UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-Q/A





(Mark One)

|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

For the quarterly period ended March 31, 2011

OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

Commission files number 1-13395





SONIC
AUTOMOTIVE, INC.

(Exact name of registrant as specified in its charter)







|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|DELAWARE                                                       |  | 56-2010790                          
|(State or other jurisdiction of
incorporation or organization) |  | (I.R.S. Employer Identification No.)
|                                                               | 
|6415 Idlewild Road, Suite 109, Charlotte, North Carolina       |  | 28212                               
|(Address of principal executive offices)                       |  | (Zip Code)                          

(704) 566-2400

(Registrants telephone number, including area code)





Indicate by
check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No   ̈

Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such file).    Yes   ̈    No   ̈

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller
reporting company. See definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act (check one).



|                             |  |                        |  |                                               |  |                               
|---------------------------- |  | ---------------------- |  | --------------------------------------------- |  | ------------------------------
|Large Accelerated Filer     ̈ |  | Accelerated Filer    x |  | Non-Accelerated Filer     ̈                    |  | Smaller Reporting Company     ̈
|                             |  |                        |  | (Do not check if a smaller reporting company) |  |                               

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).     Yes   ̈    No  x

As of April 22, 2011, there were 40,920,177 shares of Class A Common Stock and 12,029,375 shares of Class B Common Stock
outstanding.









---

EXPLANATORY NOTE

The purpose of this Amendment No. 1 (Amendment No. 1) to Sonic Automotive, Inc.s (Sonics) Quarterly
Report on Form 10-Q for the quarterly period ended March 31, 2011 (the Form 10-Q) is to amend the Form 10-Q for an error identified in Sonics classification of amounts between trade accounts payable and cash and cash
equivalents as discussed in our Current Report on Form 8-K filed on March 5, 2012. This error had no effect on:



| |  |  | previously issued Condensed Consolidated Statements of Income, (including earnings per share),
| | - |  | ----------------------------------------------------------------------------------------------

| |  |  | non-GAAP measures of EBITDA and free cash flow,
| | - |  | -----------------------------------------------

| |  |  | Sonics overall liquidity position (including its borrowing base availability),
| | - |  | -------------------------------------------------------------------------------

| |  |  | covenant compliance under its 2011 Credit Facilities, and
| | - |  | ---------------------------------------------------------

| |  |  | any years or quarterly periods prior to 2011.
| | - |  | ---------------------------------------------

The effect of this error is set forth in the table below.



|                                          |  |                                                          |        |  |             |   |        |            |  |   |        | 
|----------------------------------------- |  | -------------------------------------------------------- | ------ |  | ----------- | - | ------ | ---------- |  | - | ------ | 
|                                          |  | As of and for the Three-MonthPeriod Ended March 31, 2011 |       
|(amounts in thousands)                    |  | AsReported                                               |        |  | Adjustments |   |        | AsRestated | 
|Cash and cash equivalents                 |  | $                                                        | 8,355  |  |             | $ | (5,960 | )          |  | $ | 2,395  | 
|Trade accounts payable                    |  | $                                                        | 87,486 |  |             | $ | (5,960 | )          |  | $ | 81,526 | 
|Net cash provided by operating activities |  | $                                                        | 24,380 |  |             | $ | (5,960 | )          |  | $ | 18,420 | 

The following items in the Form 10-Q are impacted by Amendment No. 1:



| | 1. | Part I, Item 1, Financial Statements is amended to:
| | -- | -----------------------------------------------------

| |  |  | correct errors in the classification of amounts between trade accounts payable and cash and cash equivalents in the Condensed Consolidated Balance
Sheets and the effects of those error corrections in the Condensed Consolidated Statements of Cash Flows,
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | further explain the errors in Note 1  Notes to Unaudited Condensed Consolidated Financial Statements, and
| | - |  | ----------------------------------------------------------------------------------------------------------

| |  |  | provide, for comparative purposes, restated trade accounts payable and cash and cash equivalents balances along with the associated effects on the
Condensed Consolidated Statements of Cash Flows compared to originally reported balances in Note 1  Notes to Unaudited Condensed Consolidated Financial Statements.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2. | Part I, Item 2, Managements Discussion and Analysis of Financial Condition and Results of Operations is amended to correct
the discussion in Liquidity and Capital Resources  Cash Flows.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3. | Part I, Item 4, Controls and Procedures is amended to disclose the existence of a material weakness related to disclosure controls
and procedures.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------

| | 4. | Part II, Item 6, Exhibits
| | -- | ---------------------------

Except as set forth above, no other changes have been made to the Form 10-Q. This Amendment No. 1 speaks as of the original filing date of the Form 10-Q, does not reflect events that may have
occurred subsequent to the original filing date, and does not modify or update in any way disclosures made in the original Form 10-Q. Pursuant to Rule 12b-15 under the Securities Exchange Act of 1934, as amended (the Exchange Act), the
certifications required pursuant to the rules promulgated under the Exchange Act, as adopted pursuant to Section 302 and Section 906 of the Sarbanes-Oxley Act of 2002, which were included as exhibits to the Form 10-Q, have been re-executed
as of the date of this Amendment No. 1 and are included as Exhibits 31.1, 31.2, 32.1 and 32.2 hereto.



---

INDEX TO FORM 10-Q



|                                                                                                              |  |      |    | 
|------------------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|                                                                                                              |  | Page |   
|                                                                                                              | 
|PART I  FINANCIAL INFORMATION                                                                                |  |      |    | 
|                                                                                                              | 
|ITEM 1. Unaudited Condensed Consolidated Financial Statements                                                 |  |      | 3  | 
|                                                                                                              | 
|Condensed Consolidated Statements of Income Quarters ended March 31, 2011 and March 
31, 2010                |  |      | 3  | 
|                                                                                                              | 
|Condensed Consolidated Balance Sheets March 31, 2011 and December 31, 2010                                   |  |      | 4  | 
|                                                                                                              | 
|Condensed Consolidated Statement of Stockholders Equity Three-month period ended March 
31, 2011            |  |      | 5  | 
|                                                                                                              | 
|Condensed Consolidated Statements of Cash Flows Three-month periods ended March 
31, 2011 and March 31, 2010 |  |      | 6  | 
|                                                                                                              | 
|Notes to Unaudited Condensed Consolidated Financial Statements                                                |  |      | 7  | 
|                                                                                                              | 
|ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations                 |  |      | 18 | 
|                                                                                                              | 
|ITEM 4. Controls and Procedures                                                                               |  |      | 29 | 
|                                                                                                              | 
|PART II  OTHER INFORMATION                                                                                   |  |      |    | 
|                                                                                                              | 
|ITEM 6.     Exhibits                                                                                          |  |      | 36 | 
|                                                                                                              | 
|SIGNATURES                                                                                                    |  |      | 38 | 



2



---

PART I - FINANCIAL INFORMATION

Item 1: Unaudited Condensed Consolidated Financial Statements.

SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Dollars and shares in thousands, except per share amounts)

(Unaudited)



|                                                             |  |                              |             |  |      |   |             | 
|------------------------------------------------------------ |  | ---------------------------- | ----------- |  | ---- | - | ----------- | 
|                                                             |  | First Quarter
EndedMarch 31, |            
|                                                             |  | 2011                         |             |  | 2010 |  
|Revenues:                                                    |  |                              |             |  |      |   |             | 
|New vehicles                                                 |  | $                            | 980,745     |  |      | $ | 778,244     | 
|Used vehicles                                                |  |                              | 482,031     |  |      |   | 418,849     | 
|Wholesale vehicles                                           |  |                              | 35,362      |  |      |   | 30,806      | 
|                                                             |  |                              |             |  |      |   |             | 
|Total vehicles                                               |  |                              | 1,498,138   |  |      |   | 1,227,899   | 
|Parts, service and collision repair                          |  |                              | 291,770     |  |      |   | 275,172     | 
|Finance, insurance and other                                 |  |                              | 49,468      |  |      |   | 40,595      | 
|                                                             |  |                              |             |  |      |   |             | 
|Total revenues                                               |  |                              | 1,839,376   |  |      |   | 1,543,666   | 
|Cost of Sales:                                               |  |                              |             |  |      |   |             | 
|New vehicles                                                 |  |                              | (920,686)   |  |      |   | (725,663)   | 
|Used vehicles                                                |  |                              | (443,787)   |  |      |   | (384,071)   | 
|Wholesale vehicles                                           |  |                              | (35,818)    |  |      |   | (31,464)    | 
|                                                             |  |                              |             |  |      |   |             | 
|Total vehicles                                               |  |                              | (1,400,291) |  |      |   | (1,141,198) | 
|Parts, service and collision repair                          |  |                              | (147,917)   |  |      |   | (136,589)   | 
|                                                             |  |                              |             |  |      |   |             | 
|Total cost of sales                                          |  |                              | (1,548,208) |  |      |   | (1,277,787) | 
|Gross profit                                                 |  |                              | 291,168     |  |      |   | 265,879     | 
|Selling, general and administrative expenses                 |  |                              | (232,514)   |  |      |   | (220,653)   | 
|Impairment charges                                           |  |                              | (17)        |  |      |   | (44)        | 
|Depreciation and amortization                                |  |                              | (9,992)     |  |      |   | (8,418)     | 
|                                                             |  |                              |             |  |      |   |             | 
|Operating income                                             |  |                              | 48,645      |  |      |   | 36,764      | 
|Other income (expense):                                      |  |                              |             |  |      |   |             | 
|Interest expense, floor plan                                 |  |                              | (5,436)     |  |      |   | (4,798)     | 
|Interest expense, other, net                                 |  |                              | (15,447)    |  |      |   | (17,151)    | 
|Interest expense, non-cash, convertible debt                 |  |                              | (1,694)     |  |      |   | (1,677)     | 
|Interest expense / amortization, non-cash, cash flow swaps   |  |                              | 178         |  |      |   | (1,683)     | 
|Other income, net                                            |  |                              | 73          |  |      |   | 64          | 
|                                                             |  |                              |             |  |      |   |             | 
|Total other expense                                          |  |                              | (22,326)    |  |      |   | (25,245)    | 
|                                                             |  |                              |             |  |      |   |             | 
|Income from continuing operations before taxes               |  |                              | 26,319      |  |      |   | 11,519      | 
|Provision for income taxes                                   |  |                              | (10,528)    |  |      |   | (4,953)     | 
|                                                             |  |                              |             |  |      |   |             | 
|Income from continuing operations                            |  |                              | 15,791      |  |      |   | 6,566       | 
|Discontinued operations:                                     |  |                              |             |  |      |   |             | 
|Loss from operations and the sale of discontinued franchises |  |                              | (1,273)     |  |      |   | (3,980)     | 
|Income tax benefit                                           |  |                              | 446         |  |      |   | 1,568       | 
|                                                             |  |                              |             |  |      |   |             | 
|Loss from discontinued operations                            |  |                              | (827)       |  |      |   | (2,412)     | 
|                                                             |  |                              |             |  |      |   |             | 
|Net income                                                   |  | $                            | 14,964      |  |      | $ | 4,154       | 
|                                                             |  |                              |             |  |      |   |             | 
|                                                             |  |                             
|Basic earnings (loss) per common share:                      |  |                              |             |  |      |   |             | 
|Earnings per share from continuing operations                |  | $                            | 0.30        |  |      | $ | 0.13        | 
|Loss per share from discontinued operations                  |  |                              | (0.02)      |  |      |   | (0.05)      | 
|                                                             |  |                              |             |  |      |   |             | 
|Earnings per common share                                    |  | $                            | 0.28        |  |      | $ | 0.08        | 
|                                                             |  |                              |             |  |      |   |             | 
|Weighted average common shares outstanding                   |  |                              | 52,416      |  |      |   | 51,889      | 
|                                                             |  |                              |             |  |      |   |             | 
|                                                             |  |                             
|Diluted earnings (loss) per common share:                    |  |                              |             |  |      |   |             | 
|Earnings per share from continuing operations                |  | $                            | 0.27        |  |      | $ | 0.12        | 
|Loss per share from discontinued operations                  |  |                              | (0.01)      |  |      |   | (0.04)      | 
|                                                             |  |                              |             |  |      |   |             | 
|Earnings per common share                                    |  | $                            | 0.26        |  |      | $ | 0.08        | 
|                                                             |  |                              |             |  |      |   |             | 
|Weighted average common shares outstanding                   |  |                              | 65,950      |  |      |   | 52,579      | 
|                                                             |  |                              |             |  |      |   |             | 
|Dividends declared per common share                          |  | $                            | 0.025       |  |      | $ | -           | 

See notes to Unaudited Condensed Consolidated Financial Statements.



3



---

SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

(Unaudited)



|                                                                                                                                                                                                                                   |  |                       |           |  |                  |   |           | 
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------- | --------- |  | ---------------- | - | --------- | 
|                                                                                                                                                                                                                                   |  | RestatedMarch 31,2011 |           |  | December 31,2010 |  
|ASSETS                                                                                                                                                                                                                             |  |                       |           |  |                  |   |           | 
|Current Assets:                                                                                                                                                                                                                    |  |                       |           |  |                  |   |           | 
|Cash and cash equivalents                                                                                                                                                                                                          |  | $                     | 2,395     |  |                  | $ | 21,842    | 
|Receivables, net                                                                                                                                                                                                                   |  |                       | 215,546   |  |                  |   | 239,634   | 
|Inventories                                                                                                                                                                                                                        |  |                       | 931,236   |  |                  |   | 903,221   | 
|Other current assets                                                                                                                                                                                                               |  |                       | 31,742    |  |                  |   | 25,653    | 
|                                                                                                                                                                                                                                   |  |                       |           |  |                  |   |           | 
|Total current assets                                                                                                                                                                                                               |  |                       | 1,180,919 |  |                  |   | 1,190,350 | 
|Property and Equipment, net                                                                                                                                                                                                        |  |                       | 515,657   |  |                  |   | 436,260   | 
|Goodwill                                                                                                                                                                                                                           |  |                       | 468,465   |  |                  |   | 468,516   | 
|Other Intangible Assets, net                                                                                                                                                                                                       |  |                       | 78,735    |  |                  |   | 79,149    | 
|Other Assets                                                                                                                                                                                                                       |  |                       | 74,813    |  |                  |   | 76,489    | 
|                                                                                                                                                                                                                                   |  |                       |           |  |                  |   |           | 
|Total Assets                                                                                                                                                                                                                       |  | $                     | 2,318,589 |  |                  | $ | 2,250,764 | 
|                                                                                                                                                                                                                                   |  |                       |           |  |                  |   |           | 
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                                                               |  |                       |           |  |                  |   |           | 
|Current Liabilities:                                                                                                                                                                                                               |  |                       |           |  |                  |   |           | 
|Notes payable - floor plan - trade                                                                                                                                                                                                 |  | $                     | 461,787   |  |                  | $ | 478,834   | 
|Notes payable - floor plan - non-trade                                                                                                                                                                                             |  |                       | 386,824   |  |                  |   | 383,151   | 
|Trade accounts payable                                                                                                                                                                                                             |  |                       | 81,526    |  |                  |   | 59,719    | 
|Accrued interest                                                                                                                                                                                                                   |  |                       | 10,590    |  |                  |   | 14,070    | 
|Other accrued liabilities                                                                                                                                                                                                          |  |                       | 161,027   |  |                  |   | 160,763   | 
|Current maturities of long-term debt                                                                                                                                                                                               |  |                       | 9,863     |  |                  |   | 9,050     | 
|                                                                                                                                                                                                                                   |  |                       |           |  |                  |   |           | 
|Total current liabilities                                                                                                                                                                                                          |  |                       | 1,111,617 |  |                  |   | 1,105,587 | 
|Long-Term Debt                                                                                                                                                                                                                     |  |                       | 598,969   |  |                  |   | 546,401   | 
|Other Long-Term Liabilities                                                                                                                                                                                                        |  |                       | 129,732   |  |                  |   | 134,081   | 
|Commitments and Contingencies Stockholders Equity:                                                                                                                                                                                |  |                       |           |  |                  |   |           | 
|Class A convertible preferred stock, none issued                                                                                                                                                                                   |  |                       | -         |  |                  |   | -         | 
|Class A common stock, $.01 par value; 100,000,000 shares authorized; 56,160,588 shares issued and 40,888,015 shares
outstanding at March 31, 2011; 55,738,639 shares issued and 40,757,999 shares outstanding at December 31, 2010 |  |                       | 562       |  |                  |   | 557       | 
|Class B common stock; $.01 par value; 30,000,000 shares authorized; 12,029,375 shares outstanding at March 31, 2011 and
December 31, 2010                                                                                          |  |                       | 121       |  |                  |   | 121       | 
|Paid-in capital                                                                                                                                                                                                                    |  |                       | 668,762   |  |                  |   | 666,961   | 
|Retained earnings                                                                                                                                                                                                                  |  |                       | 67,066    |  |                  |   | 53,427    | 
|Accumulated other comprehensive loss                                                                                                                                                                                               |  |                       | (16,649)  |  |                  |   | (18,683)  | 
|Treasury stock, at cost (15,272,573 Class A shares held at March 31, 2011 and 14,980,640 Class A shares held at
December 31, 2010)                                                                                                 |  |                       | (241,591) |  |                  |   | (237,688) | 
|                                                                                                                                                                                                                                   |  |                       |           |  |                  |   |           | 
|Total stockholders equity                                                                                                                                                                                                         |  |                       | 478,271   |  |                  |   | 464,695   | 
|                                                                                                                                                                                                                                   |  |                       |           |  |                  |   |           | 
|Total Liabilities and Stockholders Equity                                                                                                                                                                                         |  | $                     | 2,318,589 |  |                  | $ | 2,250,764 | 
|                                                                                                                                                                                                                                   |  |                       |           |  |                  |   |           | 

See notes to Unaudited Condensed Consolidated Financial Statements.



