VW Mazda appears to be Gilroy’s first partially foreign auto
dealer to succumb to the economy and could be the third Gilroy
dealership to fall since February.
VW Mazda appears to be the city’s first partially foreign auto dealer to succumb to the economy and could be the third Gilroy dealership to fall since February.
Distributors Volkswagen and Mazda have stopped fronting owner Lorraine Marshall new cars, which means her lot on Chestnut Street can essentially only sell used cars.
The parent companies are no longer providing credit because the new vehicles aren’t selling quickly enough, according to nearby dealers and sources who have spoken with Marshall. When reached on her cell phone, Marshall said she was unwilling to talk before and then hung up.
The building’s front doors were locked during business hours Wednesday, and scarce, dusty, used inventory sat in the front parking lot – an additional indication that the nation’s auto troubles continue to affect the front lines.
Sources close to Marshall said she will continue to sell down her used lot after closing the service department late last month. It is not financially feasible to honor warranties without reimbursement coming down from distributors, sources said.
Local industry sources have said for weeks that the auto seller was on its way out thanks to same credit and financing issues that drove Gilroy Pontiac Buick GMC and Gilroy Ford Lincoln Mercury out of business last February. After those dealerships closed and left 57 people without jobs, one Mazda employee – who would not give his name because he was not authorized to speak to the media – said the dealership was struggling with the same financing problems.
“We all knew this was coming,” Gilroy Chevrolet Cadillac Manager Troy Pelzl said Thursday of VW Mazda’s cut-back operations. Pelzl himself dodged a bullet last month when he found out his dealership was not among the 1,100 of the 6,100 dealerships nationwide that General Motors announced it would deny franchise renewals for.
Since Gilroy Pontiac Buick GMC closed its doors in February, leaving 26 people without a job, and Gilroy Ford Lincoln Mercury closed a week afterward, leaving another 31 employees jobless, Pelzl said the subsequent vacuum has buoyed his American franchise. But with VW Mazda only operating at half throttle, Pelzl said that could hurt the auto mall’s image and drive down sales.
“Once another lot goes empty, the impression of the auto mall overall starts to deteriorate,” Pelzl said.
The auto mall includes Toyota, Honda, Nissan and Chrysler dealerships in addition to his and Marshall’s. Mazda Spokesperson Tim Gilman would not say whether the company had cut off Marshall’s credit and referred questions to her, but he did say her outlet was still a recognized Mazda dealership. VW representatives did not return messages by press time Thursday.
The future of the physical land Marshall’s business sits on also remains unclear. Landowner Adam Sanchez – whose family ran the dealership before Marshall stepped in – could not be reached for comment, but Pelzl and other auto vendors said they could not imagine another franchise buying the land any time soon because credit for everyone is tight.
Gilroy Toyota and Honda continue to be the city’s leading dealers. Toyota has about 1,200 dealerships in the U.S., less than a third of the number of dealers as its chief rival, GM. Yet with a far smaller network, Toyota has managed to sell three-quarters as many vehicles nationwide as GM so far this year.
Distributors have argued that too many dealers puts pressure on pricing and dealership profits, which leads to ailing dealers offering weak customer service and hurting the brand image.
That can cost the automakers sales. Dealership groups, including the National Automobile Dealers Association, dispute the automakers’ reasoning, pointing out that because dealers are the source of revenue for automakers, eliminating them could cost the automaker dearly.
It will also cost the city.
“We’ve accommodated our sales tax projections to include very, very, very weak forecasts for sales tax generated from auto sales in the years to come,” City Administrator Tom Haglund said.
For each car sold in Gilroy, 1 percent of its price return to the city through sales tax. Yet, auto sales have brought in about $1.4 million so far this year, down from $1.9 million in 2004 and 2005, according to city figures.
Accordingly, Haglund has reported that sales tax revenue this fiscal year will likely fall from the budgeted amount of $13.9 million to $11.6 million – well below last year’s revenue of $14.2 million. That money generally accounts for about a third of the city’s general fund – which faces a $3.6 million deficit next fiscal year out of $37 in expenditures.
