U.S. Carmakers Should Put the Brakes on Urban Exodus

By Mayor William A. Johnson, Jr., City of Rochester, NY

When Gabrielle Auto Group began operating Bill Gordon Chevrolet in downtown Rochester, and started turning sales around, they expected congratulations from GM. Instead, GM decided to close them down. And when Hernbrough Motors recently sought to expand its car dealership in economically distressed Rockford (IL), General Motors in a move that has become all too common among the Big Three automakers told the dealer to relocate or risk losing the franchise. Rather than reaching out to an increasingly isolated urban market and investing in the city, GM bypassed these opportunities on the fast track to greener, undeveloped pastures.

Nationwide, carmakers are using their leverage to drive dealerships out of urban areas as they reduce their numbers of franchises. They are relying on many of the same arguments that retailers made as they abandoned cities for suburban shopping malls over the last two decades: that cities no longer have retail markets, that cities are intrinsically unsafe and that cities cannot accommodate sprawling retail facilities. Ironically, the carmakers' exodus is occurring just as many retailers and businesses are realizing once again that cities are better places to locate.

Seeking to streamline their operations, U.S. carmakers are eliminating dealerships and consolidating their marketing operations. At the same time, they are shifting their activities out of cities, according to Tom Webb, chief economist for the National Automobile Dealers Association (NADA). In the last six months, the Big Three have told dealers they plan to eliminate dealerships in cities such as Detroit, Chicago, Buffalo, Rochester, Boston, Hartford, Providence, Columbus, Denver and Sacramento.

Only Ford released a breakdown of its dealerships, revealing that just 15 percent are in urban areas, while 16 percent are now suburban and 69 percent rural. Although the other carmaker would not release similar data, local anecdotes illustrate a national exodus out of cities: Rochester, for example, had 23 downtown dealerships in 1970, but has just three today and GM may close down another.

This national trend is occurring even as some of the nation's leading car dealerships are flourishing in urban areas. Longo Toyota, the top-selling dealership in the country, has flourished in otherwise economically distressed El Monte (CA), near Los Angeles. Friendly Chevrolet recently announced plans to open a new $10 million dealership in downtown Dallas, and, 26 dealerships in Oakland (CA), are working with that city to create an urban automall because they want to remain in downtown. In Rochester, all three GM dealerships including the closed Bill Gordon Chevrolet and the successful Piehler Pontiac have been viable businesses.

"I think [car dealerships] can succeed in urban areas," Greg Penske, president of Longo Toyota, recently told the National Council for Urban Economic Development (CUED) in a special report on this issue. "People will drive to a dealership when they are going to get customer service and a good deal," he added.

In light of such successes, cities and urban economic developers have started to question the carmakers' motives. "Based on our assessments, there is a bias against urban residents," said Fashun Ku, commissioner of economic development in Rochester. "We almost look at this like redlining...a bias against investment in the city," he added, referring to the outlawed bank practice of refusing to provide lending and commercial services in certain low-income areas.

The car manufacturers adamantly deny such charges: "I won't speak to redlining," Richard Sherman, executive director of sales policy and dealer relations at General Motors North America Operations, told CUED. "That doesn't characterize the nature of our business it's driven by the customer."

He added, "We recognize that over a period of time, the population shifts, businesses relocate, [and] business people look at economic opportunities in the marketplace...It gets to be a business decision. We don't say this is a good area; this is a bad area."

Friendly to Cities

Many urban car dealerships are successful precisely because they are in cities. In San Jose, Oakland, Dayton, Dallas, Detroit and other cities, dealerships have thrived because of their central locations, direct access to urban residents and workers, and high visibility in their communities.

As Toyota's number one dealership, Longo Toyota chose to remain in El Monte when it sought a new site for expansion in 1988. The older, industrial city near Los Angeles does not offer dealers great demographics, but it has become a hot destination for dealerships and car buyers. Longo consolidated its operation onto a 20-acre lot in the city near a freeway that carries thousands of commuters every day. About 60 percent of its customers drive from areas 10-15 miles away and 80 percent are repeat or referral customers. The city continues to face some significant economic challenges, but those have not prevented Longo from being Toyota's sales leader for 19 years. No matter where the dealership located, Penske said, people would drive there for its reputation, customer service and competitive prices. The keys to attracting customers are having good employees that are well trained and treating the customer well not leaving urban areas.

In Dallas, Friendly Chevrolet has operated out of an inner city neighborhood for years and yet it has become one of GM's top dealerships, selling 3,883 cars in 1995. The dealership is relocating this year, but it will remain in the city at a site near the downtown and adjacent to the Stemmons Freeway. The new facility will be one of Chevy's most innovative franchises, occupying 14 acres and including a restaurant, dry cleaner, hair salon and shoe-shine stand.

Linda Brown, marketing manager for the City of Dallas, said that Friendly and other dealerships like the city because it has a growing residential and office base, it is central to the larger metropolitan area, it provides direct freeway access so that residents from anywhere in the region can be there in about 20 minutes, and it works with them to locate sites and lower costs.

Project 2000

The pressure on dealers to seek suburban sites will likely become more prevalent in the next four years as GM and Chrysler seek to eliminate 20 percent of their dealerships under management plans that each calls its "Project 2000."

GM wants to eliminate 1,732 dealerships between 1992 and the end of the century. Last year, it bought out, consolidated or closed 64 dealerships. Chrysler's plan calls for eliminating 1,063 dealerships between 1991 and 2000 to reach a total of 4,000, although corporate officials said those numbers were only a rough goal. Ford and the big foreign automakers are whittling down their number of dealerships, but they do not have comprehensive plans to shrink their number of dealers.

The factors that the Big Three use to determine which dealerships to consolidate do not favor urban areas. But those criteria overlook the fact that cities are still the places where millions of people work, have the highest market visibility, are centrally located with equal access to entire metropolitan areas, and have proximity to some of the top wage earners in the country. Three of Rochester's four remaining auto dealers sit in the shadow of Eastman Kodak's corporate headquarter's, a multi-billion dollar company that employs over 10,000 in the city and 30,000 throughout Greater Rochester.

Perhaps, the Big Three's attitude toward cities is driven by their own corporate mentalities, which have resulted in their direct divestment from cities. Of the three, only GM has kept its corporate headquarters in a downtown area. Chrysler recently pulled out of Highland Park (MI), and Ford has been in the suburbs for several decades.

The Council for Urban Economic Development and I advocate a new cooperative effort in which the Big Three come to the table and work together with cities and urban economic developers to address common goals that will benefit everyone. Economic developers do not want some form of welfare for cities and they do not expect carmakers to sacrifice sales for the sake of urban renewal. What they do want is an exchange that leads to cities and car dealerships reaching their full potential by working together. Examples of Longo Toyota, Friendly Chevrolet, Piehler Pontiac and countless others prove that carmakers do not have to pull their franchises out of cities to be successful. Instead, by working together with cities on a cooperative basis, manufacturers and dealers can find unmatched success.

I, along with CUED, welcome the Big Three's ambitious attempts to streamline and maintain their world leadership. Undoubtedly, these efforts will make American carmakers more competitive into the 21st century and better positioned to continue employing U.S. workers. Such success, however, should not come at the expense of America's urban communities, but because of America's urban communities. Through a cooperative effort, the Big Three automakers, city governments and urban economic developers can help the United States produce and market the world's finest automobiles in the world's finest cities.