More Means Less in Car Country

Talk about a growth market. Crunch these numbers:

* The number of vehicles registered in California has increased more than 82% in the past 20 years and now tops 25 million.

* The number of licensed drivers has risen 68% (to 19.6 million) since 1970, far outstripping the 45% rise in state population (to 29 million).

* Gasoline usage has jumped 46%.

* Miles driven on state highways have soared 60%.

Stir that together and you have California traffic congestion in the 1990s. You should also have the formula for explosive growth in car-related businesses and services.

But you don’t.

While all this growth in cars and people was happening, something quite different was occurring in the California car business. The number of new car dealers has declined 23% in the past 10 years, and sales of new cars and trucks in California have been flat or down for several years. The number of service stations in the state dropped by a quarter in the past decade, and the number of car washes fell more than that.

And although the number of licensed car repair places showed a modest 8% rise, that was far smaller than the increase in vehicles on the roads.

Why is nothing simple anymore? If we have a lot more cars and drivers, shouldn’t we also have a lot more mechanics, dealers and gas stations? Whatever happened to that rule of economics about supply and demand?

Well, in California it ran into changing demographics and an offshoot of real estate speculation called “highest and best use.” And it lost.

Let us start with car sales. When California first fell in love with the automobile, it was a wide-open state. Car dealers sprang up everywhere and as the demand grew, many of them got rich. Their dealerships expanded to include service bays, glassed-in showrooms and used-car lots to unload trade-ins.

In the past 25 years, however, California has become much less wide-open. Vacant land for sprawling dealerships is hard to come by, and developers drool over the prime commercial acreage occupied by new car dealerships. Land-use experts figure that selling cars is a “low use” item. Translated, that means a car dealer takes up a lot of space and generates fewer dollars per square foot than does an office building, for example, or maybe even a mini-mall full of fast-food palaces.

Hundreds of California car dealers have sold out to offers they couldn’t refuse in recent years. Some of the car manufacturers are very worried about the next few years, when leases on a number of big dealerships in metropolitan areas expire and landlords may opt to sell to developers rather than renew those leases.

Starting up a new dealership has become almost prohibitively expensive. John Campbell, who operates eight dealerships in Orange and Riverside counties, figures that it costs $6 million to $7 million to acquire the land and pay for construction and equipment these days. That, coupled with higher labor and other costs, means that it takes two or three times more car sales at a location to break even than it did 10 years ago, he estimates.

The result: fewer dealers and less competition. Those that survive are becoming enormously profitable “mega-dealers” with numerous makes for sale at the same location.

In similar fashion, thousands of car washes and service stations have been eliminated by “higher and better” land uses.

In their heyday, it was common to see gas stations on all four corners of a California intersection. The number of stations peaked in 1970 at more than 22,000; last year the number was 11,669 and shrinking.

Even though gasoline usage has been growing sharply again since the shortages of the 1970s and the price collapse of the early 1980s, few new service stations are being built. Those that close are often acquired for new commercial uses that will generate more revenue per square foot of that valuable land.

And, as with car dealers, the gas stations that remain are usually very profitable--pumping enough gas to be considered the “highest use” of the land they sit upon. That’s why we all wait longer than we used to at the service station.

“To buy the remaining years on the lease of an existing service station may cost in the six figures,” says Steve Shelton, executive director of the Southern California Service Station Assn. “That’s because of the volume growth and the decrease in the number of stations.”

Then there are the demographic changes. The majority of California’s population growth in the past 20 years has been through immigration. And many of the immigrants are very poor, making it unlikely that they will be in the market for new cars.

Some evidence suggests that the standard of living in California is changing, says John Rettie, editor of California Report, an auto trends newsletter published by J. D. Power & Associates in Agoura Hills. What he means is that a larger proportion of Californians can’t afford the high price of a new car.

So, if the number of new-car dealers is dwindling, new-car sales are sluggish and fewer people have the money to plunk down on a new model, what accounts for the increasing number of cars and drivers?

One answer is used vehicles. The number of used-car dealers in California has soared, rising nearly 39% in the past 10 years. Used-car lots are often tucked away in places where they don’t compete with “higher and better” land uses. They also have the ability to pick up and move down the street the minute the bulldozer arrives.

Californians are also keeping their cars much longer than they used to--which means they need more service, especially to pass the smog inspections required in recent years. And, to meet that market, employment in the car service industry has actually grown while the number of businesses has declined.

What that suggests is that although the number of car-related businesses in California may be shrinking, those that remain are doing well enough to hire more people.

Maybe the law of supply and demand is working here after all.

MORE TRAFFIC, LESS SERVICE

While California’ population and licensed drivers have soared, the number of service stations and new car dealers has shrunk. Used car dealerships, meanwhile, are multiplying.

Licensed Drivers for 1989: 19,577,000. Source: Calif. Department of Motor Vehicles.