Good morning and welcome to the Sonic Automotive first quarter earnings conference call. (Operator instructions) At this time I would like to refer to the Safe Harbor statement under the 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 markets, or otherwise make statements about the future. Such statements are forward-looking and subject to a number of risks and uncertainties that could cause actual results to differ materially from the statements made. These risks and uncertainties are detailed in the company’s filings with the Securities and Exchange Commission. Thank you. I would now like to introduce Mr. Scott Smith. Mr. Smith, you may begin your conference.

Thank you very much. Good morning, ladies and gentlemen. I’m Scott Smith, President and Chief Strategic Officer. Welcome to Sonic Automotive’s first 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. Discussion topics for today’s call will include a 2008 strategy execution and key initiative implementation update; a review of the first quarter performance. We will then open the call for questions and have some closing comments. If you will please turn to slide number two – Building for the Long Term. In our last earnings call I shared this slide which lays out our strategic focus for 2008. Please allow me to update you on a number of key items we accomplished in the first quarter of this year. Basically, it all starts with our people. As I communicated during our last earnings call, we’re investing more than ever in developing and training our associates. In February we began to rollout our first phase of our new training initiatives under Sonic University. We also launched our on-line learning content management system, which is a portal for our web-based training classes, career development, and all of the initiatives for our associates. So far the feedback from our associates has been very positive and we’re beginning to see an impact on our turnover as it continues to decline. I’m very pleased to report that less than 30 days ago we also completed a web site conversion for all of our dealerships. We view the web sites as our virtual swords in our desire to build brand centric sites aligned with what consumers expect…

Thanks, Scott and good morning everyone. As you can see on the slide, total revenue for the quarter was 1.9 billion, up 1% from last year. Gross profit was up 2.5% to 306 million, and gross margin was up 30 basis points to 16.1%. New margins were 7.4%, flat with last year and up 10 basis points from last quarter, which is a great sign for us. Used retail margins were 8.9%, down 70 basis points from last year, but up from 8.3% last quarter as we improved our inventory position. Fixed operations margins were 49.7%, down 40 basis points from last year and 30 basis points from last quarter. Operating profit for the quarter was 55 million, down 6 million from last year and operating margin is 2.9%, down 30 basis points. Total income from continuing operations was 18 million, down just over 4 million. As Scott mentioned a moment ago, EPS from continuing operations was 44 cents, in line with our internal projections for the full year. Please turn to the next slide. This slide shows our same store performance, excluding wholesale overall same store revenue declined 2.9% for the quarter. Total new revenue was down 8.2% for the quarter. We were impacted most by a decline in light truck sales which were off 13.4%. In terms of regional performance, sales of new vehicles were soft in California and accounted for a large part of the retail volume decline. We continue to expand our used vehicle operations. Same store used revenues were up 11.5% from last year driven primarily by a 10.2% increase in volume. Same store CPO unit volume was up 20.5% and CPO volume reached nearly 38% of our total retail used volume. I’ll have more on this on the next slide. Note that whole sale…

Thank you, Dave. Just to hit the summary slide. Again, we’re reaffirming our full year guidance and we feel that we’re right on track. In a difficult economic environment Sonic expanded our revenue and used up nine fixed ops. We’re sticking to our strategies of investing in our people, our digital marketing, our technology. We’ve entered our phase two of our used vehicle process. Q2 outlook, as Dave mentioned, we had a hell of a storm and our new vehicle environment we expect is going to remain challenging. There’s no doubt that the housing conditions, gas prices and tightened credit has weighed heavily on the consumer psyche and confidence. And while we don’t think or expect a sudden turnaround or reversal in terms of the economic headwinds in the second quarter, we believe that we can continue to operate effectively while also laying down the tracks for our future growth. We demonstrate once again that our brand mix and our execution and commitment to our strategic initiatives have allowed us to adapt to the current conditions. And we remain optimistic that the second half of the year will bring improved economic conditions as the credit environment stabilizes and housing prices become more in line with income levels. As a result, I am once again reaffirming our full year continuing EPS guidance of $2.35 to $2.50 a share. Our dividend will remain unchanged at 12 cents per share payable on July 15th, 2008, for shareholders of record as of June 15th, 2008. Before we open the call for questions, as always I’d like to take the opportunity to thank our Sonic associates for all of their hard work and dedication over the quarter, and it’s truly appreciated. Additionally, I want to thank our manufacturing partners. Their upcoming product lines reflect changing consumer needs for more fuel-efficient vehicles, and this will benefit all of us. At this time, we’d like to open the call for your questions.

(Operator Instructions) Our first question comes from the line of Rich Kwas with Wachovia Securities. Richard Kwas – Wachovia Capital Markets, LLC: Hi. Good morning, guys.

