With automobile sales up more than 20 percent in some categories, car dealers are scrambling for more space, but they’re hitting a dead end. A scarcity of large tracts of available land in the San Fernando Valley, coupled with high prices for the few parcels that are available and community opposition to auto dealerships, is stymieing growth opportunities for a number of dealers. “The biggest problem we’ve found is the locations that are suitable are very few, and they have been priced out of the range of where it would be practical for dealerships,” said Cesar De La Cruz, a broker with Westcord Commercial Real Estate Services who has handled land searches for a number of car dealers. “Two (new-car dealers) that I know of have given up. They just went to a different city.” In the past few months, car dealers have been confronted with still more roadblocks. The Los Angeles City Council is seeking to seize land in Mission Hills that had been acquired by DaimlerChrysler for a new dealership. The city wants to build a new police station there instead. And the Los Angeles Unified School District has its eye on a Van Nuys site that Galpin Ford acquired for additional storage facilities. While large tracts of available land have been in short supply throughout the Valley for some time, that shortage is only now becoming a dilemma for car dealers. Although specific auto sales figures are not available for Los Angeles, car sales across the state through July are up more than 11 percent compared to the same period in 1999. For Asian makes and models, the increase is more than 20 percent and, for European brands, 23 percent, according to J.D. Power & Associates. That compares with a 3 percent increase for the same period in 1998. At the same time, margins are at an all-time low. “As volume becomes important, your margin will go down and, if it’s a desirable vehicle that we can sell a lot of, we will lower the price (even more),” said Jim Lynch, president of Rydell Automotive Group. Lynch entered the California market in partnership with General Motors Corp. in 1998 by taking over existing GM dealerships in Northridge and Van Nuys, and he is about to redevelop a new dealership along two blocks in the city of San Fernando. But GM already owned much of that land and, without that edge, Lynch says it’s unlikely he would have found enough room to grow. “It’s taken us a couple of years to recover from cardiac arrest, given the land prices,” Lynch quipped. “Buying a piece of land is a difficult challenge, difficult in terms of getting a piece big enough that’s contiguous on the one hand, and being able to justify the fixed overhead that the land entails.” Steep land costs A contiguous block of land large enough to support a dealership, between two and five acres, can run anywhere from $15 to as much as $50 a square foot, depending on the location. Even if a dealer can secure the land, he or she is likely to run into obstacles getting government approval for a shop. Showrooms almost always include service centers that pose environmental and noise problems that may make it difficult to secure the required permits. “They don’t like car dealers,” said Jack Ribis, owner and operator of Autoworld-Kia in Northridge and dealerships in Canoga Park, referring to the cities and community groups he’s encountered in L.A. “We contaminate the ground. We put up big balloons to draw people’s attention. We’re not liked, so they make it difficult.” When Ribis opened his Kia dealership about three and a half years ago, he saw first-hand the difficulties. “Before I opened Kia, I looked all over the place,” he said. “I had to take a restaurant and convert it and go through the hassles with the city that you wouldn’t believe to get it and make it happen.” So earlier this year, when a Suzuki dealership became available in Canoga Park, Ribis jumped at the chance to take it over. Then he really got lucky. The day he was to sign the lease for the Roscoe Boulevard store, he learned that a Ford dealership on the same block was about to move out, and the landlord for that property made him an offer. All told, Ribis was able to lease five acres, and four months ago he opened a Daewoo dealership next to the Suzuki lot. Shifting Landscape Shifting Landscape “You need to keep your ear to the ground,” said Joe Lopez, a broker at Westcord. “In general, they’re very scarce, although not impossible to find because the market fluctuates. What’s a Honda (dealership) today could be a Hyundai dealership tomorrow.” Auto Stiegler, a Mercedes Benz store in Encino, is another dealer that got lucky. Several years ago, aware that the manufacturer was going to roll out an improved program of factory-certified used cars, John Stiegler Jr. began negotiating for 30,000 square feet next door to the dealership. The dealer’s existing used-car lot was across the street from the main store, with poor visibility from Ventura Boulevard; customers had to dodge traffic to get from the showroom to the lot. Stiegler wanted a lot that reflected the tonier image of the new Mercedes Starmark program. “I had a long-term relationship with the owner (of the parcel),” Stiegler said. “I called him up and mentioned my interest in the property. It took about a year to put (the deal) together.” Steigler’s annex is set to open Oct. 15. Other dealers have tried instead to find ways to increase the use of their existing facilities. “Where we see a push is in facilities upgrades,” said Linda Hirneise, a partner with J.D. Power. “A lot of (manufacturers) are working with retailers to bring the facility up to a designated standard.” Along Van Nuys Boulevard, the closest thing the Valley has to an auto mall, several dealers have gone to two-story facilities in order to expand their showroom space. Many dealers are also extending their service hours, going to six-day weeks and shifts that run to midnight to accommodate the additional traffic. Many say a round-the-clock operation may be just around the corner. “The reality in L.A. is there ain’t no space,” said Lynch, “and you better figure out how to manage your space pretty darn good.”

