"California is the most difficult place in the country to do business," Smith said. "We have a disproportionate amount of legal fees and lawsuits that come out of California, whether it's consumer related or associate related."
Rob Kurnick, president of Penske Automotive Group Inc., said, "It's difficult from just a pure finance, retail perspective." The nation's second-largest new-vehicle retailer's 27 California dealerships, out of the group's 244, contribute 13 percent of its annual revenue.
"It's very difficult from an employee perspective, and it gets more difficult every day," Kurnick said. "But without a doubt, it is one of the best markets, if not the best market, in the world for automotive retailers. It's terrific."
California dealerships are much bigger than the typical U.S. store, producing high per-dealership sales.
In 2014, California dealerships had the highest total dollar sales -- $97.69 billion -- of any state, or 12 percent of all U.S. dealership revenues, according to the National Automobile Dealers Association. The average California dealership produced $75.4 million in revenue, behind only Arizona and Oklahoma and well above the national average of $49.2 million.
For dealers, those numbers mean opportunity.
"California is a difficult business environment, and the taxes are high," concedes David Wilson, president of David Wilson Automotive Group, of Orange, Calif. But, he adds, "It's where the action is."
Wilson bought new stores in Nevada and California last year, and he's still on the hunt for acquisitions both in California and other Western states.
Dealer Todd Blue sees the luxury dealership group he bought in Rancho Mirage, Calif., in 2013 as just the start of his expansion into the state. After acquiring Porsche and Lamborghini stores in Houston early this decade, he added dealerships in California next because of fierce competition to acquire more stores in Texas.
"Texas is as friendly of a place to do business as there is in the United States," Blue said. "And California is more complicated. It's a fact. But it is truly the best place to find people passionate about great cars. It's the car lovers' place."
In Rancho Mirage, a wealthy resort community, Blue's indiGO Auto Group now represents eight luxury brands. City officials there have a pro-business mentality, Blue said, offering special tax incentives to local businesses.
Lithia Motors Inc. also is eager to buy more California dealerships. Lithia, the nation's eighth-largest dealership group, has 30 stores in California, including several that came with the acquisition of DCH Auto Group last October. "It's a large part of our future growth strategy," Lithia CEO Bryan DeBoer said.
Still, margins are narrow, he noted, and some of Lithia's markets in the state haven't fully recovered from the recession.