• Adrian Martinez

Go Big and Go Home

Updated: Apr 14

By Phil Villegas


It seemed that for the past few weeks every day presented a new level of anxiety and doubt about what the future may hold with regard to this virus. The Coronavirus has most of the country staying at home through the month of April, and now that we’re in the thick of it, a great deal of the anxiety and doubt of what’s in store is lifted and it’s just a matter now of riding it out.

How we spend the next month or two during this time of social distancing will say a lot about us in the years to come, both as individuals and as dealers. Some will squander this opportunity and sit on the couch watching Netflix and eating Cheetos all day, while others will see this as a gift to improve their skills and prepare for the future.

Let’s look at the bright side of what is otherwise an unpleasant situation for everyone:

· PPP – Paychecks Protection Program: Payroll, employee benefits, utilities, and rent essentially covered for 8 weeks as long as you comply within the guidelines of the program. For many dealerships deemed as small businesses, Uncle Sam is covering the core of bills for two months while we collectively get to the other side of this pandemic. In this time, dealers can pragmatically assess their personnel and operational needs in tooling for the changing retail environment which is likely going to follow.

· On-line/Virtual Retailing: Whether its sales or service, I have witnessed dealers make leaps and bounds in their approach to conducting transactions remotely with customers. While it’s unfortunate we needed an inflection point such as the Coronavirus for dealers to embrace true virtual retailing, I firmly believe this change has trigged a movement amongst dealers and customers that will help curb the tide of influence coming from brands like Tesla and Carvana, which have been eroding sales of traditional dealers.

· Low Interest Rates: Low interest rates are sure to stick around for the remainder of the year and possibly the next. Prior to the Coronavirus crisis, one of the more prevalent dealership acquisition concerns related to increasing interest rates. Now consumers, just as much as dealers, will have the benefits of lower borrowing costs towards the purchase of a new vehicle or a new dealership.

· Lower Dealership Valuations: For dealers considering expansion through acquisitions, the time will be ripe in a few months as we anticipate earning and blue-sky multiples to drop based on the adjusted market environment. While we anticipate many dealers that were previously considering selling will try to hold off until 2021 to allow business to recover, the reality is that prior to this crisis many dealers were already facing profitability headwinds, and their ability to sustain business levels beyond the PPP and other government subsidies paired with low sales performance will be difficult. We expect to see an increased level of distress sales that will present great expansion opportunities.

While it would be great to just take a nap and wake up sometime in June, the reality is we still have a while to go before we get out of this and resume to what might be considered a normal environment. For dealers, I see the next two months with the help of the PPP as a truly remarkable opportunity to position the dealership for the future. This philosophy applied to improving all facets of its operations, from how vehicles are sold and serviced remotely, to looking at total headcount and pay plans. Never in the history of the car business have dealers been provided this kind of opportunity to retool and refocus their operations to better business platform than they have today. Don’t squander this unique opportunity to reshape your dealership for the future.

SIGN UP FOR THE WEEKLY SPIFF

  • Facebook
  • IN

© 2020 AXIOM ADVISORS