Would you loan money to you?
My letter to Santa last week raised some interesting issues. But, as usual, the real intriguing ideas came from the comments by readers. That’s exactly what this blog is for.
In particular, Don Thurston and Noel Osborne each raised the idea that as this recession forces us to reinvent this industry, new inventory management and control systems will be the key to attracting future floorplan funds.
Osborne nailed it when he commented: “Dealers are being highly critical of the banks for not providing inventory financing but would you, if you were a banker, loan money to our industry right now? How many millions have the banks already lost due to dealership failures and there is more to come.” He further contends that until the banks become convinced our industry has a business model to effectively manage our inventory, thereby reducing their risk as well as the dealer’s, lending isn’t likely to reappear.
Thurston also identified inventory-turns as critical, not just to dealership survival, but to rebuilding bankers’ confidence. Clearly, the industry can never return to the days so memorably described by Reggie Fountain: “I think we all got away from reality. Everybody was building all they could build and sending them into the field, and finance companies were financing them and then all this stuff happens!” It was bound to.
Even more specific, Osborne noted manufacturers should not ship product that would result in a turns-ratio of less that 2-to-1 or, even better, 3-to-1. Thurston added that manufacturers must look closely at “days supply” and ways to keep their dealers healthy. The formula is simple — match the production levels to the consumers’ appetite.
Easier said than done? Definitely. It puts a huge burden on manufacturers to develop new business models that will also appeal to the financial community. Manufacturing capacity, now obviously overbuilt during the past decade when boat builders were producing for inventory instead of market demand, will not be needed for years to come, if ever. Still, the overhead inherent in that capacity will continue to burden builders.
But dealers also have a tough burden. Since each dealership is the dealer’s business, not the manufacturer’s, only the dealer should make the final inventory decisions for that dealership. If in the past manufacturers often dictated those levels, we cannot expect to return to that way of doing business. And no dealer should be accepting of it. Let’s face it — if this recession has taught us anything, it’s that every dealer must control his own business. Hopefully, that will be with good manufacturers that model more closely the “just in time” inventory concept, including an effective inventory-sharing system.
Now, that would be a great way to start the New Year off!