CDK's purchase of Auto/Mate may create a major disruption in the dealer management system (DMS) industry. Here is our take. DOWNLOAD
Preparing for a Chrysler or GM bankruptcy is an ugly thought that nobody wants to discuss. However, if you are prepared for such an incident you could save your store hundreds of thousands of dollars.
If your manufacturer does file BK, your dealership will be hit in two main ways. First, consumer confidence will fall, making the bankrupt franchise’s products harder to sell and sending ripples through the retail and wholesale markets. Second, your dealership's cash flow will be significantly altered in the form of holdback, incentive, warranty and other payments that are owed your store.
Here are some tips I recommend to shield your dealership form the worst.
Manage your cash position daily
Typically a weekly cash meeting is sufficient, but today as a GM you must be looking at the appropriate schedules daily to insure the dealership has as much cash in the system as possible.
A cash meeting is a time when the department heads get together with the GM or Principle to review all the receivable schedules for each department and make sure the cash is being collected. You should look at your holdback, incentive, finance, and other receivables due the variable ops. Also discuss your open RO’s, SOP, Warranty receivables and any outstanding commercial accounts in your Parts and Service Departments. The objective of the meeting is to turn these receivables to cash and to remove any obstacle in the way of collecting your money.
In the event of a Manufacturer BK you will need all the cash you can get to weather the short-term crisis. Free up as much cash as possible now, before the storm hits.
The most likely market effect once a manufacturer files BK is that their vehicles will experience a step drop in value. If you are a ford dealer that typically stocks a few Chevy’s, it may be time to rethink that strategy for the short run. If you are holding the vehicles when the BK happens you stand to lose a significant amount of money. On the other hand, buying that inventory after a BK does present other risks, however it will insure you are buying after the price drops, putting you in a much more favorable position.
Submit Warranty claims daily
After filing BK the manufacturer may delay, reduce or stop all together (for a time period) its payment on warranty claims. Dont let warranty repairs sit idle in your shop, get the work complete while the OEM is still paying. Once the work is complete, process your warranty claims daily. The faster you get these claims approved and in the system to get paid, the less risk you will have.
Process incentive receivables daily
Like warranty receivables, the faster you can process car deals and get your rebate, dealer cash and other incentive claims in the system and paid, the less risk you will have in an OEM default situation. If there are reasons for the OEMs to deny rebate claims, they will. Insure the sales team collects any documentation needed at the time of sale to process all student, business and other speciality rebate claims.
Pitch interest rates, not rebates
The manufacturers usually offer the choice of a special interest rate or a rebate for the consumer to choose from. Often, the difference in payments to the customer is minimal. When possible steer the consumer to the financing option, not the rebate. The reason is that the dealership floats the rebate to the customer and waits for the manufacturer to reimburse them. By selecting the financing option, you avoid the risk of another incentive the manufacturer may not pay. It puts the store in a much better cash position when the consumer takes the special financing.
Create your contingency plan now
How will your company strategy evolve and change in this tragic, but possible event? Will you switch your focus to being a used vehicle dealer? What niches/car lines will you focus in? How will you position your marketing?
By thinking about the tough issues now you can more successfully navigate the stormy waters when they come. Every good business strategist has multiple plans. You should to. Committ these plans to writing so you have them fresh on paper in the event they are needed.
Meet with your flooring source
Your floor plan company has a very vested interest in the viability of your dealership since they have millions of dollars loaned to. If they see on the morning news that your manufacturer has filed for bankruptcy, they will immediately question ability to honor your flooring agreement. They will call a meeting with you and want to know what is happening in your business. Many stores are already dealing with audits at an increased frequency. The last thing you need is your flooring line to be called.
Be proactive. You should have a contingency plan as to how you will navigate the difficult waters. Put this plan in writing and take your banker to lunch. Talk it over with them, let them know you are a good client and will continue to be even in the event of an OEM BK. By letting them know you are prepared ahead of time, you will avoid additional headaches at a time when you need to focus on leading your store.
Our industry is changing. Sometimes it is difficult to look up form the day to day grind of running a business to look into the future and strategize on theory’s that may never come to pass. Most actions needed to prepare for a manufacturer BK are things you should be doing anyways and in the event of a market disruption 5 hours of preparation will save you 30 hours of headache. Nobody can tell the future to know if something like this will happen and how the market will react. Sometimes "being prepared" for probable options is the best thing we can do.