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Page 16 — Retail Properties Quarterly — November 2016
Dealerships tend to cluster near one
another, offering consumers an easy
route to stop by several dealerships
in one trip. Many of these clusters
are located outside of metro areas
in unincorporated counties, such as
unincorporated Weld, Adams and
Arapahoe counties. The reason for
this lies in tax revenue and chal-
lenges with municipalities, said
Jackson.
“It’s been a problem for a while,
and it’s getting to be a bigger prob-
lem,” Jackson said. “A lot of that has
to do with zoning laws, where local
communities want to get other
types of retail instead of automotive
retail.”
Some communities chase big-box
stores, such as supercenters and
grocers, because the city stands to
reap the benefits of the sales tax
revenue, he said. For auto dealer-
ships, it’s different. The tax revenue
collected from auto sales is dis-
tributed back to where the vehicle
owner resides or, if it’s a business,
where the company headquarters is
located.
Fort Collins is an example of a city
that is chasing other retail because
the city recognizes that even if it
doesn’t have any dealerships, as
long as its residents buy the cars,
the city will still get the tax rev-
enue. “So it creates an incentive to
chase a Walgreens or a Target, but
not as lucrative to chase a dealer-
ship,” Jackson said.
Due to these all-too-common
municipality headwinds, the price
of automotive real estate that’s
favorably zoned goes up, Mitchell
said. “The demand for automotive
real estate is probably the highest
I’ve seen since 2008,” he said. “And
that demand is accentuated by a
lack of supply.”
In the past five or six years, auto
retail sales increased dramatically.
Today, the auto retail market is
steady, but flattening, Jackson said.
However, there still are a lot more
buyers for new cars than there are
sellers. “The number I hear is – for
every seller in the marketplace,
there’s 30 buyers,” he said.
New vs. Used Car Facilities
In Colorado, there are at least five
new car dealerships with shovels
in the ground as well as a couple of
yet-to-be-announced plans under-
way, Jackson said. These dealerships
will join the almost 300 new car
dealerships throughout the state.
Additionally, over the last five to
seven years, there was a wave of
remodeling to existing sites, mainly
at the behest of automakers, he
said.
“I think there’s a lot of pressure in
the industry from dealership manu-
facturers pressing their dealers
to upgrade their facilities to meet
certain branding and sustainability
concepts,” said Hockett. “Present
day is probably as busy as we’ve
ever seen it. Manufacturers kind
of hold inventory over the dealer’s
head – ‘If you don’t comply with
what we’re asking, you don’t get
first crack at some of the inventory,’
which is very important to the deal-
erships.”
In the face of changing consumer
needs, offering an experience when
purchasing a vehicle is a top prior-
ity for new car dealerships. Luxury
brands are pouring more money
into the showrooms to embrace
the lux feel. Two new dealerships
on Colorado Boulevard, selling Mer-
cedes-Benz and BMW brands, are
generating a lot of hype and, thanks
to a backing from Sonic Automotive,
a national, publicly traded company,
can afford to invest a little more
money than normal.
“There’s a lot of curiosity around
how well that’s going to work, and
once they open, will the increase
in car sales based on what they’ve
done really pay off,” Hockett said.
The money is intended to
enhance the customer experience.
New technologies speed up the
buying process while new “delivery
rooms” are designed as congratula-
tory areas for finalizing a vehicle
purchase. And once the car is pur-
chased, dealership are investing
a lot in their service departments
to retain those costumers over the
lifetime of the vehicle.
From a new car perspective, don’t
expect manufacturers to relax their
thought process on how big and
how glorious they want their facili-
ties to be any time soon, said Jeff
Dyke, Sonic Automotive executive
vice president. “So real estate is
going to play a big, big role in that
just due to the expense and the
location of the properties.”
The used car business is three
times the size of the new car busi-
ness. There are 45 million or 46 mil-
lion used cars sold in the U.S. each
year, compared with 15 million to
17 million new cars sold, Dyke said.
Sonic Automotive owns new and
used car dealerships, and piloted a
unique used car concept, EchoPark
Automotive, in Denver this past
year.
Used car dealerships are diametri-
cally different because the owner
controls the brand, as opposed to
having mandates handed down
from a given manufacturer, said
Mitchell. While having more control
over the dealership’s real estate
needs, these owners are finding
more flexibility to address changing
consumer habits.
“The list is a mile long on what
consumers dislike,” said Dyke. “First
of all, they don’t like the pressure
when they go up to a dealership.
They don’t trust the dealership.
They know the salesman is paid a
commission to sell them something
today. They’re not 100 percent cer-
tain about the product they’re going
to get. They are very concerned
Market Drivers
The most new car dealerships
are located in:
Colorado Springs 38
Littleton 16
Denver 15
Aurora 15
The following have 10 or more
new car dealerships:
Pueblo
Grand Junction
Boulder
Glenwood Springs
Fort Collins
Greeley
Centennial
Longmont
New car dealership snapshot
* Data from the Colorado
Automobile Dealers Association’s
dealer directory 2016