REGIONAL REPORT : Car Dealers Hit a Sales Pothole : Autos: Although large operations appear as solid as ever, others are struggling. Some have sold off parts of their franchises or closed.
If you think buying a new car is a hassle, try selling one in Southern California. As the Southland muddles through the 11th month of a generally mild recession, new-car dealers in the region are sinking into the muck left by nearly two years of lousy business in their trade. Cautious lenders, changes in tax laws and the Gulf War have also taken their toll on dealers’ fortunes.
The signs of desperation are everywhere: in the frantic radio and newspaper ads promising the moon if only you’ll come see Bill or Cal or Jim; in the never-ending parade of special factory and dealer rebates, and in the growing number of forlorn, weed-choked lots that once housed fleets of sparkling new cars and trucks.
“I’ve seen three or four dealers in this area close their doors in the last year. Business is really bad,” said Collin Crews, general manager of Jim Lynch Cadillac in Inglewood, where sales have plunged 35% and four salesman have been laid off in the past six months. Besides the recession, Crews blames a new federal luxury tax that applies to autos selling for more than $30,000 and increased competition from upscale Japanese car lines for his troubles.
“I don’t see an upswing until the introduction of the 1992 models” this fall, he said.
At Stadium Pontiac in Anaheim, festive sales banners hang over a deserted showroom floor. A ragged chain-link fence blocks the trash-strewn lot, and dust on the plate glass windows almost obscures a sign that boasts: “We Sell Excitement Quality.”
But apparently the dealership didn’t sell enough. It was quietly abandoned by its owners late last year and, in a telling sign of the times, Pontiac hasn’t found anyone brave enough to reopen the franchise.
“We’ve always had dealers going under, that’s part of the business,” said Scott Wilk, assistant vice president of the California Motor Car Dealers Assn. in Los Angeles. “In good times, though, there is always someone standing in line to buy the franchise, and the public never sees the place close down. It just changes names and keeps going. Now, there aren’t very many people who want to be car dealers.”
That is because few dealers are profitable, says John B. T. Campbell, chairman of Campbell Automotive Group in Irvine, which has sold three of its nine dealership in the past eight months. “It has been that way since 1989, but it can’t go on too much longer or there won’t be any new-car dealers left to sell cars,” he says--with no hint of a smile on his face.
While profits have grown harder to come by, so have bank loans.
A Los Angeles attorney whose firm works with auto lenders said most of the big banks in the field are grappling with large portfolios of problem car-dealership loans and are scrambling to withdraw from the business. The result is that even the big profitable dealerships are finding operating cash harder to come by and marginal operations are folding because they can’t find financing at all.
“The industry is doing very poorly, and things have not improved,” said the attorney, who asked to remain anonymous.
The hurt has been spread pretty evenly through the Southland, but dealers in San Diego County have suffered a tremendous blow this year because of the Persian Gulf situation.
The Desert Storm buildup meant that more than 60,000 San Diego-based Marines and Navy personnel were sent to the Middle East. While most of the Marines have returned, sailors only recently began to arrive.
Lack of military customers and their dependents was most noticeable along the “Mile of Cars” in National City, home to 20 new-car dealers. “In National City, it was even worse than dismal because they depend so heavily upon the military,” said Dean Mansfield, executive vice president of the New Car Dealers Assn. of San Diego County.
The end of the Gulf War proved a boon to some dealers by reviving consumer confidence for at least a short time.
At Mission Hills Ford, where 16 of 80 employees had been laid off earlier in the year because of the recession, the work force is back to normal, and sales are climbing--in large part because of post-Persian Gulf euphoria, said Frank Thayer, president and general manager of the San Fernando Valley dealership. “The recession is over,” he said. “I don’t want to talk about it anymore. We’re out of the doldrums.”
Howard Sellz, owner of Valley Dodge in Van Nuys, would dispute that unbridled optimism. “Most of the smart dealers have tightened their belts,” he said. Sellz has laid off two sales agents but says an increase in used-car sales and in service revenue have helped make up for the drop in new sales.
Bad as things are overall, Southern California’s newest crop of car dealers--minorities who came up through manufacturers’ minority-owner programs in recent years--may have it even worse. Not only are most at a disadvantage because they haven’t been around long enough to build a strong organization, most were allowed by car makers to start up with less capital than typically required.
“For me and most of the other minority dealers, this is the first time things have been bad, and we are having to learn a lot and learn it fast,” said Boyd Harrison Jr., owner of West Covina Lincoln-Mercury.
“It is scary,” Harrison admits. “Everything I have is hocked to this.”
Harrison, who bought his dealership in 1986, said he has learned one lesson from seasoned dealers: pay attention to parts and service departments.
“I’m confident I will survive and come out of this slump because I have made a real effort to build the back end and it has worked,” said Harrison, whose parts and service business covers 85% of overhead costs.
Carmen Koosa, a self-described former New York street hustler who was one of Southern California’s largest car dealers in 1989, knows well how fortunes can turn.
His huge operation, which at one time included Nissan of Downey, Nissan of Cypress, Toyota of Bellflower and Santa Fe Infiniti plus a used-car operation in San Diego and a car and truck leasing firm in Downey, helped support a lavish lifestyle that included what he admits was a runaway gambling habit.
