Auto Dealer Puts Brakes on His Businesses
The financial empire of Newport Beach auto dealer and socialite James Burdick Slemons III has been hit hard by the recession and his own lavish lifestyle, and Slemons says he is moving quickly to reduce his operations to conserve cash.
Acknowledging that there has been a veritable firestorm of rumors about his financial situation in recent weeks, the high-profile Mercedes-Benz dealer said in a recent interview that his businesses are not on the verge of collapse.
He dismissed such rumors as a product of Newport Beach’s “small-town” atmosphere.
“Everyone I know is scaling down, but I’m not living in a tent or anything,” said Slemons, who has houses and condominiums in Avalon, Big Bear, Newport Beach, Palm Springs and Honolulu.
Still, Slemons’ major lender, Tokai Credit Corp., said it has advised him to liquidate some assets and to get rid of unproductive businesses to bring expenses in line with income.
“There is nothing happening right now that would affect the Mercedes-Benz store,” said Conrad Noriega, senior vice president at Tokai Credit, “but the rest of the operation is not as strong.”
Most of Slemons’ personal and corporate real estate holdings are mortgaged to Tokai and Sumitomo Bank of California to secure a total of $22.3 million in loans to the auto businesses and to struggling Jim Slemons Marine Inc., a Corona company that builds small power boats.
Malcolm McCassy, Slemons’ general manager, said the Slemons companies recently refinanced much of their Orange County property with Sumitomo, slashing combined monthly mortgage payments by $57,000 and turning “some of our land equity into cash.”
And Slemons and his half-dozen interrelated companies are trying to trim other expenses, as Tokai advised.
In the past month, Slemons has listed his 10,000-square-foot Harbor Ridge home for $5.3 million and put his 83-foot Italian-built motor yacht, the Mercedes, on the block for $3 million. Slemons sold his Acura dealership in April and last month shut down a $9-million-a-year wholesale auto parts business in Irvine.
The nationwide parts operation is being converted to a smaller regional business at Slemons Imports in Newport Beach.
That move resulted in about 50 people being laid off, Slemons said. In addition, about 45 employees at Slemons Imports and Jim Slemons Acura have been laid off since early January, reducing the Orange County work force to 235, McCassy said.
Slemons shut down his Daihatsu dealership last year. The dealership at the corner of Warner Avenue and Broadway in Santa Ana is still for sale.
In addition, the Jim Slemons Honda dealership in San Juan Capistrano is being sold to Weseloh Corp. of Carlsbad, which took over the dealership last week under an interim management agreement. The Slemons Jeep-Eagle franchise that had shared that lot has been moved to property Slemons owns in San Clemente, McCassy said.
McCassy traces Slemons’ financial woes to a $12-million loss the company took in late 1989 after a small charter air carrier Slemons was supporting filed for bankruptcy.
Slemons, who has built one of the nation’s foremost Mercedes-Benz dealerships, apparently stepped out of his league with his investment in Resort Communter airlines of Santa Ana, which specialized in flights to Catalina and commuter service to Los Angeles International Airport. Slemons’ dream was to expand Resort Commuter into a major operator of luxury sports fishing tours in Baja California.
But Slemons, who bought two 18-seat airplanes and leased them to Resort as part of his investment in the carrier, overestimated the demand for the expensive charter packages. The airline never recovered from the expenses incurred trying to get the Baja operation off the ground. Those planes were sold last year, resulting in an additional $1-million loss, McCassy said.
Slemons’ Jim Slemons Imports racked up $110 million in sales last year, making it the nation’s second-biggest Mercedes-Benz franchise and the eighth-largest auto dealer overall. But Slemons has suffered many financial problems since Resort Commuter collapsed, according to knowledgeable sources, most of whom asked not be identified.
Slemons’ financial situation has also been hurt by his floundering boat-building business, the cost of maintaining his many homes and his yacht, and the costs incurred in several divorces over the years.
Several area Mercedes-Benz dealers said things may get tougher for Slemons because his Slemons Imports has been selling new cars wholesale. By wholesaling cars, Slemons can cut his inventory, but he jeopardizes his 1992 supply of cars from Benz. Mercedes-Benz allocates vehicles to dealers each year based on the dealers’ previous year’s retail sales, the dealers said.
McCassy, however, said Slemons Imports is mainly exchanging cars in its current inventory for cars that have not yet been shipped this year from Germany. “We had 140 cars at one point in the spring and didn’t want to be stuck with that kind of inventory with sales slowing,” he said. Slemons Imports, which now has about 50 new cars in stock, will be getting more new cars in trade from other dealers later in the year, he said.
Slemons’ businesses have been hit doubly hard in the past year, by the recession and by the new federal luxury tax that tacks a 10% surcharge on cars that sell for more than $30,000.
Slemons also operates a Volvo dealership in Hawaii and markets custom Avanti sports cars. Most of the cars he sells are subject to the luxury tax. Dealers throughout the Southland contend that tax is hurting luxury car sales.
McCassy said sales have dropped 20% at Slemons Imports since the beginning of the year. “It is tough out there, make no mistake about it,” he said.
The Slemons imports operation, however, is still a profitable dealership. McCassy and Slemons said they are regularly approached by other dealers and would-be investors who want to buy all or a part of it.
One major Southland Mercedes dealer, who asked not to be identified, said he is one of several people who would “love to buy it if Jim would sell.”
Slemons is no longer ruling out that possibility.
“Anything can be for sale if the price is right,” he said. “I’ve been doing this for 30 years, and sometimes I get tired.”
