Liquidity, the Coronavirus, and Auto Dealers

Remember the old saying “cash is king?” Well, at least liquidity is king in good times, but especially in bad times. Whether you think the coronavirus is going to have a lasting impact on the US economy or not, the longer the virus stays in the headlines and the more it’s diagnosed in America, the more important having a contingency plan is to your business.

So, what should you do assuming 10% or 20% decline in gross? If you haven’t already, we are recommending to our dealer clients that they start evaluating expenses at various levels of declining gross.

  • Do you have too much inventory?
  • Do you have non-essential employees?
  • Do you really need that online service?
  • What would your advertising budget look like if business slowed significantly?

The auto market has had a number of great years behind it, and it likely will have another good new vehicle sales year in 2020. At what cost though? Identifying opportunities to cut back now will ensure you are proactively approaching a potential short-term or long-term stall in the growth the industry has enjoyed.

Besides looking to cut expenses, dealers should also do a liquidity analysis. That’s right, dealers’ focus should also be on growing in times of a downturn. Opportunities don’t always come at an opportune time, but our best clients are always in a position to take advantage of the market.

  • What sources of cash do you have to weather a storm or take advantage of an opportunity?
  • What will the impact of the market be on your bank?
  • What are they doing to ensure they are in a position to help you?
  • Do you have capacity with your bank to move quickly on an opportunity to buy a competitor?
  • Do you have other sources of cash?
  • What is the earned position of your reinsurance company?
  • Can you get an advance on future reinsurance business?
  • Will you be able to build inventory to take advantage of the market if there’s pent-up-demand?

These are some of the questions you and your team should be asking yourselves. Start this process now and you’ll be in a position to weather a storm if it transpires. If it doesn’t, then you’re lean and ready to attack the market with your newfound resources. Please call me or one of our dealership services team members if you need our assistance.

 

by Barton D. Haag, CPA