Reprinted With Permission By Amador Ledger-Dispatch
Written By: Raheem Hosseini And Jerry Budrick
It was late February when the gleaming monolith of glass and pale gray concrete went dark for what seemed like the final time.
Until then, the stubborn glow of the showroom lights could be seen from the thin, four-lane ribbon of Highway 49 running through Martell, illuminating the hulking auto mall glowering from a cavernous flat expanse on one side of the county’s commercial strip. All three of its dealerships closed in late December, dealing a cruel blow to their 80 employees, related businesses and a county heavily reliant on the resulting sales tax revenues.
Yet even as the cars disappeared and the employees found other work, the lights of Prospect Motors continued to shine, hinting at a possible resurrection since being shuttered just before Christmas last year.
But on Feb. 24, owner Frank Halvorson, having exhausted all options and out of time, sent what’s called a voluntary termination letter to General Motors, Halvorson’s franchiser.
"It essentially terminates his business with us," explained Pete Ternes, GM’s director of sales, service and marketing communications. "It essentially ends the franchise agreement that we had."
And then the lights went out – figuratively, if not yet literally.
It was GM financing arm GMAC that pulled the plug on Halvorson’s inventory supply and credit line in December, prompting the closure of his three "family dealerships." Prodded by local and regional media coverage, including an aggressive e-mail campaign sparked in the opinion pages of the Ledger Dispatch, GMAC appeared to soften its stance and accelerate talks with Halvorson, agreeing to examine potential options for reviving the dealerships in one form or another. The hitch was that Halvorson, already heavily indebted to GMAC, would have to come up with $2 million in capital to make the arrangement work.
As the Amador County community marshalled its forces with letters and e-mails, as well as a boisterous rally in Prospect’s carless lot in January, Halvorson sought out possible investors, finding none. Even national media attention, in the form of "CBS Evening News with Katie Couric," came too late. By the time producers were in the editing room last Tuesday, it had been a full week since Halvorson issued his termination letter.
A wider view:
In a nation bracing for the potential collapse of the American auto industry, the loss of Martell’s auto mall can seem like a pebble falling into a roiling sea.
Last year was particularly bad for dealerships, according to Urban Science, an industry research group that released a census of automotive dealers last month. Urban Science’s franchise activity report showed that a record 881 of 20,084 car dealerships – 4.2 percent – closed in 2008. The decline was the largest since 1991, when data was first collected, with the bulk of closures occurring in the fourth quarter.
The troubles were more pronounced in California, which lost 137 dealerships last year, according to the California New Car Dealers Association. The association said a disproportionate amount of those closures occurred under the umbrella of domestic lines like Chrysler, Ford and GM, which saw 47 of its dealerships go out of business.
"Draconian action by floorplan lenders was the reason most often cited by those dealerships for their closure," the association’s letter said.
About two dozen dealers have closed their doors across the state since the beginning of 2009, the Los Angeles Business Journal reported last week. The possibility looms that 2009 will be worse than last year, which registered a 23-percent drop in new car sales, even before state lawmakers raised vehicle license fees as part of a late budget deal.
"We will continue to see proactive dealer closures in metro markets," said Randy Berlin, Urban Science’s global practice director. "Rural markets, however, will likely withstand consolidation efforts."
That hasn’t been true locally.
Regionally, the Plummer Automall in Lodi closed last month, seven years after it opened its doors northeast of Kettleman Lane and Highway 99. Like Halvorson’s dealerships, access to commercial credit was plugged. This came on the heels of the closure earlier this month of the venerable Geweke Chrysler Jeep Dodge, also in Lodi.
Meanwhile, GM conceded in a report filed Thursday that it’s on the edge of bankruptcy and won’t be able to avoid it unless it gets more government money and successfully executes a huge restructuring plan.
It’s no surprise that auditors would question GM’s viability. The Detroit-based behemoth lost $30.9 billion last year, is living on $13.4 billion in government loans, and is seeking up to $30 billion as it tries to survive the worst auto sales climate in 27 years.
In other words, the company may have more on its mind than what happens in Amador County.
But Prospect’s story is also more complicated.
Originally spread out in Jackson and Sutter Creek, the three car dealerships began the slow, complicated process of relocating to unincorporated Martell earlier this decade.
The ambitious plan was to build a large business park and state-of-the-art auto mall, creating a commercial hub that would keep developers’ pockets and county coffers fat for years. Supervisors agreed to rebate $1.6 million in sales tax revenue to developers of the Martell business park in return for their fronting the cost of infrastructure upgrades.
