Industry Watcher Keeps an Eye on Valley’s Road
There are about 100 auto dealerships in the San Fernando and neighboring valleys, and one person who has followed the network’s many twists and turns over the years is Chris Denove, director of automotive retail/distribution for J. D. Power & Associates.
As a 14-year veteran of the Agoura Hills-based automotive consultancy, Denove watched the Valley’s network of auto dealerships thrive in the late 1980s, then fall on hard times as a recession and the Northridge earthquake hit the region in the 1990s.
The industry has bounced back somewhat since then, but now outside forces--most notably a growing number of auto malls in adjacent markets--are exerting pressure on Valley dealers. The Internet could also take its toll on the network in the years ahead, although the impact in that arena remains to be seen.
Within the Valley, by far the largest concentration of new auto retailers is in Van Nuys, which is home to 18 dealerships, according to Denove, who tracks dealers through a national database maintained by J. D. Power. The Woodland Hills/Canoga Park area comes in second with 13 dealers, followed by eight in North Hollywood. The rest of the dealerships are scattered throughout the Valley.
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Question: How has the landscape of Valley dealerships evolved in recent years?
Denove: The Valley presents an interesting market. From the perspective of the dealer, it has been a great area to be in because its population base is growing. However, over the last 10 years or so, the San Fernando Valley has suffered as many of its more affluent residents move westward to the Conejo Valley or north to the Santa Clarita Valley. Each being newer communities, those outlying areas have built modern, planned auto mall communities, whereas the Valley dealerships have, for the most part, been left with older dealership facilities which are, at best, loosely structured along a street as opposed to a pre-planned auto mall.
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Q: What impact has that had on Valley dealerships?
Denove: We’ve seen a number of dealers go out of business in the San Fernando Valley over the last 10 to 15 years. So, the weaker players have gone out of business. The stronger ones, however, bit the bullet and either purchased additional land or remodeled their older facilities.
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Q: Will the remaining players be able to compete with the auto malls in the long run?
Denove: They’ll certainly be able to compete, but there will be less players competing. There is definitely more room for weeding out. You have two types of consolidation going on in the San Fernando Valley. The first is weaker dealerships going out of business and not having that dealer point be replaced. The manufacturer simply says, “It’s good that that dealership is gone. We’d rather have one strong dealer in an area than three weak dealers.” The second type of consolidation is one strong dealer purchasing its neighboring weaker dealers.
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Q: Can you give an example of that in the Valley?
Denove: An example of that would be in Woodland Hills, where Vista Ford sat right next door to Woodland Hills Lincoln Mercury. Vista Ford was very successful. Woodland Hills Lincoln Mercury traditionally struggled, and the owners of Vista Ford purchased the Lincoln Mercury store. Think about the advantages this gives Vista Ford. It started out as just a Ford dealership. It then took on Isuzu. When Lexus entered the market in 1990, it took on the Lexus franchise. Its next step is to purchase the Lincoln Mercury dealership next door. Now it has not only more franchises to sell, but much more space as well, and it approaches something of a mini-auto mall in and of itself.
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Q: How will the dealership situation in the Valley pan out in the long run?
Denove: What you will likely ultimately see in the San Fernando Valley will be further consolidation where marginally profitable dealers will either go away entirely or be absorbed by their stronger neighbors. This will result in a situation where the vast majority of the San Fernando Valley auto market is controlled by only a handful of very powerful dealers.
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Q: Who are some of the Valley’s most successful dealers right now?
Denove: There’s no question that we have some of the most successful dealerships in the nation located in and around the San Fernando Valley. One example would be Galpin Ford, which is consistently at or near the top of the largest Ford dealers in the nation. If we move a little bit north of the San Fernando Valley into the Canyon Country area, Magic Ford used to be one of the largest Ford dealers in the nation. And, although the size has come down somewhat, they’re still a formidable player. Although I don’t mean to keep bringing up Ford, Vista Ford is another significant dealer.
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Q: Why do those dealers seem to be so successful?
Denove: It’s logical to attribute those differences to the strength of the dealers. The successful Ford dealerships in the Valley are run by very strong entrepreneurial owners who are well respected in the industry and have had a long-term commitment to advertising their stores and building a loyal customer base.
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Q: The Internet is just starting to play a role in car sales. How do you think it will affect the Valley in the long run?
Denove: Car buyers in the San Fernando Valley tend to be more Internet savvy than those across the nation at large. So I would expect that you will see increased Internet marketing activities in the Valley. This is especially true because the competition in the Valley is so intense, and the Internet is an effective means for one dealer to reach into another dealer’s market area to capture customers.
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Q: Will that further add pressure on the Valley’s existing dealer network?
Denove: Yes. The Internet in general puts downward pressure on prices, and that puts added pressure on marginal dealers, which will likely hasten their elimination through consolidation or extinction.
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WEB LINKS
Car shopping in cyberspace
www.edmunds.com: Edmunds.com. Prices, reviews and articles, including road tests, on new cars, sports utility vehicles and trucks.
www.car-stuff.com: Extensive list of car-related sites--sales, clubs, repairs, shows and museums.
www.classicautonetwork.com: Classic car auction site.
www.autoseeker.com: Help finding a new or used car dealer in Southern California
www.carsdirect.com: Online car-buying site founded by Bill Gross, Internet incubator king.
Sites subject to change.
