The Big Three

Related document: Ward's 2010 Dealer 500 List

NEWPORT BEACH, CA — This affluent California city south of Los Angeles is the home market for a trio of luxury-brand dealers that are rivals but collectively form a “Big Three” of premium auto retailing.

The neighboring dealerships are big and beautiful and sell lots of vehicles in a vibrant luxury car market, as evidenced by their standings on the Ward's Dealer 500, now in its 23rd year.

The standout dealerships that in many ways resemble 5-star hotels are:

“There's no question that we three comprise drawing cards for L.A. consumers as far away as Beverly Hills to the north and reaching all over Orange County and into San Diego County to the south,” says Garth Blumenthal, general manager of Fletcher Jones Motorcars, one of the world's leading Mercedes-Benz dealer.

That's about a 100-mile (160-km) stretch of market place. Combined, the three dealerships sold a total of almost 15,000 luxury vehicles and had total revenues of nearly $780 million.

The core market of Newport Beach has a population of 83,120 people and a median household income that exceeds $83,000.

Fletcher Jones Motorcars, which employs 417 people, is not resting on the oars in what Blumenthal calls a rugged market.

“This year, we are aiming to boost our share of the luxury-car market here to 60%, says the native South African, who has been involved with Mercedes-Benz dealerships there and in the U.S. since 1980.

A high-luxury showroom that cost dealer principal Fletcher Jones, Jr. in the “high-eight figures,” the Newport facility is being upgraded again in line with Daimler AG's AutoHaus project. Its aim is to give Mercedes dealerships a sleek, industrial look through the generous use of glass and steel.

The Fletcher Jones group has been expanded from its anchor cities of Newport Beach and Las Vegas to Chicago, with an open-point facility on the Kennedy Expressway, a second location in the Vegas market at Henderson, NV, and two southern California stores in Temecula and Ontario, east of Los Angeles.

“All our stores are being restyled in the Autohaus program,” said Blumenthal. “The new image is modern and unlike that of competitors. It's unrealistic to expect dealers to continue to grow market share in aging showrooms.”

One of the Fletcher Jones customer-friendly drawing cards is a shuttle service for customers travelling to and from Orange County's John Wayne airport.

Fletcher Jones Motorcars, No.1 on Ward’s Dealer 500.

The dealerships service department tallied 68,415 repair orders last year.

“Our clientele travels an awful lot and we are a short hop to and from the airport, so the cars they leave can be serviced or sent to our body shop,” Blumenthal says. “It's a great plus for us.”

Vehicle leasing in general hit the skids about 18 months ago. But thanks to a lenient policy by Mercedes-Benz Financial Services, Fletcher Jones was able to continue to lease two-thirds of its deliveries through the 2009 sales downturn.

“Market share is the toughest thing to improve, because it means taking sales away from BMW, Lexus and the rest of the luxury brands, but that's where satisfied and loyal customers help do the job,” says Blumenthal.

“Plus we've strengthened sales of our lower-priced E-Class and C-Class models, which run 50% of our product mix through 2009 and into 2010.”

A close competitor of the Fletcher Jones Motorcars, which has led the Ward's Dealer 500 for the past three years, is Crevier BMW, located in a market where BMW sales are hot.

Although fellow German auto maker subsidiary BMW North America LLC has overtaken Mercedes-Benz USA nationwide in sales, the Fletcher Jones Motorcars surpassed Crevier BMW in both new-car sales and revenues last year, 6,328 to 4,839 and $402.7 million to $254.7 million.

Still, Crevier BMW has “high expectations” to increase sales this year 15% to 20%, says CEO Donald Crevier, whose father founded the dealership in the 1970s, just as BMW was gaining popularity with the rich and famous.

Crevier thinks his sales goals will be aided by a wave of all-new high-tech vehicles from BMW and its kid-brother brand, Mini.

An extensive test of an electric Mini Cooper is being conducted among 1,000 BMW owners, the first 500 of which were supplied to BMW by the Crevier store.

The Mini brand accounted for 965 of the 4,655 new-unit sales at the Crevier dealership last year. That is enough for Mini to get its own separate building that Crevier purchased across the street. It had housed a Jaguar dealership.

Asked if an expansion program is in the works, Crevier won't rule out such a move “but things are going so well here and we're building our customer base so much that I'm content to stay right here in Santa Ana.”

The dealership's vice-president, Mike Lake, enumerates the “reasons for staying put with BMW.”

