Are You Kidding Me!

Recent reports that the Canadian economy could be headed for another recession sent shivers up my spine.  The fact that the Bank of Canada reduced the lending rate by a quarter point a few weeks ago, stood what little hair I have on the back of my neck straight up. So what does this mean for you and your dealership?

How is it possible that within the last 3 months the Canadian dollar has tanked to under 80 cents US and oil is hovering around $50 a barrel? Target has closed up shop in Canada and a number of companies including Tim Horton’s are reducing their staff.  Alberta is contemplating a retail tax and the oil fields are revising their business plans while laying off many hundreds of workers. Canadian household debt is reported at its highest level ever and has surpassed the US as a ratio to income.

I don’t want to sound like the next Marvel Comic’s villain, Mr Doom and Gloom, but to ignore these economic events could have a significant impact on your business. So the big question is what to do about it?

It is hard to believe that we are only 6 years down the road from the beginning of the biggest recession since the Great Depression. Economists and Financial Planners are accustom to the cyclical nature of the economy that usually runs on a 7 year cycle, but the 2008 recession was different. It was not technically an economic recession but a financial meltdown precipitated by the sub-prime mortgage fiasco and it’s inherent greed. 

I think it would be fair to say that we have only just climbed out of that recession in the last 2 years. We finally started to see growth and stability in the economy and a reduction in unemployment.

If I could explain why we are potentially facing another recession I would be a multi millionaire, but what I can do is ask you one simple question.

What did you do to survive the 2008 recession?

The first thing my dealer clients did was take a good hard look at their inventories and put a plan together to reduce them wherever possible. There are a number of advantages to this strategy. You will reduce floor plan interest expense, increase inventory turns, protect margins and open credit lines for the purchase of key models on a timely basis.  The last thing you want during a recession is huge inventories that you can’t move due to reduced consumer spending.

The next key target is expenses. Your strategic plan should contemplate a reduction in all your variable expenses. This would include Advertising, Interest Expense as previously discussed, Travel, and most important Salaries to name a few. I talked in a previous article about knowing your breakeven point for your business operations to help facilitate the knowledge of what your sales, margins and expenses had to be to survive.

I am all about enhancing profit not just surviving, but knowing what and how much you can cut your expenses gives you the ability to make a timely decision based on a turn of the economy.

Even if you don’t have a comprehensive business plan, take some time with your staff and develop a pre emptive strategic plan to stave off the effects of a potential recession.  Knowing you have a plan in place will reduce your stress by 10 fold and will limit the effects of a down turn in the economy on your business.

It’s all about being ready to act responsibly, so if you need help getting prepared, contact me for a free consultation. 

  

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