Q4 2023 Sonic Automotive Inc Earnings Call
Participants
Danny Wieland; VP of IR & Financial Reporting; Sonic Automotive, Inc.
David Bruton Smith; CEO & Chairman; Sonic Automotive, Inc.
Frank Jeff Dyke; President & Director; Sonic Automotive, Inc.
Heath R. Byrd; Executive VP & CFO; Sonic Automotive, Inc.
Bret David Jordan; MD & Equity Analyst; Jefferies LLC, Research Division
Glenn Edward Chin; Senior Analyst; Seaport Research Partners
John Joseph Murphy; MD and Lead United States Auto Analyst; BofA Securities, Research Division
Joseph William Enderlin; Associate; Stephens Inc., Research Division
Michael Ward
Rajat Gupta; Research Analyst; JPMorgan Chase & Co, Research Division
Presentation
Operator
Greetings, and welcome to the Sonic Automotive Fourth Quarter 2023 Earnings Conference Call. This conference call is being recorded today, Wednesday, February 14, 2024.
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.
David Bruton Smith
Thank you, and good morning, everyone, and welcome to the Sonic Automotive Fourth Quarter 2023 Earnings Call.
Joining me today are our President, Jeff Dyke, our CFO, Heath Byrd, our EchoPark Chief Operating Officer, Tim Keen; and our VP of Investor Relations, Danny Wieland.
Earlier this morning, Sonic Automotive reported fourth quarter and full year financial results, including fourth quarter total revenues of $3.6 billion. An all-time record annual revenues of $14.4 billion, up 3% from the previous year. Fourth quarter GAAP EPS was $1.11 per share, which includes the effect of noncash impairment charges and tax items. Excluding these items, adjusted EPS was $1.63 per share, a decrease from $2.61 in the prior year, due primarily to continued normalization of new vehicle GPU and higher interest rates.
We are very proud of our team's performance in the fourth quarter, and we remain focused on leveraging our diversified business model to adapt to changing market dynamics in the near term, while positioning Sonic to achieve our long-term strategic goals. We believe our strong relationships with our teammates, manufacturer and lending partners and guests are key to our future success. I'd like to thank them all for their continued support.
Turning now to fourth quarter franchise dealership trends. We continue to see expansion of new vehicle inventory levels across our brand portfolio, ending the year with a 37-day supply of inventory, up from 33 days at the end of the third quarter and 24 days at the end of 2022. As a result, new vehicle gross profit per unit continued its sequential decline to $4,289 per unit in the fourth quarter, in line with our previous guidance to exit 2023, in the low- to mid-$4000 range. This steady decline in new vehicle GPUs should continue throughout 2024. But we continue to believe that the new normal level of new vehicle GPU will remain structurally higher than it was pre-pandemic, historically in the $2,000 per unit range.
Furthermore, our Luxury Weighted portfolio generally runs a lower inventory day supply and our Luxury manufacturer partners have more effectively balanced supply to date, potentially minimizing new GPU compression, relative to overall industry trends, which would continue to benefit the earnings power of our franchise business.
In the used vehicle market, wholesale auction prices for 3-year-old vehicles decreased nearly 9% in the fourth quarter, while average retail used pricing declined just 2%. Elevated used retail prices remain a challenge for consumers, contributing to affordability concerns amid the current interest rate environment. However, the downward trends we are seeing in used vehicle wholesale pricing are positive for our business outlook and should benefit affordability and used-vehicles volume in 2024. Fewer lease turn-ins at our franchise dealerships continue to limit our used-vehicle volume in the fourth quarter and used market seasonality drove a decline in used retail GPU to $1,443 per unit on a same-store basis.
Our team remains focused on driving incremental used inventory acquisition and retail sales opportunities in 2024, driving upside in this line of business alongside the expected normalization of used-car pricing and volumes over time.
Despite an elevated consumer interest rate environment, our F&I performance continues to be a strength, with same-store franchise F&I per unit of $2,334 in the fourth quarter. Our Franchised Dealerships F&I penetration rates were stable quarter-to-quarter and we achieved our previously issued guidance for full year 2023 Franchised F&I GPU at or above $2,400 per unit, with same-store franchise F&I GPU of $2,411 for the full year. For comparison, for full year 2019, our Franchised F&I GPU was $1,620, which was nearly $800 lower than the current run rate, and we expect to see continued stability in F&I GPU in 2024.
