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State APA Update: Lessons From Auto Mall Hell

Nov 3, 2010

Here's the factoid of the week at the California Chapter, American Planning Association, conference:

Out of all the local sales tax declines since 2005, 40 percent are due to declining auto sales.

That's right: Local sales tax revenue in California has dropped $600 million in the last five years. And of that amount, about $245 million came from declining auto sales. This according to economic analyst Stan Hoffman, who also reported that about 10% of all dealerships have gone out of business and somewhere between 500 and 1,000 acres of prime urban real estate have opened up as a result.

Cities have depended on sales tax from auto sales for huge revenues in the last 20 years but the auto industry is changing and it's hard to know how this is going to affect California cities in the long run.

The bottom line, according to several panelists who spoke to this topic at the CCAPA event on Tuesday, is that cities will never get all this tax revenue back. They can possibly prop up auto sales by opening up auto malls and auto strips to used-car dealerships, but in the long run most of the land especially along the old commercial strips will turn over to other uses.

The starkest tale told on Tuesday came from Whittier, which has had a strong group of auto dealers along Whittier Boulevard for generations. Here's what's changed since 2006:

* 7 of the city's 9 dealers have closed.

* Sales tax from auto sales has dropped from $1.8 million to $490,000 per year.

* Sales tax from auto sales has dropped from 24% of the city's sales tax to 9%.

Assistant City Manager Jeff Collier said Whittier has changed its Whittier Boulevard Specific Plan to permit used-car sales at least temporarily and is planning for intense commercial, housing, and mixed-use nodes along the boulevard. But he described a lot of problems, including fragmented ownership, contamination cleanup from service areas (one cleanup clost almost $1 million), and a lack of demand. Collier's takeaways:

* Don't accept the first new use that comes along no matter what it is.

* Understand the market so that you focus on development that's feasible, not aspirational.

* Don't expect all the tax revenue to be replaced and look for other revenue options elsewhere.

As the saga of declining auto sales and the impact on cities unfolds, a few wrinkles are becoming obvious. These include the following:

* Commercial boulevards are struggling more than freeway-close auto centers. The Tuesday panel told the tale not only of Whittier Boulevard but also Colorado Boulevard in Pasadena, which has similarly struggled.

* Microclimates matter. High-end dealerships in Pasadena have struggled Maserati recently shut down but as my blog from a couple of weeks ago indicated, luxury car sales along the boulevards on the Westside of L.A. are still really strong and dealerships are expanding.

* Especially along the boulevards, there are a lot of familiar landowner problems. In some cases, longtime property owners have such low costs that they're not motivated to redevelopment. In other cases, the auto brands are still paying on the lease even though the dealership has left good for the landowner, bad for the city. And in some cases, complicated landowner circumstances make it more difficult to make anything happen. (Eric Duyshart of Pasadena told the story of one dealership where adjacent parcels were owned by the dealer's two ex-wives!)

 

-- Bill Fulton

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