Automotive Updates

Automotive Consultants, Automotive Dealership Consulting Firm, Enterprise Management Services, Mergers & Acquistions, Litigation Support

By Phil Villegas

We’ve discussed in the past that one of the greatest benefits of working at a dealership is having the ability to buy a car that would be considered below market price.  However, should selling a car through the dealership also be a perk? We are not talking about traditional traded-in vehicles as part of a normal sale but rather the consignment or pre-trading (a car that is traded in and sold before the new vehicle is acquired) of employee vehicles.

While nowhere as common as employee purchases, we occasionally come across transactions where dealership employees will sell their personal vehicle through the store.  When we have come across these transactions, it’s very rare that these transactions have been carried out with the transparency and level of documentation we would expect with an employee or third-party transaction.

For starters, we typically see personnel from the sales department consigning their vehicles. We have yet [...]

By Sam Flores, CPA

I was at a dealership last week to get my car serviced and overheard a customer yelling that she was not pleased with her “complimentary” car wash.  Apparently, the carpets were dirty as if they hadn’t been vacuumed.  The porter explained that they must have gotten dirty as the car was brought up.  “Where are the paper mats?”, she asked.

Many dealers appear to be cutting back on simple things like the paper mats, in hopes the customers will not notice – but they do.  The problem is that the dealer is not making money on this complimentary wash.   What should be a good gesture in the name of good customer service can become a potential customer complaint.

Every dealership is faced with getting costs under control while still providing the best possible customer care.  Fortunately, there are ways for dealers to provide better service without spending a dime.  Speaking from [...]

By Marilou Vroman, CPA

In visiting multiple dealerships I’ve found varying degrees of internal control.  Some dealerships are highly intensive with strict protocols, processes and procedures where others are a bit more “relaxed” and “go with the flow.” It should be no surprise that the more relaxed dealership environments are more likely to be subject to fraud than those which are more structured.

One area we see frequent internal control weakness is in the transaction approval process.  Dealers hire managers and staff to act on their behalf and in their best interest.  Trust is implicit when hiring personnel.  That said, would you leave a blank check in the middle of the showroom floor for someone to spend freely without explanation? We see this happen every day.

For example, the used car department sends countless vehicles into the shop to have items repaired or accessories installed.  We typically expect to see a vehicle get ready form [...]

By Phil Villegas

There are multiple fashions by which individuals can take funds from a dealership.  Nearly every position within a dealership has a way of monetizing inappropriate behavior.  Most dealerships will attempt to implement safeguards in key areas of risk, particularly over cash, whether it be two signatures on all checks, segregation of duties on deposits, or review of bank reconciliations.  However, there is one area of cash controls that I commonly find does not have an adequate level of internal controls, and that is over credit card refunds.

Many dealerships allow for customer credit card refunds on nearly any terminal without any system of internal control.  We’ve seen multiple occasions where these credit card terminals have been used to embezzle funds from dealerships by individuals giving refunds on personal cards. In all cases, we found that some basic internal controls could have prevented this from occurring.

To safeguard against credit card refund abuse, [...]

By Sam Flores, CPA

Why does it seem like every month the dealership fights to get the month end closed? Have we accounted for every deal? Have all required entries been posted?  Did we forget an accrual? Did we reverse last month’s accruals? Did we review our tax liabilities? Has WIP been reconciled? What about those unusual items like LIFO estimates and tax adjustments you only deal with once a year? If that doesn’t sound like your dealership, then Congratulations to you and your team, because the challenge of meeting month end closing deadlines is in full force at most dealerships I have visited.

You know the day to day routine. Get to the office and answer emails, make phone calls and put out fires all day.  You eat at your desk while sitting in on a phone conference while trying to review and sign checks – this is the norm!!  Finding time to get [...]

By Marilou Vroman, CPA, CFE

As you start reading this Weekly Spiff you might expect the standard discussion about internal controls over travel and entertainment expenses.  So here it is:  T&E expenses should be submitted for reimbursement on a T&E reimbursement request signed by a manager and supported by detailed receipts in compliance with company policy. Now I am going to take this subject a step further.

As a frequent traveler, I’ve become quite familiar with airline and hotel websites in making my own travel arrangements to visit client dealerships.  While making a reservation recently my internal auditor radar picked up on another way an employee could potentially take advantage of a dealer through T&E.

Many people are familiar with the opportunity to earn frequent flyer miles, points or other perks awarded for loyalty, and traditionally, those perks come in the ordinary course of physically flying miles and staying overnight in hotels.  What dealers may [...]

By Phil Villegas

Over the course of the last several weeks I visited 3 different dealerships that are using docuPAD by Reynolds.  For those of you unfamiliar with docuPAD, it is a large screen that sits on an F&I managers desk across from the customer. Per the Reynold’s site “It provides personalized menu presentation, presents forms in an electronic menu format, discloses necessary contract and lease information, and captures files in an electronic deal jacket.”  I wouldn’t consider myself a techie, but I certainly appreciate the innovation to improve uniformity and compliance during the presentation of F&I products.

During these visits I’ve inquired of the dealers using the docuPAD about their general thoughts.  The dealers generally liked the systems after getting through the initial implementation, but they felt that they have not yet experienced a measurable increase in the F&I PVR.  Though, all three commented on the timing and efficiency with which clients are now [...]

By Marilou Vroman, CPA, CFE

In recent months we’ve had a lot of activity surrounding the topic of parts obsolescence and scrapping.  Perhaps It’s a result of year end parts inventory physicals, where obsolete parts are more likely a topic of conversation among dealership management with the interest to free up some frozen capital and use the cash for fresh parts inventory.

Interestingly, we find highly inconsistent practices from one dealership to the next when it comes to how obsolescence and scrapping of cores and “worthless” stock is handled.  What is quite steady however, is the practice of writing off inventory.  Interestingly, we find a disconnect between writing off inventory and the ultimate disposition of these items.

Consider a $500 part that has not been receipted or sold for 12 months.  By some standards, this part would be deemed obsolete.  This part still has some value to someone and there is a good chance of [...]

By Phil Villegas

As internal auditors and forensic accountants, we always approach most operational and accounting reports with a degree of skepticism because we ultimately know the impact that human behavior can potentially have on these reports.  To emphasize how important it is for us to know the reports and data we are looking at are pure and unaltered, it is standard protocol for us to require our clients to provide us system access in most of our engagements.  We will seldom, if ever, rely solely on client reports if the reports have not been run by one of our associates.  While this can often create increased workload for our team, it’s fundamental to what we do.

The recent story below, which is true will highlight the importance of this.

One of our analysts, who was not as well versed with the UCS as he is with other DMS systems, had requested a copy of [...]

By Phil Villegas

For most of my automotive career I’ve been around dealership buy/sells, first as an employee at a dealership, then for a dealer group that was acquiring stores, and lastly as an advisor to dealers in these transactions.  Over this time, I’ve had the opportunity to witness a wide variety of what makes some deals work and others not so much.

In circumstances where transactions went very well, I’ve found that it’s a progressive evolution of the dealer, where expansion comes on the heels of maximizing current operations.  These dealers have put themselves in a situation where they have generated strong financial performance and developed a deep management bench and look for new stores to provide their capital and team members a platform for continued success.

Which raises the inherit question as to why certain dealers expand when there is still plenty of growth and opportunity at their existing stores.  For most public [...]

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