growing. Inventory is returning, and we're going to start methodically and strategically growing.

And one of the things that's most impressive because of the environment we were in, we got a lot better of finding alternate sources to buy, better buying off the street. And so all of that is going to help us as we grow as well.

This is David. Also, the economics of what a new EchoPark location and the money we're going to spend on those is going to be far less than some of the locations we've had; some of our current locations. So it's going to be a lot easier. We have to sell a lot fewer cars at those locations to actually break even. So you're going to see those locations are going to be highly profitable.

Did I hear the number right, your goal is to get to 1 million units?

That is correct.

Over 1 million.

Yes. It's 1 million-plus units. And so that's not a new number. If you go back and you look at our growth trajectory from '18, '19 before COVID hit, we were saying this exact same thing. We're on our way to making that happen. And we were well on our way, and the whole world changed. Now methodically and strategically, we're on our way again, and we darn well believe that, that is something that we can do. And we know we've got the pricing methodology, we've got the inventory management, and we've got the guest experience. We're adding technology, our branding. We've been doing this for a long time, and we're very excited about this day. It's a long time in coming.

Yes, it's significant. Additionally, two challenges we faced in the third quarter were related to BEVs and JLR. I noticed you didn't mention the JLR acquisition. What is the current inventory situation with JLR? Also, what is the latest trend regarding BEVs?

Yes. So we saw a lot of BEVs because of the tax credit going away in the third quarter, that significantly dropped. And we'll see what happens in this upcoming calendar year, but maybe settle in, in the 5% to 7% range, who knows. JLR's inventory was impacted by a multitude of things, but coming back now. And we're right on plan with our acquisition there, which is great. We were real green with those guys, really understand that brand. And the acquisitions that we made in California, I mean, JLR, Beverly Hills, it all goes together. That's a great fit for us. And so yes, we're very excited about that acquisition. Their inventory is returning. But they are another one that are going to be faced with the tariff issue, right? There's not a plant here and they're faced with this, as is Porsche, as is Audi. These are all things that they're going to pass on expense to the consumer, but fantastic product and our inventory is improving as every month goes on with them.

And Mike, on the BEV mix, we saw north of 12% of our sales mix in the third quarter was EV with the pull-forward demand from the federal tax credit expiration, but it was only about 4% of our mix in the fourth quarter. And you've seen our inventory mix of EV become more in line with that kind of 4%, 5%. So it's benefiting GPUs relatively speaking. BEVs are still $100 headwind in the fourth quarter to blended GPU, but that was down from $300 in the third quarter. And so as we go forward, if the OEMs can continue to produce the right BEVs for the right markets as importantly, I think that becomes less of a headwind for us going forward.

Our next question is from Glenn Chin with Seaport Research Partners.

Just revisiting the pricing discussion. Jeff, you mentioned a few times OEMs cutting margins. Can you just clarify, is that a reference to dealer margin?

Both factors are at play. Some manufacturers are reducing dealer margins while also implementing price increases of 1%, 2%, or 3%. There are various dynamics at work, and manufacturers are doing a commendable job by cutting unnecessary spending in collaboration with dealers. They are committed to tackling the challenges posed by tariffs. However, reflecting on the losses experienced by some manufacturers in 2025, it was significant, and they managed the situation remarkably well. They cannot continue to handle this challenge alone indefinitely; eventually, they will need to pass costs on. We'll see how this affects pricing and margins moving forward. We are working very closely with all manufacturers and everyone is focused on doing the right thing, but there is a limit to how much can be absorbed before price increases must be passed on to consumers.

Yes. And on a related note, are you seeing any signs of them decontenting, taking out equipment?

Absolutely. I mean everybody is looking at it is what can we do to pare down the price of a vehicle, whether it's wheels, you name it. That's something that is a topic of conversation across the board.

Any items in particular, Jeff, that stand out to you?

No. I mean I could probably go get you some detail, but not off the top of my head. I mean wheels definitely are part of that. The infotainment systems are certainly changing. And really, we're heading in one direction when BEV first launched because of the amazing technology in those vehicles. I think that's being tightened up and more to come. We're really sort of at a crossroads, an inflection point as manufacturers put their arms up and say, enough is enough. Dealers certainly can absorb those kinds of hits and pricing is going to have to change or something is going to have to change.

Interesting times. Okay. And then just a question on the outlook. You're expecting a 10% increase in floor plan interest expense. Is this a function of higher store count? I know you guys acquired those JLR stores last year. Or is that a function of you expecting to carry higher inventory levels or both?

The key factors are the store count, brand mix, and the increasing costs of vehicles due to inflation. Our floor plan is determined by the invoice cost's dollar value, and if the OEMs implement the model year '26 price increases we've already seen, along with what we anticipate for '27, that will have an impact. Additionally, we maintained a higher floor plan offset balance for most of last year. Depending on our capital deployment strategy moving forward, this could slightly lessen the benefits we observe from the floor plan. It's truly a combination of different elements at play.

Okay. Yes, that makes sense. But just to confirm, your floor plan rates are variable. So any reduction in rate should serve as a favorable offset to that. Is that included in your outlook?

Yes, and that's accurate.

There are no further questions at this time. I'd like to hand the floor back over to David Smith for any closing comments.

Thank you very much, everyone. We'll speak to you next quarter.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.