Sonic Automotive, Inc. (NYSE:SAH) Q3 2025 Earnings Call Transcript

Sonic Automotive, Inc. (NYSE:SAH) Q3 2025 Earnings Call Transcript October 23, 2025

Sonic Automotive, Inc. beats earnings expectations. Reported EPS is $2.75, expectations were $1.82.

Operator: Good morning. Welcome to Sonic Automotive Third Quarter 2025 Earnings Conference Call. This conference call is being recorded today, Thursday, October 23, 2025. Presentation materials, which accompany management’s discussion on the conference call can be accessed on 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 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 are 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.

David Smith: Thank you very much, and good morning, everyone. As she said, welcome to the Sonic Automotive Third 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 Vice President of Investor Relations, Danny Wieland. I would like to open the call by sincerely thanking our amazing teammates for continuing to deliver a world-class guest experience for our customers. We believe our strong relationships with our teammates, guests and manufacturer and lending partners are key to 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 third quarter results. Reported GAAP EPS was $1.33 per share. Excluding the effect of certain items as detailed in our press release this morning, adjusted EPS for the third quarter was $1.41 per share, a 12% increase year-over-year. Consolidated total revenues were an all-time quarterly record of $4 billion, up 14% year-over-year, all-time record quarterly consolidated gross profit grew 13% and consolidated adjusted EBITDA increased 11%. Our third quarter earnings were negatively affected by a significant increase in medical expenses and a higher-than-expected effective income tax rate, which partially offset the strength of our operating performance. Moving now to our Franchised Dealerships segment results. We generated all-time record quarterly franchise revenues of $3.4 billion, up 17% year-over-year and up 11% on a same-store basis.

This revenue growth was driven by a 7% increase in same-store new retail volume, a 3% increase in same-store used retail volume and a 6% increase in same-store fixed operations revenues. Third quarter new vehicle volume benefited from an increase in consumer demand for electric vehicles ahead of the expiration of the federal tax credit, which increased our retail sales volume and average selling price, but pressured new vehicle and F&I gross profit per unit. Our fixed operations gross profit and F&I gross profit set all-time quarterly records, up 8% and 13% year-over-year, respectively, on a same-store basis. These 2 high-margin business lines continue to increase their share of our total gross profit pool, eclipsing 75% of total gross profit for the third quarter, mitigating the potential tariff impact on vehicle pricing 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 $2,852, down 7% year-over-year and 16% sequentially due to a surge in pre-tariff consumer demand that drove an increase in GPU in the second quarter of 2025. Additionally, a higher mix of electric vehicle sales in the third quarter reduced our franchise average new vehicle GPUs by approximately $300 per unit. On the used vehicle side of the franchise business, same-store used volume increased 3% year-over-year and same-store used GPU increased 10% year-over-year and decreased 4% sequentially from the second quarter to $1,530 per unit. Our F&I performance continues to be a strength with third quarter record franchise F&I GPU of $2,597 per unit, up 11% year-over-year and down 5% sequentially due in part to the elevated electric vehicle sales mix in the third quarter, which reduced average F&I GPU by approximately $100 per unit.

Absent the transitory third quarter EV headwinds, continued strength in F&I per unit supports our view that F&I will remain structurally higher than pre-pandemic levels even in a challenging consumer affordability environment as we continue to fine-tune our F&I product offerings and cost structure. Our parts and service or fixed operations business remains very strong with an 8% increase in same-store fixed operations gross profit in the third quarter. Same-store warranty gross profit continued to be a tailwind in the third quarter, up 13% year-over-year despite strong warranty performance in the prior year period, and same-store customer pay gross profit grew 6% year-over-year. We believe this continued strength in customer pay revenue is attributable to the increase in technician headcount we achieved in 2024 and our efforts to not only retain these technicians, but to continue to grow our technician capacity in 2025.

Turning now to the EchoPark segment. Third quarter adjusted segment income was $2.7 million and adjusted EBITDA was $8.2 million, down 8% year-over-year. For the third quarter, we reported EchoPark revenues of $523 million, down 4% year-over-year and gross profit of $54 million, down 1% year-over-year. EchoPark segment retail unit sales volume for the quarter decreased 8% year-over-year, and EchoPark segment total GPU was a third quarter record of $3,359 per unit, up 8% per unit year-over-year, but down 10% sequentially from the second quarter. While we expected EchoPark used GPU pressure in the third quarter, our ability to acquire quality used vehicle inventory at attractive prices was challenged by unexpected off-rental supply headwinds, contributing to approximately 2,000 fewer retail unit sales than we forecast in our July guidance.

