An Auto Dealer's Guide to Arbitration

This guide is for dealers that are considering participating in the arbitration process established by H.R. 3288, which was signed in to law by President Obama on December 16, 2009. It reviews the timeline and arbitration process, and the criteria that will be considered by the arbitrator. It concludes with some practical steps dealers should take as they consider whether to participate in the arbitration process.

Luxury Vehicle Dealership Site Selection: Detroit, Michigan Area Dealership Group

As part of its dealership restructuring efforts, one of the Detroit Three invited current dealers to submit proposals for a new luxury vehicle dealership in suburban Detroit. Our client, a large dealership group in the Detroit area, retained us to assist in evaluating the OEM’s preferred site and an alternate site that was believed to be better positioned in the market.

We began with an assessment of the current dealer network in Wayne, Oakland, and Macomb counties. This included a drive-time analysis to assess market coverage, both for the current structure and for the structure after the known dealerships closing. We next identified the most likely site for a new dealership in the OEM preferred area and our client’s preferred area, and delineated a market area for each, accounting for drive-times, infrastructure networks, natural barriers, and the market areas for existing dealerships. A demographic and socio-economic analysis was done for each trade area, focusing on variables that predict the success of luxury automobile dealerships. We also analyzed luxury vehicle registration data from RL Polk to measure historic vehicle purchase patterns in each market. Lastly, we considered site specific factors, such as visibility, traffic count data, and proximity to other luxury vehicle dealerships.

Our final results were summarized in a memorandum and presentation to the client, and found the client preferred site to be a much stronger location. Our deliverable  included summary data tables and custom maps showing market areas, demographics, and luxury vehicle registrations. The memorandum and presentation was included by our client in their proposal to the OEM.

Market Snapshot-Demographic and Socioeconomic Analysis: Main Street Newnan, Georgia

Anderson Economic Group completed a market snapshot for the Main Street Newnan organization in Georgia, located southwest of Atlanta. The purpose of providing Newnan Main Street with the market snapshot was to help bolster the organization’s plans for attracting and recruiting business, and to uncover potential strengths and opportunities in the downtown.

We worked with Main Street Newnan to determine the downtown’s center of market activity and its likely primary and secondary market areas in terms of drive-time distances. We next used our Geographic Information System (GIS) to plot the location and delineate the drive-time boundaries on a map. To provide a visual display of key data in the community, we customized maps to display the current year per capita income and population density, and projected percent population change, all at the block group level.

The primary and secondary market areas and the county were further analyzed to provide a detailed understanding of Newnan’s demographic and socioeconomic make-up for the current year and projected trends over the following five years. Relevant categories, including age, income, households, education attainment, and consumer expenditures were detailed in a table and summarized in a narrative to explain the trends and key points.

The market snapshot product is being used by Newnan Main Street in their business and other attraction efforts.

 

Market Snapshot: Traverse City Area Chamber of Commerce

 

Anderson Economic Group completed a market snapshot for the Traverse City Area Chamber of Commerce (TC Chamber) in Michigan. The purpose of the market snapshot was to help bolster plans for attracting and recruiting business, provide a marketing piece for promotional efforts, and to uncover potential strengths and opportunities in the area.

We worked with the TC Chamber to determine downtown Traverse City’s center of market activity and its likely primary and secondary market areas in terms of drive-time distances. We next used our Geographic Information System (GIS) to plot the location and delineate the drive-time boundaries on a map. To provide a visual display of key data in the community, we customized maps to display the current year per capita income and population density, and projected percent population change, all at the block group level.

The primary and secondary market areas and the state were further analyzed to provide a detailed understanding of Traverse City’s demographic and socioeconomic make-up for the current year and projected trends over the following five years. Relevant categories, including age, income, households, education attainment, and consumer expenditures were detailed in a table and summarized in a narrative to explain the trends and key points.

The market snapshot product is being used by the Traverse City Chamber in their business and other attraction efforts, and was used as a marketing handout at their annual Economic Forecast Breakfast in November 2009. Patrick Anderson, Anderson Economic Group’s CEO, also spoke at the event, and contributed to the region’s “2010 Economic Outlook” report.

