How Much Should the OEMs Help You?

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j0386501In my editor’s note for our September issue (also my previous blog posting), I wonder whether the dealer closings are slowing — or have just begun. Evidence provided by ADP Lightspeed suggests the former. But some industry insiders fear another wave of closings in the fall.

If the overall unit decline through June, as reported by the MIC, is 42 percent, then dealers in pockets of the country are suffering even more. Such large declines combined with the scarcity in commercial credit means many franchised dealers are having trouble making payroll. And they are likely falling behind in their payments to some of their largest creditors, their OEMs. (Obviously I’m excluding the minority of dealers who buy their inventory outright — more on them later.)

This brings me to my main question: How much assistance should the OEMs provide to ailing dealers?

Financial advisers often say that people should have enough savings to cover six months of living expenses. I don’t know if this applies to small businesses, but if you consider the falling-off point as last October, some dealers (many of whom are in the Sun Belt) have suffered 50-percent-plus declines for about 11 months. Most of these dealers didn’t anticipate such declines (how could they?), and many don’t have enough money to counteract them. So they’re cutting down costs in the hopes of riding out the recession.

But you can cut only so much. Consider flooring again. A dealer commenting on our website says the OEMs should provide flooring relief; otherwise, a large percentage of dealers will perish. So far, he claims, the OEMs have done nothing.

That’s one dealer viewpoint. Other dealers think the exact opposite. I’m talking now of those well-off dealers who often don’t even need flooring. The owners of two major stores in Southern California, for example, say they resent the OEMs’ efforts to keep sinking stores afloat. They ask, why shouldn’t these overly leveraged stores be allowed to go out of business? It will result in less competition for us.

But even one of these Southern California dealers praises Kawasaki for paying dealer holdbacks every two months instead of every six. So it seems even these healthy dealers appreciate some assistance. “Too much help” is debatable.

I think a great article for us would be a summary of how each OEM has changed its policies since last October. Dealers would find such a comparison among the OEMs interesting — regardless of how they stand on the assistance issue.

Here’s another complaint I’ve heard from healthy dealerships: The new volume of sales simply can’t support so many dealerships. Closings are necessary. These successful dealers may even take issue with my hoping in the previous blog that failed dealers at least find a buyer.

But how permanent is this new volume of sales? Are we on the cusp of a major rebound? Every economist and every corporation in the country is trying to answer this. And so are the OEMs. Perhaps it would cost them more money to have a bunch of stores close and then open up new points when the economy rebounds. In that case, it would be to their benefit to help ailing stores survive. But if these numbers are going to be the norm for the next few years, then perhaps we do have too many stores.

So basically I think the OEMs will do whatever they think is in their best interest, as many of them (if not all) are legally bound to do.

Have an opinion on OEM assistance, or some data to share? Please post it below. You can also e-mail me at aredwine@advanstar.com. I will respect confidentiality requests.

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One Response to “How Much Should the OEMs Help You?”

  1. michael milstaed Says:

    The rush to sign up everyone under the sun will not pay off as 2009 season slows even more. Small dealerships suffer the most because already cut to the bone simply have nothing left to cut. Cut personal and no one to do what service comes in, the only saving grace would be not holding a lot of inventory but when pushed to get as many as possible on credit was now a big mistake. the distributors still push more more more and punish those who do not buy more or stock.

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