Car dealers on receiving end of huge incentives - East Valley Tribune: News

Car dealers on receiving end of huge incentives

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Posted: Sunday, May 23, 2004 6:54 am | Updated: 4:48 pm, Thu Oct 6, 2011.

Several East Valley auto dealers are looking to trade in their old locations for ones that are newer, bigger and faster to reach.

And they know how to negotiate a sweet deal, pitting one municipality against another for the best sales tax rebate package.

Auto mall developers are planning at least four massive multidealer complexes that could threaten older dealerships like those on McDowell Road in south Scottsdale and make the south East Valley the new hot spot for car buyers throughout the region.

One commercial development, at Val Vista Drive and the future stretch of Loop 202 in Gilbert, is expected to include a 128-acre auto mall, which would make it the state’s largest.

The area’s growing population base, available zoning and the construction of a new freeway are driving the shift to auto malls that are larger and farther southeast, industry experts said.

"They are going to go where they are going to be the most successful," said Bobbi Sparrow, vice president of the Arizona Automobile Dealers Association.


And an auto mall’s success means big money for municipalities.

With car dealers contributing about one-quarter of the state’s annual sales tax revenue, it’s no surprise that East Valley leaders are drooling over the possibility of benefiting from all this new business.

As dealerships consider moving from older, boxed-in locations such as south Scottsdale’s motor mile to new East Valley sites, they are taking advantage of a bidding frenzy that some experts say might be going too far.

"Since it has become such a game, the retailers know it," said Tom Rex, manager of Arizona State University’s Center for Business Research. "Why not pit the different cities against each other?"

The problem, Rex said, is that municipalities are bidding with taxpayers’ money, and they may be needlessly giving away millions.

"Cities need to decide whether a developer really would go elsewhere if incentives weren’t offered," he said.

Scott Toyota general manager Brook Margreaves said finding a new location that will attract customers is his only concern.

Scott Toyota, 6850 E. McDowell Road, is one of several dealerships considering a relocation or expansion to sites in Mesa, the south East Valley and Scottsdale.

Margreaves said a move is not yet certain, but declining traffic on McDowell is the reason his dealership is looking at other alternatives.

"They’re all related to freeway access," he said of the sites under consideration.


However, elected officials in Gilbert and Chandler said perks can sway auto dealers if they are considering two or more equally attractive locations.

Incentives are a necessary tool and are worth the money that is sacrificed, they argued, since half of a dealership’s sales tax revenue is still better than none.

"The emphasis needs to be put on what we are going to get for that incentive," said Chandler Vice Mayor Lowell Huggins.

In recent months, the prospect of a giant revenue boost from auto malls has led Gilbert, Chandler and Mesa to offer multimillion-dollar deals to developers.

Gilbert’s deal gives developer Bill Lund — who plans to install 17 dealerships on his site — $60 million in returned sales tax.

The deal approved by Chandler returns half of the ninedealer auto mall’s sales tax for 13 to 14 years, which officials said would total about $40 million.

Mesa officials also approved a tax incentive package worth $8 million to $12 million for a developer looking to build a 36-acre auto mall at Hampton Avenue and Sossaman Road in southeast Mesa, just north of U.S. 60.

The development deals are separate, but the three cities will be competing for a limited number of dealerships to fill the space.

To avoid saturating the marke t, Sparrow said auto manufacturers require a market study to justify opening a location before granting a new franchise. Also, state law prohibits new-car dealers representing the same brand from locating within 10 miles of each other, further limiting each municipality’s prospects.


Gilbert Mayor Steve Berman is livid about Chandler’s incentive deal, which he said is unnecessarily generous and worth at least twice the city’s official $40 million estimate.

Berman said the Chandler deal hurts Gilbert.

"Now we’re going to have to go in there or match that deal or lose our dealerships," he said "A couple of the dealers have already dropped out."

However, Huggins said it is Gilbert’s fault that Chandler sought its own auto mall deal in the first place.

"We had originally tried to make a deal where we would share the revenue, and Gilbert turned it down," he said.

Rex said all incentive plans are counterproductive from a regional standpoint, and that municipalities should agree not to offer them.

But he isn’t expecting the bidding wars to stop any time soon.

"There pretty much has to be a state law that would change this," Rex said.

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