What’s your dealership’s cash conservation strategy?

By Mark J. Sheffield

If your parents were like mine, they told you to always keep enough money in the bank to cover six months’ worth of expenses. For years, I have told the dealers I work with the same thing. Now we are finding out who listened (and it’s obvious that most of this country’s large corporations didn’t) and who didn’t.

Not every dealer is going to survive the sudden and dramatic impacts of the COVID-19 pandemic, but those who do will be the ones who came into this with low debt, strong inventory management skills, a solid team, decent cash reserves and a plan to weather a downturn.

In the dozens of calls I’ve had with dealers over the last few weeks, one of the items I’ve consistently emphasized is dealers having a Cash Conservation Strategy (CCS) — how to generate cash on short notice, and to stretch out your current war chest for as long as possible.

Before you do anything else, turn off the news. Listen to some relaxing music or hard rock (I don’t care which one you choose). Anything but the news.

Then, here are some key steps to take:

Know your current cash position

• How much cash do we have in the bank?

• Before lending tightens up, can we draw down our business loans?

• If the dealership runs short on cash, are we willing and able to put money back into the business?

Reduce cash burn

• Management approval of all parts/accessory orders for stocking items

• Audit all outstanding vehicle orders and cancel unneeded orders

• Used vehicle acquisition

Advertisement


  • Continue to take used vehicles on trade (and if so at what value)?
  • Continue to buy used vehicles outright?

• Reduce or eliminate dealership services (advertising, satellite TV, shop chemical servicing programs, security, etc.)

• Reach out to manufacturers and floorplan lenders to absorb current and future floor plan expenses

• Negotiate with lenders for forbearance on loan payments, forgiveness for interest payments, deferral of curtailments, and ask for payment plans on outstanding debts

Generate free cash

• Sales and specials to move as much parts and accessory inventory as possible (no better time than the present to sell that old stuff on eBay)

• Service and sell through used inventory (retail/auction/low margin deals)

• File all outstanding warranty claims

• Submit all contracts in transit

• Send out statements for all Accounts Receivable (and instantly place a hold on or terminate all AR accounts)

Identify and understand current Federal, State, and local support programs

• Is my business eligible for a small business loan, and what are the conditions on these emergency loans?

• The original round of legislation passed by Congress kicks in on April 2, but it only offers tax credits, not direct payments. Is our business in a position to front these payments to employees?

• Should employees be furloughed or laid off? What are the ongoing benefits to the staff and the ongoing costs to the dealership (health care, unemployment, insurance costs, etc.) along with ongoing liabilities?

• What will future legislation provide, and with what restrictions and conditions?

Personnel Expenses

• Identify critical staff. Ignore friendships and personal relationships, and instead focus on those who employees who are team players, have a history of performance, and are willing to do whatever it takes to help the dealership survive.

• Identify non-essential staff. This will be the hardest decision most dealers have to make, but it’s important to recognize that continuation of payroll expenses without commensurate revenues will quickly drive a dealership into bankruptcy. Make sure that layoffs evenly impact the business, trimming positions all the way from entry level to management. Managers will typically protect their own positions at all costs, even when they have no one left to manage.

• Pay and benefit adjustments. Staff who remain should be willing to take temporary reductions in pay.

Nuclear options

• Call floor plan lenders and reduce outstanding lines of credit

• Cancel all company credit cards

• Terminate franchises

• Temporarily shut the doors

There is lots of fake news and conjecture about future legislation. The last thing we should be doing right now is burning time and energy thinking about breaking news that may either be false or that might not come to fruition. Now isn’t the time for partisanship. The only things that currently matter are the Ground Truth and legislation that has passed.

A manager isn’t defined by the easy problems that he/she solves, it’s by how the difficult ones are addressed and how those messages are conveyed to the team. Your survival during these trying times may ultimately be predicated not only by your cash reserves, but also by your willingness to take swift and decisive actions.

Mark J. Sheffield is a U.S. Army Veteran and former dealer principal who currently facilitates multiple 20-groups for Spader Business Management. When he’s not assisting with dealership performance, he can be found at the rifle range or digging holes with his backhoe. Contact him at MSheffield@Spader.com.

Related Articles

Leave a Reply

Your email address will not be published. Required fields are marked *