Parrino, Fundamentals of Corporate Finance, 2/e The Time Value of Money Boch Automotive Ernie Boch, Jr.: My name is Ernie Boch, Jr. Im third generation, my grandfather started this company in the mid 40s, my father took over in the late 50s, and I took over in the early 2000s. We retail automobiles; we have two Toyota stores, two Honda stores, Ferrari/Maserati, a used car center, and a body shop. I also distribute Subarus throughout New England. We have north or south of $100 million in the lot at one time. New cars, until you get to the end of the model year, pretty much hold their value all year. But with used cars I learned this from my father used cars he considered used cars like a fruit stand. You have to turn over the inventory or the depreciation will kill you. Its like fruit, you have toyou have to sell it while its fresh. We have a custom program for the retail stores that we developed thats part of our proprietary software, which will punch up the oldest vehicle in stock. So if you want a Corolla, the chances of you buying the Corolla that was just delivered yesterday is pretty rare, unless that car is rare, and its the only one thats on the lot, and of course, youd get it. But we keep the inventory moving very very well, so the cars are fresh, theres no damage, everythings beautiful. Were not really chasing too much money thats out there. The factory will help the dealer finance the vehicle. We pay within 30, sometimes 15. They turn the vehicle, they dont pay. Mark Doran: Well weveour inventory at this store has been as high as over $50 million. My name is Mark Doran, Im the general manager at Boch Honda. Ive been with the Boch organization about 12 years. And I often use the time value of money in my remarks to the managers the sales managers on the desk. We have to move these vehicles, and theyre not appreciating as theyre sitting in the back. Boch: I think the business is a success. I mean, it makes money, werewe lead the nation in sales, we lead the nation in innovation. Theres many many things we do that other dealers dont do. Doran: The owner of the company used to pay cash for the vehicles; there was no floor plan. Floor planning is that we finance through a bank that we have a relationship with. Its cost effective for the dealership and for the owner of the company for us to have that relationship with the bank. Boch: Well, we dont have any mortgages, so were not paying the bank for the land and the building, and the strict cost control and the sheer volume that we do allows us to sell for less. Commercial: Nobody smashes sticker prices on new 1966 Dodges Doran: On pre-owned cars, wethe rule of thumb is 60 days, and if we havent sold the car in 60 days, we send it to the auction. On new cars, well have some cars in inventory, but wed like to move them within 90 days. Commercial: The second-largest Toyota dealer on the planet. Boch: My two Toyota stores sell as many cars as five or six or seven Toyota stores combined. Doran: There are many options to the customers on financing. Boch: You can pay cash for the vehicle out of your savings or wherever, you could finance it yourself with your credit union, your bank, or you could finance through us. And we are a pass-through, you arent financing with Boch Automotive, youre financing with Toyota Motor Credit, or one of the many banks that we use. Doran: It makes the whole process a lot easier, if we can accommodate them and finance the vehicle here, they can often take the delivery of the vehicle the same day.

First, spend a couple of sentences summarizing the Concepts in Action video you watched this week. Then, answer the following. What do you think the speaker in the Concepts in Action video you watched this week meant when he mentioned that he talked about the time value of money with his managers? Can you think of an example in your own work history or something you've read about where the time value of money might be relevant?