The country’s largest automobile dealership is about to get bigger. Galpin Ford Inc. is expected to complete a deal to acquire Studio City Volvo in the next month, adding a sixth marquee to the dealer’s stable of brands. Bert F. Boeckmann II, owner of Galpin Ford, said the new dealership will join his other stores at Roscoe Boulevard and the San Diego (405) Freeway in North Hills when the transaction is completed. “We should increase our sales by 1,000 new vehicles a year,” Boeckmann said of the planned acquisition. Studio City Volvo, located on Ventura Boulevard, was acquired by Ford Motor Co. late last month when its owner of 43 years, Bill Hirsty, retired. Ford, which acquired Volvo Cars of North America in March 1999, bought the store with the intention of reselling it to another dealer. “It was an opportunity for Volvo to come in and give a dealer his wish and be in control of who got the franchise next,” said Mike Martino, dealer relations consultant for Volvo Cars of North America, who is managing the operation through the sale. “When you’re dealing with a 40-year retailer, you want to do what’s best for him and the Volvo community.” Galpin has expanded its business as Ford has acquired new brands. Last year, the dealership, which also includes Galpin Ford, Galpin Lincoln Mercury, Galpin Jaguar and Saturn of The Valley and Saturn of Santa Clarita, added a Mazda franchise following Ford’s acquisition of that brand. Volvo sold 114,397 cars as of November 2000, a 9.1 percent increase over 1999 sales through November, which totaled 104,530. Though far smaller than the Ford brand, Volvo adds cache to the Ford name. Ford Motor Co. has been steadily building its luxury business and recently set up a premier auto group to house Volvo, Jaguar, Lincoln and Aston Martin. In a recent annual report, Ford said that its luxury brands accounted for sales of only 200,000 units a few years ago, and the company projected that sales in the category would top one million next year. Galpin sold 20,000 car units excluding fleet sales last year. “This will bring us about a 5 percent increase so it’s a nice plus, but it’s not a huge one,” Boeckmann said. “It fits our wanting to carry the entire Ford line, so we’ve got a couple more to get.” In addition to Volvo, Ford last year acquired Land Rover from BMW Group. Boeckmann said the decision to move the Volvo dealership was based on the expansion underway at the North Hills location rather than the growing trend to cluster dealerships. “It would be desirable normally for a dealership to group, but if you had a strong franchise like Ford in a strong location, there would be no reason why they shouldn’t be successful,” Boeckmann said. Galpin is currently constructing a state-of-the-art facility where the new franchise will be housed along with several other of the dealership’s brands. The facility will offer rental services, laptop-ready work stations and a guest lounge complete with a coffee bar and play area.

The newspaper said he was dead, but Mark Twain responded with immortal words: “The reports of my death are greatly exaggerated.” Can the same be said of economic recessions? The question is accentuated by December’s blood-curdling decline in stock prices. For the first time, many participants in 401(k) plans have seen a decline wipe out a full year of contributions. For those with company stock in their 401(k) plans, the decline can be even larger. Worse, major losses aren’t limited to New Economy dot-coms, technology darlings or telecom wunderkinder. To see real employee pain, you need only check the collapse of J.C. Penney stock, a major holding in the retailer’s 401(k) plan. The conventional wisdom, fully anointed by Wall Street, is that we are in a slowdown. Instead of growing at an unsustainable rate, it says, we’ll have a few quarters of slow growth. It will be just enough to keep the riff-raff from building too many 10-000-square-foot log cabins in Jackson Hole, Wyo. Wall Street views Alan Greenspan, chairman of the Federal Reserve, as a kind of Army doctor. He can fix all maladies with interest rate-cutting aspirin. The aspirin cure is on the way. When I see such comfort, I feel a need to check the less conventional sources. One of the more carefully laid-out arguments pointing to recession comes from economist A. Gary Shilling. Long a deflationist some would accuse him of being a dour Johnny One-Note Mr. Shilling pays attention to things glossed over by those paid to be optimistic. Here are some of the factors call it Shilling’s List that he believes will drive us into recession: Wealth recession. Consumer spending tends to rise with consumer wealth, aiding spending. Now it is running in reverse. More important, some were hit harder than others. Those who borrowed to buy stocks, for instance, have seen their assets plummet while their debt remained the same. Significantly, margin debt has soared in recent years, reaching 3.5 percent of personal income last autumn. As Dallas bear David Tice likes to say, “Debt is forever.” Savings shift. A continued decline in stock market wealth could bring an even broader shift in our economic behavior. Some households will compensate for recent losses by increasing their saving, aggravating any recession. Energy-driven purchasing power losses. Noting that energy costs have a delayed impact on spending habits, Mr. Shilling believes that we probably haven’t seen the major impacts on retail spending yet. When heating your house and driving to work cost more, there is less money to spend at the mall. Consumer borrowing retrenchment. Consumer borrowing has topped out. Consumer credit has slowed and the response rate to credit card solicitations has plummeted. Personal bankruptcies are rising. An auto industry slowdown. Still a major driver in the consumer economy, dealer stocks of SUVs and pickup trucks rose from 58 to 71 days in November. With discounts and deals on new cars at record levels, used car prices are weakening. Worse, since SUVs and pickup trucks account for 120 percent of auto industry profits, a slowdown is likely