A Los Angeles Times article last month said: “Analysts note that the (automotive) manufacturers have undergone a massive restructuring over the last 18 months — including the bankruptcies of General Motors and Chrysler — and are now able to squeeze out profits at much lower sales levels.
“Every manufacturer is looking at their business plans and looking at how they can make money at smaller volumes than what we have seen prior to the recession,” an analyst said. “The break-even benchmark is lower, but it will vary by manufacturers.”
But the article indicated dealerships may not be able to squeeze out profits on fewer sales.
“It is a difficult time to do business. I think we will see more dealership failures before this is over,” said another analyst. “Some have been just hanging on and just won't survive to better times.”
I never cease to be amazed at the seemingly lack of credit given to dealers. Respectfully, for the most part, many of these analysts simply don't really know or understand our business, or its structure.
Don't they realize we have five or six businesses under one umbrella called a dealership? Do they realize the majority of dealers are survivors and do whatever is required to succeed?
I'm not picking on the L.A. Times writer or his sources. But they should know that the majority of dealers began right-sizing their dealerships back in 2008.
When business conditions began to deteriorate, dealers didn't have to await for their most recent quarterly results to begin making needed overhead adjustments, which would allow them to be profitable at lower volumes.
Excuse my ire, but if lower sales volume is a subject the media chooses to cover, they need to present both sides of the issue. I'm continually frustrated by most media's failure to present both sides.
Speaking of making the needed adjustments to their overhead and taking the proper actions which allow dealers to be profitable at lower volumes, the following are a few reminders as we approach the final quarter of 2010:
- Aging New-Vehicle Inventory
As close-out inventory has arrived at our dealerships, often the latest arrivals are parked at the head of the line which has a tendency to bury or put our older inventory at the back. Now is the time for managers to personally walk this inventory. Do not allow them to delegate this to the sales force or lot attendants. Managers should identify the oldest units and ensure they are ready for sale, as our goal is to turn new-vehicle inventory six times a year. This action will result in a reduced floor-plan interest cost and fewer carry-overs.
- Used-Vehicle Inventory
This year is different, but even though the used-vehicle market has been hot, I would still speculate we will see a decrease in volume in September and October. If you want to go into October with a 30 to 45 day supply, you need to begin taking the required actions this month. Identify all vehicles that will be 45 to 60 days old and track their activity to ensure they are sold prior to October. Some people may disagree but I feel you are in a better position if you go into the final quarter of the year with your inventory at the proper level and priced close to the current market.
Review any and all receivables past 30 days and get the responsible manager on them immediately. My experience has shown receivable collections are somewhat easier prior to the fourth quarter of a year.
As noted earlier in this article, dealers know and take the steps necessary to be profitable in lower volumes. By establishing a plan for the fourth quarter and reviewing your progress, you will position your dealership to continue to operate successfully.
Tony Noland is a veteran auto dealership consultant. He can be reached at tonynoland@tonynolandand associates.com.
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