Sonoma County car dealers looking to rebound after COVID-19 sales slump

Things got so bad for Jim Bone and his Santa Rosa Kia and Nissan dealerships in the spring as a result of the coronavirus pandemic that he did the unthinkable.

He closed up shop for a month.

Bone said he had no choice because customers stayed away due to health concerns and uncertainty over the economy.

“We were probably the only auto dealer to do it, sales and service, just to see how this was going,” Bone said. “We closed for the month of April. It was very painful.”

Jim Bone Auto Group has been able to make its way back as customers started returning. And he was grateful for the U.S. Small Business Administration’s Paycheck Protection Program that has allowed him to recall 95% of his workforce.

Overall, the auto group’s sales are down 25% so far for the year compared to a year ago, but he is optimistic after making it through the rough patch during spring.

“What we are finding, the people who are coming in are very serious. They’re buyers. They are not out kicking tires. From that perspective, things are good,” Bone said, also noting that he’s fortunate none of his employees have contracted highly contagious COVID-19.

“We’re hanging in there and weathering this storm. I certainly have a lot of friends in the community that are worse off than us,” he said.

Bone’s story is similar to what’s played out across the local auto retailing sector this spring. Dealerships grappled with a halt in demand since mid-March, combined with car and truck production stoppages and a shutdown of wholesale auctions for used vehicles.

That all sideswiped new car registrations in Sonoma County. Registrations declined 24% from January through May compared to the same stretch in 2019, according to Experian credit reporting agency.

A survey by Cox Automotive conducted in the spring found dealers had an overall negative outlook though franchised dealers expressed more optimism heading into summer.

Locally, spring brought furloughs, which included Freeman Motors with 107 temporary layoffs in April; Manly Honda with 82 temporary layoffs in March and CarMax with 70 furloughs in April, according to filings with the state Employment Development Department.

As car buyers initially stayed away, dealerships at the same time also were affected by their inability to get more inventory.

Platinum Chevrolet in Santa Rosa headed into 2020 still recovering from light inventory as a result of the United Auto Workers’ strike against General Motors last year. Then production was halted again with the pandemic, when GM pivoted to make 30,000 hospital ventilators by the end of August for the federal government.

“It did put us behind the 8-ball again, as far as inventory is concerned and inventory is starting to show up. Inventory is part of the story,” said Todd Barnes, president of the dealership.

His family dealership’s revenue from sales and service was down by half in the spring compared to the same period of 2019. In July, the business is back to about 90% of revenue from same time last year.

Edmunds, a Santa Monica-based research firm, found that the lack of supply of new cars has car shoppers turning to the used-car market and certified preowned vehicles. However, there was a problem with that market as wholesale auction houses across the country that provided such used vehicles to dealerships also closed for months.

“Used car prices are through the roof because inventories are low for both new and used,” Barnes said.

In response, Platinum launched a campaign to pay cash for cars on the spot — made easier with an online appraisal. “We are having some results trying to adjust to the market,” he said. “The vehicles were just not available.”

The pandemic also has changed buying patterns as auto retailers are handling much of the transaction process online out of public health concerns. Tasks such as paperwork for vehicle registration and financing largely can be done digitally rather than sitting in the showroom. One notable change is all test drives are now held without a salesperson because of the COVID-19 restrictions.

That has led to more flexibility for sales staff at Hansel Auto Group, giving more time to devote to other duties than being occupied on average about 30 minutes in each test ride, said Justin Hansel, who manages his family’s business of eight dealerships and manufacturers such as BMW, Honda, Toyota and Ford. On average, a salesperson would do about three test drives a day.

Forgoing those ridealongs as well as the trend to do more online paperwork likely will result in his dealerships carrying fewer salespeople in the future, Hansel said.

“We have certainly found more efficiencies because of this that will likely change our model a little bit on how many people we need, especially on the sales side,” he said.

There are still traditional consumers who want to visit dealerships like they have in past years and decades, but this time under social distancing rules. Even those shoppers do some of their research and perform some of the car-buying process online, such as getting an estimate for their trade-in vehicle, said Corinne Galarza, general manager at CarMax Santa Rosa.

“We have adapated and we want to meet our customers on their terms,” Galarza said.

She has noticed many car buyers are price conscious amid the recession with the county unemployment rate at 11.5% in June.

“I’ve noticed that a lot of our customers are coming in for that economical vehicle, not the splurge purchase,” she said.

In the coming weeks, CarMax said it anticipates launching home delivery for purchases in Santa Rosa. That is occurring elsewhere in the region and is increasingly becoming a popular option.

Redwood Credit Union’s auto service department temporarily shut down its physical lot in the spring, but it decided to deliver the cars. Redwood has delivered more than 50 cars for its customers to their homes or businesses during the last four months. That includes two people who worked at local hospitals and had their vehicles delivered there during their lunchtime. The customers only had to sign two documents in-person to get the keys.

“They are blown away and it’s been really popular,” Cynthia Negri, chief operating officer for Redwood, said of the car delivery service.

Prior the pandemic, Redwood’s auto retail unit generated an 8% sales increase from the previous year. Since the virus struck in March, sales are down 30% overall compared to 2019.

A key part of car buying is financing and Redwood is working with loan customers, whether they bought through the credit union or another dealership. The credit union has allowed borrowers to be able to defer car payments on all of their loans for up to 90 days given the economic disruption. About 4% of those distressed borrowers have requested additional repayment time.

Despite the vehicle sales slump, Redwood has experienced an 8% increase in issuance of auto loans compared with 2019, Negri said.

Community First Credit Union had been writing $12 million worth of auto loans a month over the winter. By April, that amount was cut in half, said Todd Sheffield, CEO. There was a rebound in June, as the auto loan total rebound to about $10 million.

“We have kept our underwriting the same for the most part. We are doing a little more income verification to make sure people are still working,” Sheffield said.

Attractive financing will play a key part of the auto sector’s future while the virus lingers, Hansel said.

His dealerships have had success with no interest auto loans that can extend as long as seven years. Those who have a trade-in car — now with a higher value due to continued scarcity — can find themselves in a new car at the same monthly payment they had been making, he said.

“That’s probably been the most attractive type of incentive,” Hansel said.

The Hansel auto empire survived its worst month in business during April. The family operator is hopeful for a sales rebound since people still need a reliable vehicle to drive around Sonoma County and the local monthly jobless rate has been declining from its April peak.

“I’m certainly now more optimistic than I was then,” Hansel said, referring to that dark month of April.

Editor’s note: An earlier version of this story misidentified Justin Hansel, manager of Hansel Auto Group.

You can reach Staff Writer Bill Swindell at 707-521-5223 or bill.swindell@pressdemocrat.com. On Twitter @BillSwindell.