Our parts and service or Fixed Operations business remained strong with record fourth quarter Fixed Operations gross profit at our Franchised Dealerships up 7% year-over-year on a same-store basis, driven by 9% growth in our customer pay business. We are proud of the success our team has had in this area, and we believe there are remaining opportunities to optimize our Fixed Ops business as we progress through 2024.
Turning now to the EchoPark segment. For the fourth quarter, we reported EchoPark revenues of $557 million, down 6% from the prior year and record fourth quarter EchoPark gross profit of $43 million, up 5% from the prior year, despite a significant reduction in our store count year-over-year. EchoPark segment retail unit sales volume for the quarter was nearly 17,600 units, up 1% year-over-year. However, on a same-store basis, EchoPark retail unit sales volume was up 42% in the fourth quarter.
As discussed on our previous earnings calls, reducing our store footprint in the second quarter of 2023 allowed us to better allocate inventory across the platform, driving higher unit sales volume, better GPU and significantly lower operating losses in the second half of 2023. Fourth quarter EchoPark segment adjusted EBITDA was a loss of $9.1 million, compared to an adjusted EBITDA loss of $25.4 million in the fourth quarter last year.
In January 2024, we made the difficult decision to close the 7 remaining Northwest Motorsport pre-owned stores in the EchoPark segment, due to unique ongoing challenges to the Northwest Motorsport business model. This decision, while not taking lightly, was made in order to benefit EchoPark's near-term profitability path and better aligned with our overall used-vehicle strategy. Fourth quarter adjusted EBITDA loss associated with the Northwest Motorsport Group, totaled $1.3 million. That's $1.3 million, while full year adjusted EBITDA losses associated with the group totaled $5.1 million.
Moving forward, we remain confident in our path to achieve breakeven EchoPark segment adjusted EBITDA in the first quarter of 2024 and positive EchoPark segment adjusted EBITDA for the full year.
Sonic's diversified cash flows and strong balance sheet allowed us to withstand the challenges in the used-vehicle market over the last 3 years and maintain our long-term EchoPark plans. Our unwavering confidence in EchoPark's future potential has positioned us as one of the few remaining nationwide used-vehicle retailers, creating a tremendous opportunity for this brand down the road. We look forward to resuming disciplined long-term growth for EchoPark as used-vehicle market conditions improve.
Turning now to our Powersports segment. For the fourth quarter, we generated revenues of $27 million, gross profit of $7 million and an adjusted EBITDA loss of $2.4 million. Given the seasonal variability in the Powersports industry and our geographic presence with the Black Hills platform, our fourth quarter results were in line with our projections. Looking into 2024, we continue to focus on identifying operational synergies within our current Powersports network and remain optimistic about the future growth opportunities in this adjacent retail sector when the time is right.
Finally, turning to our balance sheet. We ended the third quarter with $846 million in available liquidity, including $374 million in combined cash and floor plan deposits on hand. The strength of our balance sheet allowed us to repurchase 3.3 million shares of our common stock in 2023, or 9% of shares outstanding at the beginning of the year. At the end of the fourth quarter, our remaining share repurchase authorization was $287 million, which represents approximately 15% of today's equity market cap.
Share repurchases are an important part of our capital allocation strategy, and we remain focused on returning capital to shareholders via share repurchases as our liquidity and other capital needs allow. Additionally, I'm pleased to report that our Board of Directors approved a quarterly cash dividend of $0.30 per share payable on April 15, 2024, to all stockholders of record on March 15, 2024.
As we move ahead to 2024, I'd like to call your attention to Pages 12 and 13 in the investor presentation we released this morning, where we discuss our outlook for the industry in 2024 and provide limited financial guidance for certain metrics. From a consolidated company earnings perspective, we expect lower franchise dealership segment earnings to be partially offset by significant improvement in EchoPark segment results, returning to positive adjusted EBITDA for the year as well as a moderate increase in Powersports segment income year-over-year. While the financial outlook in the investor presentation is subject to inherent forecast risks and uncertainties, some of which are beyond our control, we believe the metrics provided may be useful in developing a financial model for Sonic's 2024 results.
