Driving Profit and Business Value in Car Retail

Introduction by Lloyds Bank has developed into an ongoing long-term partnership over two years that has:
• Returned a car dealership to sector level profitability following four years of losses;
• Introduced simple but effective management information to forecast cash and report on business performance that allows the Owner Manager to better direct and manage the business;
• Reduced debt by over £1m;
• Developed a very strong relationship with its bankers;
• Secured circa £2m equity value for the shareholders;
• Maintained employment for a staff of 30.

PiP were introduced to this multi-franchise, multi-site car dealership in November 2008 by Lloyds Bank as part of our retained performance improvement relationship. With financial year 2008 nearly complete, the business was forecasting a loss of close to £0.5m to bring aggregate losses over four years to over £1m. As a result cash had become very constrained to the point that it was difficult for the business to trade properly.
The first task was to help the Shareholder Directors and Lloyds to
1. Understand the drivers of weak current business performance, and;
2. Identify and assess the feasibility of a range of business improvement options including structural change, cost reduction and revenue enhancement.
Working with the Owner Manager, we developed a plan to improve recurring profitability by over £500k, whilst at the same time reducing debt. The initiatives that were delivered in the first year included the sale of a redundant site, structural changes to the way the individual franchises were managed, staff reductions in areas where overheads had been allowed to run ahead of business growth, operational improvement both in sales and service across the business, and transformation in used car sales profitability.
A range of improvements to the way in which the business is managed were also introduced in the first six months that underpinned the delivery of £240k profit in first year of its relationship with PiP, a year-on-year improvement of over £700k. These included;
• A more robust approach to budgeting based on the ability of the business to deliver, rather than the aspirations of manufacturer partners;
• Greater ownership of the financial performance of individual business units through close monitoring of performance against budget and a clear expectation of action to address under performance;
• Clear management information that had the twin benefits of allowing Group management to identify areas of further business improvement opportunity and rebuilding a strong relationship with the businesses bankers;
• A more robust relationship with manufacturer partners based on the commercial needs of the business;
The business maintained profitability of £200k in the year to December 2010 despite very challenging trading conditions as the economy struggled to recover from the financial crisis of 2008, and is on course to improve profitability to over £300k in the year to December 2011.

At various stages in the relationship, Directors and shareholders of the business have said:
“More valuable than previous full time business managers”