| No Longer Set In Stone:Restructuring Dealership Loans and Leases |
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| Written by Jim Haslem |
| Tuesday, 08 September 2009 15:52 |
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Car dealers need a break, something to help them hold on in the wake of plummeting vehicle sales and the loss of their franchises. Many aren’t even aware that one of their biggest burdens can actually be part of the solution: the cost of their facilities. Like many retail businesses, dealerships occupy prime locations with convenient customer access and an attractive design and layout. These high-profile spots also come with a high price tag. Debt service and occupancy costs (rent, taxes, maintenance, and insurance) are large components of the business’ P&L.
It’s a safe bet that dealers who have financed or leased their facilities within the past five years are paying too much. Dealers who financed or leased their facilities during this period may have relied upon appraisals and projections that have proved to be far too optimistic in today’s shell-shocked marketplace.
By restructuring their loans and leases, dealers may save enough money to stay afloat. But can these costs be changed? The typical P&L statement treats these costs as fixed and uncontrollable. Dealers may also share that view. Nevertheless, in order for dealers to remain viable, financing and occupancy costs must be considered negotiable and modifiable. The key is to know your options and to take action.
The typical dealership occupies a large footprint and its facilities are not well-suited for other uses. As a result, a shuttered dealership can be expected to remain vacant indefinitely, with little or no productive use. Going dark benefits no one. This stark scenario incentivizes lenders and landlords to help to keep the dealership alive and open for business.
Dealerships whose viability hinges upon modification of their financing and occupancy costs actually have leverage in their negotiations, particularly if the dealer has already done its homework. Dealers who have a track record of success and have revised their business operations to reflect current realities will have a reasonable basis for modifying their fixed costs.
Loan and lease terms appear to be etched in stone. Lenders and landlords usually recite this view as an unalterable fact. Today’s business climate, however, necessitates a different axiom—“everything is negotiable.” This new perspective comes with a caveat: flexibility from landlords and lenders is not easily achieved, and dealers must be willing to put in the effort.
Using a qualified and experienced third-party to negotiate with lenders and landlords is often more advantageous than going it alone. An intermediary can help the dealership analyze its options and deal directly with the lender or landlord in a professional manner that removes emotion from the process. An experienced intermediary can be effective in aligning the long-term interests of the dealer, the lenders, and landlords. Ideally, all parties will participate in a solution.
Taking action to modify costs that have traditionally been seen as uncontrollable may be imperative in the current climate. For many dealers, taking no action is no longer an option.
Jim Haslem is a consultant with the financial restructuring firm Huntley, Mullaney, Spargo & Sullivan, LLC. In his 25-plus years of experience, Jim has negotiated corporate debt and leases nationwide for a multitude of clients, from both sides of the table. Contact Jim at
This e-mail address is being protected from spambots. You need JavaScript enabled to view it
or 805-452-7474.
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