Competition Picks Up as Auto Malls Spread

Mark Sheanshang spent his lunch hour kicking BMW tires.

“Buying a car is an emotional thing,” said the 31-year-old construction company project manager, who was looking to dump his old Datsun and motor away in $30,000 BMW. His first stop was Saddleback BMW, a dealership that moved from Mission Viejo to the Irvine Auto Center last month. Standing in the lot loaded with sparkling BMWs, Sheanshang said, “I’m not a fan of auto malls, but once you’re in there,” as he pointed to the mirrored-glass showroom with a grand piano sitting in the foyer, “you don’t even know you’re in an auto center.”

Some people still don’t know what auto malls, or auto centers, are. Orange County residents, though, are fast learning about these pre-planned, multidealer automobile shopping centers that emit suburban appeal from the edges of their neatly-mowed lawns to the redundancy of their sparkling storefronts.

But beneath this facade of utter calm, Orange County auto center developers are nervously plotting strategies so that customers like Mark Sheanshang will come kick the tires on their cars. The county’s first auto center was built in Irvine nearly eight years ago. But suddenly four new auto centers are in the works, including two gargantuan projects in Tustin and Santa Ana scheduled to soon break ground.

Retail experts say that these auto meccas, which essentially have evolved into 365-days-a-year auto shows, are the wave of the future.

Since their humble beginnings in Southern California nearly 15 years ago, the auto center concept has spread. No longer limited to big cities like Los Angeles and San Francisco, these car-laden centers now can be found in cities from Carlsbad to Riverside, from Phoenix, Ariz., to Lexington, Ky. The National Automobile Dealers Assn. estimates there are about 30 auto centers nationwide, a number that could double in less than five years.

Competition already is getting so keen that Orange County conceivably could have a glut of auto malls before the decade is out. But retail analysts insist these newfangled centers could eventually replace auto shopping as we know it.

The centers are typically built on sites of 40 to 50 acres and many are splendidly attractive. Most auto center rules not only forbid gimmicks such as live elephants or whale-size floats on the lot, but even prohibit garish signs and bright lights.

“The friendly car dealer down the corner may soon go by the wayside,” said Robert Peterson, vice president and general manager at Coldwell Banker’s Anaheim office.

Unlike more traditional car dealer strips that are commonly located on main thoroughfares, auto centers are destination sites. Customers seldom wheel into these auto havens by accident. The lure is what retailers call cluster marketing--often a dozen dealers at a single site. The family can park the car and stroll from storefront to storefront.

Developers like to draw rough analogies between this auto center phenomenon and the emergence of the multidepartment store format at most retail shopping malls. Just twenty years ago, stores such as Robinson’s and The Broadway took pains to keep blocks apart. Today, even the fiercest of department store competitors can be found side by side.

Consumer Is Culprit

The culprit behind all this is the consumer. Consumers want convenience wherever they shop. Now, developers say consumers are calling for that same convenience not only when they buy new Levis, but also when they buy new Lincolns.

In Orange County, the consumers appear to be getting their way. Ten years ago, the city didn’t have a single auto center. Today, in addition to the centers privately developed by the Irvine Co. in Irvine and Tustin, the cities of Santa Ana, Yorba Linda and Anaheim are also seeking to build small auto centers.

A so-called “mini” auto center recently opened in Garden Grove. And not to be forgotten, just over the border in Riverside County, officials from both Norco and Corona are vying to position their cities as sites for future auto malls.

The five-year-old Auto Square in Cerritos, with estimated sales of $150 million last year, is ballyhooed as the Southland’s most successful.

“They can’t just keep on building these Taj Mahals,” said Jack Shea, a car salesman at Irvine Mitsubishi in the Irvine Auto Center. “Some of these developers are making mistakes, and it’s going to be very costly.”

Spiraling Cost of Land

Behind this phenomenon--particularly in Orange County--is the spiraling cost of land. Auto dealers, who commonly pay $9 to $12 per square foot for leased space on Harbor or Beach boulevards, are being lured away by auto malls where prices are as low as $4 per square foot.

City officials in towns such as Santa Ana are willing to take their lumps on land costs, well-aware that a gold mine of tax revenues--many millions of dollars annually--will more than compensate for what they may lose on leasing fees.

Ever since Proposition 13 slashed property taxes in 1978, cities like Santa Ana, where a $50 million center is now under construction, are especially hungry for sales tax revenues, such as the $1.5 million generated by the Cerritos Auto Square.

Some cities may be too hungry, said Daniel Mispagel, an Irvine real estate consultant who was project manager for the Irvine Auto Center and is a marketing consultant for the Tustin Auto Center. “The most successful auto centers have the least degree of government assistance,” he said. “Santa Ana officials know how to run a city, but can you expect them to know how to develop an auto shopping center?”

Dealers Committed

But Santa Ana has already received commitments from eight dealers, notes David J. Grosse, executive director of the Santa Ana Public Service Agency. “There has never been much of a history of auto sales in the Irvine area,” he said. “But Santa Ana has historically been the auto capital of Orange County.” When the Santa Ana Auto Mall is completed sometime in 1987, the city’s tax revenues from auto dealers will nearly double to $3 million, from the current $1.7 million, according to city estimates.

