The busiest auto dealerships in L.A. County saw sales of new vehicles tick up a collective 1 percent last year, outperforming the overall local market and national totals based on number of vehicles sold.
The 50 dealers on this week’s Business Journal list combined to sell 155,000 vehicles in 2017. Nearly half – 21 – showed an increase in unit volume last year while 26 saw drops. Two remained flat, and there were no figures for comparison for one of the entries, No. 18 South Bay Toyota in Gardena, which was new to the list.
The biggest dealerships’ slight cumulative gain outpaced the overall Los Angeles County market, which saw new vehicle sales dip 4.7 percent to 512,000, according to data based on registrations.
Sales of new vehicles slipped 1.8 percent national last year to about 17.3 million, according to industry tracker Autodata.
“For the most part, the Los Angeles new car market outperforms the rest of the nation,” said Bob Smith, executive director at the Greater Los Angeles New Car Dealers Association, which represents factory-franchised dealers, and is the source for the county’s dealership sales activity figure. “The top selling county leaders in terms of make were Honda, Toyota, Lexus, Audi, BMW and Mercedes.”
According to the association, dealerships in the county sold an overall 512,000 new vehicles in 2017.
New car sales revenue for the list’s top 50 dealers here grew more than 2 percent to an estimated $7.9 billion from 2016. The totals did not reflect No. 1 ranked Longo Toyota in El Monte, which declined to disclose revenue both years.
Longo Toyota retained the top spot with sales of 15,300 new vehicles in 2017, a 2 percent increase compared to the year before. It did not report revenue figures for either year.
“A lot of people want to see some pixie dust answer, but our success is really quite simple,” said Brendan Harrington, Longo Toyota’s president. “We plan long term, and have kept executing the same plan.”
The company’s 900 employees include speakers of more than 40 languages, Harrington said.
“Part of what has made us successful for years is we truly understand and deliver to our customer base, and that includes having staff that reflects the cultural demographic of L.A.”
He said staff longevity is also a key attraction for its customers, adding that the company has less than 10 percent employee turnover rate.
Those are significant factors that help contribute to revenue, Harrington said, and attributes up to 88 percent of sales revenue at the dealership to referrals and repeat customers.
Longo also has the largest inventory of cars – an average of 2,000 vehicles at any given time – compared to other local dealerships.
“Our competitors, the larger ones, might have around 1,000 vehicles and the smaller dealers average around 300 to 400 vehicles,” he said.
While L.A. County’s high demand for vehicles makes it an ideal market for auto dealerships despite the increasing popularity of ride-sharing outfits such as Uber Technologies Inc. and Lyft Inc., and greater public transportation, the Trump administration’s threat to implement auto tariffs has some auto dealers and experts worried.
Uncertainty around those possible tariffs, Smith said, coupled with rising interest rates contributed to 4.2 percent drop in new car sales in L.A. County during the first half of 2018, compared to the same period last year, according to recent data from Auto Outlook Inc. published by the new car dealers association. The report also cites tariffs and rising interest rates will materialize as concerns going forward, along with inflationary pressures.
“With the tariffs, we’re not alarmed just yet, but we are keeping a close eye on the situation,” he said.
President Donald Trump in May asked federal officials to look at global auto imports for potential trade penalties, including higher tariffs, making global carmakers and leaders nervous. The administration has already levied tariffs on aluminum and steel import products and said that an update on auto and auto part tariffs would come out later this month.
“Besides looming large for manufacturers and retailers, tariffs are directly going to affect consumers,” said Lewis Fisher, partner at Seattle-based Moss Adams, a market research firm, and expert on the automotive and dealer sector.
The added cost per vehicle due to tariffs would average $2,000, Fisher said.
“For the customer that’s looking to buy a $20,000 car, that’s a huge deal, and it may be the consideration that results in the lack of sale.”
Other concerns for consumers are the rising interest rates.
The interest rate for average five-year new car loans has risen 4.34 percent to 4.83 percent since the Feds first started boosting rates in 2015. For dealerships, that means coming up with new ways to finance sales, Fisher said.
Another issue facing dealerships is growing tensions between them and certain manufacturers that have launched vehicle subscription services. The short-term vehicle rental service appears to circumvent franchise laws that often prohibit vehicle makers from selling their vehicles directly to consumers in the same territories as franchise dealerships.
Some car manufacturers that offer the service include Cadillac Products Auto Co. and Volvo Car Corp. Cadillac’s subscription model called Book by Cadillac, for example, lets members sign up and pay a fee to use a car in Los Angeles, Dallas and New York where it offers the service.
“You pay $1,800 a month, you’re able to put up to 2,000 miles on a vehicle and you’re able to go through 18 vehicles in a span of 12 months,” Fisher said.
The program can be a challenge for dealerships in markets where these subscriptions exist, Fisher said.
“It cuts into the dealership’s market share,” he said. “They take on a lot of risks including investing in land, property, inventory along with manufacturer’s franchise terms.”
Despite the hurdles, Fisher said Los Angeles is still the nation’s best vehicle market.
“It just doesn’t get any better than L.A.,” he said.