1043509--2/24/2010--SONIC_AUTOMOTIVE

related topics

{customer, product, revenue}

{acquisition, growth, future}

{condition, economic, financial}

{debt, indebtedness, cash}

{cost, regulation, environmental}

{capital, credit, financial}

{loss, insurance, financial}

{cost, operation, labor}

{financial, litigation, operation}

{interest, director, officer}

{operation, international, foreign}

{product, candidate, development}

{personnel, key, retain}

{provision, law, control}

{investment, property, distribution}

{loan, real, estate}

An acceleration of our obligation to repay all or a substantial portion of our outstanding indebtedness or lease obligations would have a material adverse effect on our business, financial condition or results of operations. Our ability to make interest and principal payments when due to holders of our debt securities depends upon our future performance. Our ability to make interest and principal payments when due to holders of our debt securities depends upon the receipt of sufficient funds from our subsidiaries. The conversion of the 5.0% Convertible Notes and 4.25% Convertible Notes, if triggered, may adversely affect our liquidity and financial condition and results of operations. We depend on the performance of sublessees to offset costs related to certain of our lease agreements. Our use of hedging transactions could limit our gains and result in financial losses. Risks Related to Our Relationships with Vehicle Manufacturers Our operations may be adversely affected if one or more of our manufacturer franchise agreements is terminated or not renewed. Our sales volume and profit margin on each sale may be materially adversely affected if manufacturers discontinue or change their incentive programs. Our sales volume may be materially adversely affected if manufacturer captives change their customer financing programs or are unable to provide floor plan financing. Our parts and service sales volume and profitability are dependent on manufacturer warranty programs. We depend on manufacturers to supply us with sufficient numbers of popular and profitable new models. A decline in the quality of vehicles we sell, or consumers perception of the quality of those vehicles may adversely affect our business. Adverse conditions affecting one or more key manufacturers may negatively impact our profitability. Manufacturer stock ownership restrictions may impair our ability to maintain or renew franchise agreements or issue additional equity. Our dealers depend upon new vehicle sales and, therefore, their success depends in large part upon customer demand for the particular vehicles they carry. Our failure to meet a manufacturer s customer satisfaction, financial and sales performance and facility requirements may adversely affect our ability to acquire new dealerships and our profitability. If state dealer laws are repealed or weakened, our dealerships will be more susceptible to termination, non-renewal or renegotiation of their franchise agreements. Risks Related to Our Acquisition Strategy Pursuant to the terms of the 2010 Credit Facilities, our ability to make acquisitions is restricted. We may not be able to capitalize on acquisition opportunities because our ability to obtain capital to fund these acquisitions is limited. Manufacturers restrictions on acquisitions could limit our future growth. Failure to effectively integrate acquired dealerships with our existing operations could adversely affect our future operating results. We may not adequately anticipate all of the demands that growth through acquisitions will impose. We may not be able to reinstitute our acquisition strategy without the costs of future acquisitions escalating. We may not be able to determine the actual financial condition of dealerships we acquire until after we complete the acquisition and take control of the dealerships. Although O. Bruton Smith, our chairman and chief executive officer, and his affiliates have previously assisted us with obtaining financing, we cannot assure you that he or they will be willing or able to do so in the future. Risks Related to the Automotive Retail Industry Increasing competition among automotive retailers reduces our profit margins on vehicle sales and related businesses. Further, the use of the Internet in the vehicle purchasing process could materially adversely affect us. Our business will be harmed if overall consumer demand continues to suffer from a severe or sustained downturn. A decline of available financing in the lending market has, and may continue to, adversely affect our vehicle sales volume. Our business may be adversely affected by import product restrictions and foreign trade risks that may impair our ability to sell foreign vehicles profitably. The seasonality of our business magnifies the importance of second and third quarter operating results. General Risks Related to Investing in Our Securities Concentration of voting power and anti-takeover provisions of our charter, bylaws, Delaware law and our dealer agreements may reduce the likelihood of any potential change of control. The outcome of legal and administrative proceedings we are or may become involved in could have an adverse effect on our business, results of operations and profitability. Our business may be adversely affected by claims alleging violations of laws and regulations in our advertising, sales and finance and insurance activities. Our business may be adversely affected by unfavorable conditions in our local markets, even if those conditions are not prominent nationally. The loss of key personnel and limited management and personnel resources could adversely affect our operations and growth. Governmental regulation and environmental regulation compliance costs may adversely affect our profitability. Climate change legislation or regulations restricting emission of greenhouse gases could result in increased operating costs and reduced demand for the vehicles we sell. Potential conflicts of interest between us and our officers or directors could adversely affect our future performance. We may be subject to substantial withdrawal liability assessments in the future related to a multi-employer pension plan to which certain of our dealerships make contributions pursuant to collective bargaining agreements. A change in historical experience and/or assumptions used to estimate reserves could have a material impact on our earnings.

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1043509--2/24/2010--SONIC_AUTOMOTIVE_INC