WRONG PLACE at the WRONG TIME : Lincoln-Mercury Falls on San Juan's Dark Side

By JOHN O’DELL

April 13, 1997 12 AM PT

TIMES STAFF WRITER

SAN JUAN CAPISTRANO —

The gleaming Continentals and Cougars were proudly displayed in the tile-floored showroom as guests munched on tacos and listed to a mariachi band brought in to celebrate opening day of San Juan Lincoln-Mercury.

But that party atmosphere in the fall of 1995 didn’t last.

Just 15 months later, bereft of customers and bleeding cash, the dealership quietly closed. Ford Motor Co.’s Lincoln-Mercury division, which never was able to find a dealer to buy the place, told its hired manager just before Christmas last year to lock it up and tell the two dozen employees that their jobs were over.

Today, the parking lot remains vacant, the Lincoln-Mercury sign covered with a canvas tarp. The two-story, Spanish-style dealership, dangling a few strings of white holiday lights from the showroom roof, stands in silent witness to retailing’s basic rules: you need a good location, and you’d better have something that people want.

Lincoln-Mercury, it seems, had neither when it decided to spend more than $2 million to build the state-of-the art dealership in a hollow alongside Interstate 5 near Mission San Juan Capistrano and the city’s picturesque old town area.

Officials at the car company would like to pass off the failure of the dealership as an example of the vagaries of the market. They say they did their studies and were caught by an unforeseen, and unforeseeable, slowdown in the growth of the area from which the dealership was to pull its customers.

But others in the industry--including some of the dealership’s former employees--say the real story is one of bad judgment.

San Juan Lincoln-Mercury, it seems, was built on the wrong side of the freeway in a hard-to-get-to location.

But more important, it was built in a market that now prefers foreign luxury sedans and big American-made sports utility vehicles to the $40,000 domestic luxury cars that Lincoln makes.

The number of new Lincolns registered in California last year was down 18% from 1992 and Lincoln registrations were off 11% nationally over the five-year period, according to R.L. Polk & Co.

Annual Mercury registrations, up 11% nationally, were down 10% in California, according to the Detroit marketing firm.

California is an especially poor place for the brand because several generations of car shoppers have been weaned on Hondas, Toyotas, Nissans and Volkswagens and have no loyalty to domestic models, says marketing consultant George Peterson, president of AutoPacific Group in Santa Ana.

Lincoln-Mercury has been targeting “a dying market” of over-60 buyers, says Bruce Caudill, a 14-year Lincoln-Mercury dealer in Ohio and chairman of the national Lincoln-Mercury Dealer Council.

“To see a dealership open and close that quickly scares the hell out of me,” he says.

Auto dealers have been warned that there are a lot of closures coming. Trimming bloated dealer networks has become a prime goal at several major car companies.

Jim O’Conner, Lincoln-Mercury division manager, said late last year that he will wade through the U.S. dealer network like the Grim Reaper, closing several hundred stores in the next few years.

As part of that drive, the company shuttered a second Lincoln-Mercury dealership in Orange County earlier this year. The Buena Park store was run by Lester Jones Sr., one of the few African American dealers in the industry.

“Things had gotten real slow,” said Jones in a classic of understatement.

Fred Perry, sales manager at Ray Fladeboe Lincoln-Mercury in Irvine--the defunct San Juan dealership’s nearest competitor--knows what he’s up against.

“I live in Laguna Niguel, and all day long I see all the yuppie soccer moms going for Land Rovers, Chevy Suburbans and [Ford] Expeditions. That’s the fad.”

Lincoln-Mercury has told San Juan Capistrano city officials that it plans to reopen the dealership in the 1998 or ’99 model year.

That would be after Lincoln starts selling both the redesigned 1998 Town Car unveiled at the New York Auto Show last month and the Navigator luxury sports utility vehicle that is to be introduced in May. Both are aimed at younger buyers and many believe the Navigator is Lincoln’s best chance for survival.

Caudill thinks that if Lincoln-Mercury had held off for a few years, the dealership might have worked.

