The cyberattack on CDK Global and an increased attention on succession planning for dealers are just a few of the events the dealerships industry faced over the past quarter. In addition to cybersecurity and the Estate and Gift Tax Exemption sunset, this edition of Accelerate brings insights on compensation, inventory management and cash flow planning for machinery and equipment dealers, and the speed of change (or lack thereof) that commercial truck dealers are experiencing from their original equipment manufacturers (OEMs).
All Systems Online … For Now
The June 19, 2024 cyberattack on CDK Global impacted roughly 15,000 dealers, resulting in nationwide system outages to all dealers using CDK for their core DMS application to service their customers. This resulted in a business continuity issue that lasted for several weeks, where the affected dealerships had no access to their customers’ records or services provided to dealerships by this DMS. As our team held emergency calls with dealership CFOs across the country, we noted that many dealerships did not have an incident response plan or third-party risk management procedures in place to help mitigate the impact of such a significant event.
This large-scale attack sheds light on the importance of cyber resiliency and effective incident response planning, as well as vendor due diligence. Moving forward, dealers need to perform due diligence against CDK to see if their customer data was breached. Financial customer information is protected by both the Gramm-Leach-Bliley Act (GLBA) and FTC Safeguard Rules, which have consequences if a dealer’s customer information is breached. The responsibility and security of dealers’ customer financial information falls on the dealers themselves and not on any third-party vendors. CDK was granted permission to file a consolidated claim on behalf of dealers with the FTC; however, this circumstance should not become a precedent that dealers rely on when it comes to cybersecurity and accountability for customer data. After addressing this area of the cyber event, it’s important to look to what can be done to correct your dealership’s cybersecurity posture moving forward.
Dealers who do not use CDK may feel a sense of relief as they weren’t impacted by the event, but that should not result in a lack of action. Malicious actors are trying every day to compromise any vulnerable systems and sensitive information that they can. Thus, the event is a keen reminder that a cyberattack can happen to any dealership at any time and should put a spotlight on the dealership’s cybersecurity resiliency planning and vendor management program.
As your dealership continues to address business interruption insurance claims and make sure all data and sales are tracked from the offline period, it’s important to maintain proactivity. Be sure to review your cybersecurity systems and procedures and look into how your dealership can be protected.
Over the next few months, it’s critical for your leadership team to discuss how you can improve your cybersecurity resiliency to help lessen the impact from cybersecurity events. Forvis Mazars offers a team of professionals that can help you create incident response plans, communication plans, and implement cybersecurity measures to help protect your business, in addition to helping with the business interruption insurance claim you may currently be navigating. If your dealership needs help accelerating to the next steps for your cybersecurity needs, reach out to our professionals today to get started.
The Sun Is Getting Low
In the last edition of Accelerate, we discussed the importance of succession planning for dealerships—a look into the future to see where the dealership would be in the next 10 to 15 years.
If your dealership succession plan involves passing the business along to family or existing management, the Estate and Gift Tax Exemption may be a beneficial tax strategy, but it’s crucial to act now in order to take advantage of it. The end of 2025 might seem far away, but in previous iterations of similar legislation, the speed to move through the planning process is slower than you may think. Your dealership group needs to consider the service providers you’ll utilize for this process: accounting professionals, valuation professionals, attorneys, wealth strategists, and more. Not to mention, you’ll need OEM approval for the process, and the rate at which those conversations happen can be slower for some OEMs over others.
If you weren’t able to attend our Gift and Estate Tax Exemption Sunset webinar, watch the recording to learn what actions your dealership may need to take over the following months and see our checklist below for a general timeline for these steps. Keep in mind, however, that Congress could change the laws earlier, so acting sooner could prevent a loss of opportunity.
| Action Item | Ideal Timing |
|---|---|
Get Your Advisors in Place:
| Within the Next Few Months |
| Advisors Develop Recommendations | Late Winter |
| Analysis & Considerations of Recommendations | Early Spring 2025 |
| Approval Sought From OEM & Dealer Franchisors | Early Spring 2025 |
Plan Execution:
| Spring & Summer 2025 |
| Review Plan on a Regular Basis |
The sun won’t get any higher—act now before you run out of time.
Compensating the Next Generation
Gen Z and Millennial workers represent many entry to mid-level positions across the U.S. workforce, and this is no exception for the dealership industry.
The 2022 Labor Statistics reveal that employees aged 25 to 34 work a median of 2.8 years at their job. Dealerships need entry and mid-level staff to support both sales and back-office functions, but retaining this level has proven to be difficult. Replacing entry to mid-level talent every few years is exhausting, time-consuming, and costly. Identifying a strategy to retain employees can help a dealership on a cost basis. Moreover, having employees that are satisfied and loyal to their workplace can help create a better customer experience.
Compensation reaches beyond a salary figure. Historically, we’ve seen dealerships enact monthly sales incentives and competitions, provide enticing 401(k) plans, and—while we see this less in the dealerships industry compared to other industries—dip their toes into offering hybrid work environments for back-office positions.
We’re seeing that the entry to mid-level workforce is looking for more—they want to fit their career around their life, as opposed to fitting their life around their career. They want a job that will allow them to pursue personal passions and interests. Longer work hours and the rapid pace of the industry may prevent dealers from offering the compensation strategies of a tech startup, but there are other areas where dealers can inspire passion, loyalty, and continued interest in their dealership to help retain their staff. The initial investment may seem daunting, but the mitigation of turnover will help to provide benefits and cultivate long-term best-in-class talent.