to bring aggressive plant closings. Lack of government spending stimulus. Operating at a surplus, the government is taking consumer spending out of the economy. That’s the reverse of everything we have experienced since World War II. There is more, but you get the idea. Signs of recession abound. Does this mean we should sell our stocks and mutual funds? No. Market downturns come months before actual economic downturns, not after. Many stocks are now selling at normal valuation levels. While the greatest buying opportunities have been in periods of depressed valuation levels, a market at normal valuation levels is a good sign. This year we won’t be overpaying for new stock purchases. Today’s Price, Last Year’s Value Question: A quick look at Yahoo charts today revealed the following: (a) same level as one year ago: GE, Cisco; (b) same level as two years ago: IBM, Microsoft, Hewlett-Packard; (c) same as five years ago: Apple, Motorola; (d) one-half what it was five years ago: AT & T.; Is “buy and hold” dead? , J.G., by e-mail Answer: The fact that some stocks are below the price level of a year or two years ago does not mean that “buy and hold” is dead. Similarly, your calculation of the value of AT & T; may have omitted the value of Lucent, spun off in early 1996. If anything, your figures confirm the wisdom of buy and hold as a long-term investment strategy. You can understand why by examining the basic statistics about stock performance. While the long-term return on all large common stocks, as a group, is about 11 percent, their annual standard deviation in price change is nearly twice that amount. In other words, there is a 66 percent chance that your portfolio return will be somewhere between minus 9 percent and plus 31 percent. The other third of the time, your return will be worse than minus 9 percent or better than plus 31 percent. This means you can do significantly better than 11 percent in any given year or significantly worse. If we are to be long-term stock investors, we need to live with the idea that we may see our portfolio fall back as much as two years in value. The price volatility of individual stocks is even greater. Over the last three years, for instance, the annual standard deviation of a typical large stock has been 57.2 percent, and its average annualized return has been 13.8 percent. This means that two-thirds of the time your return on an individual stock in the last three years was likely to be 13.8 percent plus or minus 57.2 percent. So it shouldn’t be very surprising that some stocks are selling where they were selling two, three or even four years ago. There are, of course, many people who will urge us to take advantage of those price swings to buy at the bottom and sell at the top. The only problem is that neither the bottom nor the top is clearly marked. To me, these realities are powerful arguments for indexing your investments. While it is difficult to know which stocks will be the best performers in any market, it is very clear that more companies are creating value than are destroying it. So indexing puts you on the winning side. Questions about personal finance and investments may be sent to Scott Burns, The Dallas Morning News, P.O. Box 655237, Dallas, TX 75265; or by fax: (214) 977-8776; or by e-mail: scott(at)scottburns.com. Check the Web site: www.scottburns.com. Questions of general interest will be answered in future columns.

With their ranks and prosperity growing at a rapid clip, Southern California’s Latino population is a natural for mortgage lenders. But with many newer immigrants wary of banking institutions and concerns that the mortgage application process will invite scrutiny concerning their residency status, banks have had difficulty attracting Latino customers. Metrociti Mortgage Corp., an Encino-based firm that claims to be the largest privately-held mortgage lender in Southern California, thinks it has found a way to overcome those obstacles. Late last year, Metrociti formed an alliance with an unusual retailer in a deal that will allow the company to set up retail mortgage lending offices at the stores. Dearden’s, with six locations in Los Angeles including one in Van Nuys, sells furniture, jewelry and electronics in stores that also serve as de facto neighborhood service centers where customers can pay phone bills, send money orders, cash checks and make travel arrangements. Thanks to the range of services available, Dearden’s attracts a loyal following of repeat customers, many of whom are the very Latinos Metrociti hopes to attract. “It seemed a perfect fit because they already had the clientele we want to serve,” said Paul Wylie, president of Metrociti. Although the Mortgage Bankers Association of America has no specific data on the number of home loans made to Latinos, the trade group said lenders have recently begun to seek out these consumers, in part because changes in federal fair lending reporting requirements have increased the number of institutions open to government scrutiny. While Latinos account for about 39 percent of the population of Los Angeles County, 6.9 million people and about $69 billion in annual spending power, according to Spanish language newspaper La Opinion, only about 30,000 of the loans made by the FHA in the county in 1999 were issued to Latino families. “We didn’t see anybody out there that was focusing on the segment, and we also saw a lot of abuse with companies providing loans at extremely high interest rates and for extremely high fees,” said Wylie. Metrociti began its quest to tap this elusive market about two years ago by forming a separate division, MetroAmerica Mortgage, under the direction of Adriana Bassin, an Argentine native whose background includes a stint at Banco Popular. Wylie estimates that since the effort began, Metrociti loans to Latinos have grown to account for about 15 percent of the company’s business. Metrociti makes about 6,000 loans a year, closing in excess of $1.5 billion in volume, Wylie said. The company hopes mortgages to Latinos will grow to represent 25 percent of the business