National Auto Dealership Looks to Get Hold on L.A.
By DAVID GREENBERG
Sonic Automotive Inc.’s deal to buy Avalon Ford Inc.’s four Don Kott dealerships last month is the latest move in an aggressive campaign by the Charlotte, N.C.-based company to further establish a presence in the nation’s capital of cars.
Sonic, which first bought its way into the Southern California market two years ago, has now purchased or agreed to buy eight L.A.-area dealerships in the last two months.
And they’re not done. The company, which now has 156 dealerships in its portfolio, is looking to hit 170 by the end of the year. It is in negotiations to purchase two additional L.A. dealerships at undisclosed locations in deals that are expected to close by next spring.
“We realize the next three quarters are going to be challenging,” said Craig Boyajian, Sonic’s regional vice president overseeing 23 dealerships in Southern California and Nevada. “But we’re a long-term player in the automotive industry. We look at these times as a great opportunity to grow our presence when others may be fearful. L.A. is a good car market and always has been. The sheer density of population gives you a lot of opportunity for car sales.”
Its 12 L.A. dealerships generate $450 million in annual sales.
Nationally, Sonic generated $6.2 billion from the sales of 289,578 new, used and wholesale vehicles, as well as parts and services in 2000, up from $3.4 billion on sales of 166,473 vehicles and other revenue-generating operations in 1999.
The company, which last summer placed 15th on Fortune’s list of 100 fastest growing companies, projected that revenues in 2001 would be flat compared to the year earlier.
While Sonic officials said they would continue scouting the region for more acquisitions, the company has no set quotas.
“We’re looking at all opportunities,” said Boyajian. “We just want to be in the position if a great opportunity presents itself. I wouldn’t say we have a company edict on what we want to own (locally) in the next 12 months. But there will definitely be others.”
Sonic also owns 29 auto body repair shops, including one in the region part of the Coast Cadillac dealership.
“Their creditors are comfortable with their growth strategy over the past few years despite the economic weakness,” said Martin King, a credit analyst with Standard & Poor’s Corp. “What creditors care about is the predictability and stability of cash flow generation. (Sonic) is one of the leaders in the industry so they are able to benefit from their size and scale. They have a very diverse geographic footprint and their brand diversity is very good. They aren’t aligned to any particular trend.”
The regional office, which is about to move from Las Vegas to Carson, has a staff of five business managers who install Sonic’s business model into its newly acquired dealerships.
“We have our infrastructure in place where we can leverage our management and realize certain synergies and economies of scale as we build out our market share,” said Scott Smith, Sonic’s president and chief executive. “In most cases, we will go with the (existing) management in place. What we’ll do is help them to grow by bringing them into the company for training and development to ensure accountability.”
Competitors don’t seem to be too concerned with Sonic’s plans.
“I think there’s enough room for everybody,” said Fritz Hitchcock, chairman and chief executive of City of Industry-based Hitchcock Automotive Resources, which owns six dealerships, including five in L.A. County. “We all have to compete and the average dealer feels he or she can compete.”
Sonic entered the market in December 1999 with the purchase of San Francisco-based First America Automotive Inc.
It picked up Beverly Hills BMW, Honda of Santa Monica, Volvo of Santa Monica and South Bay Chrysler-Plymouth-Jeep in Torrance in that deal
Since then, the company has been aggressively expanding throughout the region. In the last two months, the firm purchased four dealerships from Lakewood-based M.F. Salt Co. Inc.: Harbor City Honda in Wilmington; Coast Cadillac in Long Beach; West Covina Toyota; and Buena Park Honda.
Late last month, it reached the agreement Avalon Ford Inc. for its Don Kott Auto Center dealerships in Carson, where Chrysler, Ford, Lincoln Mercury, Jeep, Mazda, Isuzu and Kia franchises exist under a giant automobile complex.