Dealer Lab: Dealership blasts first-half performance vs. 2010

Publish Date: 
Aug 29, 2011
By Joe Delmont

Editor’s note: The Dealer LAB is a joint editorial project between Dealernews and PowerHouse Dealer Services, a consulting firm operated by Bill Shenk who is also owner of Destination Powersports in Punta Gorda, Fla. Financial information in this report is sourced from Destination Powersports’ Composite Report (prepared from the dealership’s monthly financial report) which is supplied to Dealernews by Shenk under an exclusive agreement. Shenk also provides Dealernews contributing editor Joe Delmont with exclusive access to select store and team meetings and other updates; Delmont uses this information as well as interviews with Shenk to develop the monthly Lab report in Dealernews and on Dealernews.com.

The financial information in this report is taken from the dealership’s Composite Report supplied by Shenk and prepared for the dealership’s participation in the PowerHouse Dealer 20 Group. The Composite Report is prepared from the store’s monthly financial report. In preparing these reports, Dealernews reviews the dealership’s unaudited P&L statement and balance sheet, as well as its Composite Report.

I don’t know about you, but if my retailing operation improved its first half performance by five times, especially in this economy, I would be pretty happy. That’s exactly what happened this year at Destination Powersports, our Dealer Lab in Punta Gorda, Fla. The dealership posted this strong improvement even though logged floor traffic was 35 percent lighter than the same six-month period last year.

Actually, traffic was better than the amount logged, and that’s a problem because the dealership does not track traffic properly. “We are not logging all opportunities,” says Bill Shenk, adding that one of the store’s managers was terminated partly due to this situation.

“Also, our Trader leads are down by 30 percent or so, but I feel that is more due to not having as much inventory on CycleTrader,” says Shenk.

First half net income was $151,953, up over $193,000 from the loss of $41,427 posted for the first six months of 2010. Total sales improved by $1.1 million, climbing to $2.8 million from $1.7 million posted last year. Unit sales revenue improved by nearly $1 million —to $2.1 million from $1.15 million last year. Unit sales were up 44 percent, improving to 261 units from 181 units in the first half of 2010.

June net income improved $11,854, or 481 percent, climbing to $14,316 from $2,462 last year, but unit sales were flat at 39. There was a shift from new sales to used vehicle sales during the month; the dealership sold 13 pre-owned bikes and nine new ones this June, compared to 16 new ones and three used in June 2010.

Gross profit on unit sales dropped to $32,856 from $37,708 in June 2010, even though flooring costs improved significantly. Flooring in June 2010 was $6,987, more then three times the flooring cost of $1,930 in June this year.

In the first half, flooring costs improved by nearly $40,000, from $58,086 in the first six months of 2010 to only $18,467 for the same period this year. The sales staff was smaller by one person — 5.5 persons last year, compared to 4.5 persons this June, which reduced Sales Payroll by about $2,000 ($5,378 versus $7,012 last year). Did this affect sales performance?

“We needed another person in sales,” Shenk acknowledges. “And we did not do as good a job as we could have with follow-up and prospecting. We did a poor job of making friends and logging them into our traffic [guest register] system,” he says. Shenk replaced a sales manager and one salesperson and then hired another.

SERVICE CONTINUES AT HIGH PACE
The Service Department continued to perform well ahead of last year’s operation. In June, Service’s net operating profit was $14,009, up from $5,876 in June 2010. Year-to-date, the Service profit was more than double that of the same period last year: $79,286 compared to $39,904. The profit per vehicle sold (PVS) in Service this year was $332, more than double the $150 average of the Top Gun dealers followed by PowerHouse Dealer Services.

In June, the dealership had 231 customer repair orders, an improvement over June 2010 when it did 195 ROs. The increased ROs were done with fewer employees than last year. In June 2010, Service ran with seven employees, including five technicians; this year, it had 5.5 employees and three technicians. However, total Service payroll increased this year, climbing to $22,536 from $14,121 last June. During the first half, Service payroll, then, was up $15,837, or 14.9 percent. Why? Because the Service Department is now fully on the PHD pay budget system of commission.

“In short, 55 percent of all service revenues (less some direct costs like policy expense and cost of shop supplies) go to the team,” Shenk explains. “The manager decides how to spend it, and what’s left after he pays his team goes to him. More with less is to his favor.”

Productivity in Service is much better this year. Of the 528 Service hours available to be sold in June, the dealership sold 481 hours (91 percent). The 47 lost hours accounted for $3,990 in lost revenue.

In June 2010 Service sold only 284 hours, which was 36 percent of the available 780 hours. This means 496 hours of production were lost, leaving $42,202 on the table.

The difference in lost revenue was even greater during the first six months of the year, when the Service Department sold only 60 percent of its available hours (1,934 of 3,204 total hours), leaving open 1,270 hours worth a whopping $107,966 in lost revenue. This year, it’s a different story. The dealership had only 2,832 hours available due to lower staffing, but it sold 2,651 (94 percent) of those available hours. This means it wasted only 181 hours worth $15,414. That’s a huge improvement: $107,966 lost last year versus $15,414 lost this year. (Top Gun dealers, by the way, averaged 93 percent productivity.)

The reasons? Good people, good systems, accountability, and matching job difficulty to technician skill level.

Better systems and fewer problems to fix provide room for opportunities. Shenk explains that you have more time for production; you create more per technician; your technicians make more money and then you can attract better technicians.

IMPROVEMENT BY FOURS
Shenk has tweaked, to some extent, most of the “P’s” in the PHD “Four P’s to Success” in the store’s Service department:

• PURPOSE. “We have gotten better at going after our preferred customer.”
• PEOPLE. “We have upgraded, once again, almost the complete service staff, from manager, service writers and techs.”
• PROCESSES. “We have gotten better with our processes or service flow from customer greeting to follow-up after the customer has left our Service department.”
• PERFORMANCE. “We continue to measure our service performance every day, then by the week, then by the month, and lastly, year-to-date versus previous YTD.”


This story originally appeared in the Dealernews September 2011 issue.