Good morning, and welcome to the Sonic Automotive second quarter 2008 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question and answer period. (Operator Instructions) As a reminder, ladies and gentlemen, this call is being recorded today, Tuesday, July 29, 2008. Presentation materials, which management will be reviewing on the conference call can be accessed on the Company's website at www.sonicautomotive.com. Click on the For Investors tab and choose Webcasts and Presentations on the right side of your monitor. At this time, I would like to refer to the Safe Harbor statement under Private Securities Litigation Reform Act of 1995. During this conference call, management may discuss financial projections, information or expectations about the Company's products or market, or otherwise make statements about the future. Such statements are forward-looking and subject to a number of risks and uncertainties that could cause actual results to differ materially from the statements made. These risks and uncertainties are detailed in the Company's filings with the Securities & Exchange Commission. Thank you. I would now like to introduce Scott Smith, President and Chief Strategic Officer of Sonic Automotive. You may begin your conference.

Thank you, Cynthia. Good morning, ladies and gentlemen, and fellow shareholders. I am Scott Smith, President and Chief Strategic Officer. Welcome to Sonic Automotive's second quarter 2008 conference call. Joining me on the call today are the Company's Vice Chairman and Chief Financial Officer, Dave Cosper, our Divisional Chief Operating Officers, Jeff Dyke and Jim Evans, Rachel Richards, our Vice President of Retail Strategy, and Greg Young, our Vice President of Finance. I will provide some color on the quarter and then turn the call over to Dave, and we will take a deeper dive into the numbers, then we will wrap up the call, and open it up for you questions. If you will please turn to Slide number one, Building for the Long Term. Despite a difficult economic environment, I am pleased our team delivered another great quarter. We outperformed the industry in both new and used volume, managed to expand our customer pay parts and service revenue, and increased our F&I per unit. Bottom line, we made money, and we generated cash. Culturally, we talk about 75% sales, and 25% expense control. We are constantly taking costs out, and we are not focused on cutting expenses to make a quarterly number. We believe that nothing happens until we sell a car, and first and foremost that we are a sales organization. With that said, we have plans in place to reduce advertising and service loaner expense. Our overall store-level personnel costs are in-line, and I am pleased with our productivity levels. As many of you have heard, we have restructured our regional teams. The purpose of this regional realignment was to enable us to react quicker to the needs of the front line, and to eliminate inefficiencies and duplications. As I stated in the past, we are…

Thank you, Scott and good morning, everyone. It clearly was a challenging quarter for the automotive industry, but as Scott indicated, overall we are pleased with our performance, and there are several bright spots. Total revenue for the quarter was just under 2 billion, down slightly from last year. Gross profit was down only 3 million, and gross margin was actually up 10 basis points to 15.7%. For as tough as the quarter was, I was pleased to see an operating profit margin of 3%, which is reasonably strong. EPS from continuing operations was $0.49, excluding the $2 million hail loss we suffered. EPS for the quarter was $0.52, down 16% from last year. Please turn to the next slide. There is a substantial loss in discontinued operations that I would like to talk about. First, it is important to note that nearly two-thirds of the loss is non-cash, primarily asset impairments and loss on disposal, nearly 60% of this loss relates to termination of a Cadillac franchise in California. We plan to use the location to build a new state-of-the-art facility for our Beverly Hills BMW store. Basically consolidating 11 leased facilities today into 1, and we are to have substantially more service bays along it with. The next largest piece relates to loss on sale of our Chrysler, Dodge, and Jeep franchises in Ohio. This transaction actually generated substantial cash for us, as it included the sale of land that we owned in the area, and we recovered our full investment on this. In total, we have 12 operations remaining in discontinued operations, and hope to sell them shortly for over 30 million in cash. Next slide, please. This slide shows the strong correlation between consumer confidence and auto sales. Increasing gas prices, housing lows, and general economic…

Thanks, Dave. While this year is turning out to be rather difficult, our strategy is sound, and we are making money. We are focused in the right areas and disciplined cost control is a must. We are building a company with a solid foundation for future growth. I am confident that we are making much better decisions for the long term, and have adopted sound investment principles. We are investing where we make money. We are sticking to our strategy, we are allocating capital carefully. We want to own our own land and facilities, and we are using good judgment. With that said, our dividend will remain unchanged at $0.12 per share payable on October 15th, 2008, for shareholders of record as of September 15, 2008. Before we take questions, I always want to thank our Sonic associates. Their continued hard work and dedication are greatly appreciated. Once again they delivered in a very tough environment, and I thank you team. Finally, I want to thank our manufacturer partners for their support. At this time, we will open the call and take your questions.

