The current health crisis is creating uncertain times for all industries and the new car dealership industry is no exception. However, with proper strategizing and maximization of the federal programs that were passed last week, I am confident that dealers will survive the current health crisis. Below are some thoughts and ideas that may be helpful in navigating the next few months.
- Dealers should have detail cash flow forecasts for the months of April and May. These forecasts should be updated weekly.
- Under the Cares Act, there will be a significant expansion of loans available from the SBA. Dealers will qualify for these loans. Furthermore, these loans may qualify for partial forgiveness. The Small Business Administration has been charged with developing the application and payment process. However, the actual loan will be processed by an SBA approved bank. If you haven’t done so already, reach out to your banker to express your interest in applying. Dealers will get the funds, but when? The US Chamber of Commerce has prepared a guide for SBA loans to assist you in understanding these loans – click here.
- Dealers will also get significant cash flow relief from the Internal Revenue Service and most state governments. Large amounts of cash flow is typically consumed on April 15 in the form of any balance due on prior year taxes as well as the first quarter tax estimate for the current year. These payments to the US Treasury and most state tax authorities are now deferred until July 15.
- If your cash flow forecast indicates that there will be a short fall or near short fall over the next few months, then consider flooring any new and used vehicles that you own outright.
- Many dealers have opted to keep service and/or limited sales operations in place during this crisis. Dealers must be realistic and monitor their operations daily to ensure that the level of revenue makes sense compared to the costs of staying open. Well capitalized stores can gain valuable “goodwill” with customers by remaining open. At some point the losses may outweigh the “goodwill” gain. You will need to scale back expenses/staff as revenues decline.
- For those maintaining service operations, consider cutting hourly technicians/service staff and pay only on a flat rate basis.
- During difficult times, it is evident which employees are fully committed to your business and provide the most benefit. This should be monitored closely. At some point, you will be recalling employees that have been furloughed. Call back the employees that have shown the greatest value and commitment to your store. You may not call back the weaker staff, and you may find that you really don’t need them. This sounds harsh but it may provide a longer-term benefit to your store.
- As you eliminate or reduce expenses during the slow down, analyze each expense and perform a cost benefit analysis. You may find that you have been paying for services or products that are not necessary or may be scaled back. You will need to be lean when you return to “normal” operations.
In conclusion, with planning and proper strategizing, I am confident that we will get through these difficult times. Most dealers had a strong January and February and were performing well in early March. You will obviously give back those gains and more over the near term. At some point, during the year you will return to profitability. We need to remain calm and continue to make rational decisions as the situation evolves.
If you have any questions regarding this article, please contact Paul McGovern at PMcGovern@DowneyCoCPA.com or at 800-849-6022.
