Change to Deliver and Book!

Change to Deliver and Book!

I believe certain processes in the car business need to be changed. In the face of rising interest rates and the drive to accelerate cash flow, we believe car deals should not be held in F&I for longer than 24 hours. Crazy notion? Apparently not, as we have dealers – and large ones at that – who insist that all deals delivered on Day 1 be processed into accounting on Day 2. No exceptions.

Other departments transact business this way so why not the new and used vehicle department? The parts department sells a $10 part to a customer; the customer takes possession of the part and the parts ticket is promptly processed into accounting. The same goes for service department transactions. The work is completed, the customer picks up his vehicle and the repair order is processed into accounting.

Let’s now look at new and used vehicle sales. The dealership has a good weekend and delivers a bunch of vehicles. Unfortunately, these deals tend to languish in F&I and only come up to the accounting department in dribs and drabs. Surely the magnitude of these transactions and the impact they have on dealership gross and cash flow, management information, trade-ins, payoffs, transfer of ownership, dealership exposure and other items would merit a greater urgency than, say, the lesser dollar parts and service transactions.

I do understand that the special financing segment may require some additional breathing room, but our mindset needs changing when it comes to the overall processing of retail vehicle transactions. When a customer takes delivery of a high ticket item, should not all the requirements be in order to have the deal banked? If not, should it not merely require a couple of selective well-placed calls to get the deal financed?

I appreciate the fact that it takes a lot of work to get a customer settled on a vehicle and then to arrange the financing, but the bar needs to be raised on how long it should take to convert these transactions into cash. How do we change the mindset with this part of the business? I think it requires a number of small steps that, when added to the sum of it all, will expedite vehicle sales processing. They are:

• Lay out for your managers what you want to achieve – which is 100 percent deliver to book attainment.
• Elevate and expand the responsibilities (and training) of your finance managers to include a high and predictable finance approval rate for spot deliveries and completed paperwork.

• Track the booked to delivery percentage daily. Remember, 100 percent is the goal, but it may take a number of months to consistently get to this number, especially with the traditional “month-end” mindset and the time it will take to make this cultural shift.

• Institute a daily “cash a deal” meeting that should be held prior to the “save a deal” meeting. It is at this meeting when the lagging deals that are yet to be processed are analyzed and the opportunities for improvement can take place.

• Consider creating a pay plan to accelerate deal processing. Track how long it takes from when the delivery takes place to when the proceeds are received and take the necessary steps to compress this cycle time.

The reasons to change to “deliver and book” are compelling and the positive cash flow impact is immense. To work out how much additional cash flow the dealership can generate, you merely take the vehicles that are delivered during the last two days of the month (I am referring to fresh business walking in during these two days and not deals that have been lingering in the system) and multiply these deals by the average amount financed. This is the amount that should be reflected as your vehicle receivable at the end of the month. Check this against what you really have and you can clearly see what is being left on the table.

Invoking the response that “this is the way we have always done it” is a costly acknowledgement to the way it is and not the way it should be. Let’s make a change for the better and reap the benefit of additional cash flow by switching to deliver and book.

This article by Jeff Sacks originally appeared in Dealer Magazine.

Jeff Sacks, president of Jeff Sacks & Associates, is an auto industry speaker, consultant and trainer and is actively involved with dealership and OEM consulting and training.
His website is www.jeffsacksauto.com and his phone number is 800-867-2160.