Automotive Updates

Automotive Consultants, Automotive Dealership Consulting Firm, Enterprise Management Services, Mergers & Acquistions, Litigation Support

By Courtney Becton

“The Peter principle is a concept in management developed by Laurence J. Peter, which observes that people in a hierarchy tend to rise to their “level of incompetence.” In other words, an employee is promoted based on their success in previous jobs until they reach a level at which they are no longer competent, as skills in one job do not necessarily translate to another.” Wikipedia contributors. (2019, October 17). Peter principle. In Wikipedia, The Free Encyclopedia. Retrieved 16:09, November 5, 2019, from https://en.wikipedia.org/w/index.php?title=Peter_principle&oldid=921730712

In the automotive industry, where the turnover rate can be higher than desirable, one of the most critical functions of a dealership relies on the Controller. It is too often we see Office Managers or Controllers discharged or resign from their position due to lack of preparedness, incorrect skill set, lack of caring, or worse. Unfortunately for some, in a place of hierarchy, they may have been promoted to that position from [...]

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By Phil Villegas

More often than not we come across stores that are showing rent expense that is far below what the dealership would pay in the open market.  For the most part, this happens because the rent has not been reviewed or adjusted for many years.

However, with increasing industry and commercial property values in many areas, we recommend adjusting the rent charged to your dealerships to market.  This may actually save you money in stores where the General Manager, Controller or other personnel have a pay-plan component that is based off of the bottom line.  Having the proper rent amount also provides for a financial statement that is reflective of the current market.  We have seen dealers severely disappointed when selling their stores to find out their perceived profitability dropped because of a market rent adjustment.

An easy way to determine fair market rent is to take [...]

By Marilou Vroman, CPA, CFE

They say pay plans motivate behavior. In dealerships, this is often true but unfortunately, the behavior that is motivated could put the store at risk.  Specifically, the behavior we are referring to today is the practice of “creative discounting”.

Dealership personnel who are responsible for generating sales will typically be motivated to keep gross as high as possible since their pay is often based on a percentage of gross profit. At times, the pressure on departmental or individual performance is so great, employees may seek alternative methods to creatively discount a sale without adversely impacting gross profit and hence, their pay.

For example, a retail vehicle sale could be discounted without impacting gross by removing other amounts that are typically to be collected at the time the sale.  Sales tax is often one of the largest amounts collected, and the tax rate could either be reduced or removed from the [...]

By Phil Villegas

Our firm is in the business of internal controls, which in essence is the safeguarding our dealer’s assets.  When we evaluate the internal controls of dealerships, we are primarily looking for weakness in the system that can lead to the dealership losing some of its assets, i.e., cash/profitability.

Internal controls at a dealership are not difficult, a little bit of common sense along with utilization of the DMS’ resources go a long way in safeguarding the dealership’s assets.  Dealership internal controls are less about having a written and detailed list of operating procedures and more about having good oversight.  When we encounter breakdowns in a store’s internal controls during our testing, it’s typically not because there wasn’t a system or process in place, but rather we find the breakdown is a human one.  Individuals failing to do their job is not only the most common reason why internal controls break down, it [...]

By Marilou Vroman, CPA, CFE

As we approach the year end it’s a perfect time to clean up the books and make final adjustments to the dealership P&L and Balance Sheet.  While most of the focus traditionally is what is on the books, extra care should be taken to uncover what is not yet on the books and should be.

As part of our internal audits we typically will review reports of service work in process.  Why are these reports so important?  In a perfect world, these reports contain transactions from the service department or body shop which are not yet complete.  In other words, there is additional labor to be performed or parts to be installed to complete the repair.  Technicians are often paid for their time as accumulated on the repair order and the associated labor and parts sales, gross, and receivable are ultimately recorded when the repair order is closed.  This is [...]

By Phil Villegas

For the past 15 plus years, a fair amount of the work I’ve personally been involved with relates to dealership buy/sells of all makes and sizes.  Despite the size of the transaction, nearly all of these will have either a well-documented or loosely implied list of seller’s “Add-backs”.  Add-backs are suggested adjustments to a dealership’s reported profit, essentially as the word states, add-back to profit to arrive at the dealership’s true earnings.  The spirit of most add-backs is to account for and eliminate non-operational or unusual expenses that a new buyer would likely not have to incur going forward. 

Add-backs can cover a wide range of topics, from compensation, advertising, tax, legal, travel and entertainment, unrecorded income, data processing, etc. All these add-backs are disclosed with the end goal to recast the dealer’s financial statement, and ultimately, improve the appearance of the dealerships’  profitability to make the financial prospect of acquiring the [...]

By Marilou C. Vroman, CPA, CFE

As the weather begins to cool, the days grow shorter, and the leaves begin to change, we start to sense the nearness of another year coming to an end.  With the fourth quarter upon us, it is time to shine and bring in a strong finish to our dealerships both operationally and financially, with final push coming in the month of December, generating record sales.  While dealers both desire and expect to show strong performance at year end, it is also a time for some dealers to attempt to minimize their taxable income through appropriate tax strategies, typically recognized in the financials at year end.   As we know, dealers produce twelve monthly financials from January through December.  What on earth is a 13th month statement? For those unfamiliar with the 13th month, this [...]

By Phil Villegas

It may be a byproduct of getting older, or perhaps having less disposable time, which in turn may be the root cause of getting grumpier, but I am finding that I am having less patience with people who simply are not professionals or carry themselves as such.  I’m particularly more frustrated by the lack of professionalism and general courtesy at the highest ranks of many dealership groups with such as their general managers, controllers and at times, even the owners.

I’ve witnessed these types of disrespectful and unprofessional individuals throughout my entire career, I always chalked this up to a “different management style” or “cultural differences” within the dealership.  Over the years I never spent too much time reflecting on the individual merits of these individuals or their behavior in their stores; at least not until [...]

By Marilou Vroman, CPA, CFE

As the year comes to an end, many dealers start preparation for the annual tasks that go along with turkey with all the trimmings and holiday greetings.  One of those tasks is preparing for the annual parts physical inventory.  While not all dealers are required to, or even opt to, perform parts physical inventories, we strongly encourage the process since it provides an extra layer of internal control and helps validate the integrity of the inventory amounts on the dealership financial statement.

The parts physical compares the physical parts on hand on a given date to the perpetual inventory in the DMS and adjusts the quantities on hand accordingly.  The resulting inventory value will also be compared to the inventory balance in the general ledger and adjusted for common differences such as outstanding [...]

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