Compensation Ideas to Retain Staff
- #1Travel Opportunities
Provide opportunities for staff to leave the traditional office or salesfloor setting—whether visiting with clients, attending events, or touring a manufacturing plant. - #2Lifestyle Benefits
Offer programs that enable your workforce to do what they love–whether it’s giving them a cash allotment, or providing experiences facilitated by the business. - #3Learning Opportunities
Go beyond the basic training of new software or instructional videos about new vehicles on the lot. Provide compensated learning opportunities through industry education events or offer support if team members want to pursue further traditional education. - #4Career Advancement Discussion
Help coach your staff and provide them with a clear road map for how to achieve their goals at your organization—and be prepared to help them reach the goals they set! - #5Rest & Time Away
The needs of the industry have given dealerships a reputation of long hours and no time off. While this may have worked with older generations, younger generations will require more time to rest and recharge. - #6Retention Bonuses
Cash won’t always be able to keep an employee; however, as times continue to be competitive, discuss with your leadership team whether a retention bonus is the right strategy for your dealership for a certain time period.
In addition to these compensation ideas, there is still the unavoidable fact that the industry is competitive, and an offer that promises higher wages may still be enticing to employees. Starting with an above-market offer when employees are first hired can help with retention.
Inventory Management & Cash Flow Challenges for M&E Dealers
Several years ago, machinery and equipment (M&E) dealers faced inventory challenges as they struggled to secure enough equipment to meet demand. Now, many dealers are struggling to navigate the opposite challenge. Dealers have the equipment they need to match demand—some may even have too much—but still face pressure to take more equipment from their OEM. Dealers are also encouraged to focus on expanding rental operations, adding another layer of complexity.
As inventory management continues to be an area of focus, dealers are having to adjust their strategies to meet the oversupply and softer demand.
Navigating the internal and external factors of inventory management is creating difficulty for dealers to accurately project cash flows, something that’s of paramount importance for dealers to make informed and strategic business decisions.
Dealers may consider the following for their floor planning:
- Explore enterprise resource planning (ERP) systems, including those platforms specific to operations like a rental management system, to help with accurate reporting and projections.
- Connect with your advisors to assist with:
- Cash flow modeling.
- Reviewing existing processes in place to identify opportunities for automation.
- Evaluating general and administrative expenses for opportunities to reduce costs.
- Identifying potential tax savings through state and local tax credits, as well as evaluating the optimal tax structure for the business and ownership.
- Create a plan for your used inventory by revisiting customer relationships:
- Identify upcoming projects where equipment may be needed.
- Speak to customers with equipment that will be turning over based on expected usage and life and see if there is an opportunity for a trade-in to benefit both parties.
- Know the value and age of the equipment based on pricing trends, online marketplaces, and recent auction closing bid.
- Identify repeat rental customers and see if it’s financially feasible for them to purchase the used equipment.
- Parts and services are key to customer acquisition and retention. Leverage these team members to develop opportunities to offload equipment. Also, revisit existing preventative maintenance and warranty programs, which should enhance and solidify customer relationships.
- Forming a plan to work with the OEM on additional financing options and incentive programs, particularly with higher interest rates attached to floor plan financing.
Commercial Truck OEM’s Pace of Change
Commercial truck dealers are currently struggling to provide trucks that meet consumer demand and comply with state and federal regulations. The California Air Resource Board (CARB) laws aren’t only impacting California, as other states look to adopt at least a portion of the regulations. The result is a historic shift in truck sales. Environmental regulations, paired with other challenges to the commercial truck industry, such as mechanic and technician shortages (especially technicians that understand an EV engine) and consumer hesitancy towards adopting new technologies, are leaving dealers seeking more collaboration and assistance from OEMs.
ATD Data from 2021 and 2022 showed commercial truck demand exceeding supply. Now, as dealers prepare for a massive change in their product line, there is worry surrounding whether the OEMs can adapt swiftly to supply enough trucks to meet customer needs in the states enforcing new regulations. The OEM pace of change will likely stay a top concern until OEMs can act to match the needs and demand of the market.
Commercial truck dealers preparing to adapt to regulations may need to strategize a plan to address the lag in their OEM’s supply. Consider:
- Having discussions with customers early to prepare them for the limited truck inventory environment and pending shift in requirements.
- Identifying early training and education opportunities for sales staff and technicians for electric trucks.
- Helping sales staff understand how to communicate the regulatory requirements to customers.
- Identifying dealerships in other areas that may have had to comply sooner than others and research best practices and pitfalls to avoid.
While regulation is ever-changing and may not be final, don’t expect the path to be smooth and easy. Prepare your dealership, staff, and customers for the road ahead.
Conclusion
Forvis Mazars has over 200 dedicated dealerships professionals with experience across automotive, commercial truck, machinery and equipment, and recreational dealers. Whether you need help correcting your cybersecurity posture, are looking to strategize a succession plan, want to understand how to keep talent, or you’re seeking industry insight specific to your dealerships niche, we have professionals who are happy to serve you. Reach out to your Forvis Mazars professional to learn more about any one of these topics.