EchoPark focuses on shopper experience, F&I products

CHARLOTTE, N.C. — Aggressively priced, nearly new vehicles are driving sales volumes and profits at Sonic Automotive Inc.'s EchoPark used-vehicle-only stores, including its outlet here, which sold 17 vehicles on a hot Monday late in June.

The Charlotte store, which opened in October 2018, is just a few miles from Sonic's corporate headquarters and has been profitable since its first full month. Built on the site of a former strip mall, the new store, decked out in green and earth tones, features a parklike entrance and 250 vehicles on the lot.

It doesn't feel like a car dealership. And absent the lifestyle-experience pictures featuring a topless Jeep full of friends or the happy dog leaning out a car's window into the wind, you might not know EchoPark sells cars.

There are no vehicles parked in a showroom, and no used-car salesperson waiting in the parking lot. Instead, guests — as Sonic and EchoPark call its customers — are greeted by salaried associates wearing EchoPark shirts or vests and with a sign reading "every car deserves a happy owner." The store features a large, tree-shaped wooden art piece at the arrival desk. Sonic President Jeff Dyke said the code-name for EchoPark was "tree trunk" when Sonic was developing the concept. Now, each EchoPark store features a large, wooden tree.

There's an easygoing vibe inside EchoPark. Dyke called it "kind of a cross between a Starbucks and an Apple store" during a visit.

"We're trying to provide a great experience, and we know that when we're open, we're transparent and provide that great experience. That customer, whether they don't buy from us today, they're going to come back after they experience the rest of the world," Dyke said.

Since 2014 Sonic has been working to perfect the EchoPark experience and to do so profitably. Some of Sonic's public retail competitors have stumbled launching or have abandoned used-vehicle-only brands.

Visitors can view reconditioning work inside the store, and kids can stay busy in a Small Blocks toy area complete with an Xbox. There's table seating throughout, with some more private areas. Instead of salespeople, there are "experience guides" who walk customers through the buying process. "But there's no pressure here," Dyke said.

EchoPark features no-haggle pricing, and customers have to use EchoPark's approved in-house finance sources such as Ally, Bank of America and Wells Fargo or pay by cash or certified check.

Steve Inga, a finance coach who structures deals for guests, worked at CarMax for 11 years. He called the EchoPark store culture a "family atmosphere." When guests arrive, they are shown where they can find a bathroom and grab a cup of coffee or water.

Guests also can view inventory on iPads at the Imagine Bar, which then shows the vehicle on a large TV screen on the wall. One couple who visited the store on a Tuesday in June pulled up a 2016 Mercedes-Benz E-class and scrolled through photos of the interior before taking the vehicle for a test drive.

EchoPark vehicles go through a 190-point inspection. "Our Carfax shows zero accidents, with no frame damage, structural damage, flood damage or salvage titles," Inga said. Vehicles for sale are 1 to 4 years old and have less than 50,000 miles.

"Our brand promise is to get you the best-quality used vehicle way below market value and make it a really easy process," Inga said.

EchoPark of Charlotte, which employs about 65 people, is just an eight-minute drive from a CarMax store. And Dyke said Sonic wants EchoPark to be compared to CarMax, the nation's largest used-vehicle retailer, which has more than 200 stores nationally.

"CarMax deserves a competitor and one that's gonna be good for the industry, one that's healthy," Dyke said. "And we believe we're that answer."

The Charlotte store, a medium-size EchoPark outlet, is selling about 400 units a month.

Sonic CEO David Smith believes each EchoPark store has room to grow sales, and he wants to focus on quality growth. Sales from the company's existing footprint of eight stores have grown. In June, the company said it had customers shopping at its stores from 121 U.S. markets. That's grown to more than 140 markets as of October.

Sonic plans to add four EchoPark outlets by the end of 2020, including one slated to open late this year in Signal Hill, Calif., near Los Angeles.

EchoPark has been profitable for three straight quarters this year, posting pretax profit of $2.1 million in the third quarter. It's taken EchoPark five years to find financial success.

"We knew from the beginning we would make mistakes," Smith said.

The company has shuttered some service centers in Colorado and decided for now to scrap service at EchoPark stores because of complexity and cost, instead pointing guests to franchise Sonic stores, Dyke said.

Most of EchoPark's profitability comes from the money it makes through finance and insurance products and services. Tables at EchoPark feature laminated Ally sheets discussing Premier Protection Guard products.

In the third quarter, EchoPark's total front-end and F&I gross profit per unit retailed was up 26 percent to $2,264. Jefferies analyst Bret Jordan, in a note to investors last month, said EchoPark's same-store total profit per car at $2,151 in the third quarter, included a $201 loss on the vehicle sale and $2,352 of F&I gross profit per car.

Stephens analyst Rick Nelson wrote in a note to investors in June that Sonic overhauled its strategy for EchoPark in the third quarter of 2018, looking to drive volume at the expense of used-vehicle gross profits and would focus on F&I. Nelson wrote that $600 to $800 of its gross profit per unit is generated through financing and $1,500 through service contracts.

"The EchoPark model targets GPU of $2,150," Nelson wrote. "Using this pricing strategy, the company believes it can price vehicles at a $2,000 to $2,500 discount to competitors, driving significant store traffic."

To serve its guests, Charlotte EchoPark hired people with good customer service experience, including people who previously worked for Apple, Verizon and Best Buy, said Karen Westervelt, head of sales for EchoPark in Charlotte. Turnover at the store is negligible, Dyke said.

In the back shop, where most employees gather, there's a spot for posting shout-outs from guests and a positive review wall, plus a gratitude wall. In the kitchen, free yogurt and fruit are available for employees.

"The focus from us is to make it a great environment to work and buy. So if I make it a great environment for my team to work in, it's going to pass down to our guest. A happy employee is a happy guest," said Westervelt, formerly an F&I director at Sonic's Town and Country Toyota dealership in Charlotte. "Our big focus is keeping our team happy. That's why I feed them. That's why we allow jeans. That's why I have split shifts. I don't make anyone work bell to bell. Happy places is happy guests."

Sonic, of Charlotte, N.C., ranks No. 5 on Automotive News' list of the top 150 dealership groups based in the U.S., retailing 122,717 new vehicles in 2018. It retailed 139,605 used vehicles for the same period, ranking it No. 6 on Automotive News' list of the top 100 dealership groups in used-vehicle sales.