Local car dealers driven down by economic slump

By Yaffi Spodek

Issue of April 10, 2009 / 16 Nissan 5769

The auto industry’s economic woes are well known but local car dealers and leasing outfits are also feeling the pain, reporting significant losses. Many of their best customers have downshifted into cheaper cars.

“We are down about 60 to 70 percent in business,” said Richard Cirillo, dealer principal at Victory Toyota of the Five Towns. “There has been a major decrease in sales, both in buyers and leasers.”

The dramatic decline has forced the Inwood dealership to lay off 60 percent of its employees.

“At the height of 2006, we employed about 105 people, and now we are down to 39,” Cirillo told The Jewish Star.

“We have decided that we are going to lower commission fees by eliminating finance managers,” he explained. “This way, the customer can get a good deal and save money, and it will also help the salespeople earn a living.”

According to Steve Kaye of Atlantic Toyota in Amityville, the largest Toyota dealership in New York, the company has cut down car production by a whopping 70 percent.

“I have cars in stock right now,” he said, “but I should be out of new cars by June. That is true for all Toyota dealers ... People will have to start buying used cars rather than new ones.”

Brandi Begelman of IDeal Auto Lease and Sales in Woodmere, has been working in the industry for close to 40 years and has witnessed firsthand how the economy is taking a toll on her clients and affecting their buying power.

“There is no question that business is down,” she acknowledged. “I see more and more people looking to extend their lease or purchasing warrantees to cover their extensions. Customers are calling me up and asking me why prices aren’t cheaper. People are downsizing from their luxury cars because they are afraid to spend money right now.”

In Valley Stream, South Shore Honda also reported a decline in their overall business.

“Business has decreased, but not as much as in other places, and we are doing OK,” observed sales manager Oscar Melara.”

When asked why that was so, Melara replied, without missing a beat, “Because we’re selling Hondas, and they’re the best.”

He did note that although the size of his customer base has remained intact, more of his patrons are choosing to lease cars, rather than buy them. Popular models include Civics and Acuras, since they are “smaller and good with gas,” Melara said.

“Honda is offering phenomenal deals this month,” Begelman confirmed.

“Eighty percent of my business is Honda. March was a great month to buy any Pilots that were left because they’ve stopped production of them. There were also great deals on Odysseys. Anyone who made a Honda purchase or leased last month couldn’t get hurt.”

A gentleman from the Five Towns recently replaced his luxury car and opted for a smaller, more cost-effective model, which he purchased through a 60-month financial loan agreement.

“I went from an Acura MDX to a Honda Pilot,” said the man, who spoke to The Jewish Star on condition of anonymity. “I was looking for a car in a certain price range, and even though the MDX was a higher end vehicle, the Honda was actually roomier and bigger and it was cheaper. It drives nicely.”

Auto dealers feel that the credit crunch is largely to blame for slumping sales.

“Banks are not approving customers they way they used to,” explained Toyota’s Cirillo. “It used to be that even people with low income or credit were able to get older, used cars. Now, even people with high credit scores are being turned down for loans and that is very scary.”

“I am getting smaller payments because credit has been a big issue,” said Sol Hershkop, the owner of Wheels to Lease in Brooklyn.

His customers are also trying to cut costs in other ways. “People have been downsizing from three cars to two, or from two to one,”he said.

Begelman’s customers have been downsizing as well, and “that’s where my customer base is hurting the most,” she said. But for her clients, a more significant challenge has been the rising rate of residuals, prompting many to buy rather than lease.

“People getting approved [by banks] is becoming more difficult,” she observed. “The difference between tier one and tier four could cause someone to pay in excess of more than $100 a month ... If people can live with their car for more than three years, they are looking to buy, especially in the foreign market.”

Though there are tax incentives available for leasing American-made cars, “residuals upset the payment,” Begelman said, noting that “when you trade in your car, you are going to lose money because the car is valued at less and you are not going to cover the loss ... If there is a good buy program, I tell my customers to buy.”

Hershkop acknowledged that although the economy is affecting his business, he believes that better times lie ahead.

“The last few months have generally been rough for everyone, but since March, it’s been picking up and it’s been good for the last month,” he said, explaining that the spring is generally a busy season for the auto industry. “The geulah (redemption) is finally here.”

Although business is not yet back to its optimum level, the reality is that “people still need to drive, and their leases are up,” Hershkop pointed out. Though he has retained many of his customers, they have been spending less and favoring classic brands such as Honda and Toyota, the only two companies that don’t charge disposition fees.

Based on her recent sales, Begelman disagreed with Hershkop’s assessment of the industry’s improvement.

“I think March was the best month since all this happened, but it has nothing to do with the market being better,” she maintained. “It is just a coincidence –– people’s leases are up and they are out of extensions. The sales only lasted for a few weeks and now it’s quiet again.”

However, just this past week, Cirillo saw a slight increase in his business and experienced a bit of turnaround in sales, which he attributes to the spring weather.

“Usually spring is our thrust period, starting now,” he said. “We are optimistic that the banks will start lending again.”

In response to the current situation, Victory Toyota of the Five Towns has reduced the amount of SUVs and larger vehicles which they used to carry in bulk, and are stocking more Camrys, “always a good seller,” Cirillo said. “For a while, people were buying more hybrids because of the gas crunch and now they seem to be buying smaller models.”

“By dealers taking less allocation [orders] from factories, that’s how they are going to hold their own,” Begelman added. “By producing less cars, it becomes not a buyer’s market but a seller’s market.”

In an effort to boost business, dealerships have been offering sales.

“A manufacturer will give us rebates and we have been doubling or tripling them,” said Cirillo.

South Shore Honda also provides rebates, “as well as low financing agreements,” said Melara. “We have seen a pickup recently and we hope it continues.”

“Of course we are offering deals,” confirmed Hershkop, though he declined to provide specifics. “We have been giving our own ‘stimulus packages,’ let’s call it ... I hope the trend will keep picking up.”