in the next three years. But getting the company’s name out into the community is not enough to draw prospects. The Latino community poses a number of obstacles to marketing efforts besides the typical issues associated with first-time homebuyers. Those from politically-torn South and Central American countries are often distrustful of banking institutions. Others worry that the mortgage application process will invite scrutiny over their residency status. And most new immigrants prefer doing business face to face. “There are some large lenders that have tried (to target the market) but, because they’re so big, the customer gets lost,” said Bassin. “The other thing they miss is, our culture means face-to-face,” Bassin said. Bassin, who was charged with rolling out the program, set up outposts in each Dearden’s store equipped with computers and marketing materials in Spanish. Customers can handle the entire transaction, from getting pre-qualified for a loan to finding a real estate broker to help with their house hunting, at the store. While consumers are free to shop around for the best loan rates available, Metrociti says it provides competitive rates and services not available from most other lenders. The staff of Spanish-speaking loan officers is experienced in dealing with the needs of recent immigrants, who may not have a credit history or even a valid Social Security number. Unlike other banks where there is often an unwillingness to deal with these specialized situations, loan officers for Metrociti navigate through many of these problems, including accommodating a co-signer for loan applicants who need them. The company is even working on a program that will factor in non-resident status to the loan application. While some of the marketing materials are the same as those used in the general market, Bassin said, other aspects of the firm’s marketing is tailored to the Latino community. “I try not to be very sophisticated when I put things in writing,” Bassin said. “I translated the booklet on how to go about finding a property and a lot of the things in English, I didn’t put into Spanish.” For example, a new homebuyers’ brochure with a checklist on what to look for asks consumers to consider whether they want a fireplace and how many bathrooms they want. Latinos typically don’t care whether their home has a fireplace or whether it has more than one bathroom.

A downgrading by an insurance rating firm has led the chairman and founder of Calabasas-based Amwest Insurance Group to step down. On Dec. 26, Richard H. Savage, who was then chairman of Amwest, became chairman emeritus, replaced by Charles L. Schultz, formerly senior vice president and chief financial officer of Farmers Insurance Group. Schultz also became interim chief executive officer. A week and a half earlier, A.M. Best Co. had downgraded the ratings of two Amwest subsidiaries, Amwest Surety Insurance Co. and Far West Insurance Co., from B to C-minus. The most recent action by A.M. Best follows an earlier downgrading to B in August 2000. A.M. Best Vice President Karen Horvath said the rating firm’s action was the result of substantial underwriting losses in Amwest’s corporate surety business and a $14.5 million loan from Union Bank of California that is in technical default. Amwest sells bonds to contractors guaranteeing the timely completion of their construction projects. If a project falls behind schedule or is abandoned by the contractor, Amwest must pay the value of the bond. Phillip Huff, treasurer and senior vice president, said contract surety amounted to about 36 percent of Amwest’s business in the third quarter of 2000. Amwest had recently expanded its corporate surety business in the Dallas area, where, Horvath said, most of the underwriting losses occurred when it had to make payments on bonds for several large projects. “The Dallas branch began underwriting larger accounts than they’ve done before,” she said. “They didn’t have the experience they had in California and, when the losses came in, they came in pretty rapidly.” Schultz was reluctant to pin all the blame on the company’s Dallas operations but said, “that was one office where losses occurred.” “Unfortunately,” Schultz said, “when a contractor goes down, bonds have to be paid.” Huff said, “The most adverse actions were in 1999 and worked their way through in 2000.” Losses recorded in 2000 Amwest reported a net loss in the third quarter ended Sept. 30, 2000 of $3.1 million, or 73 cents per share, compared to a net loss of $2.8 million, or 64 cents per share, for the corresponding period in 1999. For the nine months ending Sept. 30, the company’s net loss was $14.3 million, or $3.31 per share, compared to a net income of $1.4 million, or $3.63 per share, for the same period in 1999. The operating loss for the first nine months of 2000 was $15.7 million, compared to an operating income of $8,000 during the same period in 1999. Amwest’s stock price, with a high of $8.75 in March 2000, hovered around $5 per share most of the year, plunging first in November and again last month after the downgrading. On Dec. 15, the day of the ratings announcement, Amwest stock hit a low of 75 cents. By Jan. 4, the stock had moved back to $1.56. After A.M. Best’s first downgrading in August, Amwest closed two of its 32 branch offices (in St. Louis and Pittsburgh) and reduced its staff by 10 percent. “Staff cuts will probably continue to be made,” Schultz said. “That addresses the expense side.” Amwest has also hired the DL Cargile Consulting Group to develop a strategic plan. Previously, it retained the San Francisco banking firm of Cochran, Caronia & Co., also to develop “strategic alternatives.” In the meantime, the A.M. Best downgrading makes it difficult to do corporate surety business at all, since few contractors will accept bonds from companies with such low ratings. “It is extremely significant,” Schultz said. “Agents and brokers are reluctant to place business with a company with a rating of C-minus.” Horvath said the ratings dilemma causes A.M. Best “to have concerns on a