4



---

SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY

(Dollars and shares in thousands)

(Unaudited)



|                                                                         |  |                      |        |  |                      |   |     |         |  |  |          |  |  |          |     |  |                                 |   |         |                     |  |   |                 |  |  |        |           |  |        |   |          |  |  |   |         |  |  |   |        | 
|------------------------------------------------------------------------ |  | -------------------- | ------ |  | -------------------- | - | --- | ------- |  |  | -------- |  |  | -------- | --- |  | ------------------------------- | - | ------- | ------------------- |  | - | --------------- |  |  | ------ | --------- |  | ------ | - | -------- |  |  | - | ------- |  |  | - | ------ | 
|                                                                         |  | Class A Common Stock |        |  | Class B Common Stock |   |     | Paid-In |  |  | Retained |  |  | Treasury |     |  | Accumulated Other Comprehensive |   |         | Total Stockholders |  |   | Compre- hensive | 
|                                                                         |  | Shares               |        |  | Amount               |   |     | Shares  |  |  | Amount   |  |  | Capital  |     |  | Earnings                        |   |         | Stock               |  |   | Income (Loss)   |  |  | Equity |           |  | Income |  
|BALANCE AT
DECEMBER 31, 2010                                             |  |                      | 55,739 |  |                      | $ | 557 |         |  |  | 12,029   |  |  | $        | 121 |  |                                 | $ | 666,961 |                     |  | $ | 53,427          |  |  | $      | (237,688) |  |        | $ | (18,683) |  |  | $ | 464,695 |  |  | $ | 93,596 | 
|                                                                         |  |                      |        |  |                      |   |     |         |  |  |          |  |  |          |     |  |                                 |   |         |                     |  |   |                 |  |  |        |           |  |        |   |          |  |  |   |         |  |  |   |        | 
|                                                                         |  |                      |        |  |                      |   |     |         |  | 
|Shares awarded under stock compensation plans                            |  |                      | 282    |  |                      |   | 3   |         |  |  | -        |  |  |          | -   |  |                                 |   | 645     |                     |  |   | -               |  |  |        | -         |  |        |   | -        |  |  |   | 648     |  |  |   | -      | 
|                                                                         |  |                      |        |  |                      |   |     |         |  | 
|Purchases of treasury stock                                              |  |                      | -      |  |                      |   | -   |         |  |  | -        |  |  |          | -   |  |                                 |   | -       |                     |  |   | -               |  |  |        | (3,903)   |  |        |   | -        |  |  |   | (3,903) |  |  |   | -      | 
|                                                                         |  |                      |        |  |                      |   |     |         |  | 
|Income tax benefit associated with stockcompensation plans               |  |                      | -      |  |                      |   | -   |         |  |  | -        |  |  |          | -   |  |                                 |   | 498     |                     |  |   | -               |  |  |        | -         |  |        |   | -        |  |  |   | 498     |  |  |   | -      | 
|                                                                         |  |                      |        |  |                      |   |     |         |  | 
|Fair value of interest rate swap agreements, netof tax expense of $1,247 |  |                      | -      |  |                      |   | -   |         |  |  | -        |  |  |          | -   |  |                                 |   | -       |                     |  |   | -               |  |  |        | -         |  |        |   | 2,034    |  |  |   | 2,034   |  |  |   | 2,034  | 
|                                                                         |  |                      |        |  |                      |   |     |         |  | 
|Stock-based compensation expense                                         |  |                      | -      |  |                      |   | -   |         |  |  | -        |  |  |          | -   |  |                                 |   | 108     |                     |  |   | -               |  |  |        | -         |  |        |   | -        |  |  |   | 108     |  |  |   | -      | 
|                                                                         |  |                      |        |  |                      |   |     |         |  | 
|Restricted stock amortization, net of forfeitures                        |  |                      | -      |  |                      |   | -   |         |  |  | -        |  |  |          | -   |  |                                 |   | 552     |                     |  |   | -               |  |  |        | -         |  |        |   | -        |  |  |   | 552     |  |  |   | -      | 
|                                                                         |  |                      |        |  |                      |   |     |         |  | 
|Net income                                                               |  |                      | -      |  |                      |   | -   |         |  |  | -        |  |  |          | -   |  |                                 |   | -       |                     |  |   | 14,964          |  |  |        | -         |  |        |   | -        |  |  |   | 14,964  |  |  |   | 14,964 | 
|                                                                         |  |                      |        |  |                      |   |     |         |  | 
|Dividends ($0.025 per share)                                             |  |                      | -      |  |                      |   | -   |         |  |  | -        |  |  |          | -   |  |                                 |   | -       |                     |  |   | (1,325)         |  |  |        | -         |  |        |   | -        |  |  |   | (1,325) |  |  |   | -      | 
|Other                                                                    |  |                      | 140    |  |                      |   | 2   |         |  |  | -        |  |  |          | -   |  |                                 |   | (2)     |                     |  |   | -               |  |  |        | -         |  |        |   | -        |  |  |   | -       |  |  |   | -      | 
|                                                                         |  |                      |        |  |                      |   |     |         |  |  |          |  |  |          |     |  |                                 |   |         |                     |  |   |                 |  |  |        |           |  |        |   |          |  |  |   |         |  |  |   |        | 
|BALANCE AT
MARCH 31, 2011                                                |  |                      | 56,161 |  |                      | $ | 562 |         |  |  | 12,029   |  |  | $        | 121 |  |                                 | $ | 668,762 |                     |  | $ | 67,066          |  |  | $      | (241,591) |  |        | $ | (16,649) |  |  | $ | 478,271 |  |  | $ | 16,998 | 
|                                                                         |  |                      |        |  |                      |   |     |         |  |  |          |  |  |          |     |  |                                 |   |         |                     |  |   |                 |  |  |        |           |  |        |   |          |  |  |   |         |  |  |   |        | 

See notes to Unaudited Condensed Consolidated Financial Statements.



5



---

SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)



|                                                                                                                             |  |                             |           |  |      |   |           | 
|---------------------------------------------------------------------------------------------------------------------------- |  | --------------------------- | --------- |  | ---- | - | --------- | 
|                                                                                                                             |  | Three Months
EndedMarch 31, |          
|                                                                                                                             |  | Restated2011                |           |  | 2010 |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                                                        |  |                             |           |  |      |   |           | 
|Net income                                                                                                                   |  | $                           | 14,964    |  |      | $ | 4,154     | 
|Adjustments to reconcile net income to net cash provided by operating activities:                                            |  |                             |           |  |      |   |           | 
|Depreciation and amortization of property, plant and equipment                                                               |  |                             | 9,966     |  |      |   | 8,510     | 
|Provision for bad debt expense                                                                                               |  |                             | 111       |  |      |   | 332       | 
|Other amortization                                                                                                           |  |                             | 414       |  |      |   | 414       | 
|Debt issuance cost amortization                                                                                              |  |                             | 987       |  |      |   | 1,012     | 
|Debt discount amortization, net of premium amortization                                                                      |  |                             | 1,274     |  |      |   | 1,266     | 
|Stock - based compensation expense                                                                                           |  |                             | 107       |  |      |   | 164       | 
|Amortization of restricted stock                                                                                             |  |                             | 551       |  |      |   | 641       | 
|Deferred income taxes                                                                                                        |  |                             | (251)     |  |      |   | (244)     | 
|Equity interest in earnings of investees                                                                                     |  |                             | (143)     |  |      |   | (195)     | 
|Asset impairment charges                                                                                                     |  |                             | 17        |  |      |   | 44        | 
|Loss (gain) on disposal of franchises and property and equipment                                                             |  |                             | 11        |  |      |   | (21)      | 
|Loss on exit of leased dealerships                                                                                           |  |                             | 1,045     |  |      |   | 1,461     | 
|Non-cash adjustments - cash flow swaps                                                                                       |  |                             | (178)     |  |      |   | 1,683     | 
|Changes in assets and liabilities that relate to operations:                                                                 |  |                             |           |  |      |   |           | 
|Receivables                                                                                                                  |  |                             | 23,977    |  |      |   | 17,574    | 
|Inventories                                                                                                                  |  |                             | (28,105)  |  |      |   | (35,881)  | 
|Other assets                                                                                                                 |  |                             | (6,754)   |  |      |   | (12,562)  | 
|Notes payable - floor plan - trade                                                                                           |  |                             | (17,047)  |  |      |   | 195,202   | 
|Trade accounts payable and other liabilities                                                                                 |  |                             | 17,474    |  |      |   | (9,258)   | 
|                                                                                                                             |  |                             |           |  |      |   |           | 
|Total adjustments                                                                                                            |  |                             | 3,456     |  |      |   | 170,142   | 
|                                                                                                                             |  |                             |           |  |      |   |           | 
|Net cash provided by operating activities                                                                                    |  |                             | 18,420    |  |      |   | 174,296   | 
|                                                                                                                             |  |                             |           |  |      |   |           | 
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                                                        |  |                             |           |  |      |   |           | 
|Purchases of land, property and equipment                                                                                    |  |                             | (90,587)  |  |      |   | (7,766)   | 
|Proceeds from sales of property and equipment                                                                                |  |                             | 284       |  |      |   | (41)      | 
|Proceeds from sale of franchises                                                                                             |  |                             | 134       |  |      |   | 504       | 
|Distributions from equity investees                                                                                          |  |                             | 600       |  |      |   | -         | 
|                                                                                                                             |  |                             |           |  |      |   |           | 
|Net cash used in investing activities                                                                                        |  |                             | (89,569)  |  |      |   | (7,303)   | 
|                                                                                                                             |  |                             |           |  |      |   |           | 
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                                                        |  |                             |           |  |      |   |           | 
|Net (repayments) borrowings on notes payable floor plan - non-trade                                                          |  |                             | 3,673     |  |      |   | (190,942) | 
|Borrowings on revolving credit facilities                                                                                    |  |                             | 122,735   |  |      |   | 40,000    | 
|Repayments on revolving credit facilities                                                                                    |  |                             | (122,735) |  |      |   | (40,000)  | 
|Proceeds from issuance of long-term debt                                                                                     |  |                             | 53,950    |  |      |   | 209,839   | 
|Principal payments on long-term debt                                                                                         |  |                             | (1,844)   |  |      |   | (1,538)   | 
|Purchases of treasury stock                                                                                                  |  |                             | (3,903)   |  |      |   | (783)     | 
|Income tax benefit associated with stock compensation plans                                                                  |  |                             | 498       |  |      |   | 218       | 
|Income tax benefit associated with convertible hedge                                                                         |  |                             | -         |  |      |   | 66        | 
|Issuance of shares under stock compensation plans                                                                            |  |                             | 648       |  |      |   | 175       | 
|Dividends paid                                                                                                               |  |                             | (1,320)   |  |      |   | -         | 
|                                                                                                                             |  |                             |           |  |      |   |           | 
|Net cash provided by financing activities                                                                                    |  |                             | 51,702    |  |      |   | 17,035    | 
|                                                                                                                             |  |                             |           |  |      |   |           | 
|NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                                                         |  |                             | (19,447)  |  |      |   | 184,028   | 
|CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                                                               |  |                             | 21,842    |  |      |   | 30,035    | 
|                                                                                                                             |  |                             |           |  |      |   |           | 
|CASH AND CASH EQUIVALENTS, END OF PERIOD                                                                                     |  | $                           | 2,395     |  |      | $ | 214,063   | 
|                                                                                                                             |  |                             |           |  |      |   |           | 
|SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES:                                                                      |  |                             |           |  |      |   |           | 
|Change in fair value of cash flow hedging instruments (net of tax expense of $1,247 and $644 in 2011 and 2010,
respectively) |  | $                           | 2,034     |  |      | $ | 868       | 
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:                                                                           |  |                             |           |  |      |   |           | 
|Cash paid (received) during the period for:                                                                                  |  |                             |           |  |      |   |           | 
|Interest, including amount capitalized                                                                                       |  | $                           | 25,801    |  |      | $ | 26,663    | 
|Income taxes                                                                                                                 |  | $                           | 1,097     |  |      | $ | (123)     | 

See notes to Unaudited Condensed Consolidated Financial Statements.



6



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SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies

Amendments to Previously Filed Statements  Prior to issuing its year-end financial
statements, Sonic discovered it was incorrectly reclassifying balances between trade accounts payable and cash and cash equivalents. This amendment is filed to correct those errors. The table below sets forth the previously reported trade accounts
payable and cash and cash equivalents balances as well as amounts reported as net cash provided by operating activities and the associated amended balances included in this report.



|                                          |  |                                                          |        |  |             |   |        |            |  |   |        | 
|----------------------------------------- |  | -------------------------------------------------------- | ------ |  | ----------- | - | ------ | ---------- |  | - | ------ | 
|                                          |  | As of and for the Three-MonthPeriod Ended March 31, 2011 |       
|(amounts in thousands)                    |  | AsReported                                               |        |  | Adjustments |   |        | AsRestated | 
|                                          |  |                                                          |       
|Cash and cash equivalents                 |  | $                                                        | 8,355  |  |             | $ | (5,960 | )          |  | $ | 2,395  | 
|Trade accounts payable                    |  | $                                                        | 87,486 |  |             | $ | (5,960 | )          |  | $ | 81,526 | 
|Net cash provided by operating activities |  | $                                                        | 24,380 |  |             | $ | (5,960 | )          |  | $ | 18,420 | 

Basis of Presentation The accompanying Unaudited Condensed Consolidated
Financial Statements for the first quarters ended March 31, 2011 and 2010 have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the SEC). All significant intercompany accounts and
transactions have been eliminated. These Unaudited Condensed Consolidated Financial Statements reflect, in the opinion of management, all material normal recurring adjustments necessary to fairly state the financial position and the results of
operations for the periods presented. The results for interim periods are not necessarily indicative of the results to be expected for the entire fiscal year. These interim financial statements should be read in conjunction with the audited
Consolidated Financial Statements of Sonic Automotive, Inc. (Sonic or the Company) for the year ended December 31, 2010, which were included in Sonics Annual Report on Form 10-K.

