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Life Difficult for California Dealers, Reports CNW

October 21, 2008

Arizona, Nevada, New Mexico and Idaho are all suffering because of national housing and credit issues, but California is by far in the worst shape, reported CNW Research.

Those other states have become destinations for both small businesses, disgruntled California residents and retirees, which means those states could rebound more quickly. Their prospects of permanently stealing California’s once mighty automotive thunder are also extremely good.

For automakers, heavy reliance on California as a high-volume sales state is ending. Delinquency rates are up 28 percent, while repossessions have climbed nearly 15 percent vs. 2007.

Dealerships are also suffering from monthly retail sales declines near 40 percent in September and October. Sales also experienced a year-to-date decline of 30 percent through October. As a share of total U.S. sales, California is running around 12 percent this year vs. an historic 16 to 19 percent.

"This translates into a loss of more than half a million units," wrote CNW in its October newsletter. "Overall, California has lost more than 13 percent of all franchises — from McDonalds to car dealerships — in the past few years. The net result is profits are scarce and the land under the business is often worth more than the business. The decision many stores owners are considering is if remaining a dealer is worth the effort.

"Add manufacturer-encouraged consolidation of dealerships, and an increasing number of retail automotive dealership owners are leaning toward relinquishing their franchises, selling the property and leaving the state entirely."

With nearly 20 percent of California sales tax revenue coming from automobile sales, these serious declines in numbers over the past two years contributed to the state's budget shortfalls. And with less revenue and higher expenses, the pressure to raise taxes is mounting, which is likely to result in a continuation of the automotive problems well into the future.

"High taxes, better returns for franchised businesses in neighboring states and a shifting demographic that includes more immigrants have combined to smother the franchise business in the state," wrote CNW. "For retail chains, buying dealerships in New Mexico and Idaho in the West while sloughing off points in California will make good business sense. A similar picture can be painted for Florida, but clearly not as severe."

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