HomeMy WebLinkAboutR11-Economic Development Agency
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DEQLOPMENT DEPARTMQT
OF TIlE Cln OF SAN BBIl1WlDIl'rO
REOUEST FOR CO~SSION/COmrCIL ACTION
From:
KElmETH J. HENDERSON
Executive Director
Subject: AUTO PLAZA REGIONAL
SALES RBTD'lIOW AND
IXPAl'rSIOW PROGRAM
Date:
March 6, 1992
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SvnoDsis of Previous C~issionlCouncil/C~ittee Action(s):
2/20/92 The Redevelopment Committee received and filed an item on
this sUbject, but requested that additional information be
brought back at a later date.
3/5/92 The Redevelopment Committee recommended that the item
presented at its February 20, 1992 meeting, plus additional
information presented on March 5, 1992, be reviewed by the
Community Development Commission at its March 16, 1992
meeting.
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Recn"~ded Motion(s):
(Coamunitv Deve10Dlllent CnMBission)
MOTION That the Community Development Commission approve the
attached Auto Plaza Regional Sales Retention and
Expansion program, authorize and direct Agency Counsel to
prepare appropriate Owner Participation Agreements and
increase the Development Department by $744,600.
Adm~ator
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Contact Person(s): Ken Henderson/John M. Wood
Phone:
5081
Project Area(s): Southeast Industrial Park (SEIP)
Ward(s):
Three(J)
Supporting Data Attached: Staff Reoort: Sabo & Green Deal Points: Table:
Samole Calculations. Site Mao and Newsoaoer Article.
FUNDING REQUIREMENTS:
Amount: $ 744.600
Source:
Tax Increment
Budget Authority:
To Be Soullht
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CommissionlCoun~il Notes:
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KJH:JMW:lag:06l3E
C~SSIOW MDTIIG AGDDA
Meeting Date: 3/16/1992
Agenda Itea I!h&ber: -1L
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DBVBLOPMBBT DBPARTMBBT
OF TIlE CIn OF SAB BBIllWlDIBO
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STAFF REPORT
Auto Plaza Reaional Sales Retention .nd BzD.naion Proaram
For some time now, staff has been working with the San Bernardino Auto
Plaza Dealer's Association ("dealers") on a Regional Sales Retention
and Expansion Program ("program"). The stimulus for this has been the
very poor business climate that has affected automobile dealerships for
the last year, and will probably continue to affect the industry as a
whole for the immediate future. The sales tax generated by the dealers
is an important source of revenue to the City and some of the dealers
have already gone out of business, while others are threatening to move
to Colton or Loma Linda.
PROGRAM 1i:XPUIIATIOB
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The program is quite complex, but fully explained in the attached list
of deal points as prepared by staff and Sabo & Green. In essence,
however, it is a loan program, with the amounts a dealer can qualify
for tied to gross sales, and with the additional stipulation that any
monies received by a dealer must be applied to additional advertising
so as to further increase sales. Incentive payments would be remitted
during the initial three (3) years of the program. There are also
requirements that participating dealers commit to stay in the Auto
Plaza for seven (7) years.
The basic thrust of the program can perhaps best be explained through
an example. We would first calculate, for each participating dealer,
the number of "base units". This is done by annualiZing the dealer's
gross sales over the last eighteen (18) months. If this number was $18
million, we would then divide by $15,000 (the stipulated average
selling price of a new automobile) to get 1200 units per year.
Multiplying the base units of 1200 by $50.00 per unit gives us the
"base amount" of $60,000.
Upon the signing of an Owner Participation Agreement (OPA) setting
forth the details of the program, each partiCipating dealer would
receive a payment equal to one-half of the base amount or, in this
case, $30,000. At the end of each six month period after agreement
execution, the dealer would receive $50.00 per $15,000 unit sold, up to
one half (1/2) the number of base units. Recalling that the number of
base units in the example is 1200 per year, this would equate to 600
base units per six month period. If the dealer sold 600 units during
each six months of the program (which terminates after three (3)
years), we would multiply 600 units by $50.00 per unit to get $30,000,
and this would be the amount payable to the dealer at the end of each
six (6) month period.
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KJH:JMW:lag:06l3E
COIllISSIOB MKBTIBG AGDDA
Meeting Date: 3/16/1992
Agenda It_ lIumler: L
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DEVELOPIIEBT DEPAa1\mJn STAFF REPORT
Auto Plaza Regional Sales RetentionlEzpansion
March 6, 1992
Page BuIIIber -2-
The second part of the assistance plan involves payments of $100.00 per
unit for each $15,000 unit sold above the predetermined number of base
units. These bonus units are determined at the end of each year of the
three-year program period. In our example, the participating dealer has
a predetermined base unit number of 1200. If, at the end of each year of
the three-year program period, the dealer had sold the equivalent of 1300
units, he would be entitled to an annual bonus payment calculated as 100
units multiplied by $100.00 per unit or $10,000.
