1999 may prove to be a real enigma-a year of continuing high sales volumes and seemingly favorable business climate, but with two underlying forces that will seriously undermine dealer profits. One of these negatives will be margins which predictably will continue to erode at an even faster pace due to several factors: decreased manufacturer's margin opportunities, such as Mercedes' recent move to drastically affect the dealer's profit opportunity-an effort that could be considered tantamount to price fixing; accelerating competition from the publicly held stores in a desperate move to capture market share and move their profit needle; competition from factory-owned stores such as Ford and Saturn; and since there is really no "bad" product out there, price becomes the major differential in the battle for sales, thus lower margins.
More than ever before, dealers need to make themselves bulletproof-which brings me to the other underlying force-expenses and cash management somewhat out of control. Times have been so good, many dealers have not been as vigilant as they should in exercising tough expense management disciplines and good stewardship in preserving abundant cash reserves.
So, while on the surface business may appear to be good, we may see an ever-increasing number of dealers go broke. The sad note is many of them do not realize it until their disease is terminal.
Bob Dilmore is Chairman and CEO of Management Performance Group. If you have specific questions or require more information about this subject, please check the appropriate box on the reader response form on page 3.