• Audits by Your Franchisor – Whether for warranty claims or incentives, manufacturers are increasing their audit activity as they look for scarce dollars. Know your rights in an audit. Understand the time period an audit may cover – twelve months for warranty audits and eighteen months for sales audits under Virginia law. Understand the standard a manufacturer must meet to impose a chargeback under your state franchise law.  Under Virginia law, a franchisor cannot charge back for a claim simply because the specific requirements of the franchisor were not met as long as the dealer has reasonable evidence substantiating the claim.  Challenge audit results through the franchisor’s appeal process and through any available state administrative or judicial process. If you appeal, the franchisor cannot apply the charge to your open account or otherwise collect it as long as the franchisor’s review procedure and the DMV appeal are ongoing. 
   
• Bankruptcy and Bail Out – The two most important stories in the second half of 2008 will be the most important stories for 2009. Bankruptcy of the Detroit 3 manufacturers, regardless of bail out results, will be an issue while credit is tight. What will a manufacturer bankruptcy mean for you? How can you best protect your assets? What will the bail out mean for you, especially if the manufacturer commits to take action with respect to your franchise?  Follow these issues carefully and consider the advice from your national and state associations.
   
• Cutting Expenses – Do you think you have cut the fat out of your expense structure? You may be forced to cut some more. Consult with your accountant concerning ideas. Review every expense in every expense category. Consider changes in insurance, DMS, and all other outside services.
   
• Days Supply Inventories – Inventories of parts and vehicles, especially with changing vehicle curtailment policies on overage vehicle inventories, are major cash drains for a dealership. Review your parts turn, your ordering process, and whether you have used parts return allowances. Set a days supply goal for new and used vehicles. Work to achieve that goal, even if that means deflecting the daily calls to take more units. Carefully analyze the vehicles billed to your floorplan and make sure that the vehicles the franchisor ships and that you accept are vehicles you agreed to take. 
   
• Employee Claims for Minimum Wage – When sales are tough, salespeople sometimes don’t earn minimum wage for each hour worked based on their draws. Wage claims, especially class action wage claims, can be expensive, including treble damages and attorney’s fees. Make sure that salespeople and other employees earn minimum wage for each hour worked.
   
• Fundamental Franchise Changes – Manufacturers have been pressuring dealers to commit to major changes. Whether it is building new facilities or renovating existing buildings, upgrading exterior and interior signage, removing a dualed franchise, or buying a related brand competitor, this is not the time to commit to a fundamental franchise change. Demand realistic cost and benefit information and analyze the implications of a change carefully. Make sure that there is a definite benefit that outweighs the cost. Resist demands for unwise changes!
   
• Getting Rid of Employees Fairly – You may have already downsized your workforce. You may have to make even further cuts. Any cuts must be made on an objective basis. Otherwise, you run the risk of legal actions that will eat up the expenses you save through the employment cuts. Candidly assess all employees. Use an objective basis to determine who should be let go. Is there an alternative such as across the board pay cuts or hours reductions?
   
• Hiring Soundly – Cutting your workforce? Perhaps, but from time to time every dealer loses key personnel who must be replaced. Expensive employment claims arise most often from poor hiring decisions. Train managers to recruit, interview, and select employees wisely.
   
• Ignore Existing Franchise Commitments at your Peril – Did you make a major commitment to your franchisor before the market turned south? If so, it may be backed up by a liquidated damages agreement. Don’t simply ignore commitments you have made, especially if they’re backed up by liquidated damages. The manufacturer can still seek to enforce that agreement and collect those damages through your open account. If you cannot meet your commitment, be proactive. Renegotiate with your franchisor. If your franchisor says no, consult your legal adviser about your options. 
   
• Just say No – Nancy Reagan’s advice to young people is just as sound for car dealers. Are your employees under such pressure to deliver vehicles that they ignore warning signs that a deal is suspicious? Do they suspect that a buyer may be using the proceeds of an illegal transaction? Or that the buyer is a straw for the real driver who is providing the proceeds of illegal activities? In the hunger to deliver a vehicle, is an employee working to avoid a cash reporting requirement to convince a customer to buy? These activities can land employees in jail and cost the dealership its franchise. Just say no to suspicious deals!
    
• Know Your Customer – Implement Red Flag Rule compliance to avoid having the dealership become a victim of identity theft. You may think that this is no time to be worried about another government compliance mandate. Think again. Certainly, the customer whose identity is stolen may be harmed. But for a dealer who cannot recover the $20,000, $30,000, or $40,000 vehicle it delivered to an identity thief, the loss is one it can hardly afford at this critical time
    
• Line-make Elimination – Has your franchisor agreed to eliminate your line-make as part of its bail out commitments? Explore your alternatives. Is there another brand for sale in your area? Is there another use for your real estate? What are your rights under your Virginia law? Understand and document the damages caused by the line-make elimination and seek legal and accounting advice to prepare your upcoming claim.
   
• Manage Your Nonrecurring Payables – When times are tough, scam artists look for ways to swindle you. Make sure that you are paying only for those goods and services that you need and order. Watch out for fraudulent invoices. Know your suppliers. Have a purchase order system. Don’t process any payable unless there is either a vendor contract justifying the payable or a purchase order for nonrecurring payables. And make sure that the dealership received what you are paying for.