going-forward basis.” “This is a rating-sensitive business, so this is a very serious situation,” she said. Huff said Amwest must first “enter into and successfully negotiate with the bank. Then we have to infuse some surplus into the company or scale back underwriting, either by reinsuring or not writing the business at all.” In September, following the first downgrade, Michael Klein, a Reno-based investor, offered public shareholders $6 per share and said he was seeking more than $20 million in equity financing from a “nationally-recognized venture capital firm” to fund the deal. Klein, through Pacificor Inc., an investment firm he controls, already owns 251,400 shares of Amwest, about 5.8 percent of the outstanding stock. Although the deal with Klein has yet to come to fruition, Schultz declined to comment on its status. “It is possible there will be further discussions,” Schultz said. “I can’t say otherwise.” Besides the underwriting losses, in its report, A.M. Best also noted the sizable loan with Union Bank and a $5 million principal payment due in September. “It’s questionable whether they will be able to make those payments or refinance the debt,” Horvath said. Nevertheless, Schultz is optimistic about Amwest’s prospects. “We’ve got to see if we can correct the underwriting problem,” he said. “And we want to see what we can work out with the bank. We will hope that A.M. Best will review the rating.”

Chuck Pelly’s story sticks closely to the familiar rags-to-riches theme: He started out by himself in the garage of his Malibu home 28 years ago. That first year, Designworks did not net a single cent of profit. By 2000, there were $1.2 million in net profits, nearly 100 designers bustling around a beehive of design studios in Newbury Park and a reputation as one of the world’s most innovative design shops. Now, from cell phones, office chairs and computer printers to high-speed trains, from public transit buses to high-tech medical equipment, Designworks focuses on projects and clients that demand imagination and intuition. “We try to define what is hot for clients,” said Bob Del’Ve, senior vice president, who lives in Thousand Oaks. “If you design something really well, and it’s so cool you have to have it, then it’s truly successful.” The studio became a wholly owned subsidiary of the BMW Group in 1995. Today, Designworks is BMW’s sole U.S. design studio. Along with designing everything from sunglasses, bike seats and ski goggles to 18-wheeler sleeper cabs and executive jet interiors, Designworks was recently instrumental in the design of the BMW X5 Sports Activity Vehicle and the award-winning new BMW 3 series. Profits in 2000 were more than triple those for 1999 ($324,000), Del’Ve said, and are all re-invested in the company to strengthen existing technology and provide new learning tools. By company charter, the studio devotes half its energies to BMW-related projects and the other half to its eclectic client list in the trucking, consumer electronics, medical technology, aviation, rail and sporting goods industries. Designworks oversees about 45 projects annually, typically with 30- to 48-month timelines from inception to market. Design projects over the years have include the interior for the AASI Jetcruiser 500; the Allergan Sovereign Medical system, recognized in three major design competitions and used in cataract surgery; and a ski goggle, designed for Scott USA. One recent project is a virtual reality workbench that captures 3-D, hand-drawn figures in space and suspends them in real time, directly in front of and around the operator’s viewing capabilities. The user dons a pair of 3-D goggles and a motion-sensitive glove, then stands in front of a 6-by-8-foot rear-projecting screen. Any movements made using the goggles, glove and tools are tracked with a computer and a field motion tracker. The end result is a 3-D model viewable in virtual reality or on screen. “Since I was 3 years old, it was my lifetime dream to build my own design office,” said Pelly, 63, who lives in Woodland Hills. “I was determined to do this. It was either this or death.” A graduate of Pasadena’s Art Center College of Design who later studied industrial and furniture design in Sweden, Pelly is a 40-year veteran of the design industry. One of his early design accomplishments was the original Scarab sports car. Starting back at the top: in the early 1970s, Pelly went slowly, adding an employee or two each year. Eventually, he outgrew his Malibu garage and moved to a larger space in Van Nuys. In the early 1980s, Designworks moved again to a studio in Agoura, where it remained until a fire forced Pelly and his team out and on to Newbury Park 10 years ago. Pelly retired last year, but remains a consultant for the company. His successor is Henrik Fisker, a 10-year veteran of the German automaker who was named president and CEO of Designworks in January 2000. The influence of both European and American design on the company’s work prompted Switzerland’s Pilatus Business Aircraft to use Designworks for its showplane and paint renderings, said Thomas Bosshard, manager of completions for Pilatus. “They did a great job,” he said. Jeff Paul, engineering program manager for Kenworth Truck Company, said he was equally impressed with the styling concepts and models that Designworks completed for his company. Kenworth picked Designworks after visiting with several other design companies. “Their understanding of the automotive design process was a major factor,” Paul said. “Designworks’ association with BMW is also a factor because they are a strong engineering company we feel relates well to the work that we’re doing. We felt (Designworks) could offer us something we might not be able to generate on our own.” Marc Tappeiner started with the company eight years ago after graduating from Cal State Long Beach with a degree in industrial design. Today, Tappeiner is Designwork’s director of product design. “I’d be miserable if all I did was design remote controls all day,” said Tappeiner, who commutes to Newbury Park from Santa Barbara.

