California's auto dealers are worried that the state's new budget will put an even bigger dent in already miserable sales.
Increases in the sales tax and vehicle license fees were key components of the measure signed by Gov. Arnold Schwarzenegger on Friday. Both raise the cost of buying a car.
Almost no consumer goods have a higher sticker price than autos, and the new levies -- part of a package aimed at closing a nearly $42-billion projected state budget deficit -- would add almost $400 to the price of the average new car. Broken down, that's about $260 from the 1% sales tax hike, plus $130 from the 77% increase in the vehicle license fee.
Although much of the increased cost will be mitigated by a new federal tax break on vehicle sales taxes, dealers fret that the increased out-of-pocket expenditure could be enough to drive away even more customers. That, in turn, could imperil dealerships and consequently, the tax revenue they provide to municipalities that depend on them.
"At a time when car sales are reeling, it's a difficult thing to swallow," said Peter Welch, president of the California New Car Dealers Assn. His group, which represents 1,200 new-car dealers, opposed the sales tax increase. "We're really concerned about what this will do to dealers."
Last year, new-car sales in California fell 23%, a considerably larger drop than in the nation as a whole, where sales of cars and light trucks declined 18%. At the same time, with General Motors Corp., Ford Motor Co., Chrysler and even Toyota Motor Corp. in terrible financial shape, dealers are getting squeezed from their manufacturers to offer incentives that increase sales volume, but cut profits even further.
That has led to huge numbers of failures, with 137 new-car dealers going out of business last year and 22 more so far in 2009, Welch said. The effect of those closures on local tax collection can be huge, with some municipalities depending on car sales for as much as a third of their revenue.
"Whatever happens to us affects the local economy," said Alex Tissot, general manager of Colonial Honda in Glendale. He said his sales fell nearly 40% in January, and the dealership lost $120,000.
The California Assembly Budget Committee expects the new sales tax, which also drew resistance from retailers, to bring in $5.8 billion in additional revenue, plus $1.7 billion from the new licensing fee.
