How Did One Car Dealer Succeed When Three Others had Failed at the Same Lot?

Melvin Tuchez worked as an employee in the auto-sales business, and then he purchased his own dealership, Aztec Motors, in San Fernando, California. He believed three other auto-sales companies on the same site had failed due to inferior branding and weak management. He immediately began spending $16,000 per month on print and on-air advertising.

A sign company called upon Tuchez, and he purchased two on-premise, electronic pole signs. He reported an immediate increase of 10 walk-in customers per week, which resulted in six additional sales, and paid for the signs in less than a month. He subsequently reduced his advertising budget to $4,000 per month. Additionally, he began using the logo from his signs on sales and promotional materials.

The two signs cost $15,000. With the additional sales, and the reduction in other advertising costs, an appraiser calculated his savings over a three-year period at $400,000. Tuchez subsequently opened three additional Aztec Motors locations.

What has Senator Orrin Hatch Said about Signage?

In 1998, the former Signage Foundation for Communication Excellence presented its National Sign Users’ Conference on Sign Regulation and Marketing, in conjunction with the International Sign Association and its Sign Expo ’98 tradeshow. The keynote speaker at the conference was Senator Orrin Hatch (R-UT). The following are some highlights from his address.

“My topic today is the state of the law, particularly Constitutional law, as it applies to commercial communication. The term. of course, includes signs, billboards and the like, legitimate forms of communication. I believe government regulation has become burdensome, often times unconstitutional.

Advertising has been part of our culture since colonial times. Defense of political and commercial speech was recognized by the common law. It has been recognized since day one in this country. In America, the printed word was given greater protection than it was in mother England. Indeed, respect for the printed word was so great that printers were often considered heroes of the Revolutionary War and the new Republic. Witness Ben Franklin, for example.

At the time, legislatures could only prohibit advertising that was fraudulent or misleading. It was not until 1975, in the Bigelow v. Virginia case, and in 1976, in Virginia Board of Pharmacy v. Virginia Consumer Council Inc., that the Supreme Court held that the First Amendment protected truthful and non-misleading commercial messages. The public has an interest in receiving accurate commercial information, and the government has little or no correlative interest in censoring the content of the message.

The Supreme Court recognized a state may regulate commercial advertising more freely than political speech. It may also impose a content-neutral set of restrictions on the time, place or manner of speech. But it may not completely ban the speech.

The content-neutral restrictions often are used merely as an excuse. Other sign codes delegate almost unfettered discretion to bureaucrats. In challenging these restrictions, apply the commercial-speech test of Central Hudson Gas & Electric Corp. v. Public Service Commission in 1980. Here, the government bears the burden of justifying a restriction on commercial speech. The four-part test requires:

  • Is the speech a lawful activity and not misleading?
  • Is the asserted governmental interest substantial?
  • Does the restriction directly advance that interest?
  • Is the restriction narrowly tailored to advance that interest?

In Forty-Four Liquor Mart Inc. v. Rhode Island, in 1996, the Supreme Court increased the protection by subjecting the restrictions to a more strict review. It struck down a prohibition on advertising the price of alcoholic beverages.

Besides First Amendment implications, regulation of sign advertisements raises Fifth Amendment property-rights concerns. Our founders knew from the beginning of the creation of the Republic the importance of property rights. It’s one reason why we have our tremendous wealth and free-market system. Our founders feared that the government they helped form might use its power to abuse the people it was designed to protect.

John Adams, the second president said, “The moment the idea is admitted into a society, that property is not as sacred as the law of God, and as there is not force of law and public justice to protect it, anarchy and tyranny commenced.”

The Father of the Constitution, James Madison, in his celebrated essay on property, wrote that the very purpose of government is to protect private property. That’s why the last clause of the Fifth Amendment was added to the Bill of Rights. Known as the “Takings Clause,” it states, “Nor shall private property be taken for pubic use without due process of law, nor shall private property be taken for public use without just compensation.”

With the growth of government at all levels — federal, state and local — private property has become increasingly under attack. Too often, localities abuse zoning powers by restricting sign advertising on so-called “aesthetic” grounds. Too often, localities misuse the nuisance doctrine to prohibit otherwise legal advertising.

in the 1992 Lucas v. South Carolina Coastal Council Supreme Court case, it struck down zoning regulations that would have forbid the building of a beachfront home. The court said the locality must factually demonstrate that the use of the private property is engendering some concrete danger. Mere aesthetics may not be enough.

Can the Location of Signs Make Them Worth More than the $1.3 Million Building they Identify?

In Cincinnati, OH, in 1997, a building was situated on Pete Rose Way in an ideal location, proximate to the confluence of I-71 and I-75. The building housed Caddy’s, a 50s style entertainment complex. The Cincinnati Bengals NFL football team was about to build its $400 million Paul Brown Stadium, and the land and building were being taken by Hamilton County under eminent domain. The county offered $1.3 million in just compensation for the taking.

However, the five-story standalone building, which had three sides readily visible from the interstate, included five exterior signs. Three of the signs were murals that spanned approximately 2,500 sq. ft. each.

Outdoor advertising is different than on-premise signs in that it is sold as advertising; rates are based on “reach” — the traffic count for the nearby road. Traffic counts are well established for thoroughfares, and this particular stretch of road was traveled daily by an average of 170,000 to 190,000 vehicles. The standard multiplier is 1.6 people per car, so the signage received approximately six million “exposures” monthly.

Given these statistics, the standard rate for the signs would have been $3,000 each ($180,000 annually) if they were sold as outdoor advertising. Total advertising value was subsequently based on a multiplier of 10. (Because the signs branded the building on which they were located, they were not considered outdoor advertising. However, the value of the space was calculated based on the fact that it could be sold as outdoor advertising.)

For the prior decade, Caddy’s had averaged $2.5 million in annual sales, with a net annual income of $840,000. Caddy’s owners originally asked for $5.5 million in compensation. The jury awarded Caddy’s owners $3.1 million. So the $1.8 million the owners received exactly matched the $1.8 million that was deemed to be the value of the advertising space.