All Dinosaurs to the Left, Please

I've been feeling like the dinosaur that early on felt an ominous chill in the air.

I've been feeling like the dinosaur that early on felt an ominous chill in the air. I'm sure the vast majority of dinosaurs continued in their routines until the bitter end while a few beat the evolutionary odds against them by migrating to warmer climates, taking risks and making sacrifices to stay alive.

As an auto dealer wanting to be among today's survivors, I comb through all of the available intelligence for clues of what to watch out for and where to go next.

One recent report indicates manufacturers have added quiet incentives for some dealers. That suggests some dealers are leveraging a relationship with their manufacturer to get an edge over fellow dealers. My conclusion is this signals the end of the franchise system. Starting to feel that evolutionary chill in the air?

Over the past years, many tiered and varied incentives have un-leveled the playing fields on which dealers compete.

Because of platinum floor plan programs, trunk money on certain inventory or kick-backs for pushing particular products and lenders, dealers can no longer tell customers we all start from the same invoice.

Worse, because a tremendous number of units on dealers' lots were configured to keep manufacturers' line speeds going (rather than to respond to what customers want) it's a craps shoot as to whether the inventory being pushed has any shot of being in the customer's best interest. More likely than ever before, vehicles being sold are pushed to rid the dealer of choking carrying costs.

Perhaps the path to salvation, or at least survival, is inventory management. Before you say, “I already know that,” consider that the inventory management is not about days' supply. Neither am I talking about a simplistic “just-say-no” strategy of wholesale buying.

Instead, I'm suggesting that inventory responsibility gets the type of scrutiny you'd apply in picking a heart surgeon.

The first question that you should ask: “Why stock a new vehicle at all?” Blasphemy, you say? I am not advocating that you stock no new cars. But there should be a filter through which every new and used car passes if capital preservation and profit maximization is a prime equation. Every unit should have a profit reason for being there, including a calculation of the cost and time to achieve it. Period.

I hear knees jerking and dealers saying, “My shop can't survive without new car work. Or, “My sales people would starve.” And the knock-out punch: “They'd yank my franchise.”

I have never heard of a single dealer who could justify his or her inventory on a profit theory of losing a franchise. I've never heard of a single dealer sustaining himself or herself by propping up sales or service departments on selling bad inventory. It just doesn't pencil.

Wrong inventory adds floor-planning interest costs, transactional losses and capital drain to the burdens of the dealership. And that's before you consider sinking customer satisfaction (not the index, real life). You'd be better off paying a “stick around” bonus to your sales and service staff, though I don't recommend that either.

Nothing shapes the relationship among dealer, manufacturer and customer so dramatically as inventory. If the long dark winter with reduced volume, shrinking margins and dwindling cash flow doesn't kill those alliances, desperate sales initiatives and OEM strategies crafted to encourage even more bloated inventories will.

While dealers anxiously try to get a grip on this moment, manufacturers circle their wagons, waiting for the inevitable attrition in their dealer ranks during 2007. Whatever “Projects 2000” they might have hoped would thin those ranks, “Economy 2007” will be more effective.

Many dealers won't make it and some won't try. For the survivors, my bet is on keeping a tight grip on what makes money and shedding all else. Sadly, many of my fellow dealers will sniff the cold air and expire before ever realizing the full impact of how much already has changed.

Peter Brandow is a veteran auto dealer in Pennsylvania and New Jersey.

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