A dealership building boom is under way in the United States.
Low interest rates, strong dealership cash flow and pressure from manufacturers for new storefronts ignited the spending spree. Dealers say they are realizing impressive rates of return on their investments: about 20 percent annually.
Spending $10 million and more, some dealers are creating stores that resemble Tuscan villas and resort hotels. Inside are VIP lounges with cherry paneling, laptop hookups and cafes. Dealers want customers to feel special and ready to spend.
At least half of all dealerships in the United States have been remodeled significantly in the past five years, the National Automobile Dealers Association says.
And the boom goes on.
Take dealer Derek Watson. He is investing about $1.3 million for a stand-alone Suzuki store in Traverse City, Mich., an area that he admits has yet to discover that Suzuki makes more than all-terrain vehicles and motorcycles.
"The cost of money is very reasonable," Watson says. "A lot of dealers are making large investments because they think they can get a better return off their money than elsewhere. It makes it attractive - even for a guy going out on a limb with a stand-alone Suzuki store."
At the other end of the spectrum is UnitedAuto Group. In the past 36 months, Roger Penske's dealership company has poured $124.5 million into 10 dealerships. The result is double-digit increases in new-vehicle sales, used-vehicle sales and service and parts gross revenues, says Tony Pordon, UnitedAuto Group spokesman. He declined to give precise figures.
Franchises with increasing sales are experiencing a lot of construction, says Carl Sewell, chairman of the Sewell Automotive Cos., which has nine new-car dealerships handling 17 franchises in Texas and Louisiana.
"There is certainly a lot more building going on where product sales are growing, like Lexus, Cadillac, Saab, Infiniti, Hummer and Chevrolet," Sewell says. "All are high-growth."