(Operator Instructions) Your first question comes from Rick Nelson with Stephens.

Thank you. Can you address areas of regional, areas of strength and weakness, I guess, specifically California, and Florida, and maybe other parts of the country that might be performing well?

Yes, Rick, this is Jim Evans. We will talk briefly about California, as not unlike the last 12 months, the California challenge is a new-car dynamic primarily. New vehicle car and truck registrations for June were down 19.7%. On a year-to-date basis, 18.3. On the positive side, we have seen margin stability in Northern Southern California. Our used car volume is up 3% for the second quarter. Our fixed operation is down around 2%, with good customer pay growth of plus 3%, and solid F&I performance at 5% up. So, it remains a new car dynamic, as it has for the past 12 months, and we continue to outperform on a new-car basis versus what the registrations indicate statewide.

And any comments on Florida?

Yes, Rick, this is Jeff Dyke. Florida is the same as what Jim just said. The Florida market has been tough for us over the last few quarters. It continues to be tough, it is stabilizing on a margin basis. Our used vehicle business there is good, our F&I business there is good. We have got a heavier mix of Cadillac in that market, which has put a little bit of pressure on us, but other than that the last couple of quarters have been the same. And in Texas our business there continues to be very strong, so it has really been a good market for us across the board, and across all of the brands.

Okay. Thank you for that. How about Chrysler's decision on leasing, I realize you don't have many Chrysler dealerships, but how do you see that affecting performance in those stores, and have some of the other domestics adopted similar programs?

Yes, Rick. This is Dave. Probably our largest Chrysler stores is down in Texas, and we were looking at that just before the call, and I think they are at, 2% of their volume is related to leasing, which is really low, and that is good for us. We did dispose of three Chrysler franchises during the quarter. So, this isn't really going to have any impact on us at all. I wouldn't want to speculate on what GMAC and Ford might do, they are in completely different situations. Clearly leasing is a popular way, certainly on the luxury side, the bulk of our luxury is BMW and Mercedes, and they are financially strong. So, I really wouldn't want to comment on what those other guys might do.

Okay. Where do you see as the place to be here within the market? Is it going to be luxury or high volume imports?

Well, I think we are positioned well with both of those. I don't see us changing our strategy. We have given that a lot of thought. I think we are poised well, and some of the luxury, of course, with BMW, with Mini there, and the One series, and the C class with Mercedes, I think they are going to do well. I think once things stabilize. I think we are going to be just poised fine. Of course, we have a got a lot of Toyota and Honda as well. So we are diversified well and have our bases covered I feel. And where we do have domestic, they perform reasonably well.

I just wanted to follow-up on service and parts. Do you see any evidence that people are postponing these services, or are they trading down, and shopping less expensive alternatives than the dealers?

Well, Rick, we are seeing a pullback in heavy repairs. That's a trend we are seeing across the board as far as our owned fixed-operations performance, it is heavily localized in patches and different regions of Florida, the Carolinas, Las Vegas, and Oklahoma, represent the majority of that shortfall. And we are addressing that internally very aggressively over the next two quarters.

Okay. And what sort of strategies do you have there for…?

Actually, Rick, this is Jeff Dyke. We are sticking with our strategy. We have done a great job in fixed operations over the last couple of years, and between the mix in those markets, where we got a heavier focus or heavier brand mix of Cadillac and General Motors. We have got our fixed operations teams focused on those guys to help drive revenue in the services drives, and other than that sticking with our strategy and focusing on what we do really well is what we will stay focused on.

Thank you and good luck.

Thanks, Rick.

Your next question comes from Rich Kwas with Wachovia.

Hi, good morning.

Hi, Rich.

How are you doing Dave?

Good.

Jeff or Jim, could you comment on the used-vehicle trade desking that I think was getting implemented in the Southeast this year, and what the progress has been on that?

You bet, certainly playing a role in our overall business, and it is underway in Alabama, Tennessee, and Georgia. Texas was rolled out about three or four weeks ago, so they are coming up online, and prior to the end of the year, we will certainly roll out more regions, our next regions will be the Florida, North Carolina, and South Carolina markets. And obviously that is helping in our results. In particular keeping our inventory, less wholesale loss, and making sure that we get the right product to the right stores. So that is certainly playing a role in our business.

What is the truck mix of the inventory right now? I know it turns pretty quickly, but what did you have at the end of the quarter?

It's 41% light truck, and 59% car.

