Here, the bgr CPAs auto dealership industry experts discuss some of the key takeaways related to the state of the industry, and provide guidance for business owners.
This year, the automobile industry experts at Berman Goldman & Ribakow were excited to have the opportunity to attend the 2017 AICPA Auto Dealership Conference for the 12th year. As all professional service providers understand, continued education in our individual specialties and industries is essential to our ability to serve our clients. We are grateful to the many wonderful panelists and speakers who provided valuable takeaways at this year’s conference.
Special recognition goes to John Murphy of Bank of America who presented the “State of the Industry” seminar, a brilliant insight into the automotive industry. Mr. Murphy provided an analysis of future projections that covered several topics, such as production, manufacturing, cost, sales and trends to watch, among others. Throughout, Murphy stressed the importance for constant monitoring and planning in this industry.
One of the key takeaways from this seminar was the projection of car sales over the next few years. Murphy suggested that there could be a 20% -25% downturn of car sales by the end of 2021. This is would mean a reduction to only 13 million cars sold per year. He attributes this estimation to the significant volume of leased vehicles released from contract by that time. However, he also reiterates that this is a “regular downturn” that will be offset by an uptick in sales related to parts and services. Mr. Murphy further stressed that the industry is far better equipped to deal with this downturn than it was in 2008, when the conditions of the economy resonated across all manufacturing and sales industries.
The automation of vehicles has been discussed with some vigor over the last few years, and was again at the 2017 conference. Though this year specifically, it is clear that advances in technology have made this once farfetched dream a close reality. In terms of investing, the opportunity is still viewed as a long-term payout for the large amount of capital drawn, and the fear that companies in Silicon Valley will usurp the traditional auto manufacturers is unrealistic. One must consider that companies such as Ford, GM and Chrysler are far better equipped to mass produce automated cars than any tech firm, and as such, a partnership between a tech firm and a large manufacturer is more likely on the horizon.
An Evolving Industry Landscape
Like the technological developments within the industry, Mr. Murphy acknowledged that the dealership landscape has changed in recent years, and will continue to do so. Buying habits and trends have led to a larger share of a dealerships’ consumer base being millennial women. This demographic now accounts for more than 50% of buyers within the industry. Enabling this trend is the use of technology throughout the buying process, which has allowed millennial women, among other consumers, to navigate the buying and due diligence process with ease. Auto dealerships are encouraged to take advantage of this trend to fully profit from this demographic. One way to do so is to hire employees within this emerging consumer demographic–millennial women. Although dealerships have, in the past, been a male dominated industry, the value of a strong female representation should be seen as a clear opportunity to add another dimension to your sales team. Their unique views and insights will prove to be invaluable as the landscape continues to change.
While the definition of your ideal sales candidate might be evolving, the importance of considering best practices in the hiring process remain. Recruiting and retaining quality employees is critical to the overall well-being of dealership operations and growth. While hard-working and dedicated employees remain the lifeblood of every company, it is now more important than ever before to keep in mind what drives this new generation of professionals. Studies suggest that the millennial workforce expects more from their employers in terms of challenge and return on investment—so, is important for employers to remain connected with what motivates their millennial employees, and how to capitalize on those motivation to for the success of the business.
An unsurprising trend mentioned in the seminar was that dealership owners are, on average, coming of retirement or close-to retirement age. Being so, succession planning and valuations are becoming essential to the security of businesses within the industry. Without proper succession planning, a dealer could leave behind a legacy of management turmoil, probate litigation and financial unrest. Ensuring the operations and viability of a dealership’s future depends on considerate succession and financial planning, as manufacturers will assess this factor when considering their continued partnership with the business.
It is no secret that auto dealerships are prone to fraud. Their business models are built around both high product volume and high cash flows. They also operate in very isolated environments, where there are many internal control limitations.
In an ideal world every dealership would be compliant. Yet, unfortunately, compliance continues to remain a challenge for many within the industry. According to Ethos Group Compliance Solutions, LLC, the majority of dealerships are non-compliant. There is a genuine need for a compliance process within the industry and individual dealerships, and ongoing oversight of this process, as the benefits vastly exceed the costs. Dealerships should consider employing a compliance oversight manager, who can provide management personnel with assurance that the business is up to date with the latest regulations and trends. They can also deliver peace of mind that employees have been trained on and understand your policies, enabling managers to focus on sales processes and dealership operations.
Dealerships with an accounting department or an affiliation with an accounting firm are far better positioned for success than dealerships without one. Implementing accounting processes internally will help to cut expenses. However, consulting with an accounting firm can provide a dealership with numerous advantages. Accounting firms employ professionals who are not only experts in general accounting best practices, but specialists in financial strategy and industry trends. This partnership can add real value to a dealership by providing accurate and in-depth data forecasts, data-driven goals and growth-oriented solutions.
Partner with an Automobile Dealership Industry Expert
Automobile dealerships combine the complex processes of various automotive industries into one dynamic business. These processes must run concurrently to provide consumers with a service that is superior to that of other competitors within a saturated industry. The automotive professionals at bgr CPAs understand the various challenges that face dealers today, and continually work with owners to create financial, operational and broad-scale business solutions that align with the goals of their company.
For additional thoughts and insights as it relates to the auto dealership industry, please contact the experienced professionals at bgr CPAs today.