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• Audits by Your Franchisor – Whether for warranty claims or incentives, manufacturers are increasing their audit activity as they look for scarce dollars. Know your rights in an audit. Understand the time period an audit may cover – twelve months for warranty audits and eighteen months for sales audits under Virginia law. Understand the standard a manufacturer must meet to impose a chargeback under your state franchise law.  Under Virginia law, a franchisor cannot charge back for a claim simply because the specific requirements of the franchisor were not met as long as the dealer has reasonable evidence substantiating the claim.  Challenge audit results through the franchisor’s appeal process and through any available state administrative or judicial process. If you appeal, the franchisor cannot apply the charge to your open account or otherwise collect it as long as the franchisor’s review procedure and the DMV appeal are ongoing. 
   
• Bankruptcy and Bail Out – The two most important stories in the second half of 2008 will be the most important stories for 2009. Bankruptcy of the Detroit 3 manufacturers, regardless of bail out results, will be an issue while credit is tight. What will a manufacturer bankruptcy mean for you? How can you best protect your assets? What will the bail out mean for you, especially if the manufacturer commits to take action with respect to your franchise?  Follow these issues carefully and consider the advice from your national and state associations.
   
• Cutting Expenses – Do you think you have cut the fat out of your expense structure? You may be forced to cut some more. Consult with your accountant concerning ideas. Review every expense in every expense category. Consider changes in insurance, DMS, and all other outside services.
   
• Days Supply Inventories – Inventories of parts and vehicles, especially with changing vehicle curtailment policies on overage vehicle inventories, are major cash drains for a dealership. Review your parts turn, your ordering process, and whether you have used parts return allowances. Set a days supply goal for new and used vehicles. Work to achieve that goal, even if that means deflecting the daily calls to take more units. Carefully analyze the vehicles billed to your floorplan and make sure that the vehicles the franchisor ships and that you accept are vehicles you agreed to take. 
   
• Employee Claims for Minimum Wage – When sales are tough, salespeople sometimes don’t earn minimum wage for each hour worked based on their draws. Wage claims, especially class action wage claims, can be expensive, including treble damages and attorney’s fees. Make sure that salespeople and other employees earn minimum wage for each hour worked.
   
• Fundamental Franchise Changes – Manufacturers have been pressuring dealers to commit to major changes. Whether it is building new facilities or renovating existing buildings, upgrading exterior and interior signage, removing a dualed franchise, or buying a related brand competitor, this is not the time to commit to a fundamental franchise change. Demand realistic cost and benefit information and analyze the implications of a change carefully. Make sure that there is a definite benefit that outweighs the cost. Resist demands for unwise changes!
   
• Getting Rid of Employees Fairly – You may have already downsized your workforce. You may have to make even further cuts. Any cuts must be made on an objective basis. Otherwise, you run the risk of legal actions that will eat up the expenses you save through the employment cuts. Candidly assess all employees. Use an objective basis to determine who should be let go. Is there an alternative such as across the board pay cuts or hours reductions?
   
• Hiring Soundly – Cutting your workforce? Perhaps, but from time to time every dealer loses key personnel who must be replaced. Expensive employment claims arise most often from poor hiring decisions. Train managers to recruit, interview, and select employees wisely.
   
• Ignore Existing Franchise Commitments at your Peril – Did you make a major commitment to your franchisor before the market turned south? If so, it may be backed up by a liquidated damages agreement. Don’t simply ignore commitments you have made, especially if they’re backed up by liquidated damages. The manufacturer can still seek to enforce that agreement and collect those damages through your open account. If you cannot meet your commitment, be proactive. Renegotiate with your franchisor. If your franchisor says no, consult your legal adviser about your options. 
   
• Just say No – Nancy Reagan’s advice to young people is just as sound for car dealers. Are your employees under such pressure to deliver vehicles that they ignore warning signs that a deal is suspicious? Do they suspect that a buyer may be using the proceeds of an illegal transaction? Or that the buyer is a straw for the real driver who is providing the proceeds of illegal activities? In the hunger to deliver a vehicle, is an employee working to avoid a cash reporting requirement to convince a customer to buy? These activities can land employees in jail and cost the dealership its franchise. Just say no to suspicious deals!
    
• Know Your Customer – Implement Red Flag Rule compliance to avoid having the dealership become a victim of identity theft. You may think that this is no time to be worried about another government compliance mandate. Think again. Certainly, the customer whose identity is stolen may be harmed. But for a dealer who cannot recover the $20,000, $30,000, or $40,000 vehicle it delivered to an identity thief, the loss is one it can hardly afford at this critical time
    
• Line-make Elimination – Has your franchisor agreed to eliminate your line-make as part of its bail out commitments? Explore your alternatives. Is there another brand for sale in your area? Is there another use for your real estate? What are your rights under your Virginia law? Understand and document the damages caused by the line-make elimination and seek legal and accounting advice to prepare your upcoming claim.
   
• Manage Your Nonrecurring Payables – When times are tough, scam artists look for ways to swindle you. Make sure that you are paying only for those goods and services that you need and order. Watch out for fraudulent invoices. Know your suppliers. Have a purchase order system. Don’t process any payable unless there is either a vendor contract justifying the payable or a purchase order for nonrecurring payables. And make sure that the dealership received what you are paying for.

Click here to read the rest of the article