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Recently General Motors announced it’s running dangerously low on cash and could run out in the next couple months with out the governments help. They need 11-14 billion in cash reserves to run the daily operations of their giant company and are expected to end this year with 12.5 billion available. This is a thin margin to be running a company on of this size; especially this is a difficult market to be forecasting in.
What is the 11-14 billion for? It’s the cash needed to run the company on a daily basis, akin to the working capital a dealer needs to made debt payments, pay off trades as they come in, discount for rebates and wait 30-60 days for the OEMs to reimburse them and to make payroll while waiting for car deals to be funded. If this money runs out, there will not be enough to make their payments to their creditors, including potentially employees. They will be forced to seek bankruptcy protection so they can try and renegotiate their obligations with others.
In a good market General Motors would borrow funds, but in today’s climate, and with their declining capacity to pay against their current obligations its has made that reality a near impossibility. In other words General Motors is just like the customer who comes to your dealership to trade in their car to lower their payment. Unfortunately they are so far upside down, it would be extremely difficult to lower the payment to begin with, and if you could find a car cheap enough, the value of the collateral isn’t enough for a bank to cover the negative equity of the trade. In other words their DTI is too high and they can’t get the advance.
So what are they left to do? Like the buried customer who goes to mom and dad to borrow money for the down payment, General Motors (and the others) are petitioning the federal government for some help. This is where politics get involved, (this isn’t meant to be a political post so ill just generalize here.) The right (republican side) favors little government, and little intervention. The company reaps what it sows, good or bad and the market remains more “pure.” The left (or democratic side) generally pushes for the government to get involved and support the workers. Both sides have good and bad implications, especially in this scenario (generally picking a side is based on what “goods” you feel are stronger and what “bads” you feel are worse.)
What do I think will happen? Well right about now I’m not so sure the politicians can come to an agreement in time as to what is best for our nation. One side says bail them out, the others counter that will raise taxes. One side says if you don’t bail them out the pain will be greater on the public than the raise in taxes would… and the politics go round and round. At this stage I think most on each side are in agreement the industry needs help, it’s the details they are fighting over. If the fighting isn’t resolved, the support may come but too late for bankruptcy. GM will file, and begin to restructure, similar to united airlines over the last few years. GM will stay around, and go through some very radical changes, but they will survive. To me the biggest variable will be how the public reacts. If the media blows this thing way out of proportion it may taint the buyers opinion of buying with concerns about “will my warranty be valid?” “Will there be parts when its time for a service?” The answer is yes they will be here, (bet GM reemerges, but as a very different company) the biggest challenge the dealership will be up against is customer perception. The perception will be based on the media, and your sales people.
Perception is reality, I don’t write this article to be doomsy or circulate the negative info. In fact I hesitate to publish this at all, but I think its important that the people on the front lines who are focused where they should be, “on making deals” understand what is happening so they can respond to customers in a non political, understanding way. Your customers have some wild ideas running around in their heads right now and the sales people must be trained to handle the questions and over-come the objections they are facing.
I often train that objections are the keys to the car deal. Build value, a relationship and seek out and solve your customer’s objection; that is how you sell. I hope this summary helps someone out there in “reader land” better explain what is happening to the market the next time a customer asks. If you cant answer your customers questions, or respond with, “I don’t follow that stuff much” you will not be breeding confidence with your customer.
Sales people need to understand the industry is going through some painful corrections and may morph and evolved, but its not going anywhere. The auto industry is changing and in this environment knowledge is power. Keep your team current on the facts, and motivated to win. It’s a tall order, but we didn’t become the backbone to our nations economy for nothing.