Ever try to catch a cab in L.A.? It can be infuriating, and even more so since local transit workers went out on strike. Sometimes it takes taxis forever to respond to a pickup call. And in some areas of the city, they never show up at all. The city is out to change all that as it prepares to grant new franchises to cab companies for the first time in a quarter century. The goal is to better monitor and regulate taxi service while trying to keep response times to 15 minutes or less. The stakes are huge: the 11 taxicab companies that currently hold city franchises rake in an estimated $3 billion to $4 billion a year. And the city itself receives $90 million a year in franchise fees from these companies, making it one of L.A.’s largest business income streams. “Millions upon millions of dollars are at stake for these companies. And what is decided in the next few weeks will also determine the livelihoods of thousands of taxicab drivers,” said Howard Sunkin, a lobbyist with Cerrell Associates who has represented taxicab franchise holders for the last 14 years. It’s a nerve-wracking process for cab companies because there’s no guarantee that firms that currently hold a franchise will be awarded a new one after their bids and track records are scrutinized. And those that do get franchises renewed may not be allowed to keep the same number of licensed vehicles. “If any one of the companies gets a cut in their (taxicab license) allocations, it will be disastrous for them,” said Jerry Qonsul, general manager for Lennox-based Los Angeles Checker Cab Co., which now is authorized for 269 taxis. “The drivers would get hit especially hard, since they actually own their own cabs. They could lose their ability to work in L.A., all because the company they work for happened to make some bad management decisions several years ago.” In two weeks, the city’s newly established Taxicab Regulation Division is scheduled to release its recommendations outlining how many franchises there should be, how many taxicabs should be assigned to each franchise company, and most importantly which companies should get the franchises. In the process, taxicab regulators have spent several months combing the service, safety and compliance records of each of the companies. Under the plan, the overall number of licensed taxicabs will be increased to 2,303 from the current 2,183. The new regulations also call for stiffer penalties for those companies that consistently come in over the response time standard, which requires drivers to pick up customers within 15 minutes of receiving the call at least 75 percent of the time. “If a company does a really poor job, it can have its franchise terminated early or lose part of its franchise service area,” said city Taxicab Administrator Thomas Drischler. The new system calls for franchises to be awarded for five years, with the possibility of obtaining up to five one-year extensions before a franchise must be put out to bid again. The recommendations will first go before the five-member Taxicab Commission. They will then go to the City Council’s three-member transportation committee, probably in early November. If approved, the full City Council will vote on the franchise recommendations, probably by the end of the year. Eliminating long waits Another aim of awarding new franchises is to improve taxicab service in traditionally under-served areas like South Central, the Eastside and the Northeast Valley. “There are lots of times when someone in one of these under-served areas puts a call in to a taxicab company and has to wait 30 or 40 minutes for a taxi, if one shows up at all,” said Councilman Rudy Svorinich, who chairs the city transportation committee. “What we’ve found is that a taxicab company will often neglect some of their own service areas and instead encroach upon more-lucrative areas like the Westside. That’s unacceptable and that’s why we’ve pushed for the stiffer penalties.” With so much at stake, the lobbying on the franchise issue has been fierce. Taxicab companies spent nearly $100,000 in the second quarter alone to lobby city staff on this issue and to win City Council approval for a 12 percent fare hike that took effect in June. While lobbying figures for the third quarter are not due out until late November, the total is expected to be at least as high. However, lobbying is only a fraction of the costs that taxicab companies have incurred to be in the running for the new franchises. As part of the new requirements, each company must have in place a fully computerized dispatch system within six months of receiving a franchise. The aim, said city Taxicab Administrator Thomas Drischler, is to make it easier for city regulators to track taxicab response times, which like airline on-time arrival times is regarded as a key performance indicator. But a computerized dispatch system isn’t cheap. “It cost us about $2,000 a taxicab, or nearly $500,000, to install our computerized dispatch system last year,” said L.A. Checker Cab’s Qonsol. “It has tremendously improved our operations, so it was a worthwhile investment. But I can see how it can be a barrier for smaller firms.” ‘Deadhead time’ Since the last round of bidding in 1975, all of the franchises have been extended repeatedly in five-year intervals, with few changes in service requirements. Many believe the time has come for a major overhaul. “This is long overdue,” said Svorinich, “Of the 11 companies working in the city, only one has gone through the competitive bidding process; the rest of the franchises were acquired either through buyouts, mergers or transfers. This is our first chance in 25 years to really look at the quality of taxicab service in L.A.” Despite the huge outlays for lobbying and technological improvements that taxicab companies will have to bear, they do stand to gain something they have long pushed for: the ability to pick up customers outside their designated service areas. Currently, the city is split up into five general service areas: the San Fernando Valley, the Westside, the Central City, South Central, and the Harbor area. Taxicab companies can only pick up customers on the street within the service areas designated for them as part of their franchise; they must pass up any customers who flag them down outside their service areas. For example, if a taxi company is only licensed to serve the Westside, its drivers can take customers to the San Fernando Valley, but cannot pick up anyone in the Valley except if it’s a phoned request. This leads to what is known in the industry as “deadhead time,” where taxicabs must return vacant to their original service areas. The new regulations would do away with this restriction, provided the company maintains adequate response times within its primary service area or areas.