Hi, Rich. Good morning. Richard Kwas – Wachovia Capital Markets, LLC: As you look out over the next couple of quarters, what are you expecting on the luxury side? Luxury’s down the first quarter, and how are you—what are you seeing in terms of grosses on the luxury side right now and your expectations going forward? Richard Kwas – Wachovia Capital Markets, LLC: Jeff, you want to take that?

Yes, Rich. This is Jeff Dyke. The luxury business continues to be decent for Sonic Automotive, but I’m expecting margins to be a little more difficult as we move forward. Inventories are higher. Thus, it’s going to put a little pressure, both from a competitive set and us trying to reduce our base supply. Richard Kwas – Wachovia Capital Markets, LLC: Is there anything region-specific with regards to that or is that kind of broad-based?

No, I think that’s broad-based across the country. Richard Kwas – Wachovia Capital Markets, LLC: Okay and then when you look at your used inventory, what percentage—how are you balanced on truck versus cars? Are you a little more weighted on trucks or, you know, do you feel comfortable with where you are right now?

We’re comfortable. Sixty percent of our inventory is car, and you know, we’re focused very heavily on making sure that we’re moving inventory. Obviously, margins are compressing a little bit as we try to push the SUVs out of the inventory, but that’s about it. We’re 60% car. Richard Kwas – Wachovia Capital Markets, LLC: And then, Dave, in terms of the SG&A spend, that was a little bit higher than we expected, and I know you mentioned some of the investments here. How does the cadence of the investments going forward—how is the cadence of the investments going forward as you go through the next couple of quarters?

Yes, I think it’s a little front-end loaded in the first half of the year and then will taper off a little bit in the second half of the year. There was also in our SG&A a non-recurrence of a favorable compensation adjustment that happened last year that didn’t happen this year, and that’s mucking up the numbers a little bit. Richard Kwas – Wachovia Capital Markets, LLC: Okay, thank you.

Our next question comes from the line of Rick Nelson with Stephens. Rick Nelson – Stephens, Inc.: Thank you. Good morning.

Hi, Rick. Good morning. Rick Nelson – Stephens, Inc.: Wanted to follow up on your comments about California. This would seem to be getting worse there in the first quarter or have things, you know, continued sort of like they were in the fourth quarter? And what regions are showing strengths and weakness aside from California?

Why don’t I start with that? I was pleased to see that new car margins were actually up 10 basis points in the quarter, which is encouraging. We did very well on used as well, CPO in particular, as I mentioned. New car is soft. Jim, you want to talk about that?

Sure. Rick, this is Jim Evans. Our California business is actually very stable. We think we’ve seen the bottom on PVR compression at about 7.4%, and we think it’s going to stay there to improve in the second quarter. Our used retail volume was up 14%. Customer pay was flat with good improvement in F&I, so our California business is essentially stable. We don’t see any reason for concern as we go forward. Rick Nelson – Stephens, Inc.: And how about outside of California? What are the areas of strength and weakness? Texas we understand is a pretty solid market.

Yes, Rick. This is Jeff Dyke. Our Texas business continues to be strong as it has been over the last few quarters, and we forecast that to happen or to continue on for the remainder of the year. And we’re actually pleased with our Florida business. Our import business is strengthening there, and things have leveled out, so that business is starting to improve a little bit for us.

You recall we had that one store in Florida, Clearwater Toyota, that was under construction? That’s up and running now and volume’s starting to pick up.

And recent returns have been very good. Rick Nelson – Stephens, Inc.: Good. Wanted to ask about the Beck acquisition. I understand there might be some issues with Mercedes and if you could shed some light on that?

I’ll field that one. I have to temper it with saying that we’re working with Mercedes to reach a resolution, but we are in litigation with them, so I can’t go too deeply into it. But essentially, when we acquired Calabasas, Mercedes we felt exerted a tremendous amount of pressure on us to comply with certain facilities, projects, Autohaus, et cetera, yet never provided us with exactly what those requirements were. As we proceeded with negations with Beck, we were also doing our facility plans and had spent quite a bit of money on architectural design and such, and we were working with Mercedes and felt that we were making material progress. When we entered into the agreement with Beck, Mercedes refused to accept an application, which we believe was in direct violation of North Carolina franchise law. And we have since had a lot of dialog with Mercedes and believe that the issues are pretty much resolved and that we’ll put this behind us here pretty soon. We are supporters of the Autohaus design. I’m not so sure that capacity-wise we’re in complete agreement, but as far as the customer touch areas we are aligned with Mercedes and plan on moving forward. So from what I understand, it’s just a matter of getting it on paper. I look for hopefully second quarter here to get that resolved. Does that answer your question? Rick Nelson – Stephens, Inc.: Yes. Scott, do you then—you’re anticipating come Q2 you will have the green light with Mercedes?

