South O.C. Auto Mall Planners Deal With Realities : Marketing: Rancho Santa Margarita site’s success depends on improving economy, though it is thought to have a great location.
Building a 36-acre auto mall in the midst of a four-year slump in car sales might seem like financial suicide, but the developer of this planned community is undaunted and Orange County auto dealers say such a South County mall could be a winner.
Auto malls--the car industry’s version of regional shopping centers--generally are conceded to be the future of new car marketing.
But the key to this mall’s success is timing. And only time, the experts say, will tell whether the mall’s developer--Santa Margarita Co., also the master developer of the entire 5,000-acre planned community of Rancho Santa Margarita--is being prescient or imprudently premature.
The smart money seems to favor foresightedness, but if the region’s economy does not start improving, all bets are off, said Kevin Allen, executive director of the Orange County Automobile Dealers Assn.
And there are problems to be dealt with.
One is that a group of homeowners has risen in opposition, claiming that the auto center was not revealed until after they bought properties overlooking the site. They say they fear the traffic and brightly lit lots will be unsightly and reduce property values.
In addition, California law gives existing dealers the right to challenge a competing dealership opening within a 10-mile radius. The Santa Margarita Auto Center will be about eight miles from the Irvine Auto Center with its 16 franchises, including most of the major domestic and Japanese brands, and the Mission Viejo strip, which has three luxury car dealerships.
“Car malls are the future of the business,” said Bob Fitzharris, who conducts consultant J.D. Power and Associates’ annual auto mall study. “But unless the economy turns around pretty quickly, there could be a lot of challenges” filed against manufacturers who want to set dealerships in Rancho Santa Margarita.
Such a challenge is filed against the manufacturer, not the potential new dealer. That puts the complaining dealership in the position of fighting the factory that supplies its cars, and tends to give the manufacturers a strong hand in the ensuing negotiations--one reason, perhaps, that there are numerous dealers who compete daily with other franchises selling the same makes just a few miles away.
So far, only Ford has announced plans for a presence in Rancho Santa Margarita, leasing a four-acre site for Downey Ford owner Jim Graham’s second dealership.
And in what could be a good sign for the new mall, Graham and Ford won’t be challenged by Bob Tuttle, co-managing partner of the Tuttle-Click Automotive Group and owner of the Ford and nine other dealerships in the Irvine Auto Center.
Although located within the 10-mile protest area, Tuttle said that Ford representatives helped persuade him to accept a new competitor.
If the mall were to open this year, “then I would oppose it,” Tuttle said. “But since the soonest it can open is mid-1995, then I am not opposed as a Ford dealer. We find it acceptable given the timing, the hope that the economy will start improving by then and the fact that most of the growth in Orange County is in the South County.”
A marketing study prepared for the developer says that the population within a 12-mile radius of the mall site is expected to increase by 15%, or 80,000 people, to a total of 611,400 by 1998.
At an average of four people and two cars to a household, that added population would need about 8,000 new and used cars a year, several dealers said.
Mark Sumpf, an associate with Auto Center Group, the Newport Beach consulting firm that did the marketing studies, said the anticipated population growth and the distance that residents of Rancho Santa Margarita now must travel to find new car dealers or repair facilities were major considerations in the decision to go ahead with the mall.
The deciding factor, of course, was the belief--one shared by most regional economists--that Orange County’s economy should start improving in 1995.
After discussions with several auto manufacturers and Orange County car dealers, Sumpf said there should be few challenges from other area dealers.
The county has about 120 new car dealers, although the number changes frequently with consolidations, bankruptcies, partnership breakups and new franchise deals. But there are only five auto malls in Orange County and two of those--Garden Grove and Anaheim--are relatively small, with fewer than six dealers each.
Most of the rest of the county’s car dealers are clustered in a number of strips. The biggest, with about a dozen dealers and two dozen brands of cars each, are on Beach Boulevard in Huntington Beach and Harbor Boulevard in Costa Mesa, but most every city in the county has several new car lots.
Santa Margarita Co. said it wants a car mall because it would provide a healthy draw for the 460-acre commercial center destined to be the heart of the planned community and because, if the community ever incorporates, it would provide a tremendous tax base.