Okay. And then on parts and service, it looks like you are looking for similar trends in the back half of the year versus the first half. It seems like you are saying that business is not going to get any worse. Is that a fair conclusion to come to, or how are you seeing that?

I think that is right. That is a fair conclusion. And we are not projecting any huge upside there either. I mean, it would be nice if we could perform better than that given the actions that Jeff was talking about.

What do you kind of view as the risks of that in the second half of the year on the part of service run? Is it regional, or just the slowdown broadens it a out a little bit, I mean, what are you thinking about in terms of risk?

Well, I am not seeing a lot of risk on that. It is more volatility in the marketplace for new and used, strike me as bigger risks.

Yes, there may be some risk. Rich, in terms of Cadillac and some isolated pockets, but again as I said a few minutes ago, we are all over that, and working on the service drives to drive revenue there, so other than that I don't see any major risk in the numbers.

Finally, I know you are assuming a 14.5 [SAAR] for the year, that kind of implies the second half doesn't really get materially worse. What is kind of the earning sensitivity that we should think about if we go to 14 million for the year, or below 14 million for the year?

Yes, I think our guidance when we developed it, probably covered a 14.2 to 14.5 kind of range. So, I don't think there is going to be much wiggling there.

Okay. So, it sounds like you factored in a little bit worse than the 14.5 for the year…?

Yes.

Okay. Thank you.

Your next question comes from Matthew Fassler with Goldman Sachs.

Good morning.

Good morning.

Can you talk on the expense front, two items, the first is the speed with which you expect that $10 million to $13 million in savings to kick in. I know you said $10 million to $13 million annualized, should we expect that the full run rate will be in place in the second half of the year, in the third quarter, I should say? And then, somewhat related to that, I realize that there are some long-term initiatives that you have got. At the same time the environment has changed substantially. The earnings fell far short of your initial expectations. Are you considering pulling back on some of those discretionary items?

Yes, to the first one, it is immediate, and half of that run rate annualized run rate will hit in the second half, which is good. As well as the restructuring, and a whole series of other things that we are working on, and not talking about publicly, but we are always looking at costs at we are probably ramping up it a little bit more than we would have otherwise. On the second, we did consider it, and we are not changing our plan on that, and that is kind of what Scott was talking about. We are seeing very good results from it, think it is the right thing to do. The culture of the business is changing. I think it is a game changer for Sonic over time. So, we had a lot of discussion with that internally with the Board, and we are choosing to stick with that as a valuable investment for us.

And what is the magnitude of the dollars that we are talking about there?

Training is going to be up $3 million to $3.5 million for the full year. A lot of that was front-end loaded anyway with the development costs for this. We may dial back a little bit, and save 200,000 to 300,000 in the back half of the year from the original plan, but it is really not a change in the intent of the program.

So, the changes that you are making in loaners and advertising, are going to be 3 to 4 times the training increase in annual?

It would be, yes, on an annual run rate.

Okay. And then, second or third, I guess, you might have alluded to this a bit, if you could just talk about your new vehicle gross margin experience differentiating cars versus trucks?

Yes. On same-store basis, car was up, in total we were up 10 basis points versus a year ago, car was up 20 basis points, and truck was down 40 to 50 basis points.

And as you think about the fact, the change in the environment really was a change in May, probably later in May if you paralleled other experience. Just trying to get a sense you said a couple of things about July that were, I guess a bit encouraging about trends relative to the end of the second quarter. Should we think about the second half as fully baking in, sort of those very tough trends that you saw in the five, six weeks of the quarter, or would it be somewhat more moderate than that?

June in particular was very difficult for us on what we saw, and I would say it is probably an average of the quarter going forward. I think we are a little bit better than the last two, three weeks of the quarter, but do you guys agree with that?

100%. I think that you will see margins stabilizing as we move forward, as inventory gets right-sized throughout all of the different brands.

Got you. Thank you so much.

Your next question comes from John Murphy with Merrill Lynch.

Good morning, guys.

Hi.

Good morning.

I apologize gentlemen got on the call just a little bit late, but as I was getting on, I think Dave you were talking about consolidating facilities in California, and it sounded like it was pretty impressive as 11 going to 1 is what I thought I heard.

Yes. Yes. That was part of the discussion on disc ops. We look a charge as we closed a Cadillac dealership there, and we will be relocating Beverly Hills BMW, which is a highly fragmented operation, and very difficult to run, lot of extra costs, and we are putting up a new facility where this Cadillac dealership was. And it will be a much more efficient state-of-the-art, with much expanded service capability and easier to run.

