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Originally published April 26, 2009 at 12:00 AM | Page modified April 26, 2009 at 12:05 AM

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Dealerships restructure under pressure from economy, automakers

Seattle-area new-car dealers are getting scarcer, in part because of slow sales, in part because of changing automaker policies.

Seattle Times business reporter

At the entrance to Burien on Highway 518, BBC Dodge's former showroom and car lot stand vacant, plastered with for-sale signs.

The 50-year-old dealership shut down late last year. Now the owner is pitching the property to prospective buyers not as a car lot, but as a redevelopment opportunity.

Less than a mile away on First Avenue South is another sea of empty asphalt. Burien Nissan's cars were trucked away last month by the manufacturer, after its lending arm cut off the dealership's inventory financing. A senior manager says the owner is searching for another lender.

At the remaining four dealerships that still sell new vehicles in Burien, the number of new and used cars and trucks sold in March was down 40 percent from the same month last year, according to Cross-Sell, a firm that collects and sells auto-sales data.

Burien Toyota saw the smallest decline of the four, but sales manager John Chong acknowledges the recession still is taking a toll. "We're not having a really great year like we used to," he said.

Burien is a microcosm of what's happening to car dealers all over the Seattle area, and the nation.

The dealership network is contracting and restructuring — not only because of plummeting sales, but because of new policies adopted by some automakers hoping to turn their own businesses around.

Sales by Washington new- and used-car dealers totaled $1.6 billion in the last three months of 2008, according to the state Department of Revenue — down 31 percent from the same quarter in 2007.

The situation hasn't improved since then. In March, according to Cross-Sell, King County and South Snohomish County dealers sold 45 percent fewer new cars and trucks than in March 2008.

An already-bad market got worse when gas topped $4 a gallon last summer, said Jack Carroll, who owns dealerships in North Seattle and Lynnwood. "I'm 65 years old," he said, "and I've never seen anything like this."

State and local governments are feeling the dealers' pain. Cars are big-ticket items that generate lots of tax revenue — in good times.

In Burien, sales taxes provide more than one-third of the city's general fund. Auto and auto-parts sales account for more than one-quarter of that.

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Last year Burien's sales-tax revenue from that source fell 20 percent. In December alone, the year-over-drop was 34 percent.

No one expects good times to return soon. "Dealers are steeling themselves for a long recovery," said Bryan Imai, senior general counsel for the Washington State Auto Dealers Association, which represents new-car dealers.

They're already going through wrenching changes. Some dealerships, like BBC Dodge, have shut down completely. Some have merged with other dealers, leaving fewer storefronts. Some longtime new-car dealers now sell only used vehicles.

A push to consolidate

The auto-dealer association says its statewide membership has dropped to 321 dealerships, down from 343 in January 2008.

That's partly because U.S. automakers have been pushing for a couple years to reduce the number of dealers who sell their cars, on the theory that fewer dealers selling more brands under one roof will boost sales.

Protective state auto-franchise laws have helped dealers resist consolidation, said Mark Johnson of M.D. Johnson Inc., an Enumclaw-based auto-dealer merger and acquisition firm. But now, he said, poor sales are forcing their hand:

"The factory is allowing the economy to do their dirty work."

Carroll sold his Lynnwood Dodge franchise to Town & Country Chrysler Jeep of North Seattle last year — after that dealership rebuffed his efforts to acquire it, he said.

Consolidation means less competition among dealers and more choices in one place for prospective buyers, Carroll said.

"From a business standpoint it needs to happen," he said. When auto sales bounce back, "it'll be a robust industry for those of us that are still here."

Johnson, however, questions whether having fewer dealers will help domestic automakers recover. "It's not about dealers," he said. "It's about product."

Carroll now sells only used cars at his Lynnwood store. Six miles south, on Seattle's Aurora Avenue North, Westlund Auto Center also no longer sells new cars. Last month it dropped the Buick, Pontiac and GMC franchises it had held for decades — the Buick brand since 1955.

Owner Mark Westlund said he figured General Motors would file for bankruptcy protection by now — he still thinks it's likely — "and I didn't want a bunch of inventory sitting on my lot."

Despite GM's denials, there is widespread speculation that the Buick, GMC and Pontiac brands are less likely to survive a restructuring than the more popular Chevrolet and Cadillac.

"The end of the road"

Other dealers are falling victim to tighter credit. Many rely on automakers' lending arms for financing to purchase inventory, paying back the debt after the cars are sold.

But some lenders now are imposing tighter terms, or enforcing provisions they once let slide. In a letter to President Obama last month, the National Automobile Dealers Association called the wholesale credit problem "the single greatest threat in the short term to dealership viability."

Rainier Automotive Group, which owns Burien Nissan, Auburn Nissan and Hyundai and Subaru dealerships in Kirkland, lost its inventory financing from Nissan Motor Acceptance Corp. last month. It also lost its inventory.

"We had all our eggs in one basket with them," said Randy Morrison, a longtime Rainier manager. "We're basically out of business for now as far as selling cars goes."

Thirty-five or 40 sales people have been laid off, he said.

Nissan spokesman Fred Standish said the automaker tried to work out something with Rainier. "They were just in some pretty serious debt to us," he said. "Sometimes you just come to the end of the road."

BBC Dodge is definitely at the end of its road. It gave up its Dodge franchise last September. The dealership sold used cars for a few more months before shutting down altogether. The service equipment, tools, desks and chairs were auctioned off in January.

Frank Sandin, one of the owners, said slow sales hastened the store's demise. But it would have made money even last year, he said, if not for the state business-and-occupation tax, which is paid on gross receipts rather than net profits.

That tax pushed the store several hundred thousand dollars into the red, Sandin said. "The state of Washington basically put us out of business."

State Sen. Karen Keiser, who represents Burien, pushed a bill through the Legislature this session that is a reflection of many auto dealers' troubled condition. It requires manufacturers to pay dealers for unsold new cars when franchises are terminated — regardless of who initiated the termination.

The bill was designed to help businesses like BBC Dodge, Keiser said. The dealership was a Burien institution, she added, and it will be missed:

"They always provided the cars for the Fourth of July parade."

Eric Pryne: 206-464-2231 or epryne@seattletimes.com

Copyright © 2009 The Seattle Times Company

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