The huge white dome that was Allen Family Automotive Group’s Cadillac showroom was leveled last month. The location is now a bustling construction site, a sign of better things to come for the Laguna Niguel dealership.
An uptick in sales and car manufacturers’ incentives helped prompt the teardown of the aging landmark that greeted motorists headed south on Interstate 5, said Cliff Allen, general manager and co-owner of the dealership.
“It was acrylic,” he said, “and we had to cover it to keep leaking at bay. … It used to kill me on a rainy day because that thing leaked like crazy. I’d see a nice couple in there, buying a [an] Escalade, and we got trash cans with raindrops.”
He decided to bite the bullet and get rid of the showroom that had served the dealership since his grandfather, Stanley, moved the business from Laguna Beach in 1972.
“The business is getting healthier, so that definitely gives you confidence to invest in your facility and your business. But I think the biggest reason we are seeing changes is manufacturers’ push for updated and nicer facilities.”
The Hyundai, GMC and Cadillac dealership, which Stanley started in 1947, was in dire need of modernization. Allen is taking advantage of Essential Brand Elements, General Motors Co.’s program that provides financial incentives to dealerships undertaking major renovations to comply with its facility image guidelines.
The makeover, scheduled to be completed next summer, will expand the dealership’s Hyundai and GMC buildings, each with its own service center. The new, two-story Cadillac showroom will be twice as big as the old dome.
Allen said he’s investing “millions” into the effort because the General Motors’ program offers “much less than 50%” of the total expense but gives the manufacturer an “influential stance on what you can and what you can’t do” regarding facility design.
The financial investment will be worth it in the long run, he said.
“It’s a price of doing business, especially in Orange County with all the premium facilities other dealers have,” Allen said. “To compete with them, we had to do something, and there is no better time than now. And what we are building will definitely go toe-to-toe with any other facilities.”
Meanwhile, signs directing shoppers to the dealership sales and service area abound, and the sales force is working out of mobile trailers. Cars are washed more frequently.
Buffing Up Their Images
The Allen Family strategy is playing out across Orange County, where roughly 60% of 118 car dealerships have “undertaken a ground-up rebuild or a major renovation” in the past couple of years as the economy has thawed from the recessionary deep freeze that left many hurting financially, according to John Sackrison, executive director of the Orange County Automobile Dealers Association in Newport Beach.
Most, like Allen, are relying on manufacturers to cover a portion of the bill and are financing the rest, and according to a study commissioned by the National Auto Dealers Association, it’s “common to see outlays exceeding $5 million.”
Guaranty Chevrolet in Santa Ana, for instance, recently underwent a $3 million renovation to become “image compliant” per Chevrolet’s standards.
“As the auto industry stabilized, financing has become easier to get,” Sackrison said. “Banks are more willing to invest in dealership improvements. That was not the case five years ago.”
Dealers are borrowing from a number of mainstream banks, including JPMorgan Chase Bank and Comerica Bank, as well as captive-financing companies owned by car manufacturers.
David Braun, senior vice president of Comerica’s National Dealer Services division in Costa Mesa, has worked with numerous local auto dealers in the past 20 years, offering services such as wealth and risk management, vehicle inventory financing as well as financing for acquisitions and facilities renovations.
He said he didn’t have exact figures for the increase in Orange County auto dealership improvement loans but said a 60% participation rate among local dealers makes sense.
Comerica’s third-quarter earnings report, published last month, shows an increase in commercial loans by the lender nationally, up 4% from the same period last year and “primarily driven by increases in National Dealer Services.”
Sales Increase
The renovation trend, manufacturer incentives aside, resulted from the recovering economy.
Orange County dealers collectively generated $9 billion in sales in 2012, up from $7.6 billion in 2011. Sales rose 9.1% to 43,745 vehicles in the third quarter of this year compared to the same period last year, and the local market is on pace for an additional 10.9% gain to 166,000 cars sold for the year. The figures are based on new retail car and light truck registrations.
“Five years ago during the economic downturn, auto sales were way off, and dealership owners were not looking to invest in facilities. That has changed,” Braun said. “Auto dealers are optimistic people. They led the economy in terms of coming out of the recession.”
Allen said he doesn’t “like talking dollars” but acknowledged his revenue is up from two years ago.
Percentage gains are “a moving target” influenced by a “hypercompetitive business climate in automotive sales,” he said, adding that “everybody is working on [lower] margins” and that “there is a lot of inventory out there.”
“Manufacturers are up and running as opposed to where they were a few years ago,” Allen said, referring to a strong comeback by Honda Motor Co. and Toyota Motor Corp., which are “running at 120%” after contending with a 2011 earthquake and tsunami in Japan that caused a major nuclear disaster and shut down car production facilities.
The brands Allen franchises aren’t sitting idle, either, which encouraged him to pursue the renovation.
“Cadillac and GMC, they’ve gone through their financial struggle, and they are coming out with a wave of new, exciting products, so we’ll need increased capacity,” he said. “And Hyundai is a brand that just continues to grow. We are kind of held back by the amount of salespeople we can have to the size of the dealership, so we anticipate a lot more sales, especially in the Hyundai arena, with the bigger facility.”
The dealership has about 100 employees, many of whom have been with the company for 20 to 30 years, nearly as long as the old dome was.
“The amount of [customer] loyalty we had with an older, tired facility is pretty amazing, so when we have something state-of-the-art, with the same people working, I think we will be impressed by how many people we can attract here,” Allen said. “We had a family philosophy that facilities don’t sell cars, but we’ll change that saying once the facility is done, because it better sell more cars.”
