Another Dealership Bites Dust : Business: Downey Toyota’s failure affects more than 100 employees. The city may have to cut spending because of an expected loss of about $300,000 annually in tax revenue.


A handful of workers moved about the defunct Downey Toyota dealership earlier this week, attending to the final details of their jobs before filing for unemployment benefits and seeking work elsewhere.

There had been word of financial problems for weeks, but the more than 100 employees of Downey Toyota were still shocked when the dealership shut its doors last Friday after more than 25 years of operation. The recession and high overhead costs--stemming from an expensive renovation--contributed to the failure, Toyota and city officials said.

“I was devastated,” said Bill Hicks, 44, a father of four who managed the body shop at the dealership. “We all hoped there would be a resolution and we would continue.”

The closure also means that the city of Downey, which is already operating on an austerity budget, will lose more than $300,000 a year in sales tax revenue, unless it can find another dealer to move onto the site on Firestone Boulevard. Downey officials said this week that the city probably would have to reduce spending but said it was too soon to assess the impact.


“It would mean a substantial hole in this year’s budget,” Downey City Manager Gerald M. Caton said. He added that Downey Toyota was the largest single contributor of sales-tax revenue to the city.

As late as Friday morning, co-owner Thomas C. Watts III had told maintenance clerk Juan Ascencio and other employees that he was still trying to save the dealership that was founded in 1965 by his late father, Thomas C. Watts Jr.

But by then, the employees had started carrying out orders from management to place dozens of cars and trucks into storage. The dealership closed later Friday, after Watts and his brother, Richard C. Watts, abandoned their effort to reorganize under the protection of Chapter 11 of the federal Bankruptcy Act.

“It’s a shame,” said Ascencio, 25, who lives in Huntington Park with his wife and daughter. “I’m going to start looking for work. I have some possibilities.”


The Wattses, who failed to return calls for comment, filed for Chapter 11 bankruptcy on Aug. 26.

They have been seeking an investor or buyer for the dealership, said their lawyer, J. David Pittman.

“Negotiations broke down last week and effectively ended the possibility of reorganizing Downey Toyota,” Pittman said Wednesday.

In their bankruptcy petition, the Watts brothers listed assets of $13.6 million and debts of $8.1 million. Pittman said he could not explain why the Wattses listed assets greater than their debts, but added that the asset figure might prove to be too high.


Downey Toyota owes about $6.4 million to Toyota Motor Credit Corp., Toyota’s financing arm, Pittman said.

The Wattses agreed Tuesday to allow Toyota Motor Credit Corp. to take possession of the dealership’s assets, including vehicles, auto parts and fixtures, said Pittman, who added that he did not know the value of those assets.

The debts to the remaining creditors--more than 400--were unsecured.

“The corporation has no more assets,” Pittman said. “There’s nothing there to pay (remaining debts).”


Other auto dealerships in Downey have been hurt by the recession, too, and that has meant a decline in sales-tax revenue for the city. Two years ago, the city received about $3.5 million in sales taxes from its auto dealers, compared to $2.7 million last year.

The city has already trimmed spending and has instituted a hiring freeze on 20 municipal job vacancies. The city’s general fund budget, which pays for most city services, will be $34.5 million this year.

Ironically, the Downey operation was one of Toyota’s most prolific dealers. In 1990, it sold 3,971 new cars and trucks to rank among Toyota’s top 60 dealers in the United States.

But the recession had chipped away at Downey Toyota’s sales, said Mike Mahoney, an assistant general manager of Toyota Motor Distributor Inc., Toyota’s distributor for the L.A. region. He declined to provide figures but said the dealership faced the same economic pressures that have caused a downturn in sales industrywide last year.


“The economy really hurt Downey Toyota,” said Lee Powell, a Downey assistant city manager. In addition, a $4.5-million renovation in 1987 pushed up the dealer’s overhead costs.

The Watts brothers had unsuccessfully sought a bailout loan from the city in recent weeks. City officials declined because of the risk involved.

Powell noted that Bellflower officials tried to keep Pete Ellis Ford afloat earlier this year with a $300,000 grant and a $400,000 loan. The dealership closed anyway and city officials are considering filing a lawsuit to recover the $700,000.

Powell said the city was afraid that a bailout for Downey Toyota would open the door to requests from the 11 other automobile dealers in town.


“It’s hard to provide assistance to one dealership,” Powell said. “What about the other dealerships?”

Some of Downey Toyota’s employees couldn’t help but wish that the city had come through with the loan. But they were resigned to finding jobs elsewhere.

“There’s nothing I can do,” said David Sago, 40, an auto detailer who lives with his wife and two children in Compton. “I have to roll with the punches.”