Just a few miles to the east, the $20 million Tustin Auto Center is being built more by city mandate than by the retail wishes of its developer, the Irvine Co.

When the Irvine Co. told the city it wanted to build homes on 1,500 choice residential acres, city officials scratched their heads and asked where Tustin would get the money to provide basic services for the new residents. As a bargaining chip, city officials essentially told the Irvine Co. that before it could get permits to build its residential project, the company would have to find a way to supply ample tax revenue to the city. An auto center--which is expected to increase Tustin’s sales tax receipts by 25%--appeared to be the perfect solution.

Powerful Forces

This kind of tax revenue can make powerful forces out of car dealers, both individually and collectively. According to estimates by car dealers, there are occasional months when the city of Costa Mesa collects more tax revenue from its car dealers than it does from the giant South Coast Plaza shopping mall. City of Costa Mesa officials said they could not confirm, or deny, the boast.

Bill Leslie’s Honda and Oldsmobile dealerships on Harbor Boulevard in Costa Mesa will generate about $5 million in sales taxes this year. Leslie, a 30-year veteran car dealer, complained that despite the revenue he adds to the city’s coffers, “the city is down here every week, asking me to take down a sign, put in another tree or plant a spear of grass.”

Leslie, who still has 10 years left on his 30-year lease, said he might consider relocating to an auto center some day--but local hassles will play only a small role. It’s really a question of economics. “Right here in Orange County, we’re about to find out real quick, about the future of auto centers,” he said. Leslie said that car dealers from well beyond Orange County have a careful eye focused on the impending auto center war here.

Some dealers are so enthralled with the centers that they have purchased two, three and even four dealerships at a single mall. Holmes Tuttle, for example, owns three dealerships at the Irvine Auto Center. “Ultimately,” predicted Jay Gorman, executive vice president at the Motor Car Dealers Assn. of Southern California, “you’ll find entire auto malls owned by single dealers.”

Expects to Double Sales

When Mike McLean moves his Cadillac dealership from downtown Santa Ana to the Tustin Auto Center next year, he expects to double his annual sales to 1,400 cars. Similarly, Randy Hix says that since his dealership opened in the Garden Grove Auto Center in 1984, sales have climbed so fast that his dealership now ranks among the top five Toyota outlets in the county.

On the other hand, some auto centers have already seen Mack truck-sized headaches.

Although largely successful, the Irvine Auto Center opened at a time that auto sales tumbled, and two dealerships quickly saw changes of ownership. Other malls, such as the The Alameda Center in Compton, have suffered because of bad location. The Compton mall has been criticized both for its poor visibility and its location in an area with far less economic clout than many competitors. City officials from Palm Desert recently looked at--then abandoned--the idea of an auto center there.

“Auto malls are not magic wands,” warned Joe Mac Pherson, who owns two Orange County auto dealerships and has sold cars for 32 years. Mac Pherson said he plans to open at least two dealerships in the Tustin Auto Center. “Auto centers may be a good thing, but nothing beats low overhead. If someone has a good lease on Beach Boulevard or on Harbor Boulevard, they’d be foolish to move.”

Look at Affluent Market

Some automobile industry executives say that Orange County auto mall developers should take a closer look at their own affluent market. Although dealerships planned for the Orange County auto centers have wide-range appeal to mid-price buyers, developers should concentrate more on upscale dealerships, critics say.

Such a move, however, would mark a complete about-face from the auto mall norm. Industry executives say to be successful, centers need Chevrolet or Ford nameplates. The planned Santa Ana Auto Mall has neither on tap. Toyota also ranks as an auto center shining star--with a location at the Irvine center and another planned in the Tustin center. “We’re all in favor of auto centers,” said a spokesman for Toyota Motor Sales U.S.A. Inc., in Torrance. “They make it convenient for the shopper.”

But William Demarest, general manager at Delillo Chevrolet, an auto dealer on Beach Boulevard in Huntington Beach, said auto centers are often more confusing than convenient. “I don’t believe that consumers look in the paper and say, ‘Oh, here’s an auto center. Let’s go to 12 dealers and start shopping.’ ” Instead, he said, they’ll skip the “confusion” of an auto center and head for an individual dealership.

Beyond that, auto centers can look downright boring. Strict guidelines serverly limit even vague hints of individuality at most auto centers. The thinking is that no dealer should outshine the one next door. It also keeps city planners happy. “We do not want Willie the Whale flying in the sky above the Tustin Auto Center,” said David Lamm, the city’s director of community development.

Notorious for ‘Lookers’

Some dealerships take a while to adjust to the auto center mold--others never do. Centers are notorious for what salesmen call “lookers”--people who are far more interested in looking than buying. Families often come by the carful and make an evening’s entertainment out of just snooping from dealership to dealership.

“It can be frustrating,” said Stephen Grasso, a salesman at Saddleback BMW, the Irvine Auto Center’s latest entrant. Before the dealership moved, he said, when a customer walked in the door, odds were that customer would drive out in a new BMW. But at the auto center, that is no longer the case. “Half the time when I ask people if I can help them, they say they’re just dreaming.”

His job, of course, is to cash in on their dreams. And occasionally, he does. “It’s not always easy,” he said, “But we learn to talk the customer who was going to buy a Thunderbird into leasing a lower-end BMW.”