Reclassifications The Unaudited Condensed Consolidated Statements of Income for the first quarter ended
March 31, 2010 reflect the reclassification of balances from continuing operations to discontinued operations from the prior year presentation for additional franchises sold and terminated or identified for sale subsequent to March 31,
2010. The Unaudited Condensed Consolidated Statements of Income for the first quarter ended March 31, 2010 also reflect the reclassification of balances from discontinued operations to continuing operations for franchises identified for sale as
of March 31, 2010, but which Sonic has decided to retain and operate as of March 31, 2011. There were no franchises held for sale at March 31, 2011.

Lease Exit Accruals Lease exit accruals relate to facilities Sonic has ceased using in its operations. The
accruals represent the present value of the lease payments, net of estimated sublease proceeds, for the remaining life of the operating leases and other accruals necessary to satisfy the lease commitment to the landlord. A summary of the activity of
these lease exit accruals consists of the following:



|                           |  |                |         | 
|-------------------------- |  | -------------- | ------- | 
|                           |  | (In thousands) |        
|Balance, December 31, 2010 |  | $              | 43,534  | 
|Lease exit expense (1)     |  |                | 1,045   | 
|Payments                   |  |                | (2,165) | 
|                           |  |                |         | 
|Balance, March 31, 2011    |  | $              | 42,414  | 
|                           |  |                |         | 



|(1) | Approximately $0.9 million is recorded in interest expense, other, net, and the remaining $0.1 million is recorded in selling, general and
administrative expenses in the accompanying Unaudited Condensed Consolidated Statements of Income.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Income Tax Expense The overall effective tax rates for the first quarters ended March 31, 2011 and 2010 are higher than federal statutory rates due to the effect of state income taxes.
The overall effective tax rate from continuing operations was 40.0% for the first quarter ended March 31, 2011. The overall effective tax rate from continuing operations was 43.0% for the first quarter ended March 31, 2010. The effective
rate for the first quarter ended March 31, 2011 was lower than the prior year period due to the level of overall taxable income and the shift in the distribution of taxable income between states in which Sonic operates.

2. Discontinued Operations

Dispositions The operating results of disposed franchises and franchises held for sale
are included in the loss from discontinued operations in Sonics Unaudited Condensed Consolidated Statements of Income. At March 31, 2011 there were no dealership franchises held for sale.



7



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SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



Revenues and other activities associated with franchises classified as
discontinued operations were as follows:



|                               |  |                               |         |  |      |   |         | 
|------------------------------ |  | ----------------------------- | ------- |  | ---- | - | ------- | 
|                               |  | First Quarter Ended March 31, |        
|                               |  | 2011                          |         |  | 2010 |  
|                               |  | (In thousands)                |        
|Loss from operations           |  | $                             | (373)   |  |      | $ | (2,605) | 
|Gain on disposal of businesses |  |                               | 25      |  |      |   | 270     | 
|Lease exit charges             |  |                               | (925)   |  |      |   | (1,645) | 
|                               |  |                               |         |  |      |   |         | 
|Pre-tax loss                   |  | $                             | (1,273) |  |      | $ | (3,980) | 
|                               |  |                               |         |  |      |   |         | 
|                               |  |                              
|Total revenues                 |  | $                             | -       |  |      | $ | 25,272  | 

Lease exit charges recorded for the first quarters ended March 31, 2011 and 2010
relate to interest charges and the revision of estimates on previously established lease exit accruals. The lease exit accruals represent the present value of the lease payments, net of estimated sublease proceeds, for the remaining life of the
operating leases and other accruals necessary to satisfy the lease commitment to the landlord.

3. Inventories

Inventories consist of the following:



|                      |  |                |         |  |                  |   |         | 
|--------------------- |  | -------------- | ------- |  | ---------------- | - | ------- | 
|                      |  | March 31,2011  |         |  | December 31,2010 |  
|                      |  | (In thousands) |        
|New vehicles          |  | $              | 619,237 |  |                  | $ | 628,939 | 
|Used vehicles         |  |                | 201,872 |  |                  |   | 165,039 | 
|Parts and accessories |  |                | 51,923  |  |                  |   | 50,854  | 
|Other                 |  |                | 58,204  |  |                  |   | 58,389  | 
|                      |  |                |         |  |                  |   |         | 
|Inventories           |  | $              | 931,236 |  |                  | $ | 903,221 | 
|                      |  |                |         |  |                  |   |         | 

4. Property and Equipment

Property and equipment consists of the following:



|                               |  |                |           |  |                  |   |           | 
|------------------------------ |  | -------------- | --------- |  | ---------------- | - | --------- | 
|                               |  | March 31,2011  |           |  | December 31,2010 |  
|                               |  | (In thousands) |          
|Land                           |  | $              | 120,237   |  |                  | $ | 76,357    | 
|Building and improvements      |  |                | 398,279   |  |                  |   | 353,088   | 
|Office equipment and fixtures  |  |                | 79,631    |  |                  |   | 77,654    | 
|Parts and service equipment    |  |                | 57,619    |  |                  |   | 56,651    | 
|Company vehicles               |  |                | 8,261     |  |                  |   | 8,137     | 
|Construction in progress       |  |                | 44,440    |  |                  |   | 48,230    | 
|                               |  |                |           |  |                  |   |           | 
|Total, at cost                 |  |                | 708,467   |  |                  |   | 620,117   | 
|Less: accumulated depreciation |  |                | (190,790) |  |                  |   | (181,837) | 
|                               |  |                |           |  |                  |   |           | 
|Subtotal                       |  |                | 517,677   |  |                  |   | 438,280   | 
|Less: assets held for sale (1) |  |                | (2,020)   |  |                  |   | (2,020)   | 
|                               |  |                |           |  |                  |   |           | 
|Property and equipment, net    |  | $              | 515,657   |  |                  | $ | 436,260   | 
|                               |  |                |           |  |                  |   |           | 



| | (1) | Included in other current assets in the accompanying Unaudited Condensed Consolidated Balance Sheets.
| | --- | -----------------------------------------------------------------------------------------------------



8



---

SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



In the first quarter ended March 31, 2011, Sonic purchased five
dealership properties for $75.2 million which it previously leased through long-term operating leases, utilizing cash on hand and borrowings under the 2010 Credit Facilities (see Note 6 for discussion on the 2010 Credit Facilities). Subsequent to
the purchase date, Sonic obtained mortgage funding of $54.0 million related these properties.

5. Goodwill and Intangible Assets



|                                    |  |                     |        |  |                |   |           |                       |  |   |              |  |  |   |         | 
|----------------------------------- |  | ------------------- | ------ |  | -------------- | - | --------- | --------------------- |  | - | ------------ |  |  | - | ------- | 
|                                    |  | FranchiseAgreements |        |  | Gross Goodwill |   |           | AccumulatedImpairment |  |   | Net Goodwill | 
|                                    |  | (In thousands)      |       
|Balance, December 31, 2010          |  | $                   | 64,835 |  |                | $ | 1,265,241 |                       |  | $ | (796,725)    |  |  | $ | 468,516 | 
|Reductions from sales of businesses |  |                     | -      |  |                |   | (51)      |                       |  |   | -            |  |  |   | (51)    | 
|                                    |  |                     |        |  |                |   |           |                       |  |   |              |  |  |   |         | 
|Balance, March 31, 2011             |  | $                   | 64,835 |  |                | $ | 1,265,190 |                       |  | $ | (796,725)    |  |  | $ | 468,465 | 
|                                    |  |                     |        |  |                |   |           |                       |  |   |              |  |  |   |         | 

At December 31, 2010, Sonic had $14.3 million of definite life intangibles recorded
related to favorable lease agreements. After the effect of amortization of the definite life intangibles, the balance recorded at March 31, 2011 was $13.9 million and was included in Other Intangible Assets, net, in the accompanying Unaudited
Condensed Consolidated Balance Sheets.

6. Long-Term Debt

Long-term debt consists of the following:



|                                                                                                                            |  |               |         |   |                  |   |         |  
|--------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ------- | - | ---------------- | - | ------- | -
|                                                                                                                            |  | March 31,2011 |         |   | December 31,2010 |  
|                                                                                                                            |  | In thousands) |        
|2010 Revolving Credit Facility (1)                                                                                          |  | $             | -       |   |                  | $ | -       |  
|Senior Subordinated Notes bearing interest at 9.0% (9.0% Notes)                                                           |  |               | 210,000 |   |                  |   | 210,000 |  
|Senior Subordinated Notes bearing interest at 8.625% (8.625% Notes)                                                       |  |               | 42,855  |   |                  |   | 42,855  |  
|Convertible Senior Notes bearing interest at 5.0% (5.0% Convertible Notes)                                                |  |               | 172,500 |   |                  |   | 172,500 |  
|Notes payable to a finance company bearing interest from 9.52% to 10.52% (with a weighted average of 10.19%)                |  |               | 15,048  |   |                  |   | 15,618  |  
|Mortgage notes to finance companies-fixed rate, bearing interest from 4.50% to 7.03%                                        |  |               | 123,926 |   |                  |   | 88,262  |  
|Mortgage notes to finance companies-variable rate, bearing interest at 1.25 to 3.50 percentage points above one-month
LIBOR |  |               | 62,697  |   |                  |   | 45,639  |  
|Net debt discount and premium (2)                                                                                           |  |               | (24,180 | ) |                  |   | (25,482 | )
|Other                                                                                                                       |  |               | 5,986   |   |                  |   | 6,059   |  
|                                                                                                                            |  |               |         |   |                  |   |         |  
|                                                                                                                            |  | $             | 608,832 |   |                  | $ | 555,451 |  
|Less current maturities                                                                                                     |  |               | (9,863  | ) |                  |   | (9,050  | )
|                                                                                                                            |  |               |         |   |                  |   |         |  
|Long-term debt                                                                                                              |  | $             | 598,969 |   |                  | $ | 546,401 |  
|                                                                                                                            |  |               |         |   |                  |   |         |  



| | (1) | Interest rate on the revolving credit facility was 3.50% above LIBOR at March 31, 2011 and December 31, 2010.
| | --- | -------------------------------------------------------------------------------------------------------------

| | (2) | March 31, 2011 includes $1.3 million discount associated with the 9.0% Notes, $0.2 million discount associated with the 8.625% Notes, $23.3
million discount associated with the 5.0% Convertible Notes, $1.7 million premium associated with notes payable to a finance company and $1.0 million discount associated with mortgage notes payable. December 31, 2010 includes $1.4 million
discount associated with the 9.0% Notes, $0.2 million discount associated with the 8.625% Notes, $24.7 million discount associated with the 5.0% Convertible Notes, $1.8 million premium associated with notes payable to a finance company and $1.0
million discount associated with mortgage notes payable.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

2010 Credit Facilities

On January 15, 2010, Sonic entered into an amended and restated syndicated revolving credit agreement (the
2010 Revolving Credit Facility) and a syndicated floor plan credit facility (the 2010 Floor Plan Facility). The 2010 Revolving Credit Facility and 2010 Floor Plan Facility (collectively the 2010 Credit Facilities)
mature on August 15, 2012.

Availability under the 2010 Revolving Credit Facility is calculated as the
lesser of $150.0 million or a borrowing base calculated based on certain eligible assets plus 50% of the fair market value of 5,000,000 shares of common stock of Speedway Motorsports, Inc. (SMI) that are pledged as collateral, less the
aggregate face amount of any outstanding letters





9



---

SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



of credit under the 2010 Revolving Credit Facility (the 2010 Revolving Borrowing Base). The 2010 Revolving Credit Facility may be expanded up to $215.0 million upon satisfaction of
certain conditions. A withdrawal of this pledge by Sonic Financial Corporation (SFC), which holds the 5,000,000 shares of common stock of SMI, or a significant decline in the value of SMI common stock, would reduce the amount Sonic can
borrow under the 2010 Revolving Credit Facility.

The 2010 Revolving Borrowing Base was approximately $143.4
million at March 31, 2011. At March 31, 2011, Sonic had no outstanding borrowings on the revolver and $43.2 million in outstanding letters of credit resulting in total borrowing availability of $100.2 million under the 2010 Revolving
Credit Facility.

Outstanding obligations under the 2010 Revolving Credit Facility are secured by a pledge of
substantially all of the assets of Sonic and its subsidiaries and by the pledge of 5,000,000 shares of common stock of SMI by SFC. The collateral also provides for the pledge of the franchise agreements and stock or equity interests of Sonics
dealership franchise subsidiaries, except for those dealership franchise subsidiaries where the applicable manufacturer prohibits such a pledge, in which cases the stock or equity interests of the dealership franchise subsidiary is subject to an
escrow arrangement with the administrative agent. Substantially all of Sonics subsidiaries also guarantee its obligations under the 2010 Revolving Credit Facility.

The 2010 Floor Plan Facility is comprised of a new vehicle revolving floor plan facility in an amount up to $321.0
million (the 2010 New Vehicle Floor Plan Facility) and a used vehicle revolving floor plan facility in an amount up to $50.0 million, subject to a borrowing base (the 2010 Used Vehicle Floor Plan Facility). Sonic may, under
certain conditions, request an increase in the 2010 Floor Plan Facility of up to $125.0 million, which shall be allocated between the 2010 New Vehicle Floor Plan Facility and the 2010 Used Vehicle Floor Plan Facility as Sonic requests, with no more
than 15% of the aggregate commitments allocated to the commitments under the 2010 Used Vehicle Floor Plan Facility. Outstanding obligations under the 2010 Floor Plan Facility are guaranteed by Sonic and certain of its subsidiaries and are secured by
a pledge of substantially all of the assets of Sonic and its subsidiaries.

The amounts outstanding under the
2010 Credit Facilities bear interest at variable rates based on specified percentages above LIBOR according to a performance-based pricing grid determined by Sonics Consolidated Total Debt to EBITDA Ratio (as defined in the 2010 Credit
Facilities agreement) as of the last day of the immediately preceding fiscal quarter.

Sonic agreed under the
2010 Credit Facilities not to pledge any assets to any third party, subject to certain stated exceptions, including floor plan financing arrangements. In addition, the 2010 Credit Facilities contain certain negative covenants, including covenants
which could restrict or prohibit indebtedness, liens, the payment of dividends, capital expenditures and material dispositions and acquisitions of assets as well as other customary covenants and default provisions. Specifically, the 2010 Credit
Facilities permit cash dividends on Sonics Class A and Class B common stock so long as no event of default (as defined in the 2010 Credit Facilities) has occurred and is continuing and provided that Sonic remains in compliance with all
financial covenants under the 2010 Credit Facilities.

