Valley Job Losses, Foreclosures Made for a Difficult ’93 : * Banks, hospitals, retailers and other businesses also struggled. The hope is that the worst has passed.
Most local businesses will want to forget 1993. It was the third year of the state’s recession, and perhaps the toughest ever for the San Fernando Valley.
Residential foreclosures soared, as did bankruptcies. Job losses mounted as exasperated companies fled for more friendly places and as the key aerospace industry continued to grapple with wrenching defense cuts. Add to that the fact that local banks, hospitals and retailers all struggled to stay alive.
“In terms of job losses, 1993 was the toughest,” said Ben Reznik, a Sherman Oaks lawyer and chairman of the Valley Industry and Commerce Assn., which has 375 member firms. “It seemed as if throughout 1993, there was one company after another making an announcement of shutting down or downsizing.”
In fact, there was. It began in January when Nestle USA said it would close a research center in Van Nuys, eliminating 100 jobs, and lasted through last week, when IBM announced plans to move its Burbank-based Altium subsidiary to North Carolina, taking with it 100 local jobs. In between, a variety of companies made a spate of layoff announcements.
One of the biggest came from Rocketdyne, which last month said it would cut as many as 990 jobs over the next year, or up to 15% of its payroll of 6,600.
Rocketdyne, the Canoga Park unit of Rockwell International, has long fed off the National Aeronautics and Space Administration’s space shuttle and space station programs. But Congress sharply curtailed NASA’s 1994 budget for the space station, and the project’s prospects for the following year are unclear.
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And the exodus of companies fleeing to other states continued. Martin Lichtman, owner of Covercraft Industries in Northridge, this year took his auto-accessories business--and 300 jobs--to Oklahoma, a state that he said, unlike California, was “really proactive and trying to bring jobs.”
And in March, Hughes Aircraft Co. said that over the next 18 months, it would shift its missile-design operations in Canoga Park, with 1,900 employees, to Tucson as part of a continuing consolidation.
Partly because of such departures, the state Legislature this year pushed through reforms in the troubled workers’ compensation system. Analysts said lawmakers also created other incentives for business, including an enterprise zone in Pacoima, that should help stem the outflow of jobs.
“I think 1994 will probably be a little better,” said Jack Kyser, economist at the Los Angeles County Economic Development Corp.
According to Kyser, at least 10,000 jobs in the Valley have disappeared since 1990. Although the Valley is still likely to have a net loss of jobs next year, Kyser said, “I think the worst has passed.”
Real estate agents can only hope that the worst has passed for the Valley housing market, which this year was marked by a record number of foreclosures. Through October, foreclosures in the Valley totaled 3,187 properties, up 47% over all of 1992, according to TRW REDI Property Data in Riverside. (About 85% of those foreclosures were houses and condos, the rest commercial properties.)
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The high volume of foreclosed properties--mostly owned by bankLs eager to dispose of them--meant bargains for buyers, but it also helped drive down home prices. In January, the average price of a single-family house sold in the Valley was $256,500. By November, that had fallen to $240,000--the lowest since housing prices peaked at about $300,000 in 1989.
But even with these marked-down properties and the lowest mortgage interest rates in 25 years, sales of existing single-family houses and condominiums in the Valley through November totaled only 9,456 units--up 3.5% from the same 11-month period in 1992, but down about 50% from full-year sales in 1988. Sales of condos, in particular, languished this year as first-time buyers opted for lower-priced homes.
The recession also forced a growing number of businesses to seek shelter in bankruptcy court. For all of Los Angeles, some 2,000 companies are expected to go out of business this year, a 150% increase over 1991. And in a recent six-month period, at least 260 businesses in the Valley and Ventura County region were forced into bankruptcy, up 17% from a year earlier.
Unexpectedly, the construction industry is likely to enjoy a windfall from the recent wildfires, which destroyed several thousand houses, many of them coastal estates. The biggest beneficiaries will be contractors like Curtis Quillin, who owns a Van Nuys firm that specializes in erecting custom-built homes in the mountains and near the ocean.
The brush fires caused an estimated $950 million in insured losses, more than last year’s riots. But three property insurers based in the Valley--20th Century Industries, Transamerica Insurance and Crusader Insurance--all escaped big losses, thanks to luck and foresight. 20th Century never wrote policies in brush-fire areas, and Transamerica cut back after big losses from the Oakland fires in 1991.
The past year also saw a national shake-up in the beleaguered health-care industry, and that was reflected in the Valley.
Encino Hospital and Tarzana Regional Medical Center began the year by consolidating to cut costs and reduce duplication. Last month, financial problems at Sherman Oaks Hospital and West Valley Hospital forced the two hospitals’ bondholders to kick out management and call in a rescue specialist.
Meanwhile, Health Net Inc., the big Woodland Hills-based health maintenance organization, said it would merge with QualMed Inc. of Pueblo, Colo., in a stock swap valued at $750 million.
Surprisingly, there was some good news this year from General Motors. Earlier this month, the auto maker said that by June, some 200 laid-off workers from its shuttered Van Nuys plant would be back at work, this time making seat covers at a new GM factory to be opened in the Valley. About 2,600 auto workers lost their jobs when the Van Nuys plant shut down in August, 1992.
The local aerospace industry, despite continuing layoffs, also met with some success in developing new commercial markets. Special Devices Inc. in Newhall used its missile parts-making know-how to sell the same devices used in the Cruise missile to makers of automobile air bags. And Calabasas-based Lockheed Corp. this year boosted its non-defense business with such new projects as managing airports and running highway toll-collection systems.
Hoping to spur these efforts, President Clinton, in a visit to the Valley in December, presented a $2.6-million defense-conversion grant to Rocketdyne, and one for $3.4 million to Calstart, a Burbank consortium seeking to develop an advanced vehicle industry.
Many criticized the awards as paltry, but one Rocketdyne worker, happy to get something, anything, said, “Every little bit helps.”
Even with the recession, a few businesses in the Valley area prospered. Among the most notable was Superior Industries International Inc. of Van Nuys, which sells aluminum auto wheels to the Big 3 and Japanese auto makers. Through Sept. 30, Superior’s profit surged 68% to $32.6 million from a year earlier. This year, Superior also built a new plant in Mexico and expects to benefit from the new North American Free Trade Agreement.
Linda Wachner, the tough chief executive of Authentic Fitness Corp. in Van Nuys, took on a new challenge by buying Catalina and Cole swimwear brands for $46 million, adding to her already successful Speedo line. And Sunland-based apparel maker Cherokee Inc. emerged from bankruptcy reorganization--followed by the emergence of former Guess? Chairman Georges Marciano as a major stockholder and the departure of the management team.
But successful companies were the exception. Mainly because of sinking real estate prices and delinquent loans, seven of the eight major banks and savings and loans based in the Valley and Ventura County reported losses or lower earnings through Sept. 30 compared with a year earlier.
The sole exception was CU Bancorp, the Encino-based parent of California United Bank, which turned out three straight quarters of profit and was subsequently released from regulatory constraints.
Among other bright spots in banking: Glendale Federal Bank in September completed a long-shot $451-million recapitalization that saved it from government seizure, and Chatsworth-based Great Western Bank earlier this month acquired, for $151 million, 119 branches once operated by defunct HomeFed Bank.
Also, many bankers said they cleaned out a lot of their troubled loans in the past year, putting them in a better position as they head into 1994.
“Maybe it’s just a gut feeling,” said Frank Ures, chief executive at American Pacific State Bank. “But I feel very optimistic about next year. Things have got to look up.”
