Sonic Automotive, Inc. (SAH) Earnings Call Transcript & Summary

Good morning, and welcome to the Sonic Automotive First Quarter 2025 Earnings Conference Call. This conference call is being recorded today, Thursday, April 24, 2025. 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'd 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 First Quarter 2025 Earnings Call. As he said, 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; and our Vice President of Investor Relations, Mr. Danny Wieland. We 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, our manufacturer and lending partners and our guests are key to our future success. And as always, I would like to thank them all for their support and loyalty to the Sonic Automotive team. Turning now to our first quarter results. GAAP EPS was $2.04 per share. And excluding the effect of certain items as detailed in our press release this morning, adjusted EPS was $1.48 per share, a 9% increase year-over-year. First quarter consolidated total revenues were a first quarter record, up 8% year-over-year, while consolidated gross profit grew 6% and consolidated adjusted EBITDA increased 7%. Moving to our Franchised Dealerships segment results. In the first quarter, we generated first quarter record franchise revenues of $3.1 billion, up 9% year-over-year. This revenue growth was driven by an 11% increase in new retail volume and a 6% increase in fixed operations revenues. First quarter results benefited from an increase in new vehicle sales in the final days of the quarter, which we expect was the result of customers buying in advance of tariffs that went into effect on April 2. Our fixed operations gross profit and F&I gross profit also set first quarter records, up 7% and 9% year-over-year, respectively. Same-store new vehicle GPU was $3,089, down sequentially from the fourth quarter due to our luxury brand mix and in line with our guidance given on our last call. On the used vehicle side of the franchise business, same-store used vehicle volume decreased 2% year-over-year, driven by lower levels of late model used vehicles and consumer affordability challenges. Same-store used GPU increased sequentially to $1,555 per unit. Our F&I performance continues to be a strength with same-store franchise F&I GPU of $2,442 in the first quarter, up 1% sequentially and 4% year-over-year. The continued stability in F&I at these levels supports our view that F&I per unit will remain structurally higher than pre-pandemic levels even in a challenging consumer affordability environment. Our parts and service or fixed operations business remains strong with a 7% increase in same-store fixed operations gross profit in the first quarter. This strong growth was driven in part by higher levels of warranty repairs, combined with the effects of the increase in technician head count we achieved in 2024. Turning now to the EchoPark segment. First quarter segment income was an all-time quarterly record $10.3 million, and adjusted EBITDA was an all-time quarterly record of $15.8 million, up 116% year-over-year. For the first quarter, we reported EchoPark revenues of $560 million, flat year-over-year and all-time record quarterly EchoPark gross profit of $64 million, up 21% from the prior year. EchoPark segment retail unit sales volume for the quarter was approximately 18,800 units, up 5% year-over-year. On a same market basis, which excludes closed stores, EchoPark revenue was up 3%. Gross profit was up 19% and retail unit sales volume increased 7% year-over-year. EchoPark segment total gross profit per unit was an all-time quarterly record of $3,411 per unit, up $456 per unit year-over-year, rebounding from the temporary GPU pressure we faced in the fourth quarter, as we indicated on our previous earnings call. We continue to believe that our data-driven centralized inventory management strategy is a key differentiator for EchoPark, which should help to minimize disruptions from market volatility in the short-term while maximizing EchoPark's long-term growth potential. When combined with the strategic adjustments we've made to our EchoPark business model, we believe we are well positioned to resume disciplined long-term growth for EchoPark once used vehicle market conditions sufficiently improve. Turning now to our Powersports segment. We generated record first quarter revenues of $34.4 million, first quarter gross profit of $8.5 million and a segment adjusted EBITDA loss of $700,000, which was in line with our expectations for a seasonally light first quarter. 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 expand our powersports footprint. Finally, turning to our balance sheet. We ended the quarter with $947 million in available liquidity, including $430 million in combined cash and floor plan deposits on hand. We continue to maintain a disciplined balance sheet approach with the ability to deploy capital to grow strategically as market conditions evolve. Additionally, I'm pleased to report today that our Board of Directors approved a quarterly cash dividend of $0.35 per share payable on July 15, 2025, to all stockholders of record on June 13, 2025. As you can see on Page 13 in the investor presentation we released this morning, we have updated or withdrawn certain items in our previous financial guidance for 2025 in light of uncertainty around the effects that the tariffs are expected to have on the automotive industry. We are working closely with our manufacturer partners to understand the tariff impact and our manufacturer production and pricing decisions and the resulting impacts that tariffs may have on vehicle affordability and consumer demand. Despite these challenges, our team remains focused on near-term execution 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 stockholders. This concludes our opening remarks, and we look forward to answering any questions you may have. Thank you.

