Burbank Incentives Woo Auto Super-Dealership
Eager to capture a bigger slice of the auto business, officials are pushing a plan to use taxpayer money and tax breaks to lure the next generation of auto super-dealerships to Burbank.
City officials contend big dollars would flow from the $40-million project, planned by Galpin Ford owner Bert Boeckmann for a 12-acre tract near the Golden State Freeway and Burbank Boulevard. Construction would mean a healthy source of municipal revenue well into the next century, they predict.
“You can’t turn your back on a deal that’s going to earn the city $55 million over the next 25 years, provide 150 jobs and bring even more dealerships,” said Mayor Bob Kramer. “This is going to be a big boon to our city.”
But while all parties agree there’s money to be made from the project, some object to what they believe is a “giveaway” to one of the nation’s largest auto dealers working in conjunction with Ford, a company that earned $6 billion in profits last year.
Worse, critics charge, Burbank is playing right into the hands of Ford, which is trying to reduce the number of its dealers nationwide.
“There’s no reason why a city like Burbank should subsidize the world’s second-largest auto manufacturer, and Boeckmann, the largest Ford dealer in the country,” said Councilman Ted McConkey. “If he can’t make it with his resources and those of Ford Motor Co., you have to ask whether he should be in business at all.”
And then there’s the issue of fairness.
“Burbank hasn’t offered us $3, much less $3 million, to build a new store and bring in more tax dollars,” said Ken Hastings, general manager of Community Chevrolet, the only new-car dealer in Burbank.
“We’ve supported the city for over 30 years with our sales tax revenue,” Hastings said. “What has Bert Boeckmann done for the city of Burbank over that time?”
Boeckmann, a prominent San Fernando businessman and powerful political figure who serves on the Los Angeles Police Commission, said locating his business in a heavily urbanized area with high land prices is a costly proposition.
And in a world of slim operating margins, the owner of the successful Galpin Ford dealership in North Hills said the bottom line is keeping competitive.
“Most people don’t realize that the average dealer is operating on a 1% profit margin after taxes,” Boeckmann said. A large number of dealers actually lose money on new cars, making back the losses in service and used-vehicle sales, he said.
“It’s an attractive property, but if the city had not been willing to participate [in the project],” Boeckmann said, “we would not have gone forward with an offer.”
Burbank officials have argued that the high cost of land and construction for the multistory facility, to include showrooms and a service center, would leave Boeckmann with an estimated $12.5-million deficit.
Those estimates, put forward by Boeckmann, were independently verified by consultants hired by the city, officials said.
“Somehow that difference has to be made up” if the project is to be realized, said Robert Tague, community development director. “We’ve negotiated a financial package with a [current] value of $7.6 million and a full value of up to $12.5 million [over the life of the 10-year deal] to assist in that shortfall.”
In all, Boeckmann would receive three financial inducements to locate his auto super-dealership that would sell Ford, Lincoln-Mercury and Jaguar automobiles in Burbank:
* Burbank would lend Boeckmann $3 million for construction, accruing interest at 7% a year.
* Burbank would give Boeckmann one-fourth of the sales tax generated by his dealership each year for 10 years, up to a maximum of $9 million. If he pays back the $3-million loan, the city would pay him one-half the annual sales tax collections.
* The city would give Boeckmann what is now a portion of Front Street and relocate the road. The land is valued at $2.4 million.
Today, Burbank collects a 1% tax on automobile sales, which means, for example, the city would receive $750,000 in taxes on $75 million in car sales.
If the Boeckmann deal is approved, that same amount of car sales would generate, in the first year, $562,500.
Burbank City Manager Bud Ovrum said he’s aware of the criticism of using sales tax monies to bring in business but said that since the recession, cities have been forced to resort to new strategies to generate revenues.
“The sales tax is now the largest single source of revenue for the city, and naturally we are going to try and maximize what we get,” said Ovrum.
Ovrum cited other successful examples of businesses lured to Burbank, such as Ikea, Comp U.S.A., Virgin Records and Bullocks retail stores.
“We’ve gotten criticism every time there has been an economic development project, but the bottom line is today Burbank is very prosperous, while a lot of other cities are struggling just to balance their budgets,” Ovrum said.
McConkey, likely the lone holdout against the plan on the five-member City Council, acknowledged the agreement wouldn’t be the first time Burbank, stung by the departure of aerospace giant Lockheed in the early ‘90s, cut deals that were advantageous for business.
But the councilman said he is convinced Burbank, bolstered by the rise of entertainment, is in a much better position to be selective about the deals it cuts in a healthier economy and shouldn’t get involved in a vicious cycle that pits community against community.
“We shouldn’t be in the business of guaranteeing profits for a specific company,” he said. “Our job is not to give an unfair competitive advantage by subsidizing one dealer over another.”
Edmund Jussen, owner of Star Ford and Star Lincoln-Mercury in Glendale, agreed.
“I don’t see where it’s going to save the customer any money if their sales taxes are going to pay for it,” Jussen said. “Does Glendale jump in, soon followed by Pasadena to compete? Where do we go from here?”
Still, auto experts said the concept of an auto supermarket, now in its infancy, may be the wave of the future.
“Most manufacturers are looking toward high visibility, modern facilities in high traffic areas with good freeway access,” said Tom Shaver, a senior partner of J.D. Power and Associates in Agoura Hills who said some of the older dealerships will be “folded into a larger operation.”
“It all comes down to market share and taking care of customers from the manufacturer’s standpoint,” Shaver said. “And from the retailer’s standpoint, it’s profitability.”
The taxpayer subsidy is what continues to concern Community Chevrolet’s Hastings: “We’d love to entertain a joint venture with the city of Burbank similar to the deal they have with Mr. Boeckmann.”
