Automotive News - March 9, 2009 - (Page 16) 16 • FEBRUARY 9, 2009 Taj Mahal showrooms can be a royal pain Some luxury stores strain to maintain their tony tone Alysha Webb awebb@crain.com LOS ANGELES — A grand piano commands visitors’ attention, and a fireplace burns brightly in the middle of the room. A clothing boutique and coffee bar are to one side. Outside is a putting green. The lobby of a five-star hotel? Nope, the showroom at Newport Beach Lexus. Dave Wilson, who spent $75 million to build the Lexus store, says he is “more than breaking even.” The income from Newport Beach Lexus plus an older, smaller Lexus store that Wilson owns six miles away are more than enough to cover the two dealerships’ $600,000 monthly rent. But that’s not true for many Taj Mahal dealerships. “The dealers who built these facilities aren’t making money to cover their rent,” says Sheldon Sandler, founder of dealership broker BelAir Partners, of Skillman, N.J. trying to sell the brand. “One of the things that aggravates me is the manufacturers’ fantasies being fulfilled by the dealers’ checkbooks,” says Sandler of Bel-Air Partners. Many Mercedes dealers are in “virtual revolt” against the Autohaus program, he says. Indeed, Sonic Automotive Inc. is suing Mercedes-Benz, contending the automaker won’t let Sonic buy another Mercedes dealership until Sonic agrees to upgrade its dealerships according to the Autohaus plan. Sonic declined to comment. Mercedes says the Autohaus program is voluntary, and most of its 347 U.S. dealerships will upgrade. Keeping up Sometimes a Taj Mahal dealership is a must. Wilson faced competition from Fletcher Jones Motorcars, the Mercedes dealership across the street from Newport Beach Lexus. Fletcher Jones’ store is the largest U.S. Mercedes dealership, with a four-story glass showroom, an airport shuttle and even free manicures. It cost $18 million to build in 1997, before the Autohaus program existed. “That was a lot of money back then,” says Fletcher Jones Jr. The dealership will make changes soon to reflect the Autohaus concept. The local market should dictate how tony a luxury dealership needs to be, Jones says. Fletcher Jones Motorcars is in one of the top luxury markets in the United States. And that makes a difference. Says Jones: “You wouldn’t want to go to some small upper-Midwest town and build something this over-the-top.” c ALYSHA WEBB Luxury laggards Fancy dealerships sounded good when sales were up, but times have changed. U.S. SALES 2005 2008 Whether it’s a new Lexus or a Tommy Bahama shirt from the boutique, Newport Lexus can take care of you in style. From left, sales executives Bobby Sento, Joey D’Amato and Bill Pippin. At Acura, dealers who earlier upgraded their store’s exteriors got an additional allocation of cars. And Acura dealers who meet new specs for interior upgrades will be reimbursed for design fees. But Wilson says Toyota provides no incentives to Lexus dealers who upgrade stores. He says Lexus should reward those dealers with payments on a per-car-sold basis. A luxurious dealership makes a good first impression, which draws customers, says Chris Denove, vice president of operational research at J.D. Power and Associates. “People like to go to businesses they feel are successful,” Denove says. Older dealerships have loyal customers who might overlook a bit of shabbiness, he says. But a nice dealership is vital for a new point. Still, the sad case of General Motors’ Hummer dealerships reflects factorydealer tensions over demands for store upgrades. GM dealers were forced to spend millions on special showrooms for the Hummer brand. Now sales have fallen through the floor, and GM is Taj Mahal maladies A luxury brand demands a five-star dealership, say many manufacturers. In go-go years, the expense of such Taj Mahals may be justified. But in times like these, the wisdom of such huge investments is in question. Last July, Ed Tonkin opened an $8 million Acura dealership in Reno, Nev. He says it will be tough in this economy to cover the monthly rent, which he would not disclose. “We don’t regret building it,” says Lexus Cadillac Acura 302,895 235,002 209,610 260,087 161,159 144,504 Source: Automotive News Data Center Tonkin, “but I do regret the timing.” Manufacturers help out. Mercedes dealers who upgrade under the automaker’s Autohaus program receive $400 per vehicle sold for three years. As Phoenix chills, Penske campus keeps its cool — and its test track Mark Rechtin mrechtin@crain.com PHOENIX — The grandest Taj Majal of them all still stands, despite an economic climate that has closed many of its neighbors. The Scottsdale 101 Auto Collection, built by the Penske Automotive Group in 2002, has no