Dealer Lab: April nears break-even point

Publish Date: 
Jul 1, 2010
By Joe Delmont

The following story appears in the Dealernews July 2010 issue.

Editor’s note: We’ve made a change in our reporting for fiscal 2010. We’ve switched stores. Shenk and a partner agreed to buy the Punta Gorda, Fla., store. The owners sold the Naples store to a separate buyer this year, so we’ll no longer report on that operation.

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 details the good, the bad and the ugly.

Performance continues to improve at the Punta Gorda store. In a declining market area, Bill Shenk’s dealership turned in an April performance that was $30,614 better than last year. The store posted a loss of $1,418 for the month, but that compares with an April 2009 loss of $32,032.

That last figure does not include a theft/parts shrinkage adjustment of $27,046. So last year’s April loss was closer to $60,000. “We know this continued after the adjustment,” Shenk says, “because I am the one who uncovered the fraud and bad practices.”

Parts and accessories hit payroll budget for April, but service and sales were still over budget, as were flooring costs. Inventory is getting better, but the average unit is still more than 300 days old. This results in too much flooring for the amount of sales generated. “That, alone, would have put us on the positive side,” Shenk notes.

Sales payroll was over budget by $7,051 by design, but making budget would also have put the store in the black for the month. “We are overstaffed to create opportunity for growth and provide excellent customer service,” Shenk says.

Service was at $1,083 per vehicle sold and over budget payroll by $2,511. “We did enough total labor sales,” Shenk says, “but we needed more smaller jobs that brought in more customers to create the same revenue. If we would have had more simple jobs, our cost per production hour would have been lower and our exposure to customers by the other departments would have been greater. This would have resulted in more business in sales, F&I, accessories, which also would have produced more total gross profit.” Advertising was low, but this is going to jump as the store spends more on developing a stronger Web presence.

Ownership Changes

One of the things that made Dealer Lab unique was that we were following the real-life developments at two stores owned by investors, collectively known as Florida Motorsports LLC. Major developments, as in your business, often are unplanned and can be fatal if not dealt with quickly.

The latest surprising turn took place in February when the stores’ investor owners suddenly decided to cash out of the operation due to combined cash flow considerations at the stores and their other holdings. So on Feb. 14, 2010, we were looking at the possible immediate closing of one or both of the stores in Naples and Punta Gorda.

Shenk, the general manager of the two stores since July 2009, who was purchasing a position in the stores with his sweat equity, didn’t have sufficient cash to buy either.

Shenk began making calls, attempting to put together an investment group to purchase one or both of the stores. Each store was organized as a separate corporation, so it was possible to bid on each one independently.

With a cash commitment in hand, Shenk and an investor partner made an offer on the Punta Gorda store, which was accepted, and the purchase was closed in May. Shenk and his partner purchased the Punta Gorda operation, but they didn’t bid on the larger Naples store. Details of the purchase offer and identity of Shenk’s investment partner were not disclosed.

Why buy the smaller Punta Gorda operation rather than the more glitzy Naples store? Two reasons, says Shenk: “First, it was/is the toughest turnaround opportunity I have ever seen, and if I am going to show the power­sports world that we have the ability to do this sort of thing, why not do it in the toughest environment possible?

“Second, the costs to acquire were lower in Punta Gorda,” Shenk says, “and we thought it had more good short-term upside, especially if we could clean out a lot of the old inventory.”

Inventory of units alone at Punta Gorda amounted to nearly $2.6 million on Dec. 31, 2009, and the monthly flooring costs on the stuff were about $15,000. Flooring costs in 2009 were nearly $100,000, more than one-third of the $333,200 the store lost last year. It had total sales of $3.4 million and a gross profit of more than $660,000.

A key point in the negotiations was that the sellers, who still owned the Naples store at the time, would acquire a portion of the noncurrent inventory from Punta Gorda and move it to Naples.

Today, Punta Gorda operates out of two beat-up buildings off of Highway 41. In fact, the larger structure was condemned in 2004 after it was ripped up by Hurricane Charlie. The Punta Gorda store is only 10,000 sq. ft. and has seven employees. It carries Yamaha, Kawasaki, Suzuki, Sea-Doo and Can-Am. The store was purchased by the previous owners in 2005, two years after they purchased the flagship Naples location.

The good news at Punta Gorda is that there are several well-located former auto dealerships in the area that may be available at a good price to house Shenk’s operation. One, located on Highway. 41, the area’s main thoroughfare, has 27,000 sq. ft. of enclosed space for offices, service, parts and a show floor.

e-Commerce Continued

Shenk and his team continue to develop the store’s e-commerce capabilities on several fronts: They are using eBay and CycleTrader.com to sell units and PG&A, developing a new website, and looking at a dealer-to- dealer option to trade noncurrent items.

The team is struggling to implement an effective program on eBay, and we’ll have more to report about that next month. The effort was launched in May, following an on-site training session with eBay, but not too much progress was made, says Shenk, who is still working on the cost side of the equation. Meanwhile, he continues to have success selling on Cycletrader.com.

Shenk wants a new website with a new URL to reflect the new ownership and dealership name. He is now using multiple URLs, including destinationpowersports.net and powersportsdestination.com. Neither seems to be drawing much traffic. Following the purchase by Shenk, he retained 50 Below to develop a new website. But this hasn’t gone smoothly, and Shenk and 50 Below are still trying to get it on track. The Google Ad Words program and the SEO (Search Engine Optimization) effort initially has been too expensive for the amount of traffic it’s generated.