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Car dealers leery about fee increase

Unlike surge in sales before April tax hike, buyers aren’t trying to cash in early this time.

May 19, 2009|By Zain Shauk

GLENDALE — California’s vehicle license fee will nearly double starting today, a change that could add another hurdle for struggling car dealerships looking to rebound.

Sales of new and used cars have plummeted since the start of the year, with purchases falling by as much as 50% for some dealer locations along the Brand Boulevard of Cars.

Today’s jump in the state’s vehicle license fee — from 0.65% to 1.15% of the vehicle’s value — will not devastate car purchases, but it is the most recent obstacle for sales representatives hoping to lure new buyers, dealers said.

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“It’s just like another nail in the coffin,” said Ron Smith, a sales representative at Bob Smith Toyota & Scion in La Crescenta.

State lawmakers and Gov. Arnold Schwarzenegger agreed to raise the fee while crafting the state’s current budget plan, which tried to close a $42-billion budget gap with a combination of tax hikes and spending cuts.

A temporary 1% sales tax increase was also part of that plan and, along with the fee jump, affects car sales most of all, state Department of Finance spokesman H.D. Palmer said.

Because car purchases are California’s largest contributor to sales tax revenue, auto dealers and industry representatives argue that additional fees will only hamper the state’s recovery by further delaying a rebound in sales.

“You only get the tax revenue if you make the sale, and right now sales are so incredibly depressed from what they’ve been before that having a bigger solution to the macroeconomic issues of consumer concerns, and the economy restarting, I think would have a more beneficial impact [on government budgets],” Detroit-based General Motors spokesman John McDonald said.

Officials contend that the market for car sales had already been in a slump because of the down economy and that the increased fees were necessary to close a deficit that has continued to grow.

California’s budget hole is projected to reach $15 billion by the end of fiscal year 2009-10, and could grow to $21.3 billion if voters oppose a series of measures during today’s special election.

One of those measures, Proposition 1A, would continue the sales tax jump into 2012 and the vehicle license fee into 2013 to help the state balance its books and create a “rainy day” fund for fiscal emergencies. Those temporary increases would end in 2011 if Proposition 1A fails.

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