I’m hoping so. They, as in every transaction, manufacture has the right to approve the deal and turn it down. And we believe, we’re hopeful that we will get the green light to close on the transaction in the second quarter, but you know, no promises. On the outside, the furthest that they could drag it out, you know, going through the whole court system, is about a year, but we don’t believe that it will go that far. Rick Nelson – Stephens, Inc.: And the CapEx issue is related to Calabasas or is it other Mercedes dealerships?

Well, when we were acquiring Calabasas, it had just been completely renovated about two months before we acquired it and felt that it was in full compliance when we bought it and Mercedes as, you know—and I don’t want to just single out Mercedes because pretty much all the manufacturers do it. In trying to take a huge bite of the apple, they went around to look at every facility issue. And if you’ll keep in mind that Mercedes was really behind the eight ball when it came to their image compliance versus, say, Lexus or BMW where they wanted to play catch-up. So they went around to every facility and looked at them and basically required us to bring every facility up to Autohaus compliance, which again, we are doing where it makes sense to do it, and we’re very supportive. Rick Nelson – Stephens, Inc.: Thank you for that and good luck.

Thank you.

Our next question comes from the line of Scott Stember with Sidoti & Company. Scott Stember – Sidoti & Company: Thank you.

Hey, Scott. Scott Stember – Sidoti & Company: Could you talk about the parts and service? You mentioned that you’re starting to see some reluctance on some higher-ticket items to be completed. Could you talk about what segment of—whether this is luxury and import or the lower end and also talk about why the parts and service gross margin was down in the quarter?

Yes, I think we saw some softness at BMW in particular. I would say that our Mercedes warranty was down quite a bit. We’re seeing that, and I think everybody is. I noticed some of the peer group and virtually everybody’s down in margin. I mean I don’t view it as a big problem. You know, our quick lube sales are up sharply, and our tire sales are up. And those tend to be lower-margin products, and that’s weighing it down just a little bit. I don’t view it as a problem. I just view it as kind of noise in the numbers. Scott Stember – Sidoti & Company: And going forward the customer pay business you would expect to be up modestly for the rest of the year?

Yes, I think so. We were up 1.2%. I’d like to see it a little higher than that, and we’re working on that. Scott Stember – Sidoti & Company: Okay and that’s all I have for right now. Thank you very much.

Thanks, Scott.

Our next question comes from the line of Matthew Fassler with Goldman Sachs.

Hey, Matt. Matthew Fassler – Goldman Sachs: Thanks a lot and good morning. How are you?

Good. Matthew Fassler – Goldman Sachs: Good. Couple questions. First of all, want to dig a little deeper into cost control, particularly, or the expense side rather. How big was the year-ago compensation adjustment that you discussed?

It was closing in on $2 million. Matthew Fassler – Goldman Sachs: Got you.

$1.6, something like that. Matthew Fassler – Goldman Sachs: And was the incremental training expense in the first quarter essentially of that size as well?

It was. Matthew Fassler – Goldman Sachs: And was it bigger than you had originally thought? Did that number creep on you a little bit or is that sort of in line with initial expectations?

I think it was in line with initial expectations, and our full year cost estimate on that is unchanged. Matthew Fassler – Goldman Sachs: Got you.

A lot of it’s development kinds of things that are done up front. Matthew Fassler – Goldman Sachs: Okay. I guess the second question just to get some more color on the comments that you all made earlier on the gross margin side, particularly with regard to the new car business. Did I essentially hear from you that you think that—I think you said margins will be tough. Would you expect them to deteriorate from here just given the inventory situation for both you and for the sector?

Frankly, I’d like to see them hold flat about where they are right now. They were up 10 basis points from the fourth quarter, and I think we’re doing a good job of holding gross pretty much nationwide. Matthew Fassler – Goldman Sachs: And with the inventories up, is that still feasible?

Yes, there’s a couple of product lines that we may have to give back some gross to move them. Matthew Fassler – Goldman Sachs: Got you.

We’re on that. Matthew Fassler – Goldman Sachs: And then just, you know, to get clarity on April, you intimated that the environment remains tough, certainly in the short-run. Should we interpret that here, you know, 29 days into the month that April looks something like March?

It looked a lot like March. Last weekend was good. Matthew Fassler – Goldman Sachs: Got you.

It’s tough on new vehicles, but our used vehicle business, you know, continues to be strong. Matthew Fassler – Goldman Sachs: Understood. Thanks so much, guys.

(Operator Instructions) Our next question comes from the line of Edward Yruma with JPMorgan. Edward Yruma – JPMorgan Chase & Co.: Good morning and thanks for taking my question.