In closing, 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 continue to believe that our diversified business model provides significant earnings growth opportunities in our EchoPark and Powersports segments that may help to offset any industry-driven margin headwinds we may face in the franchise business, minimizing the earnings downside to consolidated Sonic results over time. We remain confident that we have the right strategy, the right people and the right culture to continue to grow our business and create long-term value for our stakeholders.
This concludes our opening remarks, and we look forward to answering any questions you may have. Thank you very much.
Question and Answer Session
Operator
(Operator Instructions) Our first questions come from the line of Daniel Imbro with Stephens.
Joseph William Enderlin
This is Joe Enderlin on for Daniel. On the franchise side, your SG&A assumption of low 70s margin was a little higher than we expected. Could you maybe bucket out what drives these costs higher? And maybe is this where you expect long-term margin to shake out? Or do you expect leverage after 2024 and we return to a more normal GPU guidance?
Heath R. Byrd
Yes, this is Heath Byrd. A couple of things. Obviously, the SG&A as a percent of gross is heavily dependent on gross, right? And in our guidance of a low 70% range, we also have about a $1,200 degradation in the front-end GPU. You just take that degradation on a flat unit basis, that's $130 million of gross, that's leaving the numerator in that calculation. We do have about a 1% increase in units in there that does offset some of that loss in gross. And so the biggest component is that $130 million, give or take, decrease in gross.
If you look at the expenses, the variable expenses are leveraging as they should as the growth is going down. Fixed expenses, there are some that are higher than normal. Insurance coverage trying to get coverage with property and casualty is going up across the country. Also loaner expense is higher because our Fixed Ops business is growing at such a good pace. And we have manufacturing requirements to use EVs as loaners and the depreciation of those are higher than ICE vehicles. And so that impacts our loaner expense. And some IT expenses and investments for future optimization.
There's definitely upside potential in that SG&A as percent of gross. The GPU degradation may be lower than we expected, but I think it's pretty standard across the peer group that in that range of about 1,200 loss for the year.
Our portfolio could outperform the SAAR. The expectations out there from 1% to 4%. We have a low single-digit expectation in the units that we sell. And obviously, we've got potential in the F&I and fixed growth to offset that loss in new gross. We also have plans to have some structural changes in our expense structure which could also impact that number. So we definitely see opportunities to beat that number. But looking at the math and the things that we see out there, we think a low 70% range is appropriate.
Joseph William Enderlin
Got it. That's helpful. As a follow-up, just given the weakness in the used market as a whole, do you have any updated thoughts on what gives you confidence in the long-term operating model of EchoPark? Do you maybe increasingly think that consolidation of assets is going to play a considerable role in returning to that peak profitability?
Frank Jeff Dyke
Yes. This is Jeff. Certainly, the reduction in store count has helped us in our buying team buy cars for fewer stores, and that's proving out in the numbers as we called out in the second and the third quarter. We're seeing excellent growth across the remaining 18 stores that we have. And with the manufacturers putting more and more inventory out on the street, it's going to just naturally, common sense, it's going to drop pricing. We're seeing that average wholesale prices are dropping. We're buying cars now in the mid-23 range. I expect that to continue to drop in particular after we get out of the March, kind of April selling time frame. And that will continue to improve as we move throughout the year.
With that, we're going to sell more cars. We're gaining confidence with where we were with EchoPark, back in 2019. And then we can start looking at strategic growth for EchoPark being very conservative, but getting back on the bicycle and growing the brand again. And so we've just been waiting. Certainly, as we called out in the third quarter, turbulent waters for the used car business. We think there's another 16, 18 months of that, but progressively getting better as we move throughout the year.
Operator
Our next question comes from the line of John Murphy with Bank of America.
John Joseph Murphy
I just wanted to follow up on that used question. I mean, Jeff, it seems like what we're seeing is demand for vehicles is continuing to slowly improve. And just curious, you think of what's going on, on the used side, right, versus the new, is there a substitution where folks are just tripping into buying new vehicles as opposed to used vehicles? But we also have this dynamic of sort of a still shrinkage of the 1- 6-year-old used fleet. So there's a lot of moving parts that are going on here, and we're kind of hearing crosscurrents in different ways about used being weak, but it doesn't seem like it drives necessarily with the idea that vehicle demand is improving. I just -- I don't know if you could expand on that or tell us kind of what you're seeing generally maybe in the new stores, but then also in EchoPark?