Covenants

The 2010 Credit Facilities contain certain covenants, including covenants which could restrict or prohibit indebtedness,
liens, payment of dividends, capital expenditures and material dispositions and acquisitions of assets as well as other customary covenants and default provisions. Sonic was in compliance with the covenants under the 2010 Credit Facilities as of
March 31, 2011 and expects to be in compliance with the covenants for the foreseeable future. Financial covenants include required specified ratios (as each is defined in the 2010 Credit Facilities) of:



|                                                    |  |              |         |  |              |  |         |                 |  |  |         | 
|--------------------------------------------------- |  | ------------ | ------- |  | ------------ |  | ------- | --------------- |  |  | ------- | 
|                                                    |  | Covenant     |        
|                                                    |  |              |         |  | Consolidated |  |         | Consolidated    | 
|                                                    |  | Consolidated |         |  | Fixed Charge |  |         | Total Senior    | 
|                                                    |  | Liquidity    |         |  | Coverage     |  |         | Secured Debt to | 
|                                                    |  | Ratio        |         |  | Ratio        |  |         | EBITDA Ratio    | 
|                                                    |  |              |        
|Through March 30, 2011                              |  |              | >  1.00 |  |              |  | >  1.10 |                 |  |  | <  2.25 | 
|March 31, 2011 through and including March 30, 2012 |  |              | >  1.05 |  |              |  | >  1.15 |                 |  |  | <  2.25 | 
|March 31, 2012 and thereafter                       |  |              | >  1.10 |  |              |  | >  1.20 |                 |  |  | <  2.25 | 
|March 31, 2011 actual                               |  |              | 1.15    |  |              |  | 1.45    |                 |  |  | 1.50    | 



10



---

SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



The 2010 Credit Facilities contain events of default, including
cross-defaults to other material indebtedness, change of control events and events of default customary for syndicated commercial credit facilities. Upon the occurrence of an event of default, Sonic could be required to immediately repay all
outstanding amounts under the 2010 Credit Facilities. Sonic was in compliance with all required covenants as of March 31, 2011.

In addition, many of Sonics facility leases are governed by a guarantee agreement between the landlord and Sonic that contains financial and operating covenants. The financial covenants are
identical to those under the 2010 Credit Facilities with the exception of one financial covenant related to the ratio of EBTDAR to Rent (as defined in the lease agreements) with a required ratio of no less than 1.5 to 1.0. At March 31, 2011,
the ratio was 2.3 to 1.0.

9.0% Senior Subordinated Notes (9.0% Notes)

The 9.0% Notes are unsecured senior subordinated obligations of Sonic and are guaranteed by Sonics domestic
operating subsidiaries. Interest is payable semi-annually on March 15 and September 15 each year. Sonic may redeem the 9.0% Notes in whole or in part at any time after March 15, 2014 at the following redemption prices, which are
expressed as percentages of the principal amount:



|                                           |  |            |        |  
|------------------------------------------ |  | ---------- | ------ | -
|                                           |  | Redemption |       
|Beginning on March 15, 2014                |  |            | 104.50 | %
|Beginning on March 15, 2015                |  |            | 102.25 | %
|Beginning on March 15, 2016 and thereafter |  |            | 100.00 | %

In addition, on or before March 15, 2013, Sonic may redeem up to 35% of the
aggregate principal amount of the 9.0% Notes at par value plus accrued interest with proceeds from certain equity offerings. The Indenture also provides that holders of 9.0% Notes may require Sonic to repurchase the 9.0% Notes at 101% of the par
value of the 9.0% Notes, plus accrued interest if Sonic undergoes a change of control as defined in the Indenture.

The Indenture governing the 9.0% Notes contains certain specified restrictive covenants. Sonic has agreed not to pledge any assets to any third party lender of senior subordinated debt except under
certain limited circumstances. Sonic also has agreed to certain other limitations or prohibitions concerning the incurrence of other indebtedness, capital stock, guarantees, asset sales, investments, cash dividends to stockholders, distributions and
redemptions. Specifically, the indenture governing Sonics 9.0% Notes limits Sonics ability to pay quarterly cash dividends on Sonics Class A and B common stock in excess of $0.10 per share. Sonic may only pay quarterly cash
dividends on Sonics Class A and B common stock if Sonic complies with the terms of the indenture governing the 9.0% Notes. Sonic was in compliance with all restrictive covenants as of March 31, 2011.

Balances outstanding under Sonics 9.0% Notes are guaranteed by all of Sonics operating domestic subsidiaries.
These guarantees are full and unconditional and joint and several. The parent company has no independent assets or operations. The non-domestic and non-operating subsidiaries that are not guarantors are considered to be minor.

Sonics obligations under the 9.0% Notes may be accelerated by the holders of 25% of the outstanding principal
amount of the 9.0% Notes then outstanding if certain events of default occur, including: (1) defaults in the payment of principal or interest when due; (2) defaults in the performance, or breach, of Sonics covenants under the 9.0%
Notes; and (3) certain defaults under other agreements under which Sonic or its subsidiaries have outstanding indebtedness in excess of $35.0 million.

8.625% Senior Subordinated Notes (8.625% Notes)

The 8.625% Notes are unsecured obligations that rank equal in right of payment to all of Sonics existing and future senior subordinated indebtedness, mature on August 15, 2013 and are
redeemable at par at Sonics option after August 15, 2008.

Balances outstanding under Sonics
8.625% Notes are guaranteed by all of Sonics operating domestic subsidiaries. These guarantees are full and unconditional and joint and several. The parent company has no independent assets or operations. The non-domestic and non-operating
subsidiaries that are not guarantors are considered to be minor.



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



5.0% Convertible Senior Notes (5.0% Convertible Notes)

Interest payments on the 5.0% Convertible Notes are payable semiannually on April 1 and
October 1 of each year, beginning on April 1, 2010. The 5.0% Convertible Notes mature on October 1, 2029. Sonic may redeem some or all of the 5.0% Convertible Notes for cash at any time subsequent to October 1, 2014 at a
repurchase price equal to 100% of the principal amount of the Notes. Holders have the right to require Sonic to purchase the 5.0% Convertible Notes on each of October 1, 2014, October 1, 2019 and October 1, 2024 or in the event
of a change in control for cash at a purchase price equal to 100% of the principal amount of the notes.

Holders of the 5.0% Convertible Notes may convert their notes at their option prior to the close of business on the
business day immediately preceding July 1, 2029 only under the following circumstances: (1) during any fiscal quarter commencing after December 31, 2009, if the last reported sale price of the Class A common stock for at least 20
trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the preceding fiscal quarter is greater than or equal to 130% of the applicable conversion price on each applicable trading
day; (2) during the five business day period after any 10 consecutive trading day period (the measurement period) in which the trading price (as defined below) per $1,000 principal amount of notes for each day of that measurement
period was less than 98% of the product of the last reported sale price of Sonics Class A common stock and the applicable conversion rate on each such day; (3) if Sonic calls any or all of the notes for redemption, at any time prior
to the close of business on the third scheduled trading day prior to the redemption date; or (4) upon the occurrence of specified corporate events. On and after July 1, 2029, to (and including) the close of business on the third scheduled
trading day immediately preceding the maturity date, holders may convert their notes at any time, regardless of the foregoing circumstances. The conversion rate is 74.7245 shares of Class A common stock per $1,000 principal amount of notes,
which is equivalent to a conversion price of approximately $13.38 per share of Class A common stock. None of the conversion features of the 5.0% Convertible Notes were triggered in the first quarter ended March 31, 2011.

To recognize the equity component of a convertible borrowing instrument, upon issuance of the 5.0% Convertible Notes in
September 2009, Sonic recorded a debt discount of $31.0 million and a corresponding amount (net of taxes of $12.8 million) to equity, based on an estimated non-convertible borrowing rate of 10.5%. The debt discount is being amortized to interest
expense through October 2014, the earliest redemption date. The unamortized debt discount was $23.3 million and $24.7 million at March 31, 2011 and December 31, 2010, respectively.

Sonic incurred interest expense related to the 5.0% Convertible Notes of approximately $2.2 million for each of the
quarters ended March 31, 2011 and 2010, recorded to interest expense, other, net, in the accompanying Unaudited Condensed Consolidated Statements of Income. In addition, Sonic recorded interest expense associated with the amortization of debt
discount and deferred loan costs on the 5.0% Convertible Notes of $1.7 million and $1.5 million for the first quarters ended March 31, 2011 and 2010, respectively, recorded to interest expense, non-cash, convertible debt in the accompanying
Unaudited Condensed Consolidated Statements of Income.

Mortgage Notes

Mortgage notes require monthly payments of principal and interest through maturity and are secured by the underlying
properties. Maturity dates range between June 2013 and December 2031. The weighted average interest rate was 4.99% at March 31, 2011. Sonic purchased five dealership properties in January 2011 for $75.2 million which it previously occupied
under operating lease agreements. The properties were purchased utilizing cash on hand and borrowings under the 2010 Credit Facilities. During the first quarter ended March 31, 2011, Sonic secured mortgages on these properties totaling $54.0
million and used the proceeds from these mortgages to pay down borrowings under the 2010 Credit Facilities.

Derivative
Instruments and Hedging Activities

At March 31, 2011 Sonic had interest rate swap agreements
(the Fixed Swaps) to effectively convert a portion of its LIBOR-based variable rate debt to a fixed rate. The fair value of these swap positions at March 31, 2011 was a liability of $29.2 million included in Other Long-Term
Liabilities in the accompanying Unaudited Condensed Consolidated Balance Sheets. Under the terms of the Fixed Swaps, Sonic will receive and pay interest based on the following:



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SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



|              |       |     |          |        |                  |                 |               |                   
|------------- | ----- | --- | -------- | ------ | ---------------- | --------------- | ------------- | ------------------
|Notional      |       |     | Pay Rate |        | Receive Rate (1) |                 | Maturing Date
|(In millions) |       |     |          |        |                  |                 |              
|$             | 200.0 |     |          | 4.935% |                  | one-month LIBOR |               | May 1, 2012       
|$             | 100.0 |     |          | 5.265% |                  | one-month LIBOR |               | June 1, 2012      
|$             | 3.5   |     |          | 7.100% |                  | one-month LIBOR |               | July 10, 2017     
|$             | 25.0  | (2) |          | 5.160% |                  | one-month LIBOR |               | September 1, 2012 
|$             | 15.0  | (2) |          | 4.965% |                  | one-month LIBOR |               | September 1, 2012 
|$             | 25.0  | (2) |          | 4.885% |                  | one-month LIBOR |               | October 1, 2012   
|$             | 11.1  |     |          | 4.655% |                  | one-month LIBOR |               | December 10, 2017 
|$             | 8.6   |     |          | 6.860% |                  | one-month LIBOR |               | August 1, 2017    
|$             | 6.8   |     |          | 4.330% |                  | one-month LIBOR |               | July 1, 2013      
|$             | 100.0 | (3) |          | 3.280% |                  | one-month LIBOR |               | July 1, 2015      
|$             | 100.0 | (3) |          | 3.300% |                  | one-month LIBOR |               | July 1, 2015      
|$             | 7.3   |     |          | 6.410% |                  | one-month LIBOR |               | September 12, 2017
|$             | 50.0  | (3) |          | 2.767% |                  | one-month LIBOR |               | July 1, 2014      
|$             | 50.0  | (3) |          | 3.240% |                  | one-month LIBOR |               | July 1, 2015      
|$             | 50.0  | (3) |          | 2.610% |                  | one-month LIBOR |               | July 1, 2014      
|$             | 50.0  | (3) |          | 3.070% |                  | one-month LIBOR |               | July 1, 2015      



| | (1) | The one-month LIBOR rate was 0.244% at March 31, 2011.
| | --- | ------------------------------------------------------

| | (2) | After December 31, 2009 changes in fair value are recorded through earnings.
| | --- | ----------------------------------------------------------------------------

| | (3) | The effective date of these forward-starting swaps is July 2, 2012.
| | --- | -------------------------------------------------------------------

During the first quarter ended March 31, 2011, Sonic entered into four $50.0 million notional forward-starting
interest rate swap agreements which become effective in July 2012. Two of the agreements terminate in July 2014 and the other two agreements terminate in July 2015. These interest rate swaps have been designated and qualify as cash flow hedges and,
as a result, changes in the fair value of these swaps are recorded in accumulated other comprehensive income (loss), net of related income taxes, in the Unaudited Condensed Consolidated Statements of Stockholders Equity.

For the first quarters ended March 31, 2011 and 2010, a non-cash benefit of $0.2 million and a non-cash charge of
$1.7 million, respectively, related to the Fixed Swaps not designated as hedges and amortization of amounts in accumulated other comprehensive income (loss) related to terminated cash flow swaps were included in interest expense/amortization,
non-cash, cash flow swaps in the accompanying Unaudited Condensed Consolidated Statements of Income.

For the
Fixed Swaps which qualify as cash flow hedges, the changes in the fair value of these swaps have been recorded in accumulated other comprehensive income (loss), net of related income taxes, in the Unaudited Condensed Consolidated Statements of
Stockholders Equity. The incremental interest expense (the difference between interest paid and interest received) related to the Fixed Swaps was $4.4 million and $5.0 million for the first quarters ended March 31, 2011 and 2010,
respectively. This expense is included in interest expense, other, net, in the accompanying Unaudited Condensed Consolidated Statements of Income. The estimated net expense expected to be reclassified out of accumulated other comprehensive income
(loss) into results of operations during the next twelve months is approximately $10.8 million.

7. Per Share Data and Stockholders Equity

The calculation of diluted earnings per share considers the potential dilutive effect of Sonics
contingently convertible debt issuances and stock options to purchase shares of Class A common stock under several equity compensation plans. The following table illustrates the dilutive effect of such items on earnings per share for the first
quarters ended March 31, 2011 and 2010:



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SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



|                                                        |  |                                            |        |  |                                 |   |        |                                 |  |   |            |  |  |                 |      |   |        |   |       |                 |  |   |        |   |  |   |      | 
|------------------------------------------------------- |  | ------------------------------------------ | ------ |  | ------------------------------- | - | ------ | ------------------------------- |  | - | ---------- |  |  | --------------- | ---- | - | ------ | - | ----- | --------------- |  | - | ------ | - |  | - | ---- | 
|                                                        |  | For the First Quarter Ended March 31, 2011 |       
|                                                        |  |                                            |        |  | IncomeFrom ContinuingOperations |   |        | LossFrom DiscontinuedOperations |  |   | Net Income | 
|                                                        |  | WeightedAverage 
Shares                    |        |  | Amount                          |   |        | PerShare Amount                 |  |   | Amount     |  |  | PerShare Amount |      |   | Amount |   |       | PerShare Amount | 
|                                                        |  | (In thousands, except per share amounts)   |       
|Earnings (Loss) and Shares                              |  |                                            | 52,416 |  |                                 | $ | 15,791 |                                 |  |   |            |  |  | $               | (827 | ) |        |   |       |                 |  | $ | 14,964 |   |  |   |      | 
|Effect of Participating Securities:                     |  |                                            |        |  |                                 |   |        |                                 |  |   |            |  |  |                 |      |   |        |   |       |                 |  |   |        |   |  |   |      | 
|Non-vested Restricted Stock and Stock Units             |  |                                            | -      |  |                                 |   | (206   | )                               |  |   |            |  |  |                 | -    |   |        |   |       |                 |  |   | (206   | ) |  |   |      | 
|                                                        |  |                                            |        |  |                                 |   |        |                                 |  |   |            |  |  |                 |      |   |        |   |       |                 |  |   |        |   |  |   |      | 
|Basic Earnings (Loss) and Shares                        |  |                                            | 52,416 |  |                                 | $ | 15,585 |                                 |  | $ | 0.30       |  |  | $               | (827 | ) |        | $ | (0.02 | )               |  | $ | 14,758 |   |  | $ | 0.28 | 
|Effect of Dilutive Securities:                          |  |                                            |        |  |                                 |   |        |                                 |  |   |            |  |  |                 |      |   |        |   |       |                 |  |   |        |   |  |   |      | 
|Contingently Convertible Debt ( 5.0% Convertible Notes) |  |                                            | 12,890 |  |                                 |   | 2,310  |                                 |  |   |            |  |  |                 | -    |   |        |   |       |                 |  |   | 2,310  |   |  |   |      | 
|Stock Compensation Plans                                |  |                                            | 644    |  |                                 |   |        |                                 |  |   |            |  |  |                 |      |   |        |   |       |                 |  |   |        |   |  |   |      | 
|                                                        |  |                                            |        |  |                                 |   |        |                                 |  |   |            |  |  |                 |      |   |        |   |       |                 |  |   |        |   |  |   |      | 
|Diluted Earnings (Loss) and Shares                      |  |                                            | 65,950 |  |                                 | $ | 17,895 |                                 |  | $ | 0.27       |  |  | $               | (827 | ) |        | $ | (0.01 | )               |  | $ | 17,068 |   |  | $ | 0.26 | 
|                                                        |  |                                            |        |  |                                 |   |        |                                 |  |   |            |  |  |                 |      |   |        |   |       |                 |  |   |        |   |  |   |      | 



