Despite dire predictions that a wave of dealership closures could decimate the local auto market, Los Angeles County appears to have swerved from catastrophe at least for now.
Countywide, it’s estimated that about a dozen dealerships have closed this year, roughly 2 percent of the 550 or so new-car dealerships here. What’s more, at least three dealerships have opened in the last few weeks.
Statewide, as many as 500 new car dealerships were predicted to close in 2009, but halfway into the year the state has tallied only 59 dealership casualties.
Although closures linked to the bankruptcy of General Motors and Chrysler could push the number to 200 by year’s end in California, closures related to slow sales will not be as bad as first feared, said Peter Welch, president of the California New Car Dealers Association, which estimates about 1,500 new-car dealerships remain statewide.
“Some of the Southern California dealers are telling me they think we have hit bottom because sales are coming back, not more than 1 to 2 percent, but at least they are starting to become more stable,” Welch said. “Even so, we do think it will be a very, very slow climb back up.”
Nationally, new-car sales in May were 13 percent higher than April (although lower than in May of last year) a trend that some local dealers have seen.
Within the last few weeks, there are other signs of life at Los Angeles County auto malls and commercial areas known for their cluster of car dealers.
Cerritos Auto Square, the most prominent auto mall in Southern California with 27 tenants, saw Volvo close its doors late last year in a consolidation. But a few weeks ago, McKenna Motors took the spot, which would have been the auto mall’s only vacancy. It opened a used-car dealership and company owner Danny McKenna also is in talks to get a new-car dealership.
Earlier this month, auto dealer Greg Bozzani opened Covina Valley Kia on Covina’s auto row on Citrus Avenue on the same lot where he sold Volvos before Ford Motor Co. bought out his Swedish car dealership in December.
On Glendale’s auto row on Brand Boulevard, two out of 15 dealerships have closed in the last year. But two others have recently sprung up, including one used-car dealership opening this month in the same location where a Chrysler dealership had closed the prior day. Subaru also has bought a lot on Brand and is working with the city to move in.
“People will still need cars, especially here as public transport can’t cover the urban sprawl yet,” said McKenna, who owns four other franchises that sell Porsches, BMWs and Volkswagens in Norwalk and Huntington Beach. “I’ve got 300 people here depending on me to encourage them to come to work and do their best. That’s the only way right now we’ll be able to steer back around.”
Bankruptcy jitters
With new-car registrations approaching 650,000 annually, Los Angeles County is the largest single market for auto sales in the United States. So when Chrysler and General Motors both announced that they were going to be cumulatively cutting their dealerships by 3,300 by December 2010, there was concern Los Angeles would be the biggest target.
However, Chrysler ended up closing four of its 12 dealerships this month in Los Angeles County and that’s out of 789 slated for closure from its 3,181 dealerships nationwide.
As for GM, Welch said 65 dealers in California have been told their franchise wouldn’t be renewed. But he declined to give a number on how many were in Los Angeles citing confidentiality issues to the group’s membership.
(GM’s list of its first round of 1,000 closures was not made public because it notified dealers before filing for bankruptcy, unlike Chrysler, which by law had to release the list since it was decided after declaring bankruptcy.)
But Edmunds.com, a Santa Monica-based automotive industry Web site, reported there has been no confirmation of any GM dealerships closing in Los Angeles. And other dealers and industry observers said if there are closures in the county, at worst the number appears to total three.
Jesse Toprak, a senior analyst with Edmunds, said the relatively few closures reflects the fact that Los Angeles is an important market for the domestic automakers given the strong competition from foreign automakers. But he cautioned that more cuts could come if either GM or Chrysler continues to lose sales.
“It would be extremely short-sighted of them to pull out too many dealers from Southern California, because the sales are the best here no matter what. And this is where automotive trends catch on first,” Toprak said. “They are very heavy in dealerships in the Midwest where they had some every few blocks, whereas in California they are leaner and competing more frequently with import brands.”
However, Fritz Hitchcock, owner of Hitchcock Automotive Services, which has five foreign car dealerships in Southern California including two Toyota franchises in Northridge and City of Industry, and one BMW/MINI car lot in Torrance, said the troubles of the domestic carmakers have hurt everyone.
“What they have done has hurt all of us because people think the entire auto industry is imploding,” he said.
Hitchcock also is not optimistic that auto sales will come strongly back anytime soon or have stabilized.
“People in California have a high cost of living, pay a lot of taxes, are highly unemployed and just can’t buy a new car right now,” said Hitchcock, who has laid off about 150 employees amid sales down 55 percent since October. “I don’t see business coming back for at least another year and a half. But I hope I’m wrong.”