Some objected to the plan back then, including Foothill Conservancy director Katherine Evatt, who outlined her concerns in a Ledger Dispatch guest commentary published in May 2001.
"We don’t agree that the public interest is served by luring businesses away from Jackson and Sutter Creek, heavily subsidizing a commercial project, and then turning over $1.6 million of the public’s sales tax money to the developers," she wrote.
At that time, it was the continued economic viability of Jackson and Sutter Creek, not the dealerships’ ability to thrive, that was foremost on critics’ minds.
Nonetheless, the plan went through without major modifications. A business park was constructed in Martell, anchored by a Safeway supermarket that had also left Jackson. The auto mall was built and Jackson, Sutter Creek and the county entered into a 10-year agreement to split sales tax revenues. In fiscal year 2007-08, Jackson received $87,650 in general fund revenues from this agreement. The dealerships had been contributing $12,000 quarterly to Sutter Creek’s coffers. For 2007, the California Board of Equalization reported $108,778,000 in taxable transactions for motor vehicles and parts and service stations across Amador County.
Unless he is able to re-open at least one dealership, Halvorson will not be receiving reimbursement of the $1.6 million the county contracted to pay back over a 12-year period. The contract states that operation of a dealership is essential. Sales tax revenues from the Sierra West Business Park have been shared among the county, the cities of Jackson and Sutter Creek, and the business park owners for the past two years, with the first $35,000 per quarter sent to Sierra West.
Signs of trouble:
Various estimates have been offered of the cost of constructing the showroom and service buildings on Prospect Drive, ranging as high as $17 million.
The official value at the Amador County Assessor’s Office was $9.96 million in 2007, but was reduced to $6.9 million in 2008. County Assessor Jim Rooney has said that there will likely be a further reduction in 2009 to $5.7 million. Rooney said that he and his staff had discussed the state of the industry in making the assessment.
Former employees and dealership insiders have told of seeing electricity bills for $5,000 on the Amador Motors side and $8,000 on the Prospect/ Amador Toyota side.
"We built it as though they would come," Halvorson recently told the Ledger Dispatch about his top-of-the-line dealership. "It was unfortunate timing."
The question of who ultimately designed the energy-sucking auto mall remains presently unclear, partly because Halvorson could not be reached for this article and because the details of his franchise agreement with GM are not public.
GMAC spokesman Mike Stoller characterized dealers as independent business operators with little meddling from franchisers or lenders, even saying they’re the ones who ultimately decide whether to close or press on.
But GMAC certainly made its presence felt during the dealership’s final months, said one former employee. The lender sent representatives to examine its inventory, finding a mix of new 2006 and 2007 automobiles mingling with the latest 2008 and 2009 models.
Bo Clark is now with Thompson Toyota in Placerville after a decade spent selling cars for Halvorson. He still looks back at that time fondly, comparing the workplace atmosphere to that of a country club.
"Even toward the end, it was the best place I ever worked," he said, "and Frank was the best boss I ever had."
Clark said he and Halvorson differ on the role showcasing older model vehicles played in Prospect’s ultimate demise. Besides sucking tens of thousands of dollars a month in flooring charges, Clark said having the ’06 and ’07 models on display was an indicator to GMAC that the dealership could be in trouble.
"It makes you look weak," Clark said.
"Frank doesn’t agree with me on this," he added, "but they don’t make you build something and then shut you down for being five days late."
Clark was referring to the contention that GMAC pulled its inventory because Halvorson was late with a mortgage payment.
While Stoller wouldn’t comment on Halvorson’s deal with GMAC, he did speak broadly about GMAC’s role as a collateral-based lender that supplies credit to secure inventory. The vehicles serve as the collateral, he explained. If they’re not selling or the dealer is sinking too far into debt – Halvorson told the Ledger Dispatch his mortgage on the auto mall buildings was $9.6 million at the time of closure, which could mean monthly payments in the vicinity of $80,000 – the lender stops lending.
"We can’t extend credit indefinitely," reasoned Stoller, especially, he said, if the dealer has defaulted on a loan or looks like it’ll lack the ability to pay it back.
Clark also believed consistently poor customer service scores on the service side and the sheer size of the buildings – uncharacteristic for Amador County, he opined – came up as cons as GMAC compared the Martell auto mall to the performance of surrounding dealerships.
"I remember when we first moved to the new building and I said to (one of the other employees), ‘Something’s not right,’" he recalled. "Intuition is one of those things."
The Associated Press contributed to this report.