Troubled German dealers act too late to survive, says study

Stuttgart. Many German dealers fail to survive a financial crisis despite carrying out restructuring, says a new study.

This is because corrective measures often are implemented too late. Also dealer bosses fail to act when car sales drop because they are focused on their service departments, which provide most of a dealer's profits.

Dekra Consulting of Stuttgart analyzed data from 121 car dealers that completed restructuring projects between 2000 and 2004.

Only half of the dealers that restructured were successful, says the study. Around a quarter of the troubled companies ended up in insolvency within three years.

The study says nearly two thirds of the serious financial difficulties can be attributed to problems in vehicle sales.

But dealer managers often are focused on service departments, which means the company falls out of financial balance.

In 50 percent of all cases, the study says, the crisis is first recognized when the dealership cannot pay its bills.

"Financial crises cannot be prevented," said Carsten Koenig, Dekra Consulting's managing director. "But it would be a considerable advantage to recognize them earlier and manage them better."

Nine to 12 months typically pass before the company's management implements concrete measures, the study found. Only 39 percent of the firms in the study sounded the alarm within six months and introduced corrective actions.

About 30 percent of the ill-fated restructuring attempts fail because they were begun too late. And almost an equal number remain unsuccessful because continual checks on the implementation are lacking.

In one-fifth of all cases, the restructuring misses the mark because the firm misdiagnosed the cause of the financial problems.

Tags: Retail