Frank Jeff Dyke
Yes, sure. I mean I don't agree with the statement that the used vehicle is getting weak. I mean, if anything, it's flattening out and starting to get better. And so in the coming months, with the amount of new cars that the manufacturers are putting on the road, we're going to trade for more cars. We're going to trade for more 1- to 5-year-old cars. And that's certainly helping both the franchise, used vehicle departments and EchoPark.
And you can see it in EchoPark. I mean, you see the numbers. Our EchoPark volume is expanding greatly. We're selling more cars now out of 18 stores than we were selling out of 45 stores before. So -- and we expect that to continue. I think the used vehicle business gets stronger as the year goes on. And that's because wholesale prices are going to drop and wholesale prices are going to drop because the manufacturers can't help themselves. They're just putting more and more cars on the road. Some are doing a better job than others. But the -- and then we've got the electric vehicle piece that's coming in. We don't have any to say used-vehicle electric vehicles. That's going to start becoming a part of the picture as we move into the mid-summer months as some of the off-lease cars start coming back.
So I just see nothing but upside from a used-vehicle perspective. And that's why we're very confident in our first quarter breakeven EBITDA call out for EchoPark. And we ought to be in great shape for the year. The business -- the used-car business is strong. It's always been strong. We've just been short on the 1- to 5-year-old model for EchoPark, and that caused some turbulent times over the last couple of years, that's dissipating. And as we move throughout '24, it's just going to get stronger and stronger. And that bodes well for the EchoPark model. It's an offset to what goes on from a franchise perspective for us. And so we're expecting just a tremendous year from an EchoPark perspective.
John Joseph Murphy
Okay. That's very helpful. Just one follow-up on the F&I PVR $2,400 roughly. You guys are looking at -- it seems like we're through the worst of times, knock on wood on rates rising and sort of the negative headwinds that you might have there. There might be some offset of revenue per unit or ATP is going down a bit in '24. But is there a potential that there could be some real upside there in '24 or maybe structured over time as you get better penetration of some of the good product that you guys have developed there and the industry has developed?
Frank Jeff Dyke
Yes, absolutely. And especially as we get to the back half of the year, rates come down a little bit. Certainly, with retail pricing dropping, there's less margin on the F part of F&I. But there's nothing but upside. Look, we are typically 1 or 2 in the category -- or excuse me, 2 or 3 in the category. And I think AutoNation is out there with a much higher F&I PUR. We believe we can perform at that level or higher. Our EchoPark stores perform at that level or higher. And I think you'll see that along with improving front-end margin at EchoPark as we move throughout the first quarter and to the end of the rest of the year. So that's a good call out. I think there is opportunity for F&I improvement as we move forward.
Operator
(Operator Instructions) Our next question comes from the line of Rajat Gupta with JPMorgan.
Rajat Gupta
I just wanted to first reconcile some of the comments on the used-car market. I think, Jeff, I think earlier in the call, you mentioned that the backdrop is likely to remain tough for 16 to 18 months. But then to John's question earlier, I think you mentioned that you're seeing improvement. I'm just curious like how should we reconcile those comments? And then would you be able to put a finer point on expectations for used-car volumes, both at EchoPark and the franchise business for 2024? And I have a quick follow-up on SG&A.
Frank Jeff Dyke
Yes, I think over the next 16 to 18 months, it's not going to return to 2019 levels, but it's progressively going to get better. And the way that I would look at volume for EchoPark is in and around the same amount of volume that we did last year with a lot fewer stores for 6 months of the year. And then we are projecting low single-digit growth for used-car volume increases from a used-car perspective on the franchise side.