Then car sales went south, and Koosa’s gaming losses collided with them. His bank placed a receiver on most of his operations in the middle of last year, and Koosa was forced to sell or close most of his businesses.
He says he has recovered now from both bad habits: He has quit gambling and has quit equating growth with success in the car business.
He is down to two franchises: Nissan of Downey and Santa Fe Infiniti and vows that “I will never expand again. In fact, I’d probably sell one of these two if I could. In this climate, nobody is doing well.”
Koosa said his Nissan of Downey lot, which was the nation’s fifth-largest dealership in 1989 with $105.4 million in gross sales, now loses money on each new car it sells.
“In 1989, I needed to gross $600,000 on new-car sales each month to break even. I’ve cut that to $270,000 a month now, but last month, for instance, I did $330,000 in total sales, including parts and services, and netted only $23,000. I lost $37,000 on new-car sales and made $60,000 on service. That’s what keeps me alive.”
Still, not everyone is suffering as badly.
The Southland’s largest and best-capitalized dealerships seem to be doing more business each year. But they are succeeding by sucking business away from smaller dealers.
At El Monte-based Longo Toyota, the nation’s largest car dealer in terms of unit sales, General Manager Greg Penske says he is having “one of our best years ever.”
Penske said that while profit margins have eroded, sales are up roughly 7% from a year ago. Although he would not disclose current sales figures, the trade publication Automotive Age estimated that Longo had sales of $266.8 million in 1990.
But, for the most part, “people who make their living selling cars are nervous,” said Nickolas Shammas, owner of the Downtown L.A. Motors group of seven dealerships, including Felix Chevrolet and Downtown L.A. Motors Mercedes-Benz, the third-largest Mercedes dealer in the nation.
“And why shouldn’t they be? Why should we be doing any better than anyone else when the entire economy is in trouble?”
Dealer Revenues
Based on taxable transactions in the third quarter of each year (in thousands of dollars)
1986 1987 1988 1989 Los Angeles County New motor vehicle $2,000,322 $1,983,639 $1,985,005 $2,146,788 dealers Used motor vehicle 122,280 135,960 145,306 177,445 dealers Auto supplies 202,774 212,031 226,669 243,603 & parts Orange County New motor vehicle $697,625 $681,673 $689,389 $767,775 dealers Used motor vehicle 34,500 56,865 54,129 43,243 dealers Auto supplies 56,598 58,082 63,083 67,490 & parts Riverside County New motor vehicle $220,580 $214,798 $224,297 $240,031 dealers Used motor vehicle 8,318 12,889 15,050 16,861 dealers Auto supplies 28,935 28,309 35,487 39,472 & parts San Bernardino County New motor vehicle $234,955 $242,509 $275,338 $305,329 dealers Used motor vehicle 19,922 24,178 24,102 29,329 dealers Auto supplies 33,991 37,747 45,809 48,583 & parts San Diego County New motor vehicle $597,890 $563,743 $593,548 $611,631 dealers Used motor vehicle 31,438 28,712 30,533 33,955 dealers Auto supplies 53,963 55,481 65,017 67,448 & parts Ventura County New motor vehicle $188,880 $195,796 $195,615 $219,931 dealers Used motor vehicle 5,411 5,912 7,977 9,830 dealers Auto supplies 14,943 16,451 17,395 19,623 & parts
1990 Los Angeles County New motor vehicle $1,922,243 dealers Used motor vehicle 147,794 dealers Auto supplies 236,782 & parts Orange County New motor vehicle $675,121 dealers Used motor vehicle 39,166 dealers Auto supplies 67,193 & parts Riverside County New motor vehicle $243,055 dealers Used motor vehicle 15,428 dealers Auto supplies 41,654 & parts San Bernardino County New motor vehicle $302,467 dealers Used motor vehicle 26,037 dealers Auto supplies 52,778 & parts San Diego County New motor vehicle $581,531 dealers Used motor vehicle 28,405 dealers Auto supplies 69,733 & parts Ventura County New motor vehicle $209,325 dealers Used motor vehicle 6,544 dealers Auto supplies 19,231 & parts
Source: State Board of Equalization
Coasting Downhill Car, van and light truck registrations by county.
County 1986 1987 1988 1989 1990 Los Angeles 506,880 517,048 555,043 528,099 476,271 Orange 176,219 175,614 183,896 177,770 167,173 Riverside 49,699 54,190 61,291 61,778 58,999 San Bernardino 65,634 72,827 79,933 78,506 66,842 San Diego 137,148 145,999 148,853 139,041 123,437 Ventura 41,514 44,321 44,471 44,032 38,182 Total 977,094 1,009,999 1,073,487 1,029,226 930,904
Source: R.L. Polk & Co.
Where Dealers Make Their Money
There were 80 Southern California auto dealers making this year’s Auto Age 500, the magazine’s list of the 500 largest dealerships in the country. Figures below are the average revenue produced in five areas at a typical large Southern California dealership. Body Shop: 1% New Retail Sales: 70% Used Retail Sales: 14% Parts and Service: 13% Finance & Insurance: 2% Source: Auto Age Contributing to this story were Times staff writers Philipp Gollner in the San Fernando Valley, Jube Shiver in Los Angeles and Greg Johnson in San Diego.
