Cash is King
Posted September 6, 2011 by adminCash has always been king, but in todays market when getting a line of credit from your local banker is more difficult than climbing Mt. Everest barefooted in a Speedo, attention to detail is paramount.
In this – the new evolving economy, astute dealers are closely monitoring cash sucking components such as payroll, used unit inventory, parts and accessories stocking levels, returns to vendors, repair orders complete not cashiered as well as accounts receivable such as retail holdback, contracts in transit, co-op, and warranty.
Speaking of warranty, this can be a tricky receivable to manage for several reasons. Number one, submitting a warranty claim is an administrative function, and by nature most rough and tough service managers would rather work into the wee hours of the night tearing down a 1972 CB 750 to the frame as they had do paperwork. It’s human nature to gravitate towards the things we enjoy and have an aversion to the things we had rather not do. And it’s this natural lack of appetite for paperwork that can create the perfect warranty related cash flow storm (in a hurry) if Mr. Dealer Principal isn’t on his toes. And even though it’s possible to hire a warranty clerk to do the admin work, if the Service Manager doesn’t properly understand, follow, and support the warranty process the clerk will be set up to fail.
Number two, in most cases you can’t totally rely on your standard Accounts Receivable report to accurately quantify if your warranties are all getting submitted and paid. Why? Because a warranty receivable only shows up on this report if they have been closed or cashiered in your DMS. In other words, it only shows up if your Service Manager wants it to show up. One of the scary habits of many Service Managers is to allow the customer to pick up and leave the Dealership with their unit and have no urgency to completing and closing the Repair Order in the DMS. “What’s the harm, its warranty pay and why should the customer be held up while I do paperwork?” is the mindset that leads to this future catastrophic disaster. While these are good intentions made with fairly sound judgment, once the unit is gone, it’s out of sight and the follow through of dotting I’s and crossing T’s required is out of mind. This is one of the many reasons I highly recommend a monthly physical inventory in your Service department where you compare actual units on hand to actual open R.O.’s in the system.
Unfortunately, many slacker Service Managers have an entire play book on how to camouflage un-paid warranties and their own lack of performance. I’ve also observed the warranty receivables report showing a large sum of outstanding claims as current only to find out after 30 days that although they were closed and cashiered in the DMS they were never submitted to the OEM. By the time the report exploits the error and an investigation is launched it’s often then too late to submit the warranties. Tech has been paid, parts have been paid for, shop supplies have been paid for, and Mr. Dealer Principal eats it. Ouch!
Then there is perhaps the most painful warranty related snafu of all. This is when you receive the warranty credits from the OEM that give you that warm and fuzzy feeling. Subsequently, the next month you’re reviewing your statement only to discover you’ve been charged back because the OEM called for the parts on the Repair Order to be sent back for inspection. However, because they were not properly tagged and stored, now they can’t be located and therefore are never sent back. Just because the OEM giviths, doesn’t mean she can’t taketh away. Double Ouch!
Perhaps this Double Ouch is so vivid to me because I once had a Service Manager cost me over $15,000 in charge backs. I never saw it coming, hence the title of my article series “ Lessons Learned”. ( I’m pretty consistent with learning things the hard way) It was back in 97 and a particular OEM was having a warranty recall on the entire engine short block assembly. It was a popular model, and as you can imagine customers weren’t happy about having the engine on their brand new unit replaced. Tech’s weren’t happy about doing the work either because they didn’t feel the allocated time to perform the work was realistic. I was caught in the cross fire trying to insure the customers were taken care of, the techs and customers whining wasn’t going to run off my Service Manager, (cuz I knew I didn’t want his job) and insure the high dollar claims were being accurately submitted. Good news is we were dotting I’s and crossing T’s while submitting claims, bad news was the old engine cores were being internally swiped and we didn’t catch unit the OEM called for the parts.
Unfortunately (or fortunately) we often learn more from our failures than our successes, as this was the case with this warranty related cash flow nightmare. It really stuck to my ribs. However, the much less expensive way is to learn from others mistakes. So here you go…this ones on me.
