Running on Empty : Recession, Auto Malls Throttle Dealerships, Leave Many Jobless
It is a brilliant February morning, but Carmen Koosa, once listed as the world’s best auto salesman in the Guinness Book of World Records, sits glumly at his desk. His plush office in Santa Fe Springs overlooks an automobile showroom where the only things moving are the flashing lights around a white Infiniti convertible.
Two and a half years ago, Koosa looked out over his fledgling empire of automobile dealerships and proclaimed that he would one day own at least seven dealerships in Southern California.
Today, the salesman who sold 3,892 cars in 1980 and later owned five dealerships, said he’ll be lucky if he ends up with one dealership.
“All I have is two left, and I’m hanging by my thumbs,” Koosa said. “I’m the best salesman in the world, but that won’t save my life.”
Koosa has been caught in the vise of a growing recession and what one expert described as a “structural revolution” in the automobile-sales business. Experts estimate that the effects of a shrinking economy and a trend toward auto malls or mega-dealerships forced about 900 dealers to close nationwide last year, and may cause the closure of another 2,000 automobile dealerships this year. At least 10 automobile dealers in the Southeast have gone out of business. Increasingly, many dealers find themselves without the dollars they need to pay for advertising, employee salaries, rent and monthly costs of financing inventories of unsold cars and trucks.
During the last few weeks, Queen City Ford and Coletto Nissan have closed. South Gate lost three Pete Ellis dealerships and Freedom Ford. Koosa closed his Bellflower Toyota operation. Sopp Oldsmobile and Sopp Mitsubishi in Downey have been shuttered. Merit Chevrolet in Santa Fe Springs never saw the start of the new year.
Most auto dealers are blaming the current crisis squarely on the recession. “People are running scared,” said Kelly Shaw, general sales manager of Pacific Lincoln Mercury in Downey. He and other automobile dealers said the recession has sent consumer confidence spiraling to an all-time low, and many would-be buyers are saving their dollars rather than spending them on a new car. Dealers who do find interested customers have been running into another effect of the recession: jittery banks unwilling to make loans to customers who pose even the slightest credit risk.
Some dealers, such as Koosa, also blame their woes on manufacturers, both foreign and domestic. “There are just too many cars and not enough buyers,” Koosa said. That means a lower profit margin for dealers, experts said.
Industry experts said the coming of the auto mall and the consolidation of franchises have also posed a threat to the independent auto salesman.
“Even before the recession hit, there were new dealerships going down every year,” said Frank Fraser, a consultant with J.D. Powers and Associates, an automotive consultant firm based in Agoura Hills.
Fraser said that in 1989, nine dealerships were closing every 10 days in the United States. In 1950, he said, there were 50,000 auto dealerships. Today, half of that number survive.
“What we are seeing is the emergence of multifranchise dealerships and auto malls,” Fraser said. “In a way, it parallels what is happening in many other consumer fields. There used to be a time when you could go to a General Electric store or an RCA store for a radio. Today you go to Circuit City. You know you want some form of electronics and you can shop around and find it.”
Auto malls and multifranchise dealers, Fraser said, offer the same convenience. There is easy parking, a wide selection and much time is saved. The result has been that independent salesmen may be finding themselves shouldered out of the business.
The Cerritos Auto Center, which opened in 1979 with five dealerships and today has 21 dealers, is still doing well, said Michele Wastal, Cerritos public information coordinator. The auto mall provides the city with about $4 million a year in sales-tax revenue. While some dealers in the center report a slowdown in business, they said they were still drawing customers.
Santa Fe Springs officials had hoped to start a mini-auto center, anchored by Carmen Koosa’s Infiniti and Merit Chevrolet. When Merit Chevrolet went out of business, Koosa found himself, his 17 employees and an inventory of about 100 Infinitis isolated in an industrial section of the city just off the Santa Ana Freeway. Koosa gives little credence to the idea that auto malls are putting him out of business. He believes that there are simply too many cars on the market.
Last May, he sold his San Diego dealership. In October, Koosa sold his Cypress Nissan dealership. Last month, he shut down his Bellflower Toyota dealership, and he is trying to salvage his Downey Nissan and Santa Fe Springs Infiniti dealerships. He predicts that he will be closing both before the end of the year.
“It’s tough,” he said. “My employees look at me and wonder what’s going to happen. I was a millionaire once. I put my personal fortune into this, and if the dealerships go down, I go down, and I’m as penniless as the next guy.”