Basically you are moving the BMW location to where you had the Caddy location?

Correct.

Okay. Are there other opportunities for that in the portfolio as you step forward?

Boy, I don't see, no. I mean, we take them as they come. For instance, Mountain States Toyota, we are near the end of a lease term. We are building a new facility very close by. It will be state-of-the-art, and we leave a lease tail behind, and own the store.

Okay. And just on that ownership of real estate as you move forward here. I mean, how are the real estate values that you are purchasing? I mean you are swapping out these operating leases into the real estate purchases, are you finding that they are what you expected them to be, or are you getting better deals now that real estate has come down quite a bit?

I think it is kind of mixed bag. Yes, it is situation specific. If we go to buyout a leased property that we own, it is sort of driven by the lease payment that we are making. Although, we are looking through some sites on a luxury store here, and we are starting to see some favorables, especially in Florida, some favorable pricing there.

And you mentioned that would be 130 million by the end of the year, how far along in the process are we at that point?

Hard to know. I think we are going to keep at it. I think we will always have 30% to 40%, something like that leased. We won't be able to get them, especially on the West Coast.

Okay. But as a percent of your total real estate, what portion?

We will be at 10% at year end, and maybe, we haven't set a firm target on that, but I could see it approaching 40% over time, and I am skipping ahead four or five years.

Okay. Great. Thank you very much.

Your next question comes from Colin Langan with UBS.

Great. Thanks for taking my question.

Hi, Colin.

You commented on how you are going to refinance the convert. How much do you currently have available on the revolver, it seems like it might be getting a little tight going through the rest of the year?

It is $111 million as of June 30, and we have got some mortgages we are going to close on a $26 million mortgage here within the next couple of weeks, and a couple of other sale/leaseback activities that are going to provide some additional cash. So, there is some room to navigate in there, but I mean, we are planning it, and we have got two alternatives, as I mentioned to refinance that.

And if you were to refinance the debt markets, do you have any idea what kind of rate you would have, it is even available right now for…?

Everything is available at a price. I don't really find it all that attractive right now. The financial markets are in a tizzy, so I am not real keen to go out and refinance at a rate of in excess of 10%. And that is where they are.

Okay.

Windows come and go, and at the moment the capital markets are tough.

Yes. Are you counting on, what did you say, 12 dealerships left that you are looking to divest?

Yes.

Was it 30 million in cash, how much are you expecting to raise in terms of cash in the second half of the year from selling those?

I said 30 for the total of all of those dealerships. I think we are going to close on and maybe three, that are very active right now. And there is probably 15 million, something like that.

Okay. And how many did you start the year with that you were looking to divest?

We have closed on six deals so far this year.

And you also shut down some dealerships too?

Yes and the Cadillac is in that six.

Okay.

So, we didn't really get any money for that, but it is going to be a great investment play for us, versus what we have today with the BMW store there.

And switching to SG&A, I was little surprised that you have sort of commented on it, maybe I missed at it little bit. I know personnel was actually up, advertising was up, and other was up rather significantly when you look at year-over-year, sales were down and gross product was slightly down, what was really driving that? Were there one-time items in there? I know the hail was a small factor.

Yes. Actually in the commentary I pointed out that on a same-store basis they were down 3 million. And what you will see is we did acquire several stores about this time last year. It is a fairly big store, so of that $10 million increase, close to $3.5 million is associated with the new stores. Then you got the hail that is worth $2 million. Some legal costs in there. Some of the service loaner we were talking about. And delivery expense is up, reflecting some of the gas price increases, and we are addressing that as well.

How much would you say of your SG&A is fixed versus variable, because I would have expected it to come down a little bit, just the sales came down or…?

That is why I was pointing out on a same-store basis our personnel costs were actually down $4 million. It gets a little confusing looking at it year-to-year, when you have got new stores being added, and that is why I was pointing out that our stores are modeled well, because our personnel costs even on a dollar basis, and a percent basis were down on a same-store basis. We typically don't report those publicly, but I felt I wanted to for this very reason.

Okay. And you mentioned the hail, is there a reason that is not pulled out as a special one-time item. Are you going to go to reimbursement or insurance for those in the future?

No, we are not going to be reimbursed. It happens frequently, and there is certain guidance about what you can call as a one-time thing. It clearly happened, because we suffered the loss and we are talking about it, but you can't really pull it out. I guess if it were 5 times that size we could, but we broke it out on that one page, so you can see it is 70 basis points of cost in our SG&A.