Those include cars with new 6-cyl. engines with great fuel economy; an all-new 5-series; hybrid and diesel engines that are “the world's best,” and the new '10 Alpina B7, a super-sedan flagship priced at $115,000.

Crevier is proud of his store's reputation as a “BMW dealer's dealer.” His customers range from San Francisco to San Diego.

He regards BMW as an “evolutionary” company, and BMW Financial Services as a “phenomenal” lender that sticks with its customers in good times and bad, keeping leasing options open, even in the dark days of 2008 and 2009 when others were turning off that tap.

Leasing runs 50% to 60% of new-unit sales at Crevier and penetration of BMW Financial Services is close to 100%. Crevier regards that as a “big plus in repeat owner sales.”

He says he would like to sell more BMW 1-Series and Mini Cooper compact cars, considering the growing interest in small-car sales, but the auto maker is experiencing a production crunch.

The 1-Series comes in a coupe and convertible in the U.S. and has an engine that was a 2009 Ward's 10 Best Engines winner.

“BMW is planning to grow in the entry-level segments and is fully committed to economy-car expansion,” he says. “Mini is getting an electric car and the BMW 3-Series is in line for a new 4-cyl. turbo engine. Our 280 employees couldn't be working for a finer brand, nor could I.”

Crevier BMW was founded in 1971 “in an old downtown location in Santa Ana which we rapidly outgrew,” Crevier says. “We relocated in our present address in 1987, deciding to concentrate on one import only and setting among our other goals landing on the 500 survey.”

Crevier recalls that selling BMWs early on was “no walk in the park,” because of the brand's limited body styles of the time, “but it always has had great powertrains.”

Crevier BMW as a single location reigns as the No.1 BMW dealership in the U.S., says business manager Christine Koeller.

A Florida group also claims the No.1 title, but Koeller says that includes the combined sales of three stores in the group.

Newport Lexus, the third member of the Newport 3, ranks near the acme of sales for the Lexus brand. As such, says its owner, David Wilson, the store “occupies a strategic position” in the ongoing battle against the other luxury brands.

The 300,000-sq.-ft. (27,870-sq.-m) Newport Lexus ranks as the most expensive dealership ever built in the U.S.

Inside are an Italian-style cafe, fireplace, leather sofa and chairs, a boutique, a grand piano and plasma-screen TVs located throughout, even in the restrooms.

Outside are a fountain and incredible landscaping, including a cluster of 150-year-old palm trees that cost $185,000 to buy and transplant at the dealership.

Wilson's 22-store Wilson Automotive Group includes Toyota and Lexus stores.

“We got hurt a bit by the Toyota recall problems,” he says. “Running a dealer group with several Toyota and Lexus stores brought me a lot of attention during the recall situation, but I was pleased to see how Toyota resolved the situation.”

Having been a member and president of the state regulatory agency gave Newport Lexus and my other Toyota and Lexus stores an added incentive to do the repairs as quickly as possible.”

Wilson's equity partner and general manager for the MacArthur Blvd., Lexus dealership is A.J. D'Amato, who has been with the dealership since it opened.

Wilson, who has three other Lexus stores in Orange County, set out soon after Lexus' debut in the early 1990s to tackle the existing luxury-brand competition in Newport Beach from Fletcher Jones Mercedes-Benz and Crevier BMW.

“We accumulated 12 acres (4.8 ha) of prime land and conceived a building that would contain 100 service bays, with showroom space that could sell 700 to 800 new and used cars a month if need be,” he says.

“Last year, Fletcher Jones averaged over 500 new and used units a month, while we did 220. So they're our target. But we couldn't begin to compete with them or Crevier BMW without a comparable-size facility.”

That was what spurred the building of Newport Lexus practically across the street from Fletcher Jones Motorcars.

D'Amato says the dealership has been aided by attractive lease and loan terms offered by Lexus Financial Services, D'Amato says. “Our 2010 lease share has averaged 42%.”

Newport Lexus customers are “incredibly loyal,” D'Amato says. “But our main mission now is to appeal to a younger crowd of buyers. The all-new midsize hybrid Lexus should give Prius owners a step-up into Lexus they haven't had before.

“Hybrid has become a popular selection, and Lexus is responding to the wishes of younger owners, which is all to the good.”

2010 Ward's Dealer 500 New and Used Vehicle Volume Leaders

Note: Data are for 2009.

Ward's 2010 Franchise Average Revenue by Categor

Note: Figures represent the average for listed brand franchises. Data are for 2009. Source: Ward's Dealer Business