When it comes to reaping the benefits of the booming L.A. economy, Antelope Valley is losing out to western San Bernardino County. The cities of Lancaster and Palmdale, which make up the economic hub of the Antelope Valley, have seen relatively little positive impact from the strong industrial market in L.A., according to a new study by the Los Angeles County Economic Development Corp. The area’s problems are exemplified by the inability of industrial developers to get financing for speculative construction there, according to Danny Roberts, assistant executive director for the Palmdale Redevelopment Agency. “That’s the toughest thing that we find,” said Roberts. “We have a lot of property and we have developers who want to build, but there is lack of support from financial institutions because of this perception of the area as too remote.” However, Roberts believes there is reason to be optimistic. After last year’s decision by SR Technics to locate a major aircraft maintenance facility in Palmdale and bring 5,000 jobs to the region, businesses have started to take a closer look at the Antelope Valley. Meanwhile, the main beneficiary of the shortage of high-end industrial space in L.A. has been the area around Ontario. “The two areas (Ontario and the Antelope Valley) compete directly with each other for the same type of businesses,” said Jack Kyser, chief economist with the LAEDC. “The Ontario region has the upper hand at the moment, because they’re closer to the ports, they have the airport with the United Parcel Service hub, and they are right on the main highways and railroad tracks out of California.” Part of the Antelope Valley’s problem, according to Kyser, is the common perception that the area is too remote and hard to access. Although it’s famous for being the place where some of the most advanced and secretive aerospace projects are being developed (it’s where Boeing Corp. and Lockheed Martin Corp. are developing the Joint Strike Fighter), the Antelope Valley does not leap to mind as an obvious location for lower-tech businesses. The region is more of a bedroom community and counts, as of January 2000, 60,400 jobs for a population of 333,150 residents. That amounts to 5.5 residents per job. By contrast, L.A. County as a whole has 4.1 million jobs for a population of 10 million people, or 2.4 people per job.

While the mere mention of e-commerce sends many of Wall Street’s brightest to duck and cover, one company is buying up e-tailers faster than you can say dot-com. Sitestar Corp., a year-old startup, now has three e-commerce companies in its fold, and just made an offer for a fourth. The acquisitions, part of a strategy to acquire a stable of niche e-tailers and Internet service providers at sharply discounted prices, may seem odd, even ill-advised, in a market where many e-commerce companies are wobbling on the precipice of extinction and ISP’s are not making any money. But Sitestar executives have a different view. “You haven’t seen a great deal of the potential of e-commerce,” said Clinton J. Sallee, president and chief executive of the Encino-based firm. “The ISP strategy is certainly the backbone, but the (other) component is what we affectionately call opportunistic investing.” Sallee and his partner, Eric T. Manlunas, are buying up depressed companies at bargain prices, scaling them down and hoping to make a bundle when the market picks back up, either by selling or spinning them off. The only difference between Sitestar and the investors of the 1980s is the size of the deals. The three e-commerce companies Sitestar has acquired are tiny niche companies with annual sales of less than $100,000: Soccersite.com, a Web site that sells soccer-related equipment; greattools.com, which sells tools; and Holland-American.com, an e-tailer of foods from the Netherlands. Last month, Sitestar made its largest offer yet, publicly-traded ailing vitamin marketer, MotherNature.com Inc., for which the company has offered 75 cents a share or $11.4 million. At the time of the offer, MotherNature, which just laid off about 20 percent of its workforce, was trading at about 50 cents a share, a pittance of its initial offering price of $13 when the company went public in December. ‘Killer deal’ But if MotherNature’s business strategy appears shaky to Wall Street, its cash picture is crystal clear. The company has about $26 million in cash on hand. “The MotherNature deal sounds like a killer deal,” said Tom Taulli, Internet stock analyst for investment firm Internet.com, of the offer price in relation to the company’s cash position. “There are people that did that in the ’80s who saw value in these companies and made a lot of money off that. So I can see it as being a viable business.” Sallee, a 28-year old with a stint in investment banking and rejection letters from Ivy League business schools hanging on his office wall, and Manlunas, 31, a consultant for Arthur Andersen before founding Gateway Holding, a private equity fund, hatched the idea for Sitestar in May 1999 over a cup of coffee. Figuring there were many companies flying under the radar screen of most venture capital firms, and having access to funding, albeit on a small scale, they formed what was then Gazebo Inc. “I was more interested in the fundamentals side of the business than the Internet craze,” said Sallee. Although e-commerce had potential as an investment, the partners also realized they needed another avenue to generate revenues. They hit upon the idea of a second arm to the holding company, a group of niche Internet service providers in a specific geographic area. Many of these small ISPs were run by computer geeks with little business acumen, and they were going broke. But if the partners could buy enough of those providers in a single geographic area, they could achieve the kind of critical mass to make them profitable and generate a healthy sales volume in the bargain. “There’s great economies to consolidating an ISP,” said Sallee. “The single greatest cost is telecommunications equipment. The second is administrative. All these things can be done from a centralized location, so a consolidated position is pretty attractive.” Wanting to make their investments with stock trades rather than cash, Sallee and Manlunas acquired burrito maker Interfoods Consolidated Inc. in a reverse merger, sold the assets back to the company and used the shell to form their publicly-held company, which they renamed Sitestar. ISPs in sight With their shares, traded over-the-counter, Sallee and Manlunas acquired the three Internet companies and two ISPs in the mid-Atlantic region, an area the partners believe still has growth potential based on current Internet usage there. Sallee added that he is “working feverishly” at closing additional ISP deals. At the same time, the company is aggressively seeking new e-commerce companies to acquire. Their plan is to seek out Web companies that are highly specialized, offer good growth potential and have an infrastructure flexible enough to be downsized quickly if necessary. The business also has to offer marketing opportunities that don’t require a substantial investment. And, of course, the price has to be right. So far, Sitestar is operating in the red. For the three months ended June 30, the company reported a net loss of $234,000 on revenues of just under $387,000. But Sallee points out that much of the earnings bite occurred as a result of goodwill write-offs associated with the acquisitions, and the company returned to a solid financial footing in July. “We’re now cash-flow positive,” he said. The optimism may be well-founded, according to some onlookers who see potential in the markets Sitestar is pursuing despite the failure of many of these companies to turn a profit so far. “They can actually make some money if it’s not a crowded marketplace,” said Taulli. “If you get into a market like toys or books, forget it, but I do think that, on the e-commerce front, there’s definitely money to be made.”

