Orem approves incentives for car dealership

OREM — The City Council this week unanimously approved up to $750,000 in incentives over eight years to a new Mazda dealership on the troubled University Parkway, which has lost three car dealerships in the past 18 months.

The Mazda, Saturn and Mitsubishi dealerships closed as consumer confidence decreased and unemployment increased, leaving abandoned buildings and empty parking lots on the usually busy retail corridor. Each car dealership contributed $150,000 to $250,000 to city coffers in the form of sales taxes, said Orem city manager Jim Reams.

Last year's general fund — police, fire and library services — was $45.7 million, and the loss of tax revenues was considerable, Reams said.

"It's very significant," he said. "You lose two of those a year, and you lose a half-million a year."

The Legacy Mazda dealership closed about nine months ago, and its building was in foreclosure. This summer, Michael and Louise MacDonald, who own Bountiful Mazda, received permission from the carmaker to open a franchise in Utah County. The MacDonalds wanted their dealership, which opened Sept. 1 and is called Orem Mazda, in the same building as the old dealership, since it had the most modern Mazda branding and customers had identified the location as a Mazda sales and service center.

They approached the Pennsylvania bank that had taken ownership of the property and tried to negotiate a deal to buy the place. The building wasn't affordable unless the city gave an incentive, Michael MacDonald said.

The incentive agreement that the City Council approved Tuesday requires the dealership to create at least 20 full-time permanent jobs. For the first five years of the eight-year incentive, the dealership will get a check back from the city for 50 percent of what it pays in taxes, capped at $75,000. For the last three years, the dealership will receive up to $125,000 from the city.

For the dealership to receive $75,000 a year, it would have to earn $18 million a year in sales, which would generate about $150,000 in taxes, Reams said. Orem would expect to receive $85 in sales taxes for each $10,000 in retail sale value, according to city documents.

By the sixth year, sales will have to be $29 million to receive $125,000 back from the city. Bountiful Mazda's annual sales are about $26 million, Michael MacDonald said. "Eighteen million is a conservative estimate," for the Orem store, he said.

Some Orem residents question whether the incentive is fair, given that other businesses in Orem haven't received incentives to operate.