More than 40 years after the Canoga Park-based Rocketdyne Division of Boeing North American, Inc. developed the engine for the rocket that launched America’s first satellite into space, engineers are again busy with what could be a precursor to the next generation of space travel. “Depending on how this works out, we could be seeing an example of the kind of craft that could eventually replace the Space Shuttle,” said Dom Amatore, a spokesman for the National Aeronautics and Space Administration. In a cooperative effort with NASA and Lockheed Martin Corp., Rocketdyne is back at the forefront of the nation’s space program with development of the X-33 unmanned launch vehicle. Building on the legacy of its mammoth first-stage engines for the Saturn V rocket and, later, the main engines of the Space Shuttle, Rocketdyne is developing the engines that would eventually power future versions of the shuttle and other space vehicles. Like a number of aerospace firms that struggled in the 1980s and 1990s with dwindling federal contracts, Rocketdyne has seen its space activities slow through much of the same period. Revenues for Rocketdyne and its sister communications unit hovered around the $6.8 billion mark in 1998 and 1999, according to Securities and Exchange Commission filings. Those figures could increase if NASA agrees to additional funding for the X-33 later this year, even though company officials have yet to submit a formal proposal. If testing with the spacecraft is successful, NASA could give the go-ahead for additional full-scale versions of the Aerospike Engine, potentially meaning hundreds of millions of dollars to the company. But with the advent of the International Space Station which has a Rocketdyne-built power plant the X-33 and other rocket engine development programs, the company has rebounded from its stagnant period and is poised to again take the lead in space-related technology. “This is going to do something that no space vehicle has ever done,” said Dan Beck, Rocketdyne public relations manager, referring to the X-33. “It’s going to take off single stage with no boosters or anything like that. It’s going to reach a suborbit and, 15 minutes after (take-off), it’s going to land in Utah and then they’re going to turn it around and do it again.” Such are the goals for the experimental half-scale X-33 rocket, an unmanned wedge-shaped rocket scheduled for launch in 2003. The diminutive winged vehicle would be launched from Edwards Air Force Base, reaching up to 60 miles in altitude before returning to earth and landing like an airplane. New era in space travel Rocketdyne is banking on its new XRS 2200 Linear Aerospike Engine to power the craft and eventually a full-scale version of the launch vehicle to help the U.S. compete in the satellite launching business. “We hope that if this program is successful it will make us more competitive in the world launching market,” NASA’s Amatore said. The space agency hopes to reduce its costs for launching a payload into space from $10,000 per pound to $1,000, with an eventual goal of reducing it to $100 per pound. But that figure is a long way off, officials admit. According to NASA, satellite launches and related services both public and private sector cost $9 billion in 1996 and is projected to cost $29 billion in 2000. In recent years, European and Russian companies have provided stiff competition to U.S. firms launching satellites (with revenues of about $1.43 billion in 1998), forcing NASA officials to develop a cheaper, more reliable substitute for the aging Delta and Atlas rockets. The European Space Agency cornered more than a third of the $4.3 billion launch market in 1998, followed by the U.S. and Russia, according to one study. But by the late 1990s, satellite launches became less frequent and the competition cooled. Still, the Europeans retain what lead there is to have. Banking on a so-called reusable rocket, NASA hopes to eventually replace its existing single-use, multi-stage rockets with a reusable rocket that takes off from a launch site and lands like an airplane that can be refueled and readied for launch within three days. The idea was revived when NASA proposed the $1.2 billion X-33 project. Today, $210 million in development costs and scores of man-hours in design, development and testing later, the engine will be ready for delivery this summer.

