I’ve basically been a car dealership controller or CFO my whole life. I’ve worked every job in the car business (except technician), and I’ve been the leader of my own business for many years, but I’ve always looked at all business strategy through the lens of a CFO – someone who knows accounting and financials but also provides leadership and operational strategies to protect the organization from liability and to foster business growth.
In my everyday life, I am constantly running into scenarios where the shortage of experienced car dealership controllers is playing a role. The recent CDK ransomeware attack has brought this subject even more to the forefront.
The growing shortage of qualified dealership controllers.
A surprising fact about me is that I like to clean up accounting and set dealers up for the best financial outcomes possible. In the last 24 months, I’ve witnessed a severe decline in overall dealership accounting skills and a lack of qualified dealership controllers, which has been the cause of some shockingly negative results.
A few months ago, I wrote about the fact that car dealership accounting skills don’t grow on trees. In that article, my esteemed colleague, an automotive CPA, echoed what I’d been noticing: that there is a growing concern within the industry. He said:
The shortage in qualified controllers is the next great crisis. We will be talking about it like techs soon…not sure why we aren’t already.
Now here we are, four months later, with the CDK debacle recovery falling squarely on dealership accounting offices across America. Over the past 12 days, I’ve heard from several sources within my network saying they are fielding CDK outage recovery questions from dealership accounting managers that a qualified controller would likely already have answers for.
What happened with CDK is not new. The scale of it is, but the absence of a DMS is not. A group where I was the CFO once had an outage that lasted about a week (this was during a conversion from one DMS to another). It takes a bit of creativity, but determining a recovery roadmap is really all you’re thinking about when faced with this type of crisis. The goal is to not panic, remain as calm as you can, and know that there is always a way through to the other side.
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Driving blind
Operating without clear vision or understanding is akin to navigating a vehicle without being able to see the road ahead. Dealership accounting managers/controllers/office managers are doing the best they can but there is a lack of available training, coaching and mentorship, and the industry must do more to support them. Some, through no fault of their own, lack the necessary tools and support to manage complex financial operations effectively, which often leads to missteps and mismanagement.
The CDK DMS clean up/recovery endeavor has only increased the pressure and stress on the accounting office because everything falls to them. They are the individuals who will gather the thousands of puzzle pieces, put them together and with a bit of luck, make everything balance. Every controller I know is working very hard under very stressful conditions.
Contrary to what many believe, the only true numbers, and by extension, the true success, comes after the car deals, ROs and Parts tickets are posted correctly, balanced and collected on. This post is for dealers and owners who perhaps are not paying as close attention to the books as they once were or simply don’t feel it’s necessary.
It often takes a crisis to expose holes in a system, and this CDK debacle is no exception. I’ve compiled a short summary outlining the importance of controllers, reasons for the current shortage, the consequences of this shortage, and solutions or strategies that dealers can take to address the issue.
The importance of car dealership controllers
The controller’s role is particularly crucial in car dealerships due to the high-value inventory, complex financing arrangements, and the need to manage multiple profit centers within a single business. Their expertise directly impacts the dealership’s financial health and long-term success.
Controllers manage financial operations.
- Oversee daily financial activities: Controllers manage cash flow, accounts payable, accounts receivable, and payroll.
- Financial reporting: Controllers and their staff prepare the monthly financial statements and reports required for the manufacturer, flooring bank and other lenders, and for management and owners.
- Financial planning: They create budgets, forecasts, and long-term financial strategies.
- Cost control: Controllers identify expenses outside of benchmarks and implement cost-saving measures.
- Performance analysis: They analyze financial data to assess the dealership’s performance and identify trends.
Controllers ensure profitability.
- Departmental profitability: Controllers analyze the performance of each department (new cars, used cars, service, parts) tracking each department’s optimal contribution to the dealership’s overall profitability.
- Margin analysis: They closely monitor profit margins on vehicle sales, service labor (CP, Internal and Warranty) and parts (retail and wholesale).
- Pricing strategies: Controllers can help determine optimal pricing for vehicles and services to maximize profitability.
- Inventory management: They track vehicle aging and days supply and work with sales and management to optimize inventory levels.
