In originally writing this article, my intention was to discuss the decline of the auto industry and to share some thoughts on how contractors might take advantage of the conditions, but conditions are always changing.
What started this investigation is an article stating CarMax was selling vehicles for less this year compared to last year, and at the same time making more money. How do you do that? Charge less but make more. Don’t you wish you could do the same?
A little more exploring and you find that CarMax is paying less for the cars they are getting from the dealers, which means they can sell them for less money, yet still make a higher margin compared to the previous year. Makes sense. They are getting the cars for less money because dealers are still sitting on the lot they can’t get rid of because of the prices plastered to the windows. Dealers need to be ready for the new 2025 models and just cannot afford to keep the 2023 and 2024 models in their floorplan.
My final point was to explain that there may be exciting deals available if you really need a new truck or two for the business. As things are today, you may be able to get into a decent new or slightly used truck, still under warranty, for an amount lower than what you may have anticipated.
But even if you run out of warranty, there are many recent models a driver can get 200,000 to 300,000 miles out of as long as they make it a point to provide service and maintenance as indicated in the owner’s manual.
This topic took a turn when the January 2025 Southern California wildfires took place, causing great devastation and greatly changing conditions throughout the region.
These fires and their effects have the potential to cause issues not only throughout the state, but also the entire U.S. Changes that may take place in terms of materials, delivery dates, inflation, interest rates, insurance, lack of equipment, financing, and a lack of personnel, could affect your operation in both the short and long term. In other words, the road ahead will not only be winding, but may also lead to troublesome financial issues.
Right now, I predict that every one of these concerns may affect your year. Which means you need to plan out where your pain points will be — some of which are not visible now — and prepare a list of solutions to choose from to put you back on the right road going forward.
Once you have prepared your list of pain points, you must realize that every change in business operations — be they either a revenue or cost line item — will modify both your income, losses and cash flow. It’s important that these changes then find their way into your business planning going forward until have found and effective way to implement changes and see a visible improvement to your operating results and cash flow.
The point here is: If you just stay the course with your initial 2025 budget and do not plan for any threats, you will become cash poor, which will hamper your ability to run your business properly. Why let that happen? It is much easier to deal with problems if you have a handle on the pros and cons of making the changes that address the problems.
There is little doubt that the California wildfires will impact material costs and delivery due dates. This will cause inflation on this front. To protect yourself, consider contacting your primary vendors and stay in touch with them to have an idea about how these issues may affect their service levels to you. If it looks like higher prices are a given, consider making an appointment with your banker to discuss your terms for a working capital loan, along with the related interest rate. This threat alone may make you rethink the type of work you want to do this year.
Additionally, you may want to keep an eye out for a rise in insurance rates. Looking at this concern, you might consider reviewing your policies to see what you may be able to do to reduce premiums. One sure way is to get rid of assets you are not using but are still paying insurance on. Review every area of coverage and know exactly how the premiums are set for that type of coverage. You may be amazed how much you can save.
Contractors should also note there may be a lack of equipment if most used units wind up in the west. Check in with your rental companies to ensure they have what you need and that it will be there when you call. If you must arrange with the rental company to ensure they will meet your needs, it may be worth it.
Finally, a loss of personnel could be on the table if you cannot keep them working. Take steps to show your appreciation for their efforts and pay out bonuses or profit-sharing dollars if they agree to stick around for the entire season. This may not be as great a threat for union shops, but it is certainly a risk for non-union shops. In either case, this is the year to share the wealth and find ways to improve efficiency and productivity.
So, get out your planning tools, finish your 2024 results as soon as possible to help you understand where to start for 2025. Make a quarterly estimate of what you intend to do and calculate the cash flow for each quarter. Meet with company leadership to get their input on potential threats, and where and when they might show up. Then work together to plan your defense and prepare for the impact on cash flow.
Follow this plan and you should make it to the end of year with some dollars in the bank.