In the example we are using, at the end of the three-year program period,
this particular participating dealer would have received total payments
of $240,000. In actuality, however, no dealer can receive more than
three times the applicable "base amount". Recalling that for this dealer
the base amount is $60,000, three times this figure equals $180,000.
This is also known as the "cap amount". Once this cap amount has been
paid to any given dealer, the dealer is not entitled to any additional
payments, regardless of how outstanding the dealer's sales performance
may have been.
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As previously mentioned, all payments to the dealers must be applied to
additional advertising, so as to increase the dealership's sales.
Moreover, before a dealer can enter into an OPA, the dealer must submit a
satisfactory marketing plan, demonstrating how they will apply the
assistance payments to effectively and efficiently increase sales
revenue. Even the dealer's association will be required to submit a
marketing plan showing collective efforts to increase sales at the Auto
Plaza.
Also, as mentioned previously, the payments under the program are
structured as loans rather than grants. Interest at the rate of seven
percent (7X) per annum will accrue on the outstanding balance of payments
remitted to any given dealer, as of the date of the final incentive
payment. The repayment obligations of the dealers will terminate at the
end of the thirteenth (13th) year after the dates of execution of their
respective OPAs. At that time, any remaining unpaid principal and
interest will be forgiven. Repayment takes place if and when, between
years four (4) and thirteen (13), dealer sales exceed one hundred fifty
percent (150X) of their base units, for any quarter. Thus, recalling
that in our example the base units are 1200, this equates to a quarterly
base of 300. Multiplying 300 by one hundred fifty percent (150X) gives
450. Therefore, any units sold in excess of 450 during any quarter
between years four (4) and thirteen (13) would trigger a repayment to the
Agency from the dealer. The amount of any quarterly repayment is
calculated as the number of units in excess of one hundred fifty percent
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KJH:JMW:lag:06l3E
COIIUSSIOIl IlEETIlIG AGEllDA
Meeting Date: 3/16/1992
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Agenda It_ lIuIIber:
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DBVBLOPMDT DIPAR-.lJ'II5IIl: STAFF IlIPOIlT
Auto Plaza Regional Sales Retention!lzpansion
March 6, 1992
Page IIU11ber -3-
(lSOX) of the base units multiplied by $50.00 per unit.
if in a given quarter, the dealer sold six hundred (600)
repayment obligation would equal one hundred fifty (150)
by $50.00 per unit or $7,500.00. Also attached for your
step-by-step calculations using this example.
In our example,
uni ts, his
units multiplied
reference are
COIlCEIlIIS FROM FEBRUARY 20. 1992 IlIDIVILOPMDT COIMITTII MllTIBG
Pursuant to Committee direction, staff has performed further analysis on
the Auto Plaza Regional Sales Retention and Expansion Program. Based on
historical sales data, it appears that the total financial commitment
would be less than originally antiCipated. Though an overall figure of
$1 million was presented at the February 20, 1992 Redevelopment Committee
meeting, more recent calculations show that this number would equate to
only $744,600 (and perhaps not even this much, depending on actual future
sales). It should, however, be noted that an existing San Bernardino
dealership may be relocating to the Auto Plaza in the near future. If it
does, the Agency's total financial commitment under this program could
increase. The attached table shows the important data and calculations
for each Auto Plaza dealership.
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Councilwoman Estrada had suggested that staff consider a "local rebate"
program, under which assistance would be provided in the form of rebates
to individual citizens who purchase cars in San Bernardino. In
discussing this proposal with Mr. Rick DeZorzi of LeMans Bissan,
President of the San Bernardino Auto Plaza Dealer's Association, two
concerns were identified. First, Mr. DeZorzi felt very strongly that the
assistance funds could be better leveraged, resulting in a larger
increase in sales volumes, by applying them to individual dealerships as
well as collective Auto Plaza advertising, as opposed to individual
automobile transaction rebates. In other words, he felt that advertising
would be a more efficient pursuit than a rebate program. Secondly, there
was concern that a local rebate program would exhaust the allocated funds
in a shorter time period than the three-year advertiSing assistance
program. This could leave the dealers struggling again financially
before the economy has had an opportunity to truly turn around. In
addition, such a program would in all probability violate existing
redevelopment law.
As to questions raised about specialized assistance for the Auto Plaza
when other retailers in the City could also benefit from assistance, it
should be noted that the Agency has already invested close to $2,150,000
in the success of the Plaza. It seems appropriate to try to protect that
investment, especially considering that the Auto Plaza generates in the
neighborhood of $1 million per year in sales tax revenues to the City.
