Dear Valued Provider,

As we enter the new year, we would like to take this opportunity to thank you for the goods and/or services that you provide to our business. During the course of any given month, it takes well over one hundred different businesses working in unison to provide our customers with what we consider to be a world class buying and ownership experience.

Every year, in an effort to remain competitive, we are forced to examine and adjust margins and pricing. Given the current economic climate and rather than simply press those increases downward to our customers, we must ask our goods and services providers to shoulder some of that burden.

Rather than go though the arduous and time consuming task of re-bidding each of our goods and services, I would ask that each of our current providers make a unilateral reduction in their pricing of 10%. With the understanding that each of our providers operates under a unique business model any concession in pricing will be greatly appreciated.

Please respond, in writing, to the request within the next 30 business days. In your response, please indicate one of the following:

If you are willing to provide the requested 10% reduction,
If you are willing to provide any reduction and be included in a closed bid,
If you are not willing, or able, to provide any reduction.

Please immediately reflect the reduction (10% or your designated percentage) on your next invoice.

The Digital Dealer Conference, which took place November 1-3, covered the latest strategies needed for Dealers, General Managers and Sales Managers to compete and succeed in today’s increasingly competitive retail environment. The schedule included a full roster of expert speakers relating to advanced selling and marketing strategies for automotive managers in today’s technology driven world.

I attended as many sessions as I could and learned something new every hour. The first session of the conference was an “Internet 101” course of sorts and was well done. The more advanced sessions were equally well done (if not more challenging to those of us who do not fully comprehend such things). However, the sessions relating to the utilization of video and entering the mysterious world of social media were particularly informative and useful for dealership staff. For a dealer who attended these sessions and applies what he/she learned, the impact on the bottom line could be huge.  The presenters did a wonderful job of not selling their own products and focusing their discussions on the challenges that the dealers are facing in today’s retail automotive market.

The event also provided time for participants to form small discussion groups and to learn from one another. Mike Roscoe and the team at Dealer magazine should be commended, and I encourage any dealer to attend the next conference in the spring of 2010.

State and local sales taxes paid on up to $49,500 of the purchase price of qualifying vehicles are deductible. (If your state does not assess sales tax on vehicle sales, a customer is permitted to deduct vehicle excise taxes.)

Qualified motor vehicles generally include new (not used) cars, light trucks, motor homes and motorcycles.

Some other rules are:

• Purchases must occur after Feb. 16, 2009, and before Jan. 1, 2010.
• This deduction can be taken regardless of whether or not the customer itemizes other deductions on their tax return.
• The amount of the deduction is phased out for customers whose modified adjusted gross income is between $125,000 and $135,000 for individual filers and between $250,000 and $260,000 for joint filers.

We suggest that dealership employees use this information as a closing tool in the closing months of 2009. We also suggest that dealers communicate with their qualifying customers to alert them of this opportunity…the customer goodwill could be significant.

1. Money Down on first pencil. More money down equates to increased profits.
2. No Discounts on the lot. Our price is a fair price…sell the value of the vehicle.
3. Use the 4 square to focus the customer. Generally, this will be on the payment.
4. Push for more gross…regardless of the current gross.
5. T.O. to a manager earlier and every time. The sales manager can close deals for you and increase your paycheck.
6. Don’t believe the customer regarding payment requirements, money down, etc. Most customers have “held back” on how much the can put down, finance and/or budget on a monthly basis.
7. “If we can agree on the terms, would you take the vehicle today?” – this is a worn out phrase and should not be used; however, you need to ascertain the answer to this question.
8. Provide an opportunity for product sales…including ProPack, Simonize, etc.
9. Lengthen terms to arrive at the desired customer payment.
10. Cost is irrelevant to making a deal with the customer.

Of course, even if a dealer does all of these things, there is no guarantee that he/she will be on easy street. However, when looking at all of the new technology and the new generation of customers, don’t overlook some of these basic steps to improving gross.

I was particularly impressed with some of the insights of Will Ander (a short excerpt of Will’s bio is included below). I have already begun reading “Winning at Retail” and am finding it very useful. Will is certainly dialed in to the demands of the current customer, and he offered advice during our discussions on how dealers can address these demands. 

One of Will’s points of emphasis was that of “timeliness.” He not only believes (supported by the data and survey results that he quoted) that customers are looking for ways to save time in their hectic schedules (and are willing to pay a premium to those companies that accommodate this demand), but also customers are looking to conduct business with dealerships who make their services available when the time best fits the customer’s schedule. In essence, a dealer needs to get the job done as quickly as possible when the customer wants the job done.

This really brings into question the practices employed by some dealership sales departments of closing early on certain days (or every day) and of not having extended or weekend service hours. 

Have you found Will’s insights to be true?  And how are you making attempts to satisfy these customer demands?

I recommend that you locate a copy of “Winning at Retail” or “Greentailing” and start learning more about customer demands and habits in order for you and your dealership to succeed in the months and years to come.

Will Ander is a Senior Partner at McMillanDoolittle, a Chicago-based retail consulting firm. Will focuses on strategic planning, new concept development and assessment and best practices identification and evaluation. Key clients during his 20 years at McMillan|Doolittle include: Saturn, Sears, BP/Amoco, McDonald’s, Cabela’s, Radio Shack, Best Buy, Harris Teeter, ARAMARK, Publix, Procter & Gamble, Eddie Bauer, La Z Boy, T-Mobile, DuPont and Harley-Davidson. Prior to joining McMillan|Doolittle, Will held numerous management and executive positions at Montgomery Ward and Foley’s Department stores in business development, research and planning, distribution and store operations. Will is a co-author of “Winning at Retail” (published in 2004), and “Greentailing and Other Revolutions in Retailing” @2008), both published by John Wiley. Will is a graduate of and former National Science Fellow at Stanford University.

