We have handled a number of family-owned automotive retailer businesses which have gone into receivership. The problem is endemic throughout the industry and the Muppet analogy has become shorthand for some second- or third-generation management. They expect the business to run itself while they reap the profits and play golf on Wednesday afternoons.
The problem needs to be viewed against the backdrop of intense competition among parts and accessories manufacturers to win contracts. Similarly, retailers need to work hard to convince consumers to purchase new, or used, cars.
While poor management might survive a positive economic cycle, companies which experience tough trading conditions demand intelligent and tough managers to pull through.
Muppet offspring frequently have excellent customer-handling skills but placing them at the helm of a fading business in a precarious sector is asking for disaster. The first and most important step in any business recovery is conquering management fear. Directors can be afraid to scrutinise management accounts, assess their customer base, address organisational issues, acknowledge corporate weaknesses or develop a rescue plan because it means admitting individual and collective failure.
Once this has been overcome, professional help can be employed to turn the business around before it becomes another insolvency statistic.
The retailing nosedive which started last year has affected everyone, from small British parts and component manufacturers to independent and multiple retailers and multi-national, multi-faceted automotive groups.
This has resulted in receiverships, liquidations and closures, widespread redundancies, hasty merger and acquisitions activity and an industry plagued by individual and corporate uncertainty.
While broad economic trends and consumer media crusades have adversely affected this volatile sector, insolvency and turnaround professionals believe that, in the case of small and medium-sized owner-managed businesses, poor management is a major factor in business failure.
Our work over the past two years with clients in the automotive sector has confirmed that most troubled businesses share similar problems, which are exacerbated by an unhealthy dose of management fear.
Most management teams are not what they are supposed to be. Instead, they are an unhappy assembly of people with skill sets which are neither complementary nor structured to help a failing business to recover and prosper.
A robust team is comprised of dynamic individuals with diverse specialisations which enhance and support the whole. In our experience, corporate activity becomes biased toward the function or operation undertaken by the most powerful team member (such as sales), while others are ignored.,p> When tough trading conditions threaten a company's survival, the management team's historic and strategic imbalance hinders it from tackling the real business issues and overcoming them.
Instead, they plough the same furrow and wonder why the problems deepen. A well-rounded management team strives for the corporate good and assesses all issues and opportunities in light of a mutually-prepared and agreed business strategy.
In our experience, most owner-managers suffer from the delusion that annually-increased turnover creates a strong business, yet they do not calculate the internal cost of delivery.
Increased turnover is meaningless if it robs a business of more than it provides. Short-term solutions to prolonged problems are sought by embattled managers in the automotive sector, yet the result is the same problems with more noughts on the end.
Quick-fix cost-savings implemented without regard to future needs are disastrous: no business, or division, functions in isolation - radical pruning in one area negatively affects others.
Business recovery professionals specialise in rescuing troubled companies through legal and informal procedures. In tandem with the clearing banks and other organisations they re-structure debt, streamline operations and do whatever is necessary to keep the business going while it trades out of trouble, is re-financed or is sold to or merged with another firm.
Many businesses can be rescued if professional help is sought early in the downward cycle.
While the automotive industry is witnessing continuous consolidation, it is also suffering from high levels of corporate insolvency. The way to save troubled businesses is through positive management action, not wheel-spinning.