Car Dealer Lawyer

Times are tough - really tough.  Most pundits predict that a significant number of dealerships will not be around much longer.  Most dealers have probably already thought of these ideas, but repeating them does not hurt.  These are my ideas on how to survive tough times:

• Assume Your Bank Will Fail - In the next year, hundreds of banks will probably fail.  If you are lucky enough to have a lot of cash in the bank, then you need to think about spreading that cash around in case your bank fails.  The new limit for FDIC is $250,000 per depositor.  If you keep more than $250,000 in a single bank, you are taking a risk.  The only thing I can think of is spreading it to multiple banks.  It will be a pain for your controller, but it is better than losing it.  (If someone has a better idea on how to protect your cash, please leave a comment.  I would love to know.)
• Look at Your Loan Covenants - Your loans have contractual provisions that are probably tied to your store’s performance.  During good times, these covenants do not seem very important.  But you want to pay attention to them now.  I promise that your banker is looking at them.  You don’t want to be the last person to know if your bank is in a position to call the loan.  With the bad press about dealerships failing, there will probably be a lot of loans called in the near future.  You need to know what the rules are.
• Hoard Cash - Now is not the time to spend cash on capital improvements, renovating your home, buying a new boat, etc.  If you have a line of credit, you might want to borrow against it before your bank decides to freeze it.  If you have to put the money to use, pay off floorplan, since I would suspect that floorplan financing will be the last credit to be frozen.
• Reduce the Number of Non-revenue Producing Employees - This is the toughest suggestion because I know what it is like to lose a job.  But most dealers are probably staffed for about 25% to 30% more sales volume than they are experiencing.  Look at your non-revenue producing employees - managers, assistants, clerical workers, and lot technicians.  Variable pay plans take care of themselves.  You have to make the decision about hourly or salaried employees. 
• Bring Outsourced Work In-House - Review your payables and think about functions that can be brought in-house.  How much are you paying to clean your dealership?  Can your existing employees handle it?  (You will find out who wants to work when you ask employees to clean bathrooms.)  What about your used car details?  Is this something that can be done by your body shop or service department?  What about lawn care?  Do you think that someone in your dealership knows how to operate a lawnmower?  What about cleaning the cars on your lot?  All you really need are a few hoses, a bucket, and some effort.  When things are busy, many of these functions are better to outsource.  But when you are slow, you owe it to your employees not to send out work that they could do.
• Reduce Advertising - “Shoot when the ducks are flying.”  Enough said.
• Look at All Payables - One of my clients was spending about $1600 per month on gas bills last Summer.  When they looked closely at the bills, they realized that they were not using any gas, but they were still being charged for pipeline usage, etc.  For $80, they could have the gas disconnected in the Spring and reconnected in the Fall.  By paying attention to their payable, they will save $5000 to $6000.  Look at your payable closely.  I promise there is $10,000 to $20,000 per month that can be cut if you shop around, cut, and pay attention.
• Assume People Are Desperate - Desperation makes people do things that they would never do during normal times.  As my brother put it, “people are fighting for food now.”  Your customers, employees, and suppliers are all struggling to survive, so you need to watch closely.  Suppliers will “accidentally” double bill you.  Customers will suddenly complain and want something for free.  The government will show up and want to fine you for something. (The drop in tax revenues will be a huge issue in the coming year.)  You have to pay attention because everyone is being backed into a corner.
• Hunker Down and Work - When the President and the leaders of the country say that the economy is about to collapse, everyone is a little distracted.  Your customers and employees are probably paying more attention to what is happening in the market than they are to buying and selling cars.  It’s tough to do anything about your customers, but you have to convince your employees to put their heads down and go to work.  That’s where leadership and incentives come into play.  No matter how bad things get, they will be worse if your employees are thinking about something other than selling and servicing cars.
• Don’t hang on too long - If it does not look like you’re going to make it, be decisive and don’t go to jail over a financial problem.  When I review cases involving dealers who were accused of defrauding banks and customers, many were not bad people, but simply ran out of cash.  Not making payoffs and going out of trust with a bank are usually the final death throes of a dealer.  The poor dealer is just trying to hang on, but the law treats them as a criminal.  If you don’t think you’ll make it, give your lawyer a call and try to take care of yourself before it’s too late.  Life goes on.