DATE
3 min read • Automotive
Arthur D. Little: Car dealers face further agony with the global financial crisis
Latest report reveals how to evaluate and mitigate dealers’ risk of bankruptcy
![](/sites/default/files/styles/insights_thumbnail_field_m/public/GettyImages-57364162.jpg,qitok=-jVZCCEz.pagespeed.ce.qJYEs8J0st.jpg)
As credit markets tighten and the financial crisis deepens, car dealers worldwide are struggling with diminishing profitability and weak 2009 sales. “Dealer Risk Assessment and Contingency Plan Development” – a new report released by global management consultancy Arthur D. Little (ADL) – explores how manufacturers can mitigate dealers’ risk of bankruptcy in order to minimize the impact on sales.
Fabrizio Arena, a report author and Principal in Arthur D. Little’s Automotive & Manufacturing Group, commented: “The results of our study will alarm dealers and automakers alike, because every dealer forced to pull the plug means more sales volume at risk to the manufacturer.” The automotive market is not expected to resume growth before 2010, and the American National Auto Dealers Association expects 1,200 dealerships beyond the norm to go out of business before the end of 2009. Dealer insolvencies directly increase manufacturers’ risk of reduced car sales volumes. ADL argues that the first step to avoiding this collapse is to bring full transparency to the situation, namely to cluster dealers, rate them and prioritize.
The report advises manufacturers to first assess their dealers’ economic and financial situation, enabling them to take necessary action:
- Data gathering at three levels – dealerships, OEMs and third party sources
- Assess static and dynamic risk
- Develop a contingency plan
The result may be that dealers need help solving liquidity problems. Manufacturers can help them find a cash injection by: reviewing the interest free period on new car purchases; increasing their credit lines; speeding up the liquidation of accrued bonuses and campaigns; and promoting agreements between “dealer associations” and banks to obtain more credit and better credit conditions.
“Our experience working in mature car markets shows that 25% of dealerships in passenger car sales volume are at high risk of bankruptcy,” said Andreas Gissler, a Director in ADL’s Automotive and Manufacturing Group. “In order to cope with this risk, car manufacturers and wholesalers must first estimate the impact dealer bankruptcies will have on their own businesses in a quantitative and transparent fashion. Only then can manufacturers implement strategic measures that are low investment, offer valuable returns and high level of risk coverage.”
“Dealer Risk Assessment and Contingency Plan Development” is now available for download here
![](/sites/default/files/GettyImages-57364162.jpg)
3 min read • Automotive
Arthur D. Little: Car dealers face further agony with the global financial crisis
Latest report reveals how to evaluate and mitigate dealers’ risk of bankruptcy
![](/sites/default/files/styles/insights_thumbnail_field_m/public/GettyImages-57364162.jpg,qitok=-jVZCCEz.pagespeed.ce.qJYEs8J0st.jpg)
DATE
![](/sites/default/files/styles/insights_thumbnail_field_m/public/GettyImages-57364162.jpg,qitok=-jVZCCEz.pagespeed.ce.qJYEs8J0st.jpg)
As credit markets tighten and the financial crisis deepens, car dealers worldwide are struggling with diminishing profitability and weak 2009 sales. “Dealer Risk Assessment and Contingency Plan Development” – a new report released by global management consultancy Arthur D. Little (ADL) – explores how manufacturers can mitigate dealers’ risk of bankruptcy in order to minimize the impact on sales.
Fabrizio Arena, a report author and Principal in Arthur D. Little’s Automotive & Manufacturing Group, commented: “The results of our study will alarm dealers and automakers alike, because every dealer forced to pull the plug means more sales volume at risk to the manufacturer.” The automotive market is not expected to resume growth before 2010, and the American National Auto Dealers Association expects 1,200 dealerships beyond the norm to go out of business before the end of 2009. Dealer insolvencies directly increase manufacturers’ risk of reduced car sales volumes. ADL argues that the first step to avoiding this collapse is to bring full transparency to the situation, namely to cluster dealers, rate them and prioritize.
The report advises manufacturers to first assess their dealers’ economic and financial situation, enabling them to take necessary action:
- Data gathering at three levels – dealerships, OEMs and third party sources
- Assess static and dynamic risk
- Develop a contingency plan
The result may be that dealers need help solving liquidity problems. Manufacturers can help them find a cash injection by: reviewing the interest free period on new car purchases; increasing their credit lines; speeding up the liquidation of accrued bonuses and campaigns; and promoting agreements between “dealer associations” and banks to obtain more credit and better credit conditions.
“Our experience working in mature car markets shows that 25% of dealerships in passenger car sales volume are at high risk of bankruptcy,” said Andreas Gissler, a Director in ADL’s Automotive and Manufacturing Group. “In order to cope with this risk, car manufacturers and wholesalers must first estimate the impact dealer bankruptcies will have on their own businesses in a quantitative and transparent fashion. Only then can manufacturers implement strategic measures that are low investment, offer valuable returns and high level of risk coverage.”
“Dealer Risk Assessment and Contingency Plan Development” is now available for download here