BHPH Dealerships can prepare for a Coming Recession - Dollar Bills Planted in Soil like Growing Seedlings

How BHPH Dealerships Can Prepare for the Possibility of a Recession

Most BHPH Dealerships know that “hope for the best but prepare for the worst” is usually a sound strategy and this cautious attitude may serve BHPH dealerships well in the near future. Although nothing is certain, economists warn that there could be a recession on the horizon, so here’s what BHPH dealerships can do to prepare.

Recent suggested tariffs on Chinese goods have played a part, even after said tariffs were postponed. The U.S. market has been gradually slowing, wages are still stagnant, the Dow fell more than 600 points on August 14, the US bond market saw an inverted yield curve earlier this week, and global bond yields have been falling since last October. Both Europe and Asia are seeing weakening economic data and yield-curve inversions as well. That last is noteworthy as yield-curve inversions– when long-term bond values fall beneath short-term bond values– historically precede recessions by 22 months on average.

It should be noted that this does not mean a recession is certain, but rather, like a weather satellite picking up a hook echo indicates that there might be a tornado forming, these economic signals are warning signs that there might be a recession on the way. Nonetheless, it would be wise for BHPH dealerships to prepare for the possibility and to take the following steps to ensure your dealership weathers the storm.

Maintain Cash Flow

It’s no secret that BHPH Dealerships need cash flow. The trouble is that in a recession maintaining cash flow can become difficult while expenses remain the same. Here’s how to keep a positive cash flow. First, look at actual money received, not at profits according to accrual accounting. Because credit sales are reported on income statements immediately, it’s too easy to count that as profit. To avoid overspending in your budget, however, you should only count the down payments and monthly payments you actually have. Second, use this measurement of actual money available to determine and maintain liquidity, meaning the ability to pay immediate bills. BHPH dealerships that find themselves relying on future income to pay current bills should consider refinancing any business loans for longer terms and lower payments. Yes, this means paying more in the end, but it will allow BHPH dealerships to remain in business during a recession. This will help BHPH dealerships more accurately manage finances and keep cash flow moving.

Review Inventory

BHPH dealerships should consider how they can reduce inventory costs without sacrificing the quality of vehicles on their lots. Avoiding having too many vehicles of the same make, model, and year is one way to reduce inventory. Another is to research what customers are looking for in your area and focus on those vehicles. The idea here is to focus on having quality, in-demand options rather than a high quantity of random choices.

Know What Shouldn’t Be Cut

This may seem counter-intuitive, but one mistake many BHPH dealerships may make during a recession is cutting costs they shouldn’t. If you’ve been considering investing in technology such as a CRM, now is the time to do it before a potential recession. Technology helps you better serve your customers, and is important for both customer retention and attract new consumers. Also, even in the leanest of times, do not cut marketing! A recession is exactly when consumers are looking for a change. By having a strong marketing strategy in place, you can entice customers looking for a different option.

Attract and Keep Customers

Similarly, during a recession BHPH dealerships can attract customers from competition by offering something others don’t. If you have a tax refund down payment program, a Lyft/Uber program, or a deferred down payment program, advertise them heavily during a recession. Those are exactly the benefits that car buyers will be looking for as they make decisions. Court would-be new car buyers as well during financially unstable times by touting your dealership as a lower-cost option. Such strategies can help you grow your customer base during a recession, and may even turn it into an opportunity.

Don’t focus solely on new customers, however. Strong customer retention is one of the best ways BHPH dealerships can weather a recession– especially if they have a repair shop. Train your employees in customer service to ensure everyone who sets foot on your lot receives five-star treatment. Don’t ignore loyal customers’ needs in favor of a new customer. Ratings, reviews, and word of mouth all depend on current customers.

By implementing these strategies now, BHPH dealerships can prepare in case a recession should occur. Having a strategy for lean times will improve any dealer’s chances of not only surviving, but coming out on top. With the right preparation, your dealership could be set for success when the economy improves again.

The Balance
The Balance – Cash Flow
LinkedIn – Jeff Cowan
Market Realist

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