Be Bullish In A Bear Cycle Market

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What can you do to maintain — or even increase — earnings at your dealership as the overall market for motorcycles and ATVs continues to soften? To find out, we talked with OEMs, successful dealers and consultants who work with dealers to improve their operations.

Start by taking a 30,000-foot view of your marketplace; then re-evaluate everything you do at your dealership, beginning with the ways you deal with customers and prospects. Then begin making improvements immediately.

Consider this time as an opportunity to review and update everything you're doing at your dealership.

You've been in business for some time, so you know the rule: The quickest way to increase your bottom line is to cut costs; figuring out how to build revenue, especially in a soft market, takes longer.

But don't shoot from the hip: Cutting staff and reducing costs across the board might help you this month, but eventually they could hurt you as customers turn away from an unattractive operation that provides reduced services.

A realistic appraisal of your situation, combined with a solid application of effective tools that already exist, can help you deal with today's market and position you to make increased earnings when the market turns upward.

Look Outward

When was the last time you really looked at your marketplace? Yes, you've lived and worked there for years, and you know what's going on, but we'll bet that if you take a serious look, you'll see some changes that could affect your business.

Competition. How has this changed over the past five years and what have you done to meet it? How many new dealers have opened within convenient driving distance of your store? Remember that consumers are more willing to drive long distances to get a "good deal" than they were a few years ago. They're exposed to more messages from more competitors through more media than ever before. How does the Internet affect you today?

Think about your competition as anything that could cause your customer or prospect to choose not to do business with you — anything that gives them another reason to spend their disposable income elsewhere. That means big-box retailers, auto stores, independent guys selling Chinese machines in their front yards, the Internet, etc.

Competitors aren't limited to operations selling machines. They also are anyone who is selling those high-margin parts, accessories and apparel that beef up your bottom line. Have you taken a walk through your local airport or shopping center lately? What do you think of the retailers selling riding apparel and the auto parts stores selling motorcycle and ATV parts? Or the sporting goods stores such as Gander Mountain, Bass Pro and Cabela's that sell ATV accessories to hunters?

Demographics. How has your neighborhood changed? Are your customers moving away, heading to newer housing developments that bring them closer to a competitor? Are new businesses moving in that complement or compete with you? If there are new residents, are they prospects?

Has the transportation system changed? Is the traffic flow in front of your store greater or less than it was five years ago? Are the people who pass your store prospects?

Organizations. Has the employment picture changed over the past five years? Probably. Is it better for you or worse? How has the war affected your marketplace? Are there military installations in the area, or are there military suppliers? Individuals in returning military units could have extra disposable income.

The political picture. There's a national election coming up. How have previous elections affected your business, and what are you doing to use that experience during this election period?

How do you deal with these new realities? Should you develop satellite operations or an Internet business? Take on other lines? Add more services aimed at different customers? There's plenty of potential to generate new revenue for your store in these types of ventures, especially if there have been major shifts in population within your marketplace. Check with your factory reps to see how you can take advantage of any of these shifts.

Look Inward

Sometimes the bottom line doesn't tell the whole story. Yes, the money you take to the bank today is important, but there may be things happening within your operation that could strongly impact the size of those deposits in coming months. Here are some things to look at:

Traffic count. Do you really know how many customers and prospects are coming into your store? Evidence suggests that many dealers don't know the volume or the demographics of their floor traffic. That might not be a problem when you can't get enough units to satisfy demand, but in a soft market it's vital information.

That means creating a traffic log that works. Capture information from all prospects. Most important, capture their cell phone number and call them back during the next business day to find out why they did not purchase from you. Look for two things: hot prospects and prospects who were unhappy with the reception they received at your store. This could lead to unexpected additional sales and opportunities to fix problems/weaknesses in your operation.

An employee should be dedicated to making these calls, recording the results and preparing a report. Have him or her do it every day and make sure he or she is trained to collect this information.

If you don't have an available employee to take on this job, hire an outside firm. Several good ones can help you with customer satisfaction research as well as prospect contacts. One is Victory Solutions, based in Ocala, Fla. (See "Should You Hire a Follow-Up Service" below.) Even though Victory Solutions charges a monthly fee, it often produces additional sales from prospects, says Victory's Jose Juarez.

