Two, Maybe Four Quarters - On the Numbers
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SECTION: On the Numbers

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Two, Maybe Four Quarters

By Garry Bartecki

Article Date: 07-01-2009
Copyright(C) 2009 Associated Equipment Distributors. All Rights Reserved.

Predictions and cash flow strategies were streaming. And if you missed it, you'll get another crack at AED's CFO Conference in the fall.

Two to four quarters – until a significant uptick in economic activity. That was the conclusion resulting from AED’s biannual CFO Conference held May 20-21 in Chicago (Another conference is scheduled for Oct. 15-16 in Chicago and all equipment dealer CFOs are welcome to attend).

As you can imagine, the tone of the conference reflected current economic conditions. Consequently, the focus of the conference was both to educate as well as supply cash-producing ideas for the attendees to take back to their dealerships. From the comments received from the participants, I believe we were successful.

This is a tough C-level conference providing at least 13 hours of CPE credit. Ten speakers covered their areas of expertise. Attendees must remain attentive not to miss important points that could add profits and cash to income statements and balance sheets. Every hour or so a new topic is presented for participants to consider.

This year we started out with the standard tax and accounting updates, but even these topics had new twists to cover this year. We paid particular attention to converting AMT credits into cash, and also how to generate NOL carrybacks that produce refund checks.

On the accounting side we discussed more about current audit techniques than accounting itself. It seems many auditors are proposing audit adjustments to write-down dealer inventory and rental assets because of the fair-market value rules. Unfortunately, in many cases they are applying the rules improperly and causing a lot of frustration on the dealer side. One thing we decided was the dealer should be responsible for valuing the assets, and that asking the auditor to do so is asking for trouble. Our discussions suggested various ways to approach this audit issue to avoid confrontations with the auditors. When dealing with this subject, it’s very important to keep in mind that rental dollars affect the value of an asset and that an asset has to be permanently impaired.

Our investment banker team explained ways to obtain funding currently and/or how to prepare your company for a future transaction. It was also suggested that well capitalized dealers “go for the throat” now to gain market share. Whether a dealer needs a sponsor or a partner, it is good to know there are investors out there for our industry.

Market Analyst Eli Lustgarten of Longbow Securities, provided his always-inspiring thoughts about the economic cycle, interest rates, unit sales, inflation, etc. And guess what: This is where we started focusing on the two-to-four-quarter issue. Eli believes we will bottom out in the third or fourth quarter of 2009. Bottoming out, however, does not mean we will have an immediate strong rebound; rather, it will more likely be more of a slow steady return to normal. In short, count on running tight for another two to four quarters.

Author and Instructor John Walker, provided a lively absorption discussion that covered both the gross margins of parts, service and rentals, and the remaining operating costs they are compared to for the absorption calculation. He certainly got everyone thinking, especially now when every dealer is looking for additional cash flow.

That ended Day 1!

Day 2 started with a banking panel to explain what the heck is going on out there, and quite frankly it still isn’t very good. We have players in the equipment market, some doing the retail sales, but what you need to do to get credit is still far from where it needs to be. This issue is the one that is key to our recovery. It is still a mess out there with the banks being very cautious.

Insurance markets came next, both health and commercial. It seems the markets are getting tight as a result of the market losses suffered by the insurance companies. We discussed a dealer captive for health care using techniques to protect the “good” risks. This could work. On the commercial side we suggested using an advocate to help guide you through the renewal process. I know that works.

We covered the profitable use of GPS on all sales, delivery and maintenance vehicles. And last,  we reviewed an analytic program that uses the data from your system to pinpoint unprofitable customers, price increase opportunities and other meaningful data to improve bottom line results and cash flow. This I was impressed with.

Watch for details about the next CFO conference at, and in the meantime, don’t miss Executive Forum in September. I’ll be joining a panel of smart guys who are going to explain what’s happening in the credit arena – for dealers and their customers. See you there.

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