|                                            |  |                                            |        |  |                 |   |       |                   |  |   |            |  |  |                  |        |   |        |   |       |                  |  |   |       |   |  |   |      | 
|------------------------------------------- |  | ------------------------------------------ | ------ |  | --------------- | - | ----- | ----------------- |  | - | ---------- |  |  | ---------------- | ------ | - | ------ | - | ----- | ---------------- |  | - | ----- | - |  | - | ---- | 
|                                            |  | For the First Quarter Ended March 31, 2010 |       
|                                            |  |                                            |        |  | Income          |   |       | Loss              |  |   |            | 
|                                            |  |                                            |        |  | From Continuing |   |       | From Discontinued |  |   |            | 
|                                            |  |                                            |        |  | Operations      |   |       | Operations        |  |   | Net Income | 
|                                            |  | WeightedAverage 
Shares                    |        |  | Amount          |   |       | PerShare 
Amount  |  |   | Amount     |  |  | PerShare 
Amount |        |   | Amount |   |       | PerShare 
Amount | 
|                                            |  |                                            |        |  |                 |   |      
|                                            |  | (In thousands, except per share amounts)   |       
|Earnings (Loss) and Shares                  |  |                                            | 51,889 |  |                 | $ | 6,566 |                   |  |   |            |  |  | $                | (2,412 | ) |        |   |       |                  |  | $ | 4,154 |   |  |   |      | 
|Effect of Participating Securities:         |  |                                            |        |  |                 |   |       |                   |  |   |            |  |  |                  |        |   |        |   |       |                  |  |   |       |   |  |   |      | 
|Non-vested Restricted Stock and Stock Units |  |                                            | -      |  |                 |   | (79   | )                 |  |   |            |  |  |                  | -      |   |        |   |       |                  |  |   | (79   | ) |  |   |      | 
|                                            |  |                                            |        |  |                 |   |       |                   |  |   |            |  |  |                  |        |   |        |   |       |                  |  |   |       |   |  |   |      | 
|Basic Earnings (Loss) and Shares            |  |                                            | 51,889 |  |                 | $ | 6,487 |                   |  | $ | 0.13       |  |  | $                | (2,412 | ) |        | $ | (0.05 | )                |  | $ | 4,075 |   |  | $ | 0.08 | 
|Effect of Dilutive Securities:              |  |                                            |        |  |                 |   |       |                   |  |   |            |  |  |                  |        |   |        |   |       |                  |  |   |       |   |  |   |      | 
|Stock Compensation Plans                    |  |                                            | 690    |  |                 |   |       |                   |  |   |            |  |  |                  |        |   |        |   |       |                  |  |   |       |   |  |   |      | 
|                                            |  |                                            |        |  |                 |   |       |                   |  |   |            |  |  |                  |        |   |        |   |       |                  |  |   |       |   |  |   |      | 
|Diluted Earnings (Loss) and Shares          |  |                                            | 52,579 |  |                 | $ | 6,487 |                   |  | $ | 0.12       |  |  | $                | (2,412 | ) |        | $ | (0.04 | )                |  | $ | 4,075 |   |  | $ | 0.08 | 
|                                            |  |                                            |        |  |                 |   |       |                   |  |   |            |  |  |                  |        |   |        |   |       |                  |  |   |       |   |  |   |      | 

In addition to the stock options included in the table above, options to purchase
approximately 2.3 million shares and 2.4 million shares of Class A common stock were outstanding at March 31, 2011 and March 31, 2010, respectively, but were not included in the computation of diluted earnings per share
because the options were not dilutive. In addition, in the event the effect of potentially dilutive shares associated with any of Sonics convertible notes were anti-dilutive, the effect of those shares have also been excluded from the
computation of diluted earnings per share.

8. Contingencies

Legal and Other Proceedings:

Sonic is a defendant in the matter of Galura, et al. v. Sonic Automotive, Inc., a private civil action filed in the
Circuit Court of Hillsborough County, Florida. In this action, originally filed on December 30, 2002, the plaintiffs allege that Sonic and its Florida dealerships sold an antitheft protection product in a deceptive or otherwise illegal manner,
and further sought representation on behalf of any customer of any of Sonics Florida dealerships who purchased the antitheft protection product since December 30, 1998. The plaintiffs are seeking monetary damages and injunctive relief on
behalf of this class of customers. In June 2005, the court granted the plaintiffs motion for certification of the requested class of customers, but the court has made no finding to date regarding actual liability in this lawsuit. Sonic
subsequently filed a notice of appeal of the courts class certification ruling with the Florida Court of Appeals. In April 2007, the Florida Court of Appeals affirmed a portion of the trial courts class certification, and overruled a
portion of the trial courts class certification. In November 2009, the Florida trial court granted Summary Judgment in Sonics favor against Plaintiff Enrique Galura, and his claim has been dismissed. Marisa Hazeltons claim is still
pending. Sonic currently intends to continue its vigorous appeal and defense



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SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



of this lawsuit and to assert available defenses. However, an adverse resolution of this lawsuit could result in the payment of significant costs and damages, which could have a material adverse
effect on Sonics future results of operations, financial condition and cash flows. At a mediation held February 4, 2011, Sonic reached an agreement in principle with the plaintiffs to settle this class action lawsuit, and a settlement
agreement was signed by the parties on March 1, 2011. The settlement agreement remains conditioned upon receiving final approval by the Florida state court. In the event that a definitive settlement of this lawsuit is finalized upon terms and
conditions consistent with the settlement agreement, such a settlement would not have a material adverse effect on Sonics future results of operations, financial condition and cash flows.

Several private civil actions have been filed against Sonic Automotive, Inc. and several of its dealership subsidiaries
that purport to represent classes of customers as potential plaintiffs and made allegations that certain products sold in the finance and insurance departments were done so in a deceptive or otherwise illegal manner. One of these private civil
actions was filed on November 15, 2004 in South Carolina state court, York County Court of Common Pleas, against Sonic Automotive, Inc. and 10 of Sonics South Carolina subsidiaries. The plaintiffs in that lawsuit were Misty J. Owens,
James B. Wright, Vincent J. Astey and Joseph Lee Williams, on behalf of themselves and all other persons similarly situated, with plaintiffs seeking monetary damages and injunctive relief on behalf of the purported class. The group of
plaintiffs attorneys representing the plaintiffs in the South Carolina lawsuit also filed another private civil class action lawsuit against Sonic Automotive, Inc. and 3 of its subsidiaries on February 14, 2005 in state court in North
Carolina, Lincoln County Superior Court, which similarly sought certification of a multi-state class of plaintiffs and alleged that certain products sold in the finance and insurance departments were done so in a deceptive or otherwise illegal
manner. The plaintiffs in this North Carolina lawsuit were Robert Price, Carolyn Price, Marcus Cappeletti and Kathy Cappeletti, on behalf of themselves and all other persons similarly situated, with plaintiffs seeking monetary damages and injunctive
relief on behalf of the purported class. The South Carolina state court action and the North Carolina state court action have since been consolidated into a single proceeding in private arbitration before the American Arbitration Association. On
November 12, 2008, claimants in the consolidated arbitration filed a Motion for Class Certification as a national class action including all of the states in which Sonic operates dealerships. Claimants are seeking monetary damages and
injunctive relief on behalf of this class of customers. The parties have briefed and argued the issue of class certification.

On July 19, 2010, the Arbitrator issued a Partial Final Award on Class Certification, certifying a class which includes all customers who, on or after November 15, 2000, purchased or leased from
a Sonic dealership a vehicle with the Etch product as part of the transaction, but not including customers who purchased or leased such vehicles from a Sonic dealership in Florida. The Partial Final Award on Class Certification is not a final
decision on the merits of the action. The merits of Claimants assertions and potential damages will still have to be proven through the remainder of the arbitration. The Arbitrator stayed the Arbitration for thirty days to allow either party
to petition a court of competent jurisdiction to confirm or vacate the award. Sonic will seek review of the class certification ruling by a court of competent jurisdiction and will continue to press its argument that this action is not suitable for
a class-based arbitration. On July 22, 2010, the plaintiffs in this consolidated arbitration filed a Motion to Confirm the Arbitrators Partial Final Award on Class Certification in state court in North Carolina, Lincoln County Superior
Court. On August 17, 2010, Sonic filed to remove this North Carolina state court action to federal court, and simultaneously filed a Petition to Vacate the Arbitrators Partial Final Award on Class Certification, with both filings made in
the United Stated District Court for the Western District of North Carolina. Sonic intends to continue its vigorous defense of this arbitration and to assert all available defenses. However, an adverse resolution of this arbitration could result in
the payment of significant costs and damages, which could have a material adverse effect on Sonics future results of operations, financial condition and cash flows.

Sonic is involved, and expects to continue to be involved, in numerous legal and administrative proceedings arising out of
the conduct of its business, including regulatory investigations and private civil actions brought by plaintiffs purporting to represent a potential class or for which a class has been certified. Although Sonic vigorously defends itself in all legal
and administrative proceedings, the outcomes of pending and future proceedings arising out of the conduct of Sonics business, including litigation with customers, employment related lawsuits, contractual disputes, class actions, purported
class actions and actions brought by governmental authorities, cannot be predicted with certainty. An unfavorable resolution of one or more of these matters could have a material adverse effect on Sonics business, financial condition, results
of operations, cash flows or prospects. Included in other accrued liabilities at both March 31, 2011 and December 31, 2010 was $9.1 million in reserves that Sonic has provided for pending proceedings.

Guarantees and Indemnification Obligations:

In connection with franchise dispositions, certain of Sonics dealership subsidiaries have assigned or sublet to the
buyer its interests in real property leases associated with such dealerships. In general, Sonics dealership subsidiaries retain responsibility for the performance of certain obligations under such leases, including rent payments and repairs to
leased



15



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SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



property upon termination of the lease, to the extent that the assignee or sub-lessee does not perform. In the event the sub-lessees do not perform under their obligations Sonic remains liable
for the lease payments. The total amount relating to this risk was approximately $106.2 million as of December 31, 2010. See Sonics Annual Report on Form 10-K for the year ended December 31, 2010 for further discussion.

In accordance with the terms of agreements entered into for the sale of Sonics franchises, Sonic generally agrees
to indemnify the buyer from certain exposure and costs arising subsequent to the date of sale, including environmental exposure and exposure resulting from the breach of representations or warranties made in accordance with the agreement. While
Sonics exposure with respect to environmental remediation and repairs is difficult to quantify, Sonic estimates that the maximum exposure associated with these general indemnifications if the counterparties failed to perform under their
contractual obligations was approximately $10.5 million and $12.8 million at March 31, 2011 and December 31, 2010, respectively. These indemnifications expire within a period of one to two years following the date of sale. The estimated
fair value of these indemnifications was not material. Sonic also guarantees the floor plan commitments of its 50% owned joint venture, the amount of which was $4.5 million at both March 31, 2011 and December 31, 2010.

9. Fair Value Measurements

In determining fair value, Sonic uses various valuation approaches including market, income and/or
cost approaches. Fair Value Measurements and Disclosures in the Accounting Standards Codification (the ASC) establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and
minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained
from sources independent of Sonic. Unobservable inputs are inputs that reflect Sonics assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the
circumstances. The hierarchy is broken down into three levels based on the reliability of inputs as follows:

Level 1  Valuations based on quoted prices in active markets for identical assets or liabilities that Sonic has the ability to access. Assets utilizing Level 1 inputs include marketable securities
that are actively traded.

Level 2  Valuations based on quoted prices in markets that are
not active or for which all significant inputs are observable, either directly or indirectly. Assets and liabilities utilizing Level 2 inputs include cash flow swap instruments.

Level 3  Valuations based on inputs that are unobservable and significant to the overall fair value
measurement. Asset and liability measurements utilizing Level 3 inputs include those used in estimating fair value of non-financial assets and non-financial liabilities in purchase acquisitions, those used in assessing impairment of property, plant
and equipment and other intangibles and those used in the reporting unit valuation in the first step of the annual goodwill impairment evaluation. For instance, certain assets held for sale in the accompanying Unaudited Condensed Consolidated
Balance Sheets are valued based on estimated proceeds to be received in connection with the disposal of those assets.

The availability of observable inputs can vary and is affected by a wide variety of factors. To the extent that valuation is based on models or inputs that are less observable or unobservable in the
market, the determination of fair value requires more judgment. Accordingly, the degree of judgment required by Sonic in determining fair value is greatest for instruments categorized in Level 3. In certain cases, the inputs used to measure fair
value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement is disclosed is determined based on the lowest level input (Level
3 being the lowest level) that is significant to the fair value measurement.

Fair value is a market-based
measure considered from the perspective of a market participant who holds the asset or owes the liability rather than an entity-specific measure. Therefore, even when market assumptions are not readily available, Sonics own assumptions are set
to reflect those that market participants would use in pricing the asset or liability at the measurement date. Sonic uses inputs that are current as of the measurement date, including during periods when the market may be abnormally high or
abnormally low. Accordingly, fair value measurements can be volatile based on various factors that may or may not be within Sonics control.

Assets or liabilities recorded at fair value in the accompanying balance sheet as of March 31, 2011 are as follows:



16



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SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS







|                                             |  |                                     |        |  |                                                             |   |   |                                |  |   |                                         |  |  |   |   | 
|-------------------------------------------- |  | ----------------------------------- | ------ |  | ----------------------------------------------------------- | - | - | ------------------------------ |  | - | --------------------------------------- |  |  | - | - | 
|                                             |  | Fair Value at Reporting Date Using: |       
|                                             |  |                                     |        |  |                                                             |   |   | Significant                    |  |   |                                         | 
|                                             |  | Total                               |        |  | Quoted Prices
inActive Markets forIdentical Assets(Level 1) |   |   | OtherObservableInputs(Level 2) |  |   | SignificantUnobservable
Inputs(Level 3) | 
|                                             |  |                                     |        | 
|                                             |  | (In millions)                       |       
|Cash Flow Swaps Designated as Hedges (1)     |  | $                                   | (22.8) |  |                                                             | $ | - |                                |  | $ | (22.8)                                  |  |  | $ | - | 
|Cash Flow Swaps not Designated as Hedges (1) |  |                                     | (6.4)  |  |                                                             |   | - |                                |  |   | (6.4)                                   |  |  |   | - | 
|                                             |  |                                     |        |  |                                                             |   |   |                                |  |   |                                         |  |  |   |   | 
|Total                                        |  | $                                   | (29.2) |  |                                                             | $ | - |                                |  | $ | (29.2)                                  |  |  | $ | - | 
|                                             |  |                                     |        |  |                                                             |   |   |                                |  |   |                                         |  |  |   |   | 





| | (1) | - Included in Other Long-Term Liabilities in the accompanying Unaudited Condensed Consolidated Balance Sheets.
| | --- | --------------------------------------------------------------------------------------------------------------

As of March 31, 2011 and December 31, 2010, the fair values of Sonics financial instruments including
receivables, notes receivable from finance contracts, notes payable-floor plan, trade accounts payable, borrowings under the revolving credit facilities and certain mortgage notes approximate their carrying values due either to length of maturity or
existence of variable interest rates that approximate prevailing market rates.

