Be careful not to overshoot on pessimism

June 1, 2020
It really is time to slow down and understand that the opportunities that come in a declining economy can be just as exciting as opportunities that show up in a growing economy.

There is no doubt that the COVID-19 virus is playing a huge toll on the economy AND with people’s attitudes and their mindset. 

It really is time to slow down and understand that the opportunities that come in a declining economy can be just as exciting as opportunities that show up in a growing economy. It depends, though, on your management approach to a given situation and new realities.

The media has basically being saying to the consumer that the sky is falling and the average consumer is experiencing things they have never had in their life up to this point. This situation is stressful for them and you, however, the governments in North America have stepped in and made various guarantees to ensure businesses and the consumer can get through these unusual times. This keeps credit flowing within the overall economy; however, the aftermarket does have a problem with the credit issue.  

The people with the greatest worries from a general consumer perspective are ones who are looking for financial retirement stability from their investments within the next 3 to 5 years. They usually have safe interest-bearing investments, and as interest rates decline so does their potential income. If they have stock market investments that they must rely on, than their income is going to be dramatically affected and the declining dollar will affect their “ability to travel” status as well after the main virus issue has been dealt with and allowed the economy to return to some level of normalcy. 

Other negative factors include business layoffs, and this creates anxiety for the average consumer as to whether their job is safe. In this “new norm” we have seen most are not.

These situations do create opportunities for the aftermarket especially in relationship development with the consumer and commercial accounts. Review how you develop relationships within your business. Do you take the time to listen to their complete story and then educate the client as to how you can adapt your business to ensure they are looked after? Are you educating the client on safety and reliability of their vehicle based on how they use the vehicle and their expectations with it? How are you showing the client that you care about their concerns? You are in the relationship business and today that is the most important point about growing your business because as relationships get strong, trust is built.

The credit issue will affect the independent shop of the aftermarket. Banks have a lot of concern with the automotive industry in general. This can be a very real concern for a shop owner who is not managing their business properly.  Balance sheet management must become the highest priority. The question every shop owner must ask themselves is “What steps must I immediately take to strengthen my balance sheet to meet or exceed key banking ratios and guidelines?” “Where will my balance sheet be sitting by June 2021?” When was the last time you took each account that is on your receivables and did a true net profit analysis in terms of what that account is contributing to the businesses bottom line? Just measuring the average sale per RO and gross profit contribution of the account is not good enough anymore. If the account does not create net profit, why are you dealing with them? This is a huge move in the “new norm” because the business can only survive when consistent net profit is being created. Do the math and calculate your true cost per billed hour so you can calculate the accounts contribution. Do you need to fire this account in order not to jeopardize the business?   

Management must control the strengthening of the business to ensure its stability and security. Credit arrangements with the bank must be secure as well in order to run the business. However, it is good advice to not rely on increased credit from any institution over and above what the business currently has. The key over the next 12 months should be to reduce debt loads to the lowest achievable amount possible. Low debt or, better yet, no debt goes a long way in creating business and employee security in tough economic times.

These steps will allow the business to get through any turmoil, but the weight is on management’s shoulders to steer the business through the current economic maze.

Pay attention to the opportunities in front of you one day at a time and one week at a time and then your business will move forward very nicely with the current turmoil in the economy. When management understands clearly what it must do and how to do it, then a positive atmosphere can be created compared to the doom and gloom that many of us have been exposed to. Your business can continue to progress, and the staff will realize what a great business they represent. When management understands the vision and direction to take in tough times, it creates a secure future for all. 

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