Changes Come to Dealer Lab

Publish Date: 
Apr 1, 2010
By Joe Delmont

Editor’s note: We’re making a change in our reporting for fiscal 2010. We’re switching stores. Shenk and a partner agreed to purchase the Punta Gorda, Fla., store. The owners sold the Naples store to a separate buyer this year, so we’ll no longer report on the Naples operations. We don’t have year-over-year comparisons yet because we’re still in the process of converting the former accounting systems and processes to the one now being used. We expect this process completed for the report next month. We’ve also delayed our reports so we can include Top Gun dealer numbers. We’ll post our reports on the Web on Dealer Lab Shop Talk (www.dealernews.com/shoptalk) as soon as they are available. The February results are available now on Dealer Lab. Dealer Lab is a joint effort between Dealernews and PowerHouse Dealer Services, a consulting firm run by former dealer Bill Shenk, detailing his efforts to return Florida Motorsports to profitability. When he took over management in July 2009, the two-store (Naples and Punta Gorda) network wasn’t in good shape — it lost about $1 million in 2008. Our report covers the good, the bad and the ugly.

January sales jumped sharply at the Punta Gorda store over the numbers posted in December, and the bottom line improved accordingly. The store didn’t make a profit for January, but it reduced the net loss from $42,854 in December to $8,857 in January. Total sales jumped by 83 percent, climbing from $152,175 in December to $278,063 in January.

Service revenues also posted a substantial increase, month-over-month, climbing 136 percent from $18,457 to $43,607. Revenue from parts, F&I and accessories departments all climbed, as well.

“Parts and service both have really gotten closer to the performance we know is possible,” Shenk reports. “But the sales department was the weak link in January, coupled with too much inventory. That’s what created our $8,857 loss for the month.

“Payroll costs were out of budget compared to annualized data, but when looking at January as a month, sales was the spot where we paid way too much and got too little performance,” Shenk continues. “This was the second month of low sales performance and high sales payroll, so changes will be made. Is not the definition of insanity to ride the same trail and expect a different destination? A decision has been made to change direction with sales leadership.”

INVENTORY REDUCTION

Unfortunately, the store is low on current inventory and high on noncurrent machines. More than half of its inventory is nearly two years old.

The situation was much worse when Shenk took over as GM in July. Then, he had more than $3.3 million worth of units and PG&A in inventory, most of it two years old and older. He’s been able to cut the noncurrent inventory in a number of ways. Here’s what he did since July:

• USED eBay and trader sites to find the bargain hunters who were willing to drive to save a few dollars.
• INCREASED the commission paid to more than double the amount for selling a 2006 unit, compared to selling a 2009 or 2010 unit.
• RESEARCHED continually which noncurrent units he needed to get rid of were listed locally and at what price. If there were none that week or if he could offer the lowest price, Shenk would list those models.

“The situation changes every week as to what is listed and at what price point. Sometimes it is a waiting game with certain units,” Shenk says. “You just gotta be informed about the current marketplace and ready when the opportunity presents itself.”

Shenk’s analysis of his store’s current inventory situation: “Now, if we only have 200 current 2009 and 2010 units and expect sales of 600, on paper that would be three turns and a four-month supply. Doesn’t that sound great?”

“Wrong, wrong, wrong,” Shenk says. “With three lines of motorcycles, four lines of ATVs, two lines of side-by-sides, three lines of PWCs and one line of jet boats, 200 units is simply not enough to give a good representation of product to our customers. That averages only 15 units in stock of 2009/2010 models per OEM, per product type.

“You have to have enough inventory to represent the lines and lifestyles you sell to. Sportbike riders don’t care if you have too many cruisers; dirtbike riders don’t care how many sportbikes you have, and sport ATV riders don’t care how many UTVs you have.

“So, you have to put on each lifestyle hat and ask yourself, ‘If this was the only lifestyle hat I wore, would I want to hang out at this dealership?’”

Here is what Shenk is facing: At the minimum stocking level outlined above, can he sell enough units to get the turn and at enough GP to get enough return on investment to be profitable?

To be successful, he has to buy, display, and sell appropriately. We’ll see if he can do that this year.

2010 OUTLOOK

After looking at the marketplace in 2009, Shenk believes that through maximizing every opportunity, he can increase sales through better penetration in his market area to 600 retailed new units. “With the 420 units on hand,” he says, “that pencils out as a 1.4 turn or eight months’ supply. That’s not the six months or two turns we need to be profitable, but it’s acceptable and should put a well-run operation in the black.”

This story originally appeared in the Dealernews April 2010 issue.