Economy leaving car dealers in the dust

The Philadelphia Inquirer (MCT) - All roads of economic turmoil have intersected these last few weeks at the feet of 63-year-old Tony Costello: Lifelong car salesman, workaholic, holder of an unexpectedly anorexic 401(k) and, now, soon to be unemployed.

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Costello's home for the last 38 years _ Penske Chevrolet, where he has worked longer than most Generation X'ers have been alive _ closed its doors to the public in September, a casualty of the ailing credit, consumer and auto markets feeding the current economic storm.

Costello and 49 others lost their livelihoods when the King of Prussia, Pa., dealer became one of the record number of new-car dealerships disappearing as frightened consumers stop buying and banks cut back on loans to businesses and car buyers.

"When you work for someone for 30 years, it's a definite shock when it's over," Costello said, holding down what is left of the fort at Penske before its remains are auctioned off Oct. 25. "I'm the type of person, I've been employed since I was 11 years old delivering papers, and I've never missed a day."

In Pennsylvania, the number of dealerships expected to close or merge by year's end will be three times the historic average. Hardest hit are those selling U.S. cars, whose gas-guzzling models have become auto-lot orphans.

The national outlook is likewise grim. This month, Ford Motor Co. reported U.S. sales had dropped 34 percent in September. And normally bulletproof Toyota Motor Corp., caught in fears of a global recession, has seen its shares drop from more than $42 in January to $25.46 on Thursday.

David Penske shuttered his dealership at the close of business Sept. 9 after a loan to buy the property unexpectedly fell through, thanks to the economy.

"This was not the way I expected to write the last chapter of the book," said Penske, 66, who launched his Chevrolet franchise dealership in 1971 _ first at another location _ and celebrated 30 years just a few months ago.

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Penske, whose lease expired this year, had first solicited a mortgage from Countrywide Financial Corp. before that company became an early casualty of the nation's subprime-loan collapse last year.

Then he engaged a West Coast insurer willing to finance the purchase. But there was a six-month delay in getting the property ready for sale, Penske said. By the time the transaction was ready to go through, crude oil had reached record prices, U.S. auto sales had been decimated, and the economy was barreling toward recession.

So in July, when Penske's lease was up, the lender withdrew its offer.

"They just felt that in view of the way the automobile business was, and our business was probably in a break-even stage, that they chose to withdraw their commitment," Penske said.

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Penske decided against renewing his lease, even though his business was not yet in the red. The new lease would have cost 20 percent more a month than his mortgage payment would have been.

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"I expected to keep on going as a Chevrolet dealer," said Penske, who has been peddling Chevy cars and trucks for 43 years. "At some juncture, my son would have ended up with this franchise."

To reduce costs and boost sales, U.S. manufacturers have been urging dealers to shut down or merge. When one goes, another gets the business.

"The dealers around me are ecstatic because I was outselling the three guys that are within three or four miles of me," Penske said. "They'll pick up my business."

New Jersey dealers Brent and John Lilliston were just shy of bubbly as they talked about plans to merge their Country Ford Mercury Jeep in Elmer with Lilliston Ford of Vineland.

The brothers, both in their early 60s, said their businesses had benefited from recent closures of other dealerships.

Because of declining sales, they said, Ford had "ramped up" efforts to urge dealers to consolidate, including at a regional meeting a few weeks ago.

"With Ford's numbers going down, the dealer count has to go down so that we can be profitable," John Lilliston said.

Penske gave his employees three weeks' notice in what he described as the most difficult moment of his career.

He gathered them in the showroom, bought them lunch, and delivered the news. Many employees had been there for decades. They were, he said, like family.

Costello, Penske's general manager, put off a job search because he wanted to help his boss dismantle the business that no one expected would go under. He worries about finding a new job, but hopes his work ethic will pay off.

Costello said his father was a caretaker who worked "six and a half days a week" looking after a wealthy family's estate.

"I had to work early on," Costello said, "'cause my parents didn't have an awful lot. But they both worked very hard."

He now lives in Kimberton, Pa., with his wife, a part-time registered nurse, and their golden retriever. All three of their sons, ages 30 to 37, are college graduates and in the workforce.

A layoff 15 months ago _ before today's rising unemployment rate and tumbling stock market _ might have been less frightening.

"What makes it worse," he said, "is we have no retirement. What we have is our 401(k)s and what we've put aside."

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"But we have to roll with the punches and do whatever's necessary," he said. "I've got my health. And I probably will work harder than any two 20-year-olds out there."

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© 2008, The Philadelphia Inquirer.