Cash Flow Optimization for Auto Dealerships During COVID-19 Crisis
May 18, 2020
In the short time the coronavirus has impacted the global economy, cash has become the coveted asset in troubled times.
Dealers should immediately develop a plan for cash conservation as part of their overall business risk and continuity plan. If you are a typical dealer, you probably check your cash balance daily. Robust cash management buys valuable breathing space. The dealer must take a hard look and find ways to operate lean, save cash and make cash last longer.
Consider These Ideas to Maximize Cash Flow During the COVID-19 Outbreak:
- Review your expenses and look for areas where you can save money. As you continue to monitor and strategize, stay focused on identifying additional ways to reduce your cost structure and breakeven point. Take a hard look at which bills need to be paid (and when) and which ones can be deferred, reduced or paid in installments.
- Reach out to OEMs and floor plan lenders and see if they will suspend curtailment payments on aged inventory. Some floor plan lenders are deferring interest payments. Consider taking advantage of the ability to defer this large liability.
- Some dealerships may be in an equity position with their inventory and can maximize the utilization of cash by floor planning all new vehicles and allowable used vehicles.
- Apply for an increase of the reimbursement rate for parts and/or labor paid under warranty. With business slowing down many service departments have the time to print repair orders and make this submission without too much disruption during peak hours.
- Wholesale aged used vehicles and those vehicles that will not be retailed.
- Work with lenders and ask for forbearance or payment plans for outstanding loan balances.
- Discuss options with your manufacturer to loosen restrictions on parts and core returns.
- Increase your cash position by reviewing receivables. Work to minimize balances in contracts in transit, accounts receivable, incentive receivables, finance and insurance receivables, and warranty claim receivables. These balances should be reviewed regularly to expedite collection.
The Bottom Line:
There will be tough times ahead for dealers across the county. Taking steps now will better position your dealership’s starting point once this global threat stabilizes. While it’s hard to predict what the immediate future will bring, dealers who plan strategically and take action now will have a better chance of reducing financial setbacks.