One thing I learned quickly, after commenting that the U. S. prime interest rate increases this past year were impacting dealer profits, was that the South African prime rate is 14.25%.
Acknowledging that luck and good fortune are byproducts of hard work, I'm one of the luckier persons around. Please don't misunderstand. It's not necessarily from my hard work that I consider myself lucky, but rather from the industry leaders, especially dealers, with whom I am fortunate to spend time.
The latest example of my personal good fortune occurred in March, when I was invited to speak at the South African NADA Conference. It's a true honor to share the stage with industry leaders including Jurgen Schrempp, Daimler Chrysler; Trevor Finn, Pendragon; Victor Brown, an Australian; Jon Lancaster, a U.S. dealer; and Jeff Sacks, a colleague. But the best part was spending time with the South African dealers and learning something of their business climate.
One thing I learned quickly, after commenting that the U. S. prime interest rate increases this past year were impacting dealer profits, was that the South African prime rate is 14.25%. Oops, enough on that subject. After that stumble, I wasn't about to complain also about U.S. fuel prices.
I asked some of the South African dealers about their business and was told asset management is one of the dealers' most important functions. In their NADA magazine, BenchMarker, there was an article by Paddy O'Brien who noted the difference in U.S., Australian and South African dealers.
“It has always amazed me how little attention retail dealers in America and Australia give to asset management. To them, it seems as though stock is an all-consuming necessity, and debtors an unheard of mystery.”
The article continued, “Ask any Aussie dealer about Return on Assets (ROA) and just watch the puzzled expression as he struggles to understand the question. One gets the feeling they are obsessed with units and gross profits — which, as many of us know, is only half the equation.”
I learned that the South African industry tracks some interesting information, using an inventory analysis tool that would certainly benefit the U.S. dealer body. In addition to tracking days' supplies, they track the age of their new and used vehicles by 30-day periods as a percentage of total.
In the “boot camp” seminars for dealership general managers that Jeff Sacks and I conduct, we teach our students not only the importance of inventory turn and measuring their return on assets, but the mechanical formulas based on information provided in their workbooks from the Harvard Business School.
On inventory turnover, Harvard notes the following: “Determining the number of times that inventory is sold during the year provides some measure of its liquidity and the ability of the company to convert inventories to cash quickly if that were to become necessary.”
The book adds, “Return on Assets (ROA) relates net income to the investment in all of the financial resources at the command of management. It is most useful as a measure of the effectiveness of resource utilization without regard to how resources have been obtained and financed.”
The bottom line is this, we all have individual obligations to be the very best and most effective we can. If we measure and monitor our monthly results in these two areas of inventory turn and return on assets how better or more efficient could we be?
I will remember my South African trip for two reasons. One is learning from peers who live so far away. Two is experiencing first-hand such a beautiful place.
Tony Noland is director of international operations for NCM Associates. He has 30 years of automotive retail experience.