Dealers are adjusting to changing customer behavior and pressure from manufacturers to update.
Brent Wade, general manager of Richfield Bloomington Mitsubishi, and Tim Carter, general manager of Richfield Bloomington Honda, at Richfield Bloomington Mitsubishi. Car dealerships generally congregate together.
Courtney Anderson, a 23-year-old who works at a St. Paul software firm, shopped around for a new car recently and rolled out of Richfield Bloomington Mitsubishi in a sparkling new Outlander Sport.
“I love it,” she said excitedly. “I absolutely have no buyer’s remorse. I went out Sunday and just drove it around.”
With her purchase, Anderson became part of the biggest surge in U.S. car buying since 2006. And that boom is one reason the landscape — literally — is changing for car dealers.
Automotive property has become one of the hottest segments in Twin Cities commercial real estate as dealers looking for space adjust to the increased demand as well as pressure from manufacturers to update their look and services.
At least six auto dealerships have expanded or announced plans to do so in the past year. Meanwhile, the sale of 17 car dealerships once owned by Denny Hecker, who went to jail on fraud charges three years ago, has roiled the market. Ten will remain dealerships, while the others will be repurposed as an RV lot, an auction site, a tire store and a school building.
Add to this car soup the pending arrival of the nation’s largest used-car retailer: Richmond, Va.-based CarMax Inc. will open an outlet in Brooklyn Park next spring. The company, known for its no-haggle pricing, is also scouting for other sites.
“Our teams continue to look for sites that allow us open stores in areas of retail, automotive activity and growth,” spokeswoman Michelle Topping Ellwood said. “Minneapolis is an area that we have identified that fits into our current growth plan.”
The uptick in sales, along with the changing real estate needs of auto dealers, is coupled with a sea change over the past decade in the way consumers buy cars, largely due to the Internet.
A 2013 report released by the New York consulting firm, McKinsey & Co. found that 80 percent of new car and almost 100 percent of used-car customers begin their car-buying journey online. That means “dealers have lost their role as the primary source of information as well as their power over the information shared and their ability to influence the customer,” the report states.
“Customers come here in a buying mode,” said Tim Carter, general manager of Richfield Bloomington Honda. “Once they’re in the funnel, they’re pretty much ready to go.” The days of the whole family spending Saturday afternoons leisurely trolling car lots are long gone. Buyers are time-pressed and armed with oodles of downloaded information.
Anderson, of Minneapolis, is a good example of this trend. She was highly selective in terms of the type of vehicle she wanted, but brand agnostic.
She wanted a white or black crossover with good gas mileage, a maintenance plan and Bluetooth capabilities. And she had a firm figure in mind for her monthly payment.
“I was nervous that I wouldn’t be able to afford it,” she said. “But when I told the finance people what I could afford, we made it work.”
Unlike other industries ravaged by the Internet, such as consumer electronics and books, there is still a need for brick-and-mortar car dealerships from a consumer standpoint, McKinsey found. More than 80 percent of customers take test drives during the car-buying process.
Which reinforces the need for dealerships to keep their properties current and relevant. “The key will be to transform today’s dealer network into a profitable, modern, multiformat sales channel that combines the opportunities of the online world with the strengths of the traditional dealership channel,” McKinsey said.
Failure to do so will result in dealers “driven out of business in the mid- to long-run.”
Several metro-area auto dealerships are refreshing their look. Hopkins-based Morrie’s Automotive Group opened Inver Grove Mazda, a 23,000-square-foot dealership on Mendota Road, featuring an updated design launched by Mazda North America last year, according to Jim Rock, executive director of retail-brokerage services for Cushman & Wakefield/NorthMarq, the Bloomington real estate firm.