Ownership/Operations
Thawing Frozen Capital
By Fred Samuelson
More Thoughts on Frozen Capital
This article concerns the second individual at the birthday party that I wrote about last month; a quite talented sales manager with more than 20 years in the automobile business who happens to be the son of the celebrant. The question was asked, "Do you receive a copy of the financial statement for the dealership or even for your department?" With a soulful look, the sales manager said, "Well, sometimes I get to look at it, but not for long and it has been a long time since I have seen one."
"How long have you been working in the present dealership?" I asked.
"Four and a half years," he replied.
"During that time, how many times have you been allowed to look at the statement?" I asked him.
"Probably four or five times," he answered.
"Have you ever heard of the term frozen capital?"
"Yes, I think so," he responded.
"Do you know how to identify it?" I said.
"No, not really. Are you talking about inventory?"
"Yes, both new and used," I said. Then I asked, "Do you have any aspirations of becoming a dealer one day?"
"Yes, but it is not likely, given the megabuck deals that are out there today," he replied.
Even the factories are buying up dealerships. But the problem is, the people they put in there do not really know how to run the dealerships, so I do not know how long that will last before the factories either hire qualified help, or get out of the retail business.
I asked this particular young man if he would like to learn how to read the financial statement? How to identify frozen capital, but more importantly, how to thaw it and turn it into cash? "Certainly, it would make me more qualified to do my job," he said.
Bingo again. Well, I offered the young man the opportunity to come to my office and I would give him one-on-one training to teach him not only how to read the statement, but to find particular problem areas that the numbers are shouting loud and clear. Will he take advantage of this offer? Only time will tell. But one thing is certain, for an employee, a sales manager in the business for 21 years, not having the access, authority or right to read the financial statement is counterproductive.
This is a classic example of the 60-plus-year dealer not showing his son how to read the financial statement. Taking the monthly publication into his office, reading how much cash is in the bank, maybe how much money is in used cars and trucks, how much profit (or loss) was recorded and putting the statement in his pocket. That was the end-all and be-all of any training or knowledge imparted to his son, let alone any department managers.
Ladies and gentlemen of the auto industry, this is just plain ludicrous. For a manager to not know how to identify a specific problem in a department is absolutely counterproductive-if not criminal. 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 do not, then please tell me what your legacy will be in your dealership.
Are you a person who really cares about the dealership and all the employees? Or are you a person who just takes things as they are, spends a lot of time out of the dealership and leaves the operation to your general manager?
I want to repeat a story here because it is one thing that I firmly believe with all my heart and soul. 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, really 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 do 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