The fair value and carrying
value of Sonics fixed rate long-term debt was as follows:



|                                       |  |                |         |  |                   |   |         |            |  |   |                |  |  |   |         | 
|-------------------------------------- |  | -------------- | ------- |  | ----------------- | - | ------- | ---------- |  | - | -------------- |  |  | - | ------- | 
|                                       |  | March 31,
2011 |         |  | December 31,
2010 |  
|                                       |  | Fair Value     |         |  | Carrying Value    |   |         | Fair Value |  |   | Carrying Value | 
|                                       |  | (In thousands) |        
|                                       |  |                |         | 
|9.0% Senior                            |  |                |         |  |                   |   |         |            |  |   |                |  |  |   |         | 
|Subordinated Notes (1)                 |  | $              | 224,175 |  |                   | $ | 208,663 |            |  | $ | 220,836        |  |  | $ | 208,630 | 
|                                       |  |                |         | 
|8.625% Senior                          |  |                |         |  |                   |   |         |            |  |   |                |  |  |   |         | 
|Subordinated Notes (1)                 |  | $              | 43,498  |  |                   | $ | 42,688  |            |  | $ | 43,498         |  |  | $ | 42,673  | 
|                                       |  |                |         | 
|5.0% Convertible Senior Notes (1)      |  | $              | 230,503 |  |                   | $ | 149,192 |            |  | $ | 215,453        |  |  | $ | 147,824 | 
|                                       |  |                |         | 
|Mortgage Notes (2)                     |  | $              | 121,248 |  |                   | $ | 123,926 |            |  | $ | 88,119         |  |  | $ | 88,262  | 
|                                       |  |                |         | 
|Notes Payable to a Finance Company (2) |  | $              | 15,100  |  |                   | $ | 16,700  |            |  | $ | 15,676         |  |  | $ | 17,427  | 
|                                       |  |                |         | 
|Other (2)                              |  | $              | 5,272   |  |                   | $ | 5,703   |            |  | $ | 5,311          |  |  | $ | 5,751   | 



| | (1) | As determined by market quotations as of March 31, 2011 and December 31, 2010 (Level 1).
| | --- | ----------------------------------------------------------------------------------------

| | (2) | As determined by discounted cash flows (Level 3).
| | --- | -------------------------------------------------





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SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



Item 2: Managements Discussion and Analysis of Financial
Condition and Results of Operations.

The following discussion and analysis of the results of operations
and financial condition should be read in conjunction with the Sonic Automotive, Inc. and Subsidiaries Unaudited Condensed Consolidated Financial Statements and the related notes thereto appearing elsewhere in this report, as well as the audited
financial statements and related notes and Managements Discussion and Analysis of Financial Condition and Results of Operations appearing in our Annual Report on Form 10-K for the year ended December 31, 2010.

Overview

We are one of the largest automotive retailers in the United States. As of March 31, 2011, we operated 136
dealership franchises, representing 29 different brands of cars and light trucks, at 119 locations and 24 collision repair centers in 15 states. Our dealerships provide comprehensive services including sales of both new and used cars and light
trucks, sales of replacement parts, performance of vehicle maintenance, manufacturer warranty repairs, paint and collision repair services, and arrangement of extended service contracts, financing, insurance and other aftermarket products for our
customers.

In March 2011, a powerful earthquake off the coast of Japan produced a massive tsunami, affecting
certain east coast regions of Japan. The effects of the earthquake and tsunami caused widespread damage and destruction of property and localized disruption of the power supply. These events have disrupted our Japanese manufacturer partners
supply-chain and vehicle production capacity. As Japan continues to focus on recovering from this natural disaster, it is uncertain as to the continuing effects this event may have on these manufacturer partners supply-chain and production.
Although these events did not affect our business in the first quarter of 2011, we are currently experiencing lower allocations of new vehicle inventory from the Japanese import brands, which may affect new vehicle revenues, new vehicle gross
margins, consumer brand preferences and our ability to source used inventory through trades as we progress through the second quarter. We expect to experience a shift in demand for our Japanese import brands from new vehicles to used vehicles which
may help mitigate the effects of the period of lower new vehicle supply. We may see an increase in acquisition costs of certain new and used vehicles if demand is consistent with the demand experienced in March 2011. We could also experience higher
costs for certain replacement parts which may have had production disruptions caused by the earthquake and tsunami, however, it is unclear whether we will be able to pass the effects of these higher costs to our customers. Although we believe the
majority of the effects will be experienced in our Japanese brands, we also believe most vehicle manufacturers will experience some production disruption due to the effects of this event on the automotive supply-chain. We may experience these, and
potentially other, effects as we progress through the second quarter. The duration of the anticipated shortfall in new vehicle supply is unknown.

The following is a detail of our new vehicle revenues by brand for the first quarters ended March 31, 2011 and 2010:



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SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



|                   |  |                                                               |  |       
|------------------ |  | ------------------------------------------------------------- |  | ------
|                   |  | Percentage of New Vehicle RevenueFirst Quarter EndedMarch 31,
|                   |  | 2011                                                          |  | 2010  
|Brand (1)          |  |                                                               |  |       
|BMW                |  | 16.6%                                                         |  | 16.1% 
|Honda              |  | 14.7%                                                         |  | 14.3% 
|Toyota             |  | 10.6%                                                         |  | 11.0% 
|Ford               |  | 8.9%                                                          |  | 9.0%  
|Mercedes           |  | 8.5%                                                          |  | 10.7% 
|General Motors (2) |  | 8.2%                                                          |  | 6.5%  
|Cadillac           |  | 5.4%                                                          |  | 5.4%  
|Lexus              |  | 5.1%                                                          |  | 6.5%  
|Other (3)          |  | 4.6%                                                          |  | 3.2%  
|Audi               |  | 3.1%                                                          |  | 3.1%  
|Volkswagen         |  | 2.5%                                                          |  | 2.1%  
|Hyundai            |  | 2.1%                                                          |  | 2.0%  
|Land Rover         |  | 2.0%                                                          |  | 1.9%  
|Porsche            |  | 1.7%                                                          |  | 1.7%  
|Volvo              |  | 1.4%                                                          |  | 1.3%  
|Infiniti           |  | 1.2%                                                          |  | 1.5%  
|Nissan             |  | 1.2%                                                          |  | 1.6%  
|Acura              |  | 1.0%                                                          |  | 1.0%  
|Other Luxury (4)   |  | 0.9%                                                          |  | 0.9%  
|Chrysler (5)       |  | 0.3%                                                          |  | 0.2%  
|                   |  |                                                               |  |       
|Total              |  | 100.0%                                                        |  | 100.0%
|                   |  |                                                               |  |       



|(1) | In accordance with the provisions of Presentation of Financial Statements in the Accounting Standards Codification (the
ASC), prior period income statement data reflects reclassifications to (i) exclude franchises sold, identified for sale, or terminated subsequent to March 31, 2010 which had not been previously included in discontinued
operations or (ii) include franchises previously held for sale which subsequently were reclassified to held and used. See Notes 1 and 2 to our accompanying Unaudited Condensed Consolidated Financial Statements which discuss these and other
factors that affect the comparability of the information for the periods presented.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Includes Buick, Chevrolet and GMC.
|--- | ----------------------------------

|(3) | Includes Kia, Mini, Scion and Subaru.
|--- | -------------------------------------

|(4) | Includes Hummer, Jaguar and Saab.
|--- | ---------------------------------

|(5) | Includes Chrysler, Dodge and Jeep.
|--- | ----------------------------------

Results of Operations

The following discussions are based
on reported figures. Same store amounts do not vary significantly from reported totals since there were no significant dealership franchise acquisitions subsequent to December 31, 2009.

New Vehicles

The automobile retail industry uses the Seasonally Adjusted Annual Rate (SAAR) to measure the amount of new vehicle unit sales activity within the United States market. The SAAR averages below
reflect a blended average of all brands marketed or sold in the United States market. The SAAR includes brands we do not sell and locations in which we do not operate.



|                               |  |                               |  |      |  |         
|------------------------------ |  | ----------------------------- |  | ---- |  | --------
|                               |  | First Quarter Ended March 31,
|                               |  | 2011                          |  | 2010 |  | % Change
|SAAR (in millions of vehicles) |  | 13.0                          |  | 11.0 |  | 18.2%   

Source: Bloomberg Financial Markets, via Stephens Inc.



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SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



Our reported new vehicle (including fleet) results are as follows:



|                               |  |                                                |         |   |                  |   |         |        |  |   |          |      |  |  |       |   
|------------------------------ |  | ---------------------------------------------- | ------- | - | ---------------- | - | ------- | ------ |  | - | -------- | ---- |  |  | ----- | --
|                               |  | For the First Quarter Ended March 31,          |         |   | Better / (Worse) |  
|                               |  | 2011                                           |         |   | 2010             |   |         | Change |  |   | % Change |     
|                               |  | (in thousands, except units and per unit data) |        
|Revenue                        |  | $                                              | 980,745 |   |                  | $ | 778,244 |        |  | $ | 202,501  |      |  |  | 26.0  | % 
|Gross profit                   |  | $                                              | 60,059  |   |                  | $ | 52,581  |        |  | $ | 7,478    |      |  |  | 14.2  | % 
|Unit sales                     |  |                                                | 29,384  |   |                  |   | 23,132  |        |  |   | 6,252    |      |  |  | 27.0  | % 
|Revenue per unit               |  | $                                              | 33,377  |   |                  | $ | 33,644  |        |  | $ | (267     | )    |  |  | (0.8  | %)
|Gross profit per unit          |  | $                                              | 2,044   |   |                  | $ | 2,273   |        |  | $ | (229     | )    |  |  | (10.1 | %)
|Gross profit as a % of revenue |  |                                                | 6.1     | % |                  |   | 6.8     | %      |  |   | (70      | )bps |  |  |       |   

The increase in new vehicle revenues for the first quarter ended March 31, 2011 was
driven by a 27.0% increase in our unit sales volume. Our new unit volume increase was led by our Honda, General Motors (including Cadillac) and BMW/Mini dealerships, which accounted for 60.9% of the year-over-year increase. This increase in new
vehicle volume also contributed to a 21.9% increase in our finance, insurance and other (F&I) revenue as further discussed below. The majority of our brands significantly outperformed their local industry volume increase for their
respective brand.

New vehicle gross profit benefited from the higher sales volume which more than offset a
10.1% decrease in gross profit per unit. Gross profit per unit was $2,044, down $229 per unit from the prior year primarily as a result of decreases at our mid-line import dealerships.

Our luxury stores experienced a new vehicle revenue increase of 20.2% for the first quarter ended March 31, 2011,
compared to the same prior year period, primarily due to a 19.5% increase in new unit volume. Our Cadillac and BMW/Mini dealerships contributed to the revenue increase, improving 24.8% and 34.7%, respectively. Luxury new vehicle gross profit per
unit decreased 1.5% from the prior year period primarily due to declines in Mercedes, Lexus and Cadillac gross profit per unit, however, BMW/Mini and Audi gross profit per unit increased 6.5% and 10.3%, respectively. Total luxury gross profit
dollars were up 17.8% as a result of the higher sales volume. Gross profit as a percentage of revenue at our luxury dealerships was relatively flat.

Our mid-line import new vehicle revenue improved 29.1% compared to the same prior year period primarily due to volume increases at our Honda, Toyota and Volkswagen dealerships. Gross profit per unit
declined 21.2%, primarily due to a 29.4% decrease in gross profit per unit at our Honda dealerships. Overall mid-line import gross profit was up 2.1%, led by our Hyundai and Volkswagen brands.

Our domestic stores experienced a new vehicle revenue increase of 39.3% for the first quarter ended March 31, 2011,
compared to the same prior year period, primarily due to a 58.4% increase in new vehicle revenue from our General Motors (excluding Cadillac) dealerships. New vehicle revenue, gross profit and unit volume increased across all domestic brands.
Domestic fleet gross profit (included in the discussion above) increased 30.2% largely due to a 25.6% increase in fleet unit volume.



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SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



Used Vehicles

Our reported used vehicle results are as follows:



|                               |  |                                                |         |  |                  |   |         |        |  |   |          |       |  |  |       |  
|------------------------------ |  | ---------------------------------------------- | ------- |  | ---------------- | - | ------- | ------ |  | - | -------- | ----- |  |  | ----- | -
|                               |  | For the First Quarter Ended March 31,          |         |  | Better / (Worse) |  
|                               |  | 2011                                           |         |  | 2010             |   |         | Change |  |   | % Change |      
|                               |  | (in thousands, except units and per unit data) |        
|                               |  |                                                |         | 
|Revenue                        |  | $                                              | 482,031 |  |                  | $ | 418,849 |        |  | $ | 63,182   |       |  |  | 15.1% |  
|Gross profit                   |  | $                                              | 38,244  |  |                  | $ | 34,778  |        |  | $ | 3,466    |       |  |  | 10.0% |  
|Unit sales                     |  |                                                | 25,245  |  |                  |   | 21,492  |        |  |   | 3,753    |       |  |  | 17.5% |  
|Revenue per unit               |  | $                                              | 19,094  |  |                  | $ | 19,489  |        |  | $ | (395     | )     |  |  | (2.0% | )
|Gross profit per unit          |  | $                                              | 1,515   |  |                  | $ | 1,618   |        |  | $ | (103     | )     |  |  | (6.4% | )
|Gross profit as a % of revenue |  |                                                | 7.9%    |  |                  |   | 8.3%    |        |  |   | (40      | ) bps |  |  |       |  
|CPO revenue                    |  | $                                              | 209,433 |  |                  | $ | 204,199 |        |  | $ | 5,234    |       |  |  | 2.6%  |  
|CPO unit sales                 |  |                                                | 7,914   |  |                  |   | 7,611   |        |  |   | 303      |       |  |  | 4.0%  |  

The increase in used vehicle unit volume is primarily due to the continued implementation
of our standardized used vehicle merchandising process. This process allows us to purchase and price our used vehicles more competitively, market them more effectively and physically move certain used vehicles to specific dealerships within a
particular region that have shown success in retailing that specific type of used vehicle.

The reduction in
gross profit per unit was due in part to the higher cost of units sold. Costs were higher as a result of acquiring more used vehicle inventory through auctions (generally higher cost than acquiring through trade) than through trades. However,
obtaining a greater number of used vehicles from auction allowed us to better implement our standardized used vehicle merchandising process, allowing us to optimize the mix of used vehicles at each dealership, increasing unit sales and overall gross
profit.

Wholesale Vehicles

Our reported wholesale results are as follows:



|                             |  |                                                |        |   |                  |   |        |        |  |   |          |     |  |  |       | 
|---------------------------- |  | ---------------------------------------------- | ------ | - | ---------------- | - | ------ | ------ |  | - | -------- | --- |  |  | ----- | 
|                             |  | For the First Quarter Ended March 31,          |        |   | Better / (Worse) |  
|                             |  | 2011                                           |        |   | 2010             |   |        | Change |  |   | % Change |    
|                             |  | (in thousands, except units and per unit data) |       
|                             |  |                                                |        |  
|Revenue                      |  | $                                              | 35,362 |   |                  | $ | 30,806 |        |  | $ | 4,556    |     |  |  | 14.8% | 
|Gross loss                   |  | $                                              | (456   | ) |                  | $ | (658   | )      |  | $ | 202      |     |  |  | 30.7% | 
|Unit sales                   |  |                                                | 5,644  |   |                  |   | 5,128  |        |  |   | 516      |     |  |  | 10.1% | 
|Revenue per unit             |  | $                                              | 6,265  |   |                  | $ | 6,007  |        |  | $ | 258      |     |  |  | 4.3%  | 
|Gross loss per unit          |  | $                                              | (81    | ) |                  | $ | (128   | )      |  | $ | 47       |     |  |  | 36.7% | 
|Gross loss as a % of revenue |  |                                                | (1.3%  | ) |                  |   | (2.1%  | )      |  |   | 80       | bps |  |  |       | 

For the first quarter ended March 31, 2011, wholesale gross loss per unit declined
compared to the same prior year period. This is primarily due to the increased focus on retailing used vehicles (at a potential higher profit) that were previously disposed through our wholesale channels, as well as increased demand for vehicles at
auction which drives up auction prices. See previous heading, Used Vehicles.



