March 20, 2005
By Scottsdale standards, a proposed $1.5 million subsidy for the auto dealers on McDowell Road seems paltry.
The city would spread the money among about a dozen dealers over five years, making it among the smaller subsidies that Valley cities have paid in recent years to keep large businesses from fleeing to other communities.
But recipients of the money include the nation’s most lucrative auto dealer corporations — something that has critics calling the proposed subsidy an act of corporate welfare.
"I don’t know how anybody can defend this thing," City Councilman Bob Littlefield said. "We’re going to give money to a bunch of insanely rich people."
Scottsdale is considering spending $300,000 a year to help market dealerships on the "Motor Mile," where sales have slumped for several years because of competition from newer auto malls. The dealers have proposed using city funds with $848,000 a year of their own money for a Motor Mile ad campaign.
The City Council is set to vote on the matter April 5.
Supporters note the city’s share is tiny compared with perks elsewhere. For example, Gilbert offered $60 million in incentives to lure dealers to a new auto mall along Loop 202.
With that sort of competition, supporters say Scottsdale has to make some effort.
"This is not only going to benefit the car dealers, it’s going to benefit the entire region of the southern part of the city," said Virginia Korte, president of the Scottsdale Area Chamber of Commerce. "Let’s not forget that the dealers are contributing almost three times that city investment to make this thing happen."
Littlefield and other critics say the dealers are among the nation’s largest corporations.
A ranking of the nation’s largest dealerships in Ward’s Automotive Reports shows at least nine of the dealerships are parts of corporations each with more than a billion dollars in annual sales. A Ward’s list published in 2004 shows the Motor Mile parent companies include:
• AutoNation Inc., owner of four Pitre dealerships, with $19.3 billion in annual revenue. It’s the nation’s largest auto retailer and 97th on the Fortune 500 list of American corporations.
• United Auto Group, owner of four McDowell dealerships. It’s the nation’s second largest dealer group with $8.6 billion in annual sales.
• V.T. Inc., owner of Infiniti of Scottsdale. It’s the fourth largest dealer group with $5.6 billion in yearly sales.
• Bill Heard Enterprises Inc., owner of Bill Heard Chevrolet — ninth largest U.S. dealer group with $2.4 billion in sales.
"We’re giving money away to some of the richest people in our community," Littlefield said.
But Korte argues the large corporations need help because their businesses are struggling. While the intersection of Scottsdale and McDowell roads was once the Valley’s second busiest, freeways have siphoned off traffic and car buyers. At least three dealers have had pressure from the auto manufacturers they represent to move because of declining sales, Korte said.
Korte, whose family owned a Chevrolet dealership and now leases that land to Bill Heard, said dealers need a financial commitment to prove Scottsdale is serious about improving the area.
"I believe the dealers will have a real hard time supporting this marketing program without the city’s buyin," Korte said.
The dealers will probably leave without the money, taking with them $8 million a year in sales tax revenue, she said.
Councilman Jim Lane said that threat has been exaggerated. The dealers would leave slowly, giving the city time to prepare for something else. But he doubts a mass exodus. Given the dealers spend $8 million a year on advertising, he questions whether $300,000 more will reverse the weak sales trend.
The city’s offer is more about saving face in what might be an inevitable market shift, Lane said.
"I know a lot of officials in city government are scared to death for the fear the market will go the course and then they’ll be pinned with the blame," Lane said.
The size of the corporate parents shouldn’t count against the idea, Councilman Kevin Osterman said. The only consideration, Osterman said, is the dealers’ impact on Scottsdale’s bottom line. The Motor Mile incentives are proportional to contributions to a fund for downtown improvements, which he said have helped spur $1 billion in development.
The McDowell incentives could also spur other investments that will generate more tax dollars, he said. Osterman said critics have ignored that potential or they focus on the fact oftendespised car dealers will benefit.
"Whether you love them or hate them, the fact is they produce a tremendous amount of our General Fund money," Osterman said. "I’m not trying to coddle them or baby them or offer them a sweetheart deal. I just think it’s in our best interest."