GILROY
– By this time next year, the cluster of car dealerships
representing a major portion of the sales tax generated in Gilroy
could be in for some stiff competition.
Plans are only in the conceptual stage, but to boost its coffers
by up to $1 million, the City of Morgan Hill wants to develop up to
four new car dealerships next to the existing Courtesy Chevrolet
off of Dunne Road and U.S. 101.
GILROY – By this time next year, the cluster of car dealerships representing a major portion of the sales tax generated in Gilroy could be in for some stiff competition.
Plans are only in the conceptual stage, but to boost its coffers by up to $1 million, the City of Morgan Hill wants to develop up to four new car dealerships next to the existing Courtesy Chevrolet off of Dunne Road and U.S. 101.
Morgan Hill officials say it’s too early to tell what dealerships would set up in Morgan Hill. However, there is concern in Gilroy that replicating dealerships in towns only 10 miles away would be detrimental to everyone.
“Obviously there’s going to be some sales loss if the same dealerships are established in Morgan Hill as Gilroy,” says Bill Lindsteadt, Gilroy’s economic development director. “It would be better if Morgan Hill attracted dealerships that aren’t already here in Gilroy, but there’s not much you can do. You can’t really pick a business to come to your community, the business picks you.”
City Administrator Jay Baksa said he is not overly concerned about new Morgan Hill dealerships since market forces typically work things out.
“This is America,” Baksa said. “Maybe what we’re seeing with the car dealerships is a sort of evolution. As cities grow they get more stores.”
Baksa said the city would not step into any arrangement with Morgan Hill to discourage duplicating car dealerships in the two cities.
“I don’t think that’s a door we want to open,” Baksa said. “It would be similar to price fixing or conspiring. It runs you into legal and ethical issues. It’s really sort of contradictory to capitalism.”
Baksa said the two cities have weathered the competition storm before, when The Home Depot opened up stores in both Morgan Hill and Gilroy.
“I think what we’re seeing is healthy competition,” Baksa said.
One local dealer sues
Nonetheless, Scott Lynch of Bob Lynch Ford in Gilroy already is suing Morgan Hill for allowing Ford to develop a another dealership there. The future Morgan Hill and existing Gilroy dealerships, Lynch says, are too close together for fair competition.
Lynch’s request for an emergency hold on the Ford dealership construction is waiting a decision by the California Supreme Court.
This legal wrangling coupled with the potential for four new Morgan Hill-based dealerships has some wondering if a round two of litigation will begin.
If it’s up to Lem Hymes, general manager of South County Chrysler Dodge, legal action would be the last option.
“I wouldn’t rule a lawsuit out, but I don’t see that happening,” Hymes said. “We will continue to do business the way we’re doing business whether there’s a dealership near us or not.”
Hymes says the local dealership’s style of business is based on customer satisfaction. And customer satisfaction has a lot to do with the bottom line – a good price on a good car.
“If a Chrysler dealer opens in Morgan Hill, we’ll feel a short-term effect because when business is good we get 65 percent to 75 percent of our business from San Jose,” Hymes said.
However, Hymes said his dealership could withstand competition over the long-term because car buyers are a different animal than, say, someone buying groceries.
Hymes says people making large purchases these days “really do their homework.” In other words, they want the best deal and they’re willing to drive a little to get it.
Fittingly, Gilroy’s car dealerships coined the slogan “Drive a little, save a lot,” to hit home Hymes’ message.
Lindsteadt says local dealerships are doing everything right when it comes to marketing the advantages of buying cars in Gilroy.
“They’ve really done a tremendous job on marketing. They’ve hit the newspapers, the radio and TV,” Lindsteadt said. “Marketing is the key to sales.”
Apparently, the marketing is paying off for the city, too. Lindsteadt says three new dealerships are interested in developing about 11 acres across from the existing dealership clusters on Chestnut Street. Lindsteadt would only divulge the name of one car company, a nationally recognized used car dealer called Thrifty.
What’s the fuss all about?
For car dealers, the potential loss is obvious. With more dealerships, there are less customers per car lot. Less customers means less opportunity for sales. Less sales mean less commission.
But the private sector loss means a loss for city government, too. A staggering 40 percent of Gilroy’s sales tax revenue is generated just by car sales and Gilroy Premium Outlet purchases. Last year, new car sales alone generated $1.8 million for the cash-strapped city.
But dollar signs can be seen in the eyes of Morgan Hill officials, too.
Gilroy’s neighbor anticipates each dealership to generate $250,000 in annual sales tax revenue for the city. Those dollars take on added significance in a down economy and in a state with budget troubles.
