When Heritage Lincoln Mercury closed in August, the city of Tustin felt the pain.
For decades, the dealership had operated out of the Tustin Auto Center -- which has 17 other franchises -- and it was once among the largest Lincoln Mercury dealers in California.
For The Record
Los Angeles Times Wednesday, December 03, 2008 Home Edition Main News Part A Page 2 National Desk 1 inches; 32 words Type of Material: Correction
Auto dealers: An article in Section A on Monday about declining sales tax revenue from auto dealers said dealer Bruce Hamlin owned Courtesy Chevrolet in Santa Ana. Hamlin owns Guaranty Chevrolet there.
It was also a crucial source of revenue for the city, which relies heavily on taxes from automobile sales to keep afloat. Of the city's $20-million annual budget, about $5 million comes from the auto center, said the city's director of finance, Ronald Nault.
But with sales of Lincoln and Mercury cars and trucks down by nearly a quarter nationwide through October compared with last year, the dealership was forced to fold. Meanwhile, many of the other dealerships in the auto center, although still in business, are seeing severe sales declines, spelling further reductions in sales taxes.
"It has definitely affected us," said Nault, adding that collections from the auto center were on pace to be off 20% for the year. And with industrywide vehicle sales falling even more sharply in recent months, the revenue shortfall could be substantially greater, forcing Nault to consider capital-spending cuts, a freeze on salary increases, reductions in travel and, perhaps for the first time in the city's history, layoffs.
"It's pretty frightening," said Nault, who has managed the city's finances for 28 years. "This is a bridge we've never had to cross."
As the U.S. auto market marches toward its worst year in decades and dealers close in droves, state and local governments across the country are preparing for serious belt-tightening.
Sales of new and used cars, as well as parts and service, are the single largest source of sales tax revenue for almost every state, county and local government, ahead of gasoline sales, restaurants and department stores. (Alaska, Delaware, New Hampshire, Oregon and Montana do not collect sales tax.)
More motor vehicles are sold in California than in any other state; in the second quarter, nearly 15.5% of all sales taxes here, or $193 million, came from the automotive and transportation sector, compared with about $135 million from restaurants and hotels, according to Hdl Cos., which compiles sales-tax data for government agencies.
Yet because so few cars have been sold this year, the Golden State's second-quarter automotive sales-tax receipts were down substantially -- more than $30 million short in the second quarter alone from a year earlier -- contributing to the huge budget shortfall that has led Gov. Arnold Schwarzenegger to propose a sales tax hike and spending cuts.