So look, we're not out of the troubled waters, but it's not anywhere near as choppy as it was. And with the wholesale market prices dropping, it's just progressively going to get better as we move throughout '24 and into the first quarter of '25. And that's why we're just so confident about EchoPark and where we are. We told you guys this in the second quarter. We made our moves. We saw what happened in the third quarter. We saw what happened in the fourth quarter with our volumes. That's continuing in January. We're seeing it -- it continued in January. We'll see it -- we're seeing it again in February. And we expect the rest of the year to progressively get better as we move forward.
Rajat Gupta
Can you hear me, sorry?
Danny Wieland
Yes, we can hear you now.
Rajat Gupta
Yes. So just on SG&A to gross, the low 70% number for the full year, I mean if -- I mean if you compare that to 2019, it's obviously below -- you're 77% in 2019, you're guiding to 72%. But that 72%, 73% for this year is still on a higher than 2019 in new car GPU number on a blended basis. So, is there any change in thought process around where the normalized SG&A to gross would go to because presumably, 2025 is going to see another step down in the new-car GPU. So, should we expect that franchise SG&A to gross to settle even higher than low 70s eventually? Or how should we think about that? And hopefully the question makes sense?
Heath R. Byrd
Yes, this is Heath.
Yes, we absolutely think that in the out period that there's the opportunity to decrease that level of SG&A as a percent of gross. We're doing some structural changes from an expense perspective as well as some changes in our F&I products that we're offering, and those things will help replace that degradation in the new gross and or actually will help the SG&A as a percent of gross. So we do not think that this is going to be staying in the 70s going forward. We think there's opportunities to get back in the high 60s. But at this point, based on the data that we're seeing, we believe that, that low 70 range is appropriate for 2024.
Frank Jeff Dyke
Rajat, the other thing too is we added 100 -- net gain of 108 technicians last year. Our target is to add an additional 300 net gain of technicians this year. We still have to do that. But at the end of the day, that's going to create incremental gross to help offset what we see from a front-end gross degradation on new car. And that, too, will help push the margin. SG&A percentage to gross down below the 72% number that we're calling out.
And look, at the end of the day, we'll see -- the Street -- some of our competitors are calling out 150, 200 basis point increase in expenses, we're in that 400 to 500 range. It's still early in the year, but we're all calling out basically $300 a quarter in front-end margin degradation. And that's a lot of gross reduction. And we'll see kind of who is right when this is all said and done with. There's a long way to go in the year. We certainly believe that we can improve upon the number that we're giving you. But like Heath said, based on where we are right now, that low 70s range we feel is a good number to begin the year with and we'll work our tails off to improve from there.
But there's a long way to go. And what the manufacturers do with new cars and new car day supply is going to play a big role in all of this, along with what percentage of your overall sales is going to be electric vehicle, that's running around 10% right now. That had almost a $400 degradation to our front-end margin in the fourth quarter. High line drove a lot of that. Mercedes Benz was $235 of that degradation alone, primarily driven from California. That's -- we've got to get control of that. That's a big focus point for us with our manufacturer partners, as we move forward. And I know that we're not the only ones experiencing that. So there's a lot of moving pieces at play here. But safe to say, in that low 70% range for now, and hopefully, as we move through the quarters, that becomes a better number.
Heath R. Byrd
And one technical point too on the degradation, it's not going to be linear. You're going to have -- for that GP front-end degradation, you're going to have a larger portion going from Q4 into Q1 and then it levels out to about 300 a quarter going forward.
Danny Wieland
And to your point, Rajat, this is Danny. To your point on the sustainability of structurally higher new GPUs, we still believe that that's a possibility as we go forward, move past 2024. We're already seeing where with some of the domestic manufacturers, they've got an 80-plus days supply today, but yet we're making $1,200, up to $2,000 more in GPU, than we did in 2019, despite days supply being roughly back at that level. A lot of that has to do with the segment mix shift towards full-size trucks, SUVs, that are higher margin business for us.
And then across the other brands, where we've got more measured inventory days supply expansion, we're still seeing dramatically elevated new GPUs that while they expect to come down, as we go through this year. We still see a path to where, as part of that longer-term SG&A growth structure, we're not going back to a $2,000 blended new GPU and it's somewhere elevated above that. And then you factor in the fact that we're running roughly $800 higher in F&I per unit, the variable GPU associated with those retail unit sales down the road should help us leverage the expense structure more efficiently than we did in 2019.