Most businesses say their top problem is the shortage of qualified labor. And those at firms in the fast-growing high-tech sector feel the problem is particularly acute. Creative solutions to the dilemma have ranged from importing workers from foreign countries to establishing partnerships with local educational institutions. One 15-year-old Chatsworth firm has come up with an idea that puts the solution squarely in its own backyard. Pacific Coast Cabling, a $19 million company operated by David Burr, has established its own in-house training facility to educate the 118 technicians it needs to fill its needs. Burr explains how the Pacific Coast Cabling Education Center, which opened in January 2000, came about. “The idea for the school has probably been festering almost three years. Our problem in being able to act on it early was that we were not physically located in enough space to accommodate it. But then we relocated our corporate offices (from Arleta) in September of 1999. “When we moved to this location, we found it had more warehouse space than we needed, so it provided us with an opportunity to build out the training center. “The work we do is structured cabling, and is similar in scope to what electricians do in a building, but it’s low voltage and much more intricate with regard to installation practices. “There wasn’t any place to send (my entry-level workers to get training). We had previously just done on-the-job training where we tried to match entry-level personnel with more experienced personnel and have them work side by side for some time. But the down side was that you sort of got the individual flavor of each person (doing the training). “The problem was the consistency of the work. So what we decided to do was grounded in our support of BISCI (an industry association). What they have done is craft a whole training program for entry-level technicians people who range from absolutely green right up through their fifth year of experience. “We took one of our top technicians and sent him to Florida where BISCI is located to go through their two-week training program. Now he’s certified to conduct the three-level training program within our offices. “We sponsor the cost of the course for our employees. It’s about $1,150 for each of the three one-week courses. The cost to set up the education center was about $50,000, plus another $5,000 to $10,000 for the training materials. It also cost about $5,000 for our training to go through the BISCI course.”

If for the Chinese this is the “Year of the Snake”, it might be more aptly described for San Fernando Valley businesses as the “Year of the Big Squeeze.” Businesses of all types are expected to see a significant increase in fixed costs. Workers compensation and health care premiums are on the rise, gas and electricity costs are skyrocketing and the minimum wage jumped 50 cents beginning Jan. 1. Add to that the potential for an actors and writers strike, which could have a ripple effect for entertainment-related companies in the Valley, and the meltdown of tech stocks, which has made it tougher for companies to access capital, and you have the makings of a pretty tough year. “Two thousand one is going to be a year of extreme cost pressures,” said Jack Kyser, chief economist for the Los Angeles Economic Development Corp. “You’re going to see uneven business patterns and a more skeptical financial community. Companies that don’t have a real-world business plan or products someone wants are going to be in trouble.” Premiums for workers compensation are expected to climb 10 to 20 percent, and health-care costs are projected to rise 13 percent this year over last. Natural gas costs have jumped from 23 cents to $1.43 a cubic foot with more increases on the way, said Kyser. Companies unlucky enough to be in Southern California Edison’s rather than L.A.’s service area will have to cope with the 9 to 15 percent rate hike approved by the Public Utilities Commission last week. Meanwhile, businesses can expect labor costs to climb this year as L.A. experiences one of its tightest labor markets in 30 years and the minimum wage jumps from $5.75 to $6.25. Taken alone, the increased costs won’t break the bank, but tally them up and companies are sure to feel the strain, said Sal Bianco, co-chair of a Valley Industry and Commerce Association (VICA) committee that is studying the problem of rising health and workers compensation costs. “Businesses are going to be rocked with increased overhead expenses,” said Bianco. “The big question now is the economy and whether we’re going to hit a hard landing.” It all adds up The Fed’s recent decision to reduce interest rates should goose the economy, but businesses will still have to cope with the increased expenses while being limited in what they can pass onto customers by competitive pressures. Take Precision Dynamics Corp. The Pacoima-based maker of medical devices is bracing for yet another increase in health insurance and workers compensation premiums on top of the hit the company took last year. In 2000, the company saw those costs jump $100,000 and $50,000 respectively to cover its 500-person workforce. “Everybody is experiencing the same thing,” said Bob Shaub, director of human resources. “I’ve heard of some companies getting hit with 100 percent increases in workers comp rates.” At the same time, the company must contend with the 50-cent increase in minimum wage it pays its lowest skilled workers to make the hospital ID bracelets and other products it sells. The increased wages place Precision Dynamics at a competitive disadvantage to companies in other states that adhere to the national minimum wage of $5.15 an hour. “I’m hearing some of the rumblings you heard in ’94 and ’95 when companies started looking at other states,” said Shaub. Don Shain, general manager of the Caf & #233; Bizou a chain of three restaurants based in Sherman Oaks expects the increased costs to wallop the restaurant industry, which traditionally has a low net profit margin. “There’s not a lot of fat,” he said. “Taken individually, the added costs wouldn’t be a problem, but when you add natural gas, workers compensation, minimum wage, it becomes a problem.” Particularly nettlesome for restaurants is the minimum wage increase. Unlike the majority of other states, California doesn’t allow restaurant owners to count tips as part of a waiter’s compensation. As a result of the minimum wage increase, restaurants are being forced to boost the hourly wage of waiters who are already making a killing in tips. That creates an inequity for kitchen employees, who typically work without tips, said Shain. Caf & #233; Bizou already pays its kitchen employees more than minimum wage, so the 50-cent increase won’t benefit them. “The restaurant owner is being forced to give well-paid dining room employees a boost when he’d really rather pass it on to the kitchen employee,” said Shain. “It creates a big inequity.” Don’t forget the strike While increasing fixed costs will be a big concern for most businesses in 2001, the looming strikes by the actors and writers cast an ominous shadow over the entertainment industry. The industry will face a bleak second half if the Screen Actors Guild, the American Federation of Radio and Television Artists and the Writers Guild of America do not reach new contract agreements with the studios by July. A strike is sure to have a profound ripple effect on a myriad of businesses in the Valley, said Kyser. “We’re talking the post-production houses, the people who provide food services on the sets, everybody,” he said. Indeed, Gail Ringer, general manager of Ringer Video Services Inc., said a strike could be devastating to her four-person company, which transfers videotape to film for studios, independent film makers and some ad agencies.

