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Morningstar | Sonic continues to take CarMax head-on while trying to revolutionize new-car buying.

Sonic Automotive is undergoing many changes. It has resumed acquisitions, increased its product mix toward the more lucrative luxury and import brands, is installing a dealer-management system across all its stores, and has a bold strategy for new and used vehicles. Rollout of its One Sonic-One Experience strategy started in summer 2014 in Charlotte, North Carolina, and is slowly expanding to all its new-vehicle stores. Since 2007, management has been working on this initiative to make the car-buying process nearly paperless, place the customer with only one person for the entire transaction, and enable the customer to take delivery of a vehicle in an hour or less after deciding which one to buy.In October 2013, Sonic announced its intention to effectively take on CarMax in used vehicles. The used-vehicle market in the U.S. is highly fragmented at about 40 million units a year, with late-model used vehicles as old as six years often making up at least 15 million units, so there is certainly room for both firms to pursue their strategies. Sonic guided for these stores, called EchoPark, to be coast to coast, with 100 stores just the beginning. Openings started in late 2014 in the Denver area and in 2018 Sonic will bring the store count to at least 12 with new stores in Texas and Charlotte. It will be a long time before EchoPark has the scale to compete with CarMax's nearly 200 stores. The stores will not have a big-box retail format and are not as capital-intensive as investors may think, according to management. The company wants a large hub store in a city serving smaller satellite stores in the area. Sonic does not plan to initially have a captive finance arm like CarMax but may have one several years from now. Management recently hinted EchoPark could be profitable sometime in 2019.Sonic is the fourth-largest public dealer in the U.S., so it will have scale relative to a small dealer, but its used-vehicle throughput of about 100 units per store each month is nowhere near CarMax's 350. We also are intrigued as to how Sonic will open these stores without adding substantial capital intensity, as it currently values owning its real estate rather than leasing it.