Does your Dealership have a One-Way Policy with Deferring Losses?
By Phil Villegas
When was the last time your General Manager wanted to spread a large gain over a few months or to pick it up during the 13th month entries? Chances are you have never heard these words spoken and likely never will. However, most of us have encountered the situation of a General Manager or Departmental Manager wanting to spread or defer a loss over several months.
Whether the loss is a large shortage in a parts inventory, a legal settlement, an uncollectible wholesale receivable, a warranty audit chargeback, there are multiple reasons which are often presented with an attempt to justify spreading or deferring a loss. Reasons like wanting to avoid showing a large dip in profitability or to “smooth” the financials, and in some cases wanting to label the item as truly extraordinary and run it through as a 13th month item to essentially completely avoid the financial statement. In the end, irrespective of the reasons, one of the primary motivators is pay plan driven, since the impact of these charges can have an immediate impact on the compensation of any individual participating in the expense.
The practice of spreading of extraordinary events might be acceptable provided managers participate in the losses in accordance with their pay plan and losses are captured in the appropriate period. What we do take exception to is the seemingly one-way policy of only treating expense and losses in this fashion, but not providing the same consideration to atypical gains that sometimes occur at a dealership. In the end, if any type of loss is deferred, the same should be occurring with large gains, if not, then this is just another form of pay-plan manipulation.