Business car finance

Byline: NAT SHULMAN

One of the most valuable management tools used by modern car dealers is the 20 Group. This is a process where participating group members compare the monthly performance of their organizations with other members. The members of each group have common franchises and are grouped according to sales volume and geographical locations that are far enough to avoid anti-trust violations. Years ago there were local 20 Groups that bordered on being illegal because of a close proximity to other group members.

Some of the members of the local Groups did not wish to travel away from their dealerships to attend the quarterly meetings in distant locations. So they got together closer to home. Many of these local groups also lacked the supervision to keep things focused that's currently provided by organizations that run 20 Groups.

Most 20 Group participants have come to appreciate the value in gaining profitable ideas from high performance dealers in other parts of the U.S.

But it's like anything else. If you put quality in, you'll get quality out of it. Likewise, if you put garbage in, well, you're not going to get quality.

New car dealers are super competitive and constantly vying for top spots in the monthly composite that's based on figures mailed to a computer source. Many ego-driven participating members have been known to "play games" with the submitted monthly numbers in order to gain top positions in the monthly rankings.

I experienced "creative accounting" in my local 20 Group. There were two accounts in the composite with which individual dealers could wreak havoc: rent expense (because most dealers were also their landlords) plus whatever they deemed a "fair salary."

The tricky aspect of these indulgences was these expenses could be understated so the dealership would produce a higher ranking in the composite. For 11 month these dealers would look like super stars until the end of the year when humungous adjustment had to be factored into the operating expenses.

One of my closest dealer friends took no supervisory dollars and charged the dealership $1,000 rental per month on a multi-million dollar facility. These outlandish accounting practices were not only for ego-satisfaction. They were also for tax requirements that were less sophisticated than those of the IRS today. Currently there are many more multi-franchise dealers who cannot play the 11-month expenses game because of contractual commitments to high-level managers who are compensated on a monthly basis.

Today's IRS frowns on business practices that engage in unreasonable owner compensation as well as closely held businesses that delay periodic tax payments which, in effect, create tax-free loans.

Dealers who contribute misleading figures to their 20 Groups are distorting the data, and mucking up the results, not only for themselves but for their colleagues. There's less to get out of the sessions if the figures are skewed.

That said, legitimate group meetings are invaluable. Candid discussions during the quarterly sessions help a lot. A trained facilitator keeps discussions focused. Very often a single solid operational suggestion from a fellow group member may save or make a dealer enough money to cover the expenses for the entire trip to the meeting.

Operating a new-vehicle dealership with its varied departments is an economic challenge for anyone.

People who own and operate dealerships in this competitive market can use all the help they can get.

A working 20 Group is a forum to compare performances, exchange ideas and get some invaluable help at one of the toughest jobs in the auto industry - running a dealership.