Sacramento-area auto dealers assess changed industry

Local car dealerships are closing, new-vehicle sales are down, gas prices remain high and a credit crunch is squeezing both auto dealers and consumers.

Is all this an industrywide shift or a temporary, albeit painful, down cycle for the region's auto business?

"I think this is what happens in a world economy. You have shifts like this, and the thing is, we can't always adjust fast enough," said Katina Rapton, general manager of Mel Rapton Honda in Sacramento.

"I don't think big vehicles are going away forever, and I don't think unique, high-quality, high-performance cars are going away forever," said Rick Niello, president of the Sacramento-based Niello Co., which operates 13 mostly high-end foreign auto dealerships in Northern California.

Large light-truck sales are down, fuel-efficient vehicles are in demand and predictions are that more dealerships may close or consolidate as automakers shift their products.

Shift or cycle, the sorting-out process has hit some dealers hard.

In the April-June period, five local dealerships selling mainstream auto brands shut their doors. Two of those closures involved consolidation buyout offers from automakers; the other three were financial victims.

Sales go into tailspin

In 2007, when gas prices started making a serious run up to their current level, 136,054 new passenger cars and light trucks were sold in a 16-county Central Valley region extending from Plumas County south to Stanislaus County, according to R.L. Polk & Co. That's down 21 percent from sales of 172,161 in 2005.

Polk's early 2008 numbers indicate that this year could be even worse.

First-quarter sales of 26,975 vehicles in the Central Valley are down 23.2 percent compared with the first three months of 2007. Toyota, with 6,215 unit sales, was by far the regional leader (Honda was second with 3,789), but even that was down 22.7 percent compared with a year ago, Polk said.

Also affecting dealers' bottom lines are depressed sales of the most profit-generating vehicles – large sport-utility vehicles and pickup trucks.

Like Niello, dealer John Driebe, whose Elk Grove Auto Mall stores include Nissan of Elk Grove and Infiniti of Elk Grove, said it's wrong to assume that full-size SUVs will just disappear.

"If oil comes back down (in price), old habits die hard," he said. "If we have a leveling-off of gas prices, I think trucks and SUVs will do better. I think you have to understand that some people have to have them for their families or for their businesses."

Jesse Toprak, executive director of industry analysis for Santa Monica-based Edmunds.com, the widely used auto information site, agrees that big light trucks will remain on lots, but their days of dominating sales reports in Northern California and elsewhere likely are over.

"I don't think there will ever be a comeback of large SUVs. They'll probably stay around as more of a niche kind of vehicle," he said.

Small cars are opportunity

The decline of large light-truck sales has created opportunities for dealers elsewhere. Smaller, more fuel-efficient models have been selling well since statewide gas prices zipped past $4 per gallon.

Peter Welch, president and chief executive of the Sacramento-based California New Car Dealers Association, said that point was driven home in a conversation he had with a dealer about Fourth of July weekend sales.

"The dealer told me, 'We were having a great weekend until 4 o'clock on Saturday when we sold the last four-cylinder car we had,' " Welch said. " … It's all gas-driven. In general, the domestic dealers are having the hardest of times with their trucks and sport-utes.

"Others, like our Honda dealers, are very well-positioned with fuel-efficient vehicles that are selling well."

Driebe pointed out that Nissan recently announced its largest incentives ever on its pickups and SUVs, producing what Driebe called an irony: "It's like the housing market. Now is actually a good time to buy these large vehicles."

Even companies like Niello – selling primarily pricey models, including SUV brands like Land Rover – are benefiting from increased consumer interest in subcompacts. "Our Mini and Smart car are making tremendous inroads," Rick Niello said.

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