Tuesday, 16 November 2010 17:51

San Juan Capistrano Offers $5M Incentive to Retain Auto Dealership

Trying to keep an auto showroom and the sales tax revenues that come with it in town, San Juan Capistrano’s Redevelopment Agency will pay its largest incentive to date—$5 million —to an auto group for taking over and operating a dealership that is set to shutter by the end of the year according to the Orange County Register.

Capistrano Ford will end up being operated at its current location by the Tuttle-Click Automotive Group and then will move by March or April to a vacant former Nissan and Dodge/Jeep dealerships location at 33375 and 33235 Camino Capistrano under a new name, the city said.

This one-time Dodge/Jeep dealership will house a Ford/Lincoln dealership starting next year due to a $5 million incentive payment by San Juan Capistrano’s Redevelopment Agency.

Since 2004, five new car dealerships have closed their doors in San Juan Capistrano, and the sixth would be Capistrano Ford, its closure resulting from the expansion of Costco, according to a city report.

Tuttle-Click has obtained exclusive rights to buy the franchise, the city said. The current owner has no plans to relocate or keep the business in this city.

On October 20, the City Council acting as the Redevelopment Agency, voted 4-1 in favor of a 27-year deal with Tuttle-Click, agreeing to forward $3 million within five business days if the dealership opens and another $2 million over time, with payments based on a sales-tax received formula.

With virtually no one other than the automotive group representatives left in the audience at the deciding council meeting, following a nearly a six-hour debate, Mayor Lon Uso was the lone dissenting voice against the incentive, saying that the amount was too high.

“I think we’re giving you guys way too much money,” he said. “We’re setting a precedent through our Redevelopment Agency that I think is unsustainable with other auto dealerships. It’s going to be difficult to keep doing this.”

Fellow council members felt that in offering the incentive the agency was fulfilling its role — fill blighted vacant lots and save about 100 full- and part-time jobs in the process.

“This is what redevelopment agencies are supposed to do,” Councilman Tom Hribar said. “The jobs issue is as important as anything. This is what we at a local level can do to preserve jobs.”

Councilman Mark Nielsen characterized the deal as being “right at the edge” from a financial standpoint.

“I guess I look at it as, one, it’s a unique situation because of the importance of maintaining the dealership at this location and, two, at this particular location we have true blight,” he said.

The two lots that Tuttle-Click will occupy have been vacant since 2008 and 2009.

The agency will fund the first $3 million of the incentive using bond proceeds from its business retention/economic development allocation. The remaining $2 million is considered an agency debt and will be funded annually via tax increment proceeds, the city said.

“This is the largest assistance we have offered to a dealership,” said Cindy Russell, the city’s chief financial officer, before the agency action on October 20.

The 27-year agreement puts a dealership in the now vacant lots and is expected to fetch the city $17 million in sales tax dollars over that period, but with $5 million paid out as incentive to Tuttle-Click, the net gain will be $12 million, she said.

The city will retain all sales tax revenue generated by the dealership, as opposed to passing a portion of it to the agency for payments under the agreement, according to the city report.

The break even point of the agreement will be reached in about 12½ years, Russell said.

“You create a strong sales tax base in addition to retaining the dealership,” she said. “We’d go down to four (dealers) and it’d be more difficult for the existing stores to remain” if the deal were not struck.

For their part, representatives for Tuttle-Click said they would not be able to come to San Juan Capistrano without the incentive.

“Couldn’t afford it,” said Chris Cotter, president of Tuttle-Click Automotive Group, which operates dealerships in California and Arizona, following the agency decision.

When asked if Tuttle-Click had ever received this kind of an incentive anywhere else, Cotter replied: “Off the top of my head, I can’t give you an answer for that one without going back.”

While he could not say which incentive had come close to the one San Juan Capistrano’s deal offers, Cotter, who has been with the company for about 35 years, acknowledged that the city’s incentive was the highest the company had received.

Cotter said the Ford franchise at the new location would be coupled with a Lincoln franchise; an auto body shop also will be included.

The downturn in the automotive industry has resulted in the loss of approximately 40 percent of retail auto sales revenue to the city, according to the city report

“The closure of another dealership will further weaken the competitiveness of San Juan Capistrano as an auto sales destination,” the city report said.

Orange Coast Chrysler is on a separate track, Russell said, obtaining permits from the city Planning Commission to open to add a new dealership in town.

That, too, would be on Camino Capistrano, an automobile showroom row of sorts fronting the 5 freeway.

In the next month or so, the terms of the incentive Orange Coast Chrysler might get from the Redevelopment Agency should be hammered out.