Fast on the heels of the Los Angeles Times’ closing of 14 community-based outlets two weeks ago, Publisher Dean Singleton’s Denver-based MediaNews Group has begun shutting down sections and shuffling personnel in an apparent adjustment to the new ground rules of local coverage in Los Angeles. For starters, Singleton’s Woodland Hills-based Daily News announced last week that it is closing down its Simi and Conejo Valley special sections in order to double editorial and advertising staff at its Santa Clarita Valley “wrap.” That area has experienced something of a vacuum in news coverage following cessation of the Times’ special section, Our Times, there. “It’s just another step in the direction of decreasing amounts of local news for people to understand their own very local and individual communities,” said Cynthia Rawich, head of the journalism department at Cal State Northridge. Bob Gray, vice president and general manager at the Daily News, emphasized that “no reporter or editor is losing their job” and that the Simi and Conejo valleys remain important parts of the paper’s territory; the move simply folds that coverage into the general editorial content. He admitted, however, that four non-editorial employees would lose their jobs as part of the operational shuffling. Editorial expansion of the Santa Clarita wrap will be achieved through transfers rather than new hires, Gray said. “My understanding is that the Daily News felt, if the Times didn’t have to cover those areas, neither did they,” Rawich said. “Of course, had those sections been moneymakers, they wouldn’t have done it.” Another interesting aspect of the decision, she notes, is that it reveals where the Daily News perceives the advertising dollars to be. Gray corroborated as much, saying the demographics in Santa Clarita Valley have grown in importance to the paper, “with more people living up there and driving to work in the San Fernando Valley.” Meanwhile, the Newspaper Guild Local 39069 representing editorial and circulation workers at Singleton’s Long Beach Press-Telegram also got some news last week. Unit Chairman Joe Segura says he was informed that six editorial positions were being eliminated, including two reporters, three photographers and a clerk librarian. It is the union’s belief that there are a number of vacancies that need filling and the cuts will aggravate working conditions at the Press-Telegram. Jim Janiga, vice president of human resources and labor relations for Singleton’s L.A. news group, disputed the account, saying the layoffs were four in number, including three full-timers and one part-time worker. He denied they had any link to the Daily News changes. “We’re just realigning and trying to tighten our fiscal belt in anticipation of increased costs in newspaper publishing.” The union said savings from the cuts would amount to $185,000 annually. “Our suspicion is that the cuts were made so that Singleton can continue to expand (by acquiring or launching additional papers).” said a source inside the Press-Telegram newsroom. Also announced was a revamping of Singleton’s San Bernardino County Sun which will be re-dubbed simply, The Sun as was Singleton’s launching this week of a new paper, the High Desert Sun.

