October 2014

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22 | www.cedmag.com | Construction Equipment Distribution | October 2014 Play It Safe Having the appropriate insurance coverage and insured limits is one of the most important decisions that any dealership can make to safeguard their operations and assets. The commercial insurance process can seem complex, but in its simplest form, dealers pay a premium to their insurance provider and in turn receive a promise that insured buildings, equipment, employees, and liabilities will be protected and the dealer or employee compensated in the event of a loss or injury. But in addition to insurance premiums paid to the provider, other expenses can burden the dealership, expenses that are not covered by any policy. How substan- tial are these hidden or indirect costs? Consider the following: A technician performing repairs on a front-end tractor loader in their service area was not able to finish the work by the end of the day. That night, while the business was closed, a fire started and soon engulfed the building. Local fire departments responded to combat the blaze and ultimately the fire was extinguished. Unfortunately, fire and smoke damage to the building structure, technician tools, dealer and customer equipment, was severe. The resulting investigation found the fire most likely originated from faulty electrical wiring inside the loader that was being serviced. The business recovery lasted almost a year and the insurance provider paid over $4 million in repair, replacement, and lost revenue expenses. In this loss, the resulting direct (or insured) costs are apparent: the building, its contents, and business interrup- tions were all covered under the dealership's commercial insurance policy. But let's review some potential indirect costs that can have an unexpected impact on immediate and long-term dealership profitability. Examples of Indirect Costs Suppose your dealership suffered a similar catastrophic event. What could be some of the primary indirect expenses you would have to absorb? Lost productivity would be experienced immediately. As your operations become less efficient or productive following a loss, your ability to deliver on sales, parts, and service needs to your customers is significantly reduced or eliminated in the short term. Even loyal customers will be forced to identify other sources for their business needs, leading to a decline in your customer base when opera- tions are finally restored. Prevention and risk management right now could mean the difference between recovery and ruin after a catastrophic loss. BY ERIC STILES The Hidden Costs of a Dealership Accident

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