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SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



Parts, Service and Collision Repair (Fixed Operations)

Our reported fixed operations results are as follows:



|                               |  |                                       |         |  |                  |   |         |        |  |   |          |  |  |  |        | 
|------------------------------ |  | ------------------------------------- | ------- |  | ---------------- | - | ------- | ------ |  | - | -------- |  |  |  | ------ | 
|                               |  | For the First Quarter Ended March 31, |         |  | Better / (Worse) |  
|                               |  | 2011                                  |         |  | 2010             |   |         | Change |  |   | % Change | 
|                               |  | (In thousands)                        |        
|                               |  |                                       |         | 
|Revenue                        |  |                                       |         |  |                  |   |         |        |  |   |          |  |  |  |        | 
|Parts                          |  | $                                     | 154,713 |  |                  | $ | 146,030 |        |  | $ | 8,683    |  |  |  | 5.9%   | 
|Service                        |  |                                       | 125,506 |  |                  |   | 117,104 |        |  |   | 8,402    |  |  |  | 7.2%   | 
|Collision repair               |  |                                       | 11,551  |  |                  |   | 12,038  |        |  |   | (487)    |  |  |  | (4.0%) | 
|                               |  |                                       |         |  |                  |   |         |        |  |   |          |  |  |  |        | 
|Total                          |  | $                                     | 291,770 |  |                  | $ | 275,172 |        |  | $ | 16,598   |  |  |  | 6.0%   | 
|                               |  |                                       |         |  |                  |   |         |        |  |   |          |  |  |  |        | 
|Gross profit                   |  |                                       |         |  |                  |   |         |        |  |   |          |  |  |  |        | 
|Parts                          |  | $                                     | 50,472  |  |                  | $ | 48,889  |        |  | $ | 1,583    |  |  |  | 3.2%   | 
|Service                        |  |                                       | 86,944  |  |                  |   | 83,002  |        |  |   | 3,942    |  |  |  | 4.7%   | 
|Collision repair               |  |                                       | 6,437   |  |                  |   | 6,692   |        |  |   | (255)    |  |  |  | (3.8%) | 
|                               |  |                                       |         |  |                  |   |         |        |  |   |          |  |  |  |        | 
|Total                          |  | $                                     | 143,853 |  |                  | $ | 138,583 |        |  | $ | 5,270    |  |  |  | 3.8%   | 
|                               |  |                                       |         |  |                  |   |         |        |  |   |          |  |  |  |        | 
|Gross profit as a % of revenue |  |                                       |         |  |                  |   |         |        |  |   |          |  |  |  |        | 
|Parts                          |  |                                       | 32.6%   |  |                  |   | 33.5%   |        |  |   | (90)     |  |  |  | bps    | 
|Service                        |  |                                       | 69.3%   |  |                  |   | 70.9%   |        |  |   | (160)    |  |  |  | bps    | 
|Collision repair               |  |                                       | 55.7%   |  |                  |   | 55.6%   |        |  |   | 10       |  |  |  | bps    | 
|                               |  |                                       |         |  |                  |   |         |        |  |   |          |  |  |  |        | 
|Total                          |  |                                       | 49.3%   |  |                  |   | 50.4%   |        |  |   | (110)    |  |  |  | bps    | 

For the first quarter ended March 31, 2011, our domestic, mid-line import and luxury
brands all experienced increases in overall fixed operations revenue compared to the same prior year period, increasing 5.2%, 6.0% and 6.3%, respectively. These improvements were led by significant increases in our BMW, Lexus, Ford, Honda and Toyota
dealerships overall fixed operations revenue.

Overall fixed operations customer pay revenue increased
0.9% for the first quarter ended March 31, 2011, compared to the same prior year period. Our mid-line import and luxury customer pay increased 1.7% and 1.4%, respectively, but domestic customer pay decreased 2.9% for the first quarter compared
to the same prior year period. Warranty revenue increased 10.8% for the first quarter ended March 31, 2011 primarily due to increases at our Lexus and BMW dealerships.

The decrease in our overall fixed operations gross margin rate is primarily due to lower customer pay and internal margin
rates compared to the same prior year period. Warranty gross margin rates increased 10 basis points for the first quarter ended March 31, 2011 compared to the same prior year period primarily due to parts warranty margin improvements.

Finance, Insurance and Other (F&I)

Our reported F&I results are as follows:



|                                               |  |                                       |        |  |                  |   |        |        |  |   |          |  |  |  |       | 
|---------------------------------------------- |  | ------------------------------------- | ------ |  | ---------------- | - | ------ | ------ |  | - | -------- |  |  |  | ----- | 
|                                               |  | For the First Quarter Ended March 31, |        |  | Better / (Worse) |  
|                                               |  | 2011                                  |        |  | 2010             |   |        | Change |  |   | % Change | 
|                                               |  | (In thousands, except per unit data)  |       
|                                               |  |                                       |        | 
|Revenue                                        |  | $                                     | 49,468 |  |                  | $ | 40,595 |        |  | $ | 8,873    |  |  |  | 21.9% | 
|Gross profit per retail unit (excluding fleet) |  | $                                     | 949    |  |                  | $ | 947    |        |  | $ | 2        |  |  |  | 0.2%  | 

F&I revenue increased 21.9% for the first quarter ended March 31, 2011 primarily
due to an increase of 21.6% in new and used retail unit volume compared to the same prior year period. New and used finance contract gross revenue improved 22.3% for the first quarter ended March 31, 2011 compared to the same prior year period
due to the increase in unit volume and a 210 basis point increase in finance contract penetration rates. New and used service contract gross revenue increased 21.4% for the first quarter ended March 31, 2011 compared to the same prior year
period in spite of a 160 basis point decrease in service contract penetration rates as a result of unit volume increases and a 5.9% increase in gross revenue per service contract.



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SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



Selling, General and Administrative (SG&A) Expenses

SG&A expenses are comprised of four major groups: compensation expense, advertising expense, rent
and rent related expense and other expense. Compensation expense primarily relates to dealership personnel who are paid a commission or a modest salary plus commission (which typically vary depending on gross profits realized) and support personnel
who are paid a fixed salary. Due to the salary component for certain dealership and corporate personnel, gross profits and compensation expense do not change in direct proportion to one another. Advertising expense and other expenses vary based on
the level of actual or anticipated business activity and number of dealerships owned. Rent and rent related expense typically varies with the number of dealerships owned, investments made for facility improvements and interest rates. Although
SG&A expenses do not move exactly in proportion with changes in gross profit, we believe the best way to measure SG&A expenses is as a percentage of gross profit. Following is information related to our SG&A expenses:



|                            |  |                                       |         |  |                  |   |         |        |  |   |          |  |  |  |         | 
|--------------------------- |  | ------------------------------------- | ------- |  | ---------------- | - | ------- | ------ |  | - | -------- |  |  |  | ------- | 
|                            |  | For the First Quarter Ended March 31, |         |  | Better / (Worse) |  
|                            |  | 2011                                  |         |  | 2010             |   |         | Change |  |   | % Change | 
|                            |  | (In thousands)                        |        
|Compensation                |  | $                                     | 136,565 |  |                  | $ | 128,890 |        |  | $ | (7,675)  |  |  |  | (6.0%)  | 
|Advertising                 |  |                                       | 13,782  |  |                  |   | 11,175  |        |  |   | (2,607)  |  |  |  | (23.3%) | 
|Rent and rent related       |  |                                       | 30,416  |  |                  |   | 32,850  |        |  |   | 2,434    |  |  |  | 7.4%    | 
|Other                       |  |                                       | 51,751  |  |                  |   | 47,738  |        |  |   | (4,013)  |  |  |  | (8.4%)  | 
|                            |  |                                       |         |  |                  |   |         |        |  |   |          |  |  |  |         | 
|Total                       |  | $                                     | 232,514 |  |                  | $ | 220,653 |        |  | $ | (11,861) |  |  |  | (5.4%)  | 
|                            |  |                                       |         |  |                  |   |         |        |  |   |          |  |  |  |         | 
|SG&A as a % of gross profit |  |                                       |         |  |                  |   |         |        |  |   |          |  |  |  |         | 
|Compensation                |  |                                       | 46.9%   |  |                  |   | 48.5%   |        |  |   | (160)    |  |  |  | bps     | 
|Advertising                 |  |                                       | 4.7%    |  |                  |   | 4.2%    |        |  |   | (50)     |  |  |  | bps     | 
|Rent and rent related       |  |                                       | 10.4%   |  |                  |   | 12.4%   |        |  |   | 200      |  |  |  | bps     | 
|Other                       |  |                                       | 17.9%   |  |                  |   | 17.9%   |        |  |   | (0)      |  |  |  | bps     | 
|                            |  |                                       |         |  |                  |   |         |        |  |   |          |  |  |  |         | 
|Total                       |  |                                       | 79.9%   |  |                  |   | 83.0%   |        |  |   | 310      |  |  |  | bps     | 

The increase in overall SG&A expense dollars can largely be attributed to increases
in revenues and gross profit. Overall SG&A expense as a percentage of gross profit improved 310 basis points, led by improvements in rent and compensation costs.

Compensation costs as a percentage of gross profit decreased 160 basis points in the first quarter ended March 31,
2011 compared to the same prior year period, primarily due to higher gross profit in the current year and efforts to more closely align compensation with target levels of profit performance in 2011.

Total advertising costs as a percentage of gross profit increased for the first quarter ended March 31, 2011
compared to the same prior year period primarily due to higher overall spending to improve market share.

Rent
and rent related expenses decreased as a percentage of gross profit for the quarter ended March 31, 2011 compared to the same prior year period primarily due to higher gross profit levels and the purchase of certain properties which were
previously leased.

For the first quarter ended March 31, 2011, other SG&A expenses increased from
the prior year period primarily due to increases in customer related costs as a result of the higher level of sales activity compared to the prior year period and the timing of certain insurance expenses.

Depreciation and Amortization

Depreciation and amortization expense increased $1.6 million, or 18.7%, for the first quarter ended March 31, 2011, compared to the same prior year period. These increases are primarily related to
the five dealership properties that we purchased during the first quarter ended March 31, 2011 which we previously leased through long-term operating leases. In addition, we completed approximately $17.2 million of construction projects which
were placed into service during the first quarter ended March 31, 2011.



23



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SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



Interest Expense, Floor Plan

Floor plan interest expense for new vehicles increased approximately $0.5 million, or 12.1%, for the first quarter ended
March 31, 2011, compared to the first quarter ended March 31, 2010. The weighted average new vehicle floor plan interest rate incurred by continuing dealerships decreased slightly to 2.62% for the first quarter ended March 31, 2011,
compared to the first quarter ended March 31, 2010 which had a weighted average rate of 2.64%. The weighted average floor plan balance for new vehicles increased by approximately $86.6 million for the first quarter ended March 31, 2011
compared to the same prior year period.

Floor plan interest expense for used vehicles increased approximately
$0.1 million, or 24.8%, for the first quarter ended March 31, 2011, compared to the first quarter ended March 31, 2010. The weighted average used vehicle floor plan interest rate incurred by continuing dealerships increased to 2.64% for
the first quarter ended March 31, 2011, up from 2.07% for the first quarter ended March 31, 2010.

Interest
Expense, Other, Net

The change in interest expense, other, net, between the first quarters ended
March 31, 2011 and 2010 is summarized in the table below:



|                                                                                     |  |                                        |       | 
|------------------------------------------------------------------------------------ |  | -------------------------------------- | ----- | 
|                                                                                     |  | First QuarterEnded
March 31            |      
|                                                                                     |  | Increase (Decrease)in Interest
Expense |      
|                                                                                     |  | (In millions)                          |      
|Debt balances                                                                       |  |                                        |       | 
|- Increase (decrease) in debt balances                                               |  | $                                      | (0.5) | 
|Other factors                                                                       |  |                                        |       | 
|- (Increase) decrease in capitalized interest                                        |  |                                        | (0.4) | 
|- Incremental interest expense (benefit) related to variable to fixed rate swaps (1) |  |                                        | (0.6) | 
|- (Increase) decrease in interest expense allocation to discontinued operations      |  |                                        | 0.1   | 
|- Increase (decrease) in other expense, net                                          |  |                                        | (0.3) | 
|                                                                                     |  |                                        |       | 
|Total                                                                                |  | $                                      | (1.7) | 
|                                                                                     |  |                                        |       | 

(1) Represent difference in cash payments to and from the counterparty.

For approximately half of the month of March 2010, we carried and incurred interest expense for both the 9.0% Notes
issued March 12, 2010 and the $200.0 million in aggregate principal of our 8.625% Notes which we redeemed on April 12, 2010 using the net proceeds from the 9.0% Notes issuance and cash on hand. As such, this double carry effect increased
our interest expense by approximately $0.9 million, which partially offset the amount shown in the decrease in debt balances caption in the table above.

Interest Expense, Non-Cash, Convertible Debt

Non-cash convertible debt interest expense is comprised of the amortization of the debt discount and deferred loan costs
associated with our various convertible notes. The initial debt discount was determined based on a valuation of the debt component of these notes and is being amortized monthly to interest expense over the life of the notes. See our Annual Report on
Form 10-K for the year ended December 31, 2010 for a discussion of the adoption of Debt with Conversion and Other Options in the ASC.

Interest Expense/Amortization, Non-Cash, Cash Flow Swaps

We have entered into the Fixed Swaps to effectively convert a portion of our LIBOR-based variable rate debt to a fixed rate, in order to reduce our exposure to market risks from fluctuations in interest
rates. For the first quarters ended March 31, 2011 and March 31, 2010, a non-cash benefit and non-cash charge of approximately $0.2 million and $1.7 million,



24



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SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



respectively, related to the Fixed Swaps and amortization of amounts in accumulated
other comprehensive income (loss) related to other existing and terminated cash flow swaps were included in interest expense/amortization, non-cash, cash flow swaps in the accompanying Unaudited Condensed Consolidated Statements of Income. Changes
in the fair value of notional amounts of certain cash flow swaps are recognized through earnings. See the heading Derivative Instruments and Hedging Activities in Note 6 Long-Term Debt, in the accompanying notes to the
Unaudited Condensed Consolidated Financial Statements for further discussion.

For our Fixed Swaps that
qualify as cash flow hedges, the changes in the fair value of these swaps have been recorded in accumulated other comprehensive income (loss), net of related income taxes in the Unaudited Condensed Consolidated Statements of Stockholders
Equity. The incremental interest expense (the difference between interest paid and interest received) related to the Fixed Swaps was $4.4 million and $5.0 million for the first quarters ended March 31, 2011 and 2010, respectively, and is
included in interest expense, other, net, in the accompanying Unaudited Condensed Consolidated Statements of Income. The estimated net expense expected to be reclassified out of other comprehensive income (loss) into results of operations during the
next twelve months is approximately $10.8 million.