More than two years ago, a spate of mergers signaling a sea change in the way banking is conducted left many San Fernando Valley retail bank branch offices vacant. Now, one of those vacant offices will be converted to accommodate a new H & R; Block operation, the first of its kind in the Valley. H & R; Block has signed a sublease deal to take over a former California Federal Bank branch at 5850 Canoga Ave. in Warner Center. The 7,080-square-foot space on the ground floor of the office building will be converted to an H & R; Block Financial Services outpost, an operation created when Block acquired discount brokerage Olde Financial Corp. last year. H & R; Block Financial Services combines the company’s traditional tax preparation services with financial planning and investment services. “Our clients say they want more than tax help from us, and in order to do that we’ve been making purchases like the Olde centers,” said Neil Getzlow, a spokesman for Kansas City-based H & R; Block. Since the acquisition in September 1999, Block has converted about half of Olde’s 180 outposts nationwide. Getzlow said that, eventually, all the H & R; Block retail centers will offer a complete line of tax and financial services. The new offices at 5850 Canoga had been vacant since CalFed parent First Nationwide Holdings Inc. merged with Golden State Bancorp Inc., parent of Glendale Federal Bank, in 1998. Many of the spaces left vacant when Washington Mutual Inc. acquired Great Western Financial Corp. and H.F. Ahmanson & Co., and CalFed and GlenFed merged two years ago, were quickly grabbed up by retail tenants who were anxious for the prime, corner properties on heavily traversed intersections that the banks were vacating. But properties like the one at 5850 Canoga, situated among office complexes, were slower to attract new tenants. The space is ideal, however, for an operation like H & R; Block, said Bill Inglis, broker with CB Richard Ellis Services, who represented the tenant. “It’s perfect,” Inglis said. “The parking is free and there’s plenty of it. They can have clients come all day long and there’s no additional expense.” Rex Lowe at Lincoln Property Co. represented CalFed, which is subleasing the space. Dressing Up Pacoima A Pacoima-based garment manufacturer has inked a deal for 51,590 square feet of industrial space to expand its facilities. Strategic Partners Inc. leased the space at 13592 Desmond St. in Pacoima for warehousing. Strategic Partners makes uniforms for hospitals and schools. Bennett Robinson and Craig Peters of CB Richard Ellis represented the landlord, Shane Demirjian, in the deal. David Young at NAI Capital Commercial represented the tenant. Burbank Deal Private investment firm DARC Properties acquired a 36,480-square-foot property in Burbank. The purchase price was undisclosed. DARC, currently located in Hollywood, will use the facility for its own offices. David Young, a broker with NAI Capital Commercial, represented the buyer. Brett Warner with Lee & Associates represented the seller, David Augustine. Bound for Warner Center Two new tenants will be moving into Warner Corporate Center at 21300 Victory Blvd. in Woodland Hills. Broadstream.com, a streaming video company, has leased 15,300 square feet of space at the building. Camp Dresser McKee Inc., an environmental engineering firm, will also be consolidating two offices currently in Thousand Oaks and Carlsbad into 5,600 square feet of space in the building. Tom Specker, a broker with Charles Dunn Co., represented the building owners. Greg Tippin at Insignia ESG Inc. represented Broadstream.com. Ron Wade with Cushman & Wakefield of California Inc. represented Camp Dresser McKee. Apartment Sales Marcus & Millichap Real Estate Investment Brokerage Co. has closed several deals in the San Fernando Valley. The firm brokered the sale of Lennox Avenue Townhomes, a 43-unit complex in Van Nuys, for about $2.8 million to a private investor. Kaufman Bloomfield Properties was the seller. Marcus & Millichap also handled the $2.5-million sale of Elm Villa, a 24-unit apartment complex in Glendale, to Redfern Family Trust; and the $1.9-million sale of Roscoe Villas in Panorama City by Ben Chen to George Ekins. The buyer and sellers for the Panorama City and Northridge properties were not disclosed. Retail Expansion With business brisk at its newly opened retail store, Reed’s Furniture has leased an additional 30,000-square-foot warehouse facility to triple its storage capacity. Reed’s inked the deal at 2651 Lavery Court in Newbury Park following the opening this summer of its retail store in Agoura Hills. About 10,000 square feet of the 61,000-square-foot retail facility was earmarked for warehousing. The new warehouse is a free-standing facility. The three-year lease on the warehouse is valued at $550,000. Merv Einbund, a broker at Westcord Commercial Real Estate Services, represented Reed’s in the deal. Eric Behike of NAI Capital Commercial represented the landlord, CF Investments. Camarillo Lease Independent Capital Management Inc. signed a lease for 4,000 square feet of office space at Camarillo Business Center V. The five-year deal at the business park, which includes five buildings, is valued at $500,000. Bill Kiefer of NAI Capital Commercial represented both the tenant and the property owners, BKS Camarillo Partners. Staff Reporter Shelly Garcia can be reached at (818) 676-1750, ext. 14, or by e-mail at [email protected].

Line 6 Inc. has already revolutionized the guitar amplifier industry. Now it’s hoping do the same with the way online music is created. With the help of venture firm Redpoint Ventures, the Thousand Oaks-based digital amplifier company is developing ways to allow musicians to create, record and alter music through the Internet. It is planning several Web-related products slated to debut in 2001 products it is reluctant to discuss for fear of tipping its hand to competitors. But if history is any indication, Line 6 should continue to be very successful. Only 4 years old, it is the fastest-growing music product company in the country, according to Music Trades magazine, the industry bible. Revenues continue to grow at a rate of about 100 percent a year, having jumped from $3.5 million in 1997 to $23 million in 1999. This year’s sales are projected to be at least $40 million, according to Line 6 co-founder and Chief Technology Officer Marcus Ryle, who also says the privately held company is profitable. The core of its business is the digital modeling amplifier, which Ryle and co-founder Michel Diodic invented and patented in 1996. The amp uses a digital signal processing computer chip. Before the product’s introduction, all guitar amplifiers were made with vacuum tubes, and each had a signature sound. Blues guitarists might prefer using Fender amps, while rock guitarists