These are frightening times in the auto industry. Even the financially strong are beginning to tremble visibly under the weight of uncertainty. Panic is driving some dealerships to abandon many of the rock-solid basics that built their foundations decades ago. After 32 years in this industry, there are a couple of sayings that always come to mind when discussing basic foundations.
1. Strong foundations are built from the ground up, not from the top down.
2. Insanity is expecting different results from doing the same things over and over.
Simply because something is a basic foundation doesn’t necessarily make it simple. It just makes it extremely important. There is just no room for cracks in your foundation or processes if you want to survive the current financial tsunami.
Let’s look at one solid foundation issue that has to improve today; but first, a little quiz to get you thinking. We will call this a practice quiz because we want you to think about these things before you find yourself in a destructive panic. Thinking clearly is so much easier if you address survival questions before you actually have to. So, just for fun, let’s try one multiple-choice “practice” question.
Please select the best answer to the following question.
If a business can lose $50,000 per month for 12 months before it must close its doors, how long can the business survive if it loses 25K per month?
A. 24 months.
B. I do not have time to calculate it because I am focused on staff reduction. I will worry about the consequences tomorrow.
C. I will consult with an “oracle” and get back to you. Can anyone tell me where to find an oracle?
Give yourself one point if you chose A. If you picked B, go on vacation and leave the dealership in the hands of your controller (by the way, you get no points). Last, but not least, give yourself two points if you picked C.
“What, are you kidding me? Consult an oracle?”
Haven’t you heard of the “Oracle of Omaha”? Maybe you have heard of him by his given name, Warren Buffet. What am I trying to telling you?
Seek reliable professional help that has a track record of great success! While no one, including Warren Buffet, gets it right every time, I know he gets it right more often than you or I do. How would you feel if Mr. Buffet would agree to oversee your financial portfolio at a reasonable cost? What would reasonable be? In the sample question, you were 12 months and $600,000 away from closing your doors. Would you give $10,000, $20,000 or $50,000 to the “oracle” to significantly improve your odds of survival?
Let me see, you could choose insanity and just keep doing what you’re doing today and hope something will change for the better. If you think that downsizing your better-compensated help who made you successful for years is the answer, then take that vacation. You could hire a basement repairman to help fix your foundation to slow or stop your financial leak. Even if you just slow the leak, it might buy enough time for it to quit raining. Then you can develop additional solutions without the excessive pressure that leads to making regrettable or catastrophic decisions.
This is a time to think clearly because a few wrong decisions today could cause even those fortunate dealers with old family money to run out of cash.
Success today requires strong fixed coverage. Your service, quick service, parts, body and detail departments have to be “dialed-in.” We are talking small percentages that make big differences. Adding 0.5 hours to each repair order in service, quick service and body shop is not just substantial—it is monumental. It equates to surviving for two or three more years instead of just one. I know you have heard this before, but humor me, grab your latest financial statement and do the math. I’ll grab a statement from a medium-sized GM store. Here we go.
I am figuring all customer-pay service ROs (regular shop and quick service).
That’s $90,000 per month in additional sales from one fixed ops department. That is easily $50,000 of additional gross profit, and because we should have already paid most of the bills with the exception of a little extra compensation, we should take $42,000 to net. That is $504,000 of additional net profit annually. Does this help you get back to black or buy some time?
Here are my questions and they should be yours, too. Why do you leave this money on the table month after month? If you know how to get it, why aren’t you? If you don’t know how to get it, will you do nothing, or even worse, downsize your highest-priced help? Or will you consider seeking competent, well-referenced help with a great track record of success? True professionals find ways to pay for themselves many times over.
Vol 6, Issue 1
Black book recently published an update to their weekly COVID-19 Market Insights Report.