Opportunity for Rebirth from Two Days of Reckoning

The worst case scenario is now unfolding in the auto industry. On May 14, Chrysler, LLC announced it would be dropping 789 of its 3,181 dealers effective June 9, 2009. General Motors Corporation announced the next day that it too was reducing its dealer network. In the first phase 1,124 of GM’s 5,959 dealer base were told that they will be dropped as of October 2010. Another 1,400 GM dealers will be dropped shortly thereafter for a total reduction of slightly over 2,500 GM dealers. [Source: Detroit Free Press, 5-14-09 and 5-15-09.] Prior to these announcements, there were 20,770 franchised auto dealers in the nation. The closures may result in the elimination of up to 103,000 jobs. [Source: NADA.org.] This is just another shock, though not unexpected, to an economy already suffering through a severe recession.

But hope springs eternal!

This week, retailers and retail industry real estate professionals are convening in Las Vegas for ReCon, the annual global retail real estate convention hosted by the International Council of Shopping Centers (ICSC). Undoubtedly one hot topic of conversation will be how the real estate under the closing dealerships will be redeployed. Chrysler and GM targeted the closing dealerships because they had low sales volume or had other problems. Often the smaller stores sold one brand. In the case of Chrysler, the 789 dealers it eliminated represented 25% of its dealer network but only 14% of total company sales. The closing 1,124 GM dealers were 18% of the GM dealer network but only 7% of total sales for GM.

Anecdotally, many of the closing dealers were constructed on small parcels of land that when built 30 – 60 years ago, were located in less densely populated areas. Today, many of these locations are considered prime retail districts, in densely populated communities with strong demographics. Many sites offer prominent corner visibility at signalized intersections with great opportunities for signage. In other words, many are a retailer’s dream location. Perfect for a new community strip center or a Walgreen’s drive-thru pharmacy or a Wawa convenience mart featuring five gasoline pump islands or a new bank branch with three drive-thru lanes.

Consider several examples:

Schafer & Strominger Dodge, 1751 East Joppa Road, Baltimore County, MD. This dealership shares a four acre lot with its sister Hyundai dealership in a secondary retail district on the fringes of Towson, the county seat. The site is on a major thoroughfare, within one mile of the Baltimore Beltway and in a stable community featuring strong demographics.

Laurel Dodge, 10052 North Washington Boulevard, Laurel, Howard County, MD. Strategically located where Route 1 splits, this 2.95 acre parcel is a prime site for a new retail use given its high visibility and high traffic count. The site is in Howard County, which according the Maryland Department of Planning (MDP), has the highest median household income in the state.

Wheaton Dodge, 10915 Georgia Avenue, Silver Spring, Montgomery County, MD. Georgia Avenue is the major north-south thoroughfare leading into the District of Columbia. This 1.8 acre site is located one mile north of the Capital Beltway in a prime retail district, opposite a regional mall. Aside from great visibility and strong traffic counts, this location is in Montgomery County, the county with the second highest median household income in the state also according to MDP.

What had been projected to be a sedate, poorly attended RECON convention may end up being the biggest swap meet for auto dealership real estate in history. Don’t weep too long for the small town auto dealer who will soon be closed. Revisit him in 12 – 24 months as the construction crews scramble to complete the latest reincarnation of America’s main retail strips. That dealer’s former employees may have the opportunity to find employment with any of the new retail establishments. Employees of architectural firms, engineering firms and construction firms will have earned good wages to replace the old facility with a new one. Finally, the local jurisdiction will have a newly assessed property generating tax revenue occupied by a business providing jobs.

Hark! A glimmer of light is flickering at the end of this very dark tunnel.