used Marshalls, often stacking two of the huge amps on top of each other to produce the kind of volume and distortion recognized by anyone who’s ever been to a rock concert. Line 6 amps, using digital technology, can reproduce virtually any sound put out by any amplifier at any volume, making it extremely versatile. “These are very sharp people,” said David Angress, executive vice president of Agoura Hills-based Guitar Center Inc., the largest musical instrument retailer in the U.S. “They essentially deconstructed the popular amplifier and came up with an electronic algorithm to replicate it. It sounds remarkably like any amplifier you want.” Professional guitarists and recording studios jumped at the new product. Instead of having to buy different amps to create different sounds, a blues musician who wanted a country/western sound could simply use a Line 6 model. While traditional amplifiers still command the lion’s share of the market, Line 6 has become the fourth or fifth biggest amplifier manufacturer in an industry that does around $400 million in sales a year. Line 6 endorsers run from country music icon Clint Black to classic rock mainstay Todd Rungren to Michael Ward, guitarist of hip rock group The Wallflowers. Name is an in-joke The company was spun off from a music product design consulting business that Ryle and Diodic founded in 1985, called Fast Forward Designs, which no longer exists. Line 6 refers to an internal code word used at Fast Forward when the digital amplifier technology was being developed. Research required the extensive use of traditional amplifiers with the volume cranked up. Any time clients who might be curious about what was being developed came to visit, the receptionist’s announcement that there was a call on “line six” (the switchboard only had five lines) signaled workers to shut down the music. The new company was funded in part by Sutter Hill Ventures of Palo Alto, which kicked in $3.1 million in 1997. Then, this past May, despite having achieved profitability through rocketing sales, Line 6 got $10 million in a second round of funding led by Redpoint. Co-founder Ryle says the need for money took a backseat to the partnership possibilities provided by Redpoint. “We were looking for great business partners for building a great business,” he said. “The money was secondary. Both times we raised venture money, we showed them a business model that showed we could achieve what we wanted without the money.” Redpoint venture partner Peter Gotcher was chief executive at digital recording company Digidesign in the early 1990s, before it was bought by Avid Technology Inc. Now a member of Line 6’s board, he brings a wealth of knowledge, as well as appreciation for the company’s expertise, since Digidesign had tried but failed to create its own digital amplifier. “There’s an interesting mix of opportunity,” Gotcher said. “The guitar space is a pretty big market; guitars have passed the piano as the most played instrument worldwide.” But the company’s technology reaches beyond amplifiers, he is quick to point out. “The (digital signal processing) chip is the holy grail. There’s a lot of technology and IP (intellectual property) in the product. The Internet provides a level of access to content and collaboration, (and) there are specific products and services under development.” While everyone connected to the company is reluctant to provide details, it is clear that Line 6 is positioning itself to be a major player in the way music can be created online. Digital sounds In much the same way the Internet has changed the way music can be purchased or simply recorded using MP3 and Napster technology, it also is going to have a profound impact on the way music is created. Musicians already can, using digital technology, record and exchange sounds online, so that a band doesn’t need to be in the same recording studio to cut an album indeed, it doesn’t necessarily need the recording studio at all. But to create the various kinds of sounds a guitarist wants, he still usually goes and buys the products at a store the amps, pedals and echoing machines that create distinct sounds. In the not-too-distant future, he won’t have to. “Before, you’d go to the store, buy the CD and play it at home,” Line 6 chief executive Mike Muench said. “What the Web allowed people to do is skip that trip to the store. The same challenge exists for the musicians today to make music. You buy a product as is, go home, put it in as is and, if you want a different sound, you have to buy a different product. What we believe the Web is going to produce is products that have different abilities than if you’d buy them at the store.”

THE ATTEMPT OF A ONE-TIME CSUN ENGINEERING STUDENT TO SOUP UP HIS VOLKSWAGEN IN THE ’70s TURNED INTO AN IMPORTANT PART OF THE HIGH-PERFORMANCE AUTOMOBILE WORLD In the late 1970s, Brian Skipper was a sand buggy enthusiast who just wanted to make his vehicle go faster. The Cal State Northridge engineering student stumbled into a job at a local performance parts-maker that helped him pay for his racing habit. More than 20 years later, Skipper owns that company, Sway-A-Way Inc., and over the past four years has nearly doubled its revenues and expanded a product line that once catered primarily to souped-up Volkswagens. Revenues have jumped from $2.25 million in 1996 to an expected $4.8 million for 2000. Meanwhile, Sway-A-Way’s product line has expanded from a selection of sway bars for mini-trucks, Volkswagens and off-road vehicles to sway bars and suspension systems for sprint cars and Winston Cup racers. “It’s a good market right now,” Skipper said. “A lot of people have money and they like to spend it on their toys.” In the ’60s and ’70s, race car drivers focused on their engines to improve the car’s speed. Today the focus has moved to improving a car’s cornering and how it runs to make it go faster. For example, sprint cars have 850-horsepower engines and weigh 1,100 pounds. While the cars could easily go 190 mph, they don’t because the small circle courses they travel requires such tight cornering. For that reason, sway bars, which are u-shaped bars that prevent the car from leaning too much to the side as it turns a corner, are important because the better a car corners, the less time it takes to circle the track. “Sway bars are a large growth area,” Skipper said. “People are getting much more aware of what good suspension systems can do. In the late ’60s and ’70s, it was all about having a big motor. But with smog regulations, there’s not as much you can do with a motor now. So people are spending money on suspension systems.” Off and running Skipper, who bought an interest in the company in 1981 and the rest of it when the former owner retired in the late 1980s, has been expanding the company’s product line over the