Action for the Cash-Strapped Dealership - On the Numbers
Construction Equipment Distribution magazine is published by the Associated Equipment Distributors, a nonprofit trade association founded in 1919, whose membership is primarily comprised of the leading equipment dealerships and rental companies in the U.S. and Canada. AED membership also includes equipment manufacturers and industry-service firms. CED magazine has been published continuously since 1920. Associated Equipment Distributors
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Action for the Cash-Strapped Dealership

By Garry Bartecki

Article Date: 04-01-2009
Copyright(C) 2009 Associated Equipment Distributors. All Rights Reserved.


Until markets improve, it's time to find more ways to cut.

Where do we go from here? Good question. Those of you with some suggestions please call me. I can use all the input I can get. All I know for sure is that a majority of members are not sleeping well these days.

Let’s review the “good news” first. Believe me, there is some.

  • Interest rates are unbelievable! Dealers have to do everything in their power to refinance their loans at current rates. They also have to source out market rates for their customers, including lending terms now required to buy or lease units. This information is available from your vendor or dealer network. Check out AED’s list of finance companies for financing sources in your AED membership directory. 
  • The new stimulus bill provides relief as well as potential cash flow. The 2008 Bonus Depreciation package is extended through 2009. The same goes for the Sec 179 package. It is time to review these programs with the sales staff. AED provides a template to work through these benefits at www.depreciationbonus.org.  For companies with revenues of $15 million or less, NOLs can be carried back five years. Keep this is mind when talking to contractors. In addition, AMT carryforwards can be monetized, which could add up to quite a few dollars for some dealers. Using Like-Kind Exchange can also be beneficial for both the dealer and contractor. If your sales staff is not up to speed on all these issues you could be losing sales.
  • Sales are down, but there is still work available if the contractors are competitive in the bidding process and are prepared to properly manage the project once you get the work. You can add to a contractor’s ability to get a project by helping provide equipment when it is needed and by providing maintenance to improve equipment uptime. Helping contractors manage their fleet, sell off underutilized equipment while providing efficient, timely field service will build a strong partnership with that customer. 
  • The Federal Stimulus money looks like it will hit the infrastructure market soon. Dealers who support road building, bridge work, and other governmental projects should benefit from this new work. Housing and commercial work still looks to be soft until 2010 or later. And it looks like start-up homes will be the place to be in the housing market. Of course, this all depends on all parties involved getting the financing they need.
 

Now the not-so-good stuff.

Cash is tight without any relief in sight. Time to cut all nonessential costs. Time to refinance if you can to take advantage of lower rates. Time to cut staff or hours worked. Time to ask for discounts. Time to stop wasting resources on customers who don’t pay. Time to really understand your absorption percentage. Time to work every deal. Time to return what you can to your vendors. Time to plan and apply for tax refunds.

There is no doubt the financial markets are a mess. Dealers need to meet with their financial sources to review the lay of the land and find out where they stand and what options are available to finance the operations and supply customer credit for units sold. The same is required of captive financing sources. If you don’t understand the program standards you can’t sell the program. At the same time, dealers who are operating at a high level need to explore refinancing options because the savings are pretty good, to say the least.

Dealers and owners who are doubting they have a future in this business need to plan accordingly. First, see if you can sell the business. Whether you can or not, an attorney familiar with dealer/franchise laws needs to be consulted to determine the risks associated with selling or closing the location. Bankruptcy law also has to be explored. Of course, working with your vendors is a must to manage the process and to support any sales efforts available.

Time is not on our side. Depending on where you are located and what market you serve it could be a long haul before the equipment markets stabilize. In many ways, the market is similar to what it was 10 to 12 years ago. That being the case, would it not be prudent to compare your current personnel head count to what it was back then? If anything, dealers should be able to support more work with fewer people because of technological advances. In short, it would pay to compare head counts and “unit” counts per person to see where you stand now compared to then. If the ratios are out of sync it is time to find out why and adjust as necessary.

In the end, I believe there is cash available to finance the business, tax benefits available to improve cash flow, programs to implement to improve sales and cut costs and, in general, ways to keep our heads above water until the equipment markets improve.



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