In something of a surprise move, NHTSA has developed a means for dealers to seek administrative relief in order to be paid under the CARS program. In order to submit a claim, a dealer must:

1. Provide a written description of the circumstances that prevented the dealer from submitting the claim.
2. Submit evidence showing that the circumstances were created by NHTSA.
   According to NHTSA, “Such evidence may include copies of correspondence, such as electronic mail, documenting that the dealer contacted the agency regarding issues with its application. The dealer must also present proof that the qualifying deal was made on or after July 1, 2009, but no later than August 25, 2009, 8 p.m. EDT, by submitting paper copies of all completed and signed supporting documents and certifications required.”
3. Mail your claim request and evidence no later than October 13, 2009.

For more details, visit the CARS website or click here.

NHTSA has established a process to refund the government for CARS funded deals that should not have been paid to a dealer. In essence, if you have been funded for a deal to which you are entitled no CARS funds, you need to send a check to the address below. 

Although the instructions from NHTSA do not state that you need to reference the specific deal, we suggest that you include a copy of the original NHTSA Sale Summary and mark on the face of the document that it is void and reference the check number with which you are reimbursing the government. The Information below is where the payment should be mailed.

Mail check payment to the following address for Paper Check Conversion (PCC) processing:

Regular Mail
DOT/NHTSA/CARS 
c/o ESC, AMZ-300  
PO BOX 268911      
OKLAHOMA CITY, OK 73125     

Overnight Mail
DOT/NHTSA/CARS
c/o ESC, AMZ-300
6500 S. MACARTHUR BLVD
HQS BLDG RM 181
OKLAHOMA CITY, OK 73169

Notice to Customers Making Payment by Check
When you provide a check as payment, you authorize NHTSA either to use information from your check to make a one-time electronic fund transfer from your account or to process the payment as a check transaction.

When NHTSA uses information from your check to make an electronic fund transfer, funds may be withdrawn from your account as soon as the same day NHTSA receives your payment, and you will not receive your check back from your financial institution.

Dealership RPMs (Roundtable Professionals Meetings) are the place to gather with other dealership professionals and discuss the opportunities and challenges of our industry. Come to learn new tips and techniques to handle your challenges, share your area of expertise and meet your peers.
 
Rex Collins of Somerset’s Dealership Team will host the meetings in our conference center. More details and registration.

One option some dealers may take to mitigate this additional tax is to order more inventory in an attempt to have a year-end inventory level that exceeds their December 2008 level. If this is your plan, please remember that title to this inventory must have transferred to you before December 31st in order to prevent the LIFO recapture. There are a few other pitfalls you must consider if you are taking this approach with your new vehicle inventory:

• You have probably been managing your inventory levels based upon market demands, and ordering excess inventory will likely send a mixed and confusing message to your managers.
• We know from experience that carrying excess inventory results in higher operating costs such as:
  - Spiffs
  - Interest
  - Insurance
  - Advertising
• We also know from past experience that vehicle grosses significantly erode when excess inventory is carried.

We have seen, time and time again, a dealer take on extra inventory to avoid paying income tax relative to LIFO recapture only to give it back in the form of additional costs and reduced grosses.

Another option for dealers to take is to look at LIFO from a long-term perspective and to not manage LIFO during any one year. In practice a dealer will just let the LIFO impact happen and manage inventory based solely upon his stocking guidelines. In essence, a dealer taking this approach will not let the “tax tail wag the business dog.”

A better answer in today’s business environment is probably a blend of the two approaches. Somerset’s recommendation is to:

1. Perform LIFO and tax projections based upon different anticipated inventory levels.
2. Calculate the costs associated with carrying extra inventory at each of these levels (see bullets above).
3. Compute the reduced gross profit resulting from carrying too much inventory (see bullets above).
4. Finally, compare the LIFO savings projected in step #1 with the extra costs and reduced grosses calculated in steps #2 and #3.  Then make a decision and move forward with running your dealership in these difficult times.

Please let us know if we can help.

Some of the items a dealer should address are:

• Meet with an attorney and CPA familiar with dealerships and dealership closures. This is not the time to trust a novice in the area.
• Assemble copies of all agreements the dealership has signed. These may include:
  - Contracts and leases
  - Indirect lending agreements (you may be surprised to find these agreements frequently
     contain personal guarantees and other barbs)
  - DMS agreements (both the hardware lease and the monthly support agreement)
  - Uniform contracts
  - Agreements relating to website maintenance
  - Parts equipment leases (e.g., parts washer, paint booth, etc.)
  - Agreement with paint mixing company or oil supply company (often there are secured loans
     associated with this equipment, as well as minimum purchase provisions)
  - Copier lease and maintenance agreement
  - Trash hauling (dumpster) agreement
• Identify all related party receivable/payable amounts.
• Is the dealership on LIFO or are there other tax concerns?
• Will your DMS vendor permit you to comply with GM’s requirement to transfer customer data (if you are a wind-down dealer).
• Review all of your monthly payables to ensure that you have identified all potential ongoing obligations.
• Comply with all year-end payroll, 1099 and sales tax reporting requirements.
• Comply with all COBRA and other employee benefit regulations.
• Assemble all titles and MSOs so that you can efficiently transfer all buy-back units to the manufacturer.
• Develop a plan for collecting and tracking outstanding accounts receivables.
• Plan for eliminating all parts and other inventories that will not be returned to the factory.
• Plan for and understand that payments due to the dealership under the terms of the dealer payment statement will likely be held for 6 months.
• Remove factory signage.

This is just a small sample of the numerous items that must be addressed when going through this process. 

Finally, many dealers have benefited by sending notifications to all their vendors indicating that the dealership is closing and that it is likely that all funds will go to satisfy secured creditors.