Cover Your Assets

Scott Dreisbach
Vice President Client Services
Valuinsight
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Thursday, February 26, 2009

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Recently, I have detected renewed optimism, and the momentum seems to be slow, but steady. Most of us have restructured the expense side of the business. Unfortunately, I have seen many stores try to save (through expenses) themselves into a profit. This is a slippery slope and if expense restructuring isn’t thought through very carefully, many of the wrong things can be put on the chopping block. One of the biggest mistakes is cutting items that in the short run might seem like the right things to cut, when in reality those cuts hurt the store’s ability to generate sales and produce gross in the long run.
Most financial statements have some methodology as to how they are organized. Assets are generally listed in order of “cashability,” and liabilities are generally listed in order of “payability.” In the expense section of your financial statement, the expenses are generally listed in order of “controllability.” A good rule of thumb to keep in mind when restructuring your business is to work first on those items that are listed higher in order of cashability, payability or controllability.
Besides cash in the bank, your most liquid assets (hopefully) are your vehicle inventories. Rather than spending more time restructuring the expense side of the business, many good operators are restructuring their assets (inventory) to produce greater turnover. How do you do that? The process is really quite simple. Stock a greater percentage of faster moving inventory, and reduce slow moving inventory. This sounds simplistic and we all want to do this. You cannot do it with emotion, you cannot do it with gut feel, and you cannot do it without a sound system and process that all management believes in, understands and most importantly, implements on a daily basis. The real question is how do I increase my rate of turnover? The short answer is knowledge, information and implementation. One of the buzzword phrases of the ‘80s was, “Knowledge is power.” In the ‘90s, it changed to, “Information is power.” In the new millennium, the reality is with all the knowledge and information in the world, true power is only accomplished with implementation. Without specific systems, processes and feedback coupled with accountability, true implementation simply cannot happen. Have you ever wondered how one of your competitors always seems to be able to deliver more vehicles than you? Or how someone in your 20 group was continuously selling one to one (or more) used to new? Or how they grossed more per unit than you? Or how they were able to experience little or no “wholesale pain”? It’s all about the turn. We all know that the quicker turners gross more. That goes for both the new vehicle department as well as the used. This is no secret. And believe it or not, the turn is all about your inventory. One of the secrets of success of the world’s largest retailer – Wal-Mart – is precise inventory management. Each location knows, without any doubt, the speed of the turn of over 15,000 individual items. They know how many they have on the shelf, how many they have in the pipeline, if the rate of turn is increasing or decreasing, their return on investment, how price effects shelf movement and many more key indicators that relate to increasing sales with a more effective inventory. If it works well, they get more; if it doesn’t, they cut back. They do pay attention to regional trends, but I can assure you that different stores in different locations in the same market area have vastly different inventories. A good example is Northside Chicago versus Southside Chicago. Each store is in the same regional market, has completely different demographics and has completely different inventories. Focus on your store, your location, your traffic and your demographics first. There are a number of good systems out there for today’s new and used vehicle inventories. The important thing for you to consider is whether or not you are really satisfied with the way your operation analyzes your sales and corresponding inventories and what your people do once they know the facts. Do you have a specific system and process that you use on a daily basis to make inventory decisions? Do you rely upon that system to make inventory decisions, or is “gut feel” being used at your store? Suffice it to say, there are additional profits available to those who take inventory management seriously. Do yourself a favor and learn about what you can do to improve your bottom line and cover your assets. Exclusively Online Feb 2009

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