For a copy of the market snapshot, and the 2010 Economic Outlook report, you can visit: http://www.tcchamber.org/events/economic-forecast-breakfast

 

Mixed-Use Market Study and Development Strategy: Northern Michigan University, Marquette

Northern Michigan University retained Anderson Economic Group to conduct a market study and strategy for the development of university owned property in Marquette, Michigan. The commission of this report opened the opportunity for the proactive planning of future development efforts, the return of underutilized property to productive uses, and the physical and social connection of the campus and community.

Our approach began with a field assessment in Marquette, followed by community outreach through online surveying, meetings with community stakeholders, and focus groups for the business community, area residents, university faculty and staff, and students. Findings from the community engagement helped to qualify results from our retail and residential supply and demand analyses, which identified opportunity for growth in various retail categories and housing value brackets to complement the existing stock. Our recommendations included illustrative development plans for the property, and specific development guidelines and tenant recommendations to enliven the area, connect the campus to the community, and bring in each element of living, working, and playing.

We provided the university with a full report which included an executive summary and appendices that contained explanations of the methodology used, detailed findings from the analyses, custom maps, and results from the community engagement process. We also provide pro forma financial models for the development to illustrate the financial considerations related to the project.

Automotive Industry Analysis and Presentation: State of Illinois Financial Forecast Forum

The Illinois City/County Management Association, Illinois Government Finance Officers Association and the Northern Illinois University Center for Governmental Studies Civic Leadership Academy holds an annual financial forecast forum for municipal leaders and financial officers from throughout the state. The day long forum for 2009 attracted more than 50 attendees, and feature speakers from the federal reserve, the banking, retail, and real estate sectors, as well as a presentation on the automotive industry by AEG’s Scott Watkins.

Our presentation addressed: the global nature of the automotive industry and overall economic slowdown; what the automotive industry in the State of Illinois region looks like and how it has changed in recent years; how the industry slowdown might impact automotive operations in the state; the current and forthcoming issues that will further challenge the automotive industry and regional economies that strongly depend on automotive industry employment; and the need to automotive dealership contraction and how that will impact communities throughout the country.

The presentation was delivered to the over 50 attendees of the forum at Northern Illinois State University’s Naperville, Illinois campus. After the presentation AEG consultant Caroline Sallee joined Scott Watkins to address questions from the audience.

Countries, Tastes, and the Value of Beer Franchises in the United States

Patrick L. Anderson and Ilhan K. Geckil

A review of valuation methods in the alcoholic beverage industry.

Land Use and Infrastructure Investments by Olympic Host Cities

 

On Friday, October 2nd, the International Olympic Committee (IOC) will select a host city for the 2016 Summer Games. The City of Chicago has submitted an extensive and thoughtful bid book that proposes a compact games centered on the lakefront and embracing the diversity of the city. Many cities would welcome the opportunity to achieve global recognition, and while the Olympics accelerate that opportunity, not every city is well-equipped to host the Games.  Chicago has that necessary aptitude to be a host city and can take advantage of the resulting benefits.  However, to gain the optimum benefit from the 2016 Summer Olympics, Chicago must use the Games as an investment catalyst that will spearhead long-term improvements in infrastructure, new developments, and city amenities and services.

 

Chicago 2016’s bid book includes a thorough budget for hosting the Games.  However, it does not elaborate on costs, or revenue sources, associated with improvements to municipal infrastructure, such as roadways, airports, public transportation, public spaces, and telecommunications.  These projects are simply said to occur as part of the city’s “natural growth.” Simply following the path of natural growth, however, would result on a significant missed opportunity to fully leverage the Olympic Games.

 

In this paper we address the issue of long-term land-use and infrastructure projects (legacy projects) that Olympic host cities commonly undertake, and the potential economic benefit of these legacy projects. This builds upon another recently released paper on the topic of the Olympics and their economic impacts—The Likely Economic Impact of a Chicago 2016 Summer Olympics—that was authored by one of this paper’s co-authors. That paper focused solely on the economic impacts that the games, as presented in Chicago 2016’s bid book, would likely have on the city and county. This paper goes a step further and discusses strategies for maximizing public investments so that projects commissioned prior to the Olympics create long-running economic value within the city.

