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.
Morrie’s is also moving ahead with an expanded dealership for its Bentley and Maserati luxury car franchises in a new building along Interstate 394 in Golden Valley.
Another luxe dealer, Carousel Motor Group, plans to build a new 26,655-square-foot facility for Porsche of Minneapolis in Golden Valley.
Indianapolis-based Tom Wood Automotive Group just opened new digs for Richfield Bloomington Mitsubishi along Interstate 494 in Richfield. And a new Richfield Bloomington Honda dealership is being built next door on property that once was home to LaMettry’s auto body shop, a USA Baby store and a Tires Plus outlet. This new dealership will feature a two-story “jewelry box” design that will be highly visible from the busy interstate.
A multistory parking ramp for inventory is planned, as well, but that project won’t be in the mix until 2020. For now, some cars are stored in the parking lot at Best Buy’s headquarters nearby, and delivered “valet style” if needed for a test drive.
Twin Cities auto dealer Steve McDaniels recently purchased the Feldmann Nissan dealership in Bloomington with plans to move it to a defunct Ford dealership in Eden Prairie by the end of the year. The Feldmann operation in Bloomington also sold Mercedes-Benz vehicles, so the departure of Nissan will free up space for expanded Mercedes sales by the new owner.
Regulations and dealer hubs
Expanding a car dealership either at a current site or on a different one is no small task, according to Rock.
Most major dealerships are concentrated in White Bear Lake, Brooklyn Center, Interstate 494 in Bloomington and Inver Grove Heights’ Iron Triangle area, so space is limited.
The major reason for these hubs, Rock explained, is that state regulations stipulate that car dealerships selling the same brand must be separated by a minimum of 10 miles.
“In Minnesota and most other places, generally speaking, car dealerships congregated together,” Rock said.
Opposition to expansion
Scott Lambert, executive vice president of the Minnesota Auto Dealers Association, said expansion plans often encounter opposition from municipalities. “There’s a perception that our footprint is more of a parking lot than a building, and a perception that we bring in less in property taxes,” he said. “We disagree with that and counter that we’re bringing good jobs to the community.”
Plus, he said, it’s hard to find property on which to grow, so car dealers have to get creative with the property they already have.
That wasn’t an option for Borton Volvo, the last new car dealer in Minneapolis. After 57 years in south Minneapolis, the dealership in May announced an expansion in Golden Valley. It’s rumored that the neighborhood institution will be replaced by a Walgreens.