LOS ANGELES -- Dealership groups are making a big push to renovate stores and build new ones in the Los Angeles area as sales in California bounce back from the recession.
Millions are being poured into showrooms and service operations, mainly for upscale and high-volume franchises in economically vibrant areas. Dealers say they are going ahead with projects that were put on the back burner during the slump.
California was among the states hit hardest by the auto collapse of 2008 and 2009. Sales soared in the state amid booming real estate values from 2004 to 2007, when nearly 40 percent of vehicle buyers in California used home equity loans to make car purchases. But sales plunged when real estate values and credit crashed in 2008.
Registrations dipped 46 percent to 1.2 million from 2005 to 2010, according to the California New Car Dealers Association. In the same period, new-vehicle sales in the United States dropped 32 percent.
Last year California registrations rose 13 percent, while sales nationwide rose 11 percent. Now there's a flurry of action among big dealership groups. For example:
-- AutoNation, No. 1 on Automotive News' list of the top 125 U.S. dealership groups, spent nearly $26 million last year on six dealership renovation projects in the Los Angeles area. The projects are complete or near completion.
-- Keyes Automotive Group of Van Nuys, No. 19 on the Automotive News list, plans to build dealerships this year for its Cadillac, Chevrolet and Mercedes-Benz franchises. It also will move its Hyundai franchise into a 4-year-old former Acura store.
-- Sullivan Automotive Group, No. 33 on the list, has four major projects planned for this year in greater Los Angeles, totaling about $30 million.
Since 2007, about 340 new-car dealerships have gone out of business in California, says Peter Welch, president of the California New Car Dealers Association. He says dealerships that survived are able to take advantage of lower real estate and construction costs.
"The sophisticated and well capitalized dealers understand that we will be going back to 1.8-, 1.9-, 2-million-unit volume years again soon," he said. "If you've got the capital, it's a wonderful time to buy a new facility or update or remodel in anticipation for what we think will be a return to more normal volume years."
Three of AutoNation's projects are along a strip of Pacific Coast Highway in the affluent South Bay region of Los Angeles County. One is an $11.3 million facility built for Mercedes-Benz of South Bay. It opened in November and was designed to meet Mercedes-Benz's strict Autohaus dealership design standards.
The store is situated where Power Ford South Bay once stood. AutoNation moved the Ford store a quarter of a mile down the road into a vacated Jaguar dealership and spent $1.8 million on renovations.
In July, AutoNation expects to complete a $4 million renovation of the old Mercedes facility to house South Bay Infiniti.
AutoNation also spent $1.8 million to renovate a former Pontiac-Buick-GMC facility to house a new Fiat franchise. An Audi dealership in posh Newport Beach got a $2.4 million renovation, and a Land Rover store in the coastal town of Redondo Beach got a $4.5 million renovation and expansion.
In addition to its six recent L.A. projects, AutoNation has eight more California renovations, relocations and expansions booked for 2011.
The investment is part of a broader push to improve stores in AutoNation's western region, which includes California, Arizona, Nevada and Washington. About half of the group's roughly 70 western region dealerships will have improvements completed between now and Jan. 1, said Bill Berman, president of the group's western region.
"We really maximized the opportunity for every store we changed," Berman said.
AutoNation expects overall retail sales in California to grow 10 to 15 percent this year. But the state is not out of the woods economically. Unemployment tops 12 percent, and Gov. Jerry Brown and the legislature are fighting a budget deficit of about $25 billion.
Howard Keyes, president of Keyes Automotive Group, says sales at his stores are up 30 percent from last year, but he's still cautious.
"Right now I'm convinced [a recovery] is under way," he said. "However, something could happen in June and send us right back where we were. Before this all happened, everybody thought it was going to last forever."