Unlike baseball diamonds in Iowa cornfields, though, auto malls don’t come with an if-you-build-it-they-will-come guarantee.
But Rancho Santa Margarita’s mall is thought to have a great location. With construction planned to start this summer, the mall’s fall, 1995, opening is expected to coincide with the extension of the Foothill tollway.
“Location, location, location,” that’s the key to auto mall success, said John Rettie, editor of J.D. Power and Assn.’s California Report automotive newsletter. Equally important is getting enough dealers to create a critical mass--six is the minium for sustained success, Power analyst Fitzharris said.
Given an improving economy, getting that many dealers should not be a problem in Rancho Santa Margarita, because manufacturers are no longer reluctant to set up shop surrounded by potential competitors.
“It’s really the customer who dictates malls,” said Reed Chesworth, vice president of MacPherson Enterprises, which operates half a dozen franchises in the Tustin and Irvine auto centers. “That’s why dealers are in them. It makes it easy for customers to do comparison shopping, provides convenience and a nice environment.”
MacPherson owner Joe MacPherson was the driving force behind the Tustin mall and moved his four Santa Ana dealerships there when it first opened in 1989, just as the economy and car sales began souring.
“We did it with the economy in mind,” Chesworth said. “We just didn’t think the slump would last this long.”
Even with a recession, he said, his dealerships all have consistently better sales and higher customer counts than when they were in central Santa Ana and the economy was booming.
Not every dealer is a mall fan, however. Gary Gray, owner of Orange Coast Jeep Eagle on Costa Mesa’s self-titled Harbor Boulevard of Cars, said he finds the heavily traveled street to be a much better location than any mall.
“I catch the guy driving down the road who might not even be thinking of buying a car until he sees something juicy I’ve got on display out front and pulls in,” Gray said. “He never even goes to the malls.’
Another Jeep-Eagle dealer, Rick Evans of Huntington Jeep-Eagle, said he was attracted by a package of information he received last week from the Santa Margarita mall developers.
“I put it in my ‘things to read file,’ which is a lot better than most of my mail gets.” Although he has no plans to leave Huntington Beach, Evans said that Rancho Santa Margarita would be a logical place for him to set up a second Jeep-Eagle dealership.
He would be joining a statewide trend--analyst Rettie estimates that 23% of all new cars in California are sold in auto malls, compared to just 7% nationwide.
The first auto mall in the nation, in fact, was the Riverside Auto Center, built in 1965. And the three largest malls--by number of franchises, acreage and gross sales volume--are in California as well.
Rettie said that he expects 25% of all U.S. new-car sales to be logged by franchises in auto malls within 10 years, partly because the number of malls will increase and continued dealership consolidation.
J.D. Powers has predicted that by 2005 there will be only 5,000 new car dealers in the United States, down from about 16,000 now. But those dealers would control 20,000 individual franchises.
O.C. Auto Malls
Orange County auto malls range from the three-dealer facility in Garden Grove to the giant 20-dealer cluster in Tustin. The proposed location in Rancho Santa Margarita would be the southernmost in the county.
1. Anaheim Auto Center Dealers: Honda, Lincoln-Mercury, Mazda, Pontiac
2. Garden Grove Auto Mall Dealers: Ford, Nissan, Toyota 3. Santa Ana Auto Mall Dealers: Audi, BMW, Chrysler, Eagle, Honda, Hyundai, Isuzu, Jeep, Plymouth, Saturn, Volkswagen
4. Tustin Auto Center Dealers: Acura, Alfa Romeo, Buick, Cadillac, Chevrolet, Dodge, Ford, Geo, GMC Truck, Infiniti, Lexus, Lincoln-Mercury, Mitsubishi, Nissan, Pontiac, Saab, Subaru, Suzuki, Toyota
5. Irvine Auto Center Dealers: BMW, Chevrolet, Dodge, Ford, GMC Truck, Honda, Isuzu, Lincoln, Mazda, Mercury, Mitsubishi, Nissan, Oldsmobile, Toyota, Volkswagen
6. Proposed Rancho Santa Margarita Auto Mall Dealers: Ford
Source: Orange County Automobile Dealers Assn., Times reports; Researched by JOHN O’DELL / Los Angeles Times