Jose Molina knows the drill. At 38, the Mexican-born janitor is one of thousands of Valley residents who move from one low-paying job to another, now earning slightly more than $7 an hour cleaning a Van Nuys office building. Molina has no illusions of someday making $30,000 a year. “I no think so,” he said with a heavy accent. So it comes as little surprise that Molina and others in his North Hollywood neighborhood support the drive to have future tenants of the $400 million NoHo Commons retail complex provide its workers with a so-called living wage. But that support is tempered by skepticism. The project, if living wage proponents were to succeed, would become one of a handful of developments scattered throughout the United States that require wage guidelines. And even in those projects, activists have met with mixed results at best. In Minnesota, for instance, living-wage proponents felt they scored a victory when the Minnesota Wild National Hockey League team agreed to create 50 full-time living-wage jobs as a condition for the construction of a new arena in 1999. However, at the same time, the team expected to generate more than 150 other arena jobs that would not be tied to living-wage commitments. In St. Paul, Minn., Media One, now AT & T; Broadband, last year pledged to provide living-wage jobs to low-income residents as part of a deal it made to relocate there. An AT & T; spokesperson said that pledge has not yet been implemented. Los Angeles is one of more than 40 cities that have living-wage ordinances for contractors that do business with them. However, contractors and developers dealing with the Los Angeles Community Redevelopment Agency are exempt from those requirements because, although operated by the city, it is technically a state agency. City officials said they support the living wage in theory; they also said they are concerned that it may scare off potential tenants, according to agency spokesman Thomas Knox. While the notion of a living wage sounds good to many in the mostly working-class community, it remains a sticking point with project developer J. Allen Radford. Radford, among the growing number of developers courted by living-wage activists, says he is not in the business of telling tenants how much to pay their employees. While he sympathizes with activists, Radford complained that living-wage activists could kill the very project they support. Better than nothing Kevin Whelan, a Minnesota-based organizer with the Association of Community Organizations for Reform, or ACORN, says weak living-wage ordinances and business opposition have slowed efforts. “Getting 50 living-wage jobs from the Minnesota Wild is a small number, but 50 jobs are better than none,” he said. Likewise, Valley living-wage activists see a rough road ahead for their efforts. Erika Zucker, policy director for the Los Angeles Alliance for a New Economy, said living-wage efforts are still in their infancy and are a long way from acceptance in the business community. “There is a lot of opposition, so we have to take one step at a time,” she said. Cameron Levin, an analyst with the Los Angeles Alliance for a New Economy, says the living-wage proposal is nothing new to the area. “It’s been tried very successfully in Hollywood,” said Levin, referring to the TrizecHahn Development Corp.’s $567 million hotel, theater and retail complex at Hollywood Boulevard and Highland Avenue. Under an agreement with the Community Redevelopment Agency, TrizecHahn has guaranteed 1,000 living-wage jobs, mostly at a planned Marriott Hotel and with janitorial and security staffs through the complex. The company also agreed to “encourage” its tenants to pay their workers a living wage. Beth Harris, a TrizecHahn spokeswoman, said the company supports living-wage efforts and is giving preference to potential tenants that would do the same. “It’s hard to tell what will happen, but we want to meet with the developer and have a dialogue,” said the Valley Jobs Coalition’s Roxane Auer. “A lot of people here are counting on this project.” The North Hollywood project, now in the final stages of development, is the recipient of $20 million in funding from the redevelopment agency, which approved the plans for the area around Lankershim and Magnolia boulevards. The Valley Jobs Coalition’s proposal has been presented to the agency for review and possible consideration. But Auer says it’s been revised twice while in agency hands and may still not pass muster with the agency board. “There’s a lot of opposition to this plan,” she said. Just above the poverty line The coalition defines a living wage as one that allows an income just above the federal poverty line for a family of four in Los Angeles: $7.72 an hour with benefits, $8.97 without. The federally-mandated minimum wage is now $5.75 an hour. According to U.S. government statistics, there are 6 million adults who earn less than $16,400 a year the federal poverty line for a family of four. According to state figures, 315,000 Valley residents live below that. Other statistics show that seven of L.A. County’s 10 fastest-growing occupations pay less than $8.50 an hour, according to the non-profit California Budget Project. Roxana Tynan, an aide to former L.A. City Councilwoman Jackie Goldberg, who led the effort to develop the Hollywood and Highland project, said TrizecHahn’s agreement is a model for other projects, such as NoHo. “My sense is that this project will lead to bigger things,” Tynan said. “We hope to have a living-wage proposal for the CRA that will cover tenants, but we’re still a long way off from that.” Agency board members did not return telephone calls to the Business Journal and agency spokesman Thomas Knox said he would not comment on the proposal or possible board actions. The Community Redevelopment Agency could vote on the living-wage proposal later this year. The 22-acre NoHo project is scheduled to open in about two years with a hotel, restaurants, movie theaters, and a variety of stores, shops and service businesses. It is expected to generate about 4,000 jobs, including those required for its construction.

