Automotive News F&I Special Sections of 2008 - (Page MAY36) 36 • MAY 5, 2008 The resilient dealer INSIGHT Key to managing floorplan costs: Be realistic Jim Henry autonews@crain.com Managing inventory and floorplan expenses in a downturn is a core dealership skill, since now more than ever no one wants to get caught with unsold cars racking up interest charges. “Anybody in the new-car business is going to tell you they’re going to look twice before they take something else on their lot,” says Marty Collins, western region vice president for Group 1 Automotive Inc., of Houston. Pete DeLongchamps, Group 1 vice president of manufacturer relations and public affairs, says dealers have to temper their entrepreneurial optimism. “The mistake is to think that next month, next quarter, it will be back like it was,” he says. “The tendency is to force the market, add inventory and do some more advertising. It’s been proven to be a false strategy.” Costlier inventory Floorplan interest charges for the top U.S. publicly traded dealership groups (in millions) COMPANY 2007 2006 % CHANGE Inventory advice Dealership group executives offer these tips for managing inventory: Be realistic. “That 100-car store is now a 75-car store” per month, DeLongchamps says. “You’ve got to plan your business accordingly.” Reassess more often. “We are managing our inventories much tighter,” says Mike Maroone, COO of AutoNation Inc. in Fort Lauderdale, Fla. Cut back if necessary. Collins says AutoNation PAG Sonic Group 1 Asbury Total Source: Company reports $133.1 $74.7 $67.6 $48.1 $43.1 $366.6 $138.2 $59.8 $59.6 $46.7 $40.5 $344.8 –3.7 +24.9 +13.1 +3.0 +6.4 +6.3 DeLongchamps: Maroone: Tighten Temper optimism inventories er, and they can stock them in a proactive way to meet market needs, which is a little different from the allocations they get on the new-car side,” says Tom Kontos, vice president of ADESA Analytical Services in Carmel, Ind. Don’t keep unsold used cars past 60 days. “Very simple,” Maroone says. “Sixty days, and it’s gone.” Group 1 uses the same guideline. The top five publicly traded dealership groups combined incurred a total of $366.6 million in floorplan interest charges in 2007, an increase of 6.3 percent from 2006. Some of that amount — in some cases, most of it — was offset by floorplan assistance from the manufacturers. Group 1 disclosed that floorplan assistance paid for most of its floorplan interest expenses in 2007. For the year, floorplan interest for Group 1 was $48.1 million, offset by $38.2 million in floorplan assistance. Similarly, AutoNation got $100 million in floorplan assistance, toward $133.1 million in interest expenses. Other public groups don’t disclose their floorplan assistance as a separate line item, but all dealers expect the same treatment. his region cut head count about 8 percent in the fourth quarter of 2007. As painful as it was, business conditions have worsened since. Stock up carefully on used cars. “Used cars remain available to a deal- - Some good news A couple of positive factors are taking some of the pressure off floorplanning, even though new-vehicle demand is soft. Paul Taylor, chief economist for the National Automobile Dealers Association in McLean, Va., says Federal Reserve interest-rate cuts begun last fall should make themselves felt in the second half of 2008. For the first two months this year, the average U.S. dealership has spent $179 per new vehicle retailed in floorplan expense, down from $200 in the year-ago period. For 2007, the average expense per new vehicle retailed was $167, down from $173 in 2006. Also, the factories seem to be resisting the temptation to jam dealer lots with unwanted cars, says AutoNation’s Maroone. But Collins at Group 1 warns that doesn’t mean conditions are ideal. “We’re still being asked to buy more than we would like,” he says. “March is usually a good month, but March was down significantly. A year ago, we had too much inventory in a stronger market. Today, we have a more measured inventory, but it’s in a more difficult market.” Maroone says another factor that’s different for this recession is that import brands are experiencing higher inventories, too. That includes Toyota, Honda and Nissan, he says. Nevertheless, Maroone says inventories for the domestic brands are tougher to manage because of so many models. “We are under tremendous (financial) pressure, yet you need a tremendous stock to offer what the customer needs. Very few customers customorder vehicles. “It’s a very slow retail sales environment. It’s a challenge.”c http://www.protective.com/dealerservices http://www.protective.com/dealerservices
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