Car dealerships are the auto industry’s way of getting their
product out to the public. The auto
industry itself is huge and is dominated by very big “players:” General
Motors, Toyota, Ford, Hyundai, and down the list. Together with our software and internet
giants, these make up the world’s largest corporations. A large proportion of advertising is
devoted to the marketing of cars.
But, for sales, these giants rely on a network of local car
dealers. Car dealers operate like
franchisees. They lend a local,
personal face to what would otherwise be a faceless international
company. If you own a dealership,
that's your opportunity to become a local TV personality. You can be Herb Chambers, smiling for the
camera. What’s not to smile about? You’ve been hugely successful. You can be Charlie Daher,
with your son and daughter in the ads.
You can be Ernie Boch, Jr., with your own
rock band. Ernie Boch,
Jr., son of Ernie, who used to invite all of Boston: “Come on down!”
Car dealerships as physical facilities need to meet certain
minimum requirements: acres for parking, a 5,000-square-foot showroom, and
a repair garage at least that big, all with visibility from an
easy-to-get-to, high-traffic local road.
If a facility can’t meet those minimums, it will likely become an
unaffiliated “pre-owned” car dealership instead.
Car dealerships tend to locate in clusters. An isolated dealership can survive, but
it has a better chance of thriving if it is clustered in a “critical mass”
with others of its kind. The major
cluster in Greater Boston is the Automile in
Norwood. Others are along Route 114
in Danvers and Pond Street in Norwell.
The remnant of an early cluster is at Commonwealth Avenue in
Allston. There, Peter Fuller’s
dealership has been absorbed into the Boston University campus, and the
Packard building at Packard’s Corner is now a Super 88 Asian market. Only Herb Chambers’ dealership remains.
The auto industry’s giants don’t own their sales facilities,
but they control them, through a rental arrangement known as the “site
control lease.” A standard
arrangement is for a land owner to enter into a long-term land lease with a
car manufacturer, which in turn leases the site to a dealer. The site control lease held by the
manufacturer allows the manufacturer to require the dealer to construct or
upgrade the facility to the manufacturer’s specifications, with a façade
that matches the facades of all the other dealers selling the same brand
nationwide. That way, the brand
presents a consistent, recognizable image to the public. At times, the land owner and the dealer
are the same person. The rent that
the dealer pays may be the same as the land owner receives. The only wrinkle is that the manufacturer
is in the middle and under the lease terms has considerable control.
Another wrinkle of the car business is that the dealer is not
really in the car selling business to sell cars. The dealer is in the repair
business. There is money to be made
in selling cars but more in their repair.
Once, the repair business was dominated by small shops. As engines have become more complex,
their repair more and more has required more complex, computerized
equipment. The public trusts the
dealer to have access to the proper equipment. And, so, more and more, the public has
turned to the original dealer for repairs.
Appraisers who take on assignments to value dealership
facilities base their analyses on comparable sales. Among the important sales of dealerships
that are useful to an analyst in Greater Boston in recent years are these:
Cadillac, Route 1,
Toyota, Route 9,
an appraiser to make use of these in the valuation of a dealership facility
requires knowledge of the terms of each sale. Was the property subject to a site
control lease? Was it free and
clear? Was the dealer required to
enter into an expensive upgrade? Did
the dealership use continue? Dealerships occupy large sites at high
visibility locations. At times,
alternate uses produce more value than continued use as a dealership. An appraiser of car sales facilities
needs to be alert to that possibility.