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KJH:JMW:lag:0613E
COIlMISSIOII MllTIBG AGlllDA
Meeting Date: 3/16/1992
Agenda It_ ....ber: --L
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DEVELOPMEllT DEPARnotu-.r STAFF REPORT
Auto Plaza Regional Sales Retention/Ezpansion
March 6, 1992
Page Number -4-
Moreover, unlike most other retail operations in San Bernardino, the Auto
Plaza is unique in being a "regional" attraction, drawing buyers from all
over the Inland Empire, as opposed to just this locality. The same
cannot be said for most other retailers. It is even more unique in that,
because of Department of Motor Vehicle policies prohibiting same-make
franchises from locating within ten (10) miles of each other, once a
dealership is lost to a competing nearby city, for all intents and
purposes it may be lost for good. The same is not true of most other
retail or commercial businesses which can be and replaced if they move to
a nearby municipality.
This leads into a final point. Hyundai is in bankruptcy, Friedlander has
stopped selling cars and Harmon Motors is seriously considering
relocating to another city. In addition to generally stimulating sales
at the Auto Plaza, the program would be seen by dealers as a vote of
confidence on the part of the City/Agency. This could go a long way
toward encouraging LeMans Kissan's plans to purchase and reopen the
Hyundai dealership, persuading Herb Friedlander to reopen the Acura
dealership and convincing Harmon Motors to stay in San Bernardino instead
of moving to another city.
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COBCERlIS FROII MARCH 5. 1992 REDXVELOPMElIT ClMUTTEE ImETIIG
A representative of Orange Show Lincoln/Mercury attended the meeting and
expressed concern that they were not notified of plans to implement the
program. Since both Orange Show Lincoln/Mercury and Kennedy Cadillac
existed before the development of the Auto Plaza, they have never been
considered by Staff nor the Dealer's Association as being part of the
Auto Plaza per se. It is important to note both of these dealerships
have in the past refused to become a part of the Auto Plaza. There was
discussion about allowing these two (2) dealers to participate in the
program.
The Redevelopment Committee recommended that this item be forwarded to
the Community Development Commission for review at its March 16, 1992
meeting.
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In summary, the Auto Plaza Regional Sales Retention and Expansion Program
is needed to protect our embattled Auto Plaza dealers against poor
economic conditions which continue to plague the automotive industry.
When approved, the program will assist these dealers in not only
remaining in business in San Bernardino, but in increasing sales volumes
and, by extension, sales tax revenue to the City. Other cities, most
notably Palmdale, have recently seen fit to undertake similar programs in
order to protect their valuable auto plaza investments. It seems
appropriate for San Bernardino to give positive consideration to
providing its Auto Plaza dealers with comparable support and protection.
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KJH:JMW:lag:06l3E
ClMUSSIOB ImETIIG AGDDA
Meeting Date: 3/16/1992
AgeDda Itea W-ber: II
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DEVELOPMDT DEPARnwn: STAFF UPORT
Auto Plaza Regional Sales Retention/Expansion
Karch 6, 1992
Page lIfmaber -5-
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Also attached for your reference is a site map of the Auto Plaza, a
Program Calculations Table and a copy of a recent Los Angeles Times news
article concerning the City of Palmdale dealer assistance package.
Staff and the Redevelopment Committee recommend adoption of the form
motion.
JUS1UU5rll J. mnm 0., Executive Director
Developllent Depar ent
KJH:JMW:lag:06l3E
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COIIIISSIO. KEETIRG .lGDD.l
Meeting Date: 3/16/1992
AgeJJda lte. "'ber: JL
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AUTO PLAZA QlOBAL SALES IlETBJIITlOR AIm BXP~OR PROGRAPI
Step-By-Step Calculations for Staff Report Example
Say, dealership's gross sales over last eighteen (18) months have been $27
million.
To annualize, multiply $27 million by 12 months/18 months or 2/3 to get $18
million.
Divide $18 million by $15,000 (the stipulated average selling price of a new
car) to get 1200 (the base number of units).
Multiply 1200 units by $50.00 per unit to get $60,000 (the "base amount").
Divide $60,000 by 2 to get $30,000 (the amount payable on OPA exection).
If dealership sells 600 units during each six (6) months of the three-year
incentive period, multiply 600 units by $50.00 per unit to get $30,000 (the
amount due the dealership at the end of each six month period after OPA
execution) .
If dealership sells 1300 units during each year of the three-year incentive
period, subtract 1200 (base units) from 1300 to get 100 (excess units).
Multiply 100 units by $100.00 per unit to get $10,000 (the bonus amount
payable for each year).
Under this scenario, at end of three-year incentive period, dealership would
have received $240,000.
