Reopening of 2 Car Dealers May Energize Stalled Market : Business: In the last year, at least 20 dealerships in the area have closed.

The scheduled reopening of two closed car dealerships in Southeast Los Angeles County this month may help jump-start the stalled car market, but many dealers are concerned that the recession may run still more dealers off the road.

In the last year, at least 20 dealerships in the Southeast area have succumbed to a combination of a depressed economy, pressure from banks and consumer skittishness. Many others are hanging on, deciding month-to-month whether to keep their doors open.

The car business is so bad that it is on the verge of being buried, said Jack Rockwell, owner of Whittier Chrysler and leader of a group of auto dealers in the Whittier area.

“We ought to buy more shovels so we can throw more dirt on it,” he said. “It felt like it was on an upswing until (the riots) hit. But that’s just another excuse we can add to the long list.”

Nevertheless, there are signs of hope. Downey Toyota, closed since September, will reopen this month under the Penske Automotive Group. And a new Ford dealership in Bellflower is scheduled to open where Pete Ellis Ford went out of business a year ago.

Many dealers reported a slowdown in sales immediately after the April riots, but business has returned to normal. “Normal being not what it was like two years ago,” said Downey City Manager Gerald M. Caton, who expects Downey’s tax revenues from auto sales to drop by one half this year.

Carmen Koosa, once the owner of dealerships in San Diego, Cypress, Bellflower, Downey and Santa Fe Springs, said the economy is to blame, not the rioting. “No matter what the President says, things have gotten worse since last year,” he said.

Last month, Koosa closed his last dealership, Infiniti of Santa Fe Springs, leaving the Santa Fe Springs Auto Mall empty.

“There’s no business out there,” he said. “It doesn’t make any sense to fight it. Why paint a rosy picture if a rosy picture isn’t out there?”

And the reasons run deeper than urban woes or the nation’s economic malaise, dealers said.

There are too many models of cars, Rockwell said. “People are confused.”

Persuading consumers that American manufacturers make a quality car used to be the big problem, he said. Now it is selling them on the features of one model over another.

In addition, there have been too many dealers in the market, said Bruce Low, an auto industry consultant with Monrovia-based Double Diamond Inc.

“If there are no true, clear signs the economy is getting better, then between now and the end of summer, we can expect another 25 or 30 dealers to go” out of about 300 dealers in the Southeast area, Low said. “Lots of dealers are hanging by their fingernails.”

Ultimately, the auto industry will have to rebound, Low said. With no large-scale mass transit in Los Angeles, people are dependent on their cars, and cars wear out.

“As soon as consumer confidence recovers, people will begin to purchase autos again,” he said.

Indeed, there are pockets of optimism even now.

Sales and traffic are up slightly at the Cerritos Auto Square, which experienced only a mild slowdown after the riots, said Doug Corrigan, owner of S & J Chevrolet.

Dealers in the mall are expecting a steady summer, “nothing spectacular, but more than enough to keep us afloat,” he said.

And in Signal Hill, construction on a new auto mall is nearly complete. The mall has four dealers in place and expects to have five or six, said Kevin O’Brien, city redevelopment coordinator.

Dealers outside the malls also are finding reason to be optimistic.

“Basically, we’ve been very lucky,” said Clive Skilton owner of Don-A-Vee Jeep in Bellflower, which hit an all-time sales record in April.

Skilton attributed part of his success to the popularity of the Jeep, which appeals to consumers looking for both sports cars and utility vehicles. “I guess if people can do with one car what they used to do with two, they’ll do it,” he said.

The Jeep mystique, however, was not enough to save Walker Bros. Jeep-Eagle, which closed June 1 after 66 years in Los Angeles.

Even dealers who are getting traffic and making sales may not be immune from closure, because car sales don’t always translate into net profits for dealers.

Before he closed his Infiniti dealership, Koosa said, he was selling $40,000 cars but not making any money. “People will shop you silly, and they should too--sooner or later someone will sell you a car for the price you want.”