“I’ve worked closely with the company for three years as a member of the dealer council board,” says Caudill, “and I know they’re capable of making some big mistakes. . . . It’s likely in this case it was a mistake of timing.”

It isn’t that San Juan Capistrano is a bad place for a car dealer.

Since 1992, sales for most of the other dealerships have been rising steadily, says Steve Coleman, general manager of Saturn of San Juan and president of the local new car dealer association.

The seven San Juan Capistrano dealerships sold $64.6 million worth of new cars in 1995, the last year for which figures are available. That’s an 80% increase over the decade’s low point of $35.8 million in 1992.

A new Toyota dealership is about to open there and a San Diego County dealer reportedly is eyeing San Juan Capistrano for a Chevrolet dealership.

But the successful dealers in San Juan Capistrano have location working for them. All are on the west side of the freeway, along Camino Capistrano--which parallels the freeway and is easy to find.

By contrast, the Lincoln-Mercury dealership is in a pocket of land on the east side of the freeway. It isn’t within easy walking or driving distance of the other car lots in town so it didn’t benefit from the cross-shopping that occurs when dealerships are clustered, said Bob Fitzharris, a senior consultant and auto mall specialist at J.D. Power & Associates.

“We couldn’t believe it when they decided to open up there. Everybody was laughing about it,” said one industry executive.

A Volkswagen dealership that shares the Valle Road commercial area with the Lincoln-Mercury store also has suffered because of the location. It almost failed two years ago and was taken over by Volkswagen of North America.

Other signs and portents for the Lincoln-Mercury dealership were equally inauspicious, and like the location issue, were largely ignored by the company.

The official version, from Lincoln-Mercury regional dealership development manager Forrest Brown, is that the company determined that the area was a great one for a dealership and moved ahead, even though there was no dealer-owner involved, because it already had acquired the property.

“In this business, you try to time a start-up in a growth market so that the launch coincides with continued growth,” he said.

But it didn’t happen that way.

“In the 15 months we were open, the market did not grow sufficiently to support the operation,” Brown offered. “So we elected to stop temporarily. Our intent is to retain ownership and mothball the dealership until the market grows enough to support it.”

Everything else about the birth, life and death of the operation, he said, “is proprietary information that we cannot share.”

But officials at Toyota Motor Sales of America, which is building a new Toyota dealership in San Juan Capistrano--on the west side of the freeway--did share theirs.

And their market studies show that where Lincoln-Mercury found lead, Toyota Motor Sales of America sees gold.

The market region encompasses virtually all of the cities of San Juan Capistrano, San Clemente, Dana Point, Laguna Niguel and Mission Viejo. Toyota’s studies show that the number of households there grew by 16.4% from 1990 through 1996. Toyota expects an additional 12.5% growth by 2001, when total households should hit 72,000, says Greg Gollands, national market manager for the Torrance-based auto importer.

Average household income of $74,000 last year was up 13.8% from 1990 and Toyota’s study says it should top $81,000 by 2001--a further 9.5% increase.

Toyota, Gollands said, “has been interested in that area for many years.” The company first identified the San Juan Capistrano region as a potential dealership site in 1989--about the same time Lincoln-Mercury did.

Toyota’s market study was completed in 1993, the same year Lincoln-Mercury bought the land for its San Juan dealership.

The San Juan franchise was built by Ford Motor Co.’s land division for a dealer who wanted a spot in south Orange County and said he had the financial backing to make it work. The closest luxury car competitors are about five miles north, in Laguna Niguel and Mission Viejo; the closest competing Lincoln-Mercury dealer, Fladeboe, is about 10 miles to the north.

But after Ford paid $735,000 for the 1.8-acre parcel in 1993 and committed $1.3 million for the building, the candidate’s financing collapsed.

Brown said that didn’t derail plans, though, because “the San Juan Capistrano market and its demographic closely fit the demographics of the Lincoln-Mercury buyer.”

