Automotive & Mobility

Assessing the Risk and Developing a Contingency Plan for a Retail Network

Challenges

Many Chinese dealers of a German passenger-car manufacturer’s sales network facing financial difficulties up to bankruptcy due to the financial crisis and economic downturn in 2008

 

Need to understand the financial situation of the dealer network in China and to assess the potential impact on the business

 

Necessity to develop and apply a systematic approach that allows for swiftly collecting and analyzing all required data/information due to the sheer number of dealerships (ca. 1,000)

Problem-Solving Approach

Collecting the data and conducting a static risk analysis:

  • Systematically gathering financial data (balance sheet, P&L statement, cash-flow statement) regarding the recent years by sending out a standardized questionnaire to various organizations (dealerships, OEM/wholesale level, and third parties)
  • Validating the data regarding consistency and correctness with the aid of a CPA team
  • Assessing the financial strength based on selected key performance indicators and evaluating the strategic importance of the dealers
  • Displaying all dealerships in their respective positions in the static risk matrix

Running a dynamic risk analysis:

  • Developing alternate scenarios (base/best/worst case) based on different assumptions regarding the future macro- and microeconomic conditions
  • Simulating the liquidity needs for each dealership under all 3 scenarios over the next 18 months

Developing a contingency plan:

  • Categorizing all dealerships in order to prioritize them
  • Defining first countermeasures for the prioritized dealer categories
Results

Concept for assessing the financial risk developed and operationalized

 

Distribution of risks in the entire Chinese retail network ascertained—broken down into a portfolio analysis and the likely implications on the dealerships’ sales and revenue performance

 

Liquidity gaps and the financial resources determined that are required to safeguard the threatened dealers

 

First approaches and measures developed in order to mitigate the risk

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