Is your dealership ready for the next big disaster?

When Hurricane Sandy hit the East Coast on Oct. 29, a tide of auto dealerships in New Jersey, New York, Connecticut and elsewhere shut their doors temporarily — some for days, some for weeks. In mid-November, Toyota announced that 15,000 new vehicles were damaged during Sandy at its East Coast franchises. Other manufacturers soon followed suite with their grim damage estimates.

The National Automobile Dealers Association (NADA) is waiting for insurance claims to settle before it estimates total dealership damage caused by the storm. But the dollar loss for damaged product, ruined property and business downtime will likely be in the millions. These huge losses, and the picking-up-the-pieces scenarios that followed Sandy, should motivate all dealers to evaluate the plans they have in place to deal with a disaster.

Under the planning umbrella

Disaster planning is a large umbrella — here are some of the actions required to prepare for a catastrophe:

Form a disaster planning team. If your dealership doesn’t already have a disaster planning team that represents all areas of your operation, it’s time to assemble one. This group will create, review, assess and modify your disaster plan. An executive should be appointed to lead the group — remember, the stakes are high.

Image the worst. As the team sets out to draft a disaster plan, it should identify the types of disasters your dealership might face, such as fire, flood, hurricane or earthquake. What kind of damage could be caused by these catastrophes? Destruction of your store’s computers that link you to customers and your manufacturer? Building damage and power outages that would prevent auto buyers from entering your showroom? Also take into account the inventory you could lose, including new and used vehicles and parts and equipment.

Aim for continuity. The longer your store stays closed after a disaster, the more money your dealership will likely lose. Business as usual will be put on hold and new opportunities may be missed. For example, vehicle owners who lost their cars and trucks during Sandy would have been unable to replace them through your dealership if it stayed closed after the storm.

Prioritize data recovery. Again, image the worst possibilities. If certain types of data were lost — for example, customer sales, service and billing information — how would your operation be affected? What kind of data security breaches could occur? Your plan should cover both pre- and post-disaster requirements, including:

  • Backing up your data regularly on disk or other electronic media, and
  • Acquiring, or having available, a “cold site” — a location where you can store hardware and software to run the latest backups of your system.

You also might want to investigate “cloud computing”: You buy your software and data storage from outside providers, who, in turn, deliver and maintain your software and data through the Internet. In theory, a disaster would be of little or no consequence as far as your dealership’s data is concerned.

Study your insurance policy. Your disaster planning team should know your general casualty insurance policy inside and out. Does the policy cover one or all of your stores? What’s the deductible amount for claims? What’s the maximum dollar amount that will be reimbursed? You’ll need to determine whether you have enough coverage to replace lost assets and, if necessary, restore or rebuild your dealership.

The disaster planning team also should look into business interruption insurance. Typically, these plans help cover employee payroll, rent and utilities, and lost profits.

A living document

Your disaster plan should be a living document that is reviewed at least annually and updated as needed. It’s a good idea to get feedback on the plan from your outside advisors to make sure it’s as comprehensive as it should be.

Keeping in contact

Communicating with employees is the cornerstone of any disaster plan. Your plan should outline specific contact procedures that employees will follow if a disaster strikes. For example, make sure that you have current e-mail addresses and phone numbers (including cell numbers) for all of your employees. Accounting for their employees was the first job that many companies performed after Hurricane Sandy.

Your e-mail system will also become a crucial tool for communicating with customers and vendors in a disaster. Be prompt in e-mailing information to them about how your dealership is operating during the recovery period.