Operator
Our next questions come from the line of Glenn Chin with Seaport Research Partners.
Glenn Edward Chin
Just circling back to your comments about GPU headwind from EVs. Is that a...
Frank Jeff Dyke
We lost you.
Glenn Edward Chin
Can you hear me?
Frank Jeff Dyke
We can now, ask that again.
Glenn Edward Chin
Sorry about that. Just circling back to your comment, Jeff, about GPU headwind from EVs at $400. That's a comment relative to year-over-year correct, not sequential?
Danny Wieland
That's the headwind in the fourth quarter. So if you look at our blended GPU that we reported for Q4, it reflects a $400 headwind from EVs GPUs, running at a lower rate than the remainder of the business.
Frank Jeff Dyke
And in some brands, negative margin and significant negative margin, which added to that.
Glenn Edward Chin
Okay. Very good. And then historically, fourth quarter is seasonally strongest for earnings for Sonic. Can you just highlight the factor or factors that primarily drove that disruption to that trend this year?
David Bruton Smith
I mean a lot of us -- this is David. We've talked a lot about it, right? There was sort of a window of uncertainty that we saw that really impacted our traffic. And I think that the overall macroeconomic landscape, that people were hesitated a little bit there to do business, and then it came back in some areas at the close of the year. But I think that was -- again, this is sort of a macro point of saying, "Hey, we'll just wait and back, let's see if this storm clears a little bit before we going back," or that's some of the feedback we've gotten.
Frank Jeff Dyke
So the other thing that I would add to that is BMW plays an enormous role in our overall performance. And our growth on BMW in the quarter was about 1.1%. You compare that to some of our other high line manufacturers, Lexus were up 76% in the quarter. Audi up almost 23%. Luxury was up 11.4%. But when BMW doesn't have the kind of volume in the quarter that it normally would have, that and the gross erosion associated with that, that certainly did not help during the quarter.
And that was really driven by inventory levels. BMW has done an amazing job overall, keeping their days supply down and did that during the fourth quarter. We missed out on some opportunities there. And because the -- we have so many BMW stores, and they're such a big part of our overall revenue mix, that certainly played a role in the overall performance in the quarter.
Glenn Edward Chin
Okay. I apologize. I hopped on late, so thank you for clarifying. And then just on your outlook. Thank you for the comprehensive look. That's very helpful. I don't suppose you guys would care to venture a range for a potential adjusted EBITDA profitability for EchoPark for 2024?
Heath R. Byrd
No. We do have that we forecast being positive EBITDA for the year for EchoPark and that's as far as we go.
Glenn Edward Chin
Okay. And can I ask just what that may be predicated upon? Does it require any more store closures? Or is the footprint you guys have now that...
David Bruton Smith
That's not something we built into it -- any additional store closures.
Frank Jeff Dyke
Yes. I mean, look, the used-vehicle business is getting better. The inventory supply is getting better. The average wholesale price is dropping significantly. And when you combine all of those things, that's why we just have such confidence in our EchoPark model and why we stuck it out through those last 3 very difficult years. It makes for a pretty picture for '24 and even better as the years go on. We're coming out of those turbulent waters, as I said earlier. And it's going to make for a fun year. EchoPark is going to have a great year, and we're very excited about being back on our bicycle, so to speak, and getting those stores back to selling the kind of volume that we built them for and driving the kind of growth that we built them for. And that's upon us now. We've waited a long time, worked really, really hard. Our team has busted their butts to get through all of this, and we're getting ready to enjoy the rewards from hard work that went into that.
David Bruton Smith
And as I -- this is David. As I mentioned in our opening comments, you're talking about our diversified business model and being able to weather the storm. We view it and jokingly here in the office, talk about it's like in the movie Forest Gump, when they survived the storm. You've seen these other stores -- these other competitors closing. It's not as if the used-vehicle market has just been disintegrated forever. It's not, okay? We think it's going to be stronger there. It's a much larger market than the new vehicle market historically. And we just -- as we said, we see a tremendous opportunity for EchoPark in the future.