While these headwinds persisted through September, we remain focused on increasing our mix of non-auction sourced inventory going forward to benefit consumer affordability and retail sales volume. 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 in 2026, assuming the used vehicle market conditions sufficiently improve. Turning now to our Powersports segment. We generated all-time record quarterly revenues of $84 million, up 42% year-over-year and all-time record quarterly gross profit of $23 million, up 32% year-over-year. Powersports segment adjusted EBITDA was an all-time record — quarterly record of $10.1 million, up 74% year-over-year, driven by record sales volume at this year’s 85th Sturgis Motorcycle Rally.

We are beginning to see the benefits of our investment in modernizing the Powersports business, and we remain focused on identifying operational synergies within our current network before deploying capital to further expand our Powersports footprint. Finally, turning to our balance sheet. We ended the quarter with $815 million in available liquidity, including $264 million in combined cash and floor plan deposits on hand. Our focus on maintaining a strong balance sheet and liquidity position allowed us to complete the acquisition of Jaguar Land Rover, Santa Monica in the third quarter, following our previously announced acquisition of 4 Jaguar Land Rover dealerships in California at the end of the second quarter, cementing Sonic Automotive as the largest Jaguar Land Rover retailer in the U.S. and further enhancing our luxury brand portfolio.

Going forward, we remain focused on deploying capital by a diversified growth strategy across our Franchised Dealerships, EchoPark and Powersports segments to grow our revenue base and enhance shareholder returns. 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 January 15, 2026, to all stockholders of record on December 15, 2025. We continue to work closely with our manufacturer partners to understand the potential impact of tariffs on manufacturer production and pricing decisions and the resulting impact tariffs may have on vehicle affordability and consumer demand going forward. To date, we have not seen a material impact on vehicle pricing as a result of tariffs, but our team remains focused on executing our strategy and adapting to ongoing changes in the automotive retail environment and macroeconomic backdrop, while making strategic decisions to maximize long-term returns.

Furthermore, we remain confident that we have the right strategy and the right people and the right culture to continue to grow our business and create long-term value for our shareholders. This concludes our opening remarks, and we look forward to answering any questions you have.

Q&A Session

Operator: [Operator Instructions] Our first question is from Jeff Lick with Stephens.

Jeffrey Lick: You guys have an interesting little used car market test tube in your business model with given the franchise business and EchoPark. It looks like you kind of outperformed your peers and did pretty well in the franchise and then EchoPark had some issues. Obviously, you mentioned the rental supply headwinds. I was just wondering if you could elaborate even more, just kind of what’s this saying about where the used car market is in general? And any specifics you could give?

Frank Dyke: This is Jeff. From a franchise perspective, obviously, we trade for a lot more cars on the franchise side because of the new car business. And so we have really focused on dropping our average cost of sales. So we’re trading, we’re being more aggressive on our trades. I think our average cost of sales moved from $37,000 over the last 4 or 5 months down into the $33,000 range, $34,000. That makes a big difference. We’re focused on bringing it even down further. We’d like to get below $30,000. A little harder to do on the EchoPark side because we’re acquiring most of those vehicles out of the auctions, although we’ve been focused on buying more cars off the street. And as you said, the rental car company issue, that David talked about in his opening comments, it dried up for us.

That cost us about 2,000 units during the quarter. A little bit of a surprise to us. We’re offsetting that, working with our new car franchises and our buying team, buying — getting more aggressive on buying vehicles really for EchoPark under the $24,000 price target. And you’ll see us improve that as we move through the fourth quarter.

Heath R. Byrd: And this is Heath. I’ll add one more thing. We started an initiative with the franchise of really focusing on a good process and putting in technology for buying off the service lane. So that’s really helped that side of the business as well.

Jeffrey Lick: And then just a quick follow-up. On the $31 million in incremental comp, which I think a good chunk of that was medical expenses. Could you just elaborate where does that stand going forward?

Heath R. Byrd: Yes, sure. This is Heath. First of all, we’re guiding, as you know, for the full year in the low 70s. If you look at medical, which was driving that, it was $0.05 worse sequentially from Q2 to Q3, $0.10 worse year-over-year. We expect medical to be flat from Q3 to Q4. So total SG&A for Q4 is expected to be the $72.8. But it is driven by the medical and that is utilization as well as increased cost. We are self-insured. And so obviously, everyone is getting an increase in medical premiums going forward. And so we’re addressing it as every other company. We’ll be increasing the premiums collected, which should handle that issue that we saw in Q3 and expect it to be similar in Q4.

