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Compton Approves Loan for Car Dealer

February 25, 1988|TERRY SPENCER | Times Staff Writer

COMPTON — The City Council voted 3 to 0 Tuesday to do what four private lending institutions wouldn't: loan $1.9 million to the Winners Pontiac/Toyota dealership in the Compton Auto Plaza.

The loan, intended to help Winners pay off its mortgage, carries an annual interest rate of 10% and is to be repaid to the city's Redevelopment Agency within six months, city officials said.

Winners is expected to keep looking for some other lender--perhaps under a federal Housing and Urban Development loan program--to assume the debt for a longer term, officials said.

Mayor Walter R. Tucker and council members Floyd A. James and Jane D. Robbins approved the loan without comment. Councilmen Maxcy D. Filer and Robert L. Adams were absent.

Winners is the second of the four auto plaza dealerships--along the 91 Freeway at Alameda Street--to recently require financial help from the city. Last June, Brett Mitchell Chevrolet received a three-year, $175,000 business expansion loan at 7% interest from the Redevelopment Agency.

'Public Benefit High'

"It is not that atypical for dealers to have to go to redevelopment agencies and cities to have to borrow money," said Laurence H. Adams, Compton's redevelopment director. He said the city must be involved because "the public benefit is very high because of the huge sales taxes that these businesses produce."

Winners requested the city loan after the Bank of America, Tokai Bank, Comerica Bank-Detroit of Irvine and Marine Midland Finance Corp. turned it down, citing what officials characterized as ownership instability at the dealership and a lack of growth in the auto plaza.

In documents filed with the loan application, a Winners executive acknowledged that financial firms are leery because the dealership has changed ownership four times in the last eight years. And the executive said that many lenders believe "this auto plaza will not be developed in the future."

Midland loan officer Richard L. Vonk, whose firm specializes in making loans to car dealerships, said he could not discuss the specifics of why his firm turned down Winners' request. But he did verify that his company sees the auto plaza as a bad financial risk.

"Projecting what has happened there over the last two or three years, there has been very little (growth) activity," Vonk said. "Successful dealers tend to congregate in more upscale areas. . . . I'm not sure Compton is that kind of area."

Redevelopment Director Adams said he understands some of the banks' concerns, but he believes that the city has a responsibility to make the loans.

"Somebody has to go on line, somebody has to take risks," Adams said. "The City of Compton ultimately has to because it has a $51-million investment down there. . . . It doesn't make sense for us to stop now and say 'Hey, we have invested this money and we are not going to invest anything else and just let it go.' We have got to do what we have got to do in order to make it go. We really don't have a choice."

Adams said that at least six new dealers will be in the plaza within the next three years. He said a Mitsubishi franchise has already been awarded and that Pete Ellis, the local auto magnate, will be making a presentation to the council Tuesday.

The Winners dealership, owned by Michigan businessman Michael P. Howell, obtained its auto plaza site last February. In a mortgage agreement, property owner David Bouchat gave Winners until Feb. 28 of this year to pay off the $1.9-million balloon note, otherwise Bouchat would have the right to take back the property.

Howell could not be reached for comment. But city records indicate that he has a personal net worth of $6.5 million.

Gary Dee, general manager of Winners, said Howell is unable to pay cash for the property because he would "get killed in taxes."

Winners has projected a net profit of $1.73 million for 1988, after losing $77,000 last year in starting up the dealership, according to loan documents. It has projected $17 million in retail sales for this year, plus another $34 million in fleet sales to companies such as Avis Rent A Car.

Under state sales tax law, Compton's general fund would receive 1% of that $17 million in retail sales, or about $170,000. Fleet sales are considered wholesale and are not charged sales tax.

Potential lenders are being shortsighted, Dee said, in their inability to see the plaza's growth potential. He said that several new foreign and domestic automobile manufacturers will be introducing lines in the United States and because the plaza is next to the 91 Freeway it will be a logical spot for the new dealerships.

"Freeway property is going to become very scarce in a short period of time and this is going to become an ideal site," Dee said.

Vonk of Marine Midland agreed that "in real estate, location is everything. But there are exceptions," he added.

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