plans to shut down its racing museum or on-site test track — items some dealers might see as lowhanging fruit in the battle to cut costs. But the Penske group has made other changes as the economy has soured. The “101” of the collection’s name could stand for the millions of dollars invested in the dealership’s 41-acre campus, not just the freeway it intersects. Brands including BMW, Land Rover, Jaguar, Mini, Volkswagen, Porsche, Rolls-Royce and Bentley share one interconnected, 450,000square-foot roof. The brands have separate showrooms but share back office and shop space. Penske recently closed its companion Jaguar and Land Rover store 13 miles away. Business in the area wasn’t sufficient to fill both showrooms, said Anthony Pordon, Penske Automotive Group senior vice president. Although some of the store’s 70 employees found work elsewhere in Penske’s Phoenix holdings, some layoffs occurred, Pordon said. Penske is not the only dealership group facing tough times in Phoenix, once one of the fastest-growing areas in the country. In the past year, Bill Heard Chevrolet, Desert Kia, Power Pontiac-Buick-GMC, Scottsdale Audi, Scott Toyota-Nissan of Scottsdale and Chapman BMW have closed, according to the East Valley Tribune in Mesa, Ariz. Pordon only gave limited details about Scottsdale 101’s current performance, preferring to discuss Penske Auto Group’s overall standing. Test track A jewel Scottsdale 101 has been one of the jewels in the Penske crown. At a 2007 Wall Street conference, CEO Roger Penske said Scottsdale 101 was showing a 3 percent return on $600 million in annual sales. More recent numbers are not available. The success of Scottsdale 101 has affected other area Penske holdings. He said the racing museum and test track make Scottsdale 101 stand out, a marketable commodity when salespeople are fighting for customer attention. So while maintaining the rambling off-road circuit for the Land Rover store might be pricey, taking a customer on such a ride is a key motivator in closing a sale. Meanwhile, the adjacent paved circuit is used to stock an overflow of Mini inventory. “We’re going to keep those things open” at Scottsdale 101, Pordon said. “It’s more of a destination point. I don’t shop for cars based on what I see in the newspaper or see on TV. It’s word-of-mouth and drive-by, and what we have there is the best type of advertising.” Pordon declined to break out the financial performance or sales numbers for Scottsdale 101. Overall, in the third quarter, Penske Auto Group cut 667 employees nationwide, about a $24 million cost reduction. The auto group also slashed advertising by $2.5 million, an 11 percent cut. But plummeting sales in October and November have pushed Penske to dig deeper, Pordon said. “We have continued to address our cost structure, our people cost and advertising cost. We have taken out more people and taken a hard-line look at advertising,” Pordon said. He declined to give specific numbers for the fourth-quarter cuts, citing Securities and Exchange Commission disclosure restrictions. Penske Auto Group has eliminated a number of dealership sales managers, usually by deleting that position and having the general manager work the floor. But the job cuts go all the way to the bottom. Said Pordon: “We’re looking at ser- The Penske museum in Scottsdale, Ariz.: Staying around, despite tough times vice writers and porters. We’re looking at scale in a marketplace, to reduce or eliminate accounting offices. There are some travel restrictions. We rolled out a corporatewide office supplies program.” sharply. The salesperson said Aston Martin values in particular have plummeted, especially for the V8 Vantage. A gleaming example, with just 1,400 miles on the odometer, has sat despite its bargain asking price of $79,000. More than a few late-model Ferraris also litter the showroom floor. A Bentley sales staffer said it has become harder to persuade people to buy big-ticket items such as a $219,145 red Bentley Continental GTC convertible when so many of their neighbors are down on their luck. “It’s not the worst it’s ever been,” added a Jaguar salesperson. “It was worse during the two (Gulf) wars. I just keep doing what I always do. It’ll turn around.” c High end deflates Indeed, many of the Scottsdale 101 showrooms looked understaffed, although that might be because the visit was on a Monday instead of a weekend. Pordon asked that a reporter not interview dealership employees. But during a visit to Scottsdale 101, a reporter found employees willing to talk. A sales staffer in the luxury preowned store noted that purchases for high-end luxury vehicles have fallen
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