Economic Benefits of the Earned Income Tax Credit in Michigan

The Michigan Association of United Ways and the Community Economic Development Association of Michigan commissioned Anderson Economic Group to analyze the economic benefits to local economies of the Earned Income Tax Credit (EITC) in Michigan. This report builds upon our two previous reports and uses new data to estimate the usage of the EITC among low-income households, and the net economic impact by county due to new spending from EITC refunds.

Costs and Benefits of a Wage Increase for Michigan's Home Help Workers

The Michigan Quality Home Care Campaign (MQHCC) is a coalition of senior citizen advocacy groups, home care providers, community groups, and religious leaders that represents the interests of state home care workers. In 2006, the MQHCC commissioned Anderson Economic Group to analyze the costs and benefits of the State of Michigan increasing the wages of Home Help workers. In that 2006 report we hypothesized that a wage increase for Home Help workers would lead to cost savings for the State of Michigan as higher wages would improve the quality of Home Help care and increase the usage of this program over more expensive state-funded nursing facility care. This update to our 2006 report analyzes whether the cost savings to the State we projected three years ago actually happened. 

The State of Michigan provides long-term care (LTC) for low-income individuals through Medicaid, a program funded jointly by federal and state governments. In FY 2008, Michigan spent a majority (80%) of its LTC budget paying for care delivered in nursing facilities. The remaining LTC expenditures funded home- and community-based programs, including Home Help.  Home Help provides eligible persons in-home assistance with Activities of Daily Living (ADL), such as such as eating and grooming, and Instrumental Activities of Daily Living (IADL), such as taking medication and meal preparation. To be eligible for the program, individuals must be financially eligible for Medicaid and need help with one or more ADLs or IADLs. In FY 2008, an average of 52,623 individuals each month received care through the Home Help program. Government expenditures for Home Help were $251 million in FY 2008—12.5% of all Medicaid long-term care expenditures in Michigan.

We found that the cost savings we originally projected in our 2006 report likely under-estimate the actual savings to the State of Michigan due to the increases in Home Help usage since FY 2005. Specifically we found:

  1. Participation in the Home Help program increased faster than we originally projected.
    The average monthly number of Home Help beneficiaries increased 16.5% from 45,166 to 52,623 between fiscal years 2005 and 2008. This meant an average annual increase in the number of beneficiaries of 5.2%, compared to the 4% we projected in 2006.
  2. Home Help is less expensive than nursing facility care.
    The State of Michigan spent $47,096 per year less on average providing home based care for Home Help clients than it did caring for Medicaid LTC clients in nursing facilities. While the average annual cost per beneficiary of the Home Help program increased slightly at $240, the average cost per beneficiary of nursing facility care increased significantly during the three period with the state paying $4,954 more in FY 2008 than in did in FY 2005.
  3. Administrative costs for Home Help have fallen every year since FY 2005.
    Administrative and case management costs per Home Help beneficiary fell from $439 in 2005 to $355 in 2008, falling in each intervening year. In FY 2008, administrative costs made up 7.4% of total program expenditures.
  4. The State of Michigan is saving more than we originally projected.
    Home Help is paid for jointly by federal and state governments. In FY 2008, the federal government paid 58.1% of Home Help expenditures. After updating our fiscal impact model with actual numbers of beneficiaries in each program and the cost per beneficiary, the overall government savings is likely $34.3 million in FY 2008, with $8.2 million in savings for the State of Michigan. This is higher than the original projections of $32.6 million federal and state savings and $7.6 million for Michigan’s General Fund. 

While we cannot say that the wage increase by itself caused the increased usage of Home Help and the subsequent savings to the state government, a significant increase in Home Help usage has followed the wage increase. Administrative costs are down for the program and more people are using this program. These results are consistent with the reasons for expecting cost savings that we stated in our 2006 report: higher wages leading to lower turnover (lowering administrative costs) and increased usage of Home Help over more expensive nursing facility care. This clearly benefits taxpayers as the State is able to save money by increasing the usage of Home Help over Medicaid-funded nursing facility care.