It's no secret that car sales are down these days, and that this downturn is causing a problem for cities in California. But based on a panel I participated in on Friday at the Westside Urban Forum in Los Angeles, I'd say the problem facing cities is a little more nuanced than I thought.
And it suggests that, with a rapidly changing retail market, cities have to move into a whole new generation of thinking not just about car dealers but about retailers generally.
So far the problem has seemed pretty simple, as I laid out in a Governing column a while ago: Auto malls used to be fortresses, just like regional malls. But declining sales and the restructuring of the industry has begun to wipe out some auto malls because the number of brands and dealerships is on the decline. (Again, just like regional malls.) So cities have to make a fundamental decision – just as they did with regional malls. Do they circle the wagons or do they let the malls fall apart and start over again.
I shared the Westside panel with Santa Monica City Councilmember Terry O'Day and Geoff Emery, the head of Beverly Hills Porsche and owner of several other high-end dealerships on the Westside. Admittedly, the Westside is atypical. There aren't really any auto malls. Dealers are still mostly located along arterials. And because land is unbelievably expensive, the dealerships are more willing to take up less space than elsewhere.
Still, it was a stimulating morning – especially because of Emery, a very smart and sophisticated guy who just finished getting a new Audi building approved in Santa Monica. Here are a few wrinkles that may change my thinking about auto dealerships, auto malls, and retailers in the months ahead:
-- The problem with the brands and dealers shrinking is temporary and largely confined to American brands. High-end brands such as the German brands Emery sells are doing fine, especially because of the leasing phenomenon. Solid Japanese brands such as Honda and Toyota (despite its problems) are doing fine too. And there's a whole new rush of brands coming from Asia, such as Tata from India.
-- Yes, buyers browse on the internet now and not at the auto mall. But they still wind up at the dealership. This means two things: First, that dealers still need actual physical locations, and second, that they still need a big inventory (every brand, every color so you can look at the exact car you want to buy). What's not known is whether these dealers need to be grouped together anymore or not.
-- Here's one thing we always forget: Big retail companies – autos manufacturers and others – exert a lot of control over their stores. So, as Emery says, he gets stuck between the desires of local cities that want to individualize the stores and the requirements of his manufacturers in Germany, who are not willing to budge. It's pretty clear that cities need to understand the internal workings of retailers' decision-making about location and design far more than they do.
-- Finally, one last analogy to regional malls: I'm guessing that the car market will bifurcate, just like the retail market has. There'll be fancy high-end dealerships; and then there will be bare-bones operations selling Tatas for cheap. They may not need to be – our want to be – in the same place. Maybe Porsche will want to be next to Nordstrom and Tata next to Wal-Mart.
-- Bill Fulton