Inventory Floor Planning Solutions

ARLENA SAWYERS

AUTOMOTIVE NEWS

MAY 4, 2009 – 12:01 AM ET

Last November, Bob Cockerham closed his Suzuki dealership in Rio Rancho, N.M. Its new-vehicle sales had plunged 60 percent from the previous year.

In January, Wells Fargo Auto Finance, the floorplan lender for Cockerham’s Car World Kia dealership in Santa Fe, N.M., told him it was canceling his loan agreement. The bank said the dealership was losing too much money.

Things looked bleak. Then, in February, David Swanson rode to Cockerham’s rescue.

Swanson operates Save Your Car Dealership, a Seattle company specializing in crisis management for dealerships on the brink of losing their inventory financing. Swanson, a former dealer, reviewed the financials at Cockerham’s Kia store and went to work.

Under Swanson’s guidance, Cockerham slashed his advertising budget by about 70 percent, to $14,000 a month. By changing vendors, Cockerham cut his data processing costs in half, to $7,750 a month, and his telephone expenses by more than 40 percent, to $4,100 a month. He switched his sales managers, who previously earned a salary along with commission, to straight commission.

None of Swanson’s advice was rocket science, Cockerham concedes. He said he knew he needed to make deep cuts to survive, but could not bring himself to do it.

Survival manual

David Swanson, founder of Save Your Car Dealership, says dealers must take these steps to cope with a down market.

• Streamline spending
• Focus on used-vehicle sales
• Monitor financial statements for errors
• Communicate closely with lenders
• Follow through on tough changes

‘Terrifying experience’

“It’s a pretty terrifying experience,” Cockerham told Automotive News. “David takes the emotion out of it. He calmly comes in and says, ‘Here’s what we’re going to do.’ ”

Swanson said Wells Fargo is reviewing the dealership’s streamlined budget. Added Cockerham: “We’re close to putting another deal together. David’s done a great job of convincing them of our long-term viability.”

Swanson, 51, said his four-year-old company now works with about 35 dealerships. He said he has gotten lenders to restore floorplanning for about 60 percent of the 120 clients he has represented.

Often, Swanson said, his biggest challenge is persuading dealers that they need to change with a changing market. Lenders care about a dealership’s cash flow, capitalization, liquidity and liabilities, he said – not a dealer’s wishful thinking.

“Lenders don’t want to hear about a plan to sell more cars,” Swanson said. “The economy isn’t going to get better in the near future. I tell my dealers to cut costs to match the lousy economy. Lenders want to see blood on the floor.”

Swanson said he typically works with dealerships for six to eight months to ensure they follow through on the changes he advocates.

He charges $15,000 to $35,000 for his services, depending on the size of the dealership and the number of dealerships involved in a single restructuring. He says half of the fee is paid upfront. The rest is paid if he is successful in restoring floorplan financing.

If financing isn’t restored, dealers don’t pay the rest of the fee.

Leonard Wantz said he hired Swanson last fall when his Chevrolet dealership in Taneytown, Md., faced disaster. Floor traffic had dried up, as had the retail financing provided by a local bank. The dealership’s inventory lender, which Wantz declined to identify, threatened to cut off financing.

Slashing jobs, ad budget

Wantz and Swanson slashed the dealership’s head count by almost 40 percent, to 27 workers. They cut ad spending almost 60 percent, to about $5,000 a month. With those and other reductions in place, Wantz said, his floorplan lender agreed to maintain his credit line.

“After 44 years in business, I thought it was coming to an end,” Wantz said. “But when David got involved, he painted a whole different picture.”

Swanson said his clients benefit from his own mistakes as a dealer. From 1991 to 2002, he owned two Nissan dealerships, a Hyundai dealership and a Subaru dealership, all in the Seattle area.

Swanson said he bought too many stores, expanded too rapidly and soon became overextended. He invested some of the dealerships’ cash in tech stocks. When the tech bubble burst, he said, his working capital was “decimated.”

Said Swanson: “I was young and stupid.”

Source: Automotive News