Operator: Our next question is from Michael Ward with Citi Research.

Michael Ward: I wonder if you can provide any color on a walk in the franchise gross from Q3 to Q4 and then into 2026? Because it sounds like you had $100 impact from BEVs, and it sounds like there are some other unusual events. So how do we look out? It sounds like 4Q is higher and then maybe even relatively flat on a variable gross basis for over a year. Is that what we’re looking at like kind of more consistency, ups and downs, but kind of moving to the same range?

Frank Dyke: This is Jeff. I think with the increase in the BEV volume at the end of the quarter, that really drove — I think it was $100 down in front PUR and $50 in back-end PUR sequentially. But I expect to return to normal margins and maybe even improving margins as we move into the fourth quarter. We’re seeing that already because of the lack of BEVs. We really pressed hard to move all our BEVs out. We’re about 4% of our total inventory today are BEV units. I think that’s about 800 units on the ground. We have significantly reduced our exposure to that product, which has been obviously a drag for everybody from a front PUR perspective. So I would expect fourth quarter margins to improve sequentially. And I would expect them to continue to improve as we move into 2026 or at least be flat with where we are in Q4.

So a little hit at the end of the third quarter, but smart because we reduced our exposure to all those BEV units that we had on the ground, and that was just the right thing to do from our perspective.

Heath R. Byrd: And this is Heath. Just a little bit more color. If you look at — in total, the EV, we make less gross by $3,275. And the mix in Q3 went from 8.3% in Q2 to 11.9% in Q3. So that’s what created the $100 headwind in front and a $50 headwind in F&I.

Danny Wieland: And just rounding that out, this is Danny. I mean that’s a 54% volume increase from Q2 to Q3, which is in line with what the industry saw from an EV penetration. But as you think about that, we sold 3,600 EVs in the third quarter, and we would expect that volume to be much lower in the fourth quarter now that the federal tax credit is not available. So the normal seasonality we would expect from a volume perspective may not hold where we typically see a 10% uptick from 3Q to 4Q in new vehicle volume. Last year was even more of an anomaly, closer to 20% because of the BMW stop sale issue we saw in the third quarter of last year, where we pushed sales into 4Q. But as we think about it, it could be more of a mid-single-digit volume growth sequentially from 3Q to 4Q because of the lack of EV. That should obviously benefit GPU given what Heath said about the relatively lower margins. But from a total volume perspective, it’s something to be mindful of.

Michael Ward: And as you look at the JLR business, is it fair to say that, that had a bigger impact on parts and service than it did on the new vehicle side?

Frank Dyke: Yes. This is Jeff. We had plenty of new vehicle inventory supply. That wasn’t an issue at all. And it is a drag on the parts and service business. But that’s slowly going to get corrected and come back and — but definitely, the drags in parts and service, not on the volume side.

David Smith: But I will say — this is David. I will say that we’ve benefited from scale in our — being the largest dealer now for JLR has been really fantastic. We’ve had inventory when others haven’t. And I think going forward, I think that those acquisitions are going to prove to be some of our best because those are — you mentioned your previous question, the GPU. Those are some of our greatest — highest GPU stores in the company.

Michael Ward: Makes sense. If I can sneak in one more, just on the Powersports side. You’ve had great performance there. And do you have any data that how big this industry is? And is there a better consolidation opportunity in Powersports than you would see in the new vehicle/used vehicle side?

Frank Dyke: I don’t know if there’s better, but there is certainly a big opportunity. And we’re learning how to operate the Powersports business. You can see we sold 1,105 million new and used motorcycles or Harley’s during the rally. That beat the all-time record of 718 that was set years ago. And that’s just training, technology, pricing, inventory management and bringing things in our skill sets that we have on the franchise side of the business and EchoPark of the business into Powersports. And as David said in his opening comments, we have great opportunity to continue to grow the footprint that we have, but there are certainly — we’re getting deals every day coming across our desk with great opportunities to buy. And as we get better and better at operating, I think you’ll see us expand that footprint. Great money in it, great opportunity, great customer base. So bringing our technology and our processes is making a big difference.

