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YOLO COUNTY NEWS
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Volkswagen dealership delayed

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May 25, 2011 | 1 Comment

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Hanlees Automotive’s plans to open a Volkswagen dealership in Davis are delayed because the owners hit structural complications while proceeding with construction.

The owners had planned to remodel an existing building for a showroom at the former Ford Motor Co. dealership on Chiles Road, but it now seems starting from scratch with new construction might make more sense, Community Development Administrator Katherine Hess said.

Construction was expected to start this spring, with occupancy in October, Hess said.

Despite the delay, there is no intention to abandon the project, owner Don K. Lee said Tuesday. Lee’s business partners are Dong I. Lee and Kyong S. Hong.

Lee said the owners have not yet decided how to address the engineering issues, but will have a better idea in a couple weeks.

The Davis City Council last August approved a $1 million loan to Hanlees from redevelopment funds to help the company offset what was at the time an estimated $2 million project.

If Hanlees decides to build new or almost new, rather than remodel, construction costs may be higher, but the owners do not expect more financial assistance from the city, Lee said.

“We’re not going back to the city for additional money at this time,” Lee said.

But the City Council will need to approve an amended loan agreement, which will reflect necessary changes, including the time frame, Hess said. The amended contract likely will be ready for council review in June, she said.

Planning changes can be reviewed and approved at the staff level, she said.

The council approved the loan because car sales are a reliable local revenue stream. The Volkswagen dealership is expected to create 30 new jobs and generate $235,000 in annual sales tax revenues for the city’s general fund.

Under the approved contract, the loan will be forgiven if the dealership generates enough revenue for the city. The repayment amount is $133,314 annually, but sales tax revenues of more than $174,007 a year will lower repayments to $59,307.

The debt is forgiven when sales tax receipts total more than $244,234 a year.

— Reach Crystal Lee at clee@davisenterprise.net or (530) 747-8057.

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  • Rich RifkinMay 25, 2011 - 1:10 pm

    Thanks for the update, Crystal. I've been out on Chiles Road a few times in the past few weeks and wondered why I saw no sign whatsoever that Hanlees was building a VW dealership as they promised. I presume from your story that none of the money that the Davis RDA authorized has been expended. I wonder how much interest, if any, the City is making while the money is sitting idle. "The Volkswagen dealership is expected to create 30 new jobs and generate $235,000 in annual sales tax revenues for the city’s general fund." Readers need to understand that "annual sales tax revenues" are not net revenues to the City. The $235,000 annual figure cited here (for the year 2023) comes from the middle case scenario presented by a consultant's report. It includes approximately $47,000 in Measure Q sales tax revenues that Davis would receive regardless of whether this project went forward or not. The expected net revenues to the City in that scenario are around $207,000. They include a final loan repayment from Hanlees and additional property tax revenues to the City. A big and open question is, what is a realistic sales projection for the new VW dealership? The middle case scenario presented by the consultant for 2023 was gross sales of $19.7 million, including the sale of 776 cars. In my opinion, that is wildly optimistic. No VW dealership in northern California sells anywhere near that amount of cars per year. It presumes massive population growth in Davis. A realistic scenario is Hanlees VW sells 388 cars by 2023 and does $10.1 million in gross sales. That would mean just under $96,000 in sales tax revenues plus another $23,000 in Measure Q revenues. Oddly enough, Davis will do better in 2023 under a more conservative estimate of car sales than it would under the optimistic cases, because Hanlees will have to make a much larger repayment to the City. However, after 2023, when the loan is paid back, the City is better off if sales are higher. You can read my original column regarding the Hanlees deal here: http://www.davisenterprise.com/Archived-Stories-0/yes-loan-is-a-good-deal-for-davis/ —————————– NOTE: Rich Rifkin is not a Davis Enterprise employee. He is an outside contributor. His opinions are his own and they do not necessarily reflect the views of The Enterprise or its management.

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