[Operator Instructions] Our first question comes from the line of John Murphy with Bank of America.

I just wanted to ask a first question around sort of the obvious on tariffs and just maybe from 3 specific angles, if you could comment as best you know right now. First, what kind of commentary are you getting from your factory partners? Second, as you think about the pull forward in March and early April, what you're seeing outside of your stores, maybe inside of your stores on pricing and GPUs because it doesn't seem like you've necessarily taken advantage of stuff there yet, but there's certainly stories of other folks. And then third, what kind of impact do you think the uncertainty has around M&A activity and pricing?

It's Jeff, John. From a manufacturer's perspective, this is the all balls in the air right now. No one really knows. Parts are coming in from out of the country on American-made cars. And so it's -- for us, it's just steady as she goes. We had a great first quarter. We think we're going to have a great second quarter. And we believe, based on conversations with the manufacturers over the next 90 days that things will settle down. Is there going to be a price increase? Maybe, but we don't see it as being a 25% price increase. And we've had price increases before, and we faced a lot tougher situations than this. And the industry is teflon from my perspective. We can -- we'll battle our way through this. And so we just are not watching the news. We're putting our head down. We're going to work. We're very focused on executing our playbooks, our processes, and we think those results showed up in the first quarter, and we'll see what happens in the coming months ahead. But I'm not -- and our team is not too concerned that we won't have solid resolution over the next 90 days or so. And I think the manufacturers will end up participating if the tariffs come along in some sort of cost-cutting measure to help with MSRP pricing. Maybe the dealers and the consumers have to participate a little bit, not sure yet. And hopefully, the governments will come along and get a hold of this. But at the end of the day, it's not some massive concerns. In terms of M&A, it hasn't really made a huge difference at this point. We've got a lot of discussions going on. Certainly, it's come up. If anything, maybe it's -- we're buying a little bit of time just to kind of see what happens over the next 90 days before we finalize some transactions, but no big changes there from our perspective.

And John, this is David. I think one thing to mention about pricing because I think you alluded to it is that some dealers out there are, I think, taking advantage of the situation and taking advantage of customers, and we're definitely not doing that. We're -- we have our -- the highest guest satisfaction we've ever had, and we want to keep it that way. And so we're doing more market pricing and not gouging our customers.

I appreciate the balanced view. Maybe just one quick second one on fixed ops. I know you guys were a little slow on head count hiring last year. Just curious if there's any update there and what kind of opportunity you think there is to ramp up that hiring process and really the same-store sales a lot higher.

Yes. It's Jeff. Look, at the end of the day, since last March, we've hired 345 incremental technicians in the organization, and that's made a huge difference for us in terms of fixed ops. So we'll continue to hire as we grow through the year. We've got capacity with open stalls and bays for those technicians that we're hiring. And it's been a huge focus for us, as you know, since the end of the first quarter last year when we sort of put our stake in the ground and changed our culture in our fixed operations departments to focus on bringing in more technicians as a part of our culture and driving our growth. And I think the results have proven that in the last 4 or 5 quarters.

And we've had a number of stores where we opportunistically, we're growing our service. We're building new stalls, adding stalls. So there's definitely opportunity to grow.

I agree. As a quick reminder on that, John, we added about 1/3 of those head count in the last 2 months of last year. And so we're still really trying to get those newly hired or newer hired technicians to full productivity. So there's still some runway there. And right now, with the additional warranty and recall activity we're seeing, there's a lot of volume running through the service lanes. So as we go forward and get those technicians fully productive, we'll be better to balance -- better able to balance the customer pay and warranty side of the business as long as these warranty tailwinds persist.

Super helpful. Just one follow-up on that. I mean as you think about the opportunity, is a lot of it volume or because you're in the high class -- you have the high-class problem of too much demand that you might see door rates inch up a bit?

I mean we're looking at our door rates on a quarterly basis, John. That's something that's been ongoing forever. Now the demand, the volume is there. There's just plenty of volume from a fixed perspective, and we're taking advantage of that. And there are more techs to be hired. And our culture has taken over. We're not having to push so hard to hire techs. The culture has taken over, and our teams are out bringing in techs and they see the results. It's made a big, big difference. And again, that's been a year in the making of really changing our store level culture from a fixed operations perspective to get us to where we are. And as David and Danny said, there's a lot of upside there.