- Investment analysis: They evaluate potential investments in equipment, facilities, or new ventures to ensure they will yield adequate returns.
Controllers oversee accounting practices.
- Implement internal controls: Controllers establish and maintain systems to prevent fraud, errors, and misuse of assets.
- Ensure compliance: They make efforts to shield the dealership from potential liabilities by remaining in compliance with various regulatory agencies, tax laws, and industry regulations.
- Manage audits: Controllers prepare for and manage both internal and external audits.
- Oversee the accounting team: They supervise the accounting office staff, ensuring accurate and timely record-keeping.
- Technology integration: Controllers often lead the implementation and optimization of the DMS (Dealer Management System) and other various integrations.
Controllers play a strategic role.
- Advise leadership: Controllers provide financial insights to inform major business decisions.
- Risk management: They identify and mitigate financial and other risks to the dealership’s well being and future.
- Liaising with external parties: Controllers often interact with banks, auditors, attorneys, insurance providers and regulatory bodies on behalf of the dealership.
Dealership-specific challenges.
- Manage complex inventory financing: Controllers navigate the intricacies of vehicle inventory floor plan financing.
- Handle manufacturer relations: They manage financial aspects of relationships with the manufacturers, including parts/non-vehicle statement items, incentives and chargebacks.
Reasons for the current shortage of car dealership controllers
The following factors combine to create a perfect storm of shortage in experienced dealership controllers that the industry is now grappling with. The current shortage is attributed to several interconnected factors.
1. Retirement of experienced professionals
- Baby Boomer and GenX exodus: A large portion of experienced controllers are now reaching retirement age.
- Loss of institutional knowledge: As these professionals retire, dealerships lose decades of accumulated expertise and industry-specific knowledge.
- Succession planning challenges: Many dealerships have struggled to develop adequate succession plans for key financial roles.
2. Increased demand
- Industry growth: The automotive industry has seen significant growth and consolidation, increasing the need for skilled financial professionals.
- Regulatory complexity: Increasing regulatory requirements have made the controller role more critical, driving up demand.
- Emphasis on financial performance: Greater focus on profitability and financial optimization has elevated the importance of the controller role.
- Expansion of dealership groups: As more multi-location dealership groups form, the need for high-level financial oversight has increased.
3. Changing skill requirements
- Technological advancements: Controllers now need to be proficient in advanced financial software, data analytics, and digital platforms.
- Strategic role expansion: The controller position has evolved from purely accounting to a more strategic, decision-making role.
- Cybersecurity concerns: With increasing digital threats, controllers need to understand and manage financial data security.
- Data analysis skills: There’s a growing need for controllers who can interpret complex data sets and provide actionable insights.
- Compliance expertise: Evolving regulations require controllers to have a deeper understanding of compliance issues.
4. Industry-specific challenges
- Specialization: Automotive dealership accounting has very unique aspects, making it challenging to find controllers with industry-specific experience.
- Perception issues: The automotive industry, specifically car dealerships, is often perceived as less attractive compared to other sectors, especially among younger professionals. I speak from experience here: the perception is reinforced on a daily basis at dealerships around the U.S. Terrible bosses, hostile work environment, harassment, misogyny, racism – these are all alive and well in auto retail.
- Work-life balance concerns: The demanding nature of the role in a high-pressure industry with often long hours can frequently deter potential candidates. Provide flexible work arrangements such as remote work options, flexible hours, and family-friendly policies. This not only supports women but is a benefit that all employees value. Then take the next step to ensure that these policies are actively promoted and utilized without stigma.
5. Education and training gap
- Lack of specialized programs: It’s a rare occurrence for educational institutions offer programs specifically tailored to automotive financial management.
- Rapidly evolving industry: The fast-paced changes in the auto industry make it difficult for traditional education to keep up.
6. Competition from other industries
- Attractive alternatives: Skilled financial professionals have options in various industries, some of which may offer better compensation or work-life balance.
- Tech industry appeal: Many potential controllers are drawn to roles in the technology sector, which is perceived as more innovative and future-oriented (and it’s not retail!)
7. Geographical limitations
- Urban concentration: Many skilled professionals prefer urban areas, while dealerships are spread across various geographical locations.