Income Taxes

The overall effective tax rate from continuing operations was 40.0% and 43.0% for the first quarters ended March 31,
2011 and 2010, respectively. The effective rate for the first quarter ended March 31, 2011 was lower than the same prior year period due to the level of overall taxable income and the shift in the distribution of taxable income between states
in which we operate. We expect the effective tax rate for continuing operations in future periods to fall within a range of 38.0% to 41.0%.

Discontinued Operations

Significant components of
results from discontinued operations were as follows:



|                               |  |                               |         |  |      |   |         | 
|------------------------------ |  | ----------------------------- | ------- |  | ---- | - | ------- | 
|                               |  | First Quarter Ended March 31, |        
|                               |  | 2011                          |         |  | 2010 |  
|                               |  | (In thousands)                |        
|Loss from operations           |  | $                             | (373)   |  |      | $ | (2,605) | 
|Gain on disposal of businesses |  |                               | 25      |  |      |   | 270     | 
|Lease exit charges             |  |                               | (925)   |  |      |   | (1,645) | 
|                               |  |                               |         |  |      |   |         | 
|Pre-tax loss                   |  | $                             | (1,273) |  |      | $ | (3,980) | 
|                               |  |                               |         |  |      |   |         | 
|                               |  |                              
|Total revenues                 |  | $                             |        |  |      | $ | 25,272  | 

Loss from discontinued operations decreased for the first quarter ended March 31,
2011 compared to the same prior year period as a result of the disposition of several franchises during 2010. Lease exit charges recorded for the first quarters ended March 31, 2011 and 2010 relate to interest charges and the revision of
estimates on previously established lease exit accruals. The lease exit accruals represent the present value of the lease payments, net of estimated sublease proceeds, for the remaining life of the operating leases and other accruals necessary to
satisfy the lease commitment to the landlord.

Liquidity and Capital Resources

We require cash to fund debt service, operating lease obligations, working capital requirements and to finance
acquisitions. We rely on cash flows from operations, borrowings under our revolving credit and floor plan borrowing arrangements, real estate mortgage financing, asset sales and offerings of debt and equity securities to meet these requirements. Our
liquidity could be negatively affected if we fail to comply with the financial covenants in our existing debt or lease arrangements. Cash flows provided by our dealerships are derived from various sources. The primary sources include individual
consumers, automobile manufacturers, automobile manufacturers captive finance subsidiaries and finance companies. Disruptions in these cash flows can have a material and adverse impact on our operations and overall liquidity.



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SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



Because the majority of our consolidated assets are held by our
dealership subsidiaries, the majority of our cash flows from operations are generated by these subsidiaries. As a result, our cash flows and ability to service our obligations depends to a substantial degree on the cash generated from the operations
of these dealership subsidiaries.

Floor Plan Facilities

The weighted average interest rate for all of our new vehicle floor plan facilities (both continuing and discontinued
operations) decreased slightly to 2.62% for the first quarter ended March 31, 2011, compared to the first quarter ended March 31, 2010, which had a weighted average rate of 2.66%. The weighted average interest rate for our used vehicle
floor plan facility (both continuing and discontinued operations) was 2.64% for the first quarter ended March 31, 2011, compared to 2.14% for the first quarter ended March 31, 2010.

Interest payments under each of our floor plan facilities are due monthly and we are not required to make principal
repayments prior to the sale of the floor plan financed vehicles. We were in compliance with all restrictive covenants under our floor plan facilities as of March 31, 2011 and expect to be in compliance with the covenants for the foreseeable
future.

Long-Term Debt and Credit Facilities

See Note 6, Long-Term Debt, in the notes to the accompanying Unaudited Condensed Consolidated Financial
Statements for a discussion of our long-term debt and credit facilities and compliance with debt covenants.

Capital
Expenditures

Our capital expenditures generally include the purchase of land and buildings,
construction of new dealerships and collision repair centers, building improvements and equipment purchased for use in our dealerships. In the first quarter ended March 31, 2011, we purchased five dealership properties for $75.2 million which
we were previously leasing through long-term operating leases, utilizing cash on hand and borrowings under the 2010 Credit Facilities. Subsequent to the purchase date, we obtained mortgage funding of $54.0 million.

Capital expenditures for the first quarter ended March 31, 2011, including this purchase of previously leased
properties, were approximately $90.6 million ($36.6 million, net of mortgage funding of $54.0 million). As of March 31, 2011, contractual commitments to contractors for facility construction projects totaled approximately $20.5 million.

Stock Repurchase Program

During the first quarter ended March 31, 2011 we repurchased approximately 292,000 shares of our Class A common
stock for approximately $3.9 million. Our Board of Directors has authorized us to repurchase shares of our Class A common stock or redeem securities convertible into Class A common stock. Historically, we have used our share repurchase
authorization to offset dilution caused by the exercise of stock options or the vesting of restricted stock awards and to maintain our desired capital structure. At March 31, 2011, our remaining repurchase authorization was approximately $39.6
million. Under our 2010 Credit Facilities, share repurchases are permitted to the extent that no event of default exists and we are in compliance with the financial covenants contained therein.

Dividends

During the first quarter ended March 31, 2011, our Board of Directors approved a cash dividend of $0.025 per share on all outstanding shares of Class A and Class B common stock as of
March 15, 2011 to be paid on April 15, 2011. Subsequent to March 31, 2011, our Board of Directors approved a cash dividend on all outstanding shares of common stock of $0.025 per share for shareholders of record on June 15, 2011
to be paid on July 15, 2011. Under our 2010 Credit Facilities, dividends are permitted to the extent that no event of default exists and we are in compliance with the financial covenants contained therein. The indentures governing our
outstanding 8.625% Notes and 9.0% Notes contain restrictions on our ability to pay dividends. The payment of any future dividend is subject to the business judgment of our Board of Directors, taking into consideration our historic and projected
results of operations, financial condition, cash flows, capital requirements, covenant compliance, share repurchases, current economic environment and other factors considered relevant. These factors are considered each quarter and will be
scrutinized as our Board of Directors determines our dividend policy throughout 2011. There is no guarantee that additional dividends will be declared and paid at any time in the future. See Note 6, Long-Term Debt, in the accompanying
Unaudited Condensed Consolidated Financial Statements for a description of restrictions on the payment of dividends.



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SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



Cash Flows

For the first quarter ended March 31, 2011, net cash provided by operating activities was approximately $18.4
million. This provision of cash was comprised primarily of cash inflows related to a reduction in receivables and an increase in trade accounts payable, partially offset by an increase in inventories and a decrease in notes payable  floor plan
 trade. Net cash used in investing activities during the first quarter ended March 31, 2011 was approximately $89.6 million. This use of cash was primarily comprised of purchases of property and equipment. Net cash provided by financing
activities for the first quarter ended March 31, 2011 was approximately $51.7 million. This provision of cash was primarily comprised of mortgage loan proceeds.

We arrange our inventory floor plan financing through both manufacturer captive finance companies and a syndicate of
manufacturer-affiliated finance companies and commercial banks. Our floor plan financed with manufacturer captives is recorded as trade floor plan liabilities (with the resulting change being reflected as an operating cash flow). Our dealerships
that obtain floor plan financing from a syndicate of manufacturer-affiliated finance companies and commercial banks record their obligation as non-trade floor plan liabilities (with the resulting change being reflected as a financing cash flow).

Due to the presentation differences for changes in trade floor plan and non-trade floor plan in the Unaudited
Condensed Consolidated Statements of Cash Flows, decisions made by us to move dealership floor plan financing arrangements from one finance source to another may cause significant variations in operating and financing cash flows without affecting
our overall liquidity, working capital or cash flow. Accordingly, if all changes in floor plan notes payable were classified as an operating activity, the result would have been net cash provided by operating activities of $22.1 million for the
first quarter ended March 31, 2011 and net cash used in operating activities of $16.6 million for the first quarter ended March 31, 2010. The shift between trade floor plan and non-trade floor plan during the first quarter ended
March 31, 2010 was primarily due to the realignment in floor plan providers under the new 2010 Credit Facilities.

Guarantees and Indemnification Obligations

In connection with the operation and disposition of dealership franchises, we have entered into various guarantees and
indemnification obligations. See Note 8, Contingencies, in the notes to the accompanying Unaudited Condensed Consolidated Financial Statements. See also Managements Discussion and Analysis of Financial Condition and Results
of Operations and Note 12, Commitments and Contingencies, in the notes to the Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2010.

Future Liquidity Outlook

We believe our best source of liquidity for operations and debt service remains cash flows generated from operations combined with our availability of borrowings under our floor plan facilities (or any
replacements thereof), our 2010 Credit Facilities, real estate mortgage financing, selected dealership and other asset sales and our ability to raise funds in the capital markets. Because the majority of our consolidated assets are held by our
dealership subsidiaries, the majority of our cash flows from operations are generated by these subsidiaries. As a result, our cash flows and ability to service debt depends to a substantial degree on the results of operations of these subsidiaries
and their ability to provide us with cash.

Off-Balance Sheet Arrangements

See Managements Discussion and Analysis of Financial Condition and Results of Operations  Off-Balance
Sheet Arrangements in our Annual Report on Form 10-K for the year ended December 31, 2010 for a description of our off-balance sheet arrangements.

Seasonality

Our operations are subject to seasonal
variations. The first quarter normally contributes less operating profit than the second, third and fourth quarters. Weather conditions, the timing of manufacturer incentive programs and model changeovers cause seasonality and may adversely affect
vehicle demand, and consequently, our profitability. Comparatively, parts and service demand remains more stable throughout the year.



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SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES



|Item 4: | Controls and Procedures
|------- | -----------------------

Our management, under the supervision and with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of the design and operation of our
disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our principal executive officer and principal financial officer have concluded that the design and operation of
our disclosure controls and procedures were not effective as of the end of the period covered by this Quarterly Report on Form 10-Q as a result of a material weakness identified related to our oversight and review procedures designed to monitor the
accuracy of certain new period-end journal entries. Specifically, the control regarding our review of the journal entry initiated in January 2011 to reclassify negative book cash balances between cash and accounts payable was not operating
effectively. During the quarter ended March 31, 2011, there were no changes in our internal control over financial reporting that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
However, subsequent to the quarter ended March 31, 2011 but prior to the filing of this Amendment No. 1 on Form 10-Q/A, we implemented certain changes to our internal control over financial reporting to address the material weakness in our internal
control over financial reporting that was identified during our year-end audit process.

Effective in February
2012, our management believes that it has corrected the primary issues that led to this deficiency. Specifically, in addition to correcting the methodology and information used to calculate this reclassification, we have enhanced our review of such
period-end journal entries.



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SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES

Item 6: Exhibits.



|(a)    Exhibits: | 
|---------------- | 



| |  |            |  |                                                                                                                                              
| |  | ---------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------
| |  | ExhibitNo. |  | Description                                                                                                                                  
| |  |           
| |  | 31. 1      |  | Certification of Mr. David P. Cosper pursuant to rule 13a-14(a)                                                                              
| |  | 31.2       |  | Certification of Mr. O. Bruton Smith pursuant to rule 13a-14(a)                                                                              
| |  | 32.1       |  | Certification of Mr. David P. Cosper pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
| |  | 32.2       |  | Certification of Mr. O. Bruton Smith pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002







29



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SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES

Forward Looking Statements

This Quarterly Report on Form 10-Q contains numerous forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements
address our future objectives, plans and goals, as well as our intent, beliefs and current expectations regarding future operating performance, and can generally be identified by words such as may, will, should,
believe, expect, anticipate, intend, plan, foresee and other similar words or phrases. Specific events addressed by these forward-looking statements include, but are not limited
to:



| |  | the effect of the earthquake and tsunami in Japan on our operations;
| | - | --------------------------------------------------------------------



| |  | vehicle sales rates and same store sales growth;
| | - | ------------------------------------------------



| |  | future liquidity trends or needs;
| | - | ---------------------------------



| |  | our business and growth strategies;
| | - | -----------------------------------



| |  | future covenant compliance;
| | - | ---------------------------



| |  | our financing plans and our ability to repay or refinance existing debt when due;
| | - | ---------------------------------------------------------------------------------



| |  | future acquisitions or dispositions;
| | - | ------------------------------------



| |  | level of fuel prices;
| | - | ---------------------



| |  | industry trends; and
| | - | --------------------



| |  | general economic trends, including employment rates and consumer confidence levels.
| | - | -----------------------------------------------------------------------------------

These forward-looking statements are based on our current estimates and assumptions and involve various risks and
uncertainties. As a result, you are cautioned that these forward-looking statements are not guarantees of future performance and that actual results could differ materially from those projected in these forward-looking statements. Factors which may
cause actual results to differ materially from our projections include those risks described in Item 1 and Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2010 and Item 1A of this Form 10-Q and elsewhere
in this report, as well as:



| |  | the number of new and used cars sold in the United States generally and as compared to our expectations and the expectations of the market;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------



| |  | our ability to generate sufficient cash flows or obtain additional financing to fund acquisitions, capital expenditures, our share repurchase
program, dividends on our Common Stock and general operating activities;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | the reputation and financial condition of vehicle manufacturers whose brands we represent, the financial incentives vehicle manufacturers
offer and their ability to design, manufacture, deliver and market their vehicles successfully;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | our relationships with manufacturers, which may affect our ability to complete additional acquisitions;
| | - | -------------------------------------------------------------------------------------------------------



| |  | adverse resolutions of one or more significant legal proceedings against us or our dealerships;
| | - | -----------------------------------------------------------------------------------------------



| |  | changes in laws and regulations governing the operation of automobile franchises, accounting standards, taxation requirements and
environmental laws;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------



| |  | general economic conditions in the markets in which we operate, including fluctuations in interest rates, employment levels, the level of
consumer spending and consumer credit availability;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | the terms of any refinancing of our existing indebtedness;
| | - | ----------------------------------------------------------



| |  | high competition in the automotive retailing industry, which not only creates pricing pressures on the products and services we offer, but on
businesses we seek to acquire;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | our ability to successfully integrate potential future acquisitions; and
| | - | ------------------------------------------------------------------------



| |  | the rate and timing of overall economic recovery or decline.
| | - | ------------------------------------------------------------



30



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SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



|                    |  |  |  |                        |  |                                     
|------------------- |  |  |  | ---------------------- |  | ------------------------------------
|                    |  |  |  | SONIC AUTOMOTIVE, INC.
|                    |  |  | 
|Date: March 5, 2012 |  |  |  | By:                    |  | /s/ O. BRUTON SMITH                 
|                    |  |  |  |                        |  |                                     
|                    |  |  |  |                        |  | O. Bruton Smith                     
|                    |  |  |  |                        |  | Chairman and Chief Executive Officer



|                    |  |  |  |     |  |                                          
|------------------- |  |  |  | --- |  | -----------------------------------------
|                    |  |  |  |    
|                    |  |  | 
|Date: March 5, 2012 |  |  |  | By: |  | /s/ DAVID P. COSPER                      
|                    |  |  |  |     |  |                                          
|                    |  |  |  |     |  | David P. Cosper                          
|                    |  |  |  |     |  | Vice Chairman and Chief Financial Officer
|                    |  |  |  |     |  | (Principal Financial Officer)            



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SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES

EXHIBIT INDEX



| |  |             |  |                                                                                                                                              
| |  | ----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------
| |  | Exhibit No. |  | Description                                                                                                                                  
| |  |            
| |  | 31.1        |  | Certification of Mr. David P. Cosper pursuant to rule 13a-14(a)                                                                              
| |  | 31.2        |  | Certification of Mr. O. Bruton Smith pursuant to rule 13a-14(a)                                                                              
| |  | 32.1        |  | Certification of Mr. David P. Cosper pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
| |  | 32.2        |  | Certification of Mr. O. Bruton Smith pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002







32