last several years. Company employees, mostly race car enthusiasts themselves, visit races on a regular basis to watch the cars and talk to drivers about problems and listen to complaints. Sway-A-Way’s team of four engineers and Skipper then set out to design parts that can improve the way a car corners and a suspension system that can shave off time. The company has grown from a staff of 19 people four years ago to 38 today. In the coming months, it will move from its 15,000-square-foot building in Chatsworth, where it has been for the last decade, to a 30,000 square foot site down the street. Skipper has tried to use the company’s engineering focus to differentiate it from the rest of the pack. Because he and most employees are racers themselves, they have an intimate understanding of what a driver is looking for and the problems a car can encounter. “I know exactly what the car is doing,” said Skipper, who raced for years in the Baja 2000, a 700-mile off-road race in Mexico. “Everyone here is involved in motor sports. Their passion is cars and high-performance vehicles. I like to hire people who are interested in racing.” Because the company is small, it can cater to performance retailers and design system packages that other manufacturers don’t. “They’re definitely the No. 1 seller in their marketplace,” said Jeff Quinn, president of McKenzie’s Performance Parts in Anaheim, a retailer that carries Sway-A-Way parts. ” They’re very well-known by racers.” Taking it to the street Quinn said the Sway-A-Way line is by far more expensive than other suspension parts, but it’s products are popular because they make more varieties of each product than other manufacturers. For instance, Sway-A-Way has three different lengths of torsion bars for Volkswagens that come in 10 different sizes. While the company, started in 1969, still makes parts for VWs. “It’s still a very popular market, but it’s in its autumn time frame,” Skipper said. “A lot of people love to tinker with those still.” Now the growth is in the race market. Sway-A-Way has expanded its products because of what it hears and the interests of its engineering staff. After receiving financing in the past four years, the company has been able to expand into more product lines. “Now we do a lot of street performance sway bars, shock absorbers, axles, torsion bars and coil springs,” Skipper said. The company also makes shock absorbers and other components for Sega GameWorks and its virtual reality games. And Sway-A-Way is now expanding into the motorcycle racing market.

Woodland Hills-based Zenith National Insurance Corp., a workers’ compensation insurer, has been pummeled the last six years. The company has lost about half its California customer base in that time period and has reported growing losses each year. Earlier this year, it was downgraded by Moody’s Investor Services (which rates an insurance firm’s ability to pay on premiums) from stable to negative because of its financial condition. For the second quarter ended June 30, Zenith reported a net loss of $19.6 million ($1.14 per share) compared with a net loss of $3.4 million (20 cents per share) for the same period a year ago. Revenues were $110.8 million versus $106.5 million. Despite the problems, investors appear to be standing by the company. Zenith stock is trading around $22 a share, up from its 52-week low of $19.29 but still below its 52-week high of $26.69. The reason is that workers’ comp rates are again on the rise. And analysts believe rates will continue to increase over the coming years, making it possible for Zenith to turn its losses around within two years. “Their rates are going up,” said analyst Ira Zuckerman of Nutmeg Securities LTD, which tracks Zenith stock. “I still think they’re attractive. They’ve got the best management in the business, and they’ve done the right things.” Of the two analysts polled by Zack’s Investment Research, one rates the stock a strong buy and the other a hold. Analysts expect the company to report a loss of 64 cents a share for the year ending Dec. 31, 2000, compared to a gain of 66 cents a share for the year ending Dec. 31, 2001. Zenith’s troubles began in the mid-1990s, like most workers’ comp insurers. It was then that laws changed allowing insurers to set their own premium prices. At the same time, the number of claims dropped. Competition in California, the biggest market in the country, increased, with insurers quickly slashing rates to compete for more customers. After the amount of money paid on claims began climbing, cutthroat competition kept premiums low and insurers throughout the state and country had to eat the losses. Prices in California for workers’ comp insurance have dropped an average 50 percent from 1994 to 1999 but have began increasing this year as changes in state law have mandated that employers have greater coverage. “Insurers under-priced the business for a period of time and underestimated what they paid on clients,” Zuckerman said. “Zenith has done better than most in a bad situation.” Rather than cut their prices as much as many other insurers, Zenith only made modest decreases. Because of that, they lost customers from 1994 to 1996, when most other workers’ comp insurers reported increases in their customer bases. “That was the only way we felt we could survive,” said Stanley Zax, chairman and president of Zenith. “We maintained our financial strength, but it was not enough business to pay our fixed expenses because our volume dropped. We didn’t think (the slashed prices) would last that long.” In late 1998, Zenith sold off its property-casualty insurance operation, CalFarm Insurance Co., for $104.3 million to help cover growing losses. But in the last year, the market has begun to change. Zenith will report an increase in the number of customers for 2000, and its prices in California have increased 30 percent over the past year, Zax said. “Prices are going back up. They’re still not up to something healthy yet,” he said. “I suspect the year 2000 will mark the beginning of some long-term change in the pricing.” Zax said it will take several more years of price increases before the market returns to levels that will allow the company to turn a profit. And while the California market has begun to turn around, workers’ comp insurers in the rest of the country which also suffered from depressed prices are continuing to operate with below-cost pricing. As if workers’ comp troubles weren’t enough, Zenith also has lost money on its reinsurance business. Zax blamed the problems on a series of natural disasters, including tornadoes in the Midwest, hurricanes Floyd and Lenny in the Southeast, and storms that struck Europe. Zenith lost $13 million on its reinsurance business for the second quarter of 2000. The company also plans rate increases in that sector.