- Relocation reluctance: Experienced controllers may be hesitant to relocate for new opportunities, limiting the talent pool for some dealerships.
8. Impact of economic fluctuations
- Cyclical industry: The automotive industry’s sensitivity to economic cycles and tricky breakeven point can lead to job insecurity concerns, deterring some professionals. The car business is a giant machine with not much wiggle room between breakeven and profit, so even the slightest pull back in consumer demand can cause panic.
- Pressure during downturns: Economic downturns can lead to increased pressure on financial roles, making the position less attractive.
Consequences of this shortage for dealerships
The outcomes of the qualified controller shortage are significant and wide-ranging but I’ve grouped them into three main categories.
Financial mismanagement
- Inaccurate financial reporting: Without experienced controllers, dealerships may struggle to produce accurate and timely financial statements.
- Cash flow problems: Poor oversight can lead to mismanagement of cash, potentially causing liquidity issues.
- Inventory mismanagement: Controllers play a crucial role in optimizing inventory levels. Their absence can result in overstocking or understocking, tying up capital or missing sales opportunities.
- Inadequate budgeting and forecasting: This can lead to poor decision-making on major investments or expansions.
Compliance issues
Without a qualified controller monitoring and managing complex dealership compliance, the result leads to potential taxes, fines and legal liability.
- Regulatory violations: Controllers ensure dealerships comply with various financial regulations. Their absence increases the risk of unintentional violations.
- Tax errors: Mistakes in tax filings can lead to penalties, audits and damage to the dealership’s reputation.
- Fraud vulnerability: Lack of proper financial controls creates opportunities for internal fraud or embezzlement.
- Licensing problems: In some regions, having a qualified controller is part of maintaining a dealership license.
Reduced profitability
- Missed cost-saving opportunities: Controllers often identify areas for cost reduction and efficiency improvements.
- Price and costing errors: Without proper financial and accounting processes, mistakes often happen causing the dealership to need to charge those mistakes to policy adjustment or cost of sales.
- Poor performance analysis: Controllers provide benchmarks and insights into each department’s margins and net profit. Without this, dealerships may continue unprofitable practices.
- Inefficient resource allocation: Controllers help optimize resource use across the entire dealership organization. Their absence can lead to wasteful spending.
- Difficulty in obtaining financing: Banks and investors often require detailed financial reports and projections, which are challenging to produce without a skilled controller.
Solutions that dealerships can use to address the issue
Dealerships can employ various strategies to address the shortage of experienced controllers. The following are some of the potential solutions and strategies that can be applied:
Enhanced training and development programs
- Create in-house training programs to develop controllers from within.
- Offer mentorship programs pairing junior staff with experienced professionals or outside advisors.
- Grow from within: Create deputy controller positions to support and eventually succeed the main controller.
Policy revisions
- Review and revise existing policies and procedures to eliminate any gender biases. Controllers are often female, the same for accounting office staff. Ensure that hiring, promotion, and compensation practices are fair and transparent.
- Implement policies that specifically protect against harassment and discrimination, creating a safer workplace for everyone.
Aggressive recruitment and compensation
- Offering competitive salaries and benefits packages to attract top talent.
- Implementing signing bonuses and retention incentives.
Adopt flexible hiring practices: Outsourcing, advisory
- Consider hiring part-time or contract controllers to meet immediate needs while building a long-term workforce strategy.
- Utilizing specialized automotive consulting firm such as an on-demand dealership CFO for temporary coaching/mentoring and support.
Succession planning
- Identifying and grooming potential successors within the organization.
- Creating clear career paths for accounting professionals within the dealership.
- Implement mentorship programs to transfer knowledge from retiring controllers to younger professionals.
Emphasize work-life balance
- Create a supportive work environment and implement policies that prioritize work-life balance to reduce burnout and improve job satisfaction.
- Offering flexible schedules or additional time off to make the position more attractive
These strategies aim to not only address the immediate shortage but also to create a sustainable pipeline of talent for the future. Many dealerships are finding that a combination of these approaches works best, tailoring their strategy to their specific needs and market conditions.
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