Yes. And John...

So fair to say volume and price, right, opportunity?

Yes.

Yes. I'll just add one point, John. And speaking of tariff impact, services is one of those areas where we can pass that along to the consumer. So that's another opportunity. We think if there are tariff issues, people are making a buy versus repair decision that can help that. And if we can pass along the tariff increase to the consumer.

Our next question comes from the line of Bret Jordan with Jefferies.

This is Patrick Buckley on for Bret. On the used side, could you talk a bit more about what the GPU trajectory looks like from here? I guess with Q1 above the '25 outlook, when should we start modeling in contraction and what's driving that?

I mean it's just sort of an unknown right now based on what's going on with the tariffs. If nothing changes and things are steady as she goes, I mean, the margins that you saw in the first quarter should hold true on the franchise side throughout the end of the year. And EchoPark's margins are growing. We're buying a larger percentage of our cars off the street. We've moved from 20% to 25% up to 30% to as high as 35% of the cars now on a weekly basis coming from street purchases. That's making a big difference in our front margins. And that really helped out in March of the first quarter, and it's carrying over into April, and that's a change for us. So front-end margins are improving there, and we expect that to continue.

Great. And then I guess on BEVs, have you seen any changes year-to-date with the current administration and just a little shakeup as far as mandates? And I guess what's the current outlook there on inventory versus demand?

Yes. It's dropping, if we have less supply. Yes, we're -- I mean, everything positive there. I mean the thing is, is that now inventory levels are beginning to get closer to matching what consumer demand is. And that's where it should be.

The demand is lining up with...

With the inventory levels, right? And so we're applauding that. We're having to carry less inventory that doesn't turn as fast. We think the manufacturers are coming around. And that's the new administration that's supporting that, and that's a big applause from this team.

And you could see in the front-end GPUs, we had a headwind of around $350 and the full year of 2024 is down to $200 in Q1. So aligning that inventory to demand is helping reduce that headwind in EV GPU.

And we think some of our manufacturer partners are doing a great job with offering vehicles that -- where it's really -- speaking of customer demand, the customer gets to select their drivetrain. And that strategy is a great strategy. So if they want an electric vehicle, they can choose an electric one or if they want an ICE, they can choose that, we like that strategy.

Our next question comes from the line of Jeff Lick with Stephens Inc.

First one is, I wonder if you could break down the warranty work, the service and parts work a little bit as it relates to warranty customer pay. I know you're getting to it a little bit, but just what the metrics were in terms of warranty growth as it relates to the comp and customer pay?

Yes, about 40% warranty growth in the first quarter versus the 2% to 3% customer pay growth. That's not a mix we like at all. It's an adjustment that we're making. We need to -- a lot more focus on getting our CP customers through the lanes and pushing the warranty work out a little bit. And those are adjustments that you'll see us make in the second quarter. That's just too big of a differentiator in the mix between warranty and customer pay for our liking. And there's a lot of warranty work out there that can't be helped. But we need to adjust in terms of that mix coming through our lanes.

And we think it's a great sign of our -- that our team, you may want to mention that, that they already highlighted and noticed that. It wasn't like that was just noticed this.

Yes. The team towards the end of the first quarter saying, look, this is just not -- the mix of revenue coming through the service drive is not the mix we like. We need to start making some adjustments and those adjustments are being made. And we've got the technician head count now to handle that, and that's growing. So put all that together, and we think we can pivot pretty quickly in how that mix is coming through the service drive in the second quarter.

Is there evidence or do you have ways to track kind of the occurrence of crowding out customer pay because of the warranty? I mean, do you see yourself even inadvertently turning away customer pay jobs in lieu -- in favor of warranty?

Not intentionally, but it's common sense. I mean if you've got that much warranty coming through, it's easier work. It's higher margin. It's -- everybody is taking the licks at that. And it's just -- it's not the right way to run the shop. You need to load the shop differently. We know that just a lot of warranty hit us all at the same time. And service rider can take a warranty job in. Technician can flip it and get another one real quick because there's another one standing in line. And so we're not doing the additional service requests and the things, I think, from a playbook perspective that we should do. We got to slow down and execute at a higher level. It's great to have the warranty work. It certainly played a big role in our quarter from a fixed perspective. But we can do a better job in making sure that we're balancing customer pay and fix the right way -- customer pay and warranty the right way and loading the shop appropriately, and we're making those changes.

Yes. And I would say it's more -- rather than saying turning customers away, it's more scheduling properly.

