• New Vehicle Exports – With the weak dollar, and with dealer personnel attempting to sell every car they can, brokers are buying new vehicles for export. Every manufacturer prohibits the sale of new vehicles for export. When a vehicle is exported, it is not a question of whether the manufacturer will find out but when. Do not knowingly sell a new vehicle to an exporter. The manufacturer may charge back incentives, holdback, and the like. More importantly, the manufacturer may cut the “count” which may disqualify you under a stair step incentive program and lead to a huge chargeback. Virginia law gives you the basis to challenge a franchisor’s chargebacks for exports, but only if you can show that you did not know of the customer’s intent to export the vehicle.
    
• Overtime Pay – Employees who have the right to time and a half overtime who do not receive it may file wage claims, including class action claims, that can be very costly for a dealership. Understand who is exempt from overtime in categories generally applicable to all businesses such as managers and the like. Understand auto dealer specific exemptions for salespeople, partsmen, and mechanics. Categorize who is properly exempt in those categories, and who is not.
    
• Protecting Your Assets – Is your manufacturer still threatening bankruptcy? Has your floor plan source threatened to pull your line? You may have to take steps to protect your business assets and your personal assets.  Consult your legal advisor and your accountant.    Is bankruptcy of your company necessary for protection and what does it mean for your dealership? If so, it is a serious step which should be used only as a last resort. Most dealers have personal guarantees and cross collateral agreements that make it impossible to put the dealership into bankruptcy in a vacuum, and a bankruptcy filing by the dealership’s real estate affiliate and even personal bankruptcy of the dealer may be necessary. If it does not appear that your company must declare bankruptcy for protection, can you nevertheless distribute cash or other assets to lower your risk? You cannot truly understand your options unless you carefully analyze them with a knowledgeable advisor. 
   
• Quitting Your Franchise – Carefully analyze when it is time to give back the keys. Is there light at the end of the tunnel? Are your inventories returnable in the spring when they might not be in the fall? Has your franchise simply become too difficult? If it is time to terminate your franchise, study carefully what that means financially. What assets and inventories must the manufacturer repurchase? Virginia law gives you the right to return current model year new vehicles and new vehicles of one prior model year received within 120 days, parts, special tools, and signs without handling or freight charges if you terminate. What will you lose from the inventories and assets not eligible for return? What impact will LIFO recapture have? And what other liabilities such as personal guarantees, cross collateral agreements, and similar commitments might make this a prohibitively expensive process?
    
• Repurchase Demands By Your Retail Lenders – Everyone is looking for dollars today. The retail lenders to whom you assign retail installment sale contracts may become vigorous when there is a customer default. They may work to turn their loss into your loss.  Challenge repurchase demands. Carefully understand the basis for the demand. Review your master dealer agreement. Understand the representations and warranties that you made and the circumstances of the deal or deals involved in the demand.
   
• Selling Your Dealership – Recent times may have convinced you that it’s time to sell your dealership. If you think there might not be a buyer out there you may be surprised. There are often buyers who have strategic reasons for wanting to purchase a particular dealership. Get your house in order if you wish to sell. Keep vehicle and parts inventories in “returnable” condition. Work with your controller or accountant to prepare a pro forma of financial results eliminating expenses a new buyer won’t incur. Know what obligations you will want the buyer to assume. What is your facilities situation? Is your showroom showroom-ready?  Are there any environmental or facility conditions that can be remedied?  Prepare an attractive sale package and look for buyers who may have a special reason to want your dealership. 
   
• Train Your Employees – Don’t use tough times as an excuse to cut training. Training is the most cost effective method of preventing problems. Your employees likely have time to spend each day on training.  You likely have time each day to do training. Make sure that employees know what you expect, how they should operate in line with what you expect, and that they should come to you when they have questions.
   
• Unfair Personnel Practices – The most expensive personnel claims against dealers are claims for discrimination and harassment. Have a strong policy against discrimination and harassment. Have zero tolerance for retaliation. An employee can successfully sue a dealer for retaliatory action even when there is not an underlying cause of action for discrimination or harassment. Treat every employment claim seriously. Investigate. Candidly assess your potential liability. Take action consistent with actions you have taken in other similar circumstances.
    
• Vendor Contracts – Have a policy for entering contracts with those vendors who supply you with everything from computer services to hazardous waste removal. Be sure that only specified senior managers may sign contracts. Make sure that there is a process to do a cost/benefit analysis of every contract. Avoid long-term agreements unless necessary. Avoid contracts with automatic rollover provisions.  Make sure you can be sued only where your dealership is located.  Negotiate all of your vendor contracts. 

• Wholesale Lines of Credit – Has your finance source threatened to call your floorplan line? Is your floorplan lender demanding additional security? Has your floorplan source told you that it is getting out of the floorplan business? Work to create alternatives. Contact your legal advisor. Know your rights. Explore other sources. If you are in trouble, be proactive. Contact the floorplan source before it contacts you. Do not go out of trust under any circumstances, since there may be serious civil and even criminal consequences.
    
• X-ray Your Operations on a Regular Basis – It has never been more important to run your business according to the fundamentals. Establish an internal loss control policy. Understand where losses that may seriously damage your business are generated and look at those areas on a regular basis. Make sure employees know you are looking. Employees respect which you inspect.
    
• Yank Demonstrators – Are you still offering demonstrators to your sales force and managers? Demonstrators are a cash drain on a dealership through increased insurance expenses, wear and tear on the inventory, and any variety of other problems.   Down demonstrator inventory is always a problem for a dealer who seeks to sell the business or terminate the franchise.  If you thought you could never cut demonstrators because you will lose people, you probably never expected the current market conditions. Expenses must be cut. Other dealers are likely not hiring. Your employees probably won’t have another job waiting if you don’t offer demonstrators. You can cushion the blow by providing vehicle allowances or other replacement benefits.
    
• Zero Tolerance – Serious consumer claims like class actions can crush your dealership. You must have zero tolerance policy for the types of activities that can lead to crushing losses. You must not tolerate F&I fraud, credit application fraud, and similar illegal activities.

 We all hope that dealers will have a great 2009. But be prepared if it is not.

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