Cash – It’s Not a Problem Until You Probe
SATURDAY, NOVEMBER 14TH, 2009
2008 and 2009 were rough years for the United States Automotive Industry. GM and Chrysler needed government bailouts and still may not make it. Car dealerships in this country are having a difficult time.
One of our Gazelles coaches, Dan Weston, [You may have seen him on the Scooter Store TV ads
] told our group of Gazelles coaches a story about one of his clients, a large automobile dealership with 15 dealer locations that used the Gazelles Cash Conversion Cycle tool to reduce their inventory dramatically and pump over $30 Million in cash back into their company. That’s right over $30 Million.
Most businesses don’t feel that cash is a problem in their business. They feel they have this part of their business under control. They don’t recognize how cash is more than just their billing and payment cycle. Cash is dramatically affected by your sales process, delivery cycle and your make/production and inventory cycle. These systems can have a powerful impact on your cash flow.
When Dan meet with the top five executives of this dealership for a two day Rockefeller Habits private workshop the discussion on the Cash Conversion Cycle immediately woke the executive team up to the real opportunities that focusing on cash could have for their dealerships. Shortly after the two day workshop with their top executives they did a two day workshop which included the 15 dealer managers and others. Between the two groups they worked from the top down and the bottom up to determine how the company could free up more cash. They had guidelines already in place for new and used car inventory and contracts in transit; they opened these up to scrutiny and immediately realized they could do much better. In fact they did much, much better! They reduced each guideline considerably. With the new guide lines they identified “frozen cash” All new car or used car inventory was closely monitored to keep it from tying up cash too long. Contracts in transit suffered from sloppy paperwork and these mistakes and errors were cleaned up to prevent returned paperwork.
By reducing inventory not only were the dealerships freeing up cash they were also reducing overhead. The dealership owner issued a bonus for the dealer managers to earn by reducing their inventory for the first quarter. In the first 90 days [January – March 2009] the dealership’s reduced their inventory $15+ Million. Using the Rockefeller Habits [Gazelles] meeting rhythms each dealership reviewed their metrics weekly and gradually, but dramatically cut their vehicle turnover cycles and fixed mistakes and errors that held up cash. Each dealership was ranked on their efforts to reduce inventory and increase cash flow which further increased the urgency for this priority. These measures created a positive competitive environment.
Later in the year the dealership’s efforts to reduce inventory and improve cash flow were further exacerbated by the Cash for Clunkers program. By the end of October 2009 they had reduced their “frozen cash” in all 15 dealerships to just $3 Million.
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