Auto dealers are emerging from their longest slump in recent history, a four-year downturn that slashed revenues, forced job cuts and cost state and local governments millions in tax revenue.
"We've never seen a freefall like those four years," said Henry Hansel, president of the Hansel Auto Group, Sonoma County's largest new car purveyor with seven dealerships in Santa Rosa and Petaluma.
From a historic peak in 2005, when car dealers across the state sold 2,150,000 new cars and light trucks, the industry saw its sales plunge more than 50 percent by 2009, according to the California New Car Dealers Association.
Californians purchased just over 1 million new vehicles in 2009 - the lowest since 1982, when the state had 13 million fewer residents.
The sharp drop hurt both car dealers and local governments that had come to rely on sales taxes generated every time a car is sold.
California new car dealers rang up $32 billion in sales in 2009, half the amount from just four years earlier. In Sonoma County, sales tumbled to $464 million in 2009, down from $900 million in 2005.
Santa Rosa dealers posted $253 million in sales in 2009, down from $473 million in 2005.
That, in turn, had a direct impact on the city's budget. The city collected $2.2 million less in sales taxes from car dealers in 2009 than it had in 2005, said Lawrence Chiu, Santa Rosa's chief financial officer.
As consumers continue to hold onto cars longer and buy less-expensive new models, Chiu said the resulting drain on sales tax revenue "will continue for the next few years."
Hansel, a 38-year industry veteran, said that his auto group's fortunes have mirrored the statewide decline. The company generated $288 million in revenues last year, down from the $400 million range before the downturn.
In response to slumping sales, the group cut about 45 of its 120 salespeople and reduced technical, service and administrative staff by 20 percent. About 10 sales jobs have since been restored to the group's workforce of about 500.
The group also "put a lot more focus on used vehicles," general manager Justin Hansel said. With the recession, he said, the market shifted from buyers wanting a new vehicle to those needing a less-expensive used model.
New car sales, both up and down, are "all driven by the economy," said Henry Hansel, whose family has been selling automobiles since 1899.
Car sales began to decline in 2006 as housing prices weakened and foreclosures started to rise in Sonoma County. The drop accelerated as unemployment climbed in 2007 and consumers began cutting back on their spending.
General Motors and Chrysler required taxpayer bailouts and filed bankruptcy. Hundreds of auto dealers closed across the country, including Carter Ford and Pellini Chevrolet in Sebastopol, Holder Ford Lincoln-Mercury in Sonoma and McConnell Chrysler-Jeep-Dodge in Asti.
But the recession ended nationwide in the summer of 2009 and the car industry has slowly started to recover. New car sales rose 13 percent statewide last year and are expected to increase another 13 percent this year, according to the California New Car Dealers Association.
Henry Hansel, 62, believes the rebound is real, based on pent-up demand for the classic American luxury - a new car. Dealers stand to benefit from an aging fleet of used cars on the road and, most of all, newfound consumer confidence, he said.
"Our culture is optimistic," Hansel said. "Americans don't like to think negatively."
Americans also love the feel, the smell and the prestige of driving a new set of wheels, despite the fact that a new car is not considered a good financial investment.
"A car is kind of a frill," said Robert Eyler, chairman of Sonoma State University's economics department. A new car is a "depreciating asset" that sheds a chunk of its value the moment a buyer drives it off the dealer's lot.
"People generally don't tie themselves to a new vehicle unless they have the ability to pay for it," Eyler said.
Which begs the question of why - with unemployment, home foreclosures and personal bankruptcies still at near-record highs in Sonoma County - new car sales are gaining.
In January, Hansel Ford sales were up 48 percent from the same month of 2010. Each quarter of 2010 was better than the year-ago quarter, Hansel said.
Nationwide, car and light truck sales were up 11 percent last year over 2009, and up more than 17 percent in January 2011 from a year earlier, according to WardsAuto.com.
"We're kind of feeling that optimism," Hansel said, citing several market dynamics.
The average car on the road today is 10 years old with more than 100,000 miles on the odometer, both historic highs, he said. It's no big deal to keep a business suit an extra two years, Hansel said, but aging vehicles become less reliable, especially for commuters who depend on them.
At the same time, dealers have increasingly relied on used car sales to survive the slump, he said. By summer there will be a shortage of used vehicles, with higher prices as a result.
"For the dealers, that's a great situation," Eyler said.
But the primary force, both said, is rising consumer confidence.
"You've got to be able to make the payments regardless of the interest rate," Eyler said, regarding auto manufacturers' widespread offers of zero-interest financing.
And despite lingering double-digit unemployment in Sonoma County, "jobs are coming back - slowly," he said.
Consumer confidence hit an eight-month high of 60.6 last month, compared with 56.5 a year earlier. It's still far from the 90-point level that signals a healthy consumer mindset, and farther below the 105.1 mark in January 2005, when California dealers were on pace to sell more than 2 million new vehicles.
When people feel good about themselves and their economic future, they will buy new wheels for the pleasure, and status, of a smooth ride.
"What you are driving says a lot about who you are," Hansel said.
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