David Smith: And this is David. I’d just add that it’s a real complement to our team that we’re now the manufacturers are coming to us wanting us to buy more and coming to us with some opportunities. So that’s — and that’s how we bought Sturgis, actually, those deals. And so it’s great to see we’re really proud of the progress our team has made.

Heath R. Byrd: And just to see a little bit of color, we view it, it looks like 1990 retail automotive, very fragmented, not a lot of technology, not a lot of sophistication in marketing, understanding how you make money in used service. So we think there’s a huge opportunity to create the same kind of formality in that industry as many have done in the automotive retail.

Michael Ward: And as you pointed out, a lower multiple, right?

Frank Dyke: Way lower. Yes.

David Smith: We hear where you’re going with that.

Frank Dyke: You’re right.

David Smith: There’s a great opportunity, which is why we got into it. And you got to remember the people who — a lot of our customers are super passionate about the products that we sell. They’d rather have that than a car in many cases. So it’s a great business to be in.

Frank Dyke: There were over 800,000 guests at the Rally this year. So if you think about it, we sold 1,105, just think about the upside opportunity just at the Rally alone. That closing ratio is not where we want it to be. We can do a lot more. We need more motorcycles and more process and more technology, but we’re slowly bringing that on, and it’s starting to make a difference. And we’ve really increased the used vehicle — the used side of the business, too. That business is up 70% or so for the year. And that’s going to continue to grow. That’s not something that, that industry has been focused on.

Michael Ward: It sounds like a similar playbook. I really appreciate it.

Operator: Our next question is from Rajat Gupta with JPMorgan Chase.

Rajat Gupta: Great. Just had a couple of follow-ups on the GPU comments. I’m curious that in the third quarter, outside of the electric vehicle headwind to GPUs, was there anything that surprised you in the performance there, perhaps with respect to like how the OEMs are managing the dealer margin or the invoice margin? Automation talked about some different ways in which the OEM might tackle this, maybe in the form of lower back-end incentives or volume incentives, et cetera. Just curious if there was any change there that you observed? And if anything, was it onetime or would you expect that to continue? Relatedly, I was a little surprised by your comment that you would expect 2026 new vehicle GPUs to be similar to the fourth quarter.

I mean our understanding is always that fourth quarter is seasonally higher due to the luxury mix. So are you taking into account like even a lower electric vehicle mix in 2026 versus the fourth quarter that’s maybe driving that assumption? Just curious if you could tie those comments.

Frank Dyke: Yes, that’s exactly right. BEV is going to be way, way lower as a percentage of our overall volume than it has been over the last couple of years, which has driven the margin down. And then no real surprises, I don’t think from ex BEV for the first 9 months of the year or for the quarter in terms of margin. I think that there are going to be some surprises as we move into the fourth quarter because there’s been — there’s an inherent — you look at October, October slowing, in particular, from a luxury perspective. And I think that the manufacturers are going to have to get super aggressive with incentives in order to move inventory. Our inventory is at the highest level from a new car perspective that it’s been all year.

And our competitors are the same as we watch it. And I think you’re going to find that BMW, Mercedes, they’re going to have to be super aggressive. Right now, we’re seeing some double-digit decreases in those brands’ volumes year-over-year. And we’re not alone in that category. And so I do think you’re going to start seeing some super aggressive pricing. It needs to come. Those brands need to step up and bring more incentives in order to engage the fourth quarter or it’s going to be a more difficult fourth quarter from a luxury perspective than many are projecting.

Rajat Gupta: Got it. Got it. Okay. That’s helpful…

Frank Dyke: That’s something that I would encourage you to watch real closely is what’s going on, on the luxury new vehicle side of the business. Exchanging a BMW for a Ford exchanges a lot of margin one way versus the other. And I think that’s something that we all need to watch as the industry from a luxury perspective slows down in the fourth quarter. Usually, it speeds up. And so we’re hopeful that the manufacturers will see that and bring — start to get really aggressive on incentives.

Rajat Gupta: Understood. Understood. We’ll keep an eye on that. And a follow-up was on just the warranty penetration. It looks like it dropped from the second quarter by a couple of hundred basis points. I’m curious, was that just again like mix driven because of electric vehicles and those are leads? And your guide was like a further step down in fourth quarter. I’m just curious what’s driving that? And what’s like a normalized number we should assume when we head into ’26?

Frank Dyke: Yes, if it’s BEV and ex that out, it would have been normal numbers.

