3. Inventories and Related Notes Payable - Floor Plan

Inventories consist of the following:

Sonic finances all of its new and certain of its used vehicle inventory through standardized floor plan facilities with a syndicate of financial institutions and manufacturer-affiliated finance companies. The new and used vehicle floor plan facilities bear interest at variable rates based on prime or LIBOR rates. The weighted average interest rate for Sonic’s new vehicle floor plan facilities was 2.37%, 1.85% and 1.61% for 2017, 2016 and 2015, respectively. Sonic’s floor plan interest expense related to the new vehicle floor plan arrangements is partially offset by amounts received from manufacturers in the form of floor plan assistance. Floor plan assistance received is capitalized in inventory and charged against cost of sales when the associated inventory is sold. For 2017, 2016 and 2015, Sonic recognized a reduction in cost of sales of approximately $45.3 million, $45.0 million and $42.1 million, respectively, related to manufacturer floor plan assistance.

The weighted average interest rate for Sonic’s used vehicle floor plan facilities was 2.61%, 1.78% and 1.72% for 2017, 2016 and 2015, respectively.

The new and used vehicle floor plan facilities are collateralized by vehicle inventories and other assets, excluding franchise and dealer agreements, of the relevant dealership subsidiary. The new and used vehicle floor plan facilities contain a number of covenants, including, among others, covenants restricting Sonic with respect to the creation of liens and changes in ownership, officers and key management personnel. Sonic was in compliance with all of these restrictive covenants as of December 31, 2017.