On the heels of a business turnaround that has boosted sales and profits markedly, Syncor International Corp. is expanding by more than half at its headquarters in Woodland Hills. The company has just signed a seven-year lease for 35,000 square feet in the Warner Corporate Center, next to the 60,000-square-foot facility it occupies at 6464 Canoga Ave. “It’s directly related to the growth they experienced over the last year,” said Rosey Miller, senior managing director at Julien J. Studley Inc. brokerage, which represented Syncor in the deal. The company chose to expand into a second building rather than move all its offices to a new, larger space because of the amount of time left on its current lease, Miller added. Syncor, a pharmaceuticals manufacturer, several years ago began acquiring medical imaging centers and now operates two distinct divisions. Offices related to both businesses will be interspersed throughout the two buildings, Miller said. “They’re trying to say the culture of the organization is all one, and they’re trying to eliminate any separation by having one division in one building and another in the other,” Miller said. “This way, they have a cross mix, and it has a positive impact on the culture.” Miller said the deal, which took about 60 days to complete, was pushed through quickly because several different companies were competing for the space and rents were increasing, even as negotiations proceeded. “Within a 60-day period, rents went up about a nickel a foot,” said Miller, who would not reveal the value of the lease. Syncor has seen substantial growth in revenues and earnings since it began its program of diversification. For the third quarter ended Sept. 30, the company reported net income nearly doubled to $6.3 million (29 cents per diluted share), compared to $3.2 million (12 cents) in the like period of 1999. Sales for the same period rose to $155.5 million, up from $131.5 million in the third quarter of 1999. Renovated Site Sold Legacy Oaks Corporate Center, a newly renovated, five-story office building in Thousand Oaks, has been sold to Adler Realty Advisors for about $24.5 million. The 156,000-square-foot building, which is nearly fully leased, is home to Homestore.com, Digital Island, Toyota Motor Credit Co., Wiley Electronics and the corporate offices for Baja Fresh Corp. The building, at 225 W. Hillcrest Drive, was owned and occupied by Exxon Corp. until it was purchased by Legacy Partners in 1997. Legacy gutted the facility and rebuilt it. Adler, a private investment company in Woodland Hills, is believed to be actively engaged in several other real estate transactions in the San Fernando Valley. Both buyer and seller were represented by Tom Festa and Kevin Shannon, brokers with Grubb & Ellis Inc. Thousand Oaks Sale A newly constructed, 35,434-square-foot building in Thousand Oaks was sold for $2.9 million. The facility, at 2401 Corporate Center Drive, will be occupied by the buyer, RIMAR Trust. John DeGrinis and Mike Tingus, brokers with Colliers Seeley, represented the developer, Resnick Co. Inc. The buyer was represented by Les Small of Les Small & Associates. Entertaining Deal The Theatrical Television Motion Picture Payment Fund leased 11,500 square feet of space at 12001 Ventura Place in Studio City. The 10-year lease is valued at $4 million. The fund, involved in managing royalty payments, will be moving from Hollywood. Trevor Belden, a broker with Lee & Associates, represented the landlord, American Realty Advisors. David Solomon and Chris Dumont, brokers with CB Richard Ellis Inc., represented the tenant. Tenant Buys in Van Nuys Another industrial building has been sold to a user-owner. Gilbert Rosky and Hossein Tehrani, whose company manufactures foam packaging for commercial use, acquired the 19,725-square-foot industrial facility at 15344 Raymer St. from MHI Investments Inc. The purchase price was not disclosed. David Young and Bill Napier at NAI Capital Commercial represented the buyer. The seller was represented by Mike Sheptenko of TOLD Partners, Inc. Newhall Properties Sold California State Teachers Retirement System acquired four office buildings in the Valencia Town Center for more than $72 million. The properties, totaling 395,000 square feet, include two buildings under construction for Princess Cruises. Fred Cordova, Ryan Smith and Martin Morgenstern at Cushman Investment Services represented the seller. Newhall Land and Farming Co. CalSTRS was represented by Thomas Properties Group. Chatsworth Expansion Luminent Inc. leased 22,200 square feet of industrial space in Chatsworth to expand its offices. The fiber-optics company will expand its offices in an adjacent building. The five-year lease is valued at $990,000. Tim Foutz, a broker with NAI Capital Commercial, represented the landlord, George DeRado. Staff reporter Shelly Garcia can be reached at (818) 676-1750 ext. 14 or by e-mail at [email protected].