Ownership/Operations
Thawing Frozen Capital
By Fred Samuelson
A month ago I attended the 70th birthday party of a very dear friend. At the party there were people gathered from all different professions. I was fortunate to be able to talk with two gentlemen who happened to be in the automobile business. These two in particular were more than interesting in that they each had different responsibilities, yet had the same desire to succeed. This column will be about the first gentleman I met, and next month's column will be about the second gentleman.
The first gentleman was working for a company in the rental consultation business. During this discussion, the subject of utilization was brought up. Bingo, the light goes on in his eyes, and he exclaims that that is probably the hardest thing for a dealer to understand. It is very easy to sign up for a rental fleet through the manufacturer. The units arrive, are serviced, and then are parked in neat rows on the lot, all with proper identification and state license plates waiting for the first person to come in requiring temporary transportation.
The problem is that the dealer or general manager does not understand the business they have just entered into. This consultant stated that at one dealership, they had been called in to consult regarding a very large rental loss operation. The dealer was not there, so the conversation centered with the general manager. His comment was that he was just too busy to look into the constant loss (over $35,000 per month) that the department was generating. What was the basic problem, you say? Utilization, or lack thereof. With a monthly utilization that did not exceed 50% in the past six months and expenses mounting, what was to be done? Well, the dealer did not seem to care because the rest of the operation covered any and all losses from the rental department with a very large profit each and every month. The general manager "did not have time" to fix the problem, let alone look into the problem. It does not take a genius to see that a 50 % utilization on a large fleet of units would not generate a profit, let alone break even.
The person that I was speaking with brought the problem to his supervisors and the owners of the consulting company, but they were afraid of talking "turkey" with the dealer because of fear of losing the consulting contract. Isn't there something missing here? Just exactly what business are they in anyway? This does not seem to be a gratifying job if you cannot change the operational minds of the people that are calling you in for consultation, let alone get down to the nitty-gritty discussion of the problem in the operation. Sure would like to be in on a meeting. Wonder if the dealer or general manager would pay a 50% commission on whatever the consultant saved them? What would you do if you were faced with this same situation?
We want the department under the umbrella called "the dealership" to produce a profit. That is why you are there. To not have time to look into the reason for a very staggering monthly operating loss from one department points to more than one deficiency in the operation. The dealer does not care. Or, the dealer does not have the knowledge of how to read and analyze the statement to show his employees that he does care and by golly, he does have the expertise to correct the situation and get his dealership back on track.
Now, for the big question. Do you, as the dealer or general manager, have the time to care about the internal operation of your dealership? Do you know how to read the statement? Do you hold monthly meetings with your managers to let them know YOU CARE? I sure hope so. If you don't, then please tell me what your legacy will be in your dealership.
There is one thing that I firmly believe. If I am a mechanic working for you, then you have the right to expect a journeyman repair job on everything I touch that comes into the service department. On the flip side, if I, as a mechanic in your dealership, like the people I work with, live close to work, schools, etc., then I have a right also. That right is to expect the very best out of you-the dealer. I expect a journeyman job from you to protect my future by being attentive to the so-called nitty-gritty of operating the dealership. I know you are not going to take over the job of new car manager, service manager, used car manager, parts manager or even the comptroller. But I sure would expect you to talk with them.
Check on the things that happen in the dealership. You know, by inspecting what you expect from everyone. In that way you tell me and everyone else working in the store-I CARE.
Fred Samuelson is the chairman of the board for MRI Associates, which provides financial statement analysis for the automobile dealer community. MRI also works hands-on, in-house with dealers to set up policies and procedures to correct inefficient operations, and provides follow-up phone coaching for selected managers. fsamuelson@dealeronline.com
