In an effort to keep you informed up the latest updates re: the current business environment, we are going to send emails, update our LinkedIn and post updates to our website. Please let us know if you have anything you’d like for us to consider or if you have anything to share. So far, the industry our friends and clients are reporting back to us that business is still moving, but customers are starting to express concern and most are wondering what’s next, which seems to change by the minute. We do know of one instance of a service department that’s been shut down for 14-days due to a confirmed case of the coronavirus. That’s all we’ve heard so far though.
The federal government announced new legislation to help businesses and employees during a potentially tough time. The legislation was introduced by Congress, has approval of the president and now sits in the senate being reconciled and awaiting final vote. We expect that legislation will be passed this week. This article is a good summary of the legislation . Congress is also contemplating several bills that would automatically extend the filing deadline for taxpayers. One of the more recent suggestions was an automatic extension until October 15th and relief from penalties and interest if a certain percentage of income tax was paid in by April 15th. Other proposals extend the filing deadline until sometime this summer. We’ll keep you updated as we learn more.
We don’t yet know the full implications of the coronavirus on your business . We believe it’s prudent to start developing a contingency plan should things play out in a “worst-case scenario.” Here’s a list of items you and your team may want to consider:
- For purposes of your discussions, assume gross drops 20 – 30%. What can you do quickly? You should already have those items identified and a plan developed for implementing them.
- Consider the top 3 expenses – people, interest and advertising:
- Do you have non-essential employees you should consider laying off now? We’ve heard of some dealerships laying off drivers, lot personnel, etc. You should have a plan for if and when.
- Work shifts – can you reduce personnel cost by rotating shifts, reducing dealership hours or other measures, looking for ways to get coverage with fewer employees.
- No overtime!
- Do you have a plan for your inventory? Have you considered turning away new inventory? Are your days supply counts in line with a significant drop in business? Do you have the right mix of inventory to take advantage of a turn in the cycle? What will you do to be responsive and nimble?
- Have you spoken with your bank about curtailments, interest rates and their plans? We’ve already seen significant drops in rates from some of the floorplan sources.
- Have you considered a swap on certain debt to fix your rate so you can plan more effectively?I know some bankers have been discussing the use of a collar on some debt.
- Are all of the services to which you subscribe necessary in a decline? Review your advertising budget and philosophy and make sure it makes sense for the times. Identify opportunities to quick respond to market conditions and take advantage of opportunities.
- Is your BDC operating on all cylinders? Now is a time to be in touch with your customers. Make sure they know your position. If they are “hunkered down” schedule appointments for a week or so out and make sure you are ready once business does turn around.
- Are their opportunities to pick up and deliver vehicles without much or any human interaction? If customers are concerned about others driving their cars, do you have a flatbed?
- Evaluate credit policies for customers – cash is king!
- Make sure your office is monitoring accounts receivable, including factory receivables, and collecting your cash as quickly as possible.
- Review your parts inventory. Have you maximized your returns? Do you need as many parts on-hand during a downturn? Make sure your ordering practices don’t follow yesterday’s business pattern.
- Review your insurance policies. Many are finding that shutting down the dealership for the virus isn’t covered by business interruption insurance. Do you know what your policies cover?
- Review your policy work guidelines. Remind your team to challenge this regularly.
- Depending on the length of a potential downturn, consider suspending some of the employee benefits you offer. For example, employer matches into your 401k plan, reviewing deductibles and co-pays on insurance, etc.
- Monitor vendor payment terms. Are you maximizing your cash flow? Are there any that can be eliminated in a sharp drop off in business?
- It’s time to round up how much liquidity you have. Put together an analysis showing cash on-hand, cash available through floorplan, cash available in a reinsurance company, personal cash available, lines of credit, etc.
We participated in a conference call sponsored by the Massachusett’s Auto Dealer Association at 11:30AM today. Fisher & Phillips presented an update. We’ll send the cliff notes of that call as soon as we’ve summarized our thoughts. It’s important that all dealers reach out to their state associations and attorneys though to ensure you are following your states laws and that you are applying the laws appropriately to your situation.
None of us knows how long this will last yet, but you’ll absolutely be better off with a plan. This isn’t a comprehensive list. If you have other ideas you’re willing to share, we’d love to hear them. Please contact us if you have questions or need our assistance. Our auto dealers team is here for you and your business.
by Barton Haag