The business of selling cars in Orange County is going through a massive upheaval.
The number of auto dealers here and what they sell stand to look drastically different by next year as the fate of U.S. automakers becomes clearer amid dealer closures,either at the prompting of automakers or at the hands of the economy.
This year, 24 local dealerships are projected to disappear, or about 20% of the county’s 122 dealers. In 2008, 15 dealers closed here. Four have closed or combined so far this year.
Casualties include Saturn of Anaheim, Planet Acura of Buena Park and Costa Mesa Hyundai.
Last week, Chrysler LLC let 789 dealers nationwide know that they are pegged for closure by the automaker. Only one active dealership on Chrysler’s list is in OC: Union Chrysler Jeep Dodge in Garden Grove.
Urban Chrysler Jeep Dodge in Foothill Ranch also made the list but already is closed.
Orange Coast Chrysler Jeep Dodge in Costa Mesa expects to be among the survivors, according to general manager Jon Gray.
Last year, it combined its three separate Chrysler brands, in two locations, under one roof.
“You have to have all three under one roof to be viable,” Gray said. “You’re not going to accidentally wing it and get through this.”
General Motors Corp. also plans to announce a list of dealerships stated for closure, which could include some in OC.
The county’s dealerships now employ about 13,000 people, according to the Orange County Automobile Dealers Association in Costa Mesa.
Annual yearly sales are estimated at $8
billion.
On the other side of recession, there’s at least one potential rainbow,fewer dealers could mean better sales and profits for dealerships still standing.
Orange Coast Chrysler Jeep Dodge’s Gray said he hopes to be selling more stylish cars from Italy’s Fiat SPA, which is set to own up to 35% of Chrysler after its reorganization, in two years.
“Fiat has very cool stuff,” he said. “Even their Web site is cooler.”
Among U.S. automakers, Ford dealers could be the winners. Ford hasn’t received any federal money and is in a relatively stronger position than GM and Chrysler are.
The county has several Ford dealers including Villa Ford of Orange and Sunset Ford of Westminster.
The White House’s heavy hand in restructuring GM and Chrysler is a contentious issue among some dealers, who say the federal government is rewarding failure and creating unfair competition.
The struggles of the domestic automakers could end up further strengthening local dealers that sell imported brands, such as South Korea’s Hyundai and Kia, Japan’s Toyota and Honda and Germany’s BMW and Mercedes-Benz.
Many of those brands and dealers are seeing steep declines in sales, too. But their plights aren’t nearly as dire as those of the Detroit automakers.
Japanese brands held about half of auto sales here in the first quarter, followed by domestic models, which made up about 22% of the market, according to the Orange County Auto-mobile Dealers Association.
European brands made up 22% of sales. South Korean brands were 5% and have picked up market share with flat sales or de-clines that haven’t been as steep as others.
The top sellers by revenue in the county are Mercedes, BMW and Lexus dealers, whose luxury vehicles can go for twice as much or more than those of other dealers.
That’s not likely to change. The county has some of the top luxury dealers in the nation, including Fletcher Jones Motorcars of New-port Beach and Crevier BMW of Santa Ana.
Polarized Market
The luxury dealers have done OK in the downturn, with some turning to more used auto sales or stepped up marketing to sustain their businesses.
That’s led to a polarization in the market, with the high and low ends faring better than domestic and Japanese brands that dominate sales.
In the first quarter, luxury European brands were up 3%. More affordable South Korean brands rose 2%.
Hyundai and Kia, with their U.S. headquarters in the county, are perfectly suited to this kind of market, according to Jack Nerad, executive market analyst for Kelley Blue Book Co., a market industry tracker in Irvine.
The Japanese brands, whose declining sales have more to do with the down economy than the viability issues facing U.S. automakers, could emerge with even more business a year from now, said David Wilson, owner of David Wilson Automotive Group in Orange.
Wilson’s company runs Toyota of Orange, the county’s largest Toyota seller. He runs 16 dealerships in all, selling Toyota, Lexus, Ford and others.
For now, dealers are looking for a bottom.
In March, local auto registrations, a barometer of sales, fell 34% from a year earlier to 7,957 autos, according to the dealer association. That was better than February’s 46% drop.
The number of sales here in March is about half what it was in early 2006.
Within a few years, sales here are expected to return to the 180,000 to 197,000 annual level, versus 130,000 in 2008.
“There’s going to be pent-up demand for something,” said Al Parajeckas, general manager of Crevier BMW in Santa Ana.
A “cash for guzzlers” bill in the works in Washington, D.C., could help spur demand, said John Sackrison, executive director of
the Orange County Automobile Dealers Association.
The bill would offer up to $4,500 to customers who trade in a car that gets 18 miles per gallon for a car that gets at least 22 miles per gallon.
But the small car trend spurred by 2008’s high gas prices seems to be letting up with
the lower fuel prices of today. Sales of small cars and hybrids recently have suffered, while sport utility vehicles and pickups are im-
proving, according to Kelley Blue Book’s Nerad.
“I don’t think the market has shown a strong desire for small cars,” he said.
Some smaller vehicles, such as the Kia Soul on the low end and the Mini Cooper on the high end, could continue to thrive because of good design, he said.
“Design is going to be more important than ever,” Nerad said.
Crevier BMW, which sells the most Minis in the nation, sold 821 of them in 2007 and 954 in 2008.
Emerging Leaner
Dealers that survive stand to be leaner. Many have learned they can do more with fewer workers.
One of the largest dealer groups, Penske Automotive Group Inc., based in Bloomfield Hills, Mich., could change the dealer model altogether. Penske is mulling over buying GM’s Saturn brand, according to Nerad. It then would commission those cars to be built somewhere else.
No one expects the days of easy financing to return any time soon, though financing is likely to loosen up from where it is now.
Some could do less leasing.
Mercedes-Benz, for one, is changing its leasing mix from 70% to 60%, said Garth Blumenthal, general manager for Fletcher Jones Motorcars, the county’s largest dealership.