All right. And then lastly, you commented that you would expect margins to sort of trend at similar levels going forward. Was that referring to, I know the last couple weeks of the quarter was actually pretty tough, or was that referring to the entire Q2 level?

More Q2 level.

Okay. So, the second half you should see a little bit of a rebound from the last couple of weeks of Q2, sort of?

Well, I think so. Yes. In fact, we have seen some of that in used already. In new we were kind of flat or up slightly from year ago, especially on the hot margin cars is an offset to some of the low-margin trucks.

Okay. All right. Thank you very much for taking my questions.

Sure, Colin.

(Operator Instructions) Your next question comes from Scott Stember with Sidoti & Company. Scott Stember - Sidoti & Company: Good morning.

Hi, Scott. Scott Stember - Sidoti & Company: Could you talk about the new side of the gross margins? You gave some of the breakout between trucks and cars, and your gross margin in that segment was actually up 10 basis points. Was there anything else in there that would lead to that kind of an increase in this tough environment?

No. This is Jeff Dyke. Actually, it is just managing the inventory, and it has to do with the mix of cars and our brand mix. We have seen stabilization in our new car margins in California and Florida, which are certainly helping out. And our avenue PUR on the new car side over the last 15 months, in the month of June really stabilized. We actually had an uptick in our overall gross so on a PUR basis. So, nothing that sticks out there as being abnormal. Scott Stember - Sidoti & Company: All right. I am not sure if you mentioned this already, but going to the parts and service, could you maybe just drill down on some of the areas that you want to attack to stimulate demand?

Sure, this is Jeff Dyke again. Really, and we said it earlier, it is just a focus on a few key areas. In the Vegas market, Oklahoma, and then the Florida, North Carolina, South Carolina markets where we have got a bigger presence of General Motors vehicles including Cadillac. And that is where you will see us putting most of our efforts, it is what is creating a larger percentage of the decline, versus the forecasts that we had for the quarter. Scott Stember - Sidoti & Company: So, as you said earlier, a lot of the weakness that you are seeing is in the domestic stores?

Yes. Scott Stember - Sidoti & Company: Okay. And just real quick on the employee retention, you gave a statistic that some of your efforts are being rewarded. You had a 97% employee retention. Do you have some benchmark versus last year where we were at this point?

We are not looking to really get in to start sharing all of that. I can tell you that it was an all-time ever low in total company turnover. And the investment that we are making in our associates we believe is really a long-term strategic initiative that we have, and have the complete support of the Board. And again, we have doubled our spend for 2008 over 2007. That is in the SG&A, and the feedback that we are getting from the associates is tremendous. I mean, it's not just lip service when we talk about our people being our greatest assets, and I think Roger has demonstrated in his performance, they have got great turnover numbers, and they are performing relatively well. So again, we are investing in our people, and plan on continuing to do so.

And to add to that, our CSI scores are also at an all-time high. So, your low turnover, high CSI scores, so that investment, certainly is paying off.

It is fewer people making more money. Our efficiency rates are pretty outstanding right now. Scott Stember - Sidoti & Company: Okay. Thank you.

Your final question today is a follow-up question from Rich Kwas with Wachovia.

Just two quick questions. On the disc ops, you mentioned that you expect to get 30 million in proceeds. Is that before year end? Is that the idea?

Probably. I would like it all, but we are targeting roughly half of that.

And then, you have converts obviously and one is coming due next year, as you mentioned. With the change in FASB rules, how should we think about the potential impact on next year's earnings, knowing that you are going to have at least one convert outstanding during next year. Have you been able to quantify the impact on interest expense?

Yes, Rich, this is Greg. We are working through that. Those rules go into effect on January 1, and we will start to give some more guidance as we get later in to the year on the valuation of the hedging around the convert, that will still be ongoing after we refinance the other one.

Okay. It is fair to say, though, that interest expense should go up?

Yes.

Okay.

Yes, it will run through interest expense

Because it is 4.25 note, and at the time it was issued, unsecured were probably 8.5 to 9, so it is a 5 point difference times the value.

Okay. Great. That is kind of roughly how we should think about it then?

Yes, at this point. We will give you some more guidance as we get out later in the year.

Okay. Great. Thanks so much.

At this time, there are no further questions. I would like to turn the call back over to management for closing remarks.

Great. Well, I would just like to thank all of our shareholders and associates for participating on the call today. Thank you.

Thank you.

Ladies and gentlemen, this concludes today's Sonic Automotive second quarter 2008 earnings conference call. You may now disconnect.