Automotive Updates

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

By Phil Villegas

During my career I have been fortunate enough to experience a multitude of dealership buy/sell transactions, from being an employee at a dealership, to working for a dealership group acquiring stores, to my current role of advising dealers on the merits of deals they are considering. I’ve seen transactions of all sizes and franchises, from coast-to-coast. In this, I have been exposed to many different types of operators and their respective personalities.

Dealers will expand their businesses for numerous reasons. From opportunity knocking on the door regarding an available store in the neighborhood, to investing excess funds in a known industry, to creating a growth opportunity for existing loyal employees; there are plenty of valid reasons to acquire a dealership. Where we have seen the pitfalls of dealership acquisitions is when the potential buyer’s ego is the primary motivator for expansion. We typically witness this when a dealer has been successful running [...]

By Marilou Vroman, CPA, CFE

As the year comes to an end, many dealers start preparation for the annual tasks that go along with turkey with all the trimmings and holiday greetings.  One of those tasks is preparing for the annual parts physical inventory.  While not all dealers are required to, or even opt to, perform parts physical inventories, we strongly encourage the process since it provides an extra layer of internal control and helps validate the integrity of the inventory amounts on the dealership financial statement.

The parts physical compares the physical parts on hand on a given date to the perpetual inventory in the DMS and adjusts the quantities on hand accordingly.  The resulting inventory value will also be compared to the inventory balance in the general ledger and adjusted for common differences such as outstanding returns for credit, price appreciation/depreciation, work in process and so forth.  It is common for a variance [...]

By Eduardo Hernandez

This past week, Marilou and Phil gave a presentation at the AICPA National Auto Dealership Conference in Las Vegas on occupational fraud and the various areas where dealership employees might attempt to take advantage of their position at the detriment of the dealership.

During our internal audits, we’ve come across various examples of employees abusing their position. One recurring example we’ve seen perpetrated by both departmental managers and even entry level employees is pay plan manipulation.  In the vehicle sales department, we’ve seen both salespeople and sales managers fictitiously overstating gross profit, therefore overstating commissions using various methods.

We have seen trade ACVs set high above market, essentially deferring a loss, which can result in the current deal being more profitable than it should be, yet increasing bonuses and commissions. This can also result in the trade staying in inventory longer, due to the higher cost, which can also lead to additional [...]

By Phil Villegas

For a few select franchises, the desirability of some of their most popular models will often attract a cast of characters looking to get their hands on one of these hot cars…the characters we are warning you about are not customers, but rather brokers.

There are brokers and individuals who make a living of sourcing hard to obtain popular models only to flip these vehicles to another customer for a profit. Often, these vehicles can end up being exported and end up costing the dealer chargebacks of incentives by the manufacturer and potential loss of vehicle allocation on that and other popular models. Time and time again we have seen where dealer sales management has engaged in transaction activity with brokers and time and time again we find the gross profit on these sales are well below traditional profitability margins.

The vast majority of broker related transactions are short sighted and have [...]

By Phil Villegas

In continuing my theme of focusing on the fundamentals, I thought I’d focus on one of the most basic internal controls that is overlooked or not taken as seriously as it should, and that is the taking of vehicle physical inventories.  For most dealerships this is the single largest asset on the books, and unlike real estate and Blue Sky, these asset can actually be easily moved.  Time and time again when we inspect dealership’s physical inventory counts we are left concerned with the thoroughness and seriousness with which they are completed.  Many stores will not complete new car inventories since they will say the floorplan company does that or many accounting offices will simply say the sales department does that.

In our opinion, the accounting department is not doing its job if it does not take full ownership of the vehicle inventory process.  Deferring this key control to a floor plan [...]

By Marilou Vroman, CPA, CFE

CSI, SSI, Customer Satisfaction… you hear about it all the time and know how vital these terms are for dealership success and profitability.   How each dealership approaches its CSI is very different.  In visiting many stores, and being a dealership client myself, I’ve observed many different practices in place and how these potentially impact customer satisfaction.   Interestingly in the most complex CSI initiatives, there is one simple thing that your employees can change today that can easily increase client satisfaction.

While recently visiting one of my clients for internal audit field work I took notice to how the employees of the dealership were treating their guests, and me.  Believe it or not, auditors don’t always receive a warm welcome in dealerships, in fact, some auditors are intentionally placed an uncomfortable work space, such as a cold room with no windows and employees are instructed to not provide any more information [...]

By Eduardo Hernandez

One of the controls in the sales department that every dealership should have and enforce is management review and signoff on employee deals. Although there should be a certain level of trust in a dealership, it never hurts to “cross your t’s and dot your i’s.”

Some of the items that we recommend reviewing include:

  • Make sure all required deal documents are present and signed by the employee.
  • Ensure the deal is in compliance with any rules the dealership or group has for employee deals.
  • Look over the history of the vehicle being purchased.
    • See if the ACV appears reasonable and if there were any recent write-downs.
    • Check to see if the employee appraised the vehicle they are attempting to purchase.
  • Confirm the vehicle qualifies for all the incentives considered in the deal.
  • If a vehicle is being traded-in, verify the ACV is appropriate.
    • Make sure the [...]

By Phil Villegas

I like to compare embezzlements to plane crashes.  When a plane crashes it is usually not the result of one system breakdown, but rather a series of simultaneous breakdowns; a convergence of elements that end in disaster.  Perhaps the only difference when compared to dealership embezzlement is the convergence of elements is extended over a period of time, not a single day.

There is one vital internal control in protecting dealerships from embezzlement that has been tail spinning into decline because of advancements in technologies and that’s the review of Cancelled Check.  15 years ago it was commonplace to receive a huge envelope every month with all the cancelled checks, nowadays this is considered archaic, with cancelled checks only being available to be viewed online.  This problem has led to Owners, GMs and Auditors not routinely reviewing cancelled checks.  Keep in mind, a proper review of a cancelled [...]

By Marilou Vroman, CPA, CFE

In many years working as a dealership controller and as an internal auditor, I’ve unfortunately seen frequent cases where employees have taken excessive advantage of a dealership’s travel and entertainment policy.  Travel and entertainment normally are common business expenses for dealers, such meetings with manufacturers, conferences, technician training, and travel between multiple rooftops.  While travel may be viewed as an inconvenience to some employees, others view travel and entertainment as an opportunity for enrichment.  The question becomes, at what point do business travel expenses go from necessary and reasonable to an abuse of privilege and self-enrichment at the detriment of the dealer?

You’ve probably seen it or even experienced it – lavish dinners with expensive cocktails and wine, the five-star hotel room and “resort” fees to cover the golf cart and 18 holes, the first-class tickets to Europe, an occasional spa treatment or luxury rental cars.  Some dealers may choose [...]

With Hurricane Irma on course to hit some part of the U.S. within a few days, this is a good time to take some steps that may minimize disruption in the event you are in the unfortunate path of the storm.  While each dealership will have its own unique facility and vehicle preparation steps, this Weekly Spiff is to highlight some of the administrative steps that could get overlooked in the process.

A. Update all employee contact information with latest mobile phone number.

a. Make sure all employees are assigned to a key Departmental Manager for notifications and updates.

B. Take a copy of your dealership’s insurance information and refresh your understanding of your business interruption, windstorm and flood coverage. Make sure to have the proper insurance claim phone numbers to contact and ensure any premiums which are due have been paid.

C. Have check stock that can be hand-written in the event of extended [...]

Back to top