Danny Wieland
Yes. And one more point to add, this is Danny. Glenn, I think you mentioned in your note this morning that even just going from the $83 million adjusted EBITDA loss at EchoPark in 2023, to 0 is north of $1.50 of EPS benefit. And we've called out that we expect to be positive for the full year next year. So there's a big opportunity to offset -- at least somewhat offset the normalization -- continued normalization of franchised earnings just by getting back to 0 let alone positive EBITDA on the EchoPark segment.
Glenn Edward Chin
Yes. Understood. Okay. And then just last for me. If you can just comment on the spread between wholesale and retail used pricing, has it normalized and what you guys might see it doing for the rest of this year?
Frank Jeff Dyke
No, it's not normalized. I think wholesale prices in the fourth quarter dropped like 9%. Retail dropped 2%. And as you know, there's a 7-, 8-week lag there. There's still a lot of high percentage of no sales in the auction lines, I think that's running north of 40%, but down from 50%. And so everybody is still trying to find their way through this, the back edges of the storm. But we expect those 2 things to catch up with each other as we move into March and April and May, and again, put some wind in the sails of EchoPark and the industry. Used-vehicle business should be getting better as we move forward.
Glenn Edward Chin
So in other words, yes, so that spread should be widening, correct?
Frank Jeff Dyke
Yes. That's exactly right.
Operator
Our next questions come from the line of Michael Ward with Freedom Capital.
Michael Ward
Just zeroed in a little bit on EchoPark on the SG&A side. So we've seen a big improvement in SG&A costs second half versus first of 2023. As we go into 2024, I assume the run rate is even lower, as we go into Q1 with getting rid of some of the Northwest stores. Is that correct?
Frank Jeff Dyke
Yes, 100%. And I think we called out on the pages that David referenced somewhere EchoPark SG&A percentage in the 80% range with a mature store being south of 70%. And we expect that as we mature, that's where we expect to be. And honestly, that's where we were, if not better prior to COVID hitting. So, all these things are coming back into life for us, which is just fantastic.
Danny Wieland
Yes, that's a total segment level. At the store level, we've seen in our more mature stores, both in 2019 are getting back toward a sub-60. I mean they're among the best of our entire portfolio in terms of SG&A to gross and SG&A leverage because of the comp structure in that market.
Michael Ward
And what did you end -- how many locations do you have at EchoPark at year-end?
David Bruton Smith
18.
Michael Ward
18.
Danny Wieland
We were 25 at year-end, but with the 7 closures in January today, we sit at 18.
Frank Jeff Dyke
Sorry I've already forgotten about Northwest Motorsports.
Operator
Our next question has come from the line of Bret Jordan with Jefferies.
Bret David Jordan
Could you talk about the impact of lease recovery on F&I. Obviously, it's been at a pretty low rate on lease penetration, but it would seem that has less F&I packaged in that transaction. Is that factored into your flat F&I going forward?
Frank Jeff Dyke
Meaning if leases improve and penetration improves?
Bret David Jordan
Yes.
Frank Jeff Dyke
It's not going to make a difference, I don't think. It is factored in, and we're going to be in that $2,400 range or north of that, I think, as the back half of the year gets here as we continue to improve, especially on a total company basis because we're seeing great improvement at EchoPark, even in the current margin rate -- current interest rate environment as we zero in and focus on execution there. There's a lot of topside -- there's a lot of opportunity from our perspective and from an F&I perspective. And we should be able to get that $2,400 number or higher as we move forward.
Bret David Jordan
Is there any F&I attached to leasing? Or is it pretty much not a cap -- not a thing there?
Frank Jeff Dyke
No, there's F&I in it. It's just not at the level that you would with -- from someone's financing a car traditionally.
Bret David Jordan
Okay. And then on the customer pay, parts and service side, up 9%, you -- what was the number between price and traffic in that 9%?
Danny Wieland
About 1/3 of that -- this is Danny. About 1/3 of that comes from higher repair order volume and 2/3 is coming from passing along higher labor costs, higher parts costs, the effects of inflation as we've seen over the last several quarters.
Operator
Thank you. There are no further questions at this time. I'd now like to hand the call back over to David Smith for any closing remarks.
David Bruton Smith
Thank you very much, and thank you, everyone, for participating in the call, and we look forward to speaking with you our next quarter. Thank you.
Operator
Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.