And just a quick one on EchoPark. If you -- and this is kind of just a hypothetical. If you think about a tariff scenario where let's just say the SAAR does go down, pick your number, 1 million units, 1.5 million because prices rise. And obviously, that's going to come at the franchise dealers, there'll be less trade-ins where franchise dealers tend to get more of their supply through trade-ins. I'm just curious, I could see either way how this could affect EchoPark. Obviously, EchoPark is -- the whole premise is it's a value proposition. When you think about the puts and takes of all the different dynamics in terms of less stuff going through the auction lane and whatnot. Do you guys view a tariff scenario as beneficial to EchoPark? Or would it be a headwind?

Well, we've seen this video before, right? I mean we played this out in '20 and '21 and '22 with COVID, and we're prepared for it. That's why you're seeing us buy a lot more cars off the street. We think we can push that up even higher, maybe the 40% to 45% level. That's just turning knobs. We are really in shape for something like this where I would say that we were not when COVID hit. And so it could have been a headwind if this was 2020, but we don't look at it like that now. We're very prepared and just had an amazing first quarter with EchoPark. We look to have another one in the second quarter. April shoring up that way. So -- and prices at the auctions are already up over $1,000 a car from what we're seeing in buying, but margins are continuing to grow, volume is solid. So I don't see it being a big problem.

Also, we're -- if you think about it, we've noticed that especially in our mature markets, as you may have heard on our previous call, our EchoPark stores have the #1 Reputation.com score in the industry. So we're seeing a lot of repeat customers, their friends and family coming to EchoPark. And those people, as you've seen, our gross is going up, people are identifying EchoPark and saying, we want to go there and buy a car. I'm just choosing to go there first, and I think we're seeing that in our numbers. So I think that our team will adapt. So if prices go up, I still think that customers will pay for that amazing guest experience.

[Technical Difficulty] Not just the sourcing, obviously, sourcing to go up, but if your demand goes up, and your value proposition goes up even your prices could go up, but your value proposition relative to the alternative could actually widen. That's what I was trying to get at...

100%. We saw that at the end of March, and we're seeing it in April. [Technical Difficulty] including our own franchise stores. It's just the difference in the model. And we really have that dialed in, in particular, around the inventory management, day supply, how fast we're moving inventory through the system, 20 to 22, 23 day supply on lot. We're turning those cars in 12 days just as fast as they can go. And we don't -- the inventory is not sitting. And so it just [Technical Difficulty]

[Technical Difficulty] Greater between what we saw in '21 through '23 versus [Technical Difficulty] lot smarter and more nimble than we were even 24, 36 months ago.

415 cars, a rooftop in March, every store profitable and the big EchoPark store is among the most profitable that we had in the company. And so we've got it dialed in. And now the question is, can we get inventory to stabilize a little bit because once we do that, we can start opening some stores, and we're hopeful that towards the end of the year or the beginning of next year, we can start announcing, hey, we're going to bring a strategy that shows you how we're going to grow the footprint of EchoPark.

And it's worth mentioning that our new EchoPark store in Houston, for example, we've gotten -- speaking of things we've learned is we opened that store and I think...

November.

I mean, it went off like very efficiently. We've got a mature team in there, and they did 400-plus cars like in their second month.

Yes, and have been profitable since day 1, so -- which is just a great sign.

Our next question comes from the line of Rajat Gupta with JPMorgan.

Great. Sorry, I have just one more follow-up on EchoPark here. The first quarter results, obviously pretty strong here. It looks like you did take up your full year guidance, but maybe it seems a bit conservative in the context of how strong the first quarter was. It looks like you feel good about the EchoPark retail GPU, the F&I, you maintained your unit guidance. I'm curious like why isn't the guidance higher than the range you provided based on the first quarter start? Is there [Technical Difficulty] Sorry, I think like there might be some issues with my line, but I'll try again.

We heard your question.

You did. Okay, great.

Can you hear us?

It broke up like in the response, but I can check the transcript. Maybe it's on my line, but I'm not sure that like others have got it. But if you want to repeat the answer, that's fine, [ you said ] on SG&A.

Yes, it's no problem. We said you sound like our Board of Directors yesterday in our Board meeting asking the exact same questions. And look, the tariffs are playing a role in our forecast there. We'll get a lot more -- we can get more aggressive if things play out the way we think they're going to from a tariff perspective and they turn positive. But we need to be conservative there, Rajat. So we don't get out ahead of ourselves if things do get tighter from a used car pricing perspective. And so further adjustments as we get into announcing the second quarter if things play out the way we think from a tariff perspective.