In other words, Brown and others decided that there were enough high-income “over-50s” in the area to support what then was a seventh Lincoln-Mercury dealership for Orange County. By comparison, Lexus has only three Orange County dealers, Infiniti has just two and Cadillac--plagued by some of the same problems the Lincoln franchise has been battling--has four.

It quickly became apparent that no one else shared the optimism of the folks at Lincoln-Mercury’s regional headquarters in Anaheim.

The company tried to get several new car dealers in the county to take over the San Juan franchise after the original deal flopped, but those asked all rejected the notion of taking on a stand-alone Lincoln-Mercury operation.

“Even if the location is great, a Lincoln-Mercury store is probably not at the top of anyone’s wish list right now,” says industry consultant Michael Luckey. “The styling and image just doesn’t appeal to the older baby boomers who are moving into the luxury car market as they hit their 50s,” he said.

“The Asian and European luxury makes have a lower median buyer age, around 45 to 50, while the median age for Cadillac and Lincoln buyers is 63. If that doesn’t change, in 25 years they won’t have any buyers who are alive.’

Lincoln-Mercury still didn’t pull the plug, though. It hired a freelance general manager, Rick Heinz, and opened San Juan Lincoln-Mercury as a company-owned store.

Heinz, now manager of a company-owned Lincoln-Mercury franchise in San Diego, declined to publicly discuss his experiences at the San Juan Capistrano store. Several other former employees also refused to talk on the record.

But in private, former San Juan Lincoln-Mercury employees say the dealership was hurt by its location, by the weak market for the cars it sold and by overly optimistic market projections.

“We were getting there,” a one former employee. “But it was still 12 to 18 months away, and [Lincoln-Mercury] just didn’t want to foot the bill that long.”

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Location, Location

Short-lived San Juan Lincoln-Mercury’s location lacked the visibility and easy access enjoyed by competitors across the freeway. San Juan Capistrano auto dealerships:

1. Weseloh Honda

2. Saturn of San Juan

3. Barwick Chrysler, Dodge, Plymouth, Jeep, Eagle

4. Barwick Nissan

5. Toyota dealership (under construction)

6. Capistrano Ford

7. Capistrano Volkswagen/Peugeot

8. San Juan Lincoln-Mercury (closed)

A Ripe Market

Desirable demographics were not enough to save San Juan Lincoln-Mercury. Since 1990, the population of the five-city area increased by more than 40,000; average household income grew, as did the sales of new-car dealers in San Juan Capistrano:

Population Growth, 1990-96

(% change)

Dana Point: 12.8%

Laguna Niguel: 24.3%

Mission Viejo: 23.4%

San Clemente: 13.4%

San Juan Capistrano: 10.5%

****

Average Household Income

Year: Total

1990: $65,000

1996: $74,000

2001*: $81,000

* Projection

****

New Car Dealer Sales (in millions)

1991: $40.8

1992: $35.9

1993: $37.0

1994: $43.0

1995: $64.6

Note: Sales for dealerships in San Juan Capistrano

****

Declining Popularity

The Lincoln-Mercury lineup has fallen on hard times during the last five years. Both lines have suffered sales declines in California. Lincoln lags nationwide as well, while Mercury has managed some progress. Change in sales, new car registrations, from 1992 to 1996:

*--*

Lincoln Mercury California Sales -20.5 -12.0 Registrations -18.3 -9.9 Nationwide Sales -12.5 +7.2 Registrations -11.6 +11.1

*--*

Sources: J.D. Power, R.L. Polk, California Department of Finance, Toyota Motor Sales, State Board of Equalization

Researched by JOHN O’DELL and JANICE L. JONES / Los Angeles Times

Dropping Dealers

Consolidation efforts closed two of Orange County’s seven Lincoln-Mercury dealerships recently:

Remaining Dealers:

Anaheim Lincoln-Mercury, 1221 S. Auto Center Drive

Costa Mesa Lincoln-Mercury, 2626 Harbor Blvd.

Beach Lincoln-Mercury, 16800 Beach Blvd., Huntington Beach

Ray Fladeboe Lincoln-Mercury, 16 Auto Center Drive, Irvine