For some years now, the Antelope Valley has been trying to lure business to the region. The bad news is, those efforts have met with only limited success. That is also the good news. Without a rash of developers driving up land prices, and little construction of housing or commercial properties to encroach on the area’s open space, farmers have been able to expand their operations dramatically. So while crop production overall decreased in Los Angeles County in 1999, the Antelope Valley recorded a hefty increase in the production of some crops, and acreage for growing all crops has risen dramatically. “There has been some urbanization, but it hasn’t been as rapid (in the Antelope Valley) as it’s been in the San Gabriel Valley or the South Bay,” said Robert Donley, deputy director of the Department of the Agricultural Commissioner and Weights and Measures, which just released its 1999 crop report. “In essence, that land has been available and pretty productive for agricultural crops.” Crop production for Los Angeles County dipped nearly 2.9 percent to $260.5 million, the first decline recorded since 1992. But in the Antelope Valley, vegetable crop production rose 8.1 percent to $42.6 million, according to the report. Fruits did not fare as well because of a freeze during the 1999 growing season. But apple output, which was not affected by weather conditions, rose more than 9 percent to $840,000. The region’s planting acreage increased even more dramatically. Between 1995 and 1998, the last year for which those figures are available, farm acreage in the portion of Antelope Valley that lies within Los Angeles County increased from under 3,000 to 8,700, according to Larry Grooms, president of the Greater Antelope Valley Economic Alliance, a nonprofit organization that works to attract business to the area. Even the government has gotten into the act. The city of Los Angeles, which owns about 17,750 acres in Palmdale (land it has been acquiring since 1970 to build an airport, though those plans are currently stalled), has devoted about 2,100 acres to agriculture, producing pistachio nuts, chestnuts and hay on about 240 acres and leasing out the balance to local farmers for the production of onions, carrots, potatoes, Christmas trees, gourds and sod. Farmers said the city has received requests to lease about 1,500 more acres of land for agriculture, an inexpensive way to expand production that also gives growers more flexibility if the market goes south. But the city has not made any more land available in more than five years. Officials with Los Angeles World Airports concede that the demand for land has risen markedly, but say they have not taken advantage of the market because they are still studying the use of their acreage for an airport. “Farming has been an intermediate activity,” said Charlene Klink, a spokeswoman for LAWA. The increase in production wasn’t all good news. An oversupply of onions in 1999 depressed prices considerably. But the added production also helped many farms take advantage of the increase in demand for other items like carrots and to expand their distribution domestically and even internationally. Going global “We’ve probably doubled our acreage in the last 10 years,” said Louis Scattaglia, the proprietor of Scattaglia Farms Inc. in Little Rock, which produces peaches, nectarines and plums. “Before, we concentrated more on Southern California sales, but as we continued planting more acres, we were able to go out and solicit new customers, and we had enough volume to supply them.” After increasing its acreage, Scattaglia Farms about five years ago started marketing its produce outside California and currently has a nationwide base of customers, as well as accounts in Singapore and the United Kingdom. “We used to export about 5 to 7 percent of our crop,” Scattaglia said. “Now we export 10 to 15 percent. For us, that’s a big difference.” Philip Giba Farms in Lancaster and Palmdale shipped about 20 percent of its crop production overseas to Taiwan, Honduras, Nicaragua, Singapore and the United Arab Emirates in 1999. Gene Wheeler Farms in Lancaster also exported to Japan and Taiwan last year, as well as Australia and England. “That’s a good chunk of our crop,” said Brad Sumner, sales manager for the farm. Two years ago, Wheeler Farms was instrumental in reversing a ban that Australia had placed on onions from California. The farm was able to show that the reason for the ban, a disease called onion smut that afflicted many onions grown in the state, did not affect the Antelope Valley crop because of the region’s higher elevation and lower temperatures. Swimming in onions Even with the overseas market, onion farmers took a bath on their bumper crop in 1999. “In 1999, more acres of onions were grown in this Valley than had been in my years of knowledge,” Sumner said. “We could sell them, but we didn’t get our money for them.” The increase in supply cut the price of onions by more than half from an average of around 11 cents a pound, farmers said. “What can you do to an onion to make it more appealing to the consumer?” asked Phil Giba, sole proprietor of Giba Farms. “You don’t make onion pies or onion juice, so when you have an overproduction of onions, it’s hard to move the crop.” In much of Los Angeles County, development has driven up land prices, making even the remaining plots of open space too expensive to use for farming. By the late 1990s, most of the remaining farmland in the county was located along utility power-pole right of ways. Now, even those parcels are being grabbed up for other uses that promise a greater return on investment than farming. “This last year, we lost acreage under power lines because (Southern California) Edison and other utilities decided they wanted additional property for rental and storage space,” Donley said. But in Antelope Valley, farmers had room to expand and, with rising demand for crops, they increased production in 1999 dramatically. “Consumption of carrots is up dramatically,” Giba said. “It’s mainly the baby peels,” a term that refers to baby carrots packaged and sold pre-peeled and pre-washed. “The housewife is very enthusiastic toward that.”