In Consolidation Move, GM to Buy Area Dealerships

DETROIT — Southern California is quickly becoming a testing ground for innovation in auto retailing.

In the latest experiment, General Motors Corp. said Monday that it will consolidate its sluggish San Fernando Valley dealer network--buying out 11 or 12 poorly performing outlets and replacing them with four or five larger stores.

GM said it will spend $50 million to $100 million to acquire the dealerships. Some of the older, unprofitable facilities will be closed and combined with new or upgraded dealerships operated by a single manager. In addition, the new, larger dealerships will sell more than one GM brand.

“Our market share is not very good there, but some traditional efforts to fix it didn’t work,” said Edd Roggenkamp, general manager of GM’s dealer network. “This is an opportunity to try something new.”

GM would not identify the dealers involved in the consolidation plan, saying it is still in negotiations. But dealerships controlled by Gary Sterkel in Canoga Park and Chip and Scott Young in Valencia confirmed that they have sold out to GM.

The GM program was unveiled just a week after Ford Motor Co. said it was consolidating four Lincoln-Mercury dealerships in San Diego into a single superstore. Ford also is considering combining some of its dealerships in the San Fernando Valley.

The moves are part of larger efforts by GM, Ford and Chrysler Corp. to trim their bloated dealer networks, reduce selling costs and improve consumer satisfaction. One impetus for the changes is new retail competition from large publicly owned dealer groups and used-car superstore chains.

Republic Industries, owned by billionaire H. Wayne Huizenga, has acquired 233 dealerships in 17 states in the past year and is building the AutoNation USA chain of used-car superstores. Republic already has a major presence in Southern California with 22 dealerships in Los Angeles, Orange and San Bernardino counties and plans for six AutoNation outlets.

GM decided to consolidate its San Fernando Valley outlets because several of the aging facilities were too small to compete against larger, more modern and better located competitors.

“It’s a combination of aging facilities, bad locations and weak dealers,” said Chris Cedergren, an auto analyst for Nextrend, a consulting group in Thousand Oaks.

GM’s market share is a mere 13% in the San Fernando Valley, where Ford and foreign imports are much stronger. GM does better elsewhere in the Los Angeles basin with roughly a 20% market share, but that is still well below its nationwide rate of 31%.

GM officials said the consolidated dealerships could offer consumers larger inventories, extended shopping and service hours and no pressure selling. Advertising costs would be reduced as well.

It is too early to determine if the approach being used in the San Fernando Valley will become a model for other regional consolidations, Roggenkamp said.

GM has more than 8,000 dealers nationwide and several years ago launched a program to reduce the ranks to between 7,000 and 7,500. It also is pushing combinations of dealerships, such as Pontiac and GMC.

But many dealers have resisted, including the Sterkel family. At first, the Sterkels refused to sell their GMC dealership to GM so it could be combined with a Pontiac outlet. But in August, Gary Sterkel, 59, finally gave in.

Sterkel’s family had owned the dealership since 1961. But after a year of negotiation, he said he was worn down by GM’s persistence and an ongoing dispute with the city about his repair operation.

“We knew GM wanted us closed. And we were fighting with the city, and GM was after us to buy the franchise back. It all came to a head,” Sterkel said.

Sterkel said his dealership was still profitable, but said small, independent dealerships like his are dinosaurs.

Another local dealer that quietly sold to GM in October was Chip Young’s Buick and Pontiac dealership in Valencia. GM approached Young and his brother last year, saying it wanted to buy them out to consolidate its Buick, Pontiac and GMC franchises.

Young, whose family has operated dealerships for 25 years, described the sale as a friendly takeover. “It was up to the dealer whether it was worth it or not. They paid a fair price. And we decided to take it.”

GM kept on 38 of his former employees to run the Valencia site, Young added.

The company also approached Livingston Motor Car Co. in Woodland Hills about selling its Buick and Pontiac dealerships. But the owners were not interested in selling and could not be forced to under state franchise laws.

The family-owned dealership has been in business since 1960. Steve Livingston said his sales were healthier than other dealerships that sold out, and it was very likely he would stay independent.

“In my mind, I’m here to stay,” Livingston said.

Nauss reported from Detroit and Stavro from the San Fernando Valley.