However, total incentives are limited to three times (3) the base amount or
$60,000 multiplied by three (3) to get $180,000 (the "cap amount"); so once
the dealership has received $180,000 in incentive payments, even if it did
this in, say, two year's time, it could not receive any additional funds.
Conversely, if the same dealership only qualified for, say, $100,000 in
incentives by the end of the three-year period, it could not receive any
additional funds.
Regarding payback during years four (4) through thirteen (13), for
non-defaulted dealers, the quarterly base units are 1200 divided by four (4)
or 300.
To trigger repayment, the dealer must sell in excess of 150% of the base
units. This is calculated as 300 units multiplied by 150% or 1.5 to get 450
units.
If the dealer sold, say, 600 units in a given quarter, 600 less 450 is 150
excess units.
The repayment for that quarter would equal 150 units multiplied by $50 per
unit to get $7500.
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~ AUTO CENTER DRIVE a:
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a: SHOW CASE DRIVE SOUTH ! ~
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Palmdale Votes Ajp
for 5 Car Dealers!.'!
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· Economy: The troubled Antelope ::
Valley Auto Center will aet $2.45 milliOjI
in asslstl.nce from the city, ' '. :
,
., JIM HERRON ZAMORA , !
TlNtI If A" "Iml . :
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hImdaJe II otrerl", to jump.1Iart five I"'( I _I~.
battered ell' deaJeraJilpa in .,. IUto mall. rteenlJ,
Ilpened under ctl1 ~ . I aource 01 .alai
l'aYanuu. by Ipendl", U2 million to I!eJp JII'IIIIIbw
..... and Iencun, the deaIen llIOlhar '1.2I1Ii11I1Ion, :
"\IV. want to live them __ ~ th." an
draw 011 unw the --""'11 better, H CaunclIIIlaII Jim
La&..d aald WedneIda,. '''nit, Ilpened ~ the
rra . Jb and that'. hurt them. We 1ft! bk. the, m.-
~ to Pall1lda1e and we -led to help
~" :
The plan to I'aYlve the troubled Anlelope VIII."
, Auto c.nter, which Gpened In N., after NeetYJnf 'It.
IIIIIIIon In dt, rede.~Iap."ent IuniIt. wa .... J...cIIn.
'. 4.0,. TueIda, nItIIt by the Palmd1Je CIt1 Counl:a:
wIIIeh Il1o 1CtI. the dt1'. ConununIl1 Ill.. I~.
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. . . : ;' The actlon IaIIowt I cll1 raport ItranfI1 ~_
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niC'lh C'lasses" '. t n 'm'! Vie' Ba' r'r"'le'e\.s",j\., '~~to~=--~~=~=
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..... .. better Intll'llCt With the conununll1, H aald at, aIIIeIIII bill1ve that the IIYe ~ In Ch8
.'-1Ulo I11III It Avenue P" and the ~
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ru.,. .. I tramencIaUI bunIr, H aald bINd Foothill DlYIIion. . IooaI.. ....... I r _~ Iild. I'
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e7 ... ,.., to Itud7 oflen..... poIJee In r . a loo,. to IIIIItIwt IIeIlld lie. ... ........4IdJr .. IIItIltle far . ''llO.OOo JO.l.'1t
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~ I'aIldenll. JlIftIc:uJarJ,........ . beall",. A1thouth l[fnr .. IIIaeIr, W _In 1111. The mon." .. '* I_ the e1t,'. ......
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'.. '. . ~ his lT8vels. EUIOpe as . VOIIeyb8II Jl/lIytr.;,'
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up aPlnlt tile term Ilmltl enacted ,
' YlIten who IIUIed PropomUon 140 in 19l1Q. Robe
'. '~-. IaIt .,. IppeaJ 10 the ltlte "I ~.... Court;
1111. Alletermllmlta.. ." '.' '. I,
. . IItlle.known Oell1OCl'ltl hlV.. entered tl
nee-EncJno politIeaJ aetl9IIt Glenn Balle'llld Sh.,
man OIIu 1and-1IIe .tlorne, Fred N. GIIna '. -1:
. Aa RobertI WOUnd up IIl1l1pftch .t the Stile om.
BuUdInt. he fOUnd hlllllell briefly heckled by Galn~
who chlr,ed th.l Roberti'. c.mp.I,n I. u.'lI
"S5OO,OOO 01 IpeCiaI.interest money 10 buy, lh
diltrieL" :: :
GaJnu .. ralerrl", to llle amount 01 Rob4rti
campalp WIr cheIt. wlllch includel contrlbulJc!r.
Ironi political 'CUon commllt... repre....U'" tJ:i1
Ia.yen, doctMe, unionized Worktrl and other intINt
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aroupa. . I, I
"1 ruenl yau IIYIn, you're ,oIn,lo IIpIeI the ~I
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