Hey, Edward. Edward Yruma – JPMorgan Chase & Co.: Can you talk a little bit about the improvements you’re making to CPO and if you expect that to have the same degree of lift as you had when you implemented Champion, gosh, maybe almost two years ago?

Edward, this is Jeff Dyke. There’s really no change in our process on CPO. Our used vehicle process included CPO, and right now what we’re seeing is is the new car customer moving over a little bit to the CPO business since that’s where you’re seeing that increase. We try to target about 30 to 35% of our overall used car business in the CPO category so as a percent of the total mix.

Jumped up to 38% percent, so we’re really doing a bang-up job there.

BMW’s driving a large portion of that. BMW CPO business is up 60% for the quarter. Edward Yruma – JPMorgan Chase & Co.: Got you and I know you touched upon it a little bit in your prepared remarks, but can you talk about customer credit availability? Has it tightened significantly, and have you had to make any significant changes to the way that you approach your F&I business?

Gosh. You know, Ed, I’ve been looking for that, and I don’t see it. We have a preferred lending group, and interestingly, I looked at our penetration of our preferred lending group, and it was actually up in every category of our lending, including sub-prime, so my hat’s off to those guys that are supporting us very, very well. And when somebody backs off and there’s a few guys that have dialed back on the sub-prime, there’s been somebody else to step in, and I think the captives have done a very good job as well. So I don’t see it. Edward Yruma – JPMorgan Chase & Co.: Got you and one final question. I know that in the past you’ve had some slight bias toward repurchasing shares. You know, when you think about your capital allocation for the next 12 months, you have a bias toward that or are you looking more aggressively at lowering your debt levels? Thank you.

You know, we always review all the potential possibilities for use of our capital. We were a pretty heavy buyer of our stock last year, and we bought $20 million back in the first quarter, got some more authority. At the moment, given the liquidity issues in the market, I think we’re going to sit back a little bit. Also, as I look at premiums in the market are still pretty sticky on acquisition targets, so you know, given the environment and everything going on, a little bit of prudence here I think is warranted. And that’s kind of how I see things. Edward Yruma – JPMorgan Chase & Co.: Great. Thank you very much.

Our next question is a follow-up question from the line of Rich Kwas with Wachovia Securities. Richard Kwas – Wachovia Capital Markets, LLC: Just a follow-up on the guidance for the year, 3 cents that is coming out of Q2 because of the damage to the Texas store.

Yes. Richard Kwas – Wachovia Capital Markets, LLC: Sounds like just given your commentary Q2 is going to be a little muted here. What should we look for in terms of the second half of the year in terms of either getting to, you know, getting to the upper end of your guidance, which is where consensus is right now.

Well, you know, of course the three cents hurts our overall profitability for the year. I mean we’re still comfortable with the guidance range that we gave. You know, I noticed the optimism in consensus for the first quarter, and then I looked at our actual results versus year-ago results for everybody else. And I think we performed reasonably well, especially given some of the investments and some of our key initiatives that we’ve got going forward. So, you know, I still hold to the guidance just like we did last year and delivered on it, and I expect more of the same this year. Richard Kwas – Wachovia Capital Markets, LLC: And just Dave or Scott in terms of the second half of the year, any major changes to the environment assumed or are you kind of assuming steady, staid, here on out for ’08?

Well, we had assumed a pick-up in the second half. You remember we had interest rates going up to I think 4.5% LIBOR. I mean that, obviously, doesn’t look like that’s going to happen, so there’s a lot of moving pieces. I think new is softer than we envisioned. I think our F&I is a little stronger than we envisioned. I think our used is significantly higher than we envisioned, and you know, obviously interest rates are lower. And all those things when I look at them, even including the hailstorm and what have you, I think they’re kind of balanced, and our view remains unchanged, but we are looking for some pick-up in the second half of the year. Richard Kwas – Wachovia Capital Markets, LLC: But the 3 cents from the Texas store is included in the guidance, right?

It is. Richard Kwas – Wachovia Capital Markets, LLC: Okay, great. All righty. Thank you.

Okay, thanks.

There are no further questions at this time. Mr. Smith, are there any closing remarks?

Well, I’d just like to, again, thank all of our associates, our manufacturing partners and certainly our investors. I can tell you that in spite of what’s going on out there in a macro-economy, it’s an awful lot of fun to come to work every day, and we have the best team. We have just an extraordinary group of individuals and professionals here. And I just want to thank you for all of your support. Have a great day. Bye-bye.

This concludes today’s conference call. Thank you for your participation in Sonic Automotive’s First Quarter Earnings Conference Call. You may now disconnect.