City Approves $150,000 Subsidy for Mazda Dealership

The Elk Grove City Council voted unanimously Wednesday night to spend $150,000 to market a new car dealership in the city.

The proposed subsidy for Mazda of Elk Grove amounts to about a quarter of the city's total economic development budget for fiscal year 2011-2012.

City staff and the dealership's owner say the spending on advertising and a grand opening celebration will benefit not just Mazda but the entire Elk Grove Auto Mall and Elk Grove itself.

"The grand openings of these types of projects brings a lot of attention to the Elk Grove Auto Mall as a whole," said city economic development coordinator Heather Ross. "There's not only direct revenue to the city [from sales tax] but also new jobs and getting the word out about the Auto Mall."

Mazda of Elk Grove has been operating out of a trailer in the Auto Mall since owner John Driebe, who also owns the local Nissan dealership, signed a franchise agreement with Mazda two years ago. While the agreement called for a permanent building to house the dealership, the economic downturn put those plans on hold.

This year, Driebe said, Mazda laid down the law, saying the dealership will lose its franchise if construction doesn't begin on a new building.

While the subsidy is called an 'incentive' agreement, it prohibits city money from being used to build the $3 million facility. Funds will be earmarked only for advertising the dealership once it is completed.

"Once the building is built, this incentive is going to help us kick-start the sales that we'll desperately need to pay for it," Driebe said.

Mazda of Elk Grove has generated about $50,000 per year in sales tax revenue for the city since its opening, said Driebe, and he expects that figure to rise by $20,000 to $50,000 per year after the expansion. The Auto Mall overall is one of the largest contributors of sales tax revenue to the city's general fund.

As for job creation, city staff and the dealership differed slightly on their estimates. While the city's report says the new Mazda shop will have 30 employees, Driebe said he will hire 15 new workers to start, for a total staff of 22.

The city also granted Mazda the right to defer payment of about $100,000 of the estimated $400,000 in fees the project will incur.

The project follows to the Auto Mall earlier this year after the city gave the dealership a $500,000 incentive package.

Ross said the city does not have any data yet on the economic payoff from the Ford project.

The subsidy was approved on a 4-0 vote; Councilmember Sophia Scherman was absent.