Danny Wieland: And to that point, that’s with the sequential headwinds we saw in F&I, it’s primarily the warranty penetration. You got a higher lease mix on BEV. And then again, as we go into the fourth quarter, typically, our fourth quarter F&I is actually a bit lower because of that higher luxury lease mix that we see in 4Q in normal years. But as we go forward, we talked about, I think it was the last call that 2,700 or so is an achievable, consistent run rate in a normalized powertrain mix and brand mix for us, particularly when you think about the benefits of the new JLR stores that we’ve added in their F&I performance.

Operator: Our next question is from Bret Jordan with Jefferies.

Patrick Buckley: This is Patrick Buckley on for Bret. Circling back on EchoPark, it sounds like there were some unique headwinds this quarter with the off-rental slowdown. Should we expect any of that to persist into next year? And I guess, should we still be thinking about an acceleration in EchoPark next year as well?

Frank Dyke: I think it will — no, I don’t think it will persist into next year. And I think we’ll find ways to overcome that by buying more cars off the street. And we’re excited, as David talked about in his opening comments, we’re going to start to grow EchoPark again next year. So how many stores we open, probably more tailored towards the end of the third and the fourth quarter next year. But with more off-lease vehicles coming back, inventory getting right, prices are going to continue to drop. That’s going to be a big help. And so ’26 should be a good year for EchoPark and then beyond. And we’ll open a few stores next year, like I said, in the last 6 months and then really start growing in ’27.

David Smith: And this is David. I think it’s really important to mention that we’re building the EchoPark business just as we’ve built our core business, not quarter-to-quarter, but we are building it for the long haul. And so we’re keeping that in mind, we’re going to grow the EchoPark business just as soon as we can and grow it efficiently and smartly. Our team has gotten a lot better about where we build and how much we spend on building and our training processes and all of that. I’m just very excited about the future of EchoPark and what we can do once we really step on the gas of growth. So there’s more to come in the future.

Patrick Buckley: Got it. That’s helpful. And then looking at the Q4 outlook for 10% to 11% growth in fixed operations gross profit. I guess, could you talk about the driver moving forward there, price versus volume? Is there any tariff inflation going on there? And maybe the warranty pipeline, how does that look from today?

Frank Dyke: Warranty pipeline looks good. Lots going on. Look, what’s driving this for us is our additional headcount and tech count. From March of ’24, we really started focusing on growing our techs, training our techs, maturing our techs. That’s making a big difference. We’ve got the stall count. We’ve got the headcount, and that’s making a huge difference for us in delivering. And the thing is that the pipeline is long. There’s just — we see growth year after year after year. And I don’t see it slowing down. I see it speeding up. And so we’re very, very excited about the efforts we’re putting in there to grow our share from a fixed operations perspective across all of our markets.

David Smith: And I tell you — this is David. I’d tell you that our team has just done an outstanding job retaining — as I mentioned in my comments, retaining and growing those techs that we’ve really changed the game and changed the attitude of how we hire techs and retain them.

Operator: Our next question is from Chris Pierce with Needham & Company.

Christopher Pierce: On the franchise side of the business, I just want to make sure I’m following. Was there a demand pull forward in — like maybe people switching powertrain choices in the third quarter, and that’s leading to inventories being elevated in luxury in the fourth quarter? Or are those not related? And are we still expecting typical seasonality and we’re expecting the OEMs to step up? Like how does that all sort of fit together if it fits together at all?

Frank Dyke: It’s definitely a pull forward from a BEV perspective because the incentives ended at least for most brands, and that definitely happened. And inventory is growing from a luxury perspective. We’re at our highest inventory levels of the year. Incentives are going to have to grow in order to speed up the volume. And we are not seeing that in October. Like I said, BMW, Mercedes, those brands for us, and I was doing industry checks yesterday, we’re talking 15%, 20% reduction so far in this calendar month. And I’ve seen that in some of our competitors as well. That’s tough. The manufacturers need to step up or inventory is going to grow. I think you’re going to see the same seasonality, but our growth is usually 10% third quarter to fourth quarter.

This year, we’re expecting that to be in the 5% range. And like Danny said earlier, last year, it was 20%. So you can do the math. The manufacturers are going to have to step up or inventories are going to grow and margins are going to start coming down. Not having BEVs is going to help margin, but inventory growth can pull margin back if they don’t step up and put some incentives out there. And that’s a real serious situation. I said it earlier, you got to watch that. Watch what happens in luxury during October, and then we’ll see if that spills over into November and December.