Koosa has laid off about 245 employees since October. He has slashed his advertising budget for the Downey Nissan dealership from $150,000 a month to $25,000 a month, he said. His Downey dealership has half the number of customers it had between 1985 and 1988 when it was No. 1 in the nation in Nissan sales. Sales have plummeted from an average of 50 cars a month to 20. In January, he lost $23,000 at his Infiniti dealership. This month, he said with grim sarcasm, business is better. He may lose only $15,000. His plans to open a Subaru dealership on the adjoining lot are on hold, he said.
“You want to know how bad things are,” he demands. “I’ll show you how bad things are.”
He fishes out a memo from beneath a pile of mail. The memo, from Infiniti manufacturers, spells out the sales figures for the nation. The news is grim. Infiniti sales for January were 39% lower than December, the memo reports. Only 1,851 cars were sold nationwide. Top sales, the memo says, went to Carmen Koosa Infiniti which sold 50 cars in January.
“That’s how bad it is,” Koosa said. “I was No. 1 in the country last month and I still lost money.”
Just down the street at another Santa Fe Springs auto dealership, dozens of Chevrolet cars and trucks languish, streaked with dust, in the half-empty parking lot of Merit Chevrolet. Chains block the entrances, empty showrooms face the Santa Ana Freeway. A lone security guard chases passersby from the lot.
George Williams, the owner of Merit, shut down his operation at Christmas. Williams could not be reached for comment, but Jim Turba, Santa Fe Springs assistant director of planning and development, said Williams was forced to close more than one of his dealerships.
“The general business atmosphere went down and just took him with it,” Turba said.
Queen City Ford, one of the oldest dealerships in Long Beach, last week closed its doors after almost 15 years in business. The company, which had an inventory of about 350 cars and trucks, laid off 47 employees.
“That’s 47 different families that are going to be affected,” said Russ Weaver, general sales manager.
Each time an automobile dealership closes, it sends a ripple through local economies that depend heavily on a share of sales-tax revenues from the dealerships to help finance city services and programs.
When Pete Ellis closed his South Gate dealerships this month, the city faced the prospect of losing about 12% of its annual sales-tax revenues. Pete Ellis has accounted for about $700,000 a year in sales taxes to the city.
Ruben Lopez, assistant redevelopment director in South Gate, said that nothing compares to automobile dealerships when it comes to bringing in much-needed revenues. “Even if we had the same amount of space in retail use, it would not be able to generate that kind of income,” he said.
Lopez said that Chrysler will reopen the Dodge dealership in 30 days, thus softening the blow to the city. City leaders will still have to struggle to make ends meets without cutting such vital services as police and park and recreation programs.
The city of Downey may also be suffering from a mid-year financial crisis.
Late last year, Randy Sopp closed both his Oldsmobile and Mitsubishi dealerships in Downey. Downey receives $3 million a year in sales taxes from its 14 automobile dealers, City Manager Gerald M. Caton said. Each time one closes, the city must figure out where to make up the loss or begin cutting city services or personnel.
Caton said the city, operating on a $34-million budget, has instituted a hiring freeze and may consider other cuts if sales-tax revenues continue to drop. He said city staff have also come up with several proposals to keep Koosa’s Nissan dealership open.
The city still has 12 other dealerships, many of which are doing their best to keep afloat.
Several have begun offering special deals, cutting back on staff and rearranging lots to give used cars and more inexpensive cars the prime spots on the lot.
At Pacific Lincoln Mercury in Downey, customers are given five years of free oil changes, plus an “environmental package,” when they buy a car. The environmental package allows the buyer to come back to the shop every six months for free detailing.
“The industry has to lean toward taking care of its customers,” said Shaw, the general sales manager.
As the car business continues to slide, not everyone is sounding a pessimistic note. Some dealers say the shakedown will eliminate weak operators and ultimately strengthen the industry.
“The strong will survive. They always do,” said Bruce Fay, general manager of Toyota of Cerritos.
DEALERSHIP CLOSURES BELLFLOWER: Carmen Koosa Toyota: January DOWNEY: Sopp Oldsmobile: November Sopp Mitsubishi: November LONG BEACH: Coletto Nissan: January Queen City Ford: February SANTA FE SPRINGS: Merit Chevrolet: December SOUTH GATE: Freedom Ford: February Pete Ellis Chrysler Plymouth: February Pete Ellis Dodge: February Pete Ellis Jeep Eagle: February Source: Southeast area city officials
