Dealers Have Lots on Hand

Times Staff Writer

California car buyers are waiting for the Terminator.

Auto sales tumbled about 25% in October from September as consumers delayed their purchases while hoping that Gov.-elect Arnold Schwarzenegger will honor his campaign promise to knock down the state's newly tripled auto registration fees.

Burt Boeckmann, owner of Galpin Ford in North Hills, the largest Ford dealership in the country, said his Ford sales fell almost 40% last month compared with a year ago. Sales at Boeckmann's dealerships, which include the Volvo, Mazda, Jaguar, Aston Martin and Lincoln brands, dipped about 33% in October.

"Customers are telling our salespeople that they don't want to buy until they're sure that the tax hike will be revoked," Boeckmann said.

Auto sales generally drop in October as consumers begin girding for the holidays. In addition, dealer inventories thin out as the new model year kicks in and deliveries slow for some popular models. But even with hefty rebates still available from automakers, the sales decline in California far outstripped the national slowdown.

For the first three weeks of October, new-car sales in the state tumbled 23% -- nearly twice the 12.4% national sales decline -- compared with the first three weeks of September, according to J.D. Power & Associates. California is the biggest auto market in the U.S., accounting for about 12% of sales, or an estimated 1.9 million passenger vehicles this year.

"We know that there's something peculiar happening here" to make sales tumble so fast, said Jesse Toprak, market analysis director at automotive information provider in Santa Monica. "From our talks with dealers and with feedback from users of our site, we know it is the car tax."

On Oct. 1, Department of Motor Vehicles registration fees were increased to 2% of a vehicle's purchase price, up from 0.65%. The fee increase was part of efforts by Gov. Gray Davis and the Legislature to help plug the state's yawning budget deficit. As a result, the registration fee for a $20,000 car jumped from $130 to $400.

During his gubernatorial campaign Schwarzenegger won votes -- and more than $800,000 in car dealer contributions -- with his promise to repeal the car tax increase.

Some pundits are questioning whether Schwarzenegger will keep his pledge in light of the huge costs state and local agencies have incurred fighting the wildfires that have charred huge portions of Southern California.

But Schwarzenegger spokesman H.D. Palmer said, "It is the governor-elect's intention that one of the first acts of his administration will be to repeal the tripling of the car tax, and to make the repeal retroactive."

Although auto dealers acknowledge that the sales slump is temporary, they worry that business won't pick up until mid-November, when Schwarzenegger is sworn in and can act on the tax.

"For the auto retailing industry, it has been a disaster," said Fritz Hitchcock, chairman of Hitchcock Automotive Resources Inc., which operates six dealerships in Southern California.

Hitchcock, whose dealerships include Ford, Toyota, VW, BMW and Hyundai brands, said that his sales were off about 30% and that the unsold cars on his lots were running up thousands of dollars a month in interest charges. Car dealers usually finance their inventories with loans from automakers, and monthly interest can run as much as $200 a car. As that interest builds, it cuts the dealer's ultimate profit.

To try to spur sales, General Motors Corp. recently took out full-page ads in California newspapers offering $250 to $750 "car tax" rebates, on top of already skyrocketing rebates. For example, a new 2003 GMC Envoy XL sport utility vehicle -- which dealers want to clear from their lots because 2004 models are out -- has a $5,000 discount from its base sticker price of $33,000, plus $375 in registration fee rebates.

Nevertheless, GM's October sales in California fell about 25%, said Mike Jackson, the automaker's Agoura Hills-based general manager for the Western region.

Ford Motor Co. is also offering "bonus cash" that buyers can use to offset registration fees. But Ford dealers are reporting sales declines of 30% and more because of reluctant shoppers such as Russell Ollie.

"I just don't feel any sense of urgency now" to buy, said Ollie, 35, a management specialist at Toshiba America Inc. in Irvine.

Ollie tried "frantically" to sell his 1999 Volvo in September so he could buy a new car before the tax increase took effect, but wasn't able to. Now, Ollie is still "looking at cars and narrowing down my choices," but he won't buy until he knows the fate of the fee increase.

The higher fee would boost the cost of the BMW M3 or Volvo SR60 sports coupes he is considering by about $700. "So it makes sense to wait," Ollie said.

As customers keep waiting, even high-end dealers who normally never sully their images with rebates and incentives are jumping on the bandwagon.

"We'll pay your DMV increase," read a recent lease ad for Fletcher Jones Motor Cars Inc. in Newport Beach, the nation's top Mercedes-Benz dealer.

"I haven't had anyone coming in specifically because of the ad, but it's probably had some beneficial impact," General Manager Garth Blumenthal said. Although sales in October were not bad, he said, it marked the first month this year that his dealership's sales had not topped the year-ago figure.

Apparently, even Mercedes-Benz's high-income customers aren't immune to the tax hike blues.

"We'll be down about 25% statewide" in sales for October, Mercedes-Benz regional spokesman Geno Effler said.

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