L.A. Dealer Says It Costs $100 Million Just for the Dirt

LOS ANGELES – Being an auto dealer in Santa Monica on California’s gold coast sounds like the good life. And in many ways it is for Mike Sullivan, head of the Sullivan Auto Group that’s based there.

But it’s also expensive. Especially when an automaker comes along, as they periodically do, and says, “It’d be great if you built a nice new facility.”

Sullivan does the math. Prime L.A. real estate is $23 million an acre (0.4 ha), “if you can find it,” he says. “Say you need four acres to build a dealership. That’s about $100 million for the dirt.”

Add $50 million for the building, he says, and plainly “real-estate prices continue to be a massive concern for me.”

Sullivan speaks about facility costs and more during a presentation entitled “Changes Impacting Dealers” at an automotive conference put on here by J.D. Power and the National Automobile Dealers Assn.

He is a second-generation dealer who’s been at it since 1976 when he started working for his father Wilfred H. Sullivan, called “Sully” by all, including his son.

The elder Sullivan was happy as a single-point Volkswagen dealer in Santa Monica. His son had bigger plans.

Today, Mike Sullivan, called “the LA car guy” in company advertising, is president of the Sullivan Auto Group. It ranks No.57 on the 2017 WardsAuto Megadealer 100, with 11 stores in Southern California and total revenues of nearly $1 billion.

Last year it sold 25,870 vehicles. Its brand representation includes Toyota, Lexus, Audi, Porsche and (like father, like son) VW.

Mike Sullivan is an outgoing, upbeat guy. But he does have his worries that obviously include the cost of dealership facility improvements in SoCal. He says he’s determined his son Sean and daughters Kelly and Megan – all in business with him – don’t inherit a huge legacy debt from dealership construction projects.

He’s also concerned automakers’ vehicle incentives might get crazy as industry sales ebb. The average incentive today is about 10% of the transaction price on a new vehicle.

When auto manufacturers increase prices, “incentives can soften the blow, but they can be a huge problem” if overused, Sullivan says. “Incentives need to ebb and flow.”

Yet, he recalls what happened when a particular automaker he represents pulled away from incentives. Sales fell. “It was brutal.”

Sullivan has lasting faith in the franchised-dealer system. “Dealers are hard to kill; we’re like cockroaches,” he says, referring to an insect group that’s been around for 320 million years.

“We survive, but we’ve got to embrace change, and do that before someone else does as a disruptor.”

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