Understood. That's helpful. And then just on SG&A, one of the things you've noticed in your print and some of the peers that have reported, we did see a little more deleveraging in the first quarter than maybe at least what I had been expecting and maybe some other investors might have been expecting. Some of your peers talked about like some weather headwinds in January, February, a couple of lower selling days that might have caused that. I was curious if there's anything you would want to call out on the SG&A, if the leverage was in line with your expectations? Or was it worse or better? And also like just -- have there been any pay plan or commission type adjustments within the workforce that's maybe driving the SG&A higher and which could be more sticky. So just wanted to unpack all of this a little bit, if possible. That's all I have.

I could just mention that our -- this is David. From our kickoff to the year, we had a big focus on SG&A and expenses and throughout the company in our annual meeting, and we think that, that's taking effect as you see it in the numbers. But...

Yes. I was just going to mention, there are a few things that are first quarter onetimes. We had some compensation that was just for the first quarter that will be driving that up. But there's nothing that's material. There hasn't been any changes in pay plans that would have caused that. It's really just your first quarter things that we clean up in the first quarter such as payroll taxes are higher, et cetera, but nothing systematic that is going to be going through the next 3 quarters and through the year.

And maybe one final point on that. We reaffirmed our full year consolidated company SG&A target in the low 70 range. And so there's going to be some puts and takes as to what comes from the franchise and what comes from EchoPark as we go through the year. And obviously, depending on how the tariff situation plays out on demand and volume, volume is a big driver of sales compensation, the variable compensation piece. But overall, we're still in line with what we anticipated for the year through the first 3 months.

Yes. And I think -- this is Heath. I think it's interesting to point out that this quarter, EchoPark's SG&A as a percent of gross was lower than the franchise. And that just shows you as the volume and the gross increases, you have more money that flows to the bottom line quicker because of the fixed expense structure that we have at EchoPark.

Our next question comes from the line of Daniela Haigian with Morgan Stanley.

One more on EchoPark, and apologies if you answered this earlier. I also had some connection issues. But you mentioned anticipating an increase in used pricing, uplift to demand as a result of tariffs with newer used vehicle supply still tight even with the mitigating factors like diversifying your sourcing and off-lease incrementally improving in the next year or so, do you see opportunity moving into older used vehicles to meet some affordability concerns as well?

I mean we did that during COVID, Daniela. This is Jeff. We did it during COVID. It's a small percentage. It's 10% to 15% of the overall volume, maybe even less at times. And sure, we would flex that way if we need to. We haven't seen a need to do that yet. And remember, we've reduced the number of stores we had. So we're down to 17 EchoPark stores. We can buy enough inventory to support those stores, both off the street and trades and through the auction lanes. So I'm not too concerned about getting inventory. We'll watch pricing and adjust the mix accordingly. But if we need to, no question, we can increase the percentage of 5, 6, 7, 8, 9, 10-year old vehicles. It just adds complexity to the business when you do that. Recon times take longer. There's just a lot of complexities, and we're trying to stay away from that because complexity is not part of the EchoPark model. But it's certainly something that we have the capability of doing and we did during the COVID years.

Our next question comes from the line of Michael Ward with Citi Research.

Sorry about that. One thing we haven't touched on is that if we get these price increases for tariffs, you get a corresponding increase in the residual values of vehicles coming off lease, particularly at the luxury end, the import luxury end. How fast do those residual values adjust?

I mean they will adjust quickly, Michael, but we're still dealing with the lack of lease returns from lack of lease sales in the...

That was my next question. So do you have any line of sight on that? When does that start to turn the other way?

In next year, you'll start to see yes, an adjustment, but not in this calendar year, no way.

So if anything, some of those vehicles coming off lease this year at the lower supply, you'll get a pretty big increase in the residual that should help on the CPO side and offset...

It can. Yes, it can.

Okay. To help mitigate it. Okay. All right. And then one last thing on EchoPark. You kind of alluded to that the timing of considering reopening some of the locations could be at the end of the year. If you do -- it sounds like you're going -- showroom traffic has picked up. You certainly -- your costs are in line and some of the other things. If necessary, can that be accelerated? Or are you still just going to wait and see before you turn the keys back on?

Yes. I can tell you that we are -- our team is, as Jeff mentioned earlier, we've learned a lot from the pandemic and how to open stores and when to open stores. And I think you're going to see that in the future quarters that if these -- if our performance continues the way it did in this quarter, you're going to see us opening some stores. And we found that we can very efficiently open them, like the one in Stafford, for example, which, by the way, was that particular location that Jeff Dyke was the General Manager at that location back in the day.