Counting traffic also means adding an electronic door swing counter. Local electronics retailers such as Radio Shack sell units for a few hundred dollars. Place one of these units on each door that provides customer access. If prospects can reach your sales floor by entering through your parts department, you want to count them, too.

These electronic swing counters often measure your business's financial temperature better than sales do, says Sam Dantzler, president of Retail Powersports Management (RPM) Group, the industry's largest dealer training group.

"If we see that unit sales are down, but that swings are up, this indicates that people are coming in, but the dealer is doing less with them," Dantzler says. "This is a first major indicator of a potential problem." That could mean that sales training is called for from an organization like Dantzler's or a similar group. (See "Training Sources" .)

Also consider increasing traffic with cost-effective promotions. Retail advertising is expensive, but promotions tied to accessories and services can be very effective, notes Bill Shenk, president of PowerHouse Dealer Services, a training and consulting service.

"It's tough to get a rider to switch dealerships if you wait until he buys a new bike," Shenk says. "It's easier to get him to switch for accessories and services. Then when he wants a new bike, you've already got him as a customer. We've seen guys grow in a down market by getting serious about pushing accessories and service."

One goal that Shenk recommends is increasing parts, accessories and service revenues to cover 100 percent of fixed costs. In that case, he says, "if your showroom basically stopped, you wouldn't lose money."

Work with your OEMs to take advantage of every promotion and training device they offer. Remember, they want you to be profitable, and often they will increase their assistance in a soft market.

Yamaha is one OEM that is moving aggressively to help dealers. At its September dealer meeting, the company introduced its Pro Yamaha program, an initiative to help dealers increase their profitability by increasing customer satisfaction. (See "Motivating the Troops" in this issue.) Check with all your OEMs for similar programs and promotions.

Analyze trends in your business such as changes in service and P&A sales. Increases in these two trends in particular can indicate that your customers are holding on to their bikes longer and will defer purchases.

Look for change in your margins. A decline here can indicate a softness in earnings that you may not have seen coming.

Study key ratios such as order writing divided by closes, flooring costs divided by inventory, parts revenue divided by units sold, and service revenue divided by units sold. Compare these with previous months going back to last year and find out why they've changed.

If you need help with ratio analysis, call in a consultant who can spot the ones having the greatest impact on your business.

Often these ratios function as so-called leading indicators; they indicate changes that are likely to come in your bottom line. Once you know what these ratios are telling you, it's easier for you to make improvements.

For example, says RPM's Sam Dantzler, look at flooring dollars compared to sales revenues. "The country is running at about 1.5 percent," he says, "but some guys are paying 3 percent. Some guys paid over $100,000 in flooring costs through the first half of the year."

Asks Dantzler: "Can you really afford to say no to a deal when inventory and flooring costs are stacking up? Some guys don't realize the relationship between sales and flooring costs."

Flooring costs increase because interest rates charged by OEMs climb and because broader OEM product lineups require dealers to carry a wider array of products.

Reduce costs, but don't cut important customer services. You want to increase customer satisfaction in a down market, not decrease it.

If staff cuts mean that customers wait longer for service on the sales floor or at the parts counter, those cuts could be counterproductive. And if you reduce maintenance costs to the point that customers find your dealership unattractive — a sloppy exterior, or unclean bathrooms, or dirty sales floors, or poorly polished bikes — you've done yourself a real disservice.

Create a daily operating control sheet. This should contain daily information such as costs, traffic counts, new units sold, used units sold, F&I revenue, revenue in each department, and special items such as events, promotions, advertising and even weather conditions.

A control sheet like this enables you to forecast tomorrow's costs by looking at the same day last year. Each manager should create his own operating control sheet.

If you don't have a report like this, start one today. But don't unbox old records and try to recreate the past, says Clark Vitulli, who developed this type of reporting system when he launched the America's PowerSports dealership group.

Consider joining a 20 group where you can discuss problems and opportunities with your peers. This step can cost you some dollars, but it can pay big dividends by helping you better analyze your business; by exposing you to best business practices of other, noncompeting dealerships; and by showing you training opportunities for your employees that can increase your dealership's efficiency.

As part of this step, look seriously at creating a training program for your key employees. This can be done through 20 group operators, through your OEM or through independent providers.

There's much more, of course, but it's important to realize that a soft market will weed out weak dealers and provide opportunities for the stronger, more aggressive ones to do even better when the market turns again.

Which will you be?