It’s true that consumers are smarter than they were 24 months ago, Low said. Dealers are doing whatever they can to keep their volume up, but profits, traditionally 16% to 20% for dealers, are hovering between 7% and 9%.

A few years ago, people were buying lots of “extras” such as paint sealants and service contracts. “It’s exactly like popcorn at the movies,” Low said. That’s where a lot of dealers make their money, but today’s consumer wants to skip the frills.

Given this climate, the dealers who service a large number of cars and have low rent stand the best chance of making it, Koosa said. And now more than ever, dealers are hoping that the cities where they are located will help them build up business.

The cities have a vested interest in seeing auto dealers succeed. When auto sales start to skid, so do city revenues.

In Downey, seven dealers have closed in two years. Although six have reopened, the city’s tax revenues from new car sales have been hit hard. For the fiscal year 1989-90, Downey received $3.5 million in sales tax revenue--about 40% of the city’s sales tax--from its auto dealers. This year, it is expecting half of that, Caton said.

The downturn has already taken a toll. With a hiring freeze in place since January, 1991, city staff is down 10%.

As a consequence, the City Council recently agreed to give $400,000 to Penske Automotive Group to help reopen Downey Toyota, once the city’s largest producer of sales tax revenues.

The deal with Penske also includes a five-year agreement to return part of Penske’s sales tax if the dealership meets sales targets. The rebate could be as much as $100,000 a year, Caton said.

Penske officials said the dealership at 9200 E. Firestone Blvd. will provide jobs for about 130 employees. The Penske organization also operates two other car dealerships in Downey--Penske Cadillac and Penske Honda.

“In general, business seems to be coming back,” Caton said. All of the dealerships that closed in the city in recent years, except Downey Nissan, have reopened at new locations. The Paramount Chevrolet dealership, which stood in one place for 53 years before closing last September, is being reopened under new ownership near the San Gabriel River (605) and Santa Ana (5) freeways.

“If we can get our dealers back, we will slowly recapture our share of the market,” Caton said. The city is negotiating to find a new owner for the Nissan dealership.

Bellflower too is expecting some relief. Ford West is scheduled to open this week at the dealership that Pete Ellis Ford closed a year ago.

“It’s an exciting prospect, just because of the potential,” said City Administrator Jack A. Simpson. “A Ford store up and running for a year would generate $300,000 in sales tax to the city,” he said.

Officials in La Mirada offered sales tax rebates to lure a Toyota dealership into the Auto Center near the Santa Ana Freeway.

But Long Beach did not fare as well. Five dealerships there have closed in the last year, said Susan Shick, director of community development. Sales tax revenue from the remaining 15 was about $1.9 million for the fourth quarter of 1991, down from $2.25 million for the same period in 1990.

Although Whittier fared better during the downturn, officials there know what can happen when auto sales stall.

“We’re still pretty healthy,” said Assistant City Manager Hank Cunningham. Sales tax revenues are down, but less than in surrounding cities--about 14% for the fourth quarter of last year compared with the fourth quarter of the previous year.

But two dealerships in Whittier--one Chevrolet and one Nissan--have closed in the past two months. The city has stepped up efforts to work with its remaining auto dealers on business development, Cunningham said.

The goal is for the city, auto dealers, other retailers and shopping centers to lease a billboard on the 605 Freeway that would help channel shopping traffic into town, he said.

Even with help from cities, however, this recession clearly signals the end of the era of the stand-alone, single dealership.

Mergers of dealerships are increasing. A few years ago, manufacturers wanted exclusive dealerships. Now Honda, Chevrolet and Cadillac are under one roof, Rockwell said. “That was unheard of before.”

Combining auto lines gives dealers traffic they wouldn’t otherwise have, said Peter Hoffman of the Sierra Group. But it also means more overhead and more administrative headaches.

Dealers will do what it takes to stay in business, said Hoffman, who thinks the worst of the shakeout is over.

“The people who have gotten this far have figured out how to keep in business,” he said. “They’re prepared to tough it out.”