Christopher Pierce: And have we seen a situation like this where the OEMs wait and wait to pull the trigger on this? Or is it just the market is so kind of weird because of all the incentives that this is uncharted territory?

Frank Dyke: Yes. I think the market is weird with the shutdown in — of the government shutdown. There’s some strange things going on here. The tariffs certainly are playing a role, but we — it’s a big — pretty big dropoff in luxury volume in October year-over-year, in particular, around BMW and Mercedes. Land Rover is a little bit the same, too. Now our business is growing because we’ve got stores that we didn’t have last year, but in our numbers. But — the luxury business has slowed down in October. And the first 9 months of the year were weird, [ pillaheads, ] tariffs, all kinds of crazy news. This is just sort of a normal month, October and November. And we’ll see what happens. Like I encouraged Rajat earlier, you need to watch that and watch what happens from a new car luxury perspective. That’s an important mix changes bottom lines, right? And that’s important to watch as we move through this quarter.

Christopher Pierce: Okay. And then just one on EchoPark. Can you just sort of help me understand, is it typical industry seasonality that rental car companies bring cars to auction at a higher rate in the third quarter after summer travel and that sort of didn’t happen this year? Or like is it something — going back to industry weirdness, is it something that unexpected that happened? Or I just kind of want to flesh that out a little bit.

Frank Dyke: Yes. Typically, they defleet. And so we pick up inventory. They did not do that this year. And I think it’s just the unknown of the tariff and whether they were going to be able to buy new cars or not. And so we’re seeing a little more inventory come in, but not at the levels that they normally do. We typically have 1,500, 1,000 vehicles in our mix from them. And I think I looked at the other day, we were down to 133 units on the ground. And so that’s just not normal. And so we’re having to replenish that. It did catch us a little off guard in the third quarter, but still nicely EBITDA positive, and we’re very excited about the year for EchoPark. I mean it will be a great year in comparison to the last few, as you know, and then really excited about ’26 and ’27 and moving forward with our growth plans.

Heath R. Byrd: Yes. I think to add to that, I think it is interesting that we can handle those kind of bumps now. We’re built to be more efficient. So when you have something that comes like this, we’ve got the scale and we can handle it. When in the past, it was more difficult.

Frank Dyke: It didn’t blow up the P&L.

Operator: [Operator Instructions] Our next question is from Mike Albanese with the Benchmark Company.

Michael Albanese: I’m just going to squeeze in a quick one here as you think about, I guess, EchoPark, right? And this was built to kind of compete with the CarMax model. And coming out of the quarter, CarMax had hit a situation where depreciation essentially had picked up pretty significantly. I think kind of a follow of the pull forward in demand seen kind of in the first half of the year. And I’m just wondering if that heightened depreciation that I think hit over the course of like 6 to 8 weeks, it’s like 2/3 of the typical annual depreciation curve. If that had an impact on your business, how you think about that and kind of what that impact was?

David Smith: Yes. I think we felt the same thing. MMR increases in the second quarter, 106% to 107% drove our average cost of sale up. We tried to pivot to the rental sector. It wasn’t available. And so we made the decision to cost us the 2,000 units in volume. So yes, we saw the same thing.

Michael Albanese: Yes. Right. I guess the takeaway there being that generally, your sourcing mix being a little bit different kind of protects you against that situation a little bit. Does that make sense?

Frank Dyke: Yes.

Danny Wieland: And if you remember, Mike, we — If you recall, we guided to back in July, we expected a little bit of front-end GPU compression, a couple of hundred dollars from 2Q to 3Q as a result of this kind of what we were seeing in the wholesale market and wholesale and retail pricing spreads. What really was the headwind for us that was unanticipated was the volume impact. We didn’t have alternate sources, and that’s what put pressure on the performance. If you think about those 2,000 units that are normal GPU, really, that’s the shortfall in 3Q that caused us to pull down our full year EchoPark EBITDA guide.

Frank Dyke: But smart not to go out and try to replenish that volume buying a bunch of cars at auction, they’re going to bring the margin even down further. So good decisions made. We need to be more aggressive in buying cheaper cars off the street, and that’s something we’re focused on for the fourth quarter and moving forward.

Operator: With no further questions, I would like to turn the conference back over to Mr. David Smith for some closing remarks.

David Smith: Well, thank you very much. Thank you, everyone. We will speak to you next quarter. Have a great day.

Operator: Thank you. This will conclude today’s conference. You may disconnect at this time, and thank you again for your participation.