With automobile sales up more than 20 percent in some categories, car dealers are scrambling for more space, but they’re hitting a dead end. A scarcity of large tracts of available land in the San Fernando Valley, coupled with high prices for the few parcels that are available and community opposition to auto dealerships, is stymieing growth opportunities for a number of dealers. “The biggest problem we’ve found is the locations that are suitable are very few, and they have been priced out of the range of where it would be practical for dealerships,” said Cesar De La Cruz, a broker with Westcord Commercial Real Estate Services who has handled land searches for a number of car dealers. “Two (new-car dealers) that I know of have given up. They just went to a different city.” In the past few months, car dealers have been confronted with still more roadblocks. The Los Angeles City Council is seeking to seize land in Mission Hills that had been acquired by DaimlerChrysler for a new dealership. The city wants to build a new police station there instead. And the Los Angeles Unified School District has its eye on a Van Nuys site that Galpin Ford acquired for additional storage facilities. While large tracts of available land have been in short supply throughout the Valley for some time, that shortage is only now becoming a dilemma for car dealers. Although specific auto sales figures are not available for Los Angeles, car sales across the state through July are up more than 11 percent compared to the same period in 1999. For Asian makes and models, the increase is more than 20 percent and, for European brands, 23 percent, according to J.D. Power & Associates. That compares with a 3 percent increase for the same period in 1998. At the same time, margins are at an all-time low. “As volume becomes important, your margin will go down and, if it’s a desirable vehicle that we can sell a lot of, we will lower the price (even more),” said Jim Lynch, president of Rydell Automotive Group. Lynch entered the California market in partnership with General Motors Corp. in 1998 by taking over existing GM dealerships in Northridge and Van Nuys, and he is about to redevelop a new dealership along two blocks in the city of San Fernando. But GM already owned much of that land and, without that edge, Lynch says it’s unlikely he would have found enough room to grow. “It’s taken us a couple of years to recover from cardiac arrest, given the land prices,” Lynch quipped. “Buying a piece of land is a difficult challenge, difficult in terms of getting a piece big enough that’s contiguous on the one hand, and being able to justify the fixed overhead that the land entails.” Steep land costs A contiguous block of land large enough to support a dealership, between two and five acres, can run anywhere from $15 to as much as $50 a square foot, depending on the location. Even if a dealer can secure the land, he or she is likely to run into obstacles getting government approval for a shop. Showrooms almost always include service centers that pose environmental and noise problems that may make it difficult to secure the required permits. “They don’t like car dealers,” said Jack Ribis, owner and operator of Autoworld-Kia in Northridge and dealerships in Canoga Park, referring to the cities and community groups he’s encountered in L.A. “We contaminate the ground. We put up big balloons to draw people’s attention. We’re not liked, so they make it difficult.” When Ribis opened his Kia dealership about three and a half years ago, he saw first-hand the difficulties. “Before I opened Kia, I looked all over the place,” he said. “I had to take a restaurant and convert it and go through the hassles with the city that you wouldn’t believe to get it and make it happen.” So earlier this year, when a Suzuki dealership became available in Canoga Park, Ribis jumped at the chance to take it over. Then he really got lucky. The day he was to sign the lease for the Roscoe Boulevard store, he learned that a Ford dealership on the same block was about to move out, and the landlord for that property made him an offer. All told, Ribis was able to lease five acres, and four months ago he opened a Daewoo dealership next to the Suzuki lot. Shifting Landscape Shifting Landscape “You need to keep your ear to the ground,” said Joe Lopez, a broker at Westcord. “In general, they’re very scarce, although not impossible to find because the market fluctuates. What’s a Honda (dealership) today could be a Hyundai dealership tomorrow.” Auto Stiegler, a Mercedes Benz store in Encino, is another dealer that got lucky. Several years ago, aware that the manufacturer was going to roll out an improved program of factory-certified used cars, John Stiegler Jr. began negotiating for 30,000 square feet next door to the dealership. The dealer’s existing used-car lot was across the street from the main store, with poor visibility from Ventura Boulevard; customers had to dodge traffic to get from the showroom to the lot. Stiegler wanted a lot that reflected the tonier image of the new Mercedes Starmark program. “I had a long-term relationship with the owner (of the parcel),” Stiegler said. “I called him up and mentioned my interest in the property. It took about a year to put (the deal) together.” Steigler’s annex is set to open Oct. 15. Other dealers have tried instead to find ways to increase the use of their existing facilities. “Where we see a push is in facilities upgrades,” said Linda Hirneise, a partner with J.D. Power. “A lot of (manufacturers) are working with retailers to bring the facility up to a designated standard.” Along Van Nuys Boulevard, the closest thing the Valley has to an auto mall, several dealers have gone to two-story facilities in order to expand their showroom space. Many dealers are also extending their service hours, going to six-day weeks and shifts that run to midnight to accommodate the additional traffic. Many say a round-the-clock operation may be just around the corner. “The reality in L.A. is there ain’t no space,” said Lynch, “and you better figure out how to manage your space pretty darn good.”
DEALERS—The retail car business is good, and that can be bad news for dealers looking to expand their franchises