First GM job.

[indiscernible] Great. But we got -- once we acquired that location from the time we did to opening was a very short period of time, and it was off to the races as I mentioned earlier in the call. Within a couple of months, we're selling over 400 cars out of that location. So once we get ramped up and get going, again, you're going to see we're able to do [ it very ] quickly.

And this is Jeff. We've got, obviously, properties, facilities that we own that are ready to go, things that we can go pull the trigger on. There needs to be some stability here. Yes, God, it's just -- we were laughing the other day. It's just keep throwing it at us. We're teflon. We can handle anything. And so this is tariffs, what the hell, who cares? [indiscernible] It's honestly an important message, I think, for the Street and our team is to understand we've got a lot of leather on our skins. We've been through this before. We've seen a lot of curveballs thrown at us. It'd be nice to have a year or 2 of just straight, let's go sell some cars and service some cars and have some great guest experience and build the great technologies. But we'll deal with it, and we seem to always find the rows here in the garden. And we'll do that again with this little gig that we're facing. So we'll see. It's going to be a fun year. We're going to sell a lot of cars. EchoPark is going to do great, but a few bumps in the road, so to speak.

And our EchoPark Chief Operating Officer, Tim Keen, is not here with us today because his daughter is getting married this weekend. But we can tell you that Tim has been on the road looking at potential locations recently that are -- that we're really excited about. So we'll have more on that in the future.

It sounds like you planned it out properly back when you made those decisions. So...

We did it.

Yes. It will give you the flexibility.

Our next question comes from the line of Chris Pierce with Needham & Company.

Can you just walk me through -- I think the question was asked earlier on used vehicle GPU. I just want to make sure I understand the assumptions when I look at first quarter recent history and then the guidance. Is it that because prices might go up and you still want to move units, yourselves and the industry will take a lower GPU? Or is there something I'm missing? I just want to make sure I understand the puts and takes there.

Meaning GPU or margin percentage from a franchise perspective.

[ $1 ] GPU.

Yes, $1 GPU from a franchise perspective, that's something crazy happens with the tariffs, we ought to be in the same ballpark that we're in now. I think we're at $1,500 and something. That's kind of -- we've been operating for years now in the $1,400 to $1,600 range. And somewhere in that $1,500 range, we're going to be from a franchise perspective. I don't see that really changing. And then -- but I do see EchoPark's front-end margin getting better historically because of the percentage of cars that we're buying off the street and we're trading for versus the percentage of cars, the mix is changing that we're getting from the auction. That's now a 70-30 mix, a 65-35 mix. It was an 80-20 mix. And just by definition, if you're buying cars off the street, you're going to have better margin.

Yes. And this is Heath. One thing to add, I think the disconnect here is one of the big issues is you have seasonality. And so as we go through the years, through the quarters, you're going to have certain quarters that are historically lower. And so you're going to end up, like we said, between that $1,300 and $1,500 range.

Okay. And then just lastly, one on EchoPark F&I per retail vehicle. If I look at the number this quarter and then look at the guidance, I mean, was there some -- is there seasonality based on the type of customer you see in the first quarter that takes a higher percentage of warranty or pays a higher interest rate, so you can sell up the loan at a higher amount? I just want to understand because it looks like the per vehicle number comes down through the rest of the year to get to the guidance at EchoPark.

Yes. Honestly, we're probably being conservative there. We're executing at a really high level from a warranty penetration perspective. We've done some cost work on what we're paying for warranties and managing that better. That's flowing in other products. Those are flowing to the bottom line. So our F&I performance is just stronger, and I would project that it's going to continue to be stronger.

Okay. And just to clarify that, you're saying that you're seeing price advantages from your third-party warranty providers, and that's flowing through. [indiscernible]

We're seeing price advantages from moves that we've made with our third-party warranty providers that's flowing through the -- to the bottom line. Yes.

Again, it's also important to emphasize again that our team, our EchoPark team is delivering the #1 guest experience in the industry. So there's no doubt that that's reflecting in the numbers.

And we have reached the end of the question-and-answer session. I would like to turn the floor back to David Smith for closing remarks.

Thank you, everyone. We'll speak with you next quarter. Have a great day.

Thank you.

Thank you. And this concludes today's conference. You may disconnect your lines, and we thank you for your participation. Have a great day.