Economic recession and auto malls strangle independently owned automobile dealerships.

Economic recession and auto malls strangle independently owned automobile dealerships

Facing a cluttered marketplace, increased competition from auto malls, high prices for real estate and a general slump in the economy, conventional auto dealerships in Los Angeles County are struggling to stay in business.

"Business has been real slow now," said Albert Gersh, finance manager at Johnny Lail's Glendale Toyota on Brand Boulevard. There are about 20 dealers on that street and "they're doing poorly," added John Harris, general sales manager at Vermont Chevrolet Geo in Los Angeles.

Glendale car dealers aren't the only ones feeling the pinch. Two Chevrolet dealers in West Los Angeles have gone out of business within the past year, and Pete Ellis, "King of Southgate," recently closed his last dealership.

Car dealers come and go, and the latter part of that pattern becomes more pronounced in auto industry bad times. For instance, Nissan reported a 25.5 percent drop in car sales during the first five months of 1991 compared to the same period in 1990 for Southern California, and Chrysler cited a 24 percent decline.

"There are just many more competitors," said Peter Welch, director of government and legal affairs for the California Car Dealers Association, citing that as a main reason dealers in Los Angeles County and across the nation are struggling to stay in the business.

He pointed at the increased number of luxury car styles as an example of heating competition. Not that long ago, the luxury car market was split between top-of-the-line Mercedes Benzes, Jaguars and Rolls Royces and the American luxury cars such as Cadillac, Lincoln, Mercury and Chrysler, Welch said.

"Even five years ago you didn't have as many luxury cars to pick from," he said.

But now Japanese automakers have a number of luxury models to choose from, such as Lexus and Acura, and there are even more BMW models in the running, Welch said, adding that there has been a similar increase in models in all automobile categories.

"It's a consumer driven market. The customers are in the driver's seat," said Bob Fitzharris, a consultant for Agoura Hills-based J.D. Power & Associates, an automotive market research firm.

Aside from the growing profusion of car models that splinter the market, independent dealers are also faced with competition from auto malls, such as Cerritos Auto Square, which is a 65 acre lot with 22 car franchises. It is the world's most successful auto mall, according to Fitzharris, who also noted there are seven other auto malls just within Los Angeles County.

Some Southern California community groups, such as redevelopment agencies, are competing fiercely to bring auto malls to their locales because of the sales tax revenue such malls generate, Welch said.

"We can't compete with a big area like Cerritos Auto Square," Glendale Toyota's Gersh said. Customers hit a mall so they won't have to drive around town from dealer to dealer. Instead, they can park their car once and walk around the auto mall to get a wide sampling of what's available, he added.

The high cost of real estate in Los Angeles is another factor affecting local car dealers. Dealers can no longer afford to build several separate dealerships because of the price of property, but would opt to open a single large dealership with several different franchises instead, Welch said.

And all these factors are playing out against a background of recession, with car sales - a cyclical business typically paralleling the economy - wallowing at the bottom of a down cycle, he said.

PHOTO : Daniel Chevrolet: Its Marina del Rey dealership had to close its doors