Automotive Updates

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

By Phil Villegas

With the Holiday season upon us, many dealerships are planning year-end parties to celebrate the year. These gatherings are great for employee morale and a great opportunity to socialize with other co-workers in a much more relaxed setting. Some dealerships will have their event onsite at the dealership with a pot-luck or barbecue, while others will choose to have their event hosted at an outside location.

Regardless of the location, one practice I saw a few years back from a dealer in their effort to be equitable to all their employee’s hard work was the following:

Early in December, the dealer would send notices to its vendors informing them that in lieu of any holiday gifts or baskets, to either contribute gifts or funds to be used as door prizes during the dealership holiday party. Any gifts or baskets received at the dealership would be kept together to be shared during the [...]

By Marilou Vroman, CPA, CFE

Buying and selling dealership’s is no small task, nor is it something to be taken lightly.  With transactions that can take months to complete and involve tens to hundreds of millions of dollars, both the financial risk and reward can be overwhelming.  Here are some items buyers and sellers should keep in mind as negotiations heat up.

Employee Matters

  • Employee compensation plans – Have there been any recent increases in pay or management?
  • Payroll considerations – Most closings will not occur conveniently at the end of a pay period.
  • Employee Vacations – How are employee vacations and time off accrued and paid?
  • “Sacred Cows” – The Dealer’s daughter or son, the Service Manager’s nephew, etc. Gain an understanding of employee relationships and their roles in the dealership.
  • Non-disclosed, undocumented employee privileges – Certain employees may enjoy peripheral benefits that are not documented part of their pay plans.
  • Loyalty to [...]

By Marilou Vroman, CPA, CFE

You may be aware there are ways to monitor the web for content such as “Google Alerts.” This service is an easy way to have relevant news delivered to your in-box.  As a forensic accountant and a passion for dealership internal controls, one of my alerts is set up to provide articles about dealership fraud or embezzlement.  It seems almost every other day I receive an article about another dealership that has been taken advantage of by an employee.  After reading many of these articles, I find myself thinking, this could have completely been prevented with the simplest of internal controls.

Just yesterday I read an article about a Toyota dealership in which a General Manager perpetrated a fraud scheme where checks were diverted for personal use.  According to the article, the General Manager told his dealership employees to make checks in the thousands of dollars payable to a fictitious [...]

By Marilou C. Vroman, CPA, CFE

Dealers tend to look at high level indicators of store performance. The questions often heard at month end are: “How many cars did we deliver?” or “Where is fixed gross going to end up?” At times, more specific questions should also be asked such as: “Is our service department operating at its full potential?”

While there are many variables that work together to generate service profits such as technician efficiency, productivity and parts availability, a closer look at facility utilization may reveal great opportunities.

The dealership has a maximum realizable service capacity which should be compared to actual labor sales monthly. This maximum capacity is referred to as “facility potential”. Facility potential is calculated via the following formula: Number of bays multiplied by the number of days in the period multiplied by 24 hours multiplied by the dealership’s effective labor rate.

This calculation assumes that the service department is [...]

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 [...]

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