Ted Stevens, who operates a Gilroy Honda as well as four other dealerships in California, is in the process of purchasing the site of the old Courtesy Chevrolet, located off U.S. 101 and Dunne Avenue at 17100 Laurel Road, according to local land attorney Randy Toch, who is overseeing the transaction. Stevens plans to operate a Honda dealership there, Toch said.

"I think Mr. Stevens took advantage of the opportunity, with an existing facility at a prime location on the freeway," said Mike Luner, who will be the tentatively named Honda of Morgan Hill's general manager. "We're excited about the growth of the area in the future. The economy has been tough lately, but he still believes Morgan Hill is an up-and-coming city."

Luner said they expect to open with 150 vehicles in stock - about a third used - in four to six months.

Honda of Morgan Hill has not yet gained approval from the manufacturer, but Toch said Stevens is confident he'll get permission since he has been doing business with Honda for 37 years.

Stevens may also need permits from the city, depending on what they plan to do on the property, City Manager Ed Tewes said.

Courtesy Chevrolet closed its doors after 12 years in business in April. This followed the February closing of Gilroy's Pontiac Buick and Ford Lincoln Mercury.

In January 2009, the Morgan Hill City Council approved an estimated $155,000 tax break to the Ford Store in Morgan Hill to help the dealership, which opened in late 2004, weather the economic storm.

Tewes said if a new car dealership moves in where Courtesy once was it would be "great for the city's fiscal health and good for the community by providing more shopping opportunities."

Tewes couldn't say how much revenue the dealership might bring to the city's coffers.

But, if a dealership brought in $25 million in revenue annually, the city would receive $250,000 of that via a 1 percent sales tax diverted from the county.

But that doesn't mean all is gravy for the city's bottom line. The city expects a $775,000 shortfall next fiscal year.

"Our forecast already assumes increased sales tax. It already assumes continued growth. If it turns out that it was more than anticipated we would revise our forecast. We had to revise down with (Courtesy) closing, and we would revise up if other things happen," Tewes said.

The city also expects to see new housing, and a handful of building permits are now being applied for, Tewes said.