Automotive Management Chapters 1-4

What are some advantages of a pre-engineered building?

- Less construction time - Cheaper to install - Already designed

List three reasons for GM to terminate the Sales and Service agreement with the dealer

1) Conviction of a Felony by the dealer 2) Insolvency of Bankruptcy 3) The dealer submits false claims that form the GM's payment to the dealer.

The dealer agrees to ethically promote and sell GM products. List the seven things that the dealer is required to do to approve this objective.

1) Have an adequate staff of trained sales personnel 2) Make sure buyers know the terms of their purchase 3) Include In transactions only items that are standard 4) Ensure that the customer's purchase and delivery experience are satisfactory 5) Comply with the retail standards established by GM 6) Disclose to purchasers installation of non-GM part or accessory on vehicle on bill of sale. 7) Disclose prior to sale of any non-GM extended service contract that GM does not provide coverage.

What is a contract in transit and where do these appear on the dealerships financial statement

A contract in transit represents funds that have not been paid by the bank yet after a loan is taken out. They go in the asset side of the dealership's financial statement

Explain a dual dealership. What is an inter-corporate deal?

A dual dealership is a dealership from which two dealers are under the same roof. To be an inter corporate deal, those two dealers need to have the same parent company. (Like Saturn and Pontiac)

What do manufacturers want customers to have at one of their dealerships?

A good experience.

what is a dealer council?

A group of dealers who make decisions?

Profit centering

A part of a business that is expected to make a contribution to the organization's profits.

What is a pump-in? A pump-out? Which can indicate poor sales performance by a dealership?

A pump is when cars come from other APR while a pump out is when cars go from your APR to another APR. More pump ins than pump outs can indicate poor sales performance?

What is a store front design? Why was this important?

A store front design is what the outside of the building looked like. Many store front designs included signs and large windows that extended into the showroom. This was important because it allowed for potential customers to see the cars in the showroom and, with the signs, they would know what brand of dealer they were looking at.

Will GM permit a dealer import a vehicle from Canada to sell on his lot?

Absolutely not

Explain the source and the source of the dealer monthly financial statement

Alfred P. Sloan, the purpose is the examine the profits and losses of the dealership

What is a holdback?

An amount of money (usually 10%) withheld by the manufacturer.

Explain the difference between an architect and a design build in planning and building a facility.

An architect build is where a dealer contracts an architect who designs the building. After the design is approved, the architect firm hires general contractors, who hires subcontractors to build the building A design build is where the general contractor designs the building and attains bids from subcontractors

What is a pre-paid asset?

An asset that has already been paid for. A $6,000.00 6 month insurance premium would be an example of this. In an asset sale, the seller keeps this and the buyer would have to buy his own.

Aftermarket

Anything that does not come on the car at the factory.

How does a new dealer buy out MHD?

As the dealership become more profitable, they can buy out MHD shares over time.

Why would a buyer want to buy out MHD as soon as possible?

Because it become more expensive as time goes on. An increase in stock value is greater than an increase value.

Explain why manufacturers do not permit dealers to use the assets of the dealership as collateral in a working capital loan?

Because it the dealership goes bankrupt and the dealer is pledged as collateral, then it would be impossible for them to operate. It would also make it more difficult to sell the dealership

Why do manufacturers prefer their dealerships to not be dualed with other manufacturers?

Because they do not want customers going to other brands and buying their products.

Explain in detail why it is important for the buyer to take a physical inventory of the selling dealership's parts inventory.

Because they need to know exactly what they are buying and if the parts that they do not need can be returned. They need to look for things such as box condition and part use. Also, the buying dealer need to inventory because they need to make sure the inventory dollar amount matches the asking price for the parts.

Why do manufacturers want their dealerships to have a similar appearance?

Because they want customers to relate the service at one dealership to another one of the same brand. It helps them differentiate manufacturers.

Explain how the sale of a new vehicle when a trade-in is taken adversely affects the dealerships cash position

Because when a dealership takes a vehicle on trade, they need to pay it off and pay to the customer, reducing their profit on the car.

In the above sale, will Billy keep his factory receivables or will these go to Jeff with the sale? Why is this?

Billy will keep his factory receivables because he technically still owned the dealership when the truck was ordered.

Explain each of these qualifications and how a dealer candidate can earn each?

Competent in business- Profits, Market Penetration, and Customer Satisfaction Effective Manager- Managers are considered effective if they meet sales volume, customer satisfaction, and profitability goals Caring attitude towards customers- Customer Satisfaction index Successful record as a merchandiser of automotive products and services- The manufacturer will determine market share and sales performance for each individual model.

give an example of a license required for a dealership. Why do states license dealers? Is it primarily for revenue?

Dealerships need a license that regulates the sale of new and used vehicles, along with service. These licenses are not so much for revenue, but so the states can revoke them if there is a breach in the license.

List and explain three opportunities for employment with automobile manufacturers.

Designers- responsible for designing cars District service managers- monitor warranty claim processing and submission, approve warranty claims, and meet with customers to resolve complaints Engineers- They work with designers to make a car.

List five reason that larger dealerships require more working capital

Expenses Payables Inventory and Payroll Greater new car volume Large Planning potential

What do zoning ordinances regulate?

Exterior elevation, the use of the building, the distance that the building is from the street, Curb cuts, Easements.

What does floor planning permit dealerships to do?

Finance their vehicles

What manufacturer started requiring its dealers to conform to interior and exterior appearance requirements?

Ford Motor Company

Explain GM's Right of First refusal and how it can effect a buy sell agreement.

GM can refuse a change in ownership proposed by the dealer and purchase the assets of the selling dealer itself.

Explain in detail how GM will review dealership sales and customer satisfaction performance

GM will provide the dealer with an annual report detailing their sales performance in their APR.

Explain "Channel Strategy"

How dealerships market to customers in their designated APR (Area of primary responsibility)

Billy Ray was convicted of unfair business practice and has applied to become a Chevrolet dealer. How will GM review his application and do you think he will be approved?

I think he will get denied because unfair business practice is considered a felony and felonies are grounds for revocation of the sales and service agreement, so he shouldn't have it in the first place.

What was the original purpose of a holdback?

If the dealership went out of business of went bankrupt, the car manufacturer would still receive their money.

Explain the source and purpose of the pre delivery inspection?

In the past, cars used to not come fully assembled, so the pre delivery inspection's purpose is to make sure that the dealerships sell a good car to the customer, 1917, Ford Motor Company

What is a pro forma?

Indicates the financial condition of the dealership on the first day of operation

What is a working capital loan?

It extends cash to the dealership for use in it's day to day operations. It is added to the dealer's cash investment, which then equals the working capital requirement set forth by the manufacturer

What is a new dealer initial parts return, how would a buyer use it and why is it important?

It gives the dealership an opportunity to return the parts. It is a good idea to have the inventory taken 30 days prior to the consummation of the buy-sell agreement.

What is an Open Point or Greenfield point? What is a drawback in starting an Open Point?

It is where a dealership opens up in an APR that has not had a dealership before. The downside is that the dealership will need to start from scratch, so there is no blue sky or any other incentives.

What is a triple net lease?

It is where the tenant is responsible for the lease payment, real estate taxes, as well as insurance and other maintenance expenses.

What is the successor addendum?

It lists a proposed dealer operator to be established if this agreement is to expired or be terminated because death or incapacity

What is a sales and profit forecast for a new dealership? What should this include?

It shows what the expected profit and sales numbers will be in the future. A sales and profit forecast should include new vehicle sales volume that attains a satisfactory performance under the dealer's "sales and service agreement"

Floyd's Chevrolet dealership loses it's license to operate in the State of West Virginia. How will this affect his sales and service agreement?

It will be terminated

As a penalty for committing odometer fraud, Floyd must close his dealership for 21 consecutive days. How will this effect his GM Sales and Service Agreement?

It will be terminated because odometer fraud is a felony

What is accrued liability? Give an example and who keeps these in an asset sale?

Liabilities that are accrued mostly. An example of this could be state sales taxes. The seller would still be responsible for these.

What are payables?

Liabilities; what is owed by the dealership

What is a pre-engineered building?

Like the name says, a pre-engineered building is a building that has already been designed.

What is a MSO?

Manufacturers Statement of Origin. It certifies the origin of a new vehicle.

What did the disclosure of Automobile information Act Require? List all of the requirements and the legislators name who sponsored the act?

Mike Monroney - Make - Model Year - Model - VIN - Final Assembly Point - Name of dealer to whom delivered - Method of Transportation - MSRP of car and options - Cost of freight and transportation

Explain blue sky or good will?

Money is handed over in excess of what the property and everything in it is worth. This can be for many reasons, from brand recognition to location of dealership

Explain voting and non-voting shares and which is assigned to the buyer and to Motors Holding division.

Motors Holding division has the amount of votes as the loan amount is.

Does a dealership own a franchise?

No

Is the word "franchise" used in the Sales and Service agreement?

No

Can GM exercise it's right of first refusal in a family transfer? Why is this important for family owned dealerships?

No, it cannot. Ownership can be passed in the immediate family as long as they can providee that they are competant

What is planning potential and how is it related to forecasting?

Planning potential is where dealerships predict how many cars they are going to sell in a given amount of time.

Explain what effect blue sky-increases or decreases it?

Some dual dealerships are worth more than single- point dealerships, Toyotas may be more desirable than Chevrolets in a certain area, and one dealership might have more daily passing traffic and customers than another.

What appraised value?

Some purchasers will hire an appraiser to come in an state how much the items are worth. The selling price is based on this value.

Floyd Brightaupt invests $400,000 in a dealership and MHD invests $1,200,000. After four years, the dealership has net losses of $404,328. what can MHD tell Floyd?

That he needs to shut down

What is the APR?

The Area of Primary Responsibility is the area in which a dealership should sell the majority of its cars.

What does the buyer get in a stock sale?

The dealership, the dealership staff, liabilities. Everything is transferred over to them.

How are new vehicles and demonstrators handled in a sale of a dealership?

The new vehicles will be transferred over to the new purchaser, while demonstrators should not be transferred at invoice amount because they have miles on the odometer.

What is the book value of assets?

The original purchase price of the FF&E minus any accumulated depreciation

What does the seller keep in a stock sale.

The proceeds from the sale of the shares of dealership stock only.

What is floorplanning?

The relationship between the finance company and the dealership

What is a non-compete agreement and why are these typically part of a buy-sell agreement.

The seller of the dealerships signs a contract that they will not compete with the company who bought their dealership for a certain time in a certain radius.

Billy sold his Chevrolet dealership to Jeff. Floyd has a truck on order from Billy that has not arrived prior to the date of that sale of the dealership to Jeff. Floyd has a deposit on his ordered truck. How will this transaction be handled in an asset sale?

The seller will keep the truck

How can exterior design of a dealership tell potential customers something about the brand?

The style of the building can show the style of cars that the dealership sells. For example, Mazda dealerships used to be kind of sporty and fun, while now they are more luxurious, like the cars that they produce. Mazda is going away from making econoboxes in favor of cars that are luxurious and fun. Volkswagen dealerships used to be less modern than they are now. The Volkswagen vehicles changed with the dealership design.

What is market penetration?

The successful selling of a product in a specific market

What is payroll?

The total amount earned by all employees for a pay period

Explain a stock sale

The whole dealership and everything inside it is sold. The selling party passes everything, except things they paid for before the sale, over to the new dealership. This includes lawsuits and liabilities.

What is the relationship between cash position (increase or decrease) and gross profit on a new car sale when a trade- in is taken.

There is none

What does it mean when an asset is "depreciated out?"

These items are so depreciated that they do not appear on the depreciation schedule anymore.

what does the buyer get in an asset purchase?

They get Furniture, Fixtures, and Equipment.

What does the seller keep in an asset sale? Does the corporation still exist?

They keep any lawsuits and receivables that were owed before the day of the sale. The corporation does still exist

Explain how manufacturers evaluate an applicants personal background?

They look at past careers and evaluate that individual's sales performance in those past careers. Recommendation from previous employers are required for all applicants. The applicant need to: - Be competent in business - Be a effective manager - Have a serious attitude toward customers - Demonstrate a good track record selling automotive products or services.

What is a building code?

They regulate construction requirements for safety related concerns.

Explain the function of the dealership's board of directors

They report to the stockholders the condition of the corporation. They also make decisions for the dealership.

What does GM require the dealer to do concerning special tools?

They require them to have special tools to work on vehicles

How does Motors Holding Division assist dealers in purchasing dealership?

They work with dealer candidates and loan them the necessary capital to start the dealership.

Why should a buyer take an environmental test of the seller's facility prior to leasing it?

To ensure that there is no pollution on the property that could pose liability or remediation issues in the future.

What is the most objective for retail dealership operations? Why is this so important?

To increase working capital. If a dealership is short of working capital, then they may not have enough money in the future.

How do dealers use the MSO?

To transfer ownership

What are receivables?

What is owed to the dealership; payment

What does the term "out of trust mean"

When the dealerships do not pay off the loan when they sell a car, the dealer falls out of trust

How does MHD make money financing new dealerships?

When the new dealership becomes profitable enough, they can buy out MHD shares and the owner can regain his voting rights. The owner of the dealership worked to buy out MHD over time.

Name some things that building codes regulate

Wind loading, electrical use, wiring, and fire retardation

Explain the difference between an asset purchase and a stock purchase?

With an asset purchase, the purchaser receives FF&E (Furniture, Fixtures, and Equipment), while in a stock purchase, the purchaser receives the whole dealership. If a buyer goes through with a stock purchase, they are taking on any lawsuits that the last dealership incurred, whereas with an asset purchase they are not because they are only purchasing the FF&E. With an asset purchase, the past dealership still exits, while with a stock purchase, they do not because they were bought out.

Does GM require dealers to reside in their dealership's APR?

Yes

Is a dealer service department required to perform warranty service on vehicles it does not sell?

Yes

Billy has owned his ford dealership for 27 years and wants to will it to his son. Can he do this?

Yes he can. The right of first refusal does not apply to immediate family

Can Billy include the Chevrolet Franchise as an asset when he sells his dealership to Floyd? What is the reason for your answer?

Yes, but GM has to be aware of the change

Explain the consequences for misrepresentation in applying for a sales and service agreement

You could get denied for the agreement, pf to yip get as far as getting approved, the agreement will eventually get revoked.

What is a zoning ordinance?

Zoning requirements. School zone, residential zone, business zone, etc.

List GM's qualification in becoming a dealer

competent in business effective manager Has a strong attitude towards customers Has a successful record as a merchandiser of automotive products.

What made profit centering possible?

different departments in the dealership

Explain what working capital is:

the amount of cash that the dealership has in order to conduct business

Why did Alfred P. Sloan Jr. start